The majority of the Company's contracts are for one-year periods, but are subject to termination by either party after 30 to 90 days' written notice. Upon renewal of a contract, the Company may renegotiate the price although competitive pressures and customers' price sensitivity could inhibit the Company's ability to pass on cost increases. Such cost increases include, but are not limited to, labor costs, workers' compensation and other insurance costs, any applicable payroll taxes and fuel costs. However, for some renewals the Company is able to restructure the scope and terms of the contract to maintain or increase profit margin.
Sales have historically been the major source of cash for the Company, while payroll expenses, which are substantially related to Sales, have been the largest use of cash. Hence operating cash flows primarily depend on the Sales level and timing of collections, as well as the quality of the related receivables. The timing and level of the payments to suppliers and other vendors, as well as the magnitude of self-insured claims, also affect operating cash flows. The Company's management views operating cash flows as a good indicator of financial strength. Strong operating cash flows provide opportunities for growth both internally and through acquisitions.
The Company's growth in Sales in the first six months of 2008 from the same period in 2007 is attributable primarily to the acquisition of OneSource as described above. The Company did experience organic growth in Sales in the first six months of 2008, which represented not only Sales from new customers, but also expanded services or increases in the scope of work for existing customers. In the long run, achieving the desired levels of Sales and profitability will depend on the Company's ability to gain and retain, at acceptable profit margins, more customers than it loses, pass on cost increases to customers, and keep overall costs down to remain competitive, particularly against privately owned facility services companies that typically have the lower cost advantage.
In the long term, the Company expects to focus its financial and management resources on those businesses in which it can grow to be a leading national service provider. It also plans to increase Sales by expanding its services into international markets.
In the short-term, management is focused on pursuing new business, increasing operating efficiencies, and integrating its most recent acquisitions, particularly OneSource. The Company is implementing a new payroll and human resources information system and upgrading its accounting systems and expects full implementation by the end of 2009. In addition, the Company is in process of relocating its Janitorial headquarters to Houston, concentrating its other business units in Southern California and relocating its corporate headquarters to New York City. During the remainder of 2008, the Company expects to incur expenses of approximately $11 million associated with the upgrade of the existing accounting systems, implementation of a new payroll system and human resources information system, relocation of corporate headquarters and costs to achieve synergies with OneSource.

Liquidity and Capital Resources

                                       April 30,     October 31,
          (in thousands)                 2008            2007           Change

          Cash and cash equivalents   $  17,405      $   136,192     $ (118,787 )
          Working capital             $ 296,773      $   353,146     $  (56,373 )



                                                              Six Months Ended April 30,
(in thousands)                                                 2008                 2007               Change

Net cash provided by (used in) operating activities       $      20,957          $ (28,965 )        $   49,922
Net cash used in investing activities                     $    (436,461 )        $ (15,101 )        $ (421,360 )
Net cash provided by financing activities                 $     296,717          $   8,750          $  287,967

Cash provided by operations and bank borrowings have historically been used for meeting working capital requirements, financing capital expenditures and acquisitions, and paying cash dividends. As of April 30, 2008 and October 31, 2007, the Company's cash and cash equivalents totaled $17.4 million and $136.2 million, respectively. The cash balance at April 30, 2008 declined from October 31,

