e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2005


o		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

ABM INDUSTRIES INCORPORATED

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


Delaware		94-1369354

(State of Incorporation)		(I.R.S. Employer Identification No.)

160 Pacific Avenue, Suite 222, San Francisco, California 94111

(Address of principal executive offices)(Zip Code)

415/733-4000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 the filing requirements for at least the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

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

Number of shares of common stock outstanding as of August 31, 2005: 48,767,160.


PART I.		FINANCIAL INFORMATION


Item 1.		Financial Statements (Unaudited)

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	July 31,			October 31,
(in thousands, except share amounts)	2005			2004

ASSETS

Current assets
Cash and cash equivalents	$	43,202		$	63,369
Trade accounts receivable, net		350,938			307,237
Inventories		20,559			20,554
Deferred income taxes		40,561			40,918
Prepaid expenses and other current assets		44,959			38,607
Assets held for sale		—			14,441

Total current assets		500,219			485,126


Investments and long-term receivables		9,138			10,450

Property, plant and equipment, at cost
Land and buildings		5,070			5,054
Transportation equipment		14,455			14,039
Machinery and other equipment		77,742			77,506
Leasehold improvements		16,036			14,176

		113,303			110,775
Less accumulated depreciation and amortization		(78,282	)		(79,584	)

Property, plant and equipment, net		35,021			31,191


Goodwill, net of accumulated amortization		242,343			225,495

Other intangibles, at cost		37,705			30,278
Less accumulated amortization		(12,212	)		(7,988	)

Other intangibles, net		25,493			22,290


Deferred income taxes		46,718			48,802
Other assets		18,422			19,170


Total assets	$	877,354		$	842,524

(Continued)

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	July 31,			October 31,
(in thousands, except share amounts)	2005			2004

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Trade accounts payable	$	42,994		$	42,553
Income taxes payable		3,263			10,065
Liabilities held for sale		—			3,926
Accrued liabilities:
Compensation		64,071			64,350
Taxes — other than income		18,840			18,162
Insurance claims		66,730			67,662
Other		57,043			47,710

Total current liabilities		252,941			254,428

Retirement plans and other non-current liabilities		24,861			25,658
Insurance claims		126,865			120,277

Total liabilities		404,667			400,363


Stockholders’ equity
Preferred stock, $0.01 par value; 500,000 shares authorized; none issued		—			—
Common stock, $0.01 par value;100,000,000 shares authorized; 54,296,000 and 52,707,000 shares issued at July 31, 2005 and October 31,2004, respectively		544			527
Additional paid-in capital		201,686			178,543
Accumulated other comprehensive loss		(160	)		(108	)
Retained earnings		366,994			328,258
Cost of treasury stock (5,600,000 and 4,000,000 shares at July 31, 2005 and October 31, 2004), respectively		(96,377	)		(65,059	)

Total stockholders’ equity		472,687			442,161


Total liabilities and stockholders’ equity	$	877,354		$	842,524

The accompanying notes are an integral part of the consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended					Nine Months Ended
	July 31,					July 31,
(In thousands except per share amounts)	2005			2004		2005		2004
				As Restated				As Restated
Revenues
Sales and other income	$	650,140		$	612,797	$	1,927,860	$	1,755,355
Gain on insurance claim		—			—		1,195		—

Total revenues		650,140			612,797		1,929,055		1,755,355


Expenses
Operating expenses and cost of goods sold		570,959			547,891		1,726,542		1,585,606
Selling, general and administrative		44,417			43,683		139,455		125,240
Intangible amortization		1,430			1,294		4,264		3,239
Interest		220			255		713		746

Total expenses		617,026			593,123		1,870,974		1,714,831


Income from continuing operations before income taxes		33,114			19,674		58,081		40,524
Income taxes		11,422			6,778		18,202		14,196

Income from continuing operations		21,692			12,896		39,879		26,328
Income (loss) from discontinued operations, net of income taxes		(15	)		252		233		495
Gain on sale of discontinued operations, net of income taxes		14,221			—		14,221		—

Net income	$	35,898		$	13,148	$	54,333	$	26,823


Net income per common share — Basic
Income from continuing operations	$	0.45		$	0.26	$	0.81	$	0.54
Income (loss) from discontinued operations		(0.01	)		0.01		—		0.01
Gain on sale of discontinued operations		0.29			—		0.29		—

	$	0.73		$	0.27	$	1.10	$	0.55


Net income per common share — Diluted
Income from continuing operations	$	0.43		$	0.25	$	0.79	$	0.53
Income from discontinued operations		—			0.01		—		0.01
Gain on sale of discontinued operations		0.29			—		0.29		—

	$	0.72		$	0.26	$	1.08	$	0.54


Average common and common equivalent shares
Basic		49,487			48,748		49,470		48,658
Diluted		50,462			50,226		50,522		50,052

Dividends declared per common share	$	0.105		$	0.10	$	0.315	$	0.30

The accompanying notes are an integral part of the consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2005 AND 2004


(in thousands)	2005			2004
				As Restated
Cash flows from operating activities:
Net income	$	54,333		$	26,823
Less income from discontinued operations		(14,454	)		(495	)

Income from continuing operations		39,879			26,328
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and intangible amortization		14,670			13,206
Provision for bad debts		702			3,019
Gain on sale of assets		(61	)		(158	)
Increase in deferred income taxes		1,477			(3,634	)
Increase in trade accounts receivable		(37,268	)		(20,562	)
(Increase) decrease in inventories		(5	)		279
(Increase) decrease in prepaid expenses and other current assets		(6,204	)		3,000
Decrease (increase) in other assets		259			(5,569	)
(Decrease) increase in income taxes payable		(12,172	)		4,135
(Decrease) increase in retirement plans accrual and other non-current liabilities		(797	)		906
Increase in insurance claims liability		5,656			11,109
Increase in trade accounts payable and other accrued liabilities		8,354			10,174

Total adjustments to net income		(25,389	)		15,905

Net cash flows from continuing operating activities		14,490			42,233
Net operational cash flows from discontinued operations		372			(29,810	)

Net cash provided by operating activities		14,862			12,423

Cash flows from investing activities:
Additions to property, plant and equipment		(14,887	)		(9,250	)
Proceeds from sale of assets		1,254			507
Decrease in investments and long-term receivables		1,312			1,260
Purchase of businesses		(25,430	)		(48,209	)
Proceeds from sale of business		32,250			—
Net investing cash flows from discontinued operation		—			(10	)

Net cash used in investing activities		(5,501	)		(55,702	)

Cash flows from financing activities:
Common stock issued		17,387			7,510
Common stock purchases		(31,318	)		(11,073	)
Dividends paid		(15,597	)		(14,604	)

Net cash used in financing activities		(29,528	)		(18,167	)

Net decrease in cash and cash equivalents		(20,167	)		(61,446	)
Cash and cash equivalents beginning of period		63,369			110,947

Cash and cash equivalents end of period	$	43,202		$	49,501

Supplemental Data:
Cash paid for income taxes	$	28,897		$	44,681
Non-cash investing activities:
Common stock issued for business acquired	$	3,490		$	—

The accompanying notes are an integral part of the consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.		General

In the opinion of management, the accompanying unaudited consolidated financial statements contain all material adjustments necessary to present fairly ABM Industries Incorporated (ABM) and subsidiaries’ (the Company) financial position as of July 31, 2005 and the results of operations for the three and nine months then ended, and cash flows for the nine months then ended. These adjustments are of a normal, recurring nature, except as otherwise noted.

The information included in this Form 10-Q should be read in conjunction with the Management’s Discussion and Analysis, the consolidated financial statements and the notes thereto included in the Company’s Form 10-K Annual Report for the fiscal year ended October 31, 2004, as filed with the Securities and Exchange Commission.

In addition to the discontinued operations certain reclassifications of prior year amounts have been made to conform with the current year presentation.

On June 2, 2005, the Company sold substantially all of the operating assets of its wholly owned subsidiary, CommAir Mechanical Services (Mechanical). Most of the remaining assets, consisting of the assets of the water treatment business, were sold separately on July 31, 2005. As a result of these events, the assets and liabilities of Mechanical have been segregated and its operating results and cash flows have been reported as a discontinued operation in the accompanying consolidated financial statements of the Company. See Note 10.


2.		Previous Restatement of Prior Periods

During the preparation of the financial statements for the year ended October 31, 2004, the Company concluded that the methodology it was using to estimate its self-insurance reserves in its previously issued financial statements was not in accordance with generally accepted accounting principles (GAAP) and therefore restated its previously issued financial statements in connection with the preparation of the financial statements included in its Annual Report on Form 10-K for the year ended October 31, 2004. As a result of the decision to restate, the Company further determined to make additional corrections to its financial statements. The effects of the restatement for the correction of these errors on the three and nine months ended July 31, 2004 are shown below:


	Three Months Ended			Nine Months Ended
(in thousands)	July 31, 2004			July 31, 2004

Insurance	$	(608	)	$	(1,666	)
Intangible amortization		—			899
Software amortization		(135	)		(405	)

Decrease in income from continuing operations before income taxes		(743	)		(1,172	)
Income taxes		(497	)		(661	)

Decrease in income from continuing operations, net of income taxes	$	(246	)	$	(511	)

Detailed information on the restatement is included in the Company’s Form 10-K Annual Report for the fiscal year ended October 31, 2004, as filed with the Securities and Exchange Commission.


3.		Net Income per Common Share

The Company has reported its earnings in accordance with Statement of Financial Accounting Standard (SFAS) No. 128, “Earnings per Share.” Basic net income per common share is based on the weighted average number of shares outstanding during the period. Diluted net income per common share is based on the weighted average number of shares outstanding during the period, including common stock equivalents. Stock options account for the entire difference between basic average common shares outstanding and diluted average common shares outstanding. The calculation of net income per common share is as follows:


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
(in thousands, except per share data)	2005		2004		2005		2004
			As Restated				As Restated
Net income available to common stockholders	$	35,898	$	13,148	$	54,333	$	26,823


Average common shares outstanding — Basic		49,487		48,748		49,470		48,658
Effect of dilutive securities:
Stock options		975		1,478		1,052		1,394

Average common shares outstanding — Diluted		50,462		50,226		50,522		50,052


Net income per common share — Basic	$	0.73	$	0.27	$	1.10	$	0.55

Net income per common share — Diluted	$	0.72	$	0.26	$	1.08	$	0.54

For purposes of computing diluted net income per common share for each quarter, weighted average common share equivalents do not include stock options with an exercise price that exceeds the average fair market value of the Company’s common shares for the quarter (i.e., “out-of-the-money” options). For the three months ended July 31, 2005 and 2004, options to purchase common shares of 324,500 and 23,250, respectively, at weighted average exercise prices of $21.49 and $19.04, respectively, were excluded from the computation.


4.		Stock-Based Compensation

The Company accounts for stock-based employee compensation plans, including purchase rights issued under the Employee Stock Purchase Plan, using the intrinsic value method under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” The Company’s application of APB Opinion No. 25 does not result in compensation cost because the exercise price of the options is equal to or greater than the fair value of the stock at the grant date. Under the intrinsic value method, if the fair value of the stock is greater than the exercise price at the grant date, the excess is amortized to compensation expense over the estimated service life of the recipient.

On March 24, 2005, the Company amended its 2002 Price-Vested Performance Stock Option Plan (2002 Plan) to permit the Company to make grants with exercise prices at or above the fair market value of the Company’s common stock on the date of grant. Prior to the amendment, the 2002 Plan called for all grants to have exercise prices equal to the fair market value of the Company’s common stock on the day of grant.

On June 7, 2005, the Company amended its Time-Vested Incentive Stock Option Plan and its 2002 Plan to permit the Company to make grants effective on a future date. For purposes of determining exercise prices of an option effective on a future date, the fair market value will be the closing price of the Company’s common stock on such future date.

On June 14, 2005, the Company amended the 2002 Plan to change the accelerated vesting prices of options granted on that date to $23.00 and $26.00. The options will vest within the first four years if the fair market value of the Company’s common stock equals or exceeds $23.00 with respect to the first 50% of options and $26.00 with respect to the remaining options. If, at the end of four years, either of the stock price performance targets were not achieved, then the remaining options would vest at the end of eight years from the date the options were granted.

As all options granted since October 31, 1995 had exercise prices equal to or greater than the market value of the underlying common stock on the date of grant, no stock-based employee compensation cost was reflected in net income for the three and nine months ended July 31, 2005 and 2004, except for $42,000 of compensation expense recorded in the first three months of 2005 due to the accelerated vesting of options for 4,000 common shares in connection with the termination of an employee on December 7, 2004. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to all outstanding employee options granted after October 31, 1995 using the retroactive restatement method:


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
(in thousands, except per share data)	2005		2004		2005		2004
			As Restated				As Restated
Net income, as reported	$	35,898	$	13,148	$	54,333	$	26,823

Deduct: Stock-based employee compensation cost, net of tax effect, that would have been included in net income if the fair value method had been applied		799		298		2,300		1,342


Net income, pro forma	$	35,099	$	12,850	$	52,033	$	25,481


Net income per common share — Basic
As reported	$	0.73	$	0.27	$	1.10	$	0.55
Pro forma	$	0.71	$	0.26	$	1.05	$	0.52

Net income per common share — Diluted
As reported	$	0.72	$	0.26	$	1.08	$	0.54
Pro forma	$	0.70	$	0.26	$	1.03	$	0.51

For purposes of calculating the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models. The use of these models requires subjective assumptions, including future stock price volatility and expected time to exercise, which can have a significant effect on the calculated values. The Company’s calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions:


	Three Months Ended						Nine Months Ended
	July 31,						July 31,
	2005			2004			2005			2004

Expected life from the date of grant	10 years			8.1 years			9.2 years			7.3 years
Expected stock price volatility average		23.3	%		20.5	%		22.9	%		24.5	%
Expected dividend yield		2.3	%		2.1	%		2.2	%		2.6	%
Risk-free interest rate		4.1	%		4.5	%		4.1	%		3.7	%
Weighted average fair value of grants	$	5.15		$	4.92		$	5.16		$	4.18

The Company’s pro forma calculations are based on a single option valuation approach. The computed pro forma fair value of the options awards are amortized over the required vesting periods. For purposes of the pro forma calculations, should options vest earlier, the remaining unrecognized value is recognized immediately and stock option forfeitures are recognized as they occur.

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, “Share-Based Payment.” This statement is a revision to SFAS No. 123 and supercedes APB Opinion No. 25. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. Entities will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service. SFAS No. 123R is effective as of the beginning of the first annual reporting period that begins after June 15, 2005. In accordance with the standard, the Company will adopt SFAS No. 123R effective November 1, 2005. The Company believes that the impact that the adoption of SFAS No. 123R will have on its financial position or results of operations will approximate the magnitude of the stock-based employee compensation costs disclosed in this note.


