ABM Industries Incorporated
ABM INDUSTRIES INC /DE/ (Form: 10-K, Received: 12/22/2017 11:27:15)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              
Commission File Number: 1-8929  
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ABM INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
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94-1369354
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
__________________________
One Liberty Plaza, 7 th Floor
New York, New York 10006
(Address of principal executive offices)

(212) 297-0200
(Registrant’s telephone number, including area code)
__________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
New York Stock Exchange
__________________________
Securities registered pursuant to Section 12(g) of the Act: None





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   þ     No   o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   o     No   þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ     No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ     No   o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form  10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated
filer
o
Non-accelerated filer
o
Smaller reporting 
company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   o     No   þ

Aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant’s common stock on April 30, 2017 as reported on the New York Stock Exchange on that date: $2,389,186,450

Number of shares of the registrant’s common stock outstanding as of December 8, 2017 : 65,514,281
_______________________________________________ 
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s Definitive Proxy Statement relating to the registrant’s 2018 Annual Meeting of Shareholders, to be held on March 7, 2018 , are incorporated by reference into Part III of this Annual Report on Form 10-K.
 




ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
PART I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
SIGNATURES



FORWARD-LOOKING STATEMENTS
This Form 10-K for ABM Industries Incorporated and its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”) contains both historical and forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “should,” “target,” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Factors that might cause such differences include, but are not limited to, those discussed in Part 1 of this Form 10-K under Item 1A., “Risk Factors,” which are incorporated herein by reference, and we urge readers to consider these risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.



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PART I
ITEM 1. BUSINESS.
General
ABM Industries Incorporated, which operates through its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”), is a leading provider of integrated facility solutions with a mission to make a difference, every person, every day . Our history dates back to 1909, when American Building Maintenance Company began as a window washing company in San Francisco with one employee. In 1985, we were incorporated in Delaware under the name American Building Maintenance Industries, Inc., as the successor to the business originally founded in 1909. In 1994, we changed our name to ABM Industries Incorporated. Over the past ten years, we have grown into a multi-segment facility solutions company, particularly through new service offerings and strategic acquisitions:
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The acquisition of OneSource in 2007 bolstered ABM as a leader in the janitorial market, while the Linc Group acquisition in 2010 established ABM as a “facility solutions” company with new service offerings, including lighting, mechanical, and electrical “technical solutions.” With demand increasing for industry-specific service providers, in 2012 we purchased Air Serv and established our first industry group, “aviation,” which was previously included in “other.” In recent years, we have strategically acquired companies in the U.K., particularly with the GBM and Westway acquisitions, which expanded overseas both our janitorial and technical solutions businesses. In 2017, we completed the acquisition of GCA Services, a provider of integrated facility services to educational institutions and commercial facilities for $1.3 billion, the largest acquisition in ABM history. As a result of this acquisition, we are now a leading facility solutions provider in the education market. In recent years, we also evaluated all of our service offerings and sold our Security and Government Services businesses as they did not align with ABM’s long-term industry-group focus.
As a result of these strategic acquisitions, we have strengthened our ability to offer janitorial, facilities engineering, parking, and specialized mechanical and electrical technical solutions, on a standalone basis or in combination, and positioned ourselves as a leading integrated facilities management company. Unless otherwise indicated, all references to years are to our fiscal year, which ends on October 31.
2020 Vision
In September 2015, we announced a comprehensive transformation initiative (“ 2020 Vision ”) intended to drive long-term profitable growth through an industry-based go-to-market approach. Our 2020 Vision involves three phases: During Phase 1, which we completed on November 1, 2016, we realigned our organization; in Phase 2, which is continuing today, we are focused on improvements to our operational framework to promote efficiencies and process enhancements; and in Phase 3, on the foundation of benefits realized from Phases 1 and 2, we anticipate accelerating growth with our industry-based, go-to-market service model. For additional information on our 2020 Vision , see Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Contract Types
We generate revenues under several types of contracts, as explained below. Generally, the type of contract is determined by the nature of the services. Although many of our service agreements are cancelable on short notice, we have historically had a high client retention rate and expect to continue maintaining long-term relationships with our clients.
Contract Type
Description
Monthly Fixed-Price
These arrangements are contracts in which the client agrees to pay a fixed fee every month over a specified contract term. A variation of a fixed-price arrangement is a square-foot arrangement, under which monthly billings are based on the actual square footage serviced. Janitorial contracts are commonly structured as fixed-price arrangements.
Cost-Plus
These arrangements are contracts in which the clients reimburse us for the agreed-upon amount of wages and benefits, payroll taxes, insurance charges, and other expenses associated with the contracted work, plus a profit margin. Facilities engineering, janitorial, and catering services are commonly structured as cost-plus arrangements.
Tag Services
Tag work generally consists of supplemental services requested by clients outside of the standard service specification. This contract type is commonly used in janitorial services and includes cleanup after tenant moves, construction cleanup, flood cleanup, and snow removal.
Transaction-Price
These are agreements in which the clients are billed for each transaction performed on a monthly basis (e.g., wheelchair passengers served or aircrafts cleaned).
Hourly
These arrangements are contracts in which the client is billed a set hourly rate for each labor hour provided. Certain Aviation contracts are structured as hourly arrangements.
Management Reimbursement
Under these parking arrangements, we manage a parking facility for a management fee and pass through the revenue and expenses associated with the facility to the owner.
Leased Location
Under these parking arrangements, we generally pay to the property owner a fixed amount of rent, plus a percentage of revenues derived from monthly and transient parkers. We retain all revenues and we are responsible for most operating expenses incurred.
Allowance
Under these parking arrangements, we are paid a fixed or hourly fee to provide parking services, and we are responsible for certain operating expenses, as specified in the contract.
Energy Savings Contracts and Fixed-Price Repair and Refurbishment
Under these arrangements, we agree to develop, design, engineer, and construct a project and guarantee that the project will satisfy agreed-upon performance standards.
Franchise
We franchise certain engineering services through individual and area franchises under the Linc Service and TEGG brands, which are part of ABM Technical Solutions.
Segment and Geographic Financial Information
For management and financial reporting purposes, our businesses are currently separated into five reportable segments: Business & Industry (“B&I”), Aviation, Emerging Industries Group, Technical Solutions, and the newly acquired GCA Services. Among other changes, once we integrate GCA into our industry group model in 2018, we anticipate our Education industry group will become a reportable segment. We also expect to present a new Technology & Manufacturing reportable segment, that will combine our High Tech industry group and the legacy GCA and ABM Industrial & Manufacturing (“I&M”) businesses. ABM’s legacy I&M business was included in the B&I segment. Our principal operations are in the United States, and in 2017 our U.S. operations generated approximately 94% of our revenues. For segment and geographical financial information, see Note 18 , “Segment and Geographic Information,” in the Notes to Consolidated Financial Statements.

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ONGOING REPORTABLE SEGMENTS AND DESCRIPTIONS
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B&I, our largest reportable segment, encompasses janitorial, facilities engineering, and parking services for commercial real estate properties, sports and entertainment venues, and industrial and manufacturing sites. We typically provide these services pursuant to monthly fixed-price and cost-plus arrangements that are obtained through a competitive bid process.
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Aviation supports airlines and airports with services ranging from parking and janitorial to passenger assistance, catering, air cabin maintenance, and transportation. We typically provide services to clients in this segment under master services agreements. These agreements are typically re-bid upon renewal and are generally structured as fixed-price arrangements, parking reimbursement contracts, transaction-price arrangements, and hourly arrangements. Two clients accounted for approximately 35% of revenues for this segment in 2017.
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Our Emerging Industries Group is comprised of our Education, Healthcare, and High Tech industry groups. Services include janitorial, facilities engineering, and parking services for clients in these industries. The Emerging Industries Group typically provides these services pursuant to monthly fixed-price and cost-plus arrangements that are obtained through a competitive bid process.
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Technical Solutions provides specialized mechanical and electrical services. These services can also be leveraged for cross-selling within B&I, Aviation, and the Emerging Industries Group, both domestically and internationally. Contracts for this segment are structured as cost-plus arrangements, fixed-price arrangements, energy savings contracts, and franchise arrangements.
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GCA Services is a provider of integrated facility services to educational institutions and commercial facilities. It typically provides these services pursuant to monthly fixed-price and cost-plus arrangements that are obtained through a competitive bid process.
Service Marks, Trademarks, and Trade Names
We hold various service marks, trademarks, and trade names, such as “ABM,” “ABM Building Value,” “ABM Greencare,” “MPower,” “Linc Service,” and “TEGG,” which we deem important to our marketing activities, our business, and, with respect to certain of these, the franchising activities conducted by our Technical Solutions segment.
Dependence on Significant Client
No client accounted for more than 10% of our consolidated revenues during 2017 , 2016 , or 2015 .


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Competition
We believe that each aspect of our business is highly competitive and that such competition is based primarily on price, quality of service, and ability to anticipate and respond to industry changes. A majority of our revenue is derived from projects requiring competitive bids; however, an invitation to bid is often conditioned upon prior experience, industry expertise, and financial strength. The low cost of entry in the facility services business results in a very competitive market. We mainly compete with regional and local owner-operated companies that may have more acute vision into local markets and significantly lower labor and overhead costs, providing them with competitive advantages in those regards. We also compete indirectly with companies that can perform for themselves one or more of the services we provide.
Sales and Marketing
Our sales and marketing activities include digital engagement and direct interactions with prospective and existing clients, pricing, proposal management, and customer relationship management by dedicated business development teams, operations personnel, and management. These activities are executed by branch and regional sales, marketing, and operations teams assigned to our industry groups and are supported by centralized sales support teams, inside sales teams, corporate marketing personnel, and our Center of Excellence teams. These sales and marketing teams perform lead acquisition, lead nurturing, and lead management as well as training in sales tools and proposal systems, all governed by standard operating procedures.
Regulatory Environment and Environmental Compliance
Our operations are subject to various federal, state, and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, such as discharge into soil, water, and air, and the generation, handling, storage, transportation, and disposal of waste and hazardous substances. From time to time we are involved in environmental matters at certain of our locations or in connection with our operations. Historically, the cost of complying with environmental laws or resolving environmental issues relating to locations or operations in the United States or abroad has not had a material adverse effect on our financial position, results of operations, or cash flows.
Employees
As of October 31, 2017 , we employed approximately 140,000 employees, of which approximately 44,000 , or 32% , were subject to various local collective bargaining agreements.
Available Information
We are required to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other information with the Securities and Exchange Commission (“SEC”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also available free of charge on our Internet site at www.abm.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. We provide references to our website for your convenience, but our website does not constitute, and should not be viewed as, a part of this Annual Report, and our website is not incorporated into this or any of our other filings with the SEC.

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Executive Officers of Registrant
Executive Officers on December 22, 2017
Name
 
Age
 
Principal Occupations and Business Experience
Scott Salmirs
 
55
 
President and Chief Executive Officer of ABM since March 2015; Executive Vice President of ABM from September 2014 to March 2015, with global responsibility for ABM’s Aviation division and all international activities; Executive Vice President of ABM’s Onsite Services division focused on the Northeast from 2003 to September 2014; Member of the Board of Directors of ABM since January 2015.
D. Anthony Scaglione
 
45
 
Executive Vice President and Chief Financial Officer of ABM since April 2015; Senior Vice President, Treasurer, and Head of Mergers and Acquisitions of ABM from January 2012 to April 2015; Vice President and Treasurer of ABM from June 2009 to January 2012; Chairman of the Board of the Association for Financial Professionals (AFP), the professional society that represents finance executives across the globe, from November 2014 to October 2016.
Scott Giacobbe
 
55
 
Chief Operating Officer of ABM since November 2017; President of ABM’s U.S. Technical Solutions from November 2010 to November 2017.
Andrea R. Newborn
 
54
 
Executive Vice President, General Counsel, and Corporate Secretary of ABM since July 2017; Executive Vice President and General Counsel for TravelClick, Inc. from July 2014 to June 2017; Senior Vice President, General Counsel, and Secretary of The Reader’s Digest Association, Inc. from March 2007 to February 2014.
Dean A. Chin
 
49
 
Senior Vice President, Chief Accounting Officer, and Corporate Controller of ABM since June 2010; Vice President and Assistant Controller of ABM from June 2008 to June 2010.
David R. Goodes
 
45
 
Senior Vice President and Chief Human Resources Officer of ABM since January 2016; Executive Vice President, Human Resources of Hess Retail Corporation during 2014; Vice President, Human Resources, Marketing & Refining of Hess Corporation from March 2011 to December 2013; Director, Human Resources of Hess Corporation from October 2005 to March 2011.
Rene Jacobsen
 
56
 
President of ABM’s Business & Industry Group since February 2016; Executive Vice President of ABM’s West Region from April 2012 to February 2016; Executive Vice President and Chief Operating Officer of Temco Service Industries from November 2007 to April 2012.