2007 primarily due to the acquisition of OneSource. The total purchase price, including the payment in full of OneSource's pre-existing debt of $21.5 million and direct acquisition costs of $4.0 million, was $390.5 million, which was paid by a combination of current cash and borrowings from the Company's line of credit. In addition, the Company paid $27.3 million in cash, including $0.4 million in direct acquisition costs, for the remaining equity of Southern Management Company (Southern Management). See Note 7 - Acquisitions of the Notes to the Consolidated Financial Statements contained in Item 1, "Financial Statements."
The Company believes that the current cash and cash equivalents, cash generated from operations and amounts available under its $450 million line of credit will be sufficient to meet the Company's cash requirements for the long-term, except to the extent cash is required for significant acquisitions, if any.
Working Capital. Working capital decreased by $56.4 million to $296.8 million at April 30, 2008 from $353.1 million at October 31, 2007, primarily due to the $118.8 million decrease in cash and cash equivalents tied to the acquisition of OneSource, which was partially offset by additional working capital from OneSource. Trade accounts receivable increased by $127.9 million to $498.4 million at April 30, 2008, of which $94.9 million was attributable to OneSource. These amounts were net of allowances for doubtful accounts and sales totaling $10.4 million and $6.9 million at April 30, 2008 and October 31, 2007, respectively. At April 30, 2008, accounts receivable that were over 90 days past due had increased by $11.4 million to $39.3 million (7.7% of the total outstanding) from $27.9 million (7.4% of the total outstanding) at October 31, 2007. Of the over 90 days past due trade receivables, $8.6 million was attributable to OneSource. The increase to accounts receivable is mainly associated with increased Sales.
Cash Flows from Operating Activities. Net cash provided by operating activities was $21.0 million in the first six months of 2008, compared to $29.0 million used in the first six months of 2007. The first six months of 2007 included a $34.9 million income tax payment relating to the $80.0 million gain on the settlement of the World Trade Center insurance claims in the fourth quarter of 2006. Excluding the effects of the OneSource acquisition, accounts receivable in the first six months of 2008 increased $32.9 million from the same period of 2007 due to increased Sales. The effect of this increase to operating cash flows was partially offset by a $12.7 million increase to accounts payable and accrued liabilities.
Cash Flows from Investing Activities. Net cash used in investing activities in the first six months of 2008 was $436.5 million, compared to $15.1 million in the first six months of 2007. The increase was primarily due to the $390.5 million and $27.3 million paid for OneSource and the remaining 50% of the equity of Southern Management, respectively. Cash paid for acquisitions in the first six months of 2007 consisted of a $7.1 million payment for the acquisition of the assets of HealthCare Parking Systems of America and $3.0 million of contingent amounts for businesses acquired in periods prior to 2007. In addition, property, plant and equipment additions increased by $10.7 million in the first six months of 2008 compared to the first six months of 2007, which mainly reflects capitalized costs associated with the upgrade of the Company's accounting systems and the implementation of a new payroll and human resources information system.
Cash Flows from Financing Activities. Net cash provided by financing activities was $296.7 million in the first six months of 2008, compared to $8.8 million in the first six months of 2007. In the first six months of 2008, the Company borrowed $301.5 million, net from the Company's line of credit primarily in connection with the acquisitions of OneSource and the remaining 50% of the equity of Southern Management.
Line of Credit. ABM has a $450.0 million five-year syndicated line of credit that is scheduled to expire on November 14, 2012. The line of credit is available for working capital, the issuance of standby letters of credit, the financing of capital expenditures, and other general corporate purposes. See Note 9 - Line of Credit Facility of the Notes to the Consolidated Financial Statements contained in Item 1, "Financial Statements."

As of April 30, 2008, the total outstanding amounts under the line of credit in the form of cash borrowings and standby letters of credit were $301.5 million and $118.6 million, respectively.
Contingencies
The Company's operations are subject to various federal, state and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, such as discharge into soil, water and air, and the generation, handling, storage, transportation and disposal of waste and hazardous substances. These laws generally have the effect of increasing costs and potential liabilities associated with the conduct of the Company's operations, although historically they have not had a material adverse effect on the Company's financial position, results of operations or cash flows.
The Company is also subject to various legal and arbitration proceedings and other contingencies that have arisen in the ordinary course of business, including the matters described in Part II, Item 1, Legal Proceedings. At April 30, 2008, the total amount of probable and estimable losses accrued for legal and other contingencies was $5.0 million. However, the ultimate resolution of legal and arbitration proceedings and other contingencies is always uncertain. If actual losses materially exceed the estimates accrued, the Company's financial condition and results of operations could be materially adversely affected.
Off-Balance Sheet Arrangements
The Company is party to a variety of agreements under which it may be obligated to indemnify the other party for certain matters. Primarily, these agreements are standard indemnification arrangements in its ordinary course of business. Pursuant to these arrangements, the Company may agree to indemnify, hold harmless and reimburse the indemnified parties for losses suffered or incurred by the indemnified parties, generally its customers, in connection with any claims arising out of the services that the Company provides. The Company also incurs costs to defend lawsuits or settle claims related to these indemnification arrangements and in most cases these costs are included in its insurance program. The term of these indemnification arrangements is generally perpetual with respect to claims arising during the service period. Although the Company attempts to place limits on this indemnification reasonably related to the size of the contract, the maximum obligation may not be explicitly stated and, as a result, the maximum potential amount of future payments the Company could be required to make under these arrangements is not determinable.
ABM's certificate of incorporation and bylaws may require it to indemnify Company directors and officers against liabilities that may arise by reason of their status as such and to advance their expenses incurred as a result of any legal proceeding against them as to which they could be indemnified. ABM has also entered into indemnification agreements with its directors to this effect. The overall amount of these obligations cannot be reasonably estimated, however, the Company believes that any loss under these obligations would not have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company currently has directors' and officers' insurance, which has a deductible of up to $1.0 million. Acquisitions
The operating results of businesses acquired have been included in the accompanying consolidated financial statements from their respective dates of acquisition. Acquisitions, including OneSource, made during the six months ended April 30, 2008, are discussed in Note 7 - Acquisitions of the Notes to Consolidated Financial Statements contained in Item 1. "Financial Statements."

