3.

Treasury Stock

     On September 16, 2001, the Company’s Board of Directors authorized the purchase of up to 2,000,000 shares of the Company’s outstanding stock at any time through December 31, 2001. On December 17, 2001, the Board of Directors extended this authorization until December 31, 2002. On December 10, 2002, the Board of Directors extended this authorization through January 31, 2003. As of October 31, 2002, the Company had purchased 1,400,000 shares at a cost of $23,632,000 (an average price per share of $16.88). In the three months ended January 31, 2003, the Company purchased the remaining 600,000 shares at a cost of $9,297,000 (an average price per share of $15.50).

     On March 11, 2003, the Company’s Board of Directors further authorized the purchase of up to 2,000,000 shares of the Company’s outstanding stock at any time through December 31, 2003.

4.

Revenue Presentation - Adoption of Emerging Issues Task Force Issue No. 01-14

     In January 2002, the Emerging Issues Task Force (EITF) released Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred,” which the Company adopted in fiscal 2002. For the Company’s Parking segment this pronouncement requires both revenues and expenses be recognized, in equal amounts, for costs directly reimbursed from its managed parking lot clients. Previously, expenses directly

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     For purposes of computing diluted net income per common share, weighted average common share equivalents do not include stock options with an exercise price that exceeds the average fair market value of the Company’s common stock for the period (i.e., “out-of-the-money” options). On January 31, 2003 and 2002, options to purchase common shares of 3,061,000 and 2,223,000 at a weighted average exercise price of $16.29 and $16.09, respectively, were excluded from the computation.

7.

Debt

     The Company has a $150,000,000 syndicated line of credit which will expire July 1, 2005. Under the terms of this unsecured revolving credit facility, no compensating balances are required and the interest rate is determined at the time of borrowing based on the London interbank offered rate (LIBOR) plus a spread of .875% to 1.25% or, for overnight borrowings, at the prime rate plus a spread of .00% to .25%. The spread for LIBOR and prime borrowings is based on the Company’s leverage ratio. The facility calls for a commitment fee payable quarterly, in arrears, of .175% based on the average, daily, unused portion. For purposes of this calculation, irrevocable standby letters of credit issued in conjunction with the Company’s self-insurance program and parking business plus cash borrowings are considered to be outstanding amounts. As of January 31, 2003, the total outstanding amount under this facility was $120,507,000 in the form of standby letters of credit. The provisions of the credit facility require the Company to maintain certain financial ratios and limit outside borrowings. The Company was in compliance with all covenants as of January 31, 2003.

8.

Comprehensive Income (Loss)

     Comprehensive income consists of net income and other related gains and losses affecting stockholders’ equity that, under generally accepted accounting principles, are excluded from net

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     Additionally, the Company has the following commercial commitments:

Acquisitions

     The operating results of businesses acquired have been included in the accompanying consolidated financial statements from their respective dates of acquisition. Acquisitions made during the first quarter of 2003 are discussed in Note 9 to the consolidated financial statements.

Results of Operations

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

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Three Months Ended January 31, 2003 vs. Three Months Ended January 31, 2002

     Net income for the first quarter of 2003 was $4.3 million ($0.09 per diluted share), a decrease of $3.7 million or 45.7% from the net income of $8.0 million ($0.16 per diluted share) for the first quarter of 2002. Declines in operating profits from the Janitorial segment, primarily the Northeast region, Lighting, Parking and Engineering segments as well as higher Corporate expenses accounted for the decrease in net income. The pretax operating loss from the Northeast region for the first quarter of 2003 was $4.6 million, compared to $0.4 million of operating profit for the same period last year. Operating profits for Lighting were $0.7 million and $1.9 million for the first quarter of 2003 and 2002, respectively. Partially offsetting the declines were operating profits totaling $2.8 million from acquisitions that did not impact results until after January 31, 2002, namely: Lakeside Building Maintenance, Triumph Security Corporation, Triumph Cleaning Corporation and Foulke Associates, Inc.

     Sales and other income (hereinafter called sales) for the first quarter of 2003 of $580.6 million increased by $53.0 million or 10.1% from $527.6 million for the first quarter of 2002. The increase is primarily due to $50.0 million in sales from acquisitions that did not impact results until after January 31, 2002. The remainder of the increase was attributable to new business, partially offset by the impact of contract terminations and declines in sales due to increased vacancies.

