Edgar Filing: ABM INDUSTRIES INC /DE/

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 10-K

(Mark One)



þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2016



¨	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 or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

__________________________

One Liberty Plaza, 7^th Floor

New York, New York 10006

(Address of principal executive offices)

Registrant’s telephone number, including area code: (212) 297-0200

__________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock, $0.01 par value		New York Stock Exchange

__________________________

Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ	Accelerated filer	o	Non-accelerated filer	o	Smaller reporting company	o

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

Aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant’s common stock on April 30, 2016 as reported on the New York Stock Exchange on that date: $1,777,132,715

Number of shares of the registrant’s common stock outstanding as of December 14, 2016: 55,555,719

_______________________________________________

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the registrant’s Definitive Proxy Statement relating to the registrant’s 2017 Annual Meeting of Shareholders, to be held on March 8, 2017, are incorporated by reference into Part III of this Annual Report on Form 10-K.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS



FORWARD-LOOKING STATEMENTS	1
PART I	2
Item 1. Business.	2
Item 1A. Risk Factors.	9
Item 1B. Unresolved Staff Comments.	14
Item 2. Properties.	15
Item 3. Legal Proceedings.	15
Item 4. Mine Safety Disclosures.	16
PART II	17
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	17
Item 6. Selected Financial Data.	19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.	49
Item 8. Financial Statements and Supplementary Data.	50
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	92
Item 9A. Controls and Procedures.	92
Item 9B. Other Information.	92
PART III	93
Item 10. Directors, Executive Officers and Corporate Governance.	93
Item 11. Executive Compensation.	93
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	93
Item 13. Certain Relationships and Related Transactions, and Director Independence.	93
Item 14. Principal Accounting Fees and Services.	93
PART IV	94
Item 15. Exhibits, Financial Statement Schedules.	94
SIGNATURES	95

FORWARD-LOOKING STATEMENTS

This Form 10-K contains both historical and forward-looking statements regarding ABM Industries Incorporated (“ABM”) and its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”). We make forward-looking statements, within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, related to future expectations, estimates, and projections that are uncertain and often contain words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “should,” “target,” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. For us, particular uncertainties that could cause our actual results to be materially different from those expressed in our forward-looking statements include statements regarding: the implementation of our 2020 Vision strategic transformation initiative; the cost savings we expect to achieve by the realignment of our business operations to better support specific industries; the effectiveness of our risk management and safety programs; the strategic direction of our Government Services business; our future operating and financial performance; our plans to return capital to stockholders, whether through stock repurchases, cash dividends, or otherwise; and the other factors that are described in Item 1A, “Risk Factors.”

We urge readers to consider these risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

PART I

ITEM 1. BUSINESS.

General

ABM Industries Incorporated, which operates through its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”), is a leading provider of integrated facility solutions, customized by industry, that enable our clients to deliver exceptional facilities experiences. Our mission is to take care of the people, places, and spaces that matter to our clients. ABM’s comprehensive services include electrical and lighting, energy solutions, facilities engineering, HVAC and mechanical, janitorial, landscape and turf, mission critical solutions, and parking, which we provide through stand-alone or integrated solutions. We serve urban, suburban, and rural areas and properties of all sizes—from schools and commercial buildings to airports, data centers, hospitals, and manufacturing plants.

Our history dates back to 1909, when American Building Maintenance Company began as a window washing company in San Francisco with one employee. In 1985, we were incorporated in Delaware under the name American Building Maintenance Industries, Inc., as the successor to the business originally founded in 1909. In 1994, we changed our name to ABM Industries Incorporated. Our common stock is listed on the New York Stock Exchange under the ticker symbol ABM. Unless otherwise indicated, all references to years are to our fiscal year, which ends on October 31.

Strategic Developments: 2020 Vision

In September 2015, we announced our comprehensive transformation initiative (“2020 Vision”) intended to drive long-term profitable growth through an industry-based go-to-market approach. Our 2020 Vision involves a three-phase approach: Phase 1, which we completed on November 1, 2016, involved a realignment of our organization; Phase 2 focuses on improvements to our operational framework to promote efficiencies and process enhancements; and in Phase 3, on the foundation of benefits realized from Phases 1 and 2, we anticipate accelerating growth with our industry-based go-to-market service model. During 2016, we made initial progress on the following four operating priorities, which we outlined at the onset of our journey.

Organizational Realignment

On November 1, 2016, we completed Phase 1 of our transformation initiative, establishing five industry groups and one Technical Solutions group, which spans the five industry groups:

Through these groups, we will be able to offer a full complement of solutions, including janitorial, facilities engineering, and parking, on a stand-alone basis or in combination with each other or with specialized mechanical and electrical technical services.

Consistent Excellence

As Phase 2 of our transformation initiative matures, we will continue to identify, design, codify, and implement standard operating procedures (“SOPs”) that we anticipate will enable us to achieve more profitable growth across all of our industry groups and our Technical Solutions business. Our initial focus will be in the areas of account management, labor management, manager development, and safety and risk management. To achieve our objective of more profitable growth and best-in-class client service, we have created a Center of Excellence (“COE”) that will support the process of continuous improvement through best practices and drive these throughout our organization.

Cost Optimization

In 2016, we began to consolidate certain of our back office functions in our shared services center. As of November 1, 2016, we had transferred a portion of our back office functions to the shared services center, resulting in the cost savings described in Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We are also pursuing additional initiatives to reduce costs, such as a consolidated procurement process.

Talent Development

One of the key underpinnings of our 2020 Vision is the investment in people and the development of personnel. To that end, we have created a Talent Management Group that will be responsible for driving best-in-class talent development throughout the organization.

2020 Vision: Strategic Acquisitions and Divestitures

Our acquisitions of Air Serv Corporation (“Air Serv”) and HHA Services, Inc. (“HHA”), both on November 1, 2012, represented significant movement towards an industry-based approach to the delivery of facility solutions. Air Serv is a provider of facility solutions for airlines, airports, and freight companies, while HHA is a provider of food services, housekeeping, patient assistance, and plant maintenance to healthcare systems, hospitals, long-term care facilities, and retirement communities. In 2016, we acquired Westway Services Holdings (2014) Ltd. (“Westway”), a provider of technical services in the United Kingdom, which expanded our geographic range of these offerings.

In October 2015, we divested our Security business in a sale of substantially all of the assets of this business to Universal Protection Service, L.P. for cash proceeds of $131.0 million. This business was identified as strategically not aligned with our 2020 Vision. In the fourth quarter of 2016, we exited our GreenHomes America franchising business and decided to sell our Government Services business. Our Government Services business provides specialty solutions in support of U.S. government entities, such as construction management and mission support. This business is currently part of our Building & Energy Solutions segment, as described below, and under future segment reporting it will be a separate segment until it is sold.

2020 Vision: 2017 and Beyond

We expect to continue making progress on Phase 2 of our transformation initiative during 2017. During this time, our key priorities will be completing the migration of our back office functions to the shared services center, driving cost optimization initiatives through our procurement program, and implementing enterprise-wide SOPs through our Consistent Excellence work streams, including extending the use of external advisors for initial pricing and furthering of procurement efforts. By prioritizing these initiatives, we believe that we are building a foundation that should enable us to deliver leading industry-based facility solutions.

Segment and Geographic Financial Information

Current Segment Reporting

For management and financial reporting purposes, our businesses are currently separated into five segments: Janitorial, Facility Services, Parking, Building & Energy Solutions, and Other (which includes our Air Serv business). Our principal operations are in the United States, and in 2016, our U.S. operations generated approximately 94% of our revenues. For segment and geographical financial information, see Note 20, “Segment and Geographic Information,” in the Notes to Consolidated Financial Statements. In addition, for a discussion of risks attendant to our foreign operations, see “Risk Factors,” in Item 1A.

Services and Offerings within Segments

Janitorial

Our Janitorial segment provides a wide range of essential cleaning services for commercial office buildings, data centers, educational institutions, government buildings, health facilities, industrial buildings, retail stores, sport event facilities, and transportation hubs. These services include carpet cleaning and dusting, floor cleaning and finishing, window washing, and other building cleaning services. We typically provide our services pursuant to contracts with clients, usually obtained through a competitive bid process. Contracts in our Janitorial segment generally fall into the following categories: fixed-price arrangements, cost-plus arrangements, and arrangements relating to one-time supplemental services (known as tag services). The majority of the Janitorial segment’s contracts are fixed-price arrangements, which are more at risk to profit margin compression than cost-plus arrangements. In addition, profit

margins on contracts tend to be inversely proportional to the size of the contract, as large-scale contracts tend to be more competitively priced than small or stand-alone agreements.

Facility Services

Our Facility Services segment provides onsite mechanical engineering and technical services and solutions relating to a broad range of facilities and infrastructure systems. Facilities we service include commercial office buildings, data centers, educational institutions, high technology manufacturing facilities, shopping centers, and transportation hubs. These services are designed to extend the useful life of facility fixed assets, improve equipment operating efficiencies, reduce energy consumption, lower overall operational costs for clients, and enhance the sustainability of client locations. The majority of our Facility Services contracts are structured as cost-plus arrangements. Nearly all Facility Services contracts are obtained by competitive bidding.

Parking

Our Parking segment provides parking and transportation services for clients at various locations, including commercial office buildings, educational institutions, health facilities, hotels, sport event facilities, and transportation hubs. We operate our clients’ parking facilities through three primary types of arrangements: parking reimbursement, leased location, and allowance location. Under the parking reimbursement arrangement, we manage the parking facility for a management fee and pass through the revenue and expenses associated with the facility to the owner. These revenues and expenses are reported in equal amounts for costs reimbursed from our managed locations. Under leased location arrangements, we generally pay to the property owner a fixed amount of rent, plus a percentage of revenues derived from monthly and transient parkers. We retain all revenues and we are responsible for most operating expenses incurred. Under allowance location arrangements, we are paid a fixed or hourly fee to provide parking services, and we are responsible for certain operating expenses, as specified in the contract.

Building & Energy Solutions

Our Building & Energy Solutions segment provides custom energy solutions, electrical, HVAC, lighting, and other general maintenance and repair services for clients in the public and private sectors. These services, which include bundled energy solutions, energy efficiency upgrades, installations, preventative maintenance, retro-commissioning, and retrofits, are designed to extend the useful life of facility fixed assets, improve equipment operating efficiencies, reduce energy consumption, lower overall operational costs for clients, and enhance the sustainability of client locations. The operations of the recently acquired Westway business are included in this segment.

Building & Energy Solutions also provides specialty solutions in support of U.S. government entities, such as: construction management; energy efficiency upgrades; healthcare support; leadership development; military base operations; and other mission support. As referenced in “2020 Vision: Strategic Acquisitions and Divestitures,” we decided to sell our Government Services business and classified it as held for sale in the fourth quarter of 2016.

This segment also provides facility management and environmental services, food and nutrition services, healthcare technology management services, and patient and guest services in support of healthcare systems and hospitals. Furthermore, it franchises certain operations under franchise agreements relating to our Linc Service and TEGG brands. In 2016, 3% of this segment’s revenue was attributable to these franchised operations.

Contracts for this segment are structured as cost-plus arrangements, fixed-price arrangements, fixed-price repair and refurbishment arrangements, and franchise arrangements. These contracts can vary widely from industry to industry. We also offer certain clients guaranteed energy savings on installed equipment, including Energy Savings Performance Contracts (“ESPC”) with the federal government. Under these arrangements, we agree to develop, design, engineer, and construct a project and guarantee that the project will satisfy agreed-upon performance standards. Historically, we have not incurred any material losses in connection with these guarantees.

In 2016, sales to the U.S. government accounted for approximately 22% of revenues in the Building & Energy Solutions segment.

Other

Our Other segment provides facility solutions to airlines and airports related to access control, aircraft cabin cleaning, certain shuttle bus operations, and passenger assistance. Two clients accounted for approximately 50% of revenues for this segment in 2016. We typically provide services to clients in this segment under master services agreements. These agreements are typically re-bid upon renewal and are generally structured as fixed-price

arrangements, transaction-price arrangements, and hourly arrangements. Some contracts include both a fixed fee component and a variable pricing component.

Future Segment Reporting Under Our 2020 Vision

The changes described above relating to our 2020 Vision and our strategic transformation will result in changes to our reportable segments in 2017. These new segments, described below, align with our new organizational structure.



Reportable Segment	Description
Business & Industry (“B&I”)	B&I represents our largest reportable segment. It encompasses janitorial, facilities engineering, and parking services to commercial real estate industries, including sports and entertainment venues as well as industrial and manufacturing sites.
Aviation	Aviation includes Air Serv (our Other segment) and our services supporting airlines and airports. A wide array of services that support the needs of our clients are included in this segment, ranging from parking and janitorial to passenger assistance, air cabin maintenance, and transportation.
Emerging Industries Group	Our Emerging Industries Group encompasses janitorial, facilities engineering, and parking services for Education, High Tech, and Healthcare industries.
Technical Solutions	Technical Solutions provides specialized mechanical and electrical services. These services can also be leveraged for cross-selling within B&I, Aviation, and Emerging Industry Groups, both domestically and internationally (through our U.K.-based acquisition of Westway).
Government Services	Our held-for-sale Government Services business provides specialty solutions in support of U.S. government entities, such as: construction management; energy efficiency upgrades; healthcare support; leadership development; military base operations; and other mission support services.

