generated by the Parking division relate to parking and transportation services, which are less labor- intensive. The Company's revenues are primarily impacted by the ability to retain and attract customers, the addition of industrial customers, commercial occupancy rates, air travel levels, tourism and transportation needs at colleges and universities.
The Company's largest segment is its Janitorial segment, which accounted for 69% of the Company's revenues and 76% of its operating profit before Corporate expenses in the six months ended April 30, 2009.
The Company's contracts at the Janitorial, Security and Engineering divisions are either fixed-price, "cost-plus" (i.e., the customer agrees to reimburse the agreed upon amount of wages and benefits, payroll taxes, insurance charges and other expenses plus a profit percentage), time-and-materials based, or square footage based. In addition to services defined within the scope of the contract, the Janitorial division also generates revenues from extra services (or tags), such as additional cleaning requirements with extra services generally providing higher margins. The quarterly profitability of fixed-price contracts is primarily impacted by the variability of the number of work days in the quarter while the quarterly profitability of square footage-based contracts is primarily impacted by changes in vacancy rates. The Parking division principally has two types of arrangements with customers: leased-lot and managed-lot. Under leased-lot arrangements, the Company leases the parking facility from the owner and is responsible for all expenses incurred, retains all revenues from monthly and transient parkers and pays rent to the owner per the terms and conditions of the lease. Under the managed-lot arrangements, the Company manages the parking facility for the owner in exchange for a management fee, which may be a fixed fee, a performance-based fee, such as a percentage of gross or net revenues, or a combination of both.
The majority of the Company's contracts are for one to three 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 sensitivities can 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.
Revenues have historically been the major source of cash for the Company, while payroll expenses, which are substantially related to revenues, have been the largest use of cash. Accordingly, operating cash flows primarily depend on both revenue levels and the timing of collections, as well as the quality of the related receivables. The Company's trade accounts receivable, net, balance was $467.6 million at April 30, 2009. Trade accounts receivable that were over 90 days past due were $46.6 million and $47.3 million at April 30, 2009 and October 31, 2008, respectively. The timing and level of 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. Cash flows from operating activities, including cash flows from discontinued operating activities, increased by $46.1 million for the six months ended April 30, 2009, compared to the six months ended April 30, 2008.
The Company self-insures certain insurable risks such as general liability, automobile, property damage, and workers' compensation. The Company periodically evaluates its estimated claim costs and liabilities and accrues self-insurance reserves to its best estimate three times during the fiscal year. Management also monitors new claims and claim development to assess appropriate levels of insurance reserves. The estimated future charge is intended to reflect recent experience and trends. The trend analysis is complex and highly subjective. The interpretation of trends requires knowledge of many factors that may or may not be reflective of adverse or favorable developments (e.g., changes in regulatory requirements and changes in reserving methodology). Trends may also be impacted by changes in safety programs or claims handling practices. If the trends suggest that the frequency or severity of claims incurred has changed, the Company might be required to record increases or decreases in expenses for self-insurance liabilities. An actuarial evaluation completed in the second quarter of 2009, covering a majority of the Company's self-insurance reserves, showed net favorable developments in reserves for general liability, California workers' compensation and workers'

compensation outside of California. These favorable developments resulted in a $1.0 million reduction of the Company's self-insurance reserves in the three months ended April 30, 2009 and has been recorded in the Corporate division. The actuarial evaluation completed in the second quarter of 2008, excluding claims acquired from OneSource as of January 31, 2008, resulted in a $7.2 million reduction of the Company's self-insurance reserves during the three months ended April 30, 2008.
Due to the weak economic climate, the Company continues to experience some reductions in the level and scope of services provided to its customer base. Despite the weak economic climate, operating profit increased in the Janitorial and Parking divisions during the three months ended April 30, 2009 compared to the three months ended April 30, 2008. Operating profit decreased in the Security and Engineering divisions during the three months ended April 30, 2009 compared to the three months ended April 30, 2008. However, operating profit increased in all the divisions during the six months ended April 30, 2009 compared to the six months ended April 30, 2008. In general, these increases in operating profit were attributable to the Company's ability to maintain acceptable gross profit margins and operating profit, primarily from the realization of synergies from the OneSource acquisition and the reduction of less profitable customer contracts. Achieving the desired levels of revenues and profitability in the future will depend on the Company's ability to retain and attract, at acceptable profit margins, more customers than it loses, to pass on cost increases to customers, and to keep overall costs low to remain competitive, particularly against privately-owned facility services companies that typically have a lower cost advantage.