5.		Parking Revenue Presentation

The Company’s Parking segment reports both revenues and expenses recognized, in equal amounts, for costs directly reimbursed from its managed parking lot clients in accordance with Emerging Issues Task Force (EITF) Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred.” Parking sales related solely to the reimbursement of expenses totaled $57.6 million and $54.3 million for the three months ended July 31, 2005 and 2004, respectively, and $172.1 million and $160.3 million for the nine months ended July 31, 2005 and 2004, respectively.


6.		Insurance

The Company self-insures certain insurable risks such as general liability, automobile, property damage, and workers’ compensation. Commercial policies are obtained to provide for $150.0 million of coverage for certain risk exposures above the self-insured retention limits (i.e., deductibles). For claims incurred after November 1, 2002, substantially all of the self-insured retentions increased from $0.5 million (inclusive of legal fees) to $1.0 million (exclusive of legal fees) except for California workers’ compensation insurance which increased to $2.0 million effective April 14, 2003. However, effective April 14, 2005, the deductible for California workers’ compensation insurance decreased from $2.0 million to $1.0 million per occurrence, plus an additional $1.0 million annually in the aggregate, due to improvements in general insurance market conditions.

The Company uses an independent actuary to annually evaluate the Company’s estimated claim costs and liabilities and accrues self-insurance reserves in an amount that is equal to the actuarial point estimate. Using the annual actuarial report, management develops annual insurance costs for each operation, expressed as a rate per $100 of exposure (labor and revenue) to estimate insurance costs on a quarterly basis. Additionally, management monitors new claims and claim development to assess the adequacy of the insurance reserves. The estimated future charge is intended to reflect the recent experience and trends. Trend analysis is complex and highly subjective. The interpretation of trends requires the knowledge of all factors affecting the trends that may or may not be reflective of adverse development (e.g., change in regulatory requirements and change in reserving methodology). If the trends suggest that the frequency or severity of claims incurred has increased, the Company might be required to record additional expenses for self-insurance liabilities. Additionally, the Company uses third party service providers to administer its claims and the performance of the service providers and transfers between administrators can impact the cost of claims and accordingly the amounts reflected in insurance reserves.

The 2005 actuarial report covering substantially all of the Company’s self-insurance reserves was completed in the third quarter of 2005. The report showed favorable developments in the Company’s California workers’ compensation and general and auto liability claims, offset in part by adverse development in the Company’s workers’ compensation claims outside of California, in each case as of May 1, 2005. The net favorable development required the Company to reduce its self-insurance reserve by $9.0 million. Of the $9.0 million, $5.5 million was attributable to reserves for 2004 and prior years, of which $1.4 million was attributable to a correction of an overstatement of reserves at October 31, 2004, while $3.5 million was a reduction of the insurance provision for the first six months of 2005. The $5.5 million was recorded by Corporate while the $3.5 million was allocated to the operating segments. Including the $3.5 million benefit, the total insurance expense recorded by the operating segments for the first nine months of 2005 was flat compared to the first nine months of 2004 except for the additional insurance expense attributable to acquisitions.

The actuarial report referred to above covers insurance reserves totaling $185.6 million as of July 31, 2005. The Company also has several low deductible self-insurance programs that cover general liability expenses at malls, special event facilities and airport shuttles, as well as workers’ compensation for selected employees in certain states. The actuarial valuations of these self-insurance reserves are in the process of being performed and are expected to be completed in the fourth quarter of 2005. The aggregate amounts of these self-insurance reserves were $8.0 million and $5.9 million at July 31, 2005 and October 31, 2004, respectively.

The total estimated liability for claims incurred but unpaid at July 31, 2005 and October 31, 2004 was $193.6 million and $187.9 million, respectively.

In connection with certain self-insurance programs, the Company had standby letters of credit at July 31, 2005 and October 31, 2004 supporting estimated unpaid liabilities in the amounts of $82.1 million and $88.3 million, respectively.

Variable Interest Entities

The Company has investments in two low income housing tax credit partnerships. Purchased in 1995 and 1998, these limited partnerships, organized by independent third parties and sold as investments, are variable interest entities as defined by FASB Financial Interpretation (FIN) No. 46R, a revision to FIN 46, “Consolidation of Variable Interest Entities.” In accordance with FIN 46R, these partnerships are not consolidated in the Company’s consolidated financial statements because the Company is not the primary beneficiary of the partnerships. At July 31, 2005 and October 31, 2004, the at-risk book value of these investments totaled $3.2 million and $3.9 million, respectively.

Goodwill and Other Intangibles

Goodwill. The changes in the carrying amount of goodwill for the nine months ended July 31, 2005 were as follows (acquisitions are discussed in Note 9):


(in thousands)			Initial
	Balance as of		Payments for		Contingent		Balance as of
Segment	October 31, 2004		Acquisitions		Amounts		July 31, 2005

Janitorial	$	139,221	$	3,650	$	7,840	$	150,711
Parking		28,749		—		650		29,399
Security		37,605		2,563		1,889		42,057
Engineering		2,174		—		—		2,174
Lighting		17,746		—		256		18,002

Total	$	225,495	$	6,213	$	10,635	$	242,343

The $2.6 million increase in Security’s goodwill for initial payments for acquisitions includes $1.0 million that resulted from recording a deferred tax liability from the Sentinel Guard Systems (Sentinel) transaction in the first quarter of 2005. See Note 9.

Other Intangibles. The changes in the gross carrying amount and accumulated amortization of intangibles other than goodwill for the nine months ended July 31, 2005 were as follows (acquisitions are discussed in Note 9):


	Gross Carrying Amount									Accumulated Amortization
	October 31,				Retire-			July 31,		October 31,						Retire-		July 31,
(in thousands)	2004		Additions		ments			2005		2004			Additions			ments		2005
Customer contracts and related relationships	$	21,217	$	6,900	$	—		$	28,117	$	(3,546	)	$	(2,970	)	$	—	$	(6,516	)
Trademarks and trade names		3,000		50		—			3,050		(570	)		(522	)		—		(1,092	)
Other (contract rights, etc.)		6,061		517		(40	)		6,538		(3,872	)		(772	)		40		(4,604	)

Total	$	30,278	$	7,467	$	(40	)	$	37,705	$	(7,988	)	$	(4,264	)	$	40	$	(12,212	)

The weighted average remaining lives as of July 31, 2005 and the amortization expense for the three and nine months ended July 31, 2005 and 2004 of intangibles other than goodwill, as well as the estimated amortization expense for such intangibles for each of the five succeeding fiscal years are as follows:


	Weighted				Amortization Expense						Estimated Amortization Expense
	Average		Three Months Ended				Nine Months Ended				Years Ending
	Remaining Life		July 31,				July 31,				October 31,
($ in thousands)	(Years)		2005		2004		2005		2004		2006		2007		2008		2009		2010
									As Restated
Customer contracts and related relationships		10.6	$	1,031	$	791	$	2,970	$	1,917	$	3,780	$	3,379	$	2,978	$	2,577	$	2,176
Trademarks and trade names		3.6		135		180		522		353		540		540		540		203		—
Other (contract rights, etc.)		5.5		264		323		772		969		732		146		139		128		102

Total		9.6	$	1,430	$	1,294	$	4,264	$	3,239	$	5,052	$	4,065	$	3,657	$	2,908	$	2,278

The customer relationship intangible assets are being amortized using the sum-of-the-years-digits method over their useful lives consistent with the estimated useful life considerations used in the determination of their fair values. The accelerated method of amortization reflects the pattern in which the economic benefits of the customer relationship intangible asset are expected to be realized. Trademarks and trade names are being amortized over their useful lives using the straight-line method. Other intangible assets, consisting principally of contract rights, are being amortized over the contract periods using the straight-line method.

Acquisitions

Acquisitions have been accounted for using the purchase method of accounting. The operating results generated by the companies and businesses acquired have been included in the accompanying consolidated financial statements from their respective dates of acquisition. The excess of the purchase price (including contingent amounts) over fair value of the net tangible and intangible assets acquired is included in goodwill. Most purchase agreements provide for initial payments and contingent payments based on the annual pre-tax income or other financial parameters for subsequent periods ranging generally from two to five years.

Cash paid for acquisitions, including initial payments and contingent amounts based on subsequent performance, was $25.4 million and $48.2 million in the nine months ended July 31, 2005 and 2004, respectively. Of those payment amounts, $10.6 million and $4.0 million were the contingent amounts paid

in the nine months ended July 31, 2005 and 2004, respectively, on earlier acquisitions as provided by the respective purchase agreements. In addition, shares of ABM’s common stock with a fair market value of $3.5 million at the date of issuance were issued in the nine months ended July 31, 2005 as payment for business acquired.

The Company made the following acquisitions during the nine months ended July 31, 2005:

On November 1, 2004, the Company acquired substantially all of the operating assets of Sentinel, a Los Angeles-based company, from Tracerton Enterprises, Inc. Sentinel, with annual revenues in excess of $13.0 million, was a provider of security officer services primarily to high-rise, commercial and residential structures. In addition to its Los Angeles business, Sentinel also operated an office in San Francisco. The total purchase price was $5.3 million, which included an initial payment of $3.5 million in shares of ABM’s common stock, the assumption of liabilities totaling approximately $1.7 million and $0.1 million of professional fees. Of the total purchase price, $2.4 million was allocated to customer relationship intangible asset, $0.1 million to trademarks and trade names, $1.3 million to customer accounts receivable and other assets and $1.5 million to goodwill. Additionally, because of the tax-free nature of this transaction to the seller, the Company recorded a $1.0 million deferred tax liability on the difference between the recorded fair market value and the seller’s tax basis of the net assets acquired. Goodwill was increased by the same amount. Additional consideration includes contingent payments, based on achieving certain revenue and profitability targets over a three-year period, estimated to be between $0.5 million and $0.75 million per year, payable in shares of ABM’s common stock.

On December 22, 2004, the Company acquired the operating assets of Colin Service Systems, Inc. (Colin), a facility services company based in New York, for an initial payment of $13.6 million in cash. Under certain conditions, additional consideration may include an estimated $1.9 million payment upon the collection of the acquired receivables and three annual contingent cash payments each for approximately $1.1 million, which are based on achieving annual revenue targets over a three-year period. With annual revenues in excess of $70 million, Colin was a provider of professional onsite management, commercial office cleaning, specialty cleaning, snow removal and engineering services. Of the total initial payment, $3.6 million was allocated to customer relationship intangible assets, $6.4 million to customer accounts receivable and other assets and $3.6 million to goodwill.

On March 4, 2005, the Company acquired the operating assets of Amguard Security and Patrol Services (Amguard), based in Germantown, Maryland, for $1.1 million in cash. Additional consideration includes a contingent payment in the amount of $0.45 million, subject to reduction in the event certain revenue targets are not achieved. With annual revenues in excess of $4.5 million, Amguard was a provider of security officer services, primarily to high-rise, commercial and residential structures. Of the total initial payment, $0.9 million was allocated to customer relationship intangible assets, $0.1 million to goodwill and $0.1 million to other assets.

The Company made the following acquisitions during the nine months ended July 31, 2004:

On March 15, 2004, the Company acquired substantially all of the operating assets of Security Services of America, LLC (SSA), a North Carolina limited liability company and wholly owned subsidiary of SSA Holdings II, LLC. SSA, also known as “Silverhawk Security Specialists” and “Elite Protection Services,” provided full service private security and investigative services to a diverse client base that included small, medium and large businesses throughout the Southeast and Midwest regions of the United States. The total acquisition cost included an initial cash payment of $40.7 million, net of liabilities assumed totaling $0.3 million, plus contingent payments equal to 20% to 25% of adjusted earnings before interest and taxes, depending upon the level of actual earnings, for each of the years in the five-year period following the date of acquisition. Of the total purchase price, $7.1 million was allocated to customer relationship intangible asset and $2.7 million to trademarks and trade names. Additionally, $2.2 million of the total purchase price was allocated to fixed and other tangible assets and $29.0 million to goodwill.

On April 2, 2004, the Company acquired substantially all of the commercial janitorial assets of the Northeast United States Division of Initial Contract Services, Inc., a provider of janitorial services based in New York. The acquisition included key accounts throughout the Northeast region totaling approximately 50 buildings. The total acquisition cost included an initial cash payment of $3.5 million, of which $0.9 million was allocated to customer relationship intangible asset, $1.8 million to accounts receivable and $0.8 million to other assets, plus annual contingent payments for each of the years in the five-year period following the acquisition date, calculated as follows: 3% of the acquired operation’s revenues for the first and second year, 2% for the third and fourth year, and 1% for the fifth year.

Due to the size of these acquisitions, individually and in aggregate, pro forma information is not included in the consolidated financial statements.

10.

Discontinued Operations

On June 2, 2005, the Company sold substantially all of the operating assets of Mechanical to Carrier Corporation, a wholly owned subsidiary of United Technologies Corporation (“Carrier”). The operating assets sold included customer contracts, accounts receivable, inventories, facility leases and other assets, as well as rights to the name “CommAir Mechanical Services.” The consideration paid was $32.0 million in cash, subject to certain adjustments, and Carrier’s assumption of trade payables and accrued liabilities. The Company realized a pre-tax gain of $21.4 million ($13.1 million after tax) on the sale of these assets in the third quarter of 2005.

On July 31, 2005, the Company sold most of the remaining operating assets of Mechanical, consisting of its water treatment business, to San Joaquin Chemicals, Incorporated for $0.5 million, of which $0.25 million was in the form of a note and $0.25 million in cash. The operating assets sold included customer contracts and inventories. The Company realized a pre-tax gain of $0.3 million ($0.2 million after tax) on the sale of these in the third quarter of 2005.

The assets and liabilities of Mechanical in the prior period financials have been segregated and the operating results and cash flows have been reported as a discontinued operation in the accompanying consolidated financial statements. Income taxes have been allocated using the estimated combined federal and state tax rates applicable to Mechanical for each of the periods presented. The prior periods presented have been reclassified.

Assets and liabilities of Mechanical included in the accompanying consolidated balance sheet were as follows at May 31, 2005 (before the date of sale of the main portion of Mechanical to Carrier on June 2, 2005) and October 31, 2004:


	May 31,		October 31,
(in thousands)	2005		2004

Trade accounts receivable, net	$	9,903	$	10,476
Inventories		2,084		1,706
Property, plant and equipment, net		126		163
Goodwill, net of accumulated amortization		1,952		1,952
Other		60		144

Total assets		14,125		14,441

Trade accounts payable		2,292		2,682
Accrued liabilities:
Compensation		350		476
Taxes — other than income		331		204
Other		989		564

Total liabilities		3,962		3,926

Net assets	$	10,163	$	10,515

On August 15, 2003, the Company sold substantially all of the operating assets of Amtech Elevator Services, Inc. (Elevator), a wholly owned subsidiary of ABM that represented the Company’s Elevator segment, to Otis Elevator Company, a wholly owned subsidiary of United Technologies Corporation (Otis Elevator). The operating assets sold included customer contracts, accounts receivable, facility leases and other assets, as well as a perpetual license to the name “Amtech Elevator Services.” The consideration in connection with the sale included $112.4 million in cash and Otis Elevator’s assumption of trade payables and accrued liabilities. In fiscal 2003, the Company realized a gain on the sale of $52.7 million, which was net of $32.7 million of income taxes, of which $30.5 million was paid with the extension of the federal and state income tax returns on January 15, 2004. This payment has been reported as a discontinued operation in the accompanying consolidated statements of cash flows. Income taxes on the gain on sale of discontinued operation for the third quarter of 2005 included a $0.9 million benefit from the correction of the overstatement of income taxes provided for the Elevator gain. The overstatement was related to the incorrect treatment of goodwill associated with assets acquired by Elevator in 1985.