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ITEM 1A. RISK FACTORS.
We may not realize the growth opportunities and cost synergies that are anticipated from the acquisition of GCA .
The benefits that are expected to result from the acquisition of GCA will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies from the acquisition. Our success in realizing these growth opportunities and cost synergies, and the timing of this realization, depends on a number of factors. There is a significant degree of difficulty and management distraction inherent in the process of integrating an acquisition as sizable as GCA . The process of integrating operations could cause an interruption of, or loss of momentum in, our activities or the activities of the GCA business. Members of our senior management may be required to devote considerable time to this integration process, which will decrease the time they will have to manage our Company, service existing clients, and attract new clients. In addition, we have not fully implemented our 2020 Vision , which is expected to generate significant benefits to the Company. Time and distraction relating to the acquisition of GCA could detract from the ability to achieve the benefits anticipated with respect to our 2020 Vision . If senior management is not able to effectively manage the integration process or if any significant business activities including 2020 Vision initiatives are interrupted as a result of the integration process, our business could suffer. There can be no assurance that we will successfully or cost-effectively integrate GCA . The failure to do so could have a material adverse effect on our business, financial condition, or results of operations.
Even if we are able to integrate GCA successfully, this integration may not result in the realization of the full benefits of the growth opportunities and cost synergies we currently expect from this integration, and we cannot guarantee these benefits will be achieved within anticipated time frames or at all. For example, we may not be able to eliminate duplicative costs. Moreover, we may incur substantial expenses in connection with the integration of GCA . While it is anticipated that certain expenses will be incurred to achieve cost synergies, such expenses are difficult to estimate accurately and may exceed current estimates. Accordingly, the benefits from the acquisition may be offset by costs incurred to integrate the business or delays in the integration process. In addition, the overall integration may result in unanticipated problems, expenses, liabilities, competitive responses, loss of client and other relationships, or loss of key employees, any of which may adversely affect our results of operations and may cause our stock price to decline.
We incurred a substantial amount of debt to complete the acquisition of GCA . To service our debt, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. We also depend on the profitability of our subsidiaries to satisfy our cash needs. If we cannot generate the required cash, we may not be able to make the necessary payments required to service our indebtedness or we may be required to suspend certain discretionary payments, including our dividend.
In connection with the acquisition of GCA , on September 1, 2017, we refinanced and replaced our existing credit facility with a new syndicated secured credit facility (the “Credit Facility”) consisting of a $900 million revolving line of credit and an $800 million amortizing term loan with a five-year term. On September 1, 2017, we borrowed approximately $1.3 billion under the Credit Facility. Our ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures will depend on our ability to generate cash in the future. Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, and other factors that are beyond our control. We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund other liquidity needs, make planned capital expenditures, or continue our dividend.
The degree to which we are currently leveraged could have important consequences for shareholders. For example, it could require us to dedicate a substantial portion of our cash flows from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, share repurchases, capital expenditures, acquisitions, and other general corporate purposes; limit our availability to obtain additional financing in the future to enable us to react to changes in our business; and place us at a competitive disadvantage compared to businesses in our industry that have less debt.
Additionally, an increased level of borrowing increases our interest expense, which could negatively impact our profitability. As current interest rates on our credit facility are variable, an increase in prevailing rates would increase our interest costs. Further, our credit facility contains both financial covenants and other covenants that limit our ability to engage in specific transactions. Any failure to comply with covenants in the credit facility could result in an event of default that, if not cured or waived, would have a material adverse effect on us.


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Changes to our businesses, operating structure, financial reporting structure, or personnel relating to the implementation of our 2020 Vision strategic transformation initiative, including our move to our Enterprise Services Center, may not have the desired effects on our financial condition and results of operations.
During the fourth quarter of 2015, we announced our transformation initiative (“ 2020 Vision ”) , which is intended to differentiate ABM in the marketplace, accelerate revenue growth for certain industry groups, and improve our margin profile. We may not be able to execute on this strategy as a result of numerous factors, such as client resistance to an integrated approach, inability to deliver requested end-to-end services, and difficulty penetrating certain markets. Even if we are able to execute our 2020 Vision , we may not realize the full benefits that we currently expect within the anticipated time frame or at all. For example, although we may be able to leverage scale to manage costs more efficiently and effectively, the realignment of our business operations may not provide us with the anticipated competitive advantage or revenue growth. Moreover, the execution of our 2020 Vision may result in substantial expenses in excess of what is currently forecast. While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately and may exceed current estimates. Accordingly, the benefits from our 2020 Vision may be offset by unexpected costs or delays incurred in its execution. In connection with our 2020 Vision , we are making significant investments in information technology, but there can be no assurance these investments will have the desired results in improving the delivery of our services. In addition, our 2020 Vision may cause substantial disruption to our operations and may not have the anticipated positive effects on our relationships with our employees, clients, and suppliers.
Changes to our business systems and processes, including the migration of many of our financial reporting and other processes to our Enterprise Services Center, may not create the operational efficiencies or cost benefits that we expect and could result in unanticipated consequences. In addition, the move to a shared services environment may create risks relating to the processing of transactions and recording of financial information. During the transition period, we could experience a lapse in the operation of internal controls due to turnover, lack of legacy knowledge, or inappropriate training, which could result in significant deficiencies or material weaknesses.
Our success depends on our ability to gain profitable business despite competitive pressures and on our ability to preserve long-term client relationships.
We believe that each aspect of our business is highly competitive and that such competition is based primarily on price, quality of service, and ability to anticipate and respond to industry changes. A majority of our revenue is derived from projects requiring competitive bids. The low cost of entry in the facility services business results in a very competitive market. We mainly compete with regional and local owner-operated companies that may have more acute vision into local markets and significantly lower labor and overhead costs, providing them with a competitive advantage in those regards. We also compete indirectly with companies that can perform for themselves one or more of the services we provide. Additionally, many of our contracts provide that our clients pay certain costs at specified rates, such as insurance, healthcare costs, salary and salary-related expenses, petroleum, and other costs. We may experience higher operating costs related to changes in federal, state, or local laws and regulations regarding employee benefits, minimum wages, and other entitlements. If actual costs exceed the rates specified in the contracts, our profitability may be negatively impacted. Further, if we are unable to respond adequately to changing technology, we may lose existing clients and fail to win future business opportunities. These strong competitive pressures could inhibit our success in bidding for profitable business and our ability to increase prices as costs rise, thereby reducing margins.
We primarily provide services pursuant to agreements that are cancelable by either party upon 30–90 days’ notice. As we generally incur higher initial costs on new contracts until the labor management and facilities operations normalize, our business associated with long-term client relationships is generally more profitable than short-term client relationships. If we lose a significant number of long-term clients, our profitability could be negatively impacted, even if we gain equivalent revenues from new clients.
We depend to a large extent on our relationships with our clients and our reputation for quality integrated facility solutions. As such, adverse publicity stemming from an accident or other incident involving our facility operations related to injury, illness, or death could harm our reputation, result in the cancellation of contracts, and expose us to significant liability.
Our business success depends on our ability to attract and retain qualified personnel and senior management.
Our future performance depends on the continuing services and contributions of our senior management and on our continued ability to attract and retain qualified personnel. Any unplanned turnover in senior management or inability to attract and retain qualified personnel could have a negative effect on our results of operations. We employ over 130,000 persons and our operations depend on the services of a large and diverse workforce. We must attract, train, and retain a large and growing number of qualified employees, while controlling related labor costs. Our ability

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to control labor and benefit costs is subject to numerous internal and external factors, including changes in immigration policy, regulatory changes, prevailing wage rates, and competition we face from other companies for these employees. There is no assurance that we will be able to attract or retain qualified employees in the future, which could have a material adverse effect on our business, financial condition, and results of operations.
Our use of subcontractors or joint venture partners to perform work under customer contracts exposes us to liability and financial risk.
We depend on subcontractors or other parties, such as joint venture partners, to perform work in situations in which we are not able to self-perform the work involved. Such arrangements may involve subcontracts or joint venture relationships where we do not have direct control over the performing party. A failure, for whatever reason, by one or more of our subcontractors or joint venture partners to perform, or the alleged negligent performance of, the agreed-upon services may expose us to liability. Although we have in place controls and programs to monitor the work of our subcontractors and our joint venture partners, there can be no assurance that these controls or programs will have the desired effect, and we may incur significant liability as a result of the actions or inactions of one or more of our subcontractors or joint venture partners.
Our international business involves risks different from those we face in the United States that could have an effect on our results of operations and financial condition.
We have business operations in jurisdictions outside of the United States, most significantly in the United Kingdom. Our international operations are subject to risks that are different from those we face in the United States, such as the requirement to comply with national and local regulatory requirements, including, but not limited to: the U.K. Bribery Act and other anti-corruption laws and laws respecting privacy; potential difficulties in staffing and labor disputes; differing local labor laws; credit risk or financial condition of local clients; and local political and social conditions. In addition, the operating results of our non-U.S. subsidiaries are translated into U.S. dollars, and those results are affected by movements in foreign currencies relative to the U.S. dollar. There can be no assurance that the foregoing factors will not have a material adverse effect on our international operations or on our consolidated financial condition and results of operations.
In addition, when we participate in joint ventures that operate outside of the United States where we are not a controlling party, we may have limited control over the joint venture. Any improper actions by our joint venture employees, partners, or agents, including, but not limited to, failure to comply with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and/or laws relating to human trafficking, could result in civil or criminal investigations, monetary and non-monetary penalties, or other consequences, any of which could have an adverse effect on our financial position as well as on our reputation and ability to conduct business.
Unfavorable developments in our class and representative actions and other lawsuits alleging various claims could cause us to incur substantial liabilities.
Our business involves employing tens of thousands of employees, many of whom work at our clients’ facilities. We incur risks relating to our employment of these workers, including, but not limited to: claims of misconduct or negligence on the part of our employees; claims related to the employment of undocumented workers or unlicensed personnel; and claims by our employees of discrimination, harassment, or violations of wage and hour requirements. Some or all of these claims may lead to litigation, including class action litigation, and these matters may cause us to incur negative publicity with respect to these alleged problems. It is not possible to predict the outcome of these lawsuits or any other proceeding, and our insurance may not cover all claims that may be asserted against us. These lawsuits and other proceedings may consume substantial amounts of our financial and managerial resources. An unfavorable outcome with respect to these lawsuits and any future lawsuits could, individually or in the aggregate, cause us to incur substantial liabilities that could have a material adverse effect upon our business, reputation, financial condition, or results of operations.
We insure our insurable risks through a combination of insurance and self-insurance and we retain a substantial portion of the risk associated with expected losses under these programs, which exposes us to volatility associated with those risks, including the possibility that changes in estimates of ultimate insurance losses could result in a material charge against our earnings.
We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. We are responsible for claims both within and in excess of our retained limits under our insurance policies, and while we endeavor to purchase insurance coverage that is appropriate to our assessment of risk, we are unable to predict with certainty the frequency, nature, or magnitude of

9


clams for direct or consequential damages. If our insurance coverage proves to be inadequate or unavailable, our business may be negatively impacted.
The determination of required insurance reserves is dependent upon significant actuarial judgments. We use the results of actuarial studies to estimate insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years. Actual experience related to our insurance reserves can cause us to change our estimates for reserves and any such changes may materially impact results, causing significant volatility in our operating results. We have experienced material negative trends in our actuarial estimates and may continue to experience these and other material negative trends in future periods.
Should we be unable to renew our excess, umbrella, or other commercial insurance policies at competitive rates, it could have a material adverse impact on our business, as would the incurrence of catastrophic uninsured claims or the inability or refusal of our insurance carriers to pay otherwise insured claims. Further, to the extent that we self-insure our losses, deterioration in our loss control and/or continuing claim management efforts could increase the overall cost of claims within our retained limits. A material change in our insurance costs due to changes in the frequency of claims, the severity of the claims, the costs of excess/umbrella premiums, or regulatory changes could have a material adverse effect on our financial position, results of operations, or cash flows.
We have formed a wholly-owned captive insurance company, IFM Assurance Company (“IFM”), which we believe will provide us with increased flexibility in the end-to-end management of our insurance program. There can be no assurance that IFM will bring about the intended benefits or that it will provide us with the desired flexibility in the management of our insurance programs, because we may experience unanticipated events that will reduce or eliminate expected benefits, including anticipated savings related to coverage provided by IFM to our subsidiaries.
Our risk management and safety programs may not have the intended effect of reducing our liability for personal injury or property loss.
We attempt to mitigate risks relating to personal injury or property loss through the implementation of company-wide safety and loss control efforts designed to decrease the incidence of accidents or events that might increase our liability. It is expected that any such decrease would also have the effect of reducing our insurance costs for our casualty programs. However, incidents involving personal injury or property loss often are caused by multiple factors, a significant number of which are beyond our control. Therefore, there can be no assurance that our risk management and safety programs will have the desired effect of controlling costs and liability exposure.
Impairment of goodwill and long-lived assets could have a material adverse effect on our financial condition and results of operations.
We evaluate goodwill for impairment annually, in the fourth quarter, or more often if impairment indicators exist. We also review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the fair value of one of our reporting units is less than its carrying value, or if as a result of a recoverability test we conclude that the projected undiscounted cash flows are less than the carrying amount, we would record an impairment charge related to goodwill or long-lived assets, respectively. The assumptions used to determine impairment require significant judgment and the amount of the impairment could have a material adverse effect on our reported financial results for the period in which the charge is taken.
Changes in general economic conditions, including changes in energy prices, government regulations, and changing consumer preferences, could reduce the demand for facility services and, as a result, reduce our earnings and adversely affect our financial condition.
In certain geographic areas and service lines, our most profitable revenues are related to supplemental services requested by clients outside of the standard service specification. This contract type is commonly used in janitorial services and includes cleanup after tenant moves, construction cleanup, flood cleanup, and snow removal (“tag work”). A decline in occupancy rates could result in a decline in scope of work, including tag work, and depressed prices for our services. Slow domestic and international economic growth or other negative changes in global, national, and local economic conditions could have a negative impact on our business. Specifically, adverse economic conditions may result in clients cutting back on discretionary spending. Additionally, since a significant portion of our aviation services and parking revenues are tied to the number of airline passengers, hotel guests, and sports arena attendees, results for these businesses could be adversely affected by curtailment of business, personal travel, and discretionary spending. The use of ride sharing services and car sharing services may lead to a decline in parking demand at airports and in urban areas.