Service Marks, Trademarks, and Trade Names

We hold various service marks, trademarks, and trade names, such as “ABM,” “ABM Building Value,” “ABM Greencare,” “ABM MPower,” “Linc Service,” and “TEGG,” which we deem important to our marketing activities, our business, and, with respect to certain of these, the franchising activities conducted by our Building & Energy Solutions segment.

Dependence on Significant Client

No client accounted for more than 10% of our consolidated revenues during 2016, 2015, or 2014.

Competition

We believe that each aspect of our business is highly competitive and that such competition is based primarily on price, quality of service, and ability to anticipate and respond to industry changes. A majority of our revenue is derived from projects requiring competitive bids; however, an invitation to bid is often conditioned upon prior experience, industry expertise, and financial strength. The low cost of entry in the facility services business results in a very competitive market. We mainly compete with regional and local owner-operated companies that may have more acute vision into local markets and significantly lower labor and overhead costs, providing them with a competitive advantage. We also compete indirectly with companies that can perform for themselves one or more of the services we provide. The competitive environment for each of our businesses is described below. For a discussion of risks associated with competition, see “Risk Factors,” in Item 1A.

Janitorial

Our Janitorial business competes with local, regional, and national providers. On a national basis, we compete with the operating divisions of a few large, diversified facility services companies. We also compete indirectly with building owners and tenants who can internally perform one or more of the services we provide. These building owners and tenants have an increased advantage in locations where outsourced services are subject to sales tax. Competitors of our Janitorial business include: Able Building Maintenance; Aramark; Cushman & Wakefield; GCA Services Group, Inc.; Harvard Maintenance; and ISS.

Facility Services

Competition related to our Facility Services segment is based on technical expertise, price, and quality of service. Our ability to attract and retain qualified personnel depends on workforce availability and our ability to successfully compete for persons having the necessary skills and experience. On a national basis, we compete with the operating divisions of many large, diversified facility services companies. Competitors of our Facility Services business include: Able Building Maintenance; Aramark; CBRE Group, Inc.; and Cushman & Wakefield.

Parking

Our Parking business competes with local, regional, and national parking management companies. On a national basis, we compete with a small number of parking management companies, including LAZ Parking and SP Plus Corporation. We compete directly with many local and regional parking companies. We also compete indirectly with aviation service companies, hotels, municipalities, and other entities that manage their own parking facilities, potentially eliminating those facilities as management or lease opportunities. We also face significant competition in our efforts to provide ancillary services, such as shuttle transportation services and parking enforcement, because several large companies specialize in these services.

Building & Energy Solutions

Competition related to our Building & Energy Solutions segment is based on technical expertise, the availability of qualified personnel and managers, service innovation, reputation, past contract performance, industry experience, geographic reach, mobility, price, and quality of service. Our ability to attract and retain qualified personnel depends on workforce availability and our ability to successfully compete for persons having the necessary skills and experience. We compete with the operating divisions of many large, diversified facility services companies. We also compete with smaller, more specialized companies that concentrate their resources on particular geographic areas.

We face intense competition for available U.S. government business. Current trends in the U.S. government contracting process, which include fewer sole source awards, more emphasis on cost competitiveness, and increased set-aside awards for small and/or disadvantaged businesses, have increased competition for U.S. government contracts and increased pricing pressure. The U.S. government’s use of set-aside awards makes it advantageous for us to increase the percentage of business we pursue through strategic joint ventures.

Within our healthcare support services business, we face significant competition from several large, global competitors as well as hospitals and health systems providing “in-house services.”

Competitors of our Building & Energy Solutions business include: Aramark; Comfort Systems USA, Inc.; Delta Tucker Holdings, Inc.; Emcor Group, Inc.; IAP Worldwide Services, Inc.; J&J Worldwide Services; and Siemens AG.

Other

Competition related to the Air Serv business is based on reputation, expertise, price, and quality of service. We experience competition on a local, regional, national, and international basis with a large and diverse set of aviation services companies. We also compete indirectly with airlines that manage their own aviation services on an “insourced basis,” as that eliminates those operations as opportunities for us. Competitors of our Air Serv business include: Command Security Corporation; G2 Secure Staff, LLC; ISS; John Menzies plc; Mitie Group plc; OCS Group Limited; Prospect Aviation Corporation; SMS Holdings Corp; and Swissport International, LTD.

Sales and Marketing

Our sales and marketing activities include direct interactions with prospective and existing clients, pricing, proposal management, and customer relationship management by dedicated business development teams, operations personnel, and management. These activities are executed by branch and regional teams assigned to our industry groups and are supported by centralized sales support teams, inside sales teams, corporate marketing personnel, and our COE teams with marketing campaigns, lead management, training, sales tools, and proposal systems, all governed by standard operating procedures.

Regulatory Environment and Environmental Compliance

to time we are involved in environmental matters at certain of our locations or in connection with our operations. Historically, the cost of complying with environmental laws or resolving environmental issues relating to locations or operations in the United States or abroad has not had a material adverse effect on our financial position, results of operations, or cash flows.

Employees

As of October 31, 2016, we employed approximately 110,000 employees.

Available Information

We are required to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other information with the Securities and Exchange Commission (“SEC”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also available free of charge on our internet site at www.abm.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. We provide references to our website for your convenience, but our website does not constitute, and should not be viewed as, a part of this Annual Report, and our website is not incorporated into this or any of our other filings with the SEC.

Executive Officers of Registrant

Executive Officers on December 21, 2016



Name	Age	Principal Occupations and Business Experience
Scott Salmirs	54	President and Chief Executive Officer of ABM since March 2015; Executive Vice President of ABM from September 2014 to March 2015, with global responsibility for ABM’s aviation division and all international activities; Executive Vice President of ABM’s Onsite Services division focused on the Northeast from 2003 to September 2014; Member of the Board of Directors of ABM since January 2015.
D. Anthony Scaglione	44	Executive Vice President and Chief Financial Officer of ABM since April 2015; Senior Vice President, Treasurer, and Head of Mergers and Acquisitions of ABM from January 2012 to April 2015; Vice President and Treasurer of ABM from June 2009 to January 2012; Chairman of the Board of the Association for Financial Professionals (AFP), the professional society that represents finance executives across the globe, from November 2014 to October 2016.
James P. McClure	59	Chief Operating Officer of ABM since February 2016; Executive Vice President of ABM since September 2002.
Sarah Hlavinka McConnell	52	Executive Vice President, General Counsel, and Corporate Secretary of ABM since September 2014; Senior Vice President, General Counsel, and Corporate Secretary of ABM from May 2008 to September 2014; Senior Vice President and Deputy General Counsel of ABM from September 2007 to May 2008; Member of the Board of Directors of Cigna Life Insurance Company of New York since February 2013. On December 14, 2016, Ms. McConnell informed the Company that she will resign on January 17, 2017.
Dean A. Chin	48	Senior Vice President, Chief Accounting Officer, and Corporate Controller of ABM since June 2010; Vice President and Assistant Controller of ABM from June 2008 to June 2010.
David R. Goodes	44	Senior Vice President and Chief Human Resources Officer of ABM since January 2016; Executive Vice President Human Resources of Hess Retail Corporation during 2014; Vice President, Human Resources, Marketing & Refining of Hess Corporation from March 2011 to December 2013; Director, Human Resources of Hess Corporation from October 2005 to March 2011.
Scott Giacobbe	54	President of ABM’s U.S. Technical Solutions since November 2010.
Rene Jacobsen	55	President of ABM’s Business & Industry Group since February 2016; Executive Vice President of ABM’s West Region from April 2012 to February 2016; Executive Vice President and Chief Operating Officer of Temco Service Industries from November 2007 to April 2012.
Thomas J. Marano	66	President of ABM’s Aviation Group since February 2016; Executive Vice President and President of ABM’s acquired Air Serv business from November 2012 to February 2016; Chief Executive Officer of Air Serv Corporation from January 2006 to November 2012.

ITEM 1A. RISK FACTORS.

Risks Related to Our Operations

Changes to our businesses, operating structure, financial reporting structure, or personnel relating to the implementation of our 2020 Vision strategic transformation initiative, including our move to a shared services center, may not have the desired effects on our financial condition and results of operations.

During the fourth quarter of 2015, we announced our transformation initiative (“2020 Vision”), which is intended to differentiate ABM in the marketplace, accelerate revenue growth for certain industry groups, and improve our margin profile. We may not be able to execute on this strategy as a result of numerous factors, such as client resistance to an integrated approach, inability to deliver requested end-to-end services, and difficulty penetrating certain markets. Even if we are able to execute our 2020 Vision, we may not realize the full benefits that we currently expect within the anticipated time frame or at all. For example, although we may be able to leverage scale to manage costs more efficiently and effectively, the realignment of our business operations may not provide us with the anticipated competitive advantage or revenue growth. Moreover, the execution of our 2020 Vision may result in substantial expenses in excess of what is currently forecast. While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately and may exceed current estimates. Accordingly, the benefits from our 2020 Vision may be offset by costs or delays incurred in its execution. In addition, our 2020 Vision may cause substantial disruption to our operations and may not have the anticipated positive effects on our relationships with our employees, clients, and suppliers.

The migration of many of our financial reporting and processes to our shared services center may not create the operational efficiencies that we expect. In addition, the move to a shared services environment may create risks relating to the processing of transactions and recording of financial information. During the transition period, we could experience a lapse in the operation of internal controls due to turnover, lack of legacy knowledge, and inappropriate training, which could result in significant deficiencies or material weaknesses.

We announced that we intend to sell our Government Services business in 2017. However, we cannot provide assurances about the timing of the sale or that such sale will ultimately occur. Any potential sale transaction is dependent upon a number of factors that may be beyond our control, including market conditions, industry trends, the interest of third parties in our Government Services business, board of directors approval, and the availability of financing to potential buyers. In addition, the costs that we may incur in connection with the planned sale may not be recovered if a sale is not consummated upon anticipated terms.

We may face difficulties identifying, acquiring, and integrating businesses.

In the past, a significant portion of our growth has been generated by acquisitions, and we expect to continue to acquire businesses in the future as part of our growth strategy. If there is a slowdown in the pace or size of our acquisitions, we could experience a slower growth rate. In addition, there is no assurance that anticipated synergistic benefits will be achieved. The areas in which we may face risks in connection with any potential acquisition of a business include, but are not limited to:


•	management time and focus may be diverted from operating our business to acquisition integration;


•	clients or key employees of an acquired business may not remain, which could negatively impact our ability to grow that acquired business;


•	integration of the acquired business’s accounting, information technology, human resources, and other administrative systems may fail to permit effective management and expense reduction;


•	implementing internal controls, procedures, and policies appropriate for a public company may fail in an acquired business that lacks some of these controls, procedures, and policies;


•	additional indebtedness incurred as a result of an acquisition may impact our financial position, results of operations, and cash flows; and


•	unanticipated or unknown liabilities may arise relating to the acquired business.

We have high deductibles for certain insurable risks, and therefore we are subject to volatility associated with those risks, including the possibility that changes in estimates of ultimate insurance losses could result in a material charge against our earnings.

We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. We are responsible for claims both within and in excess of our retained limits under our insurance policies, and while we endeavor to purchase insurance coverage that is appropriate to our assessment of risk, we are unable to predict with certainty the frequency, nature, or magnitude of claims for direct or consequential damages. If our insurance coverage proves to be inadequate or unavailable, our business may be negatively impacted.

Should we be unable to renew our excess, umbrella, or other commercial insurance policies at competitive rates, it could have a material adverse impact on our business, as would the incurrence of catastrophic uninsured claims or the inability or refusal of our insurance carriers to pay otherwise insured claims. Further, to the extent that we self-insure our losses, deterioration in our loss control and/or continuing claim management efforts could increase the overall cost of claims within our retained limits. A material change in our insurance costs due to changes in the frequency of claims, the severity of the claims, the costs of excess/umbrella premiums, or regulatory changes could have a material adverse effect on our financial position, results of operations, or cash flows.

The determination of required insurance reserves is dependent upon significant actuarial judgments. We use the results of actuarial studies to estimate insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years. Actual experience related to our insurance reserves can cause us to change our estimates for reserves and any such changes may materially impact results, causing significant volatility in our operating results. We have experienced material negative trends and may continue to experience these and other material negative trends in future periods.

Our risk management and safety programs may not have the intended effect of allowing us to reduce our insurance costs for casualty programs.

We attempt to mitigate the aforementioned risk that our insurance coverage may be inadequate or unavailable through the implementation of company-wide safety and loss control efforts designed to decrease the incidence of accidents or events that might increase our liability. Our claims data in 2016 is showing improvement, however this trend data is not yet fully mature and claims and severity data are subject to significant volatility and may not mitigate these risks.

Our business success depends on our ability to attract and retain qualified personnel and senior management.

Our future performance depends on the continuing services and contributions of our senior management to execute on our organic growth and acquisition strategy and to identify and pursue new opportunities. Our future success also depends, in large degree, on our continued ability to attract and retain qualified personnel. Any unplanned turnover in senior management or inability to attract and retain qualified personnel could have a negative effect on our results of operations.

Our business success depends on our ability to preserve long-term client relationships.