In June 2005, the Company settled litigation that arose from and was directly related to the operations of Elevator prior to its disposal. An estimated liability was recorded on the date of disposal. The settlement amount was less than the estimated liability by $0.2 million, pre-tax. This difference was recorded as income from discontinued operation in the second quarter of 2005.

The operating results of Mechanical for the three and nine months ended July 31, 2005 and 2004 and the Elevator adjustments are shown below. Operating results for 2005 for the portion of Mechanical’s business sold to Carrier are for the periods beginning May 1, 2005 and November 1, 2004, respectively, through the date of sale, June 2, 2005. Operating results for 2005 for Mechanical’s water treatment business are for the full three and nine months periods.


	Three Months Ended					Nine Months Ended
	July 31,					July 31,
(In thousands)	2005			2004		2005		2004

Revenues	$	4,472		$	10,976	$	24,775	$	29,586

Income (loss) before income taxes	$	(21	)	$	414	$	383	$	815
Income taxes		(6	)		162		150		320

Income (loss) from discontinued operations, net of income taxes	$	(15	)	$	252	$	233	$	495

11.

Line of Credit Facility

On May 25, 2005, ABM terminated its $250 million three-year syndicated line of credit scheduled to expire on July 1, 2005 (old Facility) and replaced the old Facility with a new $300 million five-year syndicated line of credit scheduled to expire on May 25, 2010 (new Facility).

Under the new Facility, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London Interbank Offered Rate (LIBOR) plus a spread of 0.375% to 1.125% or, for overnight loan borrowings, at the prime rate or, for overnight to one week, at the Interbank Offered Rate (IBOR) plus a spread of 0.375% to 1.125%. The spreads for LIBOR, prime and IBOR borrowings are based on ABM’s leverage ratio. The new Facility calls for a non-use fee payable quarterly, in arrears, of 0.125%, based on the average, daily, unused portion. For purposes of this calculation, irrevocable standby letters of credit issued primarily in conjunction with ABM’s self-insurance program and cash borrowings are considered to be outstanding amounts. As of July 31, 2005 and October 31, 2004, the total outstanding amounts under the applicable Facility were $91.6 million and $96.5 million, respectively, in the form of standby letters of credit. The Company was in compliance with all covenants at those dates.

The new Facility includes usual and customary covenants for a credit facility of this type, including covenants limiting liens, dispositions, fundamental changes, investments, indebtedness, and certain transactions and payments. In addition, the new Facility also requires that ABM satisfy three financial covenants: (1) a fixed charge coverage ratio greater than or equal to 1.50 to 1.0 at fiscal quarter-end; (2) a leverage ratio of less than or equal to 3.25 to 1.0 at fiscal quarter-end; and (3) consolidated net worth greater than or equal to the sum of (i) $341.9 million, (ii) an amount equal to 50% of the consolidated net income earned in each full fiscal quarter ending after the effective time (with no deduction for a net loss in any such fiscal quarter) and (iii) an amount equal to 100% of the aggregate increases in stockholders’ equity of ABM and its subsidiaries after the effective time by reason of the issuance and sale of capital stock or other equity interests of ABM or any subsidiary, including upon any conversion of debt securities of ABM into such capital stock or other equity interests, but excluding by reason of the issuance and sale of capital stock pursuant to ABM’s employee stock purchase plans, employee stock option plans and similar programs.

12.

Comprehensive Income

Comprehensive income consists of net income and other related gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income. For the Company, such other comprehensive income items consist of unrealized foreign currency translation gains and losses. Comprehensive income for the three and nine months ended July 31, 2005 and 2004 approximated net income.

13.

Treasury Stock

On March 11, 2003, ABM’s Board of Directors authorized the purchase of up to 2.0 million shares of ABM’s outstanding common stock at any time through December 31, 2003. The Company purchased 1.4 million shares under this authorization at a cost of $21.1 million (an average price per share of $15.04) through October 31, 2003. In the two months ended December 31, 2003, the Company purchased 0.1 million shares at a cost of $1.7 million (an average price per share of $16.90).

On December 9, 2003, ABM’s Board of Directors authorized the purchase of up to 2.0 million shares of ABM’s outstanding common stock at any time through December 31, 2004. The Company purchased 0.5 million shares under this authorization at a cost of $9.4 million (an average price per share of $18.77) through October 31, 2004. No purchases were made in the two months ended December 31, 2004 when this authorization expired.

On March 7, 2005, ABM’s Board of Directors authorized the purchase of up to 2.0 million shares of ABM’s outstanding common stock at any time through October 31, 2005. The Company purchased 1.6 million shares under this authorization at a cost of $31.3 million (an average price per share of $19.57) through July 31, 2005.

14.

Employee Benefit Plans

Retirement and Post-Retirement Plans

The net cost of the defined benefit retirement plans and the post-retirement benefit plan for the three and nine months ended July 31, 2005 and 2004 were as follows:


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
(in thousands)	2005		2004		2005		2004

Defined Benefit Plans
Service cost	$	53	$	61	$	151	$	222
Interest		222		143		502		435

Net expense	$	275	$	204	$	653	$	657

Post-Retirement Benefit Plan
Service cost	$	10	$	10	$	30	$	30
Interest		68		69		203		207

Net expense	$	78	$	79	$	233	$	237

The defined benefit plans include the Company’s retirement agreements for approximately 55 current and former directors and senior executives (Supplemental Executive Retirement Plan) and an unfunded severance pay plan covering certain qualified employees (Service Award Benefit Plan). The Supplemental Executive Retirement Plan was amended effective December 31, 2002 to preclude new participants and the Service Award Benefit Plan was amended effective January 1, 2002 to no longer award any further benefits. The Service Award Benefit Plan was further amended effective April 6, 2005 to require only a lump-sum distribution of benefits, where previously two annual payments were required. In addition, participants currently receiving annual payments are to receive any remaining unpaid benefits as soon as administratively possible. The post-retirement benefit plan is the Company’s unfunded post-retirement death benefit plan.

The interest costs in 2005 include expenses associated with the accelerated payments to employees of Mechanical, which was sold in the third quarter of 2005.

401(k) Plan

The Company made matching 401(k) contributions required by the 401(k) plan for both of the three months ended July 31, 2005 and 2004 in the amount of $1.3 million and for the nine months ended July 31, 2005 and 2004 in the amounts of $4.1 million and $3.8 million, respectively.

Deferred Compensation Plan

The Company has an unfunded deferred compensation plan available to executive, management, administrative or sales employees whose annualized base salary exceeds $95,000. The plan allows employees to make pre-tax contributions from one to twenty percent of their compensation. The deferred amount earns interest equal to the prime interest rate on the last day of the calendar quarter up to six percent. If the prime rate exceeds six percent, the deferred compensation interest rate is equal to six percent plus one half of the excess over six percent. The average interest rates credited to the deferred compensation amounts for the three months ended July 31, 2005 and 2004 were 6.17% and 4.42%,

respectively, and for the nine months ended July 31, 2005 and 2004 were 5.82% and 4.17%, respectively. At July 31, 2005, there were 78 active participants and 31 retired or terminated employees participating in the plan.


	Three Months Ended						Nine Months Ended
	July 31,						July 31,
(in thousands)	2005			2004			2005			2004

Employee contributions	$	219		$	275		$	856		$	971
Interest accrued	$	153		$	100		$	436		$	313
Payments	$	(23	)	$	(72	)	$	(2,414	)	$	(574	)

Pension Plan Under Collective Bargaining

Certain qualified employees of the Company are covered under union-sponsored multi-employer defined benefit plans. Contributions paid for these plans were $8.7 million and $8.3 million in the three months ended July 31, 2005 and 2004, respectively, and $26.1 million and $24.2 million in the nine months ended July 31, 2005 and 2004, respectively. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts.

15.

Segment Information

Under the criteria of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” Janitorial, Parking, Security, Engineering, and Lighting are reportable segments. On November 1, 2004, Facility Services merged with Engineering. The operating results of Facility Services for the prior period have been reclassified to Engineering from the Other segment for comparative purposes. The operating results of Mechanical, also previously included in the Other segment, are reported separately under discontinued operations and are excluded from the table below. See Note 10. As a result of the reclassifications of Facility Services and Mechanical, the Other segment no longer exists. Corporate expenses are not allocated.


	Three Months Ended						Nine Months Ended
	July 31,						July 31,
(in thousands)	2005			2004			2005			2004
				As Restated						As Restated
Sales and other income
Janitorial	$	384,381		$	367,539		$	1,141,961		$	1,073,475
Parking		102,767			97,856			303,073			285,384
Security		74,702			65,012			220,465			157,986
Engineering		60,882			54,296			176,057			154,415
Lighting		26,877			27,510			85,080			83,060
Corporate		531			584			1,224			1,035

	$	650,140		$	612,797		$	1,927,860		$	1,755,355


Operating profit
Janitorial	$	25,165		$	17,867		$	47,795		$	41,666
Parking		4,079			3,458			8,915			6,269
Security		4,302			2,594			9,756			5,787
Engineering		4,146			3,274			10,327			8,691
Lighting		927			442			2,421			1,726
Corporate		(5,285	)		(7,706	)		(21,615	)		(22,869	)

Operating profit		33,334			19,929			57,599			41,270
Gain on insurance claim		—			—			1,195			—
Interest expense		(220	)		(255	)		(713	)		(746	)

Income from continuing operations before income taxes	$	33,114		$	19,674		$	58,081		$	40,524

16.

Contingencies

During the quarter ended April 30, 2005, the Company recorded a charge of $6.3 million for damages, court-awarded fees and other amounts awarded to the plaintiff in the case named Forbes v. ABM, as well as other costs (including interest through April 30, 2005) following the Washington Court of Appeals’ April 21, 2005 denial of ABM’s appeal of an earlier jury verdict. This gender discrimination lawsuit was originally filed in the State of Washington against ABM by a former employee of a subsidiary of ABM in September 1999. On May 19, 2003, a Washington state court jury for the Spokane County Superior Court awarded $4.0 million in damages to the plaintiff. The court later awarded costs of $0.7 million to the plaintiff, pre-judgment interest in the amount of $0.3 million and an additional $0.8 million to mitigate the federal tax impact of the plaintiff’s award. When the awards were made, the Company believed it had been denied a fair trial and appealed the verdict on the grounds that several key rulings by the court were incorrect and resulted in substantial prejudice to the Company. The Company also believed that the original verdict would be reversed because it was excessive and inconsistent with the law and the evidence. In August 2005, the Company and plaintiff agreed to settle the lawsuit for $5.0 million, which resulted in a partial reversal of the $6.3 million charge. The $5.0 million liability was included in other accrued liabilities as of July 31, 2005.

In 1998, ABM’s parking subsidiary leased a parking facility in Houston, Texas, owned by a limited partnership jointly owned by affiliates of American National Insurance Company (ANICO) and partners associated with Gerry Albright (Albright affiliates.) In June 2003, the ANICO affiliates notified the Albright affiliates that they would sell their interest in the parking facility. The Albright affiliates accepted the offer and attempted to secure financing. In connection with certain proposed financing for the Albright affiliates, ABM’s parking subsidiary was asked to submit an estoppel certificate and on that certificate it set forth certain claims under the lease. The Albright affiliates subsequently did not close the transaction and the ANICO affiliates acquired the interest in the parking facility held by the Albright affiliates. On December 5, 2003, the Albright affiliates filed a lawsuit against ABM, its parking subsidiary, and certain ANICO affiliates.

The complaint alleged that ABM breached its obligations under the parking facility lease and committed tortious interference, the ANICO affiliates breached fiduciary responsibilities under the partnership agreement, and that ABM and ANICO were engaged in a conspiracy. Subsequently, claims against ANICO were dismissed. The Albright affiliates assert damages consisting of (1) the value of the parking facility in excess of the purchase price at the time of the proposed purchase by the Albright affiliates ($1.8 million); (2) lost future revenues from the operation of the parking facility ($15.4 million); (3) future appreciation of the property during the remainder of the parking facility lease (a range from $9.9 million to $39.0 million); (4) exemplary damages; and (5) attorneys’ fees. This matter is currently before the Federal District Court in Houston, Texas. ABM believes that it acted in good faith under the terms of the lease and is not liable to the Albright affiliates for their damages related to their inability to secure financing. If ABM were found liable, ABM believes that the amount of the Albright affiliates’ damages would be approximately $3.26 million. ABM further believes that any damages in excess of $150,000 incurred in this lawsuit would represent an insured loss under its commercial general liability coverage and commercial umbrella coverage and that its carriers have a duty to provide a defense. ABM has notified its carriers who have denied coverage or indicated an intention to deny coverage. In August 2005, ABM filed a complaint for declaratory judgment against its insurance carriers in Federal District Court in San Francisco, California to ensure its coverage for any damages related to the claims of the Albright affiliates. As of the filing of this report, ABM believes that the likelihood of the loss occurring is not probable and, therefore, it has not accrued any amount for this matter.

In December 1997, ABM’s parking subsidiary entered into a five-year agreement with the City of Dallas to perform parking management services for the Love Field Airport. This agreement provided for a minimum annual guarantee payment (MAG) to the City. The Company believes that reductions to the number of stalls in the managed parking area that occurred commencing August 4, 2001 and the opening of a new parking area and other actions required adjustment of the agreement, including the amount of the MAG. Although an exchange between the parties took place as to terms of an amendment, no amendment was executed. ABM’s parking subsidiary did, however, continue performing parking management services until April 2004, when the agreement was terminated. On July 12, 2004, the City of Dallas filed a complaint in Texas State Court in Dallas alleging a breach of contract by ABM’s parking subsidiary for underpayment of the MAG by $1.8 million, and in May 2005 amended that complaint to allege fraud and negligent misrepresentation by ABM’s parking subsidiary. The matter is currently in the discovery phase. ABM believes that it acted in good faith and is not liable to the City of Dallas. In order to resolve this dispute, the Company has offered $100,000 in settlement, which it has accrued.