10


Energy efficiency projects are designed to reduce a client’s overall consumption of commodities such as electricity and natural gas. As such, downward fluctuations in commodity prices may reduce clients’ demand for our services. We also depend, in part, on federal and state legislation and policies that support energy efficiency projects. If current legislation or policies are amended, eliminated, or not extended beyond their current expiration dates, or if funding for energy incentives is reduced or delayed, it could also adversely affect our ability to obtain new business. In some instances, we offer certain of these clients guaranteed energy savings on installed equipment. In the event those guaranteed savings are not achieved, we may be required to pay liquidated or other damages. All of these factors could have an adverse effect on our financial position, results of operations, and cash flows.
Our business may be materially affected by changes to fiscal and tax policies. Negative or unexpected tax consequences could adversely affect our results of operations
The Tax Cuts and Jobs Act of 2017 was approved by Congress on December 20, 2017. When signed into law by President Donald J. Trump, this legislation will make significant changes to the U.S. Internal Revenue Code. Such changes include a reduction in the corporate tax rate and limitations on certain corporate deductions and credits, among other changes. Certain of these changes could have a negative impact on our business. In addition, adverse changes in the underlying profitability and financial outlook of our operations or changes in tax law could lead to changes in our valuation allowances against deferred tax assets on our consolidated balance sheets, which could materially affect our results of operations. Furthermore, we are subject to tax audits by governmental authorities, primarily in the United States and United Kingdom. If we experience unfavorable results from one or more such tax audits, there could be an adverse effect on our tax rate and therefore on our net income.
We could be subject to cyber-security risks, information technology interruptions, and business continuity risks.
Our information technology systems and those of our third-party providers could become subject to cyber-attacks, hacking, or other intrusions, which could result in operational disruptions or information misappropriation, such as theft of intellectual property or inappropriate disclosure of confidential information. In addition, to the extent centralized administrative locations are disabled for a long period of time, key business processes, such as accounts payable, information technology, payroll, and general management operations, could be interrupted. Any such operational disruptions and/or misappropriation of information could result in lost sales, negative publicity, or business delays that could have a material adverse effect on our business.
A significant number of our employees are covered by collective bargaining agreements that could expose us to potential liabilities in relationship to our participation in multiemployer pension plans, requirements to make contributions to other benefit plans, and the potential for strikes, work slowdowns or similar activities, and union-organizing drives.
We participate in various multiemployer pension plans under union and industry-wide agreements, which provide defined pension benefits and other benefits to employees covered by collective bargaining agreements. Because of the nature of multiemployer plans, there are risks associated with participation in these plans that differ from single-employer plans. Assets contributed by an employer to a multiemployer plan are not segregated into a separate account and are not restricted to provide benefits only to employees of that contributing employer. In the event another participating employer in a multiemployer plan no longer contributes to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, including us. In the event of the termination of a multiemployer pension plan or a withdrawal from a multiemployer pension plan, under applicable law we could incur material liabilities. We further discuss our participation in multiemployer pension and postretirement plans in Note 13 , “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements. In addition, the terms of collective bargaining agreements require us to contribute to health and welfare plans that require us to have appropriate systems in place to track contributions. The failure to make a contribution as a result of a systems failure could have a negative impact on our financial position.
At October 31, 2017, approximately 32% of our employees were subject to various local collective bargaining agreements, some of which will expire or become subject to renegotiation during 2018. In addition, at any given time we may face a number of union organizing drives. When one or more of our major collective bargaining agreements becomes subject to renegotiation or when we face union organizing drives, we and the union may disagree on important issues that could lead to a strike, work slowdown, or other job actions at one or more of our locations. In a market where we are unionized but competitors are not unionized, we could lose clients to such competitors. A strike, work slowdown, or other job action could disrupt our services, resulting in reduced revenues or contract cancellations.

11


Moreover, negotiating a first time agreement or renegotiating an existing collective bargaining agreement could result in a substantial increase in labor and benefits expenses that we may be unable to pass through to clients.
If we fail to maintain proper and effective internal control over financial reporting in the future, our ability to produce accurate and timely financial statements could be negatively impacted, which could harm our operating results, investors’ perceptions of our Company and, as a result, the value of our common stock.
Pursuant to Section 404 of the Sarbanes Oxley Act of 2002 and related rules, our management is required to report on, and our independent registered public accounting firm is required to attest to, the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. We have acquired entities that did not have any publicly traded debt or equity and therefore were not required to conform to the rules and regulations of the SEC, especially as it relates to internal control structure. As such, upon acquisition by us, such entities may not have in place all the necessary controls as required by the Public Company Accounting Oversight Board. The integration of acquired entities into our internal control over financial reporting has required and will continue to require significant time and resources from our management and other personnel and will increase our compliance costs. We are required to include our assessment of the effectiveness of the internal controls over financial reporting of entities we acquire in our overall assessment. We plan to complete the evaluation and integration of internal controls over financial reporting and report our assessment within the required time frame. Failure to maintain an effective internal control environment could have a material adverse effect on our ability to accurately report our financial results, the market’s perception of our business, and our stock price.
Our business may be negatively impacted by adverse weather conditions.
Weather conditions such as snow storms, heavy flooding, hurricanes, and other fluctuations in temperatures can negatively impact portions of our business. Within our Technical Solutions segment, cooler than normal temperatures in the summer could reduce the need for servicing of air conditioning units, resulting in reduced revenues and profitability. Within Parking and Aviation services, snow can lead to reduced travel activity, as well as increases in certain costs, both of which negatively affect gross profit. On the other hand, the absence of snow during the winter could cause us to experience reduced revenues in our B&I segment, as many of our contracts specify additional payments for snow-related services.
Catastrophic events, disasters, and terrorist attacks could disrupt our services.
Catastrophic events, disasters, and acts of terrorism may result in reduced revenues, property damage, or economic dislocations throughout the country. These events may increase the volatility of financial results due to unforeseen costs with partial or no corresponding compensation from clients.
Actions of activist investors could disrupt our business.
Public companies have been the target of activist investors. In the event that a third party, such as an activist investor, proposes to change our governance policies, board of directors, or other aspects of our operations, our review and consideration of such proposals may create a significant distraction for our management and employees. This could negatively impact our ability to execute our 2020 Vision and may require our management to expend significant time and resources. Such proposals may also create uncertainties with respect to our financial position and operations and may adversely affect our ability to attract and retain key employees. 
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.

12


ITEM 2. PROPERTIES.
Our principal executive office is located at One Liberty Plaza, 7 th Floor, New York, New York 10006. As part of our 2020 Vision, in 2016 we began consolidating our operations to increase efficiency and effectiveness.
Principal Properties as of October 31, 2017
Location
 
Character of Office
 
Approximate Square Feet
 
Lease Expiration Date, Unless Owned
 
Segment
Alpharetta, Georgia
 
IT Datacenter and Technical Solutions Headquarters
 
25,000
 
Owned
 
All
Atlanta, Georgia
 
Operations Support
 
37,000
 
10/31/2027
 
All
Cleveland, Ohio
 
GCA Services Headquarters
 
32,400
 
1/31/2024
 
GCA Services
Houston, Texas
 
Prior COO Divisional Headquarters
 
11,000
 
8/31/2018
 
B&I
New York, New York
 
Corporate Headquarters
 
44,000
 
1/3/2032
 
Corporate, B&I
Sugar Land, Texas
 
Enterprise Services
 
62,500
 
3/31/2028
 
All
In addition to the above properties, we have other offices, warehouses, and parking facilities in various locations, primarily in the United States. We believe that these properties are well maintained, in good operating condition, and suitable for the purposes for which they are used.
ITEM 3. LEGAL PROCEEDINGS.
We are a party to a number of lawsuits, claims, and proceedings incident to the operation of our business, including those pertaining to labor and employment, contracts, personal injury, and other matters, some of which allege substantial monetary damages. Some of these actions may be brought as class actions on behalf of a class or purported class of employees. While the results of these lawsuits, claims, and proceedings cannot be predicted with any certainty, our management believes that the final outcome of these matters will not have a material adverse effect on our financial position, results of operations, or cash flows.
Certain Legal Proceedings
Certain lawsuits to which we are a party are discussed below. In determining whether to include any particular lawsuit or other proceeding, we consider both quantitative and qualitative factors. These factors include, but are not limited to: the amount of damages and the nature of any other relief sought in the proceeding; if such damages and other relief are specified, our view of the merits of the claims; whether the action is or purports to be a class action, and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; and the potential impact of the proceeding on our reputation.
The Consolidated Cases of Augustus, Hall, and Davis, et al. v. American Commercial Security Services, filed July 12, 2005, in the Superior Court of California, Los Angeles County (the “Augustus case”)
The Augustus case was a certified class action involving violations of certain California state laws relating to rest breaks. The case centered on whether requiring security guards to remain on call during rest breaks violated Section 226.7 of the California Labor Code. On July 31, 2012 , the Superior Court of California, Los Angeles County (the “Superior Court”), entered summary judgment in favor of plaintiffs in the amount of approximately $89.7 million (the “common fund”). Subsequently, the Superior Court also awarded plaintiffs’ attorneys’ fees of approximately $4.5 million in addition to approximately 30% of the common fund. Under California law, post-judgment interest on a judgment accrues at a rate of 10% simple interest per year from the date the judgment is entered until it is satisfied. We appealed the Superior Court’s rulings to the Court of Appeals of the State of California, Second Appellate District (the “Appeals Court”). On December 31, 2014 , the Appeals Court issued its opinion, reversing the judgment in favor of the plaintiffs and vacating the award of $89.7 million in damages and the attorneys’ fees award. The plaintiffs filed a petition for review with the California Supreme Court on March 4, 2015 , and on April 29, 2015 , the California Supreme Court granted the plaintiffs’ petition. On December 22, 2016, the California Supreme Court rendered its decision, holding