We primarily provide services pursuant to agreements that are cancelable by either party upon 30 to 90 days’ notice. As we generally incur higher initial costs on new contracts until the labor management and facilities operations normalize, our business associated with long-term client relationships is generally more profitable than short-term client relationships. If we lose a significant number of long-term clients, our profitability could be negatively impacted, even if we gain equivalent revenues from new clients.

Losses or other incidents at facilities in which we operate could cause significant damage to our reputation and financial loss.

We depend to a large extent on our relationships with our clients and our reputation for quality integrated facility solutions. As such, adverse publicity stemming from an accident or other incident involving our facility operations or food and nutrition services related to injury, illness, or death could harm our reputation and expose us to significant liability.

Our success depends on our ability to continue to gain profitable business despite competitive pressures.

We believe that each aspect of our business is highly competitive and that such competition is based primarily on price, quality of service, and ability to anticipate and respond to industry changes. A majority of our revenue is derived from projects requiring competitive bids; however, an invitation to bid is often conditioned upon prior experience, industry expertise, and financial strength. The low cost of entry in the facility services business results in a very competitive market. We mainly compete with regional and local owner-operated companies that may have more acute vision into local markets and significantly lower labor and overhead costs, providing them with a competitive advantage. We also compete indirectly with companies that can perform for themselves one or more of the services we provide. Our parking business could be negatively impacted by the construction of new parking facilities near our existing facilities. In addition, we could experience reduced parking revenues related to market displacement by ride sharing companies. Further, if we are unable to respond adequately to changing technology, we may lose existing clients and fail to win future business opportunities. These strong competitive pressures could inhibit our success in bidding for profitable business and our ability to increase prices as costs rise, thereby reducing margins.

Costs that we cannot pass through to clients could affect our profitability.

Many of our contracts provide that our clients pay certain costs at specified rates, such as insurance, healthcare costs, salary and salary-related expenses, petroleum, and other costs. We may experience higher operating costs related to changes in federal, state, or local laws and regulations regarding the classification of employees and/or their eligibility for overtime. If actual costs exceed the rates specified in the contracts, our profitability may be negatively impacted unless we can negotiate price increases with the client.

Our business may be negatively impacted by adverse weather conditions.

Weather conditions, such as snow storms, heavy flooding, hurricanes, and other fluctuations in temperatures, can negatively impact portions of our business. Within our Building & Energy Solutions segment, cooler than normal temperatures in the summer could reduce the need for servicing of air conditioning units, resulting in reduced revenues and profitability. Within the Parking and Other segments, snow can lead to reduced travel activity, as well as increases in certain costs, both of which negatively affect gross profit. On the other hand, the absence of snow during the winter could cause us to experience reduced revenues in our Janitorial segment as many of our contracts specify additional payments for snow-related services.

Negative or unexpected tax consequences could adversely affect our results of operations.

Adverse changes in the underlying profitability and financial outlook of our operations or changes in tax law could lead to changes in our valuation allowances against deferred tax assets on our consolidated balance sheets, which could materially affect our results of operations. In addition, we are also subject to tax audits by governmental authorities in the United States and United Kingdom. If we experience unfavorable results from one or more such tax audits, there could be an adverse effect on our tax rate and therefore our net income.

We may not achieve the expected benefits from our captive insurance company.

In 2015, we formed IFM Assurance Company (“IFM”), a wholly-owned captive insurance company. IFM is part of our enterprise-wide, multi-year insurance strategy that is intended to better position our risk and safety programs and provide us with increased flexibility in the end-to-end management of our insurance programs as well as contribute to efficiencies relating to our insurance programs over time. There can be no assurance that IFM will bring about the intended benefits relating to our risk and safety programs or that it will provide us with increased flexibility in the management of our insurance programs, because we may experience unanticipated events that will reduce or eliminate expected benefits. In addition, expected cash tax savings related to coverage provided by IFM may not be as much as anticipated.

Changes in energy prices and government regulations could adversely impact the results of operations of our Building & Energy Solutions business.

Energy efficiency projects are designed to reduce a client’s overall consumption of commodities such as electricity and natural gas. As such, downward fluctuations in commodity prices may reduce clients’ demand for our services. We also depend, in part, on federal and state legislation and policies that support energy efficiency projects. If current legislation or policies are amended, eliminated, or not extended beyond their current expiration dates, or if funding for energy incentives is reduced or delayed, it could also adversely affect our ability to obtain new business. In some instances, we offer certain of these clients guaranteed energy savings on installed equipment. In the event

those guaranteed savings are not achieved, we may be required to pay liquidated or other damages. All of these factors could have an adverse effect on our financial position, results of operations, and cash flows.

Significant delays or reductions in appropriations for our government contracts may negatively affect our business and could have an adverse effect on our financial position, results of operations, and cash flows.

The funding of U.S. government programs is subject to annual congressional budget authorization and appropriation processes. In many situations, Congress appropriates funds on a fiscal year basis even though the contract performance period may extend over several fiscal years. Accordingly, programs are often partially funded and additional funds are committed only as Congress makes further appropriations. If we incur costs in excess of funds committed on a contract, we may not receive reimbursement of those costs unless additional funds are appropriated. In the event that government funding for any of the programs relating to our U.S. government contracts is reduced or delayed, the U.S. government could terminate or adjust our contracts or subcontracts under such program, which could have an adverse effect on our financial position, results of operations, and cash flows.

Our ability to do business may be affected by the failure of our joint venture partners to perform their obligations.

The success of our joint ventures depends, in large degree, on the satisfactory performance by our joint venture partners of their obligations, including any obligation to commit capital, equity, or credit support as required by the joint venture agreements. If a joint venture partner fails to perform its obligations as a result of financial or other difficulties or any other reason, the joint venture may be unable to perform or deliver its contracted services. In addition, we also participate in joint ventures where we are not a controlling party, and in these cases, we may have limited control over the joint venture. Any improper actions by our joint venture employees, partners, or agents, including, but not limited to, failure to comply with the U.S. Foreign Corrupt Practice Act or the U.K. Bribery Act, could result in civil or criminal investigations, monetary and non-monetary penalties, or suspension or debarment from government contracts, any of which could have an adverse effect on our financial position, results of operations, or cash flows as well as our reputation and ability to conduct business.

We could be subject to cyber-security risks, information technology interruptions, and business continuity risks.

Our information technology systems and those of our third-party providers could become subject to cyber attacks, hacking, or other intrusions, which could result in operational disruptions or information misappropriation, such as theft of intellectual property or inappropriate disclosure of confidential information. In addition, to the extent centralized administrative locations are disabled for a long period of time, key business processes, such as accounts payable, information technology, payroll, and general management operations, could be interrupted. Any such operational disruptions and/or misappropriation of information could result in lost sales, negative publicity, or business delays that could have a material adverse effect on our business.

Operations in areas of military conflict expose us to additional risks.

Although substantially all of our operations are conducted in the United States, some of our international services are conducted in areas of military conflict or at military installations, which increases the risk of a situation causing injury or loss of life to our employees, subcontractors, or other third parties. In addition to the human costs, this could have an adverse effect on our financial position, results of operations, or cash flows and our ability to conduct business.

Risks Related to Market and Economic Conditions

General reductions in commercial office building occupancy could affect our revenues and profitability.

In certain geographic areas and service lines, our most profitable revenues are related to services performed for tenants in buildings where we perform building services for the property owner or management company (“tag work”). A decline in occupancy rates could result in a decline in scope of work, including tag work, and depressed prices for our services. If this were to occur, we could experience lower revenues and pricing pressures resulting in lower margins. Additionally, further consolidation of property management companies, as well as adverse changes in occupancy rates, may further reduce demand, depress prices for our services, and cause clients to cancel our service agreements.

Deterioration of general economic conditions could reduce the demand for facility services and, as a result, reduce our earnings and adversely affect our financial condition.

Slow domestic and international economic growth or other negative changes in global, national, and local economic conditions could have a negative impact on our business. Specifically, adverse economic conditions may result in clients cutting back on discretionary spending, such as tag work. Additionally, since a significant portion of our aviation services and parking revenues are tied to the number of airline passengers, hotel guests, and sports arena attendees, results for these businesses could be adversely affected by curtailment of business, personal travel, and discretionary spending.

Risks Related to Labor and Legal Proceedings

Unfavorable developments in our class and representative actions and other lawsuits alleging various claims could cause us to incur substantial liabilities.

Our business involves employing tens of thousands of employees, many of whom work at our clients’ facilities. We incur risks relating to our employment of these workers, including, but not limited to: claims of misconduct or negligence on the part of our employees; claims related to the employment of undocumented workers or unlicensed personnel; and claims by our employees of discrimination, harassment, or violations of wage and hour requirements. Some or all of these claims may lead to litigation, including class action litigation, and these matters may cause us to incur negative publicity with respect to these alleged problems. It is not possible to predict the outcome of these lawsuits or any other proceeding, and our insurance may not cover all claims that may be asserted against us. These lawsuits and other proceedings may consume substantial amounts of our financial and managerial resources. An unfavorable outcome with respect to these lawsuits and any future lawsuits could, individually or in the aggregate, cause us to incur substantial liabilities that could have a material adverse effect upon our business, reputation, financial condition, or results of operations.

Changes in immigration laws or enforcement actions or investigations under such laws could significantly adversely affect our labor force, operations, and financial results.

As many of our jobs do not require our employees to be able to read or write the English language, we are an attractive employer for recent émigrés to this country. While immigration laws require us to take certain steps intended to confirm the legal status of our immigrant labor force, and while we bolster these steps with additional measures designed to reinforce compliance, we may nonetheless inadvertently employ workers who are or become undocumented. Violations of laws and regulations could subject us to substantial fines and penalties. To the extent that these laws and regulations and corresponding enforcement practices and compliance standards become more stringent, our results of operations could be negatively impacted.

Our participation in multiemployer pension plans could result in material liabilities.

We participate in various multiemployer pension plans under union and industry-wide agreements, which provide defined pension benefits to employees covered by collective bargaining agreements. Because of the nature of multiemployer plans, there are risks associated with participation in these plans that differ from single-employer plans. Assets contributed by an employer to a multiemployer plan are not segregated into a separate account and are not restricted to provide benefits only to employees of that contributing employer. In the event another participating employer in a multiemployer plan no longer contributes to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, including us. In the event of the termination of a multiemployer pension plan or a withdrawal from a multiemployer pension plan, under applicable law we could incur material liabilities. We further

discuss our participation in multiemployer pension and postretirement plans in Note 15, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements.

At October 31, 2016, approximately 40% of our employees were subject to various local collective bargaining agreements, some of which will expire or become subject to renegotiation during 2017. In addition, at any given time we may face a number of union organizing drives. When one or more of our major collective bargaining agreements becomes subject to renegotiation or when we face union organizing drives, we and the union may disagree on important issues that could lead to a strike, work slowdown, or other job actions at one or more of our locations. In a market where we are unionized but competitors are not unionized, we could lose clients to such competitors. A strike, work slowdown, or other job action could disrupt our services, resulting in reduced revenues or contract cancellations. Moreover, negotiating a first time agreement or renegotiating an existing collective bargaining agreement could result in a substantial increase in labor and benefits expenses that we may be unable to pass through to clients.

Risks Relating to Indebtedness and Impairment Charges

Future increases in the level of our borrowings or in interest rates could affect our results of operations.

Any future increase in the level of our borrowings will likely increase our interest expense. Unless the operating income associated with the use of these funds exceeds the borrowing expense, our profitability could be negatively impacted. In addition, a portion of cash flows from operating activities are dedicated to interest payments and repayment of borrowings, thereby reducing our ability to use our cash flow to fund operations or to capitalize on future business opportunities. As current interest rates on our line of credit are variable, an increase in prevailing rates would increase our interest costs. Further, our syndicated credit agreement contains both financial covenants and other covenants that limit our ability to engage in specified transactions, which may also constrain our flexibility.

Impairment of goodwill and long-lived assets could have a material adverse effect on our financial condition and results of operations.

We evaluate goodwill for impairment annually, in the fourth quarter, or more often if impairment indicators exist. We also review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the fair value of one of our reporting units is less than its carrying value, or if as a result of a recoverability test we conclude that the projected undiscounted cash flows are less than the carrying amount, we would record an impairment charge related to goodwill or long-lived assets, respectively. The assumptions used to determine impairment require significant judgment and the amount of the impairment could have a material adverse effect on our reported financial results for the period in which the charge is taken. During 2016, we recorded impairment charges of $22.5 million related to our held-for-sale Government Services business, consisting of both goodwill and long-lived asset impairment charges. See Note 4, “Held for Sale,” in the Notes to Consolidated Financial Statements for further information.

Other

Actions of activist investors could disrupt our business.

Public companies have been the target of activist investors. In the event that a third party, such as an activist investor, proposes to change our governance policies, board of directors, or other aspects of our operations, our review and consideration of such proposals may create a significant distraction for our management and employees. This could negatively impact our ability to execute our 2020 Vision and may require our management to expend significant time and resources. Such proposals may also create uncertainties with respect to our financial position and operations and may adversely affect our ability to attract and retain key employees.

Catastrophic events, disasters, and terrorist attacks could disrupt our services.