On February 1, 2005, the Office of Federal Contract Compliance Programs (OFCCP), a division of the US Department of Labor, notified ABM’s security subsidiary of an alleged violation of federal affirmative action laws based on a statistical hiring disparity (shortfall) between men and women during 2002. (There was no statistically significant shortfall in 2001, or since 2002.) In August 2005, ABM and the OFCCP agreed to settle this claim for $67,000, which the Company accrued as of July 31, 2005.

The Company uses an independent actuary to annually evaluate the Company’s estimated claim costs and liabilities. The 2004 actuarial report completed in November 2004 indicated that there were adverse developments in the Company’s insurance reserves primarily related to workers’ compensation claims in the State of California during the four-year period ended October 31, 2003, for which the Company recorded a charge of $17.2 million in the fourth quarter of 2004. The Company believes a substantial portion of the $17.2 million was related to poor claims management by a third party administrator, who no longer performs these services for the Company. In addition, the Company believes that poor claims administration in certain other states, where it had insurance, led to higher insurance costs for the Company for its damages related to claims mismanagement. On May 11, 2005, the Company filed a complaint against its former third party administrator. The Company is actively pursing this complaint, which will be subject to arbitration.

matters should have no material effect on the Company’s financial position, results of operations or cash flows.

17. Income Taxes

The effective tax rates for both of the three months ended July 31, 2005 and 2004 were 34.5%, and for the nine months ended July 31, 2005 and 2004 were 31.3% and 35.0%, respectively. A $2.7 million income tax benefit was recorded in the second quarter of 2005 resulting from the favorable settlement of the audit of prior years’ state tax returns (tax years 2000 to 2003) in May 2005. An estimated liability was accrued in prior years for the separate income tax returns filed with that state for the years under audit because the intercompany charges were not supported by a recent formal transfer pricing study. The estimated liability was greater than the settlement amount ($4.5 million). The settlement amount was paid in June 2005. Additionally, the income tax provision for continuing operations for the third quarter of 2005 included a tax benefit of $0.3 million principally from adjusting the income tax liability accounts after filing the 2004 income tax returns, while the income tax provision for continuing operations for the third quarter of 2004 included a tax benefit of $0.6 million principally from adjusting the income tax liability accounts after filing the 2003 income tax returns and from filing amended tax returns primarily to claim higher tax credits. The effective tax rate for the first nine months of 2005 reflects a slightly lower estimated state tax rate based on the actual filing of state tax returns for 2004.

18. Subsequent Events

On August 3, 2005, the Company acquired the commercial janitorial cleaning operations in Baltimore, Maryland, of the Northeast United States Division of Initial Contract Services, Inc., a provider of janitorial services based in New York, for approximately $0.35 million in cash. The acquisition includes contracts with key accounts throughout the metropolitan area of Baltimore and represents over $7.0 million in annual contract revenue. Additional consideration may be paid during the subsequent four years based on financial performance of the acquired business.

The Company continues to assess the impact of Hurricane Katrina on its operations. All segments except Engineering provided services in New Orleans with over 600 employees. The Company believes that its supplies in the area were destroyed and that rented office facilities and a warehouse sustained significant flood damage. The Company’s property damage and business interruption coverage provides for a deductible of the greater of $0.5 million or 2% of losses. The Sales and operating profits from its New Orleans business for the nine months ended July 31, 2005 were approximately $10.0 million and $0.7 million, respectively. The accounts receivable associated with customers located in New Orleans totaled $1.8 million as of July 31, 2005. The Company is uncertain when it will be able to restore services in New Orleans or what customer demand will be in connection with such resumption. However, the Company does expect to resume services in New Orleans including providing site clean-up services in new construction associated with the return of business and residents to the area.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

ABM Industries Incorporated (“ABM”) and its subsidiaries (the “Company”) provide janitorial, parking, security, engineering and lighting services for thousands of commercial, industrial, institutional and retail facilities in hundreds of cities throughout the United States and in British Columbia, Canada. The largest segment of the Company’s business is Janitorial which generated over 59% of the Company’s sales and other income (hereinafter called “Sales”) and over 60% of its operating profit before corporate expenses for the first nine months of 2005. On June 2, 2005, the Company sold substantially all of the operating assets of its wholly owned subsidiary, CommAir Mechanical Services (“Mechanical”), which had provided mechanical operations. The remaining operations were sold on July 31, 2005.

The Company’s Sales are substantially based on the performance of labor-intensive services at contractually specified prices. Janitorial and other maintenance service contracts are either fixed-price or “cost-plus” (i.e., the customer agrees to reimburse the agreed upon amount of wages and benefits, payroll taxes, insurance charges and other expenses plus a profit percentage). In addition to services defined within the scope of the contract, the Company also generates Sales from extra services (also known as “tag sales”), such as when the customer requires additional cleaning or emergency repair services, with extra services frequently providing higher margins. The quarterly profitability of fixed-price contracts is impacted by the variability of the number of work days in the quarter.

The majority of the Company’s contracts are for one-year periods, but are subject to termination by either party after 30 to 90 days’ written notice. Upon renewal of the contract, the Company may renegotiate the price although competitive pressures and customers’ price-sensitivity could inhibit the Company’s ability to pass on cost increases. Such cost increases include, but are not limited to, wage, benefit, payroll tax (including unemployment insurance tax), workers’ compensation and general liability insurance increases. However, for some renewals the Company is able to restructure the scope and terms of the contract to maintain profit margin.

Sales have historically been the major source of cash for the Company, while payroll expenses, which are substantially related to Sales, have been the largest use of cash. Hence operating cash flows significantly depend on the Sales level and timing of collections, as well as the quality of the customer accounts receivable. The timing and level of the payments to suppliers and other vendors, as well as the magnitude of self-insured claims, also affect operating cash flows. The Company’s management views operating cash flows as a good indicator of financial strength. Strong operating cash flows provide opportunities for growth both internally and through acquisitions.

The Company’s most recent acquisitions significantly contributed to the growth in Sales and operating profit in the first nine months of 2005 from the same period in 2004. The Company also experienced internal growth in Sales in the first nine months of 2005. Internal growth in Sales represents not only Sales from new customers, but also expanded services or increases in the scope of work for existing customers. In the long run, achieving the desired levels of Sales and profitability will depend on the Company’s ability to gain and retain, at acceptable profit margins, more customers than it loses, pass on cost increases to customers, and keep overall costs down to remain competitive, particularly against privately owned companies that typically have the lower cost advantage.

In the short-term, management is focused on pursuing new business and integrating its most recent acquisitions. In the long-term, management continues to focus the Company’s financial and management resources on those businesses it can grow to be a leading national service provider.

The following discussion should be read in conjunction with the consolidated financial statements of the Company. All information in the discussion and references to the years, quarters and first nine months are based on the Company’s fiscal year which ends on October 31 and the quarter and first nine months which end on July 31.

Liquidity and Capital Resources


	July 31,		October 31,
(in thousands)	2005		2004		Change

Cash and cash equivalents	$	43,202	$	63,369	$	(20,167	)
Working capital	$	247,278	$	230,698	$	16,580


	Nine Months Ended July 31,
(in thousands)	2005			2004			Change

Cash provided by operating activities from continuing operations	$	14,490		$	42,233		$	(27,743	)
Net cash used in investing activities	$	(5,501	)	$	(55,702	)	$	50,201
Net cash used in financing activities	$	(29,528	)	$	(18,167	)	$	(11,361	)

Funds provided from operations and bank borrowings have historically been the sources for meeting working capital requirements, financing capital expenditures and acquisitions, and paying cash dividends. As of July 31, 2005 and October 31, 2004, the Company’s cash and cash equivalents totaled $43.2 million and $63.4 million, respectively. The cash balance at July 31, 2005 declined from October 31, 2004 primarily due to $31.3 million cash payments for the purchase of ABM common stock and $14.7 million as the initial installment for the purchase of operations of Colin Service Systems, Inc. (“Colin”) acquired on December 22, 2004 and Amguard Security and Patrol Services (“Amguard”) acquired on March 1, 2005, offset in part by the $32.3 million cash proceeds from the sales of the Mechanical operating assets in the third quarter of 2005 and cash from operations.

Working Capital. Working capital increased by $16.6 million to $247.3 million at July 31, 2005 from $230.7 million at October 31, 2004 primarily due to the increase in trade accounts receivable, resulting from the increase in Sales and lower collections as a percentage of Sales, and the sales of the Mechanical operating assets, partially offset by the increase in common stock purchases. The largest component of working capital consists of trade accounts receivable, which totaled $350.9 million at July 31, 2005, compared to $307.2 million at October 31, 2004. These amounts were net of allowances for doubtful accounts of $7.5 million and $8.2 million at July 31, 2005 and October 31, 2004, respectively. The decrease in allowance for doubtful accounts is due primarily to the elimination of specific reserves on certain accounts where billing disputes were settled. As of July 31, 2005, accounts receivable that were over 90 days past due had increased $8.5 million to $26.8 million (7.5% of the total outstanding) from $18.3 million (5.8% of the total outstanding) at October 31, 2004. Collection efforts suffered as accounting offices across the Company focused on the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) certification requirements.

Cash Flows from Operating Activities. During the first nine months of 2005 and 2004, operating activities from continuing operations generated net cash of $14.5 million and $42.2 million, respectively. Operating cash from continuing operations decreased in the first nine months of 2005 from the first nine months of 2004 primarily due to slower payments by some large customers in 2005 and a temporary decline in collection efforts, as well as higher income tax payments due to higher estimated taxable income in 2005 and the effect of the timing of other recurring payments.

Cash Flows from Investing Activities. Net cash used in investing activities in the first nine months of 2005 was $5.5 million, compared to $55.7 million in the first nine months of 2004. The decrease was primarily due to the $32.3 million proceeds received from the sales of the operating assets of Mechanical during the third quarter of 2005 (see “Discontinued Operation”) and the $22.8 million decrease in the cash used in the purchase of businesses in the first nine months of 2005 compared to the first nine months of 2004, partially offset by higher additions to property, plant and equipment in 2005 mostly invested in communication and information technologies.

Cash Flows from Financing Activities. Net cash used in financing activities was $29.5 million in the first nine months of 2005, while $18.2 million was used in the first nine months of 2004. This was primarily due to higher common stock purchases and dividend payments in the first nine months of 2005, partially offset by more cash generated from the issuance of ABM’s common stock under employee stock purchase plans in the first nine months of 2005. The Company purchased 1.6 million shares of ABM’s common stock in the first nine months of 2005 at a cost of $31.3 million (an average price per share of $19.57) while 0.6 million shares were purchased in the first nine months of 2004 at a cost of $11.1 million (an average price per share of $18.46). The 1985 employee stock purchase plan terminated upon issuance of all the available shares in November 2003. A new employee stock purchase plan was approved by the stockholders in March 2004 and the first offering period began on August 1, 2004.

Line of Credit. On May 25, 2005, ABM terminated its $250 million three-year syndicated line of credit scheduled to expire on July 1, 2005 (the “old Facility”) and replaced the old Facility with a new $300 million five-year syndicated line of credit scheduled to expire on May 25, 2010 (the “new Facility”).

Under the new Facility, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London Interbank Offered Rate (“LIBOR”) plus a spread of 0.375% to 1.125% or, for overnight loan borrowings, at the prime rate or, for overnight to one week, at the Interbank Offered Rate (“IBOR”) plus a spread of 0.375% to 1.125%. The spreads for LIBOR, prime and IBOR borrowings are based on ABM’s leverage ratio. The new Facility calls for a non-use fee payable quarterly, in arrears, of 0.125%, based on the average, daily, unused portion. For purposes of this calculation, irrevocable standby letters of credit issued primarily in conjunction with ABM’s self-insurance program and cash borrowings are considered to be outstanding amounts. As of July 31, 2005 and October 31, 2004, the total outstanding amounts under the applicable Facility were $91.6 million and $96.5 million, respectively, in the form of standby letters of credit. The Company was in compliance with all covenants at those dates.

Cash Requirements

The Company is contractually obligated to make future payments under non-cancelable operating lease agreements for various facilities, vehicles and other equipment. As of July 31, 2005, future contractual payments were as follows:


(in thousands)	Payments Due By Period
Contractual			Less than		1 - 3		4 - 5		After 5
Obligations	Total		1 year		years		years		years

Operating Leases	$	177,073	$	43,817	$	58,291	$	31,362	$	43,603

Additionally, the Company has the following commercial commitments and other long-term liabilities:


(in thousands)	Amounts of Commitment Expiration Per Period
Commercial			Less than		1 - 3		4 - 5		After 5
Commitments	Total		1 year		years		years		years

Standby Letters of Credit	$	91,633	$	91,633		—		—		—
Surety Bonds		58,350		47,197	$	11,132	$	21		—

Total	$	149,983	$	138,830	$	11,132	$	21		—


(in thousands)	Payments Due By Period
Other Long-Term			Less than		1 - 3		4 - 5		After 5
Liabilities	Total		1 year		years		years		years

Retirement Plans	$	41,453	$	2,194	$	5,118	$	5,103	$	29,038

The Company uses surety bonds, principally performance and payment bonds, to guarantee performance under various customer contracts in the normal course of business. These bonds typically remain in force for one to five years and may include optional renewal periods. At July 31, 2005,

outstanding surety bonds totaled approximately $58.4 million. The Company does not believe these bonds will be required to be drawn upon.

Not included in the retirement plans in the table above are union-sponsored multi-employer defined benefit plans under which certain union employees of the Company are covered. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. Contributions paid for these plans were $26.1 million and $24.2 million in the nine months ended July 31, 2005 and 2004, respectively.

The Company self-insures certain insurable risks such as general liability, automobile, property damage, and workers’ compensation. Commercial policies are obtained to provide for $150.0 million of coverage for certain risk exposures above the self-insured retention limits (i.e., deductibles). For claims incurred after November 1, 2002, substantially all of the self-insured retentions increased from $0.5 million (inclusive of legal fees) to $1.0 million (exclusive of legal fees) except for the California workers’ compensation insurance which increased to $2.0 million effective April 14, 2003. However, effective April 14, 2005, the deductible for California workers’ compensation insurance decreased from $2.0 million to $1.0 million per occurrence, plus an additional $1.0 million annually in the aggregate, due to improvements in general insurance market conditions. The estimated liability for claims incurred but unpaid at July 31, 2005 and October 31, 2004 was $193.6 million and $187.9 million, respectively.

The self-insurance claims paid in the first nine months of 2005 and 2004 were $45.8 million and $44.8 million, respectively. Claim payments vary based on the frequency and/or severity of claims incurred and timing of the settlements and therefore may have an uneven impact on the Company’s cash balances.

In connection with the gender discrimination lawsuit against ABM in the state of Washington in the case named Forbes v. ABM, the Company and the plaintiff have agreed to settle the claim for $5.0 million, which the Company expects to pay in the fourth quarter of 2005. See Note 16 of Notes to Consolidated Financial Statements.

