4. ACQUISITIONS

TEGG and CurrentSAFE Acquisition

On May 1, 2012, we entered into an asset purchase agreement with TEGG Corporation (“TEGG”), CurrentSAFE Corporation (“CurrentSAFE”) (both privately held Delaware corporations), TEGG’s shareholder, and certain other parties pursuant to which we acquired substantially all of the assets and assumed certain liabilities of TEGG and CurrentSAFE and also acquired certain software technology from TEGG’s shareholder, for an aggregate purchase price of $5.5 million in cash, net of cash acquired (the “TEGG Acquisition”). The purchase price reflects a $0.1 million working capital adjustment received in the fourth quarter of fiscal 2012. Approximately $0.5 million of the cash consideration was placed in an escrow account to satisfy any applicable indemnification claims, pursuant to the terms of the agreement, and is included in “Other assets” and “Retirement plans and other” on the accompanying consolidated balance sheets at October 31, 2012.

The assets acquired represent the franchise operations of TEGG and CurrentSAFE, and through this acquisition the Company expanded its electrical services to include electrical preventive and predictive maintenance solutions. The acquired net assets and results from operations have been included in the Company’s Facility Solutions segment since May 1, 2012, the date of acquisition.

This acquisition was accounted for under the acquisition method of accounting. The Company has allocated the purchase price based on preliminary estimates of fair value for assets acquired and liabilities assumed using information currently available. Adjustments, if any, to the preliminary allocation are not expected to be material.

The preliminary purchase price and related allocations are summarized as follows:


(in thousands)
Purchase price:

Total cash consideration	$	5,667

Allocated to:
Cash	$	160
Other intangible assets		2,200
Software technology		2,100
Goodwill		1,937
Other assets		1,199
Accrued liabilities and other		(1,929	)

Net assets acquired	$	5,667

Costs of $0.2 million related to the TEGG acquisition were expensed as incurred and were recorded in selling, general and administrative expenses. Other identifiable intangible assets primarily consist of customer contracts and relationships with a weighted average life of 14 years.

Goodwill represents the excess cost over the fair value of the net tangible and intangible assets acquired. Factors that contributed to a purchase price resulting in the recognition of goodwill include the Company’s strategic initiative to expand the scope and product range of its facility solutions franchise offerings into the electrical services solutions business, which will provide for further expansion of this business and enhance comprehensive service offerings. The amount of goodwill for tax purposes that is expected to be deductible is $1.9 million.

Revenues from the TEGG Acquisition were approximately $3.9 million since the date of acquisition. Pro forma and other supplemental financial information is not presented as this acquisition is not a material business combination to the Company’s consolidated financial statements.

The Linc Group, LLC

On December 1, 2010 the Company acquired all of the outstanding limited liability company interests of The Linc Group, LLC (“Linc”) for an aggregate purchase price of $298.7 million in cash (the “Linc Acquisition”). The operations of Linc are included in the Facility Solutions segment as of the acquisition date. Linc provides end-to-end integrated facility services, military base operation services, and translation and other services in support of U.S. military operations. Linc’s clients include state and federal governments, commercial entities, and residential customers throughout the United States and in select international locations.

In connection with the acquisition, the Company incurred $5.2 million in direct acquisition costs, which were expensed as incurred and classified as selling, general and administrative expenses. The operations of Linc are included in the Facility Solutions segment as of the acquisition date. Revenues and operating profit associated with Linc and included in the Company’s consolidated statements of income were $512.9 million and $11.1 million (excluding transaction costs and the interest expense associated with the borrowings under the Company’s line of credit used to finance the acquisition, which were recorded in Corporate expenses), respectively, for the year ending October 31, 2011. The name of Linc was changed to ABM Facility Solutions Group, LLC in fiscal 2012.

This acquisition was accounted for under the acquisition method of accounting. The final purchase price and related allocations are summarized as follows:


(in thousands)
Purchase price:

Total cash consideration	$	298,720

Allocated to:
Cash and cash equivalents	$	8,467
Trade accounts receivable		86,277
Prepaid expenses and other current assets		7,494
Investments in unconsolidated affiliates		12,645
Property, plant and equipment		9,462
Other intangible assets		87,000
Other assets		24,837
Goodwill		154,487
Trade accounts payable		(38,541	)
Accrued liabilities		(25,888	)
Insurance claims		(4,161	)
Non-current liabilities		(23,359	)

Net assets acquired	$	298,720

The acquired intangible assets are being amortized using the sum-of-the-years’-digits method or, where appropriate, the straight-line method. The weighted-average amortization periods for the acquired intangible assets are 14 years for customer contracts and 4 years for trademarks, which is consistent with the estimated useful life considerations used in the determination of their fair values. Additionally, the fair value in excess of the carrying amount for investments in unconsolidated affiliates is being amortized over 10 years. The amount allocated to goodwill is reflective of the Company’s identification of buyer-specific synergies realized by, among other things, reducing duplicative positions and back office functions, consolidating facilities, and reducing professional fees and other services.