     As a percentage of sales, operating expenses and cost of goods sold were 90.7% for the first quarter of 2003, compared to 90.0% for the first quarter of 2002. Consequently, as a percentage of sales, the Company’s gross profit (sales minus operating expenses and cost of goods sold) of 9.3% in the first quarter of 2003 was lower than the gross profit of 10.0% for the first quarter of 2002. The decline was due primarily to lower margins on new business, delays in planned terminations of unprofitable contracts in the Northeast region of Janitorial, higher labor costs in Lighting, decline in sales from higher margin business due to increased vacancies, and higher reimbursements for out-of-pocket expenses from existing managed parking lot clients for which Parking had no margin benefit. Additionally, operating expenses for the first quarter of 2003 included higher insurance costs which could not be fully absorbed through increased pricing.

     Selling, general and administrative expenses for the first quarter of 2003 were $47.6 million compared to $39.6 million for the corresponding three months of 2002. The increase in selling, general and administrative expenses was due primarily to $3.3

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million of selling, general and administrative expenses related to acquisitions that did not impact results until after the first quarter of 2002. The Northeast region of Janitorial contributed $1.0 million to the increase primarily as a result of higher legal expenses and costs associated with implementing management changes in the region. Additionally, the first quarter of 2003 reflects a $1.0 million increase in bad debt expense as well as higher employer contributions to the Company’s 401(k) plan which was enhanced effective January 1, 2002. Furthermore, corporate expenses for the first quarter of 2003 included higher directors and officers’ insurance costs and professional fees. As a percentage of sales, selling, general and administrative expenses increased to 8.2% for the three months ended January 31, 2003 from 7.5% for the same period in 2002.

     Interest expense, which includes loan amortization and commitment fees for the revolving credit facility, was $0.1 million for the first quarter of 2003 compared to $0.3 million for the same period in 2002. The decrease was primarily due to lower borrowings and interest rates during the first quarter of 2003, compared to the same period in 2002.

     The effective federal and state income tax rate was 33.4% for the first quarter of 2003, compared to 38.0% for the first quarter of 2002. The lower effective tax rate was mostly due to the impact of a lower estimated state tax rate and a higher proportional benefit from the same level of estimated federal tax credits applied to a lower level of pretax income.

Segment Information

     The results of operations from the Company’s segments for the three months ended January 31, 2003, compared to the same period in 2002, are more fully described below. The sales and operating profits of the segments are set forth in Note 10 to the consolidated financial statements.

     Sales for Janitorial were $44.1 million or 15.4% higher in the first quarter of 2003 than the same quarter of 2002, primarily due to the $43.1 million contribution from Lakeside Building Maintenance acquired in July 2002. The remainder of the increase was attributable to new business, partially offset by declines in sales from higher margin contracts due to increased vacancies. Operating profits in the first quarter of 2003 were $3.0 million or 28.0% lower than the same period in 2002 primarily due to the $5.0 million decline in operating profits in the Northeast region, which was partially offset by $2.6 million of operating profit from Lakeside Building Maintenance. Additionally, operating expenses included higher insurance costs which could not be fully absorbed through increased pricing.

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     The Northeast region of Janitorial, especially New York City, was primarily impacted by higher labor costs, delays in planned terminations of unprofitable contracts and bad weather in the first quarter of 2003. Further, first quarter 2002 results for New York City operations benefited from the extra clean-up work performed following the September 11 attacks. While such additional work has substantially diminished, higher labor costs continued in the first quarter of 2003 as displaced senior workers from the World Trade Center related accounts replaced less senior lower wage employees assigned to existing jobs. Additionally, the region’s operating profits for the first quarter of 2003 included higher unused sick leave payments, legal fees related to a lawsuit in connection with the collection of outstanding amounts from a large former customer, and costs associated with implementing management changes in this region.

     Parking sales increased by $4.9 million or 5.5%, while its operating profits decreased by $0.5 million or 43.7% during the first quarter of 2003 compared to the first quarter of 2002 primarily due to increased insurance costs which could not be fully absorbed through increased pricing. Of the $4.9 million sales increase, $2.1 million represented higher reimbursements for out-of-pocket expenses from existing managed parking lot clients for which Parking had no margin benefit. The remainder of the sales increase was generated by net new business that commenced after January 31, 2002, partially offset by the decline in sales from the hi-tech areas of San Francisco and Seattle where the economic downturn resulted in high office building vacancies. Although the new contracts generated higher sales, due to competitive pressures, they were priced at lower margins which further contributed to the reduced operating profits.

     Sales for Engineering increased $2.0 million or 4.5% from the first quarter of 2002 to the first quarter of 2003 due to new business. Operating profits decreased by $0.3 million or 12.5% from the first quarter of 2002 to the first quarter of 2003, primarily due to a settlement with a competitor firm on a bid-related issue and consulting costs associated with a study to assist Engineering to expand into new markets and broaden the scope of its services.