Catastrophic events, disasters, and acts of terrorism may result in reduced revenues, property damage, or economic dislocations throughout the country. These events may increase the volatility of financial results due to unforeseen costs with partial or no corresponding compensation from clients.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

As part of our 2020 Vision, in 2016 we began consolidating our operations to increase efficiency and effectiveness. In August 2016, we consolidated two of our New York offices into our new principal executive office at One Liberty Plaza, 7^th Floor, New York, New York 10006. We will continue office consolidations in 2017.

Principal Properties as of October 31, 2016



Location	Character of Office	Approximate Square Feet	Lease Expiration Date, Unless Owned	Segment
Alpharetta, Georgia	IT Datacenter	25,000	Owned	All
Atlanta, Georgia	Shared Services	33,000	11/30/2016	All
Atlanta, Georgia	Air Serv Headquarters	18,000	11/30/2016	Other
Houston, Texas	Shared Services	36,000	7/31/2017	All
Houston, Texas	COO Divisional Headquarters	11,000	8/31/2018	Janitorial, Facility Services, Parking
New York, New York	Corporate Headquarters	44,000	1/3/2032	Corporate, Janitorial

In November 2016, we consolidated our two Atlanta offices into one office under a lease extending through October 2027. In addition to the above properties, we have other offices, warehouses, and parking facilities in various locations, primarily in the United States. We believe that these properties are well maintained, in good operating condition, and suitable for the purposes for which they are used.

ITEM 3. LEGAL PROCEEDINGS.

We are a party to a number of lawsuits, claims, and proceedings incident to the operation of our business, including those pertaining to labor and employment, contracts, personal injury, and other matters, some of which allege substantial monetary damages. Some of these actions may be brought as class actions on behalf of a class or purported class of employees. While the results of these lawsuits, claims, and proceedings cannot be predicted with any certainty, our management believes that the final outcome of these matters will not have a material adverse effect on our financial position, results of operations, or cash flows.

Certain Legal Proceedings

Certain pending lawsuits to which we are a party are discussed below. In determining whether to include any particular lawsuit or other proceeding, we consider both quantitative and qualitative factors. These factors include, but are not limited to: the amount of damages and the nature of any other relief sought in the proceeding; if such damages and other relief are specified, our view of the merits of the claims; whether the action is or purports to be a class action, and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; and the potential impact of the proceeding on our reputation.

The Consolidated Cases of Augustus, Hall, and Davis v. American Commercial Security Services, filed July 12, 2005, in the Superior Court of California, Los Angeles County (the “Augustus case”)

The Augustus case is a certified class action involving alleged violations of certain California state laws relating to rest breaks. The case centers on whether requiring security guards to remain on call during rest breaks violated Section 226.7 of the California Labor Code. On February 8, 2012, the plaintiffs filed a motion for summary judgment on the rest break claim, and on July 31, 2012, the Superior Court of California, Los Angeles County (the “Superior Court”), entered judgment in favor of plaintiffs in the amount of approximately $89.7 million (the “common fund”). Subsequently, the Superior Court also awarded plaintiffs’ attorneys’ fees of approximately $4.5 million in addition to approximately 30% of the common fund. We appealed the Superior Court’s rulings to the Court of Appeals of the State of California, Second Appellate District (the “Appeals Court”). On December 31, 2014, the Appeals Court issued its opinion, reversing the judgment in favor of the plaintiffs and vacating the award of $89.7 million in damages and the attorneys’ fees award. Plaintiffs requested rehearing of the Appeals Court’s decision to reverse the judgment in favor of plaintiffs and vacate the damages award. On January 29, 2015, the Appeals Court denied the plaintiffs’ request for rehearing, modified its December 31, 2014 opinion, and certified the opinion for publication. The Appeals Court opinion

held that “on-call rest breaks are permissible” and remaining on call during rest breaks does not render the rest breaks invalid under California law. The Appeals Court explained that “although on-call hours constitute ‘hours worked,’ remaining available to work is not the same as performing work.... Section 226.7 proscribes only work on a rest break.” The plaintiffs filed a petition for review with the California Supreme Court on March 4, 2015, and on April 29, 2015, the California Supreme Court granted the plaintiffs’ petition. We believe that the Appeals Court correctly ruled in our favor and we presented our arguments to the California Supreme Court on September 29, 2016. We expect to receive the decision of the California Supreme Court on or before December 28, 2016.

The Consolidated Cases of Bucio and Martinez v. ABM Janitorial Services filed on April 7, 2006, in the Superior Court of California, County of San Francisco (the “Bucio case”)

The Bucio case is a purported class action involving allegations that we failed to track work time and provide breaks. On April 19, 2011, the trial court held a hearing on plaintiffs’ motion to certify the class. At the conclusion of that hearing, the trial court denied plaintiffs’ motion to certify the class. On May 11, 2011, the plaintiffs filed a motion to reconsider, which was denied. The plaintiffs have appealed the class certification issues. The trial court stayed the underlying lawsuit pending the decision in the appeal. On August 30, 2012, the plaintiffs filed their appellate brief on the class certification issues. We filed our responsive brief on November 15, 2012. Oral argument relating to the appeal has not been scheduled.

Plaintiffs Evelia Davila, Elizabeth Marcos, and Angelica Aguilar v. ABM Janitorial Services, Inc., ABM, Jeremias Rivera, and Rene Quintanar, filed on April 6, 2012 in the Superior Court of Los Angeles County, California (the “Davila” case). A Second Amended Complaint was filed on August 13, 2012.

We are a defendant in the Davila case. Plaintiffs are three former janitors who have made various allegations of sexual harassment and discrimination, assault and battery, retaliation, wrongful discharge, discrimination based on disability and age, and related claims against ABM, a former co-worker, and a former ABM human resources representative. A mandatory settlement conference took place on January 15, 2016 resulting in the settlement of this matter during 2016. We have employment practices liability insurance that covered us for this case, subject to our negotiated retention.

Other

During October 2011, we began an internal investigation into matters relating to compliance with the U.S. Foreign Corrupt Practices Act and our internal policies in connection with services provided by a foreign entity affiliated with a former joint venture partner of The Linc Group, LLC (“Linc”). Such services commenced prior to the acquisition of Linc. As a result of the investigation, we caused Linc to terminate its association with the arrangement. In December 2011, we contacted the U.S. Department of Justice and the SEC to voluntarily disclose the results of our internal investigation to date, and we have cooperated with the government’s investigation. On November 14, 2016, the Department of Justice advised us that its investigation was being closed without any action against us.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information and Dividends

Our common stock is listed on the New York Stock Exchange (NYSE: ABM). The following table sets forth the high and low sales prices of our common stock on the New York Stock Exchange and quarterly cash dividends declared on shares of common stock for the periods indicated.



	Fiscal Quarter
(in dollars)	First		Second		Third		Fourth
Fiscal Year 2016
Price range of common stock
High	$	30.25	$	33.39	$	37.85	$	40.47
Low	$	26.50	$	28.45	$	32.03	$	36.63
Dividends declared per share	$	0.165	$	0.165	$	0.165	$	0.165
Fiscal Year 2015
Price range of common stock
High	$	30.27	$	32.73	$	33.69	$	34.00
Low	$	25.94	$	28.63	$	31.34	$	26.71
Dividends declared per share	$	0.160	$	0.160	$	0.160	$	0.160

We have paid cash dividends every quarter since 1965. Future dividends will be determined based on our earnings, capital requirements, financial condition, and other factors considered relevant by our Board of Directors.

Common Stock Repurchases

On September 2, 2015, our Board of Directors authorized a program to repurchase up to $200.0 million shares of our common stock. Purchases may take place on the open market or otherwise, and all or part of the repurchases may be made pursuant to Rule 10b5-1 plans or in privately negotiated transactions. The timing of repurchases is at our discretion and will depend upon several factors, including market and business conditions, share price, and share availability. Repurchased shares are retired and returned to an authorized but unissued status. The repurchase program may be suspended or discontinued at any time without prior notice.

Repurchase Activity



(in millions, except per share amounts)	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Period
8/1/2016 — 8/31/2016	0.1	$	37.61	0.1	$	155.0
9/1/2016 — 9/30/2016	0.1	$	39.16	0.1	$	150.2
10/1/2016 — 10/31/2016	0.2	$	38.64	0.2	$	141.9
	0.4	$	38.65	0.4	$	141.9

Stockholders

At December 14, 2016, there were 2,786 registered holders of our common stock.

Performance Graph

The following graph compares the five-year cumulative total return for our common stock against the Standard & Poor’s 500 Index (“S&P 500”) and our selected peer group, the Standard & Poor’s SmallCap 600 Index (“S&P 600”). As our key employees are issued total shareholder return performance-based awards that are measured relative to the S&P 600 at the time of grant, we selected the S&P 600 as our comparable peer company index. The annual changes for the five-year period are based on the assumption that $100 had been invested in ABM’s stock and in each index on October 31, 2011, and that dividends were reinvested.



	INDEXED RETURNS Years Ended October 31,
Company / Index	2011		2012		2013		2014		2015		2016
ABM Industries Incorporated	$	100	$	96.7	$	143.5	$	147.6	$	155.0	$	217.4
S&P 500 Index	100		115.2		146.5		171.8		180.8		188.9
S&P SmallCap 600 Index	100		113.6		158.0		172.7		177.6		188.9

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

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data should be read in conjunction with Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8., “Financial Statements and Supplementary Data.” Unless otherwise indicated, all references to years are to our fiscal year, which ends on October 31.



	Years Ended October 31,
	2016			2015		2014		2013		2012
(in millions, except per share amounts)
Statements of Comprehensive Income Data
Revenues⁽¹⁾	$	5,144.7		$	4,897.8	$	4,649.7	$	4,427.8	$	3,934.4
Operating profit⁽²⁾	54.7			73.6		114.8		105.3		87.2
Income from continuing operations	62.3			54.1		66.9		62.6		56.5
Net (loss) income from discontinued operations⁽³⁾	(5.1		)	22.2		8.7		10.3		6.1
Per Share Data
Net income per common share — Basic
Income from continuing operations	$	1.11		$	0.95	$	1.19	$	1.14	$	1.05
Net income	$	1.02		$	1.35	$	1.35	$	1.33	$	1.16
Net income per common share — Diluted
Income from continuing operations	$	1.09		$	0.94	$	1.17	$	1.12	$	1.03
Net income	$	1.01		$	1.33	$	1.32	$	1.30	$	1.14
Weighted-average common and common equivalent shares outstanding
Basic	56.3			56.7		56.1		54.9		54.0
Diluted	56.9			57.4		57.1		56.1		54.9
Dividends declared per common share	$	0.660		$	0.640	$	0.620	$	0.600	$	0.580
Statements of Cash Flow Data
Net cash provided by operating activities of continuing operations	$	110.5		$	145.5	$	115.6	$	125.2	$	140.9
Cash paid for income taxes, net of refunds received⁽⁴⁾	12.6			23.7		32.9		18.7		15.5

	At October 31,
(in millions)	2016			2015		2014		2013		2012
Balance Sheet Data
Total assets	$	2,281.2		$	2,130.7	$	2,176.5	$	2,106.2	$	1,851.2
Trade accounts receivable, net of allowances⁽⁵⁾	795.6			742.9		687.3		633.5		518.0
Goodwill⁽⁶⁾	912.8			867.5		854.7		822.5		701.7
Other intangible assets, net of accumulated amortization⁽⁷⁾	103.8			111.4		127.5		142.4		106.4
Line of credit⁽⁸⁾	268.3			158.0		319.8		314.9		215.0
Insurance claims	423.8			387.4		349.7		358.0		343.8

⁽¹⁾ Revenues in 2013 included $408.1 million associated with our acquisitions on November 1, 2012 of Air Serv Corporation (“Air Serv”), HHA Services, Inc. (“HHA”), and Calvert-Jones Company, Inc. (“Calvert-Jones”) (collectively, the “November 2012 Acquisitions”).

⁽²⁾Factors affecting comparability of operating profit consisted of the following:

•

Operating profit in 2016 was negatively impacted by insurance expense of $49.6 million, consisting of a $32.9 million unfavorable adjustment to our self-insurance reserves related to prior year claims and $16.7 million of higher insurance expense due to an increase in the rate used to record our insurance reserves during 2016. Operating profit was also unfavorably impacted by $29.0 million of 2020 Vision restructuring and related charges and a $22.5 million impairment charge for our Government Services business, consisting of both goodwill and long-lived asset charges. See Note 4, “Held for Sale,” in the Notes to Consolidated Financial Statements for further information. Operating profit in 2016 was favorably impacted by approximately $22 million in savings from our 2020 Vision initiatives.


•	Operating profit in 2015 was negatively impacted by a $35.9 million unfavorable adjustment to our self-insurance reserves related to prior year claims.

•

Operating profit in 2013 included $14.8 million related to the November 2012 Acquisitions, which consisted of $366.6 million of operating expenses, $16.9 million of selling, general and administrative expenses, and $9.3 million of amortization expense. Operating profit in that year was negatively impacted by a $9.5 million unfavorable adjustment to our self-insurance reserves related to prior year claims.

⁽³⁾Income from discontinued operations for 2015 reflects the $14.4 million after-tax gain on the sale of our Security business.

⁽⁴⁾ In 2016 and 2015, cash paid for income taxes was lower due to cash tax savings of approximately $10 million and $20 million, respectively, related to coverage provided by IFM Assurance Company, our wholly-owned captive insurance company. During 2014 and 2013, cash paid for income taxes increased as certain tax assets were substantially utilized.