Liquidity and Capital Resources

                                        April 30,     October 31,
           (in thousands)                 2009            2008          Change

           Cash and cash equivalents   $       -      $       710     $    (710 )
           Working capital             $ 260,292      $   273,980     $ (13,688 )



                                                              Six Months Ended April 30,
(in thousands)                                                 2009                 2008               Change

Net cash provided by operating activities                 $     67,202          $   21,138          $   46,064
Net cash used in investing activities                     $     (8,114 )        $ (436,642 )        $  428,528
Net cash (used in) provided by financing activities       $    (59,798 )        $  296,717          $ (356,515 )

Cash provided by operations and financing activities has historically been used for meeting working capital requirements, financing capital expenditures and acquisitions, and paying cash dividends. As of April 30, 2009, the Company's cash and cash equivalents balance was zero. The decrease in cash is principally due to the timing of net borrowings under the Company's line of credit and payments made on vendor invoices. Available credit under the line of credit was $149.5 million as of April 30, 2009.
The Company believes that the cash generated from operations and amounts available under its $450.0 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 $13.7 million to $260.3 million at April 30, 2009 from $274.0 million at October 31, 2008. Excluding the effects of discontinued operations, working capital increased by $6.7 million to $256.3 million at April 30, 2009 from $249.6 million at October 31, 2008. The increase was primarily due to: (a) a $9.6 million decrease in insurance claims liabilities, (b) a $8.8 million increase in prepaid income taxes and (c) a $6.1 million decrease in trade accounts payable. The favorable impact of these items was partially offset by: (a) a $7.9 million decrease in deferred income taxes, net, primarily due to the utilization of the acquired OneSource deferred tax assets during the six months ended April 30, 2009 and (b) a $5.6 million decrease in trade accounts receivable, net. Trade

accounts receivable that were over 90 days past due were $46.6 million and $47.3 million at April 30, 2009 and October 31, 2008, respectively.
Cash Flows from Operating Activities. Net cash provided by operating activities was $67.2 million for the six months ended April 30, 2009, compared to $21.1 million for the six months ended April 30, 2008. The increase in cash flows from operating activities of $46.1 million is due to: (a) an increase in net income of $9.6 million in the six months ended April 30, 2009 as compared to the six months ended April 30, 2008, (b) a $19.3 million increase in net cash provided by discontinued operating activities, primarily due to accounts receivable collections during the six months ended April 30, 2009 and (c) a $14.4 million increase in deferred income taxes primarily due to the utilization of the acquired OneSource deferred tax assets during the six months ended April 30, 2009. Net cash provided by discontinued operating activities was $22.9 million for the six months ended April 30, 2009 compared to $3.6 million for the six months ended April 30, 2008.
Cash Flows from Investing Activities. Net cash used in investing activities for the six months ended April 30, 2009 was $8.1 million, compared to $436.6 million for the six months ended April 30, 2008. The decrease was primarily due to the $390.5 million and $24.4 million paid for OneSource and the remaining 50% of the equity of Southern Management, respectively, in the six months ended April 30, 2008. No significant cash flows were provided by discontinued investing activities for the six months ended April 30, 2009 and 2008.
Cash Flows from Financing Activities. Net cash used in financing activities was $59.8 million for the six months ended April 30, 2009, compared to net cash provided by of $296.7 million for the six months ended April 30, 2008. In the six months ended April 30, 2008, the Company's net borrowings of $301.5 million from the Company's line of credit were primarily due to the acquisition of OneSource and the purchase of the remaining 50% of the equity of Southern Management Company. During the six months ended April 30, 2009 the Company paid down $48.0 million under the line of credit. No cash flows were provided by discontinued financing activities for the six months ended April 30, 2009 and 2008.
Line of Credit. In connection with the acquisition of OneSource, ABM entered into a $450.0 million five year syndicated line of credit that is scheduled to expire on November 14, 2012 (the "Facility"). 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.
As of April 30, 2009, the total outstanding amounts under the Facility in the form of cash borrowings and standby letters of credit were $182.0 million and $118.5 million, respectively. Available credit under the line of credit was $149.5 million as of April 30, 2009.
The Facility includes covenants limiting liens, dispositions, fundamental changes, investments, indebtedness and certain transactions and payments. In addition, the Facility also requires that ABM maintain the following three financial covenants which are described in Note 5, "Line of Credit Facility" to the Consolidated Financial Statements set forth in the Company's Annual Report on Form 10-K/A: (1) a fixed charge coverage ratio; (2) a leverage ratio; and
(3) a combined net worth test. The Company was in compliance with all covenants as of April 30, 2009 and expects to be in compliance for the foreseeable future. On February 19, 2009, the Company entered into a two-year interest rate swap agreement with a notional amount of $100.0 million, involving the exchange of floating- for fixed-rate interest payments. The Company will receive floating-rate interest payments that offset the LIBOR component of the interest due on $100.0 million of the Company's floating-rate debt and make fixed-rate interest payments of 1.47% over the life of the interest rate swap. The Company assesses the effectiveness of the Company's hedging strategy using the method described in Derivatives Implementation Group Statement 133 Implementation Issue No. G9, "Cash Flow Hedges: Assuming No Ineffectiveness When Critical Terms of the Hedging Instrument and the Hedged Transaction Match in a Cash Flow Hedge." Accordingly, changes in fair value of the interest rate swap agreement are expected to be offset by changes in the fair value of the underlying debt. As of April 30, 2009, the valuation of the interest rate swap resulted in an adjustment to accumulated other comprehensive loss of $0.8 million ($0.5 million, net of taxes) and the fair value of the interest rate swap of ($0.8) million is included in retirement plans and other on the condensed consolidated balance sheets.