     Security sales increased $5.6 million or 17.5% primarily due to the sales contributed by the acquisitions of Triumph Security on January 26, 2002 and Foulke Security on February 28, 2002 totaling $6.6 million. Partially offsetting the sales from acquisitions was the decrease in tag sales, or sales in addition to the contractual fees, in the first quarter of 2003 compared to the first quarter of 2002, which experienced unusually high tag sales due to heightened security after the September 11 terrorist attack. Operating profits increased by only $0.1 million or 12.3% despite the significant increase in sales due to higher labor and insurance costs.

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     Lighting sales increased $0.6 million or 1.8% during the first quarter of 2003 compared to the first quarter of 2002, with a $1.2 million or 64.4% decrease in operating profits primarily due to higher labor costs in the Northeast and North Central regions. Sales were about flat as contracts lost were replaced by contracts with much lower margins further contributing to the reduced operating profits. A number of newer national contracts in fact operated at a loss as a result of aggressive pricing which did not take into account higher labor costs demanded by covering a wider geographic area of service. These contracts are currently being reviewed for a price adjustment negotiation or a thirty-day cancellation. The Northeast and North Central regions changed the management of several branches and incurred higher labor-related costs due to training and double management during the transition. Decline in operating profits was partially offset by a $0.3 million gain recognized in the first quarter of 2003 related to the early termination of a contract.

     Sales for Elevator increased by $1.7 million or 6.4% in the first quarter of 2003 compared to the same period in 2002, and operating profits increased by $35,000 or 3.8% for the first quarter of 2003, compared to the corresponding quarter of 2002, primarily due to increased repair and modernization business. Partially offsetting the operating profits from new business was the labor cost for an extra work week in Elevator’s accounting cycle for the first quarter of 2003.

     Sales for the Other segment, which is comprised of CommAir Mechanical Services and ABM Facility Services, were down $5.7 million or 35.1% for the first quarter. The Other segment produced a loss of $0.1 million in the first quarter of 2003 compared to a profit of $0.7 million in the same period last year. The lower revenues and operating profits for the quarter were primarily due to fewer projects and ABM Facility Services’ loss of the Consolidated Freightways account in September 2002 after it declared bankruptcy.

     The increase in Corporate expenses amounted to $0.9 million in the first quarter of 2003 compared to the same period of 2002. The increase was due to higher premiums paid for directors and officers’ liability insurance, as well as increased expenses related to the use of outside counsel while in the process of hiring a Corporate General Counsel.

Recent Accounting Pronouncements

     In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are

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incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No.146 replaces EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Management does not expect this statement to have a material effect on the Company’s results of operations or financial condition.

     In November 2002, FASB issued Financial Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that upon issuance of a guarantee, the guarantor must disclose and recognize a liability for the fair value of the obligation it assumes under that guarantee. The initial recognition and measurement requirement of FIN 45 is effective for guarantees issued or modified after December 31, 2002 while the disclosure requirements are effective for interim and annual periods ending after December 15, 2002. At January 31, 2003, the Company has no guarantees to disclose under FIN 45.

Critical Accounting Policies and Estimates

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

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

     Self-Insurance Reserves: Certain insurable risks such as general liability, automobile property damage and workers’ compensation are self-insured by the Company. However, the Company has umbrella insurance coverage for certain risk exposures subject

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to specified limits. Accruals for claims under the Company’s self-insurance program are recorded on a claim-incurred basis. The Company uses an independent actuarial firm to annually evaluate and estimate the range of the Company’s claim costs and liabilities. The Company accrues the minimum amount of the actuarial range of exposure. Using the annual actuarial report, management develops annual insurance costs for each division, expressed as a rate per $100 of exposure (labor and revenue) to estimate insurance costs on a quarterly basis. Additionally, management monitors new claims and claim development to assess the adequacy of the insurance reserves. The estimated future charge is intended to reflect the recent experience and trends. If the number of claims incurred were to increase, or the severity of the claims were to increase, the Company may be required to record an additional expense for self-insurance liabilities.

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

     Deferred Income Tax Asset Valuation Allowance: Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. If management determines it is more likely than not that the net deferred tax asset will be realized, no valuation allowance is recorded. At January 31, 2003, the net deferred tax asset was $64.3 million and no valuation allowance was recorded. Should future income be less than anticipated, the net deferred tax asset may not be recoverable.