⁽⁵⁾Trade accounts receivable, net of allowances, increased by $57.5 million on November 1, 2012 as a result of the November 2012 Acquisitions.

⁽⁶⁾ Goodwill increased by $54.2 million on December 1, 2015 as a result of the acquisition of Westway Services Holdings (2014) Ltd. (“Westway”). Goodwill increased by $117.1 million on November 1, 2012 as a result of the November 2012 Acquisitions.

⁽⁷⁾ Other intangible assets, net of accumulated amortization, increased by $62.2 million on November 1, 2012 as a result of the November 2012 Acquisitions.

⁽⁸⁾ During 2015, we used the cash proceeds from the sale of our Security business to pay down a portion of our line of credit. The remaining outstanding borrowings are primarily associated with acquisitions.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to facilitate an understanding of the results of operations and financial condition of ABM Industries Incorporated and its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”). This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes (“Financial Statements”). This MD&A contains forward-looking statements about our business, operations, and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, and intentions. Our future results and financial condition may be materially different from those we currently anticipate. See “Forward-Looking Statements” and Item 1A., “Risk Factors,” for more information. Our MD&A is comprised of the following sections:


•	Business Overview


•	Recent Developments and Trends


•	Results of Operations


•	Liquidity and Capital Resources


•	Critical Accounting Policies and Estimates


•	Recent Accounting Pronouncements

Throughout the MD&A, amounts and percentages may not recalculate due to rounding. Unless otherwise indicated, all information in the MD&A and references to years are based on our fiscal year, which ends on October 31.

Business Overview

ABM is a leading provider of integrated facility solutions, customized by industry, that enable our clients to deliver exceptional facilities experiences.

Strategic Developments: 2020 Vision


•	Organizational Realignment


•	Consistent Excellence


•	Cost Optimization


•	Talent Development

Continuing Our 2020 Vision Journey

Organizational Realignment

On November 1, 2016, we completed Phase 1 of our transformation initiative, establishing five industry groups and one Technical Solutions group, which spans the five industry groups:

In connection with our new industry groups, we designed a new organization to support this structure. Accordingly, we eliminated several legacy personnel roles that existed under our service line structure and selected personnel to fill newly created roles that aligned with our industry group model. As a result of the realignment, in 2016, our cost savings related to the organizational design were approximately $22 million. In addition, we expect to achieve $27 million of savings in 2017.

Although the organizational design was completed in the second half of 2016, not all newly created positions have been filled, and we are in the process of selecting talent to fill these new roles. As such, we have realized lower costs related to the timing of several investments in headcount that have not yet been made. Although we expect to fill these positions in 2017, we may continue to realize lower costs in future months due to this timing.

Consistent Excellence

Cost Optimization

In 2016, we began to consolidate certain of our back office functions in our shared services center. As of November 1, 2016, we had transferred a portion of our back office functions to the shared services center. In addition to the reduction of costs achieved as part of our organizational realignment, we are pursuing additional initiatives to reduce costs, such as a consolidated procurement process. Under consolidated procurement, client location purchases will be submitted through a centralized database that sources the required products from ABM’s approved vendors. We expect procurement savings to result in a margin lift of 12–15 bps in 2017.

Talent Development

2020 Vision: Strategic Acquisitions and Divestitures

In 2016, we acquired Westway Services Holdings (2014) Ltd. (“Westway”), a provider of technical services in the United Kingdom. This acquisition complements ABM’s existing technical services business and supports our initiative to deliver value-added solutions through the ability to supply mechanical, electrical, and core service lines to

our current client base in the United Kingdom. In addition, this acquisition provides the opportunity to cross sell ABM’s services to existing Westway clients. Further, this acquisition is in line with our long-term strategic vision as we believe we can achieve higher margins and deliver greater value to our shareholders through our technical services business.

In October 2015, we divested our Security business in a sale of substantially all of the assets of this business to Universal Protection Service, L.P. for cash proceeds of $131.0 million. This business was identified as strategically not aligned with our 2020 Vision. The Security business is included within discontinued operations for all periods presented. In the fourth quarter of 2016, we exited our GreenHomes America franchising business and decided to sell our Government Services business, which we classified as held for sale in the current period. Our Government Services business provides specialty solutions in support of U.S. government entities, such as construction management and mission support. This business is currently part of our Building & Energy Solutions segment, and under future segment reporting it will be a separate segment until it is sold.

2020 Vision: 2017 and Beyond

We anticipate our 2020 Vision will yield an annualized run-rate for operational benefits at the high-end of our previously announced range of $40–$50 million by the end of 2017. With the progress made on our industry realignment and cost savings initiatives, we believe that we are on track to deliver long-term profitable growth to our shareholders.

Future Segment Reporting Under Our 2020 Vision



Reportable Segment	Description
Business & Industry (“B&I”)	B&I represents our largest reportable segment. It encompasses janitorial, facilities engineering, and parking services to commercial real estate industries, including sports and entertainment venues as well as industrial and manufacturing sites.
Aviation	Aviation includes Air Serv (our Other segment) and our services supporting airlines and airports. A wide array of services that support the needs of our clients are included in this segment, ranging from parking and janitorial to passenger assistance, air cabin maintenance, and transportation.
Emerging Industries Group	Our Emerging Industries Group encompasses janitorial, facilities engineering, and parking services for Education, High Tech, and Healthcare industries.
Technical Solutions	Technical Solutions provides specialized mechanical and electrical services. These services can also be leveraged for cross-selling within B&I, Aviation, and Emerging Industry Groups, both domestically and internationally (through our U.K.-based acquisition of Westway).
Government Services	Our held-for-sale Government Services business provides specialty solutions in support of U.S. government entities, such as: construction management; energy efficiency upgrades; healthcare support; leadership development; military base operations; and other mission support services.

2020 Vision Restructuring and Related Costs

In connection with the execution of our 2020 Vision, we anticipate total pre-tax restructuring and related charges will range from $45 million to $60 million. We expect these costs to consist of employee severance from $17 million to $20 million, external support fees from $14 million to $19 million, other project fees from $7 million to $8 million, lease exit costs related to real estate consolidation from $5 million to $10 million, and the write-down of certain investments from $2 million to $3 million. The majority of these charges were incurred during 2016.



(in millions)	Year Ended October 31, 2016		Cumulative
External Support Fees	$	11.3	$	15.8
Employee Severance	8.6		13.3
Other Project Fees	3.9		4.7
Lease Exit	3.2		3.2
Asset Impairment	2.1		4.7
Total	$	29.0	$	41.7

Recent Developments and Trends

Impairment Loss

As referenced previously, to align with our 2020 Vision, we decided to sell our Government Services business, which is included within our Building & Energy Solutions segment and is now classified as held-for-sale. In connection with the held-for-sale classification, we were required to measure the Government Services business at the lower of its carrying value or fair value less estimated costs to sell. During 2016, as a result of significant underperformance relative to expected operating results, we determined the fair value of this business was less than the carrying amount, which resulted in an impairment charge of $22.5 million, consisting of both goodwill and long-lived asset impairment charges. The fair values that are ultimately realized upon the sale of the business may be different from the current estimate of fair value.

Insurance Reserve Adjustments

We use all available information to develop our best estimate of insurance claims reserves as information is obtained. The results of actuarial studies are used to estimate our insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years. During 2016, we performed both an annual actuarial evaluation and an actuarial review. As a result of these studies, we increased our reserves for claims related to prior periods by $32.9 million during 2016. Pursuant to the actuarial evaluation completed during 2015, we increased our reserves for claims related to prior periods by $35.9 million during 2015.

Annual Actuarial Evaluations Performed During 2016. Annual actuarial evaluations were performed for our casualty insurance programs during 2016. These evaluations considered all changes made to claims reserves and claim payment activity for the period commencing May 1, 2015 and ending April 30, 2016 (the “Evaluation Period”). We performed these evaluations for all policy years in which open claims existed.

The annual actuarial evaluations showed unfavorable developments in our estimate of ultimate losses related to general liability, workers’ compensation, and automobile liability claims, as explained below. While we have made significant improvements in our risk management programs, the actuarial evaluation demonstrates these improvements have had a modest impact on prior years and that the impact is not occurring at the pace originally forecasted by the actuaries. The average claim cost was also unfavorably impacted by increases in legal fees, medical costs, and other claim management expenses necessary to adjudicate the claims with dates of loss prior to 2016.

The actuarial evaluations related to our general liability program showed that the total number of claims has remained relatively stable for prior years. However, we experienced adverse developments in prior year claims, which are largely attributable to adjustments on certain property damage claims, in addition to losses for alleged bodily injuries. Also contributing to the increase in projected cost estimates was a higher than expected average incurred cost for our less severe claims observed during the Evaluation Period. The actuarial analysis also showed the total number of general liability claims improved in 2016. However, this trend data is not yet fully mature, therefore the ultimate claim and severity projections are subject to significant volatility.

Our workers’ compensation estimate of ultimate losses was negatively impacted by increases in projected costs for a significant number of prior year claims in California and New York. These claims have been impacted by statutory, regulatory, and legal implications. In California, we also experienced increases in frequency of claims. Our claims data in 2016 is showing improvements, with a reduction in the number of lost time cases; however, ultimate claim count and severity projections are subject to volatility.

Our automobile liability program covers our fleet of passenger vehicles, service vans, and shuttle buses, which are associated with our various transportation service contracts. Claim frequency and severity associated with our fleet operations developed unfavorably versus actuarial expectations. The adverse development was primarily attributable to claims in 2013 through 2015.

After analyzing the recent loss development patterns, comparing the loss development against benchmarks, and applying actuarial projection methods to determine the estimate of ultimate losses, we increased our reserves for known claims as well as our estimate of the loss amounts associated with incurred but not reported (“IBNR”) claims for years prior to 2016 by $32.9 million during 2016.

Annual Actuarial Evaluations Performed During 2015. During the third quarter of 2015, our annual actuarial evaluations showed unfavorable developments in our estimate of ultimate losses related to certain general liability, workers’ compensation, and automobile liability claims. These evaluations indicated that previously estimated decreases in our average claim cost and the anticipated reduction in the total number of claims had not occurred at the pace contemplated in the 2014 actuarial evaluations. As a result, in the third quarter of 2015, we increased our insurance reserves for years prior to 2015 by $35.9 million. In addition, we increased the rate used to record our insurance reserves in 2016, which, consistent with prior years, is allocated to each reportable segment based on underlying exposures.

Income Tax Benefits

Our income taxes for 2016 were favorably impacted by a tax benefit of $20.8 million primarily related to a lapse of statutes of limitations and $11.8 million of Work Opportunity Tax Credits (“WOTC”). The WOTC program is a federal tax credit that provides financial incentives to hire individuals from certain target groups who have faced significant barriers to employment. In December 2015, the U.S. Congress retroactively reinstated and extended WOTC for the five-year period commencing January 1, 2015 and extending through December 31, 2019. We expect an income tax benefit of $6.5 million related to new hires in 2017.

Key Financial Highlights


•	Revenues increased by $246.9 million, or 5.0%, during 2016, as compared to 2015. Organic revenue increased 3.0%.

•

Operating profit decreased by $18.9 million, or 25.6%, during 2016, as compared to 2015. The decrease in operating profit is primarily attributable to the impairment charge for our Government Services business, higher restructuring related expenses, higher insurance expense, and one more working day during 2016. This decrease was partially offset by the contribution of higher margin revenues and approximately $22 million in savings from our 2020 Vision initiatives.


•	Our income from continuing operations for 2016 was favorably impacted by a tax benefit of $20.8 million primarily related to a lapse of statutes of limitations and $11.8 million of WOTC.


•	Net cash provided by operating activities of continuing operations was $110.5 million during 2016.


•	During 2016, we purchased 1.4 million shares of our common stock at an average price of $33.48 per share for a total of $46.6 million.


•	Dividends of $36.9 million were paid to shareholders, and dividends totaling $0.660 per common share were declared during 2016.


•	At October 31, 2016, total outstanding borrowings under our line of credit were $268.3 million, and we had up to $400.8 million of borrowing capacity under our line of credit, subject to covenant restrictions.

Results of Operations

The Year Ended October 31, 2016 Compared with the Year Ended October 31, 2015

Consolidated



	Years Ended October 31,
($ in millions)	2016			2015			Increase / (Decrease)
Revenues	$	5,144.7		$	4,897.8		$	246.9		5.0%
Expenses
Operating	4,623.4			4,410.0			213.4			4.8%
Gross margin	10.1		%	10.0		%	17 bps
Selling, general and administrative	390.1			377.3			12.8			3.4%
Restructuring and related	29.0			12.7			16.3			NM*
Amortization of intangible assets	25.0			24.2			0.8			3.1%
Impairment loss	22.5			—			22.5			100.0%
Total expenses	5,090.0			4,824.2			265.8			5.5%
Operating profit	54.7			73.6			(18.9		)	(25.6)%
Income from unconsolidated affiliates, net	7.6			9.0			(1.4		)	(15.2)%
Interest expense	(10.4		)	(10.2		)	(0.2		)	(2.3)%
Income from continuing operations before income taxes	51.9			72.4			(20.5		)	(28.3)%
Income tax benefit (provision)	10.4			(18.3		)	28.7			NM*
Income from continuing operations	62.3			54.1			8.2			15.2%
Net (loss) income from discontinued operations	(5.1		)	22.2			(27.3		)	NM*
Net income	$	57.2		$	76.3		$	(19.1	)	(25.0)%

* Not meaningful

Revenues

Revenues increased by $246.9 million, or 5.0%, during 2016, as compared to 2015. The increase in revenues was primarily attributable to: (i) organic growth within our Janitorial and Parking segments; (ii) contract expansion within our Air Serv U.S. operations; (iii) higher technical services revenues within our Building & Energy Solutions segment; and (iv) $101.9 million of incremental revenues from acquisitions. This increase was partially offset by lower government and healthcare services revenues within our Building & Energy Solutions segment.