13


that on-call and on-duty rest breaks are prohibited by California law, and reversed the Appeals Court judgment on this issue. The amount of post-judgment interest as of December 22, 2016 was approximately $41.2 million.
On February 6, 2017, ABM Security Services, Inc., a wholly-owned subsidiary of ABM Industries Incorporated, entered into a Class Action Settlement and Release with plaintiffs Jennifer Augustus, Delores Hall, Emanuel Davis, and Carlton Anthony Waite, on behalf of themselves and the settlement class members, to settle the Augustus case on a class-wide basis for $110.0 million (the “Augustus Settlement Agreement”). On March 17, 2017, the Augustus Settlement Agreement was amended to address certain procedural matters, and it received final approval of the Superior Court on July 6, 2017. The Augustus Settlement Agreement called for two payments of $55.0 million each. The first payment was made on July 19, 2017, and the second payment, plus an additional payment of $4.8 million for payroll taxes, was made on August 29, 2017.
Karapetyan v. ABM Industries Incorporated and ABM Security Services, Inc., et al., filed on October 23, 2015, pending in the United States District Court for the Central District of California (the “Karapetyan case”)
The Karapetyan case was a putative class action in which the plaintiff sought to represent a class of security guards who worked during time periods subsequent to the class period in the Augustus case. The plaintiff alleged that ABM violated certain California state laws relating to meal and rest breaks and other wage and hour claims. On April 17, 2017, ABM Industries Incorporated, ABM Security Services, Inc., ABM Onsite Services, Inc., and ABM Onsite Services – West, Inc. entered into a Class Action Settlement and Release with plaintiff Vardan Karapetyan, on behalf of himself and the settlement class members, to settle the Karapetyan case on a class-wide basis for $5.0 million . The United States District Court for the Central District of California granted final approval of the settlement on September 7, 2017. The full settlement payment in the amount of $5.0 million , plus an additional $0.2 million in payroll taxes, was made on October 13, 2017 .
The Consolidated Cases of Bucio and Martinez v. ABM Janitorial Services filed on April 7, 2006, in the Superior Court of California, County of San Francisco (the “Bucio case”)
The Bucio case is a class action pending in San Francisco Superior Court that alleges we failed to provide legally required meal periods and make additional premium payments for such meal periods, pay split shift premiums when owed, and reimburse janitors for travel expenses. On April 19, 2011 , the trial court held a hearing on plaintiffs’ motion to certify the class. At the conclusion of that hearing, the trial court denied plaintiffs’ motion to certify the class. On May 11, 2011 , the plaintiffs filed a motion to reconsider, which was denied. The plaintiffs appealed the class certification issues. The trial court stayed the underlying lawsuit pending the decision in the appeal. The Court of Appeal of the State of California, First Appellate District (the “Court of Appeal”), heard oral arguments on November 7, 2017. On December 11, 2017, the Court of Appeal reversed the trial court’s order denying class certification and remanded the matter for certification of a meal period, travel expense reimbursement, and split shift class.
Hussein and Hirsi v. Air Serv Corporation filed on January 20, 2016, pending in the United States District Court for the Western District of Washington at Seattle (the “Hussein case”) and
Isse et al. v. Air Serv Corporation filed on February 7, 2017, pending in the Superior Court of Washington for King County (the “Isse” case)
The Hussein case was a certified class action involving a class of certain hourly Air Serv employees at Seattle-Tacoma International Airport in SeaTac, Washington. The plaintiffs alleged that Air Serv violated a minimum wage requirement in an ordinance applicable to certain employers in the local city of SeaTac (the “Ordinance”). Plaintiffs sought retroactive wages, double damages, interest, and attorneys’ fees. This matter was removed to federal court. In a separate lawsuit brought by Filo Foods, LLC, Alaska Airlines, and several other employers at SeaTac airport, the King County Superior Court issued a decision that invalidated the Ordinance as it applied to workers at SeaTac airport. Subsequently, the Washington Supreme Court reversed the Superior Court’s decision. On February 7, 2017, the Isse case was filed against Air Serv on behalf of 60 individual plaintiffs (who would otherwise be members of the Hussein class), who alleged failure to comply with both the minimum wage provision and the sick and safe time provision of the Ordinance. The Isse plaintiffs sought retroactive wages and sick benefits, double damages for wages and sick benefits, interest, and attorneys’ fees. The Isse case later expanded to approximately 220 individual plaintiffs .
In mediations on November 2 and 3, 2017, and without admitting liability in either matter, we agreed to settle the Hussein and Isse lawsuits for a combined total of $8.3 million , inclusive of damages, interest, attorneys’ fees, and employer payroll taxes. Eligible employees will be able to participate in either the Hussein or Isse settlements, but cannot recover in both settlements. The settlements in both cases will require court approval because of the nature of the claims being released. We are working with our clients to obtain partial or full reimbursement for the settlements.

14



ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.


15


PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information and Dividends
Our common stock is listed on the New York Stock Exchange (NYSE: ABM). The following table sets forth the high and low sales prices of our common stock on the New York Stock Exchange and quarterly cash dividends declared on shares of common stock for the periods indicated.
 
Fiscal Quarter
 (in dollars)
First
 
Second
 
Third
 
Fourth
Fiscal Year 2017
 
 
 
 
 
 
 
Price range of common stock
 
 
 
 
 
 
 
High
$
45.03

 
$
44.68

 
$
44.93

 
$
45.12

Low
$
38.04

 
$
39.41

 
$
40.36

 
$
37.12

Dividends declared per share
$
0.170

 
$
0.170

 
$
0.170

 
$
0.170

Fiscal Year 2016
 
 
 
 
 
 
 
Price range of common stock
 
 
 
 
 
 
 
High
$
30.25

 
$
33.39

 
$
37.85

 
$
40.47

Low
$
26.50

 
$
28.45

 
$
32.03

 
$
36.63

Dividends declared per share
$
0.165

 
$
0.165

 
$
0.165

 
$
0.165

We have paid cash dividends every quarter since 1965. Future dividends will be determined based on our earnings, capital requirements, financial condition, and other factors considered relevant by our Board of Directors.
Stockholders
At December 8, 2017 , there were 3,275 registered holders of our common stock.

16


Performance Graph
The following graph compares the five-year cumulative total return for our common stock against the Standard & Poor’s SmallCap 600 Index (“S&P 600”) and the Standard & Poor’s 500 Index (“S&P 500”). As our competitors are principally privately held, we do not believe it is feasible to construct a peer group comparison on an industry or line-of-business basis.
PERFORMANCEGRAPH2017.JPG
 
 
INDEXED RETURNS
Years Ended October 31,
Company / Index
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
ABM Industries Incorporated
 
$
100

 
$
148.5

 
$
152.7

 
$
160.3

 
$
224.9

 
$
245.4

S&P 500 Index
 
100

 
127.2

 
149.1

 
156.9

 
164.0

 
202.7

S&P SmallCap 600 Index
 
100

 
139.1

 
152.0

 
156.3

 
166.3

 
212.7

This performance graph shall not be deemed to be “soliciting material” or “filed” with the Securities and Exchange Commission, or subject to Regulation 14A or 14C, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended. The comparisons in the performance graph are based on historical data and are not indicative of, or intended to forecast, the possible future performance of our common stock.


17


ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with Item 7 ., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item  8 ., “Financial Statements and Supplementary Data.” Unless otherwise indicated, all references to years are to our fiscal year, which ends on October 31.
 
Years Ended October 31,
 
2017
 
2016
 
2015
 
2014
 
2013
(in millions, except per share amounts)
 
 
 
 
 
 
 
 
 
Statements of Comprehensive Income Data
 
 
 
 
 
 
 
 
 
Revenues (1)
$
5,453.6

 
$
5,144.7

 
$
4,897.8

 
$
4,649.7

 
$
4,427.8

Operating profit (2)
101.9

 
54.7

 
73.6

 
114.8

 
105.3

Income from continuing operations
78.1

 
62.3

 
54.1

 
66.9

 
62.6

(Loss) income from discontinued operations, net of taxes (3)
(74.3
)
 
(5.1
)
 
22.2

 
8.7

 
10.3

Per Share Data
 
 
 
 
 
 
 
 
 
Net income per common share — Basic
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
1.35

 
$
1.11

 
$
0.95

 
$
1.19

 
$
1.14

Net income
$
0.07

 
$
1.02

 
$
1.35

 
$
1.35

 
$
1.33

Net income per common share — Diluted
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
1.34

 
$
1.09

 
$
0.94

 
$
1.17

 
$
1.12

Net income
$
0.07

 
$
1.01

 
$
1.33

 
$
1.32

 
$
1.30

Weighted-average common and common
equivalent shares outstanding
 
 
 
 
 
 
 
 
 
Basic
57.7

 
56.3

 
56.7

 
56.1

 
54.9

Diluted
58.3

 
56.9

 
57.4

 
57.1

 
56.1

Dividends declared per common share
$
0.680

 
$
0.660

 
$
0.640

 
$
0.620

 
$
0.600

Statements of Cash Flow Data
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities of continuing operations
$
101.7

 
$
110.5

 
$
145.5

 
$
115.6

 
$
125.2

Cash paid for income taxes, net of refunds received (4)
11.8

 
12.6

 
23.7

 
32.9

 
18.7

 
 
 
 
 
 
 
 
 
 
 
At October 31,
(in millions)
2017
 
2016
 
2015
 
2014
 
2013
Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total assets
$
3,812.6

 
$
2,278.8

 
$
2,130.7

 
$
2,176.5

 
$
2,106.2

Trade accounts receivable, net of allowances (5)
1,038.1

 
803.7

 
742.9

 
687.3

 
633.5

Goodwill (6)
1,864.2

 
912.8

 
867.5

 
854.7

 
822.5

Other intangible assets, net of accumulated amortization (7)
430.1

 
103.8

 
111.4

 
127.5

 
142.4

Long-term debt, net (8)
1,161.3

 
268.3

 
158.0

 
319.8

 
314.9

Insurance claims
495.4

 
423.8

 
387.4

 
349.7

 
358.0

(1) Revenues in 2017 included $208.1 million associated with acquisitions, including $169.7 million related to the September 1, 2017 acquisition of GCA Services Group (“GCA”).
(2) Factors affecting comparability of operating profit consisted of the following:
Operating profit in 2017 was positively impacted by a $17.4 million impairment recovery related to our Government Services business, a $10.9 million lower self-insurance adjustment related to prior year claims, a reduction in restructuring and related expenses, and procurement and organizational savings from our 2020 Vision initiatives. Operating profit in 2017 was unfavorably impacted by $24.2 million of transaction expenses related to the GCA acquisition .
Operating profit in 2016 was negatively impacted by insurance expense of $49.6 million, consisting of a $32.9 million unfavorable self-insurance adjustment related to prior year claims and $16.7 million of higher insurance expense due to an increase in the rate used to record our insurance reserves during 2016. Operating profit was also unfavorably impacted by $29.0 million of 2020 Vision restructuring and related charges and a $22.5 million impairment charge for the Government Services business, consisting of both goodwill and long-lived asset charges. Operating profit in 2016 was favorably impacted by approximately $22 million in savings from our 2020 Vision initiatives.

18


Operating profit in 2015 was negatively impacted by a $35.9 million unfavorable self-insurance adjustment related to prior year claims.
(3) Loss from discontinued operations in 2017 included $120.0 million of settlements related to the Augustus and Karapetyan cases associated with the former Security business. Income from discontinued operations for 2015 reflected the $14.4 million after-tax gain on the sale of the Security business.
(4) Cash paid for income taxes was lower by approximately $10 million for both 2017 and 2016 and $20 million during 2015 due to cash tax savings related to coverage provided by IFM Assurance Company, our wholly-owned captive insurance company. During 2014, cash paid for income taxes increased as certain tax assets were substantially utilized.
(5) Trade accounts receivable, net of allowances, increased by $118.1 million on September 1, 2017 as a result of the GCA acquisition.
(6) Goodwill increased by $933.9 million on September 1, 2017 as a result of the GCA acquisition and by $53.8 million on December 1, 2015 due to the acquisition of Westway Services Holdings (2014) Ltd. (“Westway”).
(7) Other intangible assets, net of accumulated amortization, increased by $349.0 million on September 1, 2017 as a result of the GCA acquisition.
(8) On September 1, 2017, we refinanced and replaced our existing $800.0 million credit facility with a new secured $1.7 billion credit facility, which we used to partially fund the GCA acquisition. During 2015, we used the cash proceeds from the sale of the Security business to pay down a portion of our line of credit.






19


ITEM  7 . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to facilitate an understanding of the results of operations and financial condition of ABM Industries Incorporated and its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”). This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes (“Financial Statements”). This MD&A contains both historical and forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “should,” “target,” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Factors that might cause such differences include, but are not limited to, those discussed in Part 1. of this Form 10-K under Item 1A., “Risk Factors,” which are incorporated herein by reference. Our future results and financial condition may be materially different from those we currently anticipate.
Throughout the MD&A, amounts and percentages may not recalculate due to rounding. In addition, we have revised our prior period segment information to reflect ABM’s reorganization and a related reclassification of certain Corporate expenses. Concurrent with the reorganization, we recategorized certain expenses that were historically included in operating expenses to selling, general and administrative expenses. Unless otherwise indicated, all information in the MD&A and references to years are based on our fiscal year, which ends on October 31.
Business Overview     
ABM is a leading provider of integrated facility solutions, customized by industry, with a mission to make a difference, every person, every day .
2020 Vision
In September 2015, we announced a comprehensive transformation initiative (“ 2020 Vision ”) intended to drive long-term profitable growth through an industry-based go-to-market approach. Our 2020 Vision involves three phases: During Phase 1, which we completed on November 1, 2016, we realigned our organization; in Phase 2, which is continuing today, we are focused on improvements to our operational framework to promote efficiencies and process enhancements; and in Phase 3, on the foundation of benefits realized from Phases 1 and 2, we anticipate accelerating growth with our industry-based, go-to-market service model.
Phase 1 Industry Realignment
Effective November 1, 2016, we reorganized our reportable segments to reflect how we now manage our business by industry group:
REVISEDINDUSTRYGROUPSA01.JPG
Phase 2 Developments
Consistent Excellence
During 2017, we conducted a thorough evaluation of our field operations across the country to identify best practices (The “ ABM Way ”) in account planning, labor management, manager development, and safety and risk management. As a result of this site-by-site review, we began to codify best practices, and throughout our company we are piloting ABM Way procedures, including initiating team cleaning and instituting a daily moment of safety. We also continue to make investments in technology platforms to help drive and sustain our 2020 Vision strategy.