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

Environmental Matters

     The nature of the Company’s operations, primarily services, would not ordinarily involve it in environmental contamination. However, the Company’s operations are subject to various federal, state and/or local laws regulating the discharge of materials into

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the environment or otherwise relating to the protection of the environment, such as discharge into soil, water and air, and the generation, handling, storage, transportation and disposal of waste and hazardous substances. These laws generally have the effect of increasing costs and potential liabilities associated with the conduct of the Company’s operations, although historically they have not had a material adverse effect on the Company’s financial position, cash flows or its results of operations.

     The Company is currently involved in five proceedings relating to environmental matters: one involving alleged potential soil and groundwater contamination at a Company facility in Florida; one involving alleged potential soil contamination at a former Company facility in Arizona; one involving alleged potential soil and groundwater contamination at a former dry-cleaning facility leased by the Company in Nevada; one involving alleged potential soil contamination at a former parking facility leased by the Company in Washington; and one involving alleged potential soil and groundwater contamination at a third party recycling center in Southern California. While it is difficult to predict the ultimate outcome of these matters, based on information currently available, management believes that none of these matters, individually or in the aggregate, are reasonably likely to have a material adverse effect on the Company’s financial position, cash flows, or results of operations. Three of the five proceedings are subject to ongoing settlement negotiations and a reserve of $0.5 million has been set aside for the potential liability. The liability related to the other two claims is neither probable nor estimable, hence no accruals have been made related to these matters.

Safe Harbor Statement

     Cautionary Safe Harbor Disclosure for Forward Looking Statements under the Private Securities Litigation Reform Act of 1995: Because of the factors set forth below, as well as other variables affecting the Company’s operating results, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. The statements contained herein which are not historical facts are forward-looking statements that are subject to meaningful risks and uncertainties, including but not limited to: (1) significant decreases in commercial real estate occupancy, resulting in reduced demand and pricing pressures on building maintenance and other facility services in the Company’s major markets, (2) inability to pass through cost increases in a timely manner, or at all, or to reduce expenses when sales decline, (3) loss or bankruptcy of one or more of the Company’s major customers, which could adversely affect the Company’s ability to collect its accounts receivable or recover its deferred costs, (4) major collective bargaining issues that may

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cause loss of revenues or cost increases that non-union companies can use to their advantage in gaining market share, (5) significant shortfalls in adding additional customers in existing and new territories and markets, (6) a protracted slowdown in the Company’s acquisition activities, (7) legislation or other governmental action that severely impacts one or more of the Company’s lines of business, such as price controls that could restrict price increases, or the unrecovered cost of any universal employer-paid health insurance, as well as government investigations that adversely affect the Company, (8) reduction or revocation of the Company’s line of credit, which would increase interest expense or the cost of capital, (9) cancellation or nonrenewal of the Company’s primary insurance policies, as many customers contract out services based on the contractor’s ability to provide adequate insurance coverage and limits, (10) catastrophic uninsured or underinsured claims against the Company, the inability of the Company’s insurance carriers to pay otherwise insured claims, or inadequacy in the Company’s reserve for self-insured claims, (11) inability to employ entry level personnel due to labor shortages, (12) resignation, termination, death or disability of one or more of the Company’s key executives, which could adversely affect customer retention and day-to-day management of the Company, (13) inability to successfully integrate acquisitions into the Company, and (14) other material factors that are disclosed from time to time in the Company’s public filings with the United States Securities and Exchange Commission, such as reports on Forms 8-K, 10-K and 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     The Company does not issue or invest in financial instruments or their derivatives for trading or speculative purposes. The operations of the Company are conducted primarily in the United States, and, as such, are not subject to material foreign currency exchange rate risk. The Company has no outstanding debt. Although the Company had over $11 million in cash and cash equivalents at January 31, 2003, market rate risk associated with falling interest rates in the United States is not material.

Item 4. Controls and Procedures

     (a)   Evaluation of disclosure controls and procedures. ABM’s chief executive officer and ABM’s chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date (the “Evaluation Date”) within 90 days prior to the filing date of this Form 10-Q, have concluded that as of the Evaluation Date the Company’s disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company including its

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consolidated subsidiaries would be made known to them by others within those entities.

     (b)   Changes in internal controls. There were no significant changes in the Company’s internal controls or, to the Company’s knowledge, in other factors that could significantly affect these controls subsequent to the Evaluation Date.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits:

(b)

Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended January 31, 2003.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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CERTIFICATIONS

I, Henrik C. Slipsager, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of ABM Industries Incorporated;
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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I, George B. Sundby, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of ABM Industries Incorporated;
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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EXHIBIT INDEX