Results of Operations
Three Months Ended April 30, 2008 vs. Three Months Ended April 30, 2007

                                        Three Months                            Three Months
                                            Ended               % of                Ended               % of             Increase
($ in thousands)                       April 30, 2008           Sales          April 30, 2007           Sales           (Decrease)

Revenues
Sales and other income                  $    938,534            100.0 %         $    697,851            100.0 %              34.5 %
Expenses
Operating expenses and cost of
goods sold                                   833,317             88.8 %              619,313             88.7 %              34.6 %
Selling, general and
administrative                                74,441              7.9 %               51,601              7.4 %              44.3 %
Goodwill impairment                            4,500              0.5 %                    -              0.0 %                NM *
Amortization of intangible
assets                                         2,544              0.3 %                1,331              0.2 %              91.1 %

  Total operating expenses                   914,802             97.5 %              672,245             96.3 %              36.1 %

Operating profit                              23,732              2.5 %               25,606              3.7 %              -7.3 %
Interest expense                               3,858              0.4 %                  109              0.0 %                NM *

Income before income taxes                    19,874              2.1 %               25,497              3.7 %             -22.1 %
Provision for income taxes                     8,802              0.9 %                8,775              1.3 %               0.3 %

Net Income                              $     11,072              1.2 %         $     16,722              2.4 %             -33.8 %

* Not meaningful

Net Income. Although the Janitorial, Security and Engineering segments had increases in operating profit, consolidated net income in the second quarter of 2008 decreased by $5.7 million, or 33.8%, to $11.1 million ($0.22 per diluted share) from $16.7 million ($0.33 per diluted share) in the second quarter of 2007. The decrease was primarily due to the absence of a $5.0 million ($3.0 million after-tax) gain recorded in the second quarter of 2007 in Parking in connection with the termination of an off-airport parking garage lease, a $4.5 million ($4.0 million after-tax) impairment charge in the second quarter of 2008 associated with Lighting goodwill, $3.9 million ($2.4 million after-tax) of interest expense attributable to the financing of the OneSource and Southern Management acquisitions, $3.8 million ($2.3 million after-tax) additional labor expense in Janitorial from an extra day in the second quarter of 2008 compared to the second quarter of 2007, $2.4 million ($1.5 million after-tax) of expenses associated with the integration of OneSource's operations, a $1.6 million ($1.0 million after-tax) increase in professional fees, a $1.2 million ($0.7 million after-tax) increase in expenses related to severance, retention bonuses and new hires associated with the move of the Company's corporate headquarters to New York, and a $1.2 million ($0.7 million after-tax) increase in intangible amortization primarily from OneSource intangible assets. The negative impact of these items on net income was partially offset by a $7.2 million ($4.3 million after-tax) reduction in self-insurance reserves relating to prior years in the second quarter of 2008.
Total operating profit from the operating segments, excluding Corporate, was relatively flat in the second quarter of 2008 compared to the second quarter of 2007. The operating profit in the second quarter of 2008 was impacted by the $4.5 million goodwill impairment charge, the $3.8 million additional labor expense in Janitorial, and the $1.2 million increase in intangible amortization expense, as described above, without the benefit of the $5.0 million lease termination gain recorded in the second quarter of 2007. Also included in the operating profit from the operating segments for the second quarter of 2008 was $7.9 million ($4.8 million after-tax) of additional profit as a result of the OneSource acquisition, of which $6.8 million ($4.1 million after-tax) was attributable to synergies generated from the integration of OneSource's operations into the Janitorial segment.