Operating Expenses

Operating expenses increased by $213.4 million, or 4.8%, during 2016, as compared to 2015. Gross margin increased by 17 bps to 10.1% in 2016 from 10.0% in 2015. The increase in gross margin was primarily attributable to additional tag and higher margin revenue within our Janitorial segment, higher revenue contribution from our technical services business, and savings from our 2020 Vision initiatives and the related timing of open positions. This increase was partially offset by higher insurance expense due to an increase in the rate used to record our insurance reserves and one more working day during 2016.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $12.8 million, or 3.4%, during 2016, as compared to 2015. The increase in selling, general and administrative expenses was primarily related to:


•	$12.9 million of incremental selling, general and administrative expenses related to acquisitions;


•	a $10.1 million increase in bad debt expense primarily associated with specific reserves established for client receivables;


•	$3.9 million higher outside services costs incurred as a result of our 2020 Vision transition; and


•	a $3.3 million increase in sales tax reserve for certain sales tax audits.

This increase was partially offset by:


•	$7.7 million lower compensation and related expenses primarily related to savings from our 2020 Vision;


•	the absence of $4.6 million in severance expense related to the departures of our former CEO and CFO;


•	a $4.3 million year-over-year decrease in medical and dental expense as a result of actuarial evaluations completed in the three months ended April 30, 2016; and


•	a $2.4 million decrease in legal fees and settlement costs.

Restructuring and Related

Restructuring and related costs increased by $16.3 million during 2016, as compared to 2015, in connection with our 2020 Vision.

Impairment Loss

We recognized a $22.5 million impairment loss during 2016 related to the impairment charge associated with our Government Services business, which is classified as held for sale as of October 31, 2016.

Income Taxes

Our income taxes for 2016 were favorably impacted by (i) a benefit of $20.8 million primarily related to a lapse of statutes of limitations, (ii) $6.7 million of WOTC related to new hires in 2016, (iii) $5.1 million of WOTC from the retroactive reinstatement of the WOTC for calendar year 2015, (iv) $2.2 million in benefits resulting from the adoption of Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting, and (v) $1.2 million of tax deductions for energy efficient government buildings. Refer to “Recent Developments and Trends—Income Tax Benefits,” above, for additional details.

Net Loss from Discontinued Operations

Net loss from discontinued operations was $5.1 million in 2016, a deterioration of $27.3 million, as compared to net income from discontinued operations of $22.2 million during 2015. We sold our Security business in 2015 and recognized a corresponding gain on the sale. The loss in 2016 was associated with costs related to this disposed business.

Segment Information

Financial Information for Each Reportable Segment



	Years Ended October 31,
($ in millions)	2016			2015			Increase / (Decrease)
Revenues
Janitorial	$	2,768.4		$	2,692.7		$	75.7		2.8%
Facility Services	597.2			594.6			2.6			0.4%
Parking	666.0			631.9			34.1			5.4%
Building & Energy Solutions	643.2			557.7			85.5			15.3%
Other	469.9			420.9			49.0			11.6%
	$	5,144.7		$	4,897.8		$	246.9		5.0%
Operating profit
Janitorial	$	151.1		$	150.5		$	0.6		0.4%
Operating profit margin	5.5		%	5.6		%	(13) bps
Facility Services	27.2			25.3			1.9			7.2%
Operating profit margin	4.5		%	4.3		%	29 bps
Parking	26.0			29.6			(3.6		)	(12.2)%
Operating profit margin	3.9		%	4.7		%	(78) bps
Building & Energy Solutions	11.1			26.3			(15.2		)	(57.9)%
Operating profit margin	1.7		%	4.7		%	(300) bps
Other	17.2			15.2			2.0			13.0%
Operating profit margin	3.7		%	3.6		%	4 bps
Corporate	(170.0		)	(162.3		)	(7.7		)	(4.7)%
Adjustment for income from unconsolidated affiliates, net, included in Building & Energy Solutions	(6.5		)	(9.0		)	2.5			28.2%
Adjustment for tax deductions for energy efficient government buildings, included in Building & Energy Solutions	(1.2		)	(2.0		)	0.8			38.2%
	$	54.7		$	73.6		$	(18.9	)	(25.6)%



Janitorial
	Years Ended October 31,
($ in millions)	2016			2015			Increase / (Decrease)
Revenues	$	2,768.4		$	2,692.7		$	75.7	2.8%
Operating profit	151.1			150.5			0.6		0.4%
Operating profit margin	5.5		%	5.6		%	(13) bps

Janitorial revenues increased by $75.7 million, or 2.8%, during 2016, as compared to 2015. The increase was primarily attributable to organic growth driven by expansion of existing accounts, including additional tag revenue.

Operating profit increased by $0.6 million, or 0.4%, during 2016, as compared to 2015. Operating profit margin decreased by 13 bps to 5.5% in 2016 from 5.6% in 2015. The decrease in operating profit margin was primarily attributable to higher insurance expense, one more working day during 2016, and the absence of a gain from a property sale. This decrease was partially offset by the contribution of higher margin revenues as well as savings from our 2020 Vision initiatives and the related timing of open positions.



Facility Services
	Years Ended October 31,
($ in millions)	2016			2015			Increase
Revenues	$	597.2		$	594.6		$	2.6	0.4%
Operating profit	27.2			25.3			1.9		7.2%
Operating profit margin	4.5		%	4.3		%	29 bps

Facility Services revenues increased by $2.6 million, or 0.4%, during 2016, as compared to 2015. The increase was primarily attributable to higher sales due to new contracts and increased scope of work from existing clients and additional tag revenue. This increase was partially offset by the impact of contract losses earlier in the year.

Operating profit increased by $1.9 million, or 7.2%, during 2016, as compared to 2015. Operating profit margin increased by 29 bps to 4.5% in 2016 from 4.3% in 2015. The increase in operating profit margin was primarily attributable to the contribution of higher margin revenue, savings from our 2020 Vision initiatives and the related timing of open positions, and lower legal expenses. This increase was partially offset by higher insurance expense and specific reserves established for client receivables.



Parking
	Years Ended October 31,
($ in millions)	2016			2015			Increase / (Decrease)
Revenues	$	666.0		$	631.9		$	34.1		5.4%
Operating profit	26.0			29.6			(3.6		)	(12.2)%
Operating profit margin	3.9		%	4.7		%	(78) bps

Parking revenues increased by $34.1 million, or 5.4%, during 2016, as compared to 2015. The increase was primarily related to net new business and increased scope of work from existing clients. Management reimbursement revenues totaled $323.4 million and $305.9 million for 2016 and 2015, respectively.

Operating profit decreased by $3.6 million, or 12.2%, during 2016, as compared to 2015. Operating profit margin decreased by 78 bps to 3.9% in 2016 from 4.7% in 2015. The decrease in operating profit margin was primarily attributable to higher costs relating to operational issues with certain accounts, higher expenses at new locations until the labor management and operations normalize, and the conversion of some contracts from managed to leased location arrangements. In addition, the Parking segment was negatively impacted by a legal settlement, a state tax audit, and a specific reserve established for a client receivable. This decrease was partially offset by savings from our 2020 Vision initiatives and the related timing of open positions.



Building & Energy Solutions
	Years Ended October 31,
($ in millions)	2016			2015			Increase (Decrease)
Revenues	$	643.2		$	557.7		$	85.5		15.3%
Operating profit	11.1			26.3			(15.2		)	(57.9)%
Operating profit margin	1.7		%	4.7		%	(300) bps

Building & Energy Solutions revenues increased by $85.5 million, or 15.3%, during 2016, as compared to 2015. The increase was primarily attributable to incremental revenues of $97.0 million from acquisitions and higher technical services revenue associated with energy savings performance contracts (“ESPC”) and a strong backlog. This increase was partially offset by lower government and healthcare services revenues.

Operating profit decreased by $15.2 million, or 57.9%, during 2016, as compared to 2015. Operating profit margin decreased by 300 bps to 1.7% in 2016 from 4.7% in 2015. The decrease in operating profit margin was primarily attributable to the $22.5 million impairment charge related to our government services business, lower equity earnings in unconsolidated affiliates, specific reserves established for client receivables, and higher legal fees and settlement costs. This decrease was partially offset by higher revenue contribution from technical services, higher margins on existing contracts within government and healthcare services, and savings from our 2020 Vision initiatives and the related timing of open positions.



Other
	Years Ended October 31,
($ in millions)	2016			2015			Increase
Revenues	$	469.9		$	420.9		$	49.0	11.6%
Operating profit	17.2			15.2			2.0		13.0%
Operating profit margin	3.7		%	3.6		%	4 bps

Revenues from our Other segment increased by $49.0 million, or 11.6%, during 2016, as compared to 2015. The increase was primarily driven by higher passenger services and cabin cleaning revenues in our U.S. operations.

Operating profit increased by $2.0 million, or 13.0%, during 2016, as compared to 2015. Operating profit margin increased by 4 bps to 3.7% in 2016 from 3.6% in 2015. The increase in operating profit margin was primarily attributable to lower amortization expense of intangible assets and a reduction in general and administrative expenses due to cost control measures. This increase was partially offset by higher insurance expense and a penalty imposed by a regulatory agency. Also negatively impacting operating profit margin was the operations in one region of a large multi-regional contract during the three months ended January 31, 2016. Through corrective steps, we improved the profitability of this contract within the impacted region.



Corporate
	Years Ended October 31,
($ in millions)	2016		2015		Increase
Corporate expenses	$	170.0	$	162.3	$	7.7	4.7%

Corporate expenses increased by $7.7 million, or 4.7%, during 2016, as compared to 2015. The increase in corporate expenses was primarily related to:


•	a $16.9 million increase in restructuring and related costs, net of the reversal of share-based compensation expense, in connection with our 2020 Vision;


•	a $5.2 million increase in bad debt expense related to a specific reserve established for a client receivable that is being litigated and for which, based on recent unfavorable developments, a significant portion of the outstanding receivable amount is no longer deemed collectible;


•	a $3.4 million increase in compensation and related expenses primarily due to the impact of annual salary increases and the absence of a bonus reversal related to certain incentive plans in the prior year;


•	a $3.3 million increase in sales tax reserve for certain sales tax audits; and


•	$1.7 million higher outside services costs incurred as a result of our 2020 Vision transition.

This increase was partially offset by:


•	a $4.7 million decrease in legal fees and settlement costs;


•	the absence of $4.6 million in severance expense related to the departures of our former CEO and CFO;


•	a $4.3 million year-over-year decrease in medical and dental expense as a result of actuarial evaluations completed in the three months ended April 30, 2016;


•	$4.1 million in savings from our 2020 Vision; and


•	a $3.0 million year-over-year decrease in self-insurance expense related to prior year claims as a result of actuarial evaluations completed in 2016.

The Year Ended October 31, 2015 Compared with the Year Ended October 31, 2014

Consolidated



	Years Ended October 31,
($ in millions)	2015			2014			Increase / (Decrease)
Revenues	$	4,897.8		$	4,649.7		$	248.1		5.3%
Expenses
Operating	4,410.0			4,160.5			249.5			6.0%
Gross margin	10.0		%	10.5		%	(56) bps
Selling, general and administrative	377.3			348.2			29.1			8.4%
Restructuring and related	12.7			—			12.7			100.0%
Amortization of intangible assets	24.2			26.2			(2.0		)	(7.3)%
Total expenses	4,824.2			4,534.9			289.3			6.4%
Operating profit	73.6			114.8			(41.2		)	(35.9)%
Income from unconsolidated affiliates, net	9.0			6.5			2.5			37.7%
Interest expense	(10.2		)	(10.7		)	0.5			5.1%
Income from continuing operations before income taxes	72.4			110.6			(38.2		)	(34.6)%
Income tax provision	(18.3		)	(43.7		)	25.4			58.2%
Income from continuing operations	54.1			66.9			(12.8		)	(19.2)%
Net income from discontinued operations	22.2			8.7			13.5			NM*
Net income	$	76.3		$	75.6		$	0.7		1.0%

*Not meaningful

Revenues

Revenues increased by $248.1 million, or 5.3%, during 2015, as compared to 2014. The increase in revenues was primarily attributable to: (i) organic growth within our Janitorial segment; (ii) higher healthcare, technical, and government services revenues within our Building & Energy Solutions segment; (iii) contract expansion within our Air Serv U.S. operations; and (iv) $111.9 million of incremental revenues from acquisitions.