20


Cost Optimization
We are migrating more of our back office functions to our Enterprise Services Center in Sugar Land, Texas and are continuing to consolidate our procurement activities. Our procurement initiatives resulted in savings of $10.0 million during 2017.
Talent Development
One of the key underpinnings of our 2020 Vision is the investment in people and the development of key personnel. Our Talent Development Group has improved front line leadership training initiatives, began the centralization of talent acquisition for staff and management, and completed a full talent assessment program identifying emerging leaders throughout the Company. By prioritizing these initiatives, we believe we are building a stronger organization that will enable us to be a leader in industry-based facility solutions.
2018 and Beyond
We will continue to roll out The ABM Way procedures we began to identify in 2017. In addition, we are in the process of creating a standardized sales culture, focusing on driving long term, profitable sales and effective cross-selling processes. We expect The ABM Way and our new sales organization will build the foundation upon which we can profitably deliver leading industry-based facility solutions.
Developments and Trends
GCA Services Group
On September 1, 2017, we acquired GCA Services Group (“GCA”), a provider of integrated facility services to educational institutions and commercial facilities, for approximately $1.3 billion , consisting of $839.9 million in cash and approximately 9.4 million shares of ABM common stock with a fair value of $421.3 million at closing, which amounts exclude shares withheld for taxes.
We expect this acquisition to be transformative and to accelerate our 2020 Vision as GCA’s client-centric goals and philosophies align closely with those of ABM. As a result of this acquisition, the revenue within our Education industry group is expected to increase from $250 million to approximately $850 million annually. We also estimate a $500 million increase in annual revenue within our other industry groups, including Business & Industry and High Tech. We further anticipate opportunities to cross-sell the services of our Technical Solutions business to GCA’s existing educational base. We expect this acquisition will strengthen all of our industry groups and, in particular, position our Education industry group as a leader in this market segment.
Due to the timing of the acquisition and integration of GCA’s standalone operations into our industry groups, GCA was separately managed and reported in 2017. Among other changes, once we integrate GCA into our industry group model in 2018, we anticipate our Education industry group will become a reportable segment. We also expect to present a new Technology & Manufacturing reportable segment, that will combine our High Tech industry group and the legacy GCA and ABM Industrial & Manufacturing (“I&M”) businesses. ABM’s legacy I&M business was included in the B&I segment.
We anticipate cost synergies relating to the GCA acquisition of approximately $20–$30 million annually within two years. In connection with the acquisition, we expect to incur one-time transaction and integration related expenses of approximately $70 million, which includes approximately $19 million of financing costs that are being amortized over the term of the new credit facility. We will also incur higher interest expense as a result of an increased level of debt and higher amortization expense.
ABMGCAGRAPHIC.JPG


21


Government Services Business
In connection with the held-for-sale classification of the Government Services business in 2016, we wrote down goodwill and long-lived assets of this business by $22.5 million to reflect our best estimate of fair value less costs to sell, using all information available at that time. During the second quarter of 2017, we received an offer from a strategic buyer to purchase this business for approximately $35.0 million, which was higher than our previous estimate of fair value less costs to sell. As a result, we recorded a $17.4 million impairment recovery to adjust the fair value of certain previously impaired assets to the valuation of the assets as implied by the agreed-upon sales price, less estimated costs to sell. On May 31, 2017, we sold this business for $35.5 million .
Legal
On July 6, 2017, ABM Security Services, Inc., a wholly-owned subsidiary of ABM Industries Incorporated, entered into a Class Action Settlement and Release to settle the Consolidated Cases of Augustus, Hall, and Davis, et al. v. American Commercial Security Services , on a class-wide basis for $110.0 million, as approved by the Superior Court of California, Los Angeles County. The first payment of $55.0 million was made on July 19, 2017, and the second payment of $55.0 million, plus an additional payment of $4.8 million for payroll taxes, was made on August 29, 2017, both of which were funded from operating cash flows and borrowings under our credit facility.
In connection with Karapetyan v. ABM Industries Incorporated and ABM Security Services, Inc., et al. (the “ Karapetyan case”), we entered into a Class Action Settlement and Release with plaintiff Vardan Karapetyan, on behalf of himself and the settlement class members, to settle the Karapetyan case on a class-wide basis for $5.0 million. The United States District Court for the Central District of California granted final approval of the settlement on September 7, 2017. The full settlement payment in the amount of $5.0 million , plus an additional $0.2 million in payroll taxes, was made on October 13, 2017 .    
As these settlements were related to the former Security business, the amounts are reflected in discontinued operations throughout this MD&A. These settlements are tax deductible and will result in an estimated $50 million in cash tax savings, the majority of which we expect to receive in 2018.
Insurance
During 2017, we performed actuarial studies of our casualty insurance programs that considered changes in claim developments and claim payment activity for the period commencing May 1, 2016 and ending April 30, 2017 for all policy years in which open claims existed. Based on the results of these studies, which included analyzing recent loss development patterns, comparing the loss development patterns against benchmarks, and applying actuarial projection methods to estimate the ultimate losses, we increased our total reserves for known claims as well as our estimate of the loss amounts associated with claims incurred but not reported (“IBNR Claims”) for years prior to 2017 by $22.0 million during 2017. This adjustment was $10.9 million lower than the total adjustment related to prior year claims of $32.9 million in 2016.
2020 Vision Restructuring and Related Costs
In connection with the execution of our 2020 Vision , we originally anticipated total pre-tax restructuring and related charges would range from $45 million to $60 million. Additional costs were incurred, mainly related to additional use of external advisors for initial pricing and furthering of procurement efforts to enhance and support our 2020 Vision initiatives. As a result, our total pre-tax restructuring and related charges were slightly higher than the range we originally estimated. We do not expect to incur significant 2020 Vision restructuring and related expenses in the future.
(in millions)
 
Year Ended October 31, 2017
 
Cumulative
External Support Fees
 
$
12.1

 
$
28.0

Employee Severance
 
0.5

 
13.8

Other Project Fees
 
5.7

 
10.4

Lease Exit
 
2.6

 
5.7

Asset Impairment
 

 
4.7

Total
 
$
20.9

 
$
62.5


22


United States Tax Reform
The Tax Cuts and Jobs Act of 2017 was approved by Congress on December 20, 2017, and as of the filing of this report, it is awaiting signature by President Donald J. Trump. The law includes significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. This change may result in a U.S. tax liability on those earnings which have not previously been repatriated to the U.S., with future foreign earnings potentially not subject to U.S. income taxes when repatriated. The majority of the provisions will have an impact on ABM beginning in fiscal years 2018 and 2019. We are in the process of analyzing the final legislation and determining an estimate of the financial impact.
Key Financial Highlights
Revenues increased by $308.9 million , or 6.0% , during 2017 , as compared to 2016 . Organic revenue increased 2.0%.
Operating profit increased by $47.2 million , or 86.2% , during 2017 , as compared to 2016 . The increase in operating profit is primarily attributable to the impairment recovery related to our Government Services business, a lower self-insurance adjustment, a reduction in restructuring and related expenses, and procurement and organizational savings from our 2020 Vision initiatives. This increase was partially offset by a contract termination within our Aviation business and $24.2 million of transaction expenses related to the GCA acquisition .
Net cash provided by operating activities of continuing operations was $101.7 million during 2017 .
Dividends of $39.5 million were paid to shareholders, and dividends totaling $0.680 per common share were declared during 2017 .
At October 31, 2017 , total outstanding borrowings under our credit facility were $1.2 billion , and we had up to $350.8 million of borrowing capacity under our line of credit, subject to covenant restrictions that may limit the amount we can borrow.

23


Results of Operations
The Year Ended October 31, 2017 Compared with the Year Ended October 31, 2016
Consolidated
 
Years Ended October 31,
 
 
 
 
($ in millions)
2017
 
2016
 
Increase / (Decrease)
Revenues
$
5,453.6

 
$
5,144.7

 
$
308.9

 
6.0%
Operating expenses
4,881.2

 
4,603.4

 
277.8

 
6.0%
Gross margin
10.5
%
 
10.5
%
 

 
 
Selling, general and administrative expenses
436.6

 
410.1

 
26.5

 
6.5%
Restructuring and related expenses
20.9

 
29.0

 
(8.1
)
 
(28.1)%
Amortization of intangible assets
31.6

 
25.0

 
6.6

 
26.5%
Impairment (recovery) loss
(18.5
)
 
22.5

 
(41.0
)
 
NM*
Operating profit
101.9

 
54.7

 
47.2

 
86.2%
Income from unconsolidated affiliates, net
4.2

 
7.6

 
(3.4
)
 
(44.6)%
Interest expense
(19.2
)
 
(10.4
)
 
(8.8
)
 
(84.3)%
Income from continuing operations before income taxes
86.9

 
51.9

 
35.0

 
67.3%
Income tax (provision) benefit
(8.8
)
 
10.4

 
(19.2
)
 
NM*
Income from continuing operations
78.1

 
62.3

 
15.8

 
25.3%
Loss from discontinued operations, net of taxes
(74.3
)
 
(5.1
)
 
(69.2
)
 
NM*
Net income
3.8

 
57.2

 
(53.4
)
 
(93.3)%
Other comprehensive income (loss)
 
 
 
 
 
 
 
Foreign currency translation
9.7

 
(26.3
)
 
36.0

 
NM*
Other, net of taxes
1.6

 
(0.2
)
 
1.8

 
NM*
Comprehensive income
$
15.2

 
$
30.7

 
$
(15.5
)
 
(50.5)%
* Not meaningful
Revenues
Revenues increased by $308.9 million , or 6.0% , during 2017 , as compared to 2016 . The increase in revenues was primarily attributable to $208.1 million of incremental revenues from acquisitions, including GCA, and organic growth of $121.0 million in Aviation and $38.5 million in Business & Industry (“B&I”). This increase was partially offset by the sale of our Government Services business on May 31, 2017, the loss of certain contracts in our Emerging Industries Group, and the completion of a large energy savings performance contract (“ESPC”).
Operating Expenses
Operating expenses increased by $277.8 million , or 6.0% , during 2017 , as compared to 2016 . Gross margin remained flat at 10.5% in 2017 and 2016 . Gross margin was positively impacted by a lower self-insurance adjustment related to prior year claims and savings from our 2020 Vision initiatives. However, gross margin was negatively impacted by a contract termination within our Aviation business and the loss of a multi-location janitorial account in our Emerging Industries Group.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $26.5 million , or 6.5% , during 2017 , as compared to 2016 . The increase in selling, general and administrative expenses was primarily related to:
$24.2 million of transaction expenses related to the GCA acquisition ;
an $8.1 million increase in costs associated with 2020 Vision technology investments;


24


$5.8 million of higher compensation and related expenses primarily related to hiring additional personnel to support our 2020 Vision initiatives, which was reduced by a reversal of certain expenses related to incentive plans;
$4.1 million of incremental selling, general and administrative expenses related to the GCA acquisition; and
a $2.3 million increase in legal expenses.
This increase was partially offset by:
an $8.8 million reduction in bad debt expense primarily associated with the absence of specific reserves for certain client receivables that were recorded in 2016;
a $3.2 million reimbursement during 2017 of previously expensed fees associated with a concluded internal investigation into a foreign entity formerly affiliated with a joint venture;
a $2.7 million decrease in sales tax reserve compared with the sales tax reserve in 2016; and
organizational savings from our 2020 Vision initiatives.
Restructuring and Related Expenses
Restructuring and related costs decreased by $8.1 million , or 28.1% , during 2017 , as compared to 2016 , as a result of the completion of our 2020 Vision organizational realignment and related employee severance in 2016.
Impairment Recovery
On May 31, 2017, we sold our Government Services business for $35.5 million. Based on the initial offer of $35.0 million received during the second quarter of 2017, we recorded a $17.4 million impairment recovery to adjust the fair value of certain previously impaired assets. In connection with the sale, we recorded a pre-tax gain of approximately $1.2 million , which is reflected as part of impairment (recovery) loss in the results of operations table above.
Interest Expense
Interest expense increased by $8.8 million , or 84.3% , during 2017 , as compared to 2016 , primarily related to increased borrowings and higher relative interest rates under our new credit facility to fund the GCA acquisition.
Income Taxes
During 2017, we had an income tax provision of $ 8.8 million , compared with an income tax benefit of $10.4 million in the prior year. In 2017 we benefited from $17.8 million related to expiring statutes of limitations for an uncertain tax position, compared with $20.8 million in 2016. The 2017 period also benefited from $3.6 million of excess tax benefits related to the vesting of share-based compensation awards and $1.9 million of tax credits for energy efficient government buildings, compared with $2.2 million and $1.2 million in 2016, respectively. Additionally, in 2016 we benefited from Work Opportunity Tax Credits (“WOTC”) of $5.1 million from the retroactive reinstatement of the WOTC for calendar year 2015. Both periods benefited from in-year WOTC.
Loss from Discontinued Operations, Net of Taxes
Loss from discontinued operations, net of taxes was $74.3 million during 2017 related to a legal reserve established in connection with the Augustus and Karapetyan settlement agreements. Refer to Developments and Trends—Legal,” above, for additional details.
Foreign Currency Translation
During 2017 we recognized as a component of our comprehensive income a foreign currency translation gain of $9.7 million compared with a loss of $26.3 million during 2016. This change was related to the U.S. Dollar (“USD”) weakening against the Great Britain Pound (“GBP”) during 2017. Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.