Additionally, the Company will continue to evaluate whether the creditworthiness of each swap counterparty is such that default on its obligations under the swap is not probable. The Company also assesses whether the LIBOR-based interest payments are probable of being paid under the loan at the inception and, on an ongoing basis (no less than once each quarter), during the life of each hedging relationship.
Commitments and Contingencies
Commitments
On January 20, 2009, ABM and International Business Machines Corporation ("IBM"), entered into a binding Memorandum of Understanding (the "MOU") pursuant to which ABM and IBM agreed to: (1) terminate certain services currently provided by IBM to ABM under the Master Professional Services Agreement dated October 1, 2006 (the "Agreement"); (2) transition the terminated services to ABM and/or its designee; (3) resolve certain other disputes arising under the Agreement; and (4) modify certain terms applicable to services that IBM will continue to provide to ABM. In connection with the execution of the MOU, ABM delivered to IBM a formal notice terminating for convenience certain information technology and support services effective immediately (the "Termination"). Notwithstanding the Termination, the MOU contemplated (1) that IBM would assist ABM with the transition of the terminated services to ABM or its designee pursuant to an agreement (the "Transition Agreement") to be executed by ABM and IBM and (2) the continued provision by IBM of certain data center services. On February 24, 2009, ABM and IBM entered into an amended and restated Agreement, which amends the agreement (the "Amended Agreement"), and the Transition Agreement, which memorializes the termination-related provisions of the MOU as well as other terms related to the transition services. Under the Amended Agreement, the base fee for the provision of the defined data center services is $18.8 million payable over the service term (March 2009 through December 2013) as follows: 2009 - $3.6 million; 2010 - $4.4 million; 2011 - $4.0 million ; 2012
- $3.3 million; 2013 - $3.0 million; and 2014 - $0.5 million. In connection with the Termination, ABM has agreed to: (1) reimburse IBM for certain actual employee severance costs, up to a maximum of $0.7 million, provided ABM extends comparable offers of employment to a minimum number of IBM employees; (2) reimburse IBM for certain early termination costs, as defined, including third party termination fees and/or wind down costs totaling approximately $0.4 million associated with software, equipment and/or third party contracts used by IBM in performing the terminated services; and (3) pay IBM fees and expenses for requested transition assistance which are estimated to be approximately $0.4 million. Payments made in connection with the Termination were $0.1 million during the six months ended April 30, 2009. Contingencies
The Company is subject to various legal and arbitration proceedings and other contingencies that have arisen in the ordinary course of business. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies", the Company accrues the amount of probable and estimable losses related to such matters. At April 30, 2009, the total amount of probable and estimable losses accrued for legal and other contingencies was $5.2 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.
In November 2008, the Company and its former third party administrator of workers' compensation claims settled a claim in arbitration for net proceeds of $9.6 million, after legal expenses, related to poor claims management, which amount was received by the Company during January 2009 and was classified as reduction in operating expense in the accompanying condensed consolidated statement of income for the six months ended April 30, 2009. 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 entered into 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.