Operating Expenses

Operating expenses increased by $249.5 million, or 6.0%, during 2015, as compared to 2014. Gross margin decreased by 56 bps to 10.0% in 2015 from 10.5% in 2014. The decrease in gross margin was primarily attributable to the unfavorable impact of an insurance reserve adjustment, higher operating expenses from net new business that typically results in lower gross margins for a period of time until the labor management and facilities operations normalize, and higher operating expenses related to operational issues at certain clients within our Building & Energy Solutions segment. This decrease was partially offset by the positive impact of the termination of certain lower margin contracts, higher revenue contribution from our technical services business, and one less working day during 2015.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $29.1 million, or 8.4%, during 2015, as compared to 2014. The increase in selling, general and administrative expenses was primarily related to:


•	$10.9 million higher compensation and related expenses due to hiring additional personnel to support growth initiatives throughout the organization and the addition of certain IT positions since the prior year, partially offset by a bonus reversal related to certain incentive plans;


•	$10.8 million of incremental selling, general and administrative expenses from acquisitions;


•	a $6.2 million increase in legal fees and settlement costs;


•	a $4.6 million increase in severance expense related to the departures of our former CEO and CFO; and


•	a $3.0 million year-over-year increase in medical and dental expense as a result of actuarial evaluations completed in 2015.

The increase was partially offset by:


•	a $3.4 million decrease in costs associated with our re-branding initiative; and


•	a $1.4 million gain from a property sale that occurred in 2015.

Restructuring and Related

Restructuring and related costs increased by $12.7 million during 2015, as compared to 2014, in connection with our 2020 Vision.

Amortization of Intangible Assets

Amortization of intangible assets decreased by $2.0 million, or 7.3%, during 2015, as compared to 2014. This decrease was primarily related to intangible assets being amortized using the sum-of-the-years-digits method over their useful lives, which is consistent with the estimated useful life considerations used in determining their fair values and results in declining amortization expense.

Income from Unconsolidated Affiliates, Net

Income from unconsolidated affiliates, net, increased by $2.5 million, or 37.7%, during 2015, as compared to 2014. The increase was primarily related to higher equity earnings from certain investments in unconsolidated affiliates that provide facility solutions principally to the U.S. government and international clients.

Income Tax Provision

The effective tax rates on income from continuing operations for 2015 and 2014 were 25.3% and 39.5%, respectively. The effective tax rate for 2015 was lower than the rate for 2014 principally due to (i) $2.8 million of WOTC from the retroactive reinstatement of the WOTC for calendar year 2014, (ii) $2.0 million of tax deductions for energy efficient government buildings, (iii) $1.6 million of state employment-based tax credits, and (iv) $1.6 million of tax benefits related to a lapse of statutes of limitations.

Net Income from Discontinued Operations

Net income from discontinued operations increased by $13.5 million during 2015, as compared to 2014. The increase was primarily attributable to the $14.4 million after-tax gain on the sale of the Security business.

Segment Information

Financial Information for Each Reportable Segment



	Years Ended October 31,
($ in millions)	2015			2014			Increase / (Decrease)
Revenues
Janitorial	$	2,692.7		$	2,583.2		$	109.5		4.2%
Facility Services	594.6			599.3			(4.7		)	(0.8)%
Parking	631.9			616.1			15.8			2.6%
Building & Energy Solutions	557.7			483.8			73.9			15.3%
Other	420.9			367.3			53.6			14.6%
	$	4,897.8		$	4,649.7		$	248.1		5.3%
Operating profit
Janitorial	$	150.5		$	147.0		$	3.5		2.3%
Operating profit margin	5.6		%	5.7		%	(11) bps
Facility Services	25.3			25.2			0.1			0.5%
Operating profit margin	4.3		%	4.2		%	5 bps
Parking	29.6			29.2			0.4			1.5%
Operating profit margin	4.7		%	4.7		%	(5) bps
Building & Energy Solutions	26.3			23.1			3.2			14.0%
Operating profit margin	4.7		%	4.8		%	(5) bps
Other	15.2			12.2			3.0			25.0%
Operating profit margin	3.6		%	3.3		%	30 bps
Corporate	(162.3		)	(115.3		)	(47.0		)	(40.8)%
Adjustment for income from unconsolidated affiliates, net, included in Building & Energy Solutions	(9.0		)	(6.6		)	(2.4		)	(36.2)%
Adjustment for tax deductions for energy efficient government buildings, included in Building & Energy Solutions	(2.0		)	—			(2.0		)	(100.0)%
	$	73.6		$	114.8		$	(41.2	)	(35.9)%



Janitorial
	Years Ended October 31,
($ in millions)	2015			2014			Increase / (Decrease)
Revenues	$	2,692.7		$	2,583.2		$	109.5	4.2%
Operating profit	150.5			147.0			3.5		2.3%
Operating profit margin	5.6		%	5.7		%	(11) bps

Janitorial revenues increased by $109.5 million, or 4.2%, during 2015, as compared to 2014. The increase was attributable to incremental revenues from acquisitions of $68.9 million and to organic growth, including additional tag revenue.

Operating profit increased by $3.5 million, or 2.3%, during 2015, as compared to 2014. Operating profit margin decreased by 11 bps to 5.6% in 2015 from 5.7% in 2014. The decrease in operating profit margin was primarily attributable to the unfavorable impact of an insurance reserve adjustment and higher operating expenses from net new business that typically results in lower gross margins for a period of time until the labor management and facilities operations normalize. Also negatively impacting operating profit margin was higher compensation expense due to hiring additional personnel to support selling and safety initiatives and higher legal fees and settlement costs. This decrease was partially offset by the positive impact of the termination of a large multi-regional contract, one less working day during 2015, and a gain from a property sale.



Facility Services
	Years Ended October 31,
($ in millions)	2015			2014			Increase / (Decrease)
Revenues	$	594.6		$	599.3		$	(4.7	)	(0.8)%
Operating profit	25.3			25.2			0.1			0.5%
Operating profit margin	4.3		%	4.2		%	5 bps

Facility Services revenues decreased by $4.7 million, or 0.8%, during 2015, as compared to 2014. The decrease was primarily attributable to the termination of certain lower margin contracts that exceeded new business and the timing of a biannual contractual performance-based award.

Operating profit increased by $0.1 million, or 0.5%, during 2015, as compared to 2014. Operating profit margin increased by 5 bps to 4.3% in 2015 from 4.2% in 2014. The increase in operating profit margin was primarily attributable to the termination of certain lower margin contracts and lower legal expenses. This increase was partially offset by the absence of a benefit related to the sale of leased vehicles for a certain closed job in the prior year, the unfavorable impact of an insurance reserve adjustment, and the timing of a biannual contractual performance-based award.



Parking
	Years Ended October 31,
($ in millions)	2015			2014			Increase / (Decrease)
Revenues	$	631.9		$	616.1		$	15.8	2.6%
Operating profit	29.6			29.2			0.4		1.5%
Operating profit margin	4.7		%	4.7		%	(5) bps

Parking revenues increased by $15.8 million, or 2.6%, during 2015, as compared to 2014. The increase was primarily related to increased scope of work from existing clients. Management reimbursement revenues totaled $305.9 million and $306.1 million for 2015 and 2014, respectively.

Operating profit increased by $0.4 million, or 1.5%, during 2015, as compared to 2014. Operating profit margin decreased by 5 bps in 2015 from 2014. This slight decrease in operating profit margin was primarily attributable to the unfavorable impact of an insurance reserve adjustment, higher legal costs, and the absence of a benefit related to the collection of previously reserved accounts receivable in the prior year.



Building & Energy Solutions
	Years Ended October 31,
($ in millions)	2015			2014			Increase / (Decrease)
Revenues	$	557.7		$	483.8		$	73.9	15.3%
Operating profit	26.3			23.1			3.2		14.0%
Operating profit margin	4.7		%	4.8		%	(5) bps

Building & Energy Solutions revenues increased by $73.9 million, or 15.3%, during 2015, as compared to 2014. The increase was primarily attributable to incremental revenues of $43.0 million from acquisitions and organic growth from healthcare, technical, and government services.

Operating profit increased by $3.2 million, or 14.0%, during 2015, as compared to 2014. Operating profit margin decreased by 5 bps to 4.7% in 2015 from 4.8% in 2014. The slight decrease in operating profit margin was principally attributable to higher operating expenses related to operational issues at certain clients, higher compensation expense due to hiring additional personnel to support selling initiatives, and specific reserves established for certain government services receivables. This decrease was partially offset by higher equity earnings in unconsolidated affiliates that provide facility solutions to the U.S. government and international clients and higher revenue contribution from our technical services business. Additionally, operating profit margin benefited from operational tax deductions for energy efficient government building projects in the current year.



Other
	Years Ended October 31,
($ in millions)	2015			2014			Increase
Revenues	$	420.9		$	367.3		$	53.6	14.6%
Operating profit	15.2			12.2			3.0		25.0%
Operating profit margin	3.6		%	3.3		%	30 bps

Revenues from our Other segment increased by $53.6 million, or 14.6%, during 2015, as compared to 2014. The increase was primarily driven by higher passenger services and cabin cleaning revenue in our U.S. operations.

Operating profit increased by $3.0 million or 25.0%, during 2015, as compared to 2014. Operating profit margin increased by 30 bps to 3.6% in 2015 from 3.3% in 2014. The increase in operating profit margin was primarily attributable to lower amortization expense of intangible assets. This increase was partially offset by higher operating expenses from net new business that typically results in lower gross margins for a period of time until the labor management and facilities operations normalize and by the unfavorable impact of an insurance reserve adjustment. Also negatively impacting operating profit margin was higher compensation expense due to the reorganization of the executive structure and the settlement of a client dispute.



Corporate
	Years Ended October 31,
($ in millions)	2015		2014		Increase
Corporate expenses	$	162.3	$	115.3	$	47.0	40.8%

Corporate expenses increased by $47.0 million, or 40.8%, during 2015, as compared to 2014. The increase in corporate expenses was primarily related to:


•	a $25.6 million year-over-year increase in self-insurance expense related to prior year claims as a result of an actuarial evaluation completed in 2015;


•	an $11.7 million increase in restructuring and related costs, net of the reversal of share-based compensation expense, in connection with our 2020 Vision;


•	a $4.9 million increase in legal fees and settlement costs;


•	a $4.6 million increase in severance expense related to the departures of our former CEO and CFO;


•	a $3.0 million year-over-year increase in medical and dental expense as a result of actuarial evaluations completed in 2015; and


•	$1.7 million higher compensation and related expenses, primarily as a result of adding certain IT positions since the prior year and the hiring of additional personnel to support growth initiatives throughout the organization, partially offset by a bonus reversal related to certain incentive plans.

This increase was partially offset by a $3.4 million decrease in costs associated with our re-branding initiative.

Liquidity and Capital Resources

Our primary sources of liquidity are operating cash flows and borrowing capacity under our line of credit. We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs.

Other than normal working capital requirements, we anticipate that our short- and long-term cash requirements will include costs associated with our 2020 Vision, share repurchases, dividend payments, and legal settlements. In addition, our management continues to evaluate strategic opportunities to acquire new businesses, which may impact our future cash requirements.

We believe that our operating cash flows and borrowing capacity under our line of credit are sufficient to fund our cash requirements for the next twelve months. In the event that our plans change or our cash requirements are greater than we anticipate, we may access the capital markets to finance future cash requirements. However, there can be no assurance that such financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders.

On a long-term basis, we will continue to rely on our line of credit for any necessary long-term funding not provided by operating cash flows. In addition, we anticipate that future cash generated from operations will be augmented by working capital improvements driven by our 2020 Vision, such as the management of costs through consolidated procurement.

Reinvestment of Foreign Earnings

We plan to permanently reinvest our foreign earnings to fund future non-U.S. growth and expansion. As a result, we have not provided for federal and state income taxes or foreign withholding taxes that may result if such earnings of our foreign subsidiaries are remitted to the United States. We believe that our cash on hand in the United States, along with available lines of credit and future domestic cash flows, are sufficient to satisfy our domestic liquidity requirements.

Line of Credit

At October 31, 2016, the total outstanding amounts under our $800.0 million line of credit in the form of cash borrowings and standby letters of credit were $268.3 million and $130.9 million, respectively. At October 31, 2016, we had up to $400.8 million borrowing capacity under our line of credit.

Our ability to draw down available capacity under our line of credit is subject to, and limited by, compliance with certain financial covenants, including covenants relating to a fixed charge coverage ratio, a leverage ratio, and consolidated net worth. Other covenants under our line of credit include limitations on liens, dispositions, fundamental changes, investments, and certain transactions and payments. As of October 31, 2016, we were in compliance with these covenants and expect to be in compliance in the foreseeable future.

Proceeds from Federal Energy Savings Performance Contracts

As part of our technical services business, we enter into ESPCs with the federal government pursuant to which we agree to develop, design, engineer, and construct a project and guarantee that the project will satisfy agreed-upon performance standards. Proceeds from ESPC projects are generally received in advance of construction through agreements to sell the ESPC receivables to unaffiliated third parties. We use the advances from the third parties under these agreements to finance the projects, which are recorded as cash flows from financing activities. The use of the cash received under these arrangements to pay project costs is classified as operating cash flows.

Captive Insurance Company

In the first quarter of 2015, we formed IFM Assurance Company (“IFM”), a wholly-owned captive insurance company. IFM is part of our enterprise-wide, multi-year insurance strategy that is intended to better position our risk and safety programs and provide us with increased flexibility in the end-to-end management of our insurance programs. IFM began providing coverage to us as of January 1, 2015. In 2016, cash tax savings related to coverage provided by IFM was approximately $10 million. We project cash tax savings for 2017 also to be approximately $10 million.