25


Segment Information
Our reportable segments consist of B&I, Aviation, Emerging Industries Group, Technical Solutions, and the newly acquired GCA Services. As the Government Services business has been sold and is no longer part of our ongoing operations, we have excluded a discussion of its 2017 results in this report. We have also excluded a discussion of the GCA Services segment based on the timing of the acquisition.
Financial Information for Each Reportable Segment
 
Years Ended October 31,
 
 
 
 
($ in millions)
2017
 
2016
 
Increase / (Decrease)
Revenues
 
 
 
 
 
 
 
Business & Industry
$
2,992.5

 
$
2,949.1

 
$
43.4

 
1.5%
Aviation
988.1

 
851.8

 
136.3

 
16.0%
Emerging Industries Group
777.1

 
801.9

 
(24.8
)
 
(3.1)%
Technical Solutions
439.6

 
425.3

 
14.3

 
3.4%
GCA Services
169.7

 

 
169.7

 
NM*
Government Services
86.5

 
116.7

 
(30.2
)
 
(25.8)%
 
$
5,453.6

 
$
5,144.7

 
$
308.9

 
6.0%
Operating profit (loss)
 
 
 
 
 
 
 
Business & Industry
$
154.0

 
$
135.4

 
$
18.6

 
13.7%
Operating profit margin
5.1
%
 
4.6
%
 
56 bps

 
 
Aviation
28.8

 
27.7

 
1.1

 
3.8%
Operating profit margin
2.9
%
 
3.3
%
 
(34) bps

 
 
Emerging Industries Group
45.9

 
61.0

 
(15.1
)
 
(24.9)%
Operating profit margin
5.9
%
 
7.6
%
 
(171) bps

 
 
Technical Solutions
39.0

 
28.9

 
10.1

 
34.8%
Operating profit margin
8.9
%
 
6.8
%
 
207 bps

 
 
GCA Services
3.4

 

 
3.4

 
NM*
Operating profit margin
2.0
%
 
NM*

 
NM*

 
 
Government Services
21.8

 
(23.4
)
 
45.2

 
NM*
Operating profit (loss) margin
25.2
%
 
(20.1
)%
 
NM*

 
 
Corporate
(185.0
)
 
(167.2
)
 
(17.8
)
 
(10.7)%
Adjustment for income from unconsolidated affiliates, net, included in Aviation and Government Services
(4.1
)
 
(6.5
)
 
2.4

 
37.3%
Adjustment for tax credits for energy efficient government buildings, included in Technical Solutions
(1.9
)
 
(1.2
)
 
(0.7
)
 
(52.9)%
 
$
101.9

 
$
54.7

 
$
47.2

 
86.2%
* Not meaningful
Business & Industry
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2017
 
2016
 
Increase
Revenues
$
2,992.5

 
$
2,949.1

 
$
43.4

 
1.5%
Operating profit
154.0

 
135.4

 
18.6

 
13.7%
Operating profit margin
5.1
%
 
4.6
%
 
56 bps

 
 
B&I revenues increased by $43.4 million , or 1.5% , during 2017 , as compared to 2016 . The increase was primarily attributable to new janitorial business, including new contract wins in the U.K. and additional tag revenue, as well as expansion of existing facility services accounts. Management reimbursement revenues for this segment totaled $234.2 million and $227.8 million during 2017 and 2016, respectively.
Operating profit increased by $18.6 million , or 13.7% , during 2017 , as compared to 2016 . Operating profit margin increased by 56 bps to 5.1% in 2017 from 4.6% in 2016 . The increase in operating profit margin was primarily

26


associated with higher margin revenues, cost control savings from our 2020 Vision initiatives, and lower legal settlement costs. This increase was partially offset by reserves recorded for multiemployer union benefit obligations from previous years and by lower profit margins associated with certain leased location arrangements.
Aviation
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2017
 
2016
 
Increase / (Decrease)
Revenues
$
988.1

 
$
851.8

 
$
136.3

 
16.0%
Operating profit
28.8

 
27.7

 
1.1

 
3.8%
Operating profit margin
2.9
%
 
3.3
%
 
(34) bps

 
 
Aviation revenues increased by $136.3 million , or 16.0% , during 2017 , as compared to 2016 . The increase was primarily attributable to organic growth in parking, transportation, passenger services, cabin cleaning, and facility services. Management reimbursement revenues for this segment totaled $80.4 million and $78.2 million during 2017 and 2016, respectively.
Operating profit increased by $1.1 million , or 3.8% , during 2017 , as compared to 2016 . Operating profit margin decreased by 34 bps to 2.9% in 2017 from 3.3% in 2016 . The decrease in operating profit margin was primarily attributable to a contract termination during 2017 and operational issues in certain geographic markets. This decrease was partially offset by lower allocated costs from our 2020 Vision initiatives and the absence of both a penalty imposed by a regulatory agency and a specific reserve established for a client receivable in 2016.
Emerging Industries Group
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2017
 
2016
 
Decrease
Revenues
$
777.1

 
$
801.9

 
$
(24.8
)
 
(3.1)%
Operating profit
45.9

 
61.0

 
(15.1
)
 
(24.9)%
Operating profit margin
5.9
%
 
7.6
%
 
(171) bps

 
 
Emerging Industries Group revenues decreased by $24.8 million , or 3.1% , during 2017 , as compared to 2016 . The decrease was primarily related to the losses of certain High Tech and Education facility services accounts. The decrease in revenues for this segment was partially offset by net new janitorial business in the Healthcare and Education industry groups.
Operating profit decreased by $15.1 million , or 24.9% , during 2017 , as compared to 2016 . Operating profit margin decreased by 171 bps to 5.9% in 2017 from 7.6% in 2016 . The decrease in operating profit margin was primarily attributable to lower contribution margin from certain High Tech contracts, including the loss of a multi-location janitorial account, higher allocated costs from our 2020 Vision initiatives, and reserves recorded for multiemployer union benefit obligations from previous years.
Technical Solutions
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2017
 
2016
 
Increase
Revenues
$
439.6

 
$
425.3

 
$
14.3

 
3.4%
Operating profit
39.0

 
28.9

 
10.1

 
34.8%
Operating profit margin
8.9
%
 
6.8
%
 
207 bps

 
 
Technical Solutions revenues increased by $14.3 million , or 3.4% , during 2017 , as compared to 2016 . The increase was primarily attributable to incremental revenues from acquisitions of $18.1 million and higher project revenues, partially offset by the completion of a large ESPC project.
Operating profit increased by $10.1 million , or 34.8% , during 2017 , as compared to 2016 . Operating profit margin increased by 207 bps to 8.9% in 2017 from 6.8% in 2016 . The increase in operating profit margin was primarily attributable to the completion of a relatively lower margin ESPC project that started in 2016, the management of our

27


selling, general and administrative expenses, a reduction in bad debt, and higher operational tax credits for energy efficient government building projects.
Corporate
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2017
 
2016
 
Increase
Corporate expenses
$
185.0

 
$
167.2

 
$
17.8

 
10.7%
Corporate expenses increased by $17.8 million , or 10.7% , during 2017 , as compared to 2016 . The increase in corporate expenses was primarily related to:
$24.2 million of transaction expenses related to the GCA acquisition ;
an $8.1 million increase in costs associated with 2020 Vision technology investments;
a $5.8 million increase in other costs to support our 2020 Vision initiatives;
a $5.1 million increase in legal settlement costs, including a settlement relating to a case alleging certain minimum wage violations; and
a $2.3 increase in legal expenses.
This increase was partially offset by:
a $10.9 million decrease in self-insurance expense related to prior year claims as a result of an actuarial evaluation completed during 2017;
a $7.8 million decrease in restructuring and related costs as a result of the completion of our 2020 Vision organizational realignment;
the absence of a $5.2 million specific reserve established during 2016 for a portion of a client receivable that is the subject of ongoing litigation;
a $3.2 million reimbursement during 2017 of previously expensed fees associated with a concluded internal investigation into a foreign entity formerly affiliated with a joint venture; and
a $1.9 million decrease in sales tax reserve.



28


The Year Ended October 31, 2016 Compared with the Year Ended October 31, 2015
Consolidated
 
Years Ended October 31,
 
 
 
 
($ in millions)
2016
 
2015
 
Increase / (Decrease)
Revenues
$
5,144.7

 
$
4,897.8

 
$
246.9

 
5.0%
Expenses
 
 
 
 
 
 
 
Operating expenses
4,603.4

 
4,392.3

 
211.1

 
4.8%
Gross margin
10.5
%
 
10.3
%
 
20 bps

 
 
Selling, general and administrative expenses
410.1

 
395.0

 
15.1

 
3.8%
Restructuring and related expenses
29.0

 
12.7

 
16.3

 
NM*
Amortization of intangible assets
25.0

 
24.2

 
0.8

 
3.1%
Impairment loss
22.5

 

 
22.5

 
100.0%
Operating profit
54.7

 
73.6

 
(18.9
)
 
(25.6)%
Income from unconsolidated affiliates, net
7.6

 
9.0

 
(1.4
)
 
(15.2)%
Interest expense
(10.4
)
 
(10.2
)
 
(0.2
)
 
(2.3)%
Income from continuing operations before income taxes
51.9

 
72.4

 
(20.5
)
 
(28.3)%
Income tax benefit (provision)
10.4

 
(18.3
)
 
28.7

 
NM*
Income from continuing operations
62.3

 
54.1

 
8.2

 
15.2%
(Loss) income from discontinued operations, net of taxes
(5.1
)
 
22.2

 
(27.3
)
 
NM*
Net income
57.2

 
76.3

 
(19.1
)
 
(25.0)%
Other comprehensive loss
 
 
 
 
 
 
 
Foreign currency translation
(26.3
)
 
(2.2
)
 
(24.1
)
 
NM*
Other, net of taxes
(0.2
)
 
(0.1
)
 
(0.1
)
 
89.1%
Comprehensive income
$
30.7

 
$
74.0

 
$
(43.3
)
 
(58.5)%
*Not meaningful
Revenues
Revenues increased by $246.9 million , or 5.0% , during 2016 , as compared to 2015 . The increase in revenues was attributable to organic growth in Aviation, B&I, Technical Solutions, and Emerging Industries Group and to $101.9 million of incremental revenues from acquisitions. This increase was partially offset by the completion of certain Government Services contracts.
Operating Expenses
Operating expenses increased by $211.1 million , or 4.8% , during 2016 , as compared to 2015 . Gross margin increased by 20 bps to 10.5% in 2016 from 10.3% in 2015 . The increase in gross margin was primarily attributable to higher revenue contribution from our Technical Solutions business and savings from our 2020 Vision initiatives and the related timing of open positions. This increase was partially offset by higher insurance expense due to an increase in the rate used to record our insurance reserves and one more working day during 2016.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $15.1 million , or 3.8% , during 2016 , as compared to 2015 . The increase in selling, general and administrative expenses was primarily related to:
$12.9 million of incremental selling, general and administrative expenses related to acquisitions;
a $10.1 million increase in bad debt expense primarily associated with specific reserves established for client receivables;
$3.9 million higher outside services costs as a result of our 2020 Vision initiatives; and
a $3.3 million increase in sales tax reserve for certain sales tax audits.