The Company has begun the process of installing a Voice over Internet Protocol (“VoIP”) technology that will allow the entire Company to make telephone calls using the Company’s private network instead of a regular (or analog) phone line. The VoIP project is estimated to cost $7.4 million and is expected to be completed before the end of this fiscal year.

The Company has no other significant commitments for capital expenditures and believes that the current cash and cash equivalents, cash generated from operations and the new Facility will be sufficient to meet the Company’s cash requirements for the long term.

Insurance Claims Related to the Destruction of the World Trade Center in New York City on September 11, 2001

The Company had commercial insurance policies covering business interruption, property damage and other losses related to the World Trade Center (“WTC”) complex in New York, which was the Company’s largest single job-site with annual Sales of approximately $75.0 million (3% of the Company’s consolidated Sales for 2001). As of October 31, 2004, Zurich Insurance (“Zurich”) had paid partial settlements totaling $13.8 million, of which $10.0 million was for business interruption and $3.8 million for property damage, which substantially settled the property portion of the claim. The Company realized a pre-tax gain of $10.0 million in 2002 on the proceeds received.

In December 2001, Zurich filed a Declaratory Judgment Action in the Southern District of New York claiming the loss of the business profit falls under the policy’s contingent business interruption sub-limit of $10.0 million. On June 2, 2003, the court ruled on certain summary judgment motions in favor of Zurich. Thereafter, the Company appealed the court’s rulings.

On February 9, 2005, the United States Court of Appeals for the Second Circuit granted summary judgment in favor of ABM on the Company’s insurance claims for business interruption losses resulting from the WTC terrorist attack. The Court also ruled that ABM is entitled to recovery for the extra expenses the Company incurred after September 11, 2001, which include millions of dollars related to increased unemployment claims and costs associated with the redeployment of WTC personnel at other facilities. The Court rejected the arguments of Zurich to limit the Company’s business interruption coverage and returned the case to the Southern District of New York for determination of appropriate additional compensation under the policy. ABM will continue to pursue its claims against Zurich. Under the policy, coverage for business interruption and other related losses is capped at $127.4 million. ABM believes its losses exceed $100.0 million, of which the $10.0 million described above has been paid under the contingent business interruption sub-limit.

On February 24, 2005, Zurich filed a motion to have its appeal heard by the Second Circuit Court of Appeals sitting en banc. Zurich’s motion was denied on June 27, 2005, and this matter will return to the district court for a trial on the amount of ABM’s losses.

On March 30, 2005, the Company signed the Sworn Statement in Proof of Loss which entitled the Company to receive an indemnity payment from Zurich of $1.5 million, representing the Company’s recovery of certain accounts receivable from customers that cannot be collected due to loss of paperwork in the destruction of WTC, additional claimed business personal property and business income loss. On May 9, 2005, this indemnity payment was received. The Company realized a pre-tax gain of $1.2 million on this indemnity payment in the second quarter of 2005. An additional $1.5 million in accounts receivable losses remain in dispute, and negotiations are ongoing.

Under Emerging Issues Task Force (“EITF”) Issue No. 01-10, “Accounting for the Impact of the Terrorist Attacks of September 11, 2001,” the Company has not recognized future amounts it expects to recover from its business interruption insurance as income. Any gain from insurance proceeds is considered a contingent gain and, under Statement of Financial Accounting Standard (“SFAS”) No. 5, “Accounting for Contingencies,” can only be recognized as income in the period when any and all contingencies for that portion of the insurance claim have been resolved.

Environmental Matters

The Company’s 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. These laws generally have the effect of increasing costs and potential liabilities associated with the conduct of the Company’s operations, although historically they have not had a material adverse effect on the Company’s financial position, results of operations, or cash flows.

The Company is currently involved in three environmental matters: one involving alleged potential soil contamination at a former Company facility in Arizona, one involving alleged potential soil and groundwater contamination at a Company facility in Florida, and one involving an alleged de minimis contribution to a landfill in Southern California. While it is difficult to predict the ultimate outcome of these matters, based on information currently available, management believes that none of these matters, individually or in the aggregate, are reasonably likely to have a material adverse effect on the Company’s financial position, results of operations, or cash flows. As any liability related to these matters is neither probable nor estimable, no accruals have been made related to these matters.

Off-Balance Sheet Arrangements

The Company is party to a variety of contractual agreements under which it may be obligated to indemnify the other party for certain matters. Primarily, these agreements are standard indemnification arrangements in its ordinary course of business. Pursuant to these arrangements, the Company may

agree to indemnify, hold harmless and reimburse the indemnified parties for losses suffered or incurred by the indemnified party, generally its customers, in connection with any claims arising out of the services that the Company provides. The Company also incurs costs to defend lawsuits or settle claims related to these indemnification arrangements and in most cases these costs are paid from its insurance program. The term of these indemnification arrangements is generally perpetual. Although the Company attempts to place limits on this indemnification reasonably related to the size of the contract, the maximum obligation is not always explicitly stated and, as a result, the maximum potential amount of future payments the Company could be required to make under these arrangements is not determinable.

ABM’s certificate of incorporation and bylaws may require it to indemnify Company directors and officers against liabilities that may arise by reason of their status as such and to advance their expenses incurred as a result of any legal proceeding against them as to which they could be indemnified. ABM has also entered into indemnification agreements with its directors to this effect. The overall amount of these obligations cannot be reasonably estimated, however, the Company believes that any loss under these obligations would not have a material adverse effect on the Company’s financial position, results of operations or cash flows as the Company currently has directors’ and officers’ insurance, which has a deductible of up to $1.0 million.

Acquisitions and Dispositions

The operating results of businesses acquired have been included in the accompanying consolidated financial statements from their respective dates of acquisition. Acquisitions made during the nine-month periods ended July 31, 2005 and 2004 are discussed in Note 9 of Notes to Consolidated Financial Statements.

As a result of the Company’s sale of substantially all of the operating assets of Mechanical, the assets and liabilities of Mechanical in the prior period financials have been segregated and classified as held for sale and the operating results and cash flows have been reported as discontinued operation in the accompanying consolidated financial statements. Income taxes have been allocated using the estimated combined federal and state tax rates applicable to Mechanical for each of the periods presented. The prior periods presented have been reclassified. See the discussion of discontinued operations below and in Note 10 of Notes to Consolidated Financial Statements.

Results of Continuing Operations

Three Months Ended July 31, 2005 vs. Three Months Ended July 31, 2004


	Three Months					Three Months
	Ended		% of			Ended		% of			Increase
($ in thousands)	July 31, 2005		Sales			July 31, 2004		Sales			(Decrease)
	As Restated *
Revenues
Sales and other income	$	650,140		100.0	%	$	612,797		100.0	%		6.1	%
Gain on insurance claim		—		—			—		—			—

Total revenues		650,140		—			612,797		—			6.1	%


Expenses
Operating expenses and cost of goods sold		570,959		87.8	%		547,891		89.4	%		4.2	%
Selling, general and administrative		44,417		6.8	%		43,683		7.1	%		1.7	%
Intangible amortization		1,430		0.2	%		1,294		0.2	%		10.5	%
Interest		220		—			255		—			—

Total expenses		617,026		94.9	%		593,123		96.8	%		4.0	%

Income from continuing operations before income taxes		33,114		5.1	%		19,674		3.2	%		68.3	%
Income taxes		11,422		1.8	%		6,778		1.1	%		68.5	%

Income from continuing operations	$	21,692		3.3	%	$	12,896		2.1	%		68.2	%

* See Note 2 of Notes to Consolidated Financial Statements.

Income from continuing operations. Income from continuing operations for the third quarter of 2005 increased 68.2% to $21.7 million ($0.43 per diluted share) from $12.9 million ($0.25 per diluted share) for the third quarter of 2004. The increase was primarily due to a $9.0 million ($5.5 million after- tax, $0.11 per diluted share) benefit from the reduction of the Company’s self-insurance reserves described below. Even without the effect of the favorable insurance adjustment, all operating segments showed improvement in operating income from the third quarter of 2004. In addition, in the third quarter of 2005, the Forbes v. ABM case was settled at $5.0 million, $1.3 million lower than the amount accrued. Partially offsetting these improvements were higher costs related to Sarbanes-Oxley certification effort.

The 2005 actuarial report covering substantially all of the Company’s self-insurance reserves was completed in the third quarter of 2005. The report showed favorable developments in the Company’s California workers’ compensation and general and auto liability claims, offset in part by adverse development in the Company’s workers’ compensation claims outside of California, in each case as of May 1, 2005. The net favorable development required the Company to reduce its self-insurance reserve by $9.0 million. Of the $9.0 million, $5.5 million was attributable to reserves for 2004 and prior years, of which $1.4 million was attributable to a correction of an overstatement of reserves at October 31, 2004, while $3.5 million was a reduction of the insurance provision for the first six months of 2005. The $5.5 million was recorded by Corporate while the $3.5 million was allocated to the operating segments. Excluding the $9.0 million benefit, the total insurance expense recorded by the operating segments for the third quarter of 2005 was flat compared to the third quarter of 2004 except for the additional insurance expense attributable to acquisitions.

Sales and Other Income. Sales for the third quarter of 2005 of $650.1 million increased by $37.3 million or 6.1% from $612.8 million for the third quarter of 2004. Acquisitions completed in fiscal year 2004 and the nine months ended July 31, 2005 contributed $21.8 million to the Sales increase. The remainder of the Sales increase was primarily due to new business in all operating segments, except Lighting, as well as the expansion of services with existing Janitorial and Engineering customers.

Operating Expenses and Cost of Goods Sold. As a percentage of Sales, gross profit (Sales minus operating expenses and cost of goods sold) was 12.2% for the third quarter of 2005 compared to 10.6% for the third quarter of 2004. The increase in margins was primarily due to the $9.0 million benefit from the reduction of the Company’s self-insurance reserves, partially offset by higher reimbursements for

out-of-pocket expenses from existing managed parking lot clients for which Parking had no margin benefit.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the third quarter of 2005 were $44.4 million, compared to $43.7 million for the third quarter of 2004. The increase was primarily due to higher costs related to Sarbanes-Oxley compliance, specifically, $3.5 million higher professional fees related to the compliance effort, and annual salary increases. Partially offsetting the increase was the $1.3 million decrease in the liability accrued for the Forbes v. ABM case.

Intangible Amortization. Intangible amortization was $1.4 million for the third quarter of 2005 compared to $1.3 million for the third quarter of 2004. The higher amortization was due to intangibles acquired in business combinations completed in fiscal year 2004 and nine months ended July 31, 2005, partially offset by lower amortization on acquisitions completed in fiscal year 2003 resulting from the use of sum-of-the-years-digits method for customer relationship intangible assets.

Interest Expense. Interest expense, which includes loan amortization and commitment fees for the revolving credit facility, was flat between the third quarter of 2005 and the third quarter of 2004.

Income Taxes. The effective tax rate was 34.5% for the third quarter of 2005 and for the third quarter of 2004. The income tax provision for continuing operations for the third quarter of 2005 included a tax benefit of $0.3 million principally from adjusting the income tax liability accounts after filing the 2004 income tax returns, while the income tax provision for continuing operations for the third quarter of 2004 included a tax benefit of $0.6 million principally from adjusting the income tax liability accounts after filing the 2003 income tax returns and from filing amended tax returns primarily to claim higher tax credits. The effective tax rate for the third quarter of 2005 reflects a slightly lower estimated state tax rate based on the actual filing of state tax returns for 2004.

Segment Information. Under the criteria of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” Janitorial, Parking, Security, Engineering, and Lighting are reportable segments. On November 1, 2004, Facility Services merged with Engineering. The operating results of Facility Services for the prior period has been reclassified to Engineering from the Other segment for comparative purposes. The operating results of Mechanical, also previously included in the Other segment, are reported separately under discontinued operations and are excluded from the table below. See Discontinued Operations. As a result of the reclassifications of Facility Services and Mechanical, the Other segment no longer exists. Corporate expenses are not allocated.


	Three Months Ended July 31,						Better
($ in thousands)	2005			2004			(Worse)
				As Restated *
Sales and other income
Janitorial	$	384,381		$	367,539			4.6	%
Parking		102,767			97,856			5.0	%
Security		74,702			65,012			14.9	%
Engineering		60,882			54,296			12.1	%
Lighting		26,877			27,510			(2.3	)%
Corporate		531			584			(9.1	)%

	$	650,140		$	612,797			6.1	%


Operating profit
Janitorial	$	25,165		$	17,867			40.8	%
Parking		4,079			3,458			18.0	%
Security		4,302			2,594			65.8	%
Engineering		4,146			3,274			26.6	%
Lighting		927			442			109.7	%
Corporate		(5,285	)		(7,706	)		31.4	%

Operating profit		33,334			19,929			67.3	%
Interest expense		(220	)		(255	)		13.7	%

Income from continuing operations before income taxes	$	33,114		$	19,674			68.3	%

* See Note 2 of Notes to Consolidated Financial Statements.

The results of operations from the Company’s segments for the quarter ended July 31, 2005, compared to the same period in 2004, are more fully described below.

Janitorial. Sales for Janitorial increased by $16.8 million, or 4.6%, during the third quarter of 2005 compared to the same period in 2004. The Initial Contract Services, Inc. (“Initial”) and Colin acquisitions contributed $14.2 million to the increase in Sales. Sales increased in the Mid-Atlantic, Midwest, Northern California and Northwest regions due to new business, expansion of services to existing customers and price adjustments to pass through a portion of union cost increases. The increases were partially offset by reductions in Sales from lost accounts in the Northeast, Southeast and Southwest regions.

Operating profit increased by $7.3 million, or 40.8%, during third quarter 2005 compared to the same period in 2004. Operating profit for the third quarter of 2005 included $2.2 million benefit from the reduction of insurance expense for the first six months of 2005 due to the favorable development in the Company’s self-insured claims. The final settlement of the Forbes v. ABM case resulted in a $1.3 million reduction in liability previously recorded in the second quarter of 2005. The remainder of the operating profit improvement was due to higher tag sales, which provided better margins, and tight control of labor costs particularly in the Southwest and Northeast regions.

Parking. Parking Sales increased $4.9 million or 5.0%, during the third quarter of 2005 compared to the same period in 2004. Of the $4.9 million Sales increase, $3.3 million represented higher reimbursements for out-of pocket expenses from managed parking lot clients for which Parking had no margin benefit. New contracts and increased traffic at airport locations contributed the remainder of the Sales increase. Operating profit increased $0.6 million or 18.0% during the third quarter of 2005 compared to the third quarter of 2004. Operating profit for the third quarter of 2005 included a $0.3 million benefit from the reduction of insurance expense for the first six months of 2005 due to the favorable development in the Company’s self-insured claims. The remainder of the operating profit increase was primarily due to new contracts, the termination of unprofitable contracts, higher margins on renegotiated contracts, as well as improvements at airport locations due to increased air traffic across the country. The

cost of implementing a new revenue reporting system and a settlement of a billing dispute in the Northwest region significantly offset these improvements.