Results of Operations
Three Months Ended April 30, 2009 vs. Three Months Ended April 30, 2008

                                                 Three Months           Three Months           Increase           Increase
                                                     Ended                  Ended             (Decrease)         (Decrease)
($ in thousands)                                April 30, 2009         April 30, 2008              $                  %

Revenues                                         $    855,711           $    906,349          $ (50,638 )             (5.6 )%

Expenses
Operating                                             766,148                806,150            (40,002 )             (5.0 )%
Selling, general and administrative                    64,265                 68,936             (4,671 )             (6.8 )%
Amortization of intangible assets                       2,680                  2,544                136                5.3 %

Total expense                                         833,093                877,630            (44,537 )             (5.1 )%

Operating profit                                       22,618                 28,719             (6,101 )            (21.2 )%
Interest expense                                        1,313                  3,980             (2,667 )            (67.0 )%

Income from continuing operations before
income taxes                                           21,305                 24,739             (3,434 )            (13.9 )%
Provision for income taxes                              8,256                  9,437             (1,181 )            (12.5 )%

Income from continuing operations                      13,049                 15,302             (2,253 )            (14.7 )%
Discontinued Operations
Loss from discontinued operations, net of
taxes                                                    (272 )               (4,230 )            3,958                 NM *

Net income                                       $     12,777           $     11,072          $   1,705               15.4 %

* Not meaningful

Net Income. Net income in the three months ended April 30, 2009 increased by $1.7 million, or 15.4%, to $12.8 million ($0.25 per diluted share) from $11.1 million ($0.22 per diluted share) in the three months ended April 30, 2008. Net income included a loss of $0.3 million and $4.2 million ($0.08 per diluted share) from discontinued operations in the three months ended April 30, 2009 and 2008, respectively.
Income from continuing operations in the three months ended April 30, 2009 decreased by $2.3 million, or 14.7%, to $13.0 million ($0.25 per diluted share) from $15.3 million ($0.30 per diluted share) in the three months ended April 30, 2008. The decrease was primarily a result of: (a) a $7.2 million reduction in self-insurance reserves relating to prior years recorded in the three months ended April 30, 2008 compared to a $1.0 million reduction in self-insurance reserves recorded in the three months ended April 30, 2009; and (b) a $5.2 million increase in information technology costs, including higher depreciation costs related to the upgrade of the payroll, human resources and accounting systems. The negative impact of these items was partially offset by:
(a) a $5.2 million increase in divisional operating profit primarily resulting from realized synergies during the three months ended April 30, 2009 from the continuing integration of OneSource; (b) a $2.7 million decrease in interest expense as a result of a lower average outstanding balance and average interest rate under the Facility in the three months ended April 30, 2009 compared to the three months ended April 30, 2008; (c) a $1.2 million decrease in income taxes; and (d) a $1.0 million decrease in expenses associated with the integration of OneSource's operations. Revenues. Revenues in the three months ended April 30, 2009 decreased $50.6 million, or 5.6%, to $855.7 million from $906.3 million in the three months ended April 30, 2008. The Company and its customers continue to feel the negative impact of the weak economic environment resulting in reductions in the level and scope of services provided to its customers, contract price compression, the reduction of less profitable customer contracts and a decline in the level of tag work as a result of customer discretionary spending. However, approximately $6.8 million, or 13.4%, of the decrease in revenues is due to the reduction of expenses incurred on the behalf of managed parking facilities, which are reimbursed to the Company. These reimbursed expenses are recognized as parking revenues and expenses, which have no impact on operating profit.

. . .