29


The increase was partially offset by:
the absence of $4.6 million in severance expense related to the departures of our former CEO and CFO;
a $4.3 million year-over-year decrease in medical and dental expense as a result of actuarial evaluations completed in the three months ended April 30, 2016;
$4.0 million lower compensation and related expenses primarily related to savings from our 2020 Vision ; and
a $2.4 million decrease in legal fees and settlement costs.
Restructuring and Related Expenses
Restructuring and related costs increased by $16.3 million during 2016 , as compared to 2015 , in connection with our 2020 Vision .
Impairment Loss
We recognized a $22.5 million impairment loss during 2016 associated with the Government Services business.
Income Taxes
Our income taxes for 2016 were favorably impacted by a benefit of $20.8 million related to expiring statutes of limitations for an uncertain tax position, $6.7 million of WOTC related to new hires in 2016, $5.1 million of WOTC from the retroactive reinstatement of the WOTC for calendar year 2015, $2.2 million of excess tax benefits related to the vesting of share-based compensation awards, and $1.2 million of tax credits for energy efficient government buildings.
Loss from Discontinued Operations, Net of Taxes
Loss from discontinued operations, net of taxes was $5.1 million in 2016, a deterioration of $27.3 million , as compared to income from discontinued operations, net of taxes of $22.2 million during 2015. We sold our Security business in 2015 and recognized a corresponding gain on the sale. The loss in 2016 was associated with costs related to this disposed business.
Foreign Currency Translation
During 2016 we recognized as a component of our comprehensive income a foreign currency translation loss of $26.3 million compared with a loss of $2.2 million during 2015. This change was related to the GBP weakening against the USD. Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.


30


Segment Information
Financial Information for Each Reportable Segment
 
Years Ended October 31,
 
 
 
 
($ in millions)
2016
 
2015
 
Increase / (Decrease)
Revenues
 
 
 
 
 
 
 
Business & Industry
$
2,949.1

 
$
2,890.3

 
$
58.8

 
2.0%
Aviation
851.8

 
790.0

 
61.8

 
7.8%
Emerging Industries Group
801.9

 
777.0

 
24.9

 
3.2%
Technical Solutions
425.3

 
296.9

 
128.4

 
43.3%
Government Services
116.7

 
143.7

 
(27.0
)
 
(18.8)%
 
$
5,144.7

 
$
4,897.8

 
$
246.9

 
5.0%
Operating profit (loss)
 
 
 
 
 
 
 
Business & Industry
$
135.4

 
$
145.5

 
$
(10.1
)
 
(6.9)%
Operating profit margin
4.6
%
 
5.0
%
 
(44) bps

 
 
Aviation
27.7

 
28.8

 
(1.1
)
 
(3.8)%
Operating profit margin
3.3
%
 
3.7
%
 
(39) bps

 
 
Emerging Industries Group
61.0

 
50.4

 
10.6

 
21.1%
Operating profit margin
7.6
%
 
6.5
%
 
112 bps

 
 
Technical Solutions
28.9

 
17.7

 
11.2

 
63.8%
Operating profit margin
6.8
%
 
5.9
%
 
85 bps

 
 
Government Services
(23.4
)
 
2.9

 
(26.3
)
 
NM*
Operating profit margin
(20.1
)%
 
2.0
%
 
NM*

 
 
Corporate
(167.2
)
 
(160.7
)
 
(6.5
)
 
(4.1)%
Adjustment for income from unconsolidated affiliates, net, included in Aviation and Government Services
(6.5
)
 
(9.0
)
 
2.5

 
(28.2)%
Adjustment for tax credits for energy efficient government buildings, included in Technical Solutions
(1.2
)
 
(2.0
)
 
0.8

 
(38.2)%
 
$
54.7

 
$
73.6

 
$
(18.9
)
 
(25.6)%
*Not meaningful
Business & Industry
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2016
 
2015
 
Increase / (Decrease)
Revenues
$
2,949.1

 
$
2,890.3

 
$
58.8

 
2.0%
Operating profit
135.4

 
145.5

 
(10.1
)
 
(6.9)%
Operating profit margin
4.6
%
 
5.0
%
 
(44) bps

 
 
Business & Industry revenues increased by $58.8 million , or 2.0% , during 2016 , as compared to 2015 . The increase was primarily attributable to the expansion of existing janitorial accounts, including additional tag revenue. Management reimbursement revenues for this segment totaled $227.8 million and $216.6 million during 2016 and 2015, respectively.
Operating profit decreased by $10.1 million , or 6.9% , during 2016 , as compared to 2015 . Operating profit margin decreased by 44 bps to 4.6% in 2016 from 5.0% in 2015 . The decrease in operating profit margin was primarily attributable to higher insurance expense, lower profit margins associated with certain leased location arrangements, one more working day during 2016, and the absence of a gain from a property sale. This decrease was partially offset by savings from our 2020 Vision initiatives and the related timing of open positions.

31


Aviation
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2016
 
2015
 
Increase / (Decrease)
Revenues
$
851.8

 
$
790.0

 
$
61.8

 
7.8%
Operating profit
27.7

 
28.8

 
(1.1
)
 
(3.8)%
Operating profit margin
3.3
%
 
3.7
%
 
(39) bps

 
 
Aviation revenues increased by $61.8 million , or 7.8% , during 2016 , as compared to 2015 . The increase was primarily attributable to organic growth in parking, cabin cleaning, and passenger services. Management reimbursement revenues for this segment totaled $ 78.2 million and $ 71.7 million during 2016 and 2015, respectively.
Operating profit decreased by $1.1 million , or 3.8% , during 2016 , as compared to 2015 . Operating profit margin decreased by 39 bps to 3.3% in 2016 from 3.7% in 2015 . The decrease in operating profit margin was primarily attributable to higher insurance expense and a penalty imposed by a regulatory agency. Also negatively impacting operating profit margin was the operations in one region of a large multi-regional contract during the three months ended January 31, 2016. Through corrective steps, we improved the profitability of this contract within the impacted region. This decrease in operating profit margin was partially offset by lower amortization expense of intangible assets.
Emerging Industries Group
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2016
 
2015
 
Increase
Revenues
$
801.9

 
$
777.0

 
$
24.9

 
3.2%
Operating profit
61.0

 
50.4

 
10.6

 
21.1%
Operating profit margin
7.6
%
 
6.5
%
 
112 bps

 
 
Emerging Industries Group revenues increased by $24.9 million , or 3.2% , during 2016 , as compared to 2015 . The increase was primarily related to net new Education and High Tech business, partially offset by the completion of certain Healthcare contracts.
Operating profit increased by $10.6 million , or 21.1% , during 2016 , as compared to 2015 . Operating profit margin increased by 112 bps to 7.6% in 2016 from 6.5% in 2015. This increase in operating profit margin was primarily attributable to improved margins on existing Healthcare contracts, higher contribution margin from certain High Tech accounts, and savings from our 2020 Vision initiatives and the related timing of open positions. This increase was partially offset by higher insurance expense and one more working day during 2016.
Technical Solutions
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2016
 
2015
 
Increase
Revenues
$
425.3

 
$
296.9

 
$
128.4

 
43.3%
Operating profit
28.9

 
17.7

 
11.2

 
63.8%
Operating profit margin
6.8
%
 
5.9
%
 
85 bps

 
 
Technical Solutions revenues increased by $128.4 million , or 43.3% , during 2016 , as compared to 2015 . The increase was primarily attributable to incremental revenues from acquisitions of $97.0 million and a large ESPC project.
Operating profit increased by $ 11.2 million , or 63.8% during 2016 , as compared to 2015 . Operating profit margin increased by 85 bps to 6.8% in 2016 from 5.8% in 2015 . The increase in operating profit margin was attributable to savings from our 2020 Vision initiatives.

32


Government Services
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2016
 
2015
 
Decrease
Revenues
$
116.7

 
$
143.7

 
$
(27.0
)
 
(18.8)%
Operating (loss) profit
(23.4
)
 
2.9

 
(26.3
)
 
NM*
Operating profit margin
(20.1
)%
 
2.0
%
 
NM*

 
 
*Not meaningful
Revenues from our Government Services segment decreased by $27.0 million , or 18.8% , during 2016 , as compared to 2015 . The decrease was primarily attributable to the completion of certain healthcare projects.
Operating loss was $23.4 million during 2016, a decrease of $26.3 million , as compared to operating profit of $2.9 million during 2015. The decrease in operating profit was primarily attributable to the $22.5 million impairment charge associated with the held-for-sale classification.
Corporate
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2016
 
2015
 
Increase
Corporate expenses
$
167.2

 
$
160.7

 
$
6.5

 
4.1%
Corporate expenses increased by $ 6.5 million , or 4.1% , during 2016 , as compared to 2015 . The increase in corporate expenses was primarily related to:
a $16.9 million increase in restructuring and related costs, net of the reversal of share-based compensation expense, in connection with our 2020 Vision initiatives;
a $5.2 million increase in bad debt expense related to a specific reserve established for a client receivable that is the subject of ongoing litigation;
a $3.4 million increase in compensation and related expenses primarily due to the impact of annual salary increases and the absence of a bonus reversal related to certain incentive plans in the prior year;
a $3.3 million increase in sales tax reserve for certain sales tax audits; and
$1.7 million higher outside services costs incurred as a result of our 2020 Vision .
This increase was partially offset by:
a $4.7 million decrease in legal fees and settlement costs;
the absence of $4.6 million in severance expense related to the departures of our former CEO and CFO;
a $4.3 million year-over-year decrease in medical and dental expense as a result of actuarial evaluations completed in the three months ended April 30, 2016;
$4.1 million in savings from our 2020 Vision ; and
a $3.0 million year-over-year decrease in self-insurance expense related to prior year claims as a result of actuarial evaluations completed in 2016.


33


Liquidity and Capital Resources
Our primary sources of liquidity are operating cash flows and borrowing capacity under our credit facility. We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs.
In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include funding legal settlements, insurance claims, dividend payments, capital expenditures, and integration costs related to the GCA acquisition. We anticipate long-term cash uses will also include strategic acquisitions and share repurchases.
We believe that our operating cash flows and borrowing capacity under our credit facility are sufficient to fund our cash requirements for the next twelve months. In the event that our plans change or our cash requirements are greater than we anticipate, we may need to access the capital markets to finance future cash requirements. However, there can be no assurance that such financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders.
On a long-term basis, we will continue to rely on our credit facility for any long-term funding not provided by operating cash flows. In addition, we anticipate that future cash generated from operations will be augmented by working capital improvements driven by our 2020 Vision , such as the management of costs through consolidated procurement.
IFM Assurance Company (“IFM”) is a wholly-owned captive insurance company that we formed in 2015. IFM is part of our enterprise-wide, multi-year insurance strategy that is intended to better position our risk and safety programs and provide us with increased flexibility in the end-to-end management of our insurance programs. IFM began providing coverage to us as of January 1, 2015. We had accelerated cash tax savings related to coverage provided by IFM of approximately $10 million in both 2017 and 2016 and approximately $20 million in 2015. We project accelerated cash tax savings for 2018 to be approximately $10 million.
Credit Facility
On September 1, 2017, we refinanced and replaced our existing $800.0 million credit facility with a new senior, secured five-year syndicated credit facility (the “ Credit Facility ”), consisting of a $900.0 million revolving line of credit and an $800.0 million amortizing term loan, scheduled to mature on September 1, 2022. The line of credit reduces to $800.0 million after one year. Borrowings under the Credit Facility were used to finance, in part, the cash portion of the purchase price related to the GCA acquisition, refinance certain existing indebtedness of ABM, and pay transaction costs.
At October 31, 2017, the total outstanding borrowings under our Credit Facility in the form of cash borrowings and standby letters of credit were $1.2 billion and $146.4 million , respectively. At October 31, 2017, we had up to $350.8 million of borrowing capacity under the Credit Facility, however covenant restrictions limited our borrowing capacity to $282.0 million .
Our ability to draw down available capacity under the Credit Facility is subject to, and limited by, compliance with certain financial covenants, which include a maximum leverage ratio of 4.75 to 1.0 that steps down to 3.50 to 1.0 by July 2020 and a minimum fixed charge coverage ratio of 1.50 to 1.0. Other covenants under the Credit Facility include limitations on liens, dispositions, fundamental changes, investments, and certain transactions and payments. At October 31, 2017 , we were in compliance with these covenants and expect to be in compliance in the foreseeable future.
Reinvestment of Foreign Earnings
We plan to reinvest our foreign earnings to fund future non-U.S. growth and expansion. As a result, we do not anticipate remitting such earnings to the United States and have not provided for federal and state income taxes or foreign withholding taxes that may result if such earnings of our foreign subsidiaries are remitted to the United States. We believe that our cash on hand in the United States, along with our Credit Facility and future domestic cash flows, are sufficient to satisfy our domestic liquidity requirements.