Security. Security Sales increased $9.7 million, or 14.9%, during the third quarter of 2005 compared to the third quarter of 2004 primarily due to the Security Services of America, LLC (“SSA”), Sentinel Guard Systems (“Sentinel”) and Amguard acquisitions, which contributed $7.6 million to the Sales increase, and new business, partially offset by the loss of a major contract in Seattle at the end of June 2005. Operating profits increased $1.7 million, or 65.8%, due to the $1.0 million profit contribution from SSA, Sentinel and Amguard. In addition, operating profit for the third quarter of 2005 included a $0.5 million benefit from the reduction of insurance expense for the first six months of 2005 due to the favorable development in the Company’s self-insured claims.

Engineering. Sales for Engineering increased $6.6 million, or 12.1%, during the third quarter of 2005 compared to the third quarter of 2004 due to successful sales initiatives resulting in new business and the expansion of services to existing customers across the country. Operating profits increased $0.9 million, or 26.6%, during 2005 compared to 2004 primarily due to higher Sales. In addition, operating profit for the third quarter of 2005 included a $0.3 million benefit from the reduction of insurance expense for the first six months of 2005 due to the favorable development in the Company’s self-insured claims. A settlement of an employee claim partially offset these improvements.

Lighting. Lighting Sales decreased $0.6 million or 2.3%, while operating profit increased $0.5 million, or 109.7% during the third quarter of 2005 compared to the third quarter of 2004. The Sales decrease was primarily due to decreased project business and lost service contracts. Operating profit for the third quarter of 2005 included a $0.2 million benefit from the reduction of insurance expense for the first six months of 2005 due to the favorable development in the Company’s self-insured claims and a $0.3 million reduction of bad debt expense related to specific accounts that are no longer required.

Corporate. Corporate expenses for the third quarter of 2005 decreased by $2.4 million or 31.4% compared to the same period of 2004 mainly due to the $5.5 million benefit from the favorable development in the Company’s California workers’ compensation and general liability claims attributable to prior years. While virtually all insurance claims arise from the operating segments, this adjustment is included in unallocated corporate expenses. Had the Company allocated this insurance adjustment among the operating segments, the reported pre-tax operating profits of the operating segments, as a whole, would have been increased by $5.5 million in the third quarter of 2005, with an equal and offsetting change to unallocated Corporate expenses and therefore no change to consolidated pre-tax earnings for the third quarter of 2005.

Costs related to Sarbanes-Oxley compliance, specifically, professional fees related to the certification effort were $3.7 million and $0.2 million in the third quarter of 2005 and 2004, respectively.

Nine Months Ended July 31, 2005 vs. Nine Months Ended July 31, 2004


	Nine Months					Nine Months
	Ended		% of			Ended		% of			Increase
($ in thousands)	July 31, 2005		Sales			July 31, 2004		Sales			(Decrease)
						As Restated *
Revenues
Sales and other income	$	1,927,860		100.0	%	$	1,755,355		100.0	%		9.8	%
Gain on insurance claim		1,195		—			—		—			—

Total revenues		1,929,055		—			1,755,355		—			9.9	%


Expenses
Operating expenses and cost of goods sold		1,726,542		89.6	%		1,585,606		90.3	%		8.9	%
Selling, general and administrative		139,455		7.2	%		125,240		7.1	%		11.4	%
Intangible amortization		4,264		0.2	%		3,239		0.2	%		31.6	%
Interest		713		—			746		—			-4.4	%

Total expenses		1,870,974		97.0	%		1,714,831		97.7	%		9.1	%

Income from continuing operations before income taxes		58,081		3.0	%		40,524		2.3	%		43.3	%
Income taxes		18,202		0.9	%		14,196		0.8	%		28.2	%

Income from continuing operations	$	39,879		2.1	%	$	26,328		1.5	%		51.5	%

* See Note 2 of Notes to Consolidated Financial Statements.

Income from continuing operations. Income from continuing operations for the first nine months of 2005 increased 51.5% to $39.9 million ($0.79 per diluted share) from $26.3 million ($0.53 per diluted share) for the first nine months of 2004. All operating segments showed improvement in operating income. Additionally, income from continuing operations for the first nine months of 2005 included the $5.5 million ($3.4 million after-tax, $0.07 per diluted share) benefit from the reduction of the Company’s self-insurance reserves, $2.7 million of income tax benefit resulting from a state tax audit settlement and $1.2 million of pre-tax gain on the WTC indemnity payment. These positive developments were partially offset by the $5.0 million pre-tax charge to settle Forbes v. ABM and higher costs related to the Sarbanes-Oxley certification effort.

Sales and Other Income. Sales for the first nine months of 2005 of $1,927.9 million increased by $172.5 million or 9.8% from $1,755.4 million for the first nine months of 2004. Acquisitions completed in fiscal year 2004 and the nine months ended July 31, 2005 contributed $104.1 million to the Sales increase. The remainder of the Sales increase was primarily due to new business in all operating segments, as well as the expansion of services with existing Janitorial and Engineering customers.

Operating Expenses and Cost of Goods Sold. As a percentage of Sales, gross profit (Sales minus operating expenses and cost of goods sold) was 10.4% for the first nine months of 2005 compared to 9.7% for the first nine months of 2004. The increase in margins was primarily due to the $5.5 million benefit from the reduction of the Company’s self-insurance reserves, higher margin contributions from the Security acquisitions completed in 2004 and the first nine months of 2005, termination of unprofitable contracts and favorably renegotiated contracts at Parking, and higher tag sales which provided higher margins in the Northeast region of Janitorial, partially offset by higher reimbursements for out-of-pocket expenses from managed parking lot clients for which Parking had no margin benefit. The total insurance expense recorded by the operating segments for the first nine months of 2005 was flat compared to the first nine months of 2004 except for the additional insurance expense attributable to acquisitions.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the first nine months of 2005 were $139.5 million, compared to $125.2 million for the first nine months of 2004. The increase was primarily due to the $5.0 million charge taken by Janitorial to settle Forbes v. ABM in the first nine months of 2005, higher costs related to Sarbanes-Oxley compliance,

specifically, $4.7 million higher professional fees related to the compliance effort, as well as annual salary increases, and $3.6 million in selling, general and administrative expenses attributable to the acquisitions completed in 2004 and the first nine months of 2005. These increases were partially offset by the decrease in bad debt expense primarily because of the elimination of specific reserves on customer accounts where billing disputes have been settled.

Intangible Amortization. Intangible amortization was $4.3 million for the first nine months of 2005 compared to $3.2 million for the first nine months of 2004. The higher amortization was due to intangibles acquired in business combinations completed in fiscal year 2004 and nine months ended July 31, 2005, partially offset by lower amortization on acquisitions completed in fiscal year 2003 resulting from the use of sum-of-the-years-digits method for customer relationship intangible assets.

Interest Expense. Interest expense, which includes loan amortization and commitment fees for the revolving credit facility, was flat between the first nine months of 2005 and the first nine months of 2004.

Income Taxes. The effective tax rate was 31.3% for the first nine months of 2005, compared to 35.0% for the first nine months of 2004. A $2.7 million income tax benefit was recorded in the second quarter of 2005 resulting from the favorable settlement of the audit of prior years’ state tax returns (tax years 2000 to 2003) in May 2005. An estimated liability was accrued in prior years for the separate income tax returns filed with that state for the years under audit because the intercompany charges were not supported by a recent formal transfer pricing study. The estimated liability was greater than the settlement amount. Additionally, the income tax provision for continuing operations for the third quarter of 2005 included a tax benefit of $0.3 million principally from adjusting the income tax liability accounts after filing the 2004 income tax returns, while the income tax provision for continuing operations for the third quarter of 2004 included a tax benefit of $0.6 million principally from adjusting the income tax liability accounts after filing the 2003 income tax returns and from filing amended tax returns primarily to claim higher tax credits. The effective tax rate for the first nine months of 2005 reflects a slightly lower estimated state tax rate based on the actual filing of state tax returns for 2004.

Segment Information. The results for continuing operations by segment for the nine months ended July 31, 2005 and 2004 are shown below.


	Nine Months Ended July 31,						Better
($ in thousands)	2005			2004			(Worse)
				As Restated *
Sales and other income
Janitorial	$	1,141,961		$	1,073,475			6.4	%
Parking		303,073			285,384			6.2	%
Security		220,465			157,986			39.5	%
Engineering		176,057			154,415			14.0	%
Lighting		85,080			83,060			2.4	%
Corporate		1,224			1,035			18.3	%

	$	1,927,860		$	1,755,355			9.8	%


Operating profit
Janitorial	$	47,795		$	41,666			14.7	%
Parking		8,915			6,269			42.2	%
Security		9,756			5,787			68.6	%
Engineering		10,327			8,691			18.8	%
Lighting		2,421			1,726			40.3	%
Corporate		(21,615	)		(22,869	)		5.5	%

Operating profit		57,599			41,270			39.6	%
Gain on insurance claim		1,195			—			—
Interest expense		(713	)		(746	)		4.4	%

Income from continuing operations before income taxes	$	58,081		$	40,524			43.3	%

* See Note 2 of Notes to Consolidated Financial Statements.

The results of operations from the Company’s segments for the nine months ended July 31, 2005, compared to the same period in 2004, are more fully described below.

Janitorial. Sales for Janitorial increased by $68.5 million, or 6.4% for the first nine months of 2005 compared to the same period in 2004. The Initial and Colin acquisitions contributed $49.6 million to the increase in Sales. Sales increased in the Mid-Atlantic, Midwest, Northern California, Northwest and South Central regions due to new business, expansion of services to existing customers and price adjustments to pass through a portion of union cost increases. The increases were partially offset by reductions in Sales from lost accounts in the Northeast and Southeast regions.

Operating profit increased by $6.1 million, or 14.7%, during the first nine months of 2005 compared to the same period in 2004. The increase was primarily due to the operating profit improvements in the majority of the regions and $1.2 million operating profit contribution from the Initial and Colin acquisitions. These positive developments were partially offset by the $5.0 million charge to settle Forbes v. ABM and increases in workers’ compensation insurance costs that were not fully absorbed by price adjustments in the Northern California region.

Of the regions that showed operating profit improvement, the Northeast region showed the most improvement with its operating loss down by $3.9 million in the first nine months of 2005 compared to 2004 due to higher tag sales, which provided higher margins, tight control of labor cost especially in Manhattan, higher prices on some renegotiated contracts, lower bad debt expense and the impact of acquisitions. The other regions showed operating profit improvement primarily due to higher Sales and higher margins on existing jobs resulting from lower costs.

Parking. Parking Sales increased $17.7 million, or 6.2%, while operating profit increased $2.6 million, or 42.2%, during the first nine months of 2005 compared to the first nine months of 2004. Of the $17.7 million Sales increase, $11.8 million represented higher reimbursements for out-of-pocket expenses from managed parking lot clients for which Parking had no margin benefit. New contracts and increased

traffic at airport locations contributed to the remainder of the Sales increase. The increase in operating profits resulted from new contracts, the termination of unprofitable contracts, higher margins on renegotiated contracts as well as improvements at airport locations due to increased air traffic across the country. The cost of implementing a new revenue reporting system and a settlement of a billing dispute in the Northwest region partially offset these improvements.

Security. Security Sales increased $62.5 million, or 39.5%, during the first nine months of 2005 compared to the first nine months of 2004 primarily due to the SSA, Sentinel and Amguard acquisitions, which contributed $54.5 million to the Sales increase. The remainder of the Sales increase is attributable to the net effect of new business, including major contracts awarded in the third quarter of 2004. Operating profits increased $4.0 million, or 68.6%, primarily due to the $3.3 million profit contribution from SSA, Sentinel and Amguard and the net effect of new business, offset by a $0.4 million bad debt provision for a customer which declared bankruptcy in April 2005.

Engineering. Sales for Engineering increased $21.6 million, or 14.0%, during the first nine months of 2005 compared to the first nine months of 2004 due to successful sales initiatives resulting in new business and the expansion of services to existing customers across the country, mostly in the Southern California, Northern California and Eastern regions. Operating profits increased $1.6 million or 18.8%, during 2005 compared to 2004 primarily due to higher Sales. Higher state unemployment insurance expense in California and settlement of an employee claim partially offset these improvements.

Lighting. Lighting Sales increased $2.0 million, or 2.4%, while operating profit increased $0.7 million or 40.3% during the first nine months of 2005 compared to the first nine months of 2004. The growth in Sales was primarily due to increased project and service business in the Southwest and Northwest regions, offset by a decrease in project business in the Northcentral region and lost service contracts. The increase in operating profit was primarily due to increased Sales and a $0.3 million reduction of bad debt expense related to specific accounts that are no longer required, partially offset by increased costs associated with an expanded sales force and Sarbanes-Oxley compliance.

Corporate. Corporate expenses for the first nine months of 2005 decreased by $1.3 million or 5.5% compared to the same period of 2004 mainly due to the $5.5 million benefit from the favorable development of the Company’s California workers’ compensation and general liability claims attributable to prior years. While virtually all insurance claims arise from the operating segments, this adjustment is included in unallocated corporate expenses. Had the Company allocated this insurance adjustment among the operating segments, the reported pre-tax operating profits of the operating segments, as a whole, would have been increased by $5.5 million in the first nine months of 2005, with an equal and offsetting change to unallocated Corporate expenses and therefore no change to consolidated pre-tax earnings for the first nine months of 2005.

Costs related to Sarbanes-Oxley compliance, specifically, professional fees related to the certification effort were $5.0 million and $0.3 million in the first nine months of 2005 and 2004, respectively.

Discontinued Operations

On August 15, 2003, the Company sold substantially all of the operating assets of Amtech Elevator Services, Inc. (“Elevator”), a wholly owned subsidiary of ABM that represented the Company’s Elevator segment, to Otis Elevator Company, a wholly owned subsidiary of United Technologies Corporation (“Otis Elevator”). The operating assets sold included customer contracts, accounts receivable, facility leases and other assets, as well as a perpetual license to the name “Amtech Elevator Services.” The consideration in connection with the sale included $112.4 million in cash and Otis Elevator’s assumption of trade payables and accrued liabilities. In fiscal 2003, the Company realized a gain on the sale of $52.7 million, which was net of $32.7 million of income taxes, of which $30.5 million was paid with the extension of the federal and state income tax returns on January 15, 2004. This payment has been reported as discontinued operation in the accompanying consolidated statements of cash flows. Income taxes on the gain on sale of discontinued operation for the third quarter of 2005 included a $0.9 million benefit from the correction of the overstatement of income taxes provided for the Elevator gain. The overstatement was related to the incorrect treatment of goodwill associated with assets acquired by Elevator in 1985.