Revenues. Sales in the second quarter of 2008 increased $240.6 million, or 34.5%, to $938.5 million from $697.9 million in the second quarter of 2007, primarily due to $212.9 million and $6.1 million of additional revenues contributed by OneSource and Healthcare Parking Systems of America (HPSA), respectively. HPSA was acquired on April 2, 2007. Excluding OneSource and HPSA, Sales increased by $21.6 million or 3.1%, during the second quarter of 2008 compared to the second quarter of 2007, which was primarily due to new business and expansion of services in all segments, except Lighting. Parking Sales in 2007 included the $5.0 million gain in connection with the off-airport parking garage lease termination.
Operating Expenses and Cost of Goods Sold. As a percentage of Sales, gross margin was 11.2% and 11.3% in the second quarters of 2008 and 2007, respectively. The slight decrease in gross margin was primarily the result of the absence of the $5.0 million gain recorded in the second quarter of 2007 in connection with the off-airport parking garage lease termination and $3.8 million of additional labor expense from an extra day in the second quarter of 2008 compared to the second quarter of 2007. These increases were partially offset by the impact of the $7.2 million reduction of the self-insurance reserves and reduced costs associated with synergies generated from the integration of OneSource's operations into the Janitorial segment in the second quarter of 2008.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $22.8 million, or 44.3%, in the second quarter of 2008 compared to the second quarter of 2007 primarily due to an additional $16.3 million of OneSource expenses in the second quarter of 2008. Excluding OneSource, selling, general and administrative expenses increased $6.5 million. This was primarily due to $2.4 million of Corporate expenses associated with the integration of OneSource's operations, a $1.6 million increase in professional fees, a $1.2 million increase in expenses related to severance, retention bonuses and new hires associated with the move of the Company's corporate headquarters to New York, $0.8 million in costs associated with the operations of the Shared Services Center in Houston, and a $0.6 million increase in information technology costs.
Goodwill Impairment. In response to objective evidence about the implied fair value of goodwill relating to the Company's Lighting segment noted in connection with the preparation of the financial statements for the three months ended April 30, 2008, the Company performed an assessment of goodwill for impairment. On a preliminary basis, the goodwill in the Lighting segment was determined to be impaired and a non-cash, pre-tax goodwill impairment charge of $4.5 million was recorded on April 30, 2008. This estimate will be finalized in the quarter ending July 31, 2008.
Intangible Amortization. Intangible assets amortization expense increased $1.2 million, or 91.1%, in the second quarter of 2008 compared to the second quarter of 2007, primarily due to the amortization of $34.4 million allocated to customer contracts and relationships in connection with the acquisition of OneSource.
Interest Expense. Interest expense in the second quarter of 2008 was $3.9 million compared to $0.1 million in the second quarter of 2007. The increase is primarily the result of amounts drawn on the Company's line of credit in connection with the acquisitions of OneSource and the remaining 50% of equity of Southern Management. Included in interest expense in the second quarter of 2008 was $0.5 million of interest accretion related to OneSource insurance claim liabilities assumed as part of the OneSource acquisition. In accordance with Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," the insurance claim liabilities associated with the allocation of the purchase price have been recorded at their fair value at November 14, 2007, which is the present value of the expected future cash flows. These discounted liabilities are accreted to interest expense as the recorded values are brought to an undiscounted amount consistent with the accounting for the Company's other insurance claim liabilities.
Income Taxes. The estimated annual effective tax rate, excluding discrete items, for the second quarter of 2008 was 38.0%, compared to the 37.0% used for the second quarter of 2007. The increase

was largely due to a higher estimated overall state tax rate arising from the requirement to file a combined gross margin tax return in Texas. The effective tax rate was 44.3% and 34.4% in the second quarter of 2008 and 2007, respectively, due to certain discrete tax items. The effective tax rate for the three- and six-month periods in 2008 was higher than the expected annual rate primarily due to a portion of the goodwill impairment charge being non-deductible for tax purposes, which reduced the expected tax benefit by $1.3 million.
Segment Information. Under the criteria of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," Janitorial, Parking, Security, Engineering and Lighting are reportable segments. Most Corporate expenses are not allocated. Such expenses include the adjustments to the Company's self-insurance reserves relating to prior years, the Company's share-based compensation costs, employee severance costs associated with the integration of OneSource's operations into the Janitorial segment, and certain information technology costs. Until damages and costs are awarded or a matter is settled, the Company also accrues probable and estimable losses associated with pending litigation in Corporate.

                                       Three Months Ended April 30,          Increase
    ($ in thousands)                     2008                 2007          (Decrease)

    Sales and other income
    Janitorial                      $     625,542        $     399,518           56.6 %
    Parking                               124,512              118,521            5.1 %
. . .