34


Proceeds from Federal Energy Savings Performance Contracts
As part of our Technical Solutions business, we enter into ESPCs with the federal government pursuant to which we agree to develop, design, engineer, and construct a project and guarantee that the project will satisfy agreed-upon performance standards. Proceeds from ESPC projects are generally received in advance of construction through agreements to sell the ESPC receivables to unaffiliated third parties. We use the advances from the third parties under these agreements to finance the projects, which are recorded as cash flows from financing activities. The use of the cash received under these arrangements to pay project costs is classified as operating cash flows.
Effect of Inflation
The rates of inflation experienced in recent years have not had a material impact on our financial statements. We attempt to recover increased costs by increasing prices for our services, to the extent permitted by contracts and competition.
Regulatory Environment and Environmental Compliance
Our operations are subject to various federal, state, and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, such as discharge into soil, water, and air, and the generation, handling, storage, transportation, and disposal of waste and hazardous substances. In addition, from time to time we are involved in environmental matters at certain of our locations or in connection with our operations. Historically, the cost of complying with environmental laws or resolving environmental issues relating to locations or operations in the United States or abroad has not had a material adverse effect on our financial position, results of operations, or cash flows. We do not believe that the resolution of matters known at this time will be material.
Share Repurchases
On September 2, 2015, our Board of Directors authorized a program to repurchase up to $200.0 million shares of our common stock. Purchases may take place on the open market or otherwise, and all or part of the repurchases may be made pursuant to Rule 10b5-1 plans or in privately negotiated transactions. The timing of repurchases is at our discretion and will depend upon several factors, including market and business conditions, future cash flows, share price, and share availability. Repurchased shares are retired and returned to an authorized but unissued status. The repurchase program may be suspended or discontinued at any time without prior notice. At October 31, 2017 , authorization fo r $134.1 million of repurchases remained under our share repurchase program. We do not anticipate additional repurchases in the near future.
Repurchase Activity
 
Years Ended October 31,
(in millions, except per share amounts)
2017
 
2016
 
2015
Total number of shares purchased
0.2

 
1.4

 
1.0

Average price paid per share
$
40.07

 
$
33.48

 
$
30.72

Total cash paid for share repurchases
$
7.9

 
$
46.6

 
$
31.4


35


Cash Flows
In addition to revenues and operating profit, our management views operating cash flows as a good indicator of financial performance, because strong operating cash flows provide opportunities for growth both organically and through acquisitions. Net cash provided by operating activities of continuing operations was $101.7 million during 2017 . Operating cash flows primarily depend on: revenue levels; the quality and timing of collections of accounts receivable; the timing of payments to suppliers and other vendors; the timing and amount of income tax payments; and the timing and amount of payments on insurance claims and legal settlements.
 
Years Ended October 31,
(in millions)
2017
 
2016
 
2015
Net cash provided by operating activities of continuing operations
$
101.7

 
$
110.5

 
$
145.5

Net cash (used in) provided by  operating activities of discontinued operations
(96.1
)
 
(27.0
)
 
0.9

Net cash provided by  operating activities
5.6

 
83.5

 
146.4

 
 
 
 
 
 
Net cash used in  investing activities of continuing operations
(871.8
)
 
(131.7
)
 
(40.5
)
Net cash (used in) provided by  investing activities of discontinued operations

 
(3.1
)
 
130.9

Net cash (used in) provided by  investing activities
(871.8
)
 
(134.8
)
 
90.4

 
 
 
 
 
 
Net cash provided by (used in)  financing activities
874.0

 
52.6

 
(216.9
)
Operating Activities of Continuing Operations
Net cash provided by operating activities of continuing operations decreased by $8.8 million during 2017 , as compared to 2016 . The decrease was primarily related to the timing of client receivable collections and income taxes payable, but was partially offset by the timing of vendor payments.
Net cash provided by operating activities of continuing operations decreased by $35.0 million during 2016 , as compared to 2015 . The decrease was primarily related to the timing of ESPC projects and trade receivable collections, as well as the timing of vendor payments. This decrease was partially offset by the timing of tax payments.
Operating Activities of Discontinued Operations     
Net cash used in operating activities of discontinued operations increased by $69.1 million during 2017 , as compared to 2016 . This increase was primarily attributable to the payment of $120.0 million to settle the Augustus and Karapetyan cases, compared to the $20.0 million in taxes paid related to the sale of the Security business in 2016.
Net cash used in operating activities of discontinued operations increased by $27.9 million during 2016 , as compared to 2015 . This increase was primarily attributable to $20.0 million in taxes paid related to the sale of the Security business in 2016.
Investing Activities of Continuing Operations
Net cash used in investing activities of continuing operations increased by $740.1 million during 2017 , as compared to 2016 . The increase was primarily related to a $757.6 million year-over-year increase in cash paid, net of cash acquired, for acquisitions, largely due to the GCA acquisition.
Net cash used in investing activities of continuing operations increased by $91.2 million during 2016 , as compared to 2015 . The increase was primarily related to a $76.8 million year-over-year increase in cash paid, net of cash acquired, for acquisitions.
    

36


Investing Activities of Discontinued Operations
Net cash used in investing activities of discontinued operations decreased by $3.1 million during 2017 , as compared to 2016. The decrease was related to the absence of the final working capital adjustment from the sale of the Security business.
Net cash used in investing activities of discontinued operations was $3.1 million in 2016 , a decrease of $134.0 million , as compared to net cash provided by investing activities of discontinued operations of $130.9 million during 2015 . We sold our Security business in 2015 and recognized $131.0 million of cash proceeds from the sale. The cash used in 2016 was associated with the payment of $3.1 million in settlement of the final working capital adjustment from the sale.
Financing Activities
Net cash provided by financing activities increased by $821.4 million during 2017, as compared to 2016. The increase was primarily related to higher net borrowings of $812.6 million associated with greater financing activity in the fourth quarter of 2017 to fund the GCA acquisition and $38.7 million in lower common stock repurchases. This increase was offset by $18.7 million of deferred financing costs paid on the new credit facility and $15.8 million of lower proceeds from ESPC projects during 2017.
The change in net cash provided by financing activities was $269.5 million in 2016 when compared to 2015 . During 2016, our net cash provided by financing activities of $52.6 million was primarily a result of borrowings from our line of credit to fund two acquisitions made in 2016. During 2015, our net cash used in financing activities of $216.9 million was a result of the repayment of borrowings from our line of credit primarily resulting from the cash proceeds from the sale of our Security business. Also contributing to the change in net cash provided by financing activities was a $17.4 million increase in proceeds from ESPC projects, partially offset by higher common stock repurchases of $15.2 million .
Dividends
On December 13, 2017 , we announced a quarterly cash dividend of $0.175 per share on our common stock, payable on February 5, 2018 . We declared a quarterly cash dividend on our common stock every quarter during 2017 , 2016 , and 2015 . We paid total annual dividends of $39.5 million , $36.9 million , and $36.0 million during 2017 , 2016 , and 2015 , respectively.


37


Contractual Obligations
(in millions )
Commitments Due By Period
Contractual Obligations
Total
 
2018
 
2019-2020
 
2021-2022
 
Thereafter
Borrowings under term loan (1)
$
800.0

 
$
20.0

 
$
100.0

 
$
680.0

 
$

Borrowings under line of credit (1)
391.2

 

 

 
391.2

 

Fixed interest related to interest rate swaps (2)
44.4

 
9.5

 
18.9

 
16.0

 

Operating leases and other similar commitments (3)
319.0

 
79.7

 
89.0

 
65.5

 
84.8

Capital leases (3)
12.6

 
3.1

 
6.1

 
3.0

 
0.3

Information technology service agreements (4)
26.4

 
11.8

 
11.6

 
3.0

 

Benefit obligations (5)
31.3

 
7.6

 
5.4

 
4.7

 
13.7

Total
$
1,624.8

 
$
131.8

 
$
231.0

 
$
1,163.4

 
$
98.8

(1) Borrowings under our term loan and line of credit are presented at face value.
(2) Our estimates of future interest payments are calculated based on our hedged borrowings under our Credit Facility, using the fixed rates under our interest rate swap agreements for the applicable notional amounts. See Note 12 , “Credit Facility,” in the Financial Statements for additional disclosure related to our interest rate swaps. We exclude interest payments on our remaining borrowings from this table because the cash outlay for the interest is unknown. The interest payments on the borrowings under the Credit Facility will be determined based upon the average outstanding balance of our borrowings and the prevailing interest rate during that time.
(3) Reflects our contractual obligations to make future payments under non-cancelable operating leases, capital lease agreements, and other similar commitments for various facilities, vehicles, and other equipment.
(4) Reflects our contractual obligations to make future payments for outsourced services and licensing costs pursuant to our information technology agreements.
(5) Reflects future expected payments relating to our defined benefit, postretirement, and deferred compensation plans. These amounts are based on expected future service and were calculated using the same assumptions used to measure our benefit obligation at October 31, 2017 .
In addition to our company sponsored plans, we participate in certain multiemployer pension and other postretirement plans. The cost of these plans is equal to the annual required contributions determined in accordance with the provisions of negotiated collective bargaining arrangements. During 2017 , 2016 , and 2015 , contributions made to these plans were $316.4 million , $290.4 million , and $282.1 million , respectively; however, our future contributions to the multiemployer plans are dependent upon a number of factors, including the funded status of the plans, the ability of other participating companies to meet ongoing funding obligations, and the level of our ongoing participation in these plans. As the amount of future contributions that we would be contractually obligated to make pursuant to these plans cannot be reasonably estimated, such amounts have been excluded from the above table. See Note 13 , “Employee Benefit Plans,” in the Financial Statements for more information.     
At October 31, 2017 , our total liability for unrecognized tax benefits was $16.3 million . The resolution or settlement of these tax positions with the taxing authorities is subject to significant uncertainty, and therefore we are unable to make a reliable estimate of the amount or timing of cash that may be required to settle these matters. In addition, certain of these matters may not require cash settlements due to the exercise of credits and net operating loss carryforwards as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be available.

38


    We have no off-balance sheet arrangements other than unrecorded standby letters of credit and surety bonds. We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations and to collateralize self-insurance obligations in the event we are unable to meet our claim payment obligations. As we already have reserves on our books for the claims costs, these do not represent additional liabilities. The bonds typically remain in force for one to five years and may include optional renewal periods. As of October 31, 2017 , these letters of credit and surety bonds totaled $146.4 million and $486.2 million , respectively. Included in the total amount of surety bonds is $2.5 million of bonds with an effective date starting after October 31, 2017 . Neither of these arrangements has a material current effect, or is reasonably likely to have a material future effect, on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.


39


Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires our management to make certain estimates that affect the reported amounts. We base our estimates on historical experience, known or expected trends, independent valuations, and various other assumptions that we believe to be reasonable under the circumstances. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. We believe the following critical accounting policies govern the more significant judgments and estimates used in the preparation of our financial statements.
Description
 
Judgments and Uncertainties
 
Effect if Actual Results Differ from Assumptions
Allowance for Doubtful Accounts

We estimate the allowance for doubtful accounts based on a variety of factors, including an analysis of the historical rate of credit losses or write-offs, specific client concerns, and known or expected trends.
 


The determination of our allowance for doubtful accounts contains uncertainties because it requires our management to make assumptions and apply judgment about future uncollectible accounts.

Actual write-offs and adjustments could differ from the allowance estimates due to unanticipated changes in the business environment as well as factors and risks associated with specific clients.

In addition, adverse developments in negotiations or legal proceedings to obtain payment could result in the actual loss exceeding the estimated allowance.
 


We have not made any changes in the accounting methodology used to record our allowance for doubtful accounts during the past three years.

A 10% change in our allowance for doubtful accounts would have affected net income by approximately $1.5
  million for 2017.
Customer Relationships

When we acquire a company, we determine the fair value on the acquisition date of assets acquired and liabilities assumed.

We anticipate that for most acquisitions we will exercise significant judgment in estimating the fair value of intangible assets.

In a typical acquisition, customer relationships are our most significant definite-lived intangible asset. In valuing these relationships, we engage a third-party valuation expert to fair value these assets using a version of the income approach known as the “excess earnings method.”

This method uses a discounted cash flow approach that is derived from historical information, future revenue and operating profit margins, contributory asset charges, and the selection of an appropriate discount rate.

We consider this approach the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income.


 


The customer attrition rate and expected revenue growth are two significant estimates used to derive the projected revenues and profitability in the customer relationships valuation. Both of these estimates are influenced by many factors, including historical financial information, estimated retention rates, and management's expectations for future customer growth as a combined company.

Another estimate that impacts the valuation is the contributory charge for the acquired workforce, which involves management assumptions based on historical experience, including interview time and new hire productivity.

The estimated life is determined by calculating the number of years necessary to obtain 90% of the value of the discounted cash flows of the relationships and is directly tied to the accuracy of the above assumptions.
 


We have not made any changes in the accounting methodology used to determine the fair value of customer relationships during the last three years.

If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop the values of the identifiable intangible assets, we could record material impairment losses.

With other assumptions held constant, a 10% increase in the calculated fair value of the GCA customer relationships would increase the annual amortization expense by $4.2 million in 2018.

See the Amortization and   Impairment of Long-Lived Assets” critical accounting policy for information about impairment evaluations.



40


Description