	Three Months Ended					Nine Months Ended
	July 31,					July 31,
(In thousands)	2005			2004		2005		2004

Revenues	$	4,472		$	10,976	$	24,775	$	29,586

Income (loss) before income taxes	$	(21	)	$	414	$	383	$	815
Income taxes		(6	)		162		150		320

Income (loss) from discontinued operation, net of income taxes	$	(15	)	$	252	$	233	$	495

Subsequent Events

New Orleans business for the nine months ended July 31, 2005 were approximately $10.0 million and $0.7 million, respectively. The accounts receivable associated with customers located in New Orleans totaled $1.8 million as of July 31, 2005. The Company is uncertain when it will be able to restore services in New Orleans or what customer demand will be in connection with such resumption. However, the Company does expect to resume services in New Orleans, including providing site clean-up services in new construction associated with the return of business and residents to the area.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment.” This statement is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. Entities will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service. SFAS No. 123R is effective as of the beginning of the annual reporting period that begins after June 15, 2005. In accordance with the standard, the Company will adopt SFAS No. 123R effective November 1, 2005. The Company believes that the impact that the adoption of SFAS No. 123R will have on its financial position or results of operations will approximate the magnitude of the stock-based employee compensation costs disclosed above pursuant to the disclosure requirements of SFAS No. 148. (See Note 4 of Notes to Consolidated Financial Statements.)

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” This Statement replaces ABP Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 also requires that a change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets be accounted for as a change in accounting estimate that is effected by a change in accounting principle. Opinion No. 20 previously required that such a change be reported as a change in accounting principle. Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes and corrections of errors made occurring in fiscal years beginning after June 1, 2005.

In June 2005, the EITF ratified their conclusions on EITF Issue No. 05-6, “Determining the Amortization Period for Leasehold Improvements”. This EITF clarifies the life assigned to leasehold improvements acquired in a business combination and leasehold improvements that are placed in service significantly after and not contemplated at or near the beginning of the lease term. For leasehold improvements acquired in a business combination, amortization should be over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition. Leasehold improvements that are placed in service significantly after and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes lease periods and renewals that are deemed to be reasonably assured at the date the leasehold improvements are purchased. This is effective for all leasehold improvements purchased or acquired beginning in the fiscal 4th quarter of 2005 for the Company. The Company does not believe the application of the guidance in EITF Issue No. 05-6 will have a significant impact on its financial statements.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to self-insurance reserves, allowance for doubtful accounts, valuation allowance for the net deferred income tax asset, estimate of useful life of intangible assets, impairment of goodwill and other intangibles, and contingencies and litigation liabilities. The Company bases its estimates on historical experience, independent valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

The Company believes the following critical accounting policies govern its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Self-Insurance Reserves. Certain insurable risks such as general liability, automobile property damage and workers’ compensation are self-insured by the Company. However, commercial policies are obtained to provide coverage for certain risk exposures subject to specified limits. Accruals for claims under the Company’s self-insurance program are recorded on a claim-incurred basis. The Company uses an independent actuarial firm to provide an estimate of the Company’s claim costs and liabilities annually and the Company accrues the actuarial point estimate.

Using the annual actuarial report, management develops annual insurance costs for each operation, expressed as a rate per $100 of exposure (labor and revenue) to estimate insurance costs on a quarterly basis. Additionally, management monitors new claims and claim development to assess the adequacy of the insurance reserves. The estimated future charge is intended to reflect the recent experience and trends. Trend analysis is complex and highly subjective. The interpretation of trends requires the knowledge of all factors affecting the trends that may or may not be reflective of adverse development (e.g., change in regulatory requirements and change in reserving methodology). If the trends suggest that the frequency or severity of claims incurred increased, the Company might be required to record additional expenses for self-insurance liabilities. Additionally, the Company uses third party service providers to administer its claims and the performance of the service providers and transfers between administrators can impact the cost of claims and accordingly the amounts reflected in insurance reserves.

Allowance for Doubtful Accounts. The Company’s accounts receivable arise from services provided to its customers and are generally due and payable on terms varying from the receipt of invoice to net thirty days. The Company estimates an allowance for accounts it does not consider fully collectible. Changes in the financial condition of the customer or adverse development in negotiations or legal proceedings to obtain payment could result in the actual loss exceeding the estimated allowance.

Deferred Income Tax Asset Valuation Allowance. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. If management determines it is more likely than not that the net deferred tax asset will be realized, no valuation allowance is recorded. At July 31, 2005, the net deferred tax asset was $87.3 million and no valuation allowance was recorded. Should future income be less than anticipated, the net deferred tax asset may not be fully recoverable.

Other Intangible Assets Other Than Goodwill. The Company engages a third party valuation firm to independently appraise the value of intangible assets acquired in larger sized business combinations. For smaller acquisitions, the Company performs an internal valuation of the intangible assets using the discounted cash flow technique. The customer relationship intangible assets are being amortized using the sum-of-the-years-digits method over the useful lives consistent with the estimated useful life considerations used in the determination of their fair values. The accelerated method of amortization reflects the pattern in which the economic benefits of the customer relationship intangible asset are expected to be realized. Trademarks and trade names are being amortized over their useful lives using the straight-line method. Other intangible assets, consisting principally of contract rights, are

being amortized over the contract periods using the straight-line method. At least annually, the Company evaluates the remaining useful life of an intangible asset to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the asset’s remaining useful life changes, the remaining carrying amount of the intangible asset would be amortized over the revised remaining useful life. Furthermore, the remaining unamortized book value of intangibles will be reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets.” The first step of an impairment test under SFAS No. 144 is a comparison of the future cash flows, undiscounted, to the remaining book value of the intangible. If the future cash flows are insufficient to recover the remaining book value, a fair value of the asset, depending on its size, will be independently or internally determined and compared to the book value to determine if an impairment exists.

Goodwill. In accordance with SFAS No. 142, “Goodwill and Other Intangibles,” goodwill is no longer amortized. Rather, the Company performs goodwill impairment tests on an at least an annual basis, in the fourth quarter, using the two-step process prescribed in SFAS No. 142. The first step is to evaluate for potential impairment by comparing the reporting unit’s fair value with its book value. If the first step indicates potential impairment, the required second step allocates the fair value of the reporting unit to its assets and liabilities, including recognized and unrecognized intangibles. If the implied fair value of the reporting unit’s goodwill is lower than its carrying amount, goodwill is impaired and written down to its implied fair value. The fair value of the reporting unit, if required to be determined, will be independently appraised.

Contingencies and Litigation. ABM and certain of its subsidiaries have been named defendants in certain litigations arising in the ordinary course of business including certain environmental matters. When a loss is probable and estimable the Company records the estimated loss. The actual loss may be greater than estimated, or litigation where the outcome was not considered probable might result in a loss.

Factors That May Affect Future Results
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

The disclosure and analysis in this Quarterly Report on Form 10-Q contain some forward-looking statements that set forth anticipated results based on management’s plans and assumptions. From time to time, the Company also provides forward-looking statements in other written materials released to the public, as well as oral forward-looking statements. Such statements give the Company’s current expectations or forecasts of future events; they do not relate strictly to historical or current facts. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, and the outcome of contingencies and other uncertainties, such as legal proceedings, and financial results. Management tries, wherever possible, to identify such statements by using words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and similar expressions.

Set forth below are factors that the Company thinks, individually or in the aggregate, could cause the Company’s actual results to differ materially from past results or those anticipated, estimated or projected. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Investors should understand that it is not possible to predict or identify all such factors. Consequently, the following should not be considered to be a complete list of all potential risks or uncertainties.

Adverse results from the evaluation of internal control over financial reporting under Section 404 of Sarbanes-Oxley could result in a loss of investor confidence in the Company’s financial reports and have an adverse effect on the Company’s stock price. Pursuant to Section 404 of Sarbanes-Oxley, beginning with the Company’s Annual Report on Form 10-K for the fiscal year ending October 31, 2005, management will be required to furnish a report on the Company’s internal control over financial reporting. Such report will contain, among other matters, an assessment of the effectiveness of the Company’s internal control over financial reporting as of the end of its fiscal year, including a statement as to whether or not the Company’s internal control over financial reporting is effective. This assessment must include disclosure of any material weakness in internal control over financial reporting

identified by management. The Company’s auditors also will be required to deliver an attestation report on management’s assessment of and operating effectiveness of such internal control.

In the course of management’s ongoing system and process evaluation and testing of internal controls, management identified areas of internal control over financial reporting that required improvement, particularly in the information technology environment, Lighting inventory controls, and Parking cash management. Management continues the process documentation, evaluation and remediation needed to comply with Section 404 and certain aspects of that work are behind schedule. The timely and successful completion of management’s assessment of the effectiveness of the internal control over financial reporting under Section 404 is one of the Company’s highest priorities. However, the Company’s further testing, or the subsequent testing by its independent registered public accounting firm, may reveal deficiencies in the Company’s internal controls over financial reporting that are deemed to be material weaknesses.

If management is unable to assert that internal control over financial reporting is effective as of October 31, 2005 (or if the Company’s auditors are unable to attest that management’s report is fairly stated or they are unable to express an opinion on the effectiveness of the Company’s internal control over financial reporting), the Company could lose investor confidence in the accuracy and completeness of its financial reports, which would be likely to have an adverse effect on the Company’s stock price. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm operating results or cause the Company to fail to timely meet regulatory reporting obligations or become subject to regulatory sanctions.

The Company incurs significant accounting and other control costs, which could increase. As a publicly traded corporation, the Company incurs certain costs to comply with regulatory requirements. The process of meeting the requirements of Section 404 has been more costly than anticipated, requiring additional personnel and outside advisory services as well as additional accounting and legal expenses. The Company will continue to incur these costs for the remainder of 2005 and in early 2006 and the fees, particularly those associated with its independent auditor, could increase. In addition, the Company is experiencing higher-than-anticipated capital expenditures and operating expenses during the implementation of Section 404 compliance related changes.

Most of the Company’s competitors are privately owned so these costs can be a competitive disadvantage for the Company. Should the Company’s sales decline or if the Company is unsuccessful at increasing prices to cover higher expenditures for control and audit, its costs associated with regulatory compliance will rise as a percentage of sales.

The Company could experience labor disputes that could lead to loss of sales or expense variations. At July 31, 2005, approximately 42% of the Company’s employees were subject to various local collective bargaining agreements. Some collective bargaining agreements will expire or become subject to renegotiation during the current fiscal year. In addition, the Company may face union organizing drives in certain cities. When one or more of the Company’s major collective bargaining agreements becomes subject to renegotiation or when the Company faces union organizing drives, the Company and the union may disagree on important issues which, in turn, could lead to a strike, work slowdown or other job actions at one or more of the Company’s locations. A strike, work slowdown or other job action could in some cases disrupt the Company from providing its services, resulting in reduced revenue collection. If declines in customer service occur or if the company’s customers are targeted for sympathy strikes by other unionized workers, contract cancellations could result. In other cases, a strike, work slowdown or other job action could lead to lower expenses due to fewer employees performing services. Alternatively, the result of renegotiating a collective bargaining could be a substantial increase in labor and benefits expenses that the Company could be unable to pass through to its customers for some period of time, if at all.

An increase in costs that the Company cannot pass on to customers could affect profitability. The Company attempts to negotiate contracts under which its customers agree to pay for increases in certain underlying costs associated with providing its services, particularly labor costs,

workers’ compensation and other insurance costs, any applicable payroll taxes and fuel costs. If the Company cannot pass through increases in its costs to its customers under its contracts in a timely manner or at all, then the Company’s expenses will increase without a corresponding increase in sales. Further, if the Company’s sales decline, the Company may not be able to reduce its expenses correspondingly or at all.

A change in actuarial analysis could affect the Company’s results. The Company contracts an annual independent actuarial evaluation of its insurance reserves to ensure that its insurance reserves are appropriate. Actuaries may vary in the manner in which they derive their estimates and these differences could lead to variations in actuarial estimates that cause changes in the Company’s insurance reserves not related to changes in its claims experience. In addition, because the Company’s actuarial estimate is prepared annually and requires several months of analysis, the Company may not learn of a deterioration in claims, particularly claims administered by a third party, until additional costs have been incurred or are projected. Similarly, the Company may be aware of an improvement in its workers’ compensation experience, through improved safety measures or better claims management, before that improvement is reflected in its insurance costs, which are determined based upon the annual actuarial analysis. Because the Company bases its pricing in part on its estimated insurance costs, the Company’s prices could be higher or lower than they otherwise might be if better information was available resulting in a competitive disadvantage in the former case and reduced margins or unprofitable contracts in the latter.

A change in the frequency or severity of claims against the Company, a deterioration in claims management, or the cancellation or non-renewal of the Company’s primary insurance policies could adversely affect the Company’s results. While the Company attempts to establish adequate self-insurance reserves using an annual actuarial study, unanticipated increases in the frequency or severity of claims against the Company would have an adverse financial impact. Also, where the Company self-insures, a deterioration in claims management, whether by the Company or by a third party claims administrator, could lead to delays in settling claims thereby increasing claim costs, particularly in the workers’ compensation area. In addition, catastrophic uninsured claims against the Company or the inability of the Company’s insurance carriers to pay otherwise insured claims would have a material adverse financial impact on the Company.

Furthermore, many customers, particularly institutional owners and large property management companies, prefer to do business with contractors, such as the Company, with significant financial resources, who can provide substantial insurance coverage. Should the Company be unable to renew its umbrella and other commercial insurance policies at competitive rates, this loss would have an adverse impact on the Company’s business.

Continued low levels of capital investments by customers could adversely impact the results of Lighting operations. While the economy appears to be recovering in recent months, the commercial office building and retail sectors have been slow to make capital expenditures for lighting projects. While we expect capital investment in these areas to increase in the coming year, customers’ capital project budgets could continue at low levels, which would adversely impact the Company’s results.

The Company is subject to intense competition. The Company believes that each aspect of its business is highly competitive, and that such competition is based primarily on price and quality of service. The Company provides nearly all its services under contracts originally obtained through competitive bidding. The low cost of entry to the facility services business has led to strongly competitive markets made up of large numbers of mostly regional and local owner-operated companies, located in major cities throughout the United States and in British Columbia, Canada (with particularly intense competition in the janitorial business in the Southeast and South Central regions of the United States). The Company also competes with the operating divisions of a few large, diversified facility services and manufacturing companies on a national basis. Indirectly, the Company competes with building owners and tenants that can perform internally one or more of the services provided by the Company. These building owners and tenants might have a competitive advantage when the Company’s services are subject to sales tax and internal operations are not. Furthermore, competitors may have lower costs because privately-owned companies operating in a limited geographic area may have significantly lower labor and overhead costs.

These strong competitive pressures could inhibit the Company’s success in bidding for profitable business and its ability to increase prices even as costs rise, thereby reducing margins.