Effect of Inflation

The rates of inflation experienced in recent years have not had a material impact on our financial statements. We attempt to recover increased costs by increasing prices for our services, to the extent permitted by contracts and competition.

Regulatory Environment and Environmental Compliance

Our operations are subject to various federal, state, and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, such as discharge into soil, water, and air, and the generation, handling, storage, transportation, and disposal of waste and hazardous substances. In addition, from time to time we are involved in environmental matters at certain of our locations or in connection with our operations. Historically, the cost of complying with environmental laws or resolving environmental issues relating to locations or operations in the United States or abroad has not had a material adverse effect on our financial position, results of operations, or cash flows. We do not believe that the resolution of matters known at this time will be material.

Share Repurchases

Repurchase Activity



	Years Ended October 31,
(in millions, except per share amounts)	2016		2015		2014
Total number of shares repurchased	1.4		1.0		0.8
Average price paid per share	$	33.48	$	30.72	$	26.20
Total cash paid for share repurchases	$	46.6	$	31.4	$	20.0

Cash Flows

In addition to revenues and operating profit, our management views operating cash flows as a good indicator of financial performance, because strong operating cash flows provide opportunities for growth both organically and through acquisitions. Net cash provided by operating activities of continuing operations was $110.5 million during 2016. Operating cash flows primarily depend on: revenue levels; the quality and timing of collections of accounts receivable (including receivables from U.S. government contracts, which generally have longer collection periods); the timing of payments to suppliers and other vendors; the timing and amount of income tax payments; and the timing and amount of payments on insurance claims.



	Years Ended October 31,
(in millions)	2016			2015			2014
Net cash provided by operating activities of continuing operations	$	110.5		$	145.5		$	115.6
Net cash (used in) provided by operating activities of discontinued operations	(27.0		)	0.9			5.6
Net cash provided by operating activities	83.5			146.4			$	121.2

Net cash used in investing activities of continuing operations	(131.7		)	(40.5		)	(82.0		)
Net cash (used in) provided by investing activities of discontinued operations	(3.1		)	130.9			—
Net cash (used in) provided by investing activities	(134.8		)	90.4			(82.0		)

Net cash provided by (used in) financing activities	52.6			(216.9		)	(34.6		)

Operating Activities of Continuing Operations

Net cash provided by operating activities of continuing operations decreased by $35.0 million during 2016, as compared to 2015. The decrease was primarily related to the timing of ESPC and trade receivable collections, as well as the timing of vendor payments. This decrease was partially offset by the timing of tax payments.

Net cash provided by operating activities of continuing operations increased by $29.9 million during 2015, as compared to 2014. This increase was primarily related to the timing of payments made for vendor invoices.

Operating Activities of Discontinued Operations

Net cash used in operating activities of discontinued operations increased by $27.9 million during 2016, as compared to 2015. This increase was primarily attributable to $20.0 million in taxes paid in connection with the sale of our Security business.

Investing Activities of Continuing Operations

Net cash used in investing activities of continuing operations increased by $91.2 million during 2016, as compared to 2015. The increase was primarily related to a $76.8 million year-over-year increase in cash paid, net of cash acquired, for acquisitions.

Net cash used in investing activities of continuing operations decreased by $41.5 million during 2015, as compared to 2014. The decrease was primarily related to a reduction in cash paid both for acquisitions and for property, plant and equipment additions.

Investing Activities of Discontinued Operations

Net cash used in investing activities of discontinued operations was $3.1 million in 2016, a deterioration of $134.0 million, as compared to net cash provided by investing activities of discontinued operations of $130.9 million during 2015. We sold our Security business in 2015 and recognized $131.0 million of cash proceeds from the sale. The cash used in 2016 was associated with the payment of $3.1 million in settlement of the final working capital adjustment from the sale.

Net cash provided by investing activities of discontinued operations increased by $130.9 million during 2015, as compared to 2014. The increase was due to $131.0 million of cash proceeds from the sale of our Security business.

Financing Activities

The change in net cash provided by financing activities was $269.5 million in 2016 when compared to 2015. During 2016, our net cash provided by financing activities of $52.6 million was primarily a result of borrowings from our line of credit to fund two acquisitions made in 2016. During 2015, our net cash used in financing activities of $216.9 million was a result of the repayment of borrowings from our line of credit primarily resulting from the cash proceeds from the sale of our Security business. Also contributing to the change in net cash provided by financing activities was a $17.4 million increase in proceeds from ESPC projects, partially offset by higher common stock repurchases of $15.2 million.

Net cash used in financing activities increased by $182.3 million during 2015, as compared to 2014. The increase was primarily related to a $166.7 million net repayment of borrowings as a result of the use of the cash proceeds from the sale of our Security business to pay down a portion of our line of credit. In addition, net cash used in financing activities increased as a result of an $11.4 million increase in common stock repurchases.

Dividends

On December 13, 2016, we announced a quarterly cash dividend of $0.170 per share on our common stock, payable on February 6, 2017. We declared a quarterly cash dividend on our common stock every quarter during 2016, 2015, and 2014. We paid total annual dividends of $36.9 million, $36.0 million, and $34.6 million during 2016, 2015, and 2014, respectively.

Future Contractual Obligations, Other Long-Term Liabilities, and Commercial Commitments



(in millions)	Payments Due By Period
Contractual Obligations	Total		2017			2018-2019		2020-2021		Thereafter
Operating leases and other similar commitments⁽¹⁾	$	289.8	$	78.2		$	89.9	$	45.2	$	76.5
Capital leases⁽¹⁾	0.6		0.2			0.2		0.3		—
Information technology service agreements⁽²⁾	4.8		1.9			2.9		—		—
	$	295.2	$	80.3		$	93.0	$	45.5	$	76.5

	Payments Due By Period
Other Long-Term Liabilities	Total		2017			2018-2019		2020-2021		Thereafter
Benefit obligations⁽³⁾	$	32.6	$	5.8	—	$	5.8	$	4.9	$	16.1
Contingent consideration liability⁽⁴⁾	3.8		3.8			—		—		—
	$	36.4	$	9.6		$	5.8	$	4.9	$	16.1

	Amounts of Commitment Expiration Per Period
Commercial Commitments	Total		2017			2018-2019		2020-2021		Thereafter
Borrowings under line of credit⁽⁵⁾	$	268.3	$	—		$	268.3	$	—	$	—
Fixed interest related to interest rate swaps⁽⁶⁾	4.9		1.1			2.2		1.6		—
Standby letters of credit⁽⁷⁾	130.9		—			130.9		—		—
Surety bonds⁽⁸⁾	420.4		368.6			51.7		—		—
	824.5		369.7			453.1		1.6		—
Total	$	1,156.1	$	459.6		$	551.9	$	52.0	$	92.6

⁽¹⁾Reflects our contractual obligations to make future payments under non-cancelable operating leases, capital lease agreements, and other similar commitments for various facilities, vehicles, and other equipment.

⁽²⁾ Reflects our contractual obligations to make future payments for outsourced services and licensing costs pursuant to our information technology agreements.

⁽³⁾Reflects future expected payments relating to our defined benefit, postretirement, and deferred compensation plans. These amounts are based on expected future service and were calculated using the same assumptions used to measure our benefit obligation at October 31, 2016.

In addition to our company sponsored plans, we participate in certain multiemployer pension and other postretirement plans. The cost of these plans is equal to the annual required contributions determined in accordance with the provisions of negotiated collective bargaining arrangements. During 2016, 2015, and 2014, contributions made to these plans were $290.4 million, $282.1 million, and $274.9 million, respectively; however, the future contributions to the multiemployer plans is dependent upon a number of factors, including the funded status of the plans, the ability of other participating companies to meet ongoing funding obligations, and the level of our ongoing participation in these plans. As the amount of future contributions that we would be contractually obligated to make pursuant to these plans cannot be reasonably estimated, such amounts have been excluded from the above table. See Note 15, “Employee Benefit Plans,” in the Financial Statements for more information.

⁽⁴⁾ Represents the expected future contingent consideration payment associated with a certain acquisition that is based on the expected achievement of certain pre-established revenue goals.

⁽⁵⁾ Borrowings under our line of credit are presented at face value.

⁽⁶⁾ Our estimates of future interest payments are calculated based on our hedged borrowings under our line of credit, using the fixed rates under our interest rate swap agreements for the applicable notional amounts. See Note 14, “Line of Credit,” in the Financial Statements for additional disclosure related to our interest rate swaps. We exclude interest payments on our remaining borrowings from this table because the cash outlay for the interest is unknown and cannot be reliably estimated as all of the debt is under a revolving credit facility. The interest payments on these remaining borrowings will be determined based upon the daily outstanding balance of the revolving credit facility and the prevailing interest rate during that time.

⁽⁷⁾ At October 31, 2016, we had $130.9 million of standby letters of credit, primarily related to our insurance programs.

⁽⁸⁾ We use surety bonds, principally performance, payment, and insurance bonds, related to contractual obligations in the normal course of business and to collateralize self-insurance obligations in the event we are unable to meet our claim payment obligations. As we already have reserves on our books for the claims costs, these surety bonds do not represent additional liabilities. These bonds typically remain in force for one to five years and may include optional renewal periods. At October 31, 2016, outstanding surety bonds totaled $420.4 million, of which $14.4 million have an effective date starting after October 31, 2016. We do not believe that these bonds will be drawn upon by the beneficiaries.

At October 31, 2016, our total liability for unrecognized tax benefits was $33.4 million. The resolution or settlement of these tax positions with the taxing authorities is subject to significant uncertainty, and therefore we are unable to make a reliable estimate of the amount or timing of cash that may be required to settle these matters. In addition, certain of these matters may not require cash settlements due to the exercise of credits and net operating loss carryforwards as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be available.

We have no off-balance sheet arrangements other than the unrecorded standby letters of credit and surety bonds noted in the above table. Neither of these arrangements has a material current effect, or is reasonably likely to have a material future effect, on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires our management to make certain estimates that affect the reported amounts. We base our estimates on historical experience, known or expected trends, independent valuations, and various other assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. We believe the following critical accounting policies govern the more significant judgments and estimates used in the preparation of our financial statements.



Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
Allowance for Doubtful Accounts We estimate the allowance for doubtful accounts based on a variety of factors, including an analysis of the historical rate of credit losses or write-offs, specific client concerns, and known or expected trends.	The determination of our allowance for doubtful accounts contains uncertainties because it requires our management to make assumptions and apply judgment about future uncollectible accounts. Actual write-offs and adjustments could differ from the allowance estimates due to unanticipated changes in the business environment as well as factors and risks associated with specific clients. In addition, adverse developments in negotiations or legal proceedings to obtain payment could result in the actual loss exceeding the estimated allowance.	We have not made any changes in the accounting methodology used to record our allowance for doubtful accounts during the past three years. A 10% change in our allowance for doubtful accounts would have affected net income by approximately $0.7 million for 2016.



Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions
Amortization and Impairment of Long-Lived Assets Our long-lived assets include property, plant and equipment and amortizable intangible assets. We estimate the depreciable lives of our long-lived assets. For depreciable fixed assets, our depreciable lives are based on our accounting policy, which is intended to mirror the expected useful life of the asset. In determining the estimated useful life of amortizable intangible assets, such as customer contracts and relationships, we rely on our historical experience to estimate the useful life of the applicable asset and consider industry norms as a benchmark. We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. These events and circumstances include, but are not limited to, a current expectation that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life, a significant adverse change in the extent or manner in which we use a long-lived asset, or a change in its physical condition. When this occurs, a recoverability test is performed that compares the projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying amount. If the projected undiscounted cash flows are less than the carrying amount, we calculate an impairment loss. The impairment loss calculation compares the fair value, which is based on projected discounted cash flows, to the carrying value. We record an impairment loss if the carrying value exceeds the fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes the new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.	Our impairment evaluations require us to apply judgment in determining whether a triggering event has occurred, including the evaluation of whether it is more likely than not that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life. Incorrect estimation of useful lives may result in inaccurate depreciation and amortization charges over future periods leading to future impairment. Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. The determination of fair value for held-for-sale businesses involves significant judgments and assumptions. Development of estimates of fair values in this circumstance is complex and is dependent upon, among other factors, the composition of assets in the disposal group, the comparability of the disposal group to similar market transactions, and negotiations with third-party purchasers. Such factors bear directly on the range of potential fair values and the selection of the best estimates.	We have not made any changes in the accounting methodology used to evaluate the impairment of long-lived assets during the last three years. Additionally, we have not made any changes to estimated useful lives of our long-lived assets. As a result of classifying our Government Services business as held for sale, we were required to measure the Government Services business at the lower of its carrying value or fair value less estimated costs to sell. As a result of significant underperformance relative to expected operating results, we determined the fair value of this business was less than the carrying amount, which resulted in the recognition of a long-lived asset impairment charge of $15.3 million in 2016. The fair value was also implied by the estimated sales price, but the fair values that are ultimately realized upon the sale of the business may differ from the current estimate of fair value. See the “Impairment of Goodwill” critical accounting policy for details about the goodwill impairment charge associated with our held-for-sale Government Services business in 2016. If actual results are not consistent with our estimates and assumptions used to calculate estimated future cash flows, we may be exposed