A decline in commercial office building occupancy and rental rates could affect the Company’s sales and profitability. The Company’s sales directly depend on commercial real estate occupancy levels and the rental income of building owners. Decreases in these levels reduce demand and also create pricing pressures on building maintenance and other services provided by the Company. In certain geographic areas and service segments, the Company’s most profitable work includes tag jobs performed for tenants in buildings in which it performs building services for the property owner or management company. A decline in occupancy rates could result in a decline in fees paid by landlords as well as tenant work which would lower sales and margins. In addition, in those areas of its business where the Company’s workers are unionized, decreases in sales can be accompanied by relative increases in labor costs if the Company is obligated by collective bargaining agreements to retain workers with seniority and consequently higher compensation levels.

The financial difficulties or bankruptcy of one or more of the Company’s major customers could adversely affect results. The Company’s ability to collect its accounts receivable and future sales depend, in part, on the financial strength of its customers. The Company estimates an allowance for accounts it does not consider collectible and this allowance adversely impacts profitability. In the event customers experience financial difficulty, and particularly if bankruptcy results, profitability is further impacted by the Company’s failure to collect accounts receivable in excess of the estimated allowance. Additionally, the Company’s future sales would be reduced.

The Company’s success depends on its ability to preserve its long-term relationships with its customers. The Company’s contracts with its customers are generally cancelable upon relatively short notice. However, the business associated with long-term relationships is generally more profitable than that from short-term relationships because the Company incurs start-up costs with many new contracts, particularly for training, operating equipment and uniforms. Once these costs are expensed or fully depreciated over the appropriate periods, the underlying contracts become more profitable. Therefore, the Company’s loss of long-term customers could have an adverse impact on its profitability even if the Company generates equivalent sales from new customers.

Weakness in airline travel and the hospitality industry could adversely affect the results of the Company’s Parking segment. A significant portion of the Company’s Parking sales is tied to the numbers of airline passengers and hotel guests. Parking results were adversely affected after the terrorist attacks of September 11, 2001, during the SARS crisis and at the start of the military conflict in Iraq as people curtailed both business and personal travel and hotel occupancy rates declined. As airport security precautions expanded, the decline in travel was particularly noticeable at airports associated with shorter flights for which ground transportation became the alternative. While it appears that airline travel and the hospitality industry have recovered, there can be no assurance that airline travel will reach previous levels or increased concerns about terrorism, disease, or other adversities will not again reduce travel, adversely impacting Parking sales and operating profits.

Acquisition activity could slow or be unsuccessful. A significant portion of the Company’s historic growth has come through acquisitions. A slowdown in acquisitions could lead to a slower growth rate. Because new contracts frequently involve start-up costs, sales associated with acquired operations generally have higher margins than new sales associated with internal growth. Therefore a slowdown in acquisition activity could lead to constant or lower margins, as well as lower revenue growth. Because contracts in the Company’s businesses are generally short-term and personal relationships are significant in retaining customers, the Company relies on its ability to retain the managers of its acquired businesses. An inability to retain the services of the former owners and senior managers of acquired businesses could adversely affect the projected benefits of an acquisition. Moreover, the inability to successfully integrate acquisitions into the Company or to achieve the operational efficiencies anticipated in acquisitions could adversely impact sales and costs if we are unable to achieve this integration without encountering difficulties or experiencing the loss of key customers or suppliers. It also may be difficult to design and implement effective internal controls over financial reporting for combined operations and differences in

existing controls for each business may results in deficiencies or weaknesses that require remediation when the financial controls and reporting functions are combined.

Hurricane Katrina could lead to loss of business and increased expenses. The Company does not currently know when it will be able to begin providing services in the New Orleans area or the type or extent of services that it will provide. Because of the extensive damage to the area and the length of time that buildings will be under water, extensive mold remediation is likely to be required in the clean up effort and the Company does not provide these services. The Company does, however, provide site clean up services associated with new construction that may begin in the area. The Sales and operating profits of the Company’s New Orleans’s businesses for the nine months ended July 31, 2005 were approximately $10.0 million and $0.7 million, respectively. The accounts receivable associated with customers located in New Orleans totaled $1.8 million as of July 31, 2005. The Company’s ability to replace this business or collect these receivables is uncertain at this time.

Natural or man-made disasters could disrupt the Company in providing services. Storms, earthquakes, or other natural or man-made disasters may result in reduced sales or property damage. Disasters may also cause economic dislocations throughout the country. Hurricane Katrina has led to higher fuel and energy prices and it is difficult to predict how high the prices may climb or how long the increases may last. While certain of these increased energy costs may be recovered from the Company’s customers, such costs incurred by the Company that are not related to the provision of services to customers will not be recoverable. In addition, natural or man-made disasters may increase the volatility of the Company’s results, either due to increased costs caused by the disaster with partial or no corresponding compensation from customers, or, alternatively, increased sales and profitability related to tag work, special projects and other higher margin work necessitated by the disaster.

Other issues and uncertainties may include:

• new accounting pronouncements or changes in accounting policies,

• labor shortages that adversely affect the Company’s ability to employ entry level personnel,

• legislation or other governmental action that detrimentally impacts the Company’s expenses or reduces sales by adversely affecting the Company’s customers such as state or locally- mandated healthcare benefits,

• impairment of goodwill or other intangible assets,

• a reduction or revocation of the Company’s line of credit that could increase interest expense and the cost of capital,

• the resignation, termination, death or disability of one or more of the Company’s key executives that adversely affects customer retention or day-to-day management of the Company,

The Company believes that it has the human and financial resources for business success, but future profit and cash flow can be adversely (or advantageously) influenced by a number of factors, including those listed above, any and all of which are inherently difficult to forecast. The Company’s Annual Report on Form 10-K for the year ended October 31, 2004, contains additional information with respect to the factors that could influence its business. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk

The Company does not issue or invest in financial instruments or their derivatives for trading or speculative purposes. Substantially all of the operations of the Company are conducted in the United States, and, as such, are not subject to material foreign currency exchange rate risk. At July 31, 2005, the Company had no outstanding long-term debt. Although the Company’s assets included $43.2 million in cash and cash equivalents at July 31, 2005, market rate risk associated with changing interest rates in the United States is not material.


Item 4.		Controls and Procedures

Disclosure Controls and Procedures. As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s principal executive officer and principal financial officer evaluated the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, these officers concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, these disclosure controls and procedures were adequate to ensure that the information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

Changes in Internal Control Over Financial Reporting. No individual change in the Company’s internal control over financial reporting that occurred during the Company’s third quarter of fiscal 2005 has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. As described elsewhere in this Form 10-Q Quarterly Report, management has been engaged in systems and process evaluation and testing of internal controls. While no material weaknesses have been identified during that process, management has identified areas of internal control over financial reporting that required improvement, particularly in the information technology environment, Lighting inventory controls and Parking cash management. The Company is in the process of implementing such improvements.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In 1998, ABM’s parking subsidiary leased a parking facility in Houston, Texas, owned by a limited partnership jointly owned by affiliates of American National Insurance Company (“ANICO”) and partners associated with Gerry Albright (the “Albright affiliates.”) In June 2003, the ANICO affiliates notified the Albright affiliates that they would sell their interest in the parking facility. The Albright affiliates accepted the offer and attempted to secure financing. In connection with certain proposed financing for the Albright affiliates, ABM’s parking subsidiary was asked to submit an estoppel certificate and on that certificate it set forth certain claims under the lease. The Albright affiliates subsequently did not close the transaction

and the ANICO affiliates acquired the interest in the parking facility held by the Albright affiliates. On December 5, 2003, the Albright affiliates filed a lawsuit against ABM, its parking subsidiary, and certain ANICO affiliates. The complaint alleged that ABM breached its obligations under the parking facility lease and committed tortious interference, the ANICO affiliates breached fiduciary responsibilities under the partnership agreement, and that ABM and ANICO were engaged in a conspiracy. Subsequently, claims against ANICO were dismissed. The Albright affiliates assert damages consisting of (1) the value of the parking facility in excess of the purchase price at the time of the proposed purchase by the Albright affiliates ($1.8 million); (2) lost future revenues from the operation of the parking facility ($15.4 million); (3) future appreciation of the property during the remainder of the parking facility lease (a range from $9.9 million to $39.0 million); (4) exemplary damages; and (5) attorneys’ fees. This matter is currently before the Federal District Court in Houston, Texas. ABM believes that it acted in good faith under the terms of the lease and is not liable to the Albright affiliates for their damages related to their inability to secure financing. If ABM were found liable, ABM believes that the amount of the Albright affiliates’ damages would be approximately $3.26 million. ABM further believes that any damages in excess of $150,000 incurred in this lawsuit represent an insured loss under its commercial general liability coverage and commercial umbrella coverage and that its carriers have a duty to provide a defense. ABM has notified its carriers who have denied coverage or indicated an intention to deny coverage. In August 2005, ABM filed a complaint for declaratory judgment against its insurance carriers in Federal District Court in San Francisco, California to ensure its coverage for any damages related to the claims of the Albright affiliates. As of the filing of this report, ABM believes that the likelihood of the loss occurring is not probable and, therefore, it has not accrued any amount for this matter.

In December 1997, ABM’s parking subsidiary entered into a five-year agreement with the City of Dallas to perform parking management services for the Love Field Airport. This agreement provided for a minimum annual guarantee payment (“MAG”) to the City. The Company believes that reductions to the number of stalls in the managed parking area that occurred commencing August 4, 2001 and the opening of a new parking area and other actions required adjustment of the agreement, including the amount of the MAG. Although an exchange between the parties took place as to terms of an amendment, no amendment was executed. ABM’s parking subsidiary did, however, continue performing parking management services until April 2004, when the agreement was terminated. On July 12, 2004, the City of Dallas filed a complaint in Texas State Court in Dallas alleging a breach of contract by ABM’s parking subsidiary for underpayment of the MAG by $1.8 million, and in May 2005 amended that complaint to allege fraud and negligent misrepresentation by ABM’s parking subsidiary. The matter is currently in the discovery phase. ABM believes that it acted in good faith and is not liable to the City of Dallas. In order to resolve this dispute, the Company has offered $100,000 in settlement, which it has accrued.

On February 1, 2005, the Office of Federal Contract Compliance Programs (“OFCCP”), a division of the US Department of Labor, notified ABM’s security subsidiary of an alleged violation of federal affirmative action laws based on a statistical hiring disparity (shortfall) between men and women during 2002. (There was no statistically significant shortfall in 2001, or since 2002.) In August 2005, ABM and the OFCCP agreed to settle this claim for $67,000, which the Company accrued as of July 31, 2005.

The Company uses an independent actuary to annually evaluate the Company’s estimated claim costs and liabilities. The 2004 actuarial report completed in November 2004 indicated that there were adverse developments in the Company’s insurance reserves primarily related to workers’ compensation claims in the State of California during the four-year period ended October 31, 2003, for which the Company recorded a charge of $17.2 million in the fourth quarter of 2004. The Company believes a substantial portion of the $17.2 million was related to poor claims management by a third party administrator, who no longer performs these services for the Company. In addition, the Company believes that poor claims administration in certain other states, where it had insurance, led to higher insurance costs for the Company for its damages related to claims mismanagement. The Company has filed a complaint against its former third party administrator. The Company is actively pursing this complaint, which will be subject to arbitration.

ABM and some of its subsidiaries have been named defendants in certain other litigation arising in the ordinary course of business. In the opinion of management, based on advice of legal counsel, such matters should have no material effect on the Company’s financial position, results of operations or cash flows.

Insurance Claims Related to the Destruction of the World Trade Center in New York City on September 11, 2001


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

(d) Maximum number

shares (or units)

(or approximate dollar

purchased as part

value) of shares (or

(a) Total number of

(b) Average price

of publicly

units) that may yet be

shares (or units)

paid per share

announced plans or

purchased under the

Period

purchased

(or unit)

programs

plans or programs (1)

5/1/2005- 5/31/2005

—

1,788,300 shares

6/1/2005- 6/30/2005

510,900 shares

19.18

510,900 shares

1,277,400 shares

7/1/2005- 7/31/2005

877,400 shares

19.79

877,400 shares

400,000 shares

Total

1,388,300 shares

19.56

1,388,300 shares

400,000 shares

(1) On March 7, 2005, ABM’s Board of Directors authorized the purchase of up to 2.0 million shares of ABM’s common stock at any time through October 31, 2005.

Item 6.Exhibits


Exhibit 2.1	-	Sales Agreement, dated as of May 27, 2005, by and among ABM Industries Incorporated, CommAir Mechanical Services and Carrier Corporation (Schedules and exhibits omitted.) *

Exhibit 10.1	-	Time-Vested Incentive Stock Option Plan, as amended and restated June 7, 2005

Exhibit 10.2	-	2002 Price-Vested Performance Stock Option Plan, as amended and restated June 7, 2005

Exhibit 10.3	-	Executive Employment Agreement with Henrik C. Slipsager as of June 14, 2005

Exhibit 10.4	-	Executive Employment Agreement with James P. McClure as of July 12, 2005

Exhibit 10.5	-	Executive Employment Agreement with George B. Sundby as of July 12, 2005

Exhibit 10.6	-	Executive Employment Agreement with Steven M. Zaccagnini as of July 12, 2005

Exhibit 31.1	-	Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)

Exhibit 31.2	-	Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)

Exhibit 32.1	-	Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The Company undertakes to provide a copy of each omitted schedule and exhibit to the Securities and Exchange Commission on request.

EXHIBIT INDEX


Exhibit No.		Description
2.1		Sales Agreement, dated as of May 27, 2005, by and among ABM Industries Incorporated, CommAir Mechanical Services and Carrier Corporation

10.1		Time-Vested Incentive Stock Option Plan, as amended and restated June 7, 2005

10.2		2002 Price-Vested Performance Stock Option Plan, as amended and restated June 7, 2005

10.3		Executive Employment Agreement with Henrik C. Slipsager as of June 14, 2005

10.4		Executive Employment Agreement with James P. McClure as of July 12, 2005

10.5		Executive Employment Agreement with George B. Sundby as of July 12, 2005

10.6		Executive Employment Agreement with Steven M. Zaccagnini as of July 12, 2005

31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).

32.1		Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


PART I. FINANCIAL INFORMATION			2

Item 1. Financial Statements (Unaudited)			2

Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20

Item 3. Quantitative and Qualitative Disclosures About Market Risk			42

Item 4. Controls and Procedures			43

PART II. OTHER INFORMATION			43

Item 1. Legal Proceedings			43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45

Item 6. Exhibits			46

SIGNATURES			47

EXHIBIT INDEX			48
EXHIBIT 2.1
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1


				ABM Industries Incorporated

September 9, 2005				/s/ George B. Sundby

				George B. Sundby
				Executive Vice President and
				Chief Financial Officer
				Principal Financial Officer

September 9, 2005				/s/ Maria De Martini

				Maria De Martini
				Vice President and Controller
				Chief Accounting Officer