The transaction was a taxable asset acquisition of the Linc organization for U.S. income tax purposes, and no deferred taxes have been recorded on a significant portion of the acquired assets and liabilities. However, deferred taxes have been recorded for certain assets and liabilities where the Company receives a carryover basis for tax purposes. The amount of goodwill for tax purposes that is expected to be deductible is $131.0 million.

The following unaudited pro forma financial information shows the combined results of continuing operations of the Company, including Linc, as if the acquisition occurred at the beginning of the periods presented. The effects of other acquisitions made in 2010 were not included in the table below due to the insignificant impact of such acquisitions on pro forma results. The unaudited pro forma financial information is not intended to present or be indicative of the Company’s consolidated financial results of continuing operations that would have been reported had the business combination been completed as of the beginning of the period presented and should not be taken as indicative of the Company’s future consolidated results of continuing operations. The unaudited pro forma financial information for the year ended October 31, 2011 noted below has not been provided since the amounts are not significantly different from actual results.


(in thousands, except per share data)	Year ended October 31, 2010
Revenues	$	4,062,610
Operating profit		111,788
Net income	$	62,109
Net income per common share
Basic	$	1.19
Diluted	$	1.17

Diversco, Inc.

On June 30, 2010, the Company acquired all of the outstanding shares of Diversco, Inc. (“Diversco”) from DHI Holdings, Inc. for $30.6 million in cash and incurred direct acquisition costs of $0.2 million, which were expensed as incurred. The purchase price was subsequently adjusted to $30.4 million in connection with a working capital adjustment. Diversco is a national provider of outsourced facility services. The acquisition expanded the geographic reach of the Company’s janitorial and security businesses, particularly in the Southeast, Midwest and Mid-Atlantic regions of the United States. The results of operations for Diversco are included in the Company’s Janitorial and Security segments as of the acquisition date. Pro forma financial information for this acquisition is not provided as this acquisition is not material to the Company’s financial statements.

The allocation of the purchase price to the underlying assets acquired and liabilities assumed was based on their estimated fair values as of the acquisition date, June 30, 2010, with any excess of the purchase price allocated to goodwill.

The final purchase price and related allocations are summarized as follows:


(in thousands)
Purchase price:
Total cash consideration	$	30,390

Allocated to:
Cash and cash equivalents	$	2,758
Trade accounts receivable		9,884
Property, plant and equipment		3,063
Other intangible assets		10,800
Goodwill		13,106
Other assets		1,244
Trade accounts payable		(1,327	)
Accrued liabilities		(7,366	)
Insurance claims		(1,322	)
Other liabilities		(450	)

Net assets acquired	$	30,390

The acquired customer contracts and relationships, included in identifiable intangible assets, will be amortized using the sum-of-the-years’-digits method over their useful lives of 11 years, which is consistent with the estimated useful life considerations used in the determination of their fair values. Intangible assets of $10.8 million were assigned to the Janitorial and Security segments in the amounts of $9.2 million and $1.6 million, respectively. Goodwill of $13.1 million was assigned to the Janitorial and Security segments in the amounts of $11.1 million and $2.0 million, respectively. The amounts of intangible assets and goodwill have been assigned to the Janitorial and Security segments based on the respective profit margins of the acquired customer contracts. The amount of goodwill for tax purposes that is expected to be deductible is $13.1 million.

L&R

On October 1, 2010, the Company acquired select assets of Five Star Parking, Network Parking Company Ltd., and System Parking, Inc. (collectively, this asset acquisition is referred to as “L&R”) from the L&R Group of Companies for an aggregate purchase price of $34.7 million, including $0.2 million of assets distributed as consideration. The acquisition extended and expanded the Company’s parking business in major cities. The acquisition also expanded the Company’s presence at airports. The results of operations of L&R are included in the Company’s Parking segment as of the acquisition date. Pro forma financial information for this acquisition is not provided as this acquisition is not material to the Company’s financial statements.

The allocation of the purchase price to the underlying assets acquired and liabilities assumed was based on their estimated fair values as of the acquisition date, with any excess of the purchase price allocated to goodwill.

The final purchase price and related allocations are summarized as follows:


(in thousands)
Purchase price:
Cash	$	34,500
Fair value of assets distributed		164

Total consideration	$	34,664

Allocated to:
Property, plant and equipment	$	762
Intangible assets (including favorable leases)		6,200
Goodwill		30,160
Other assets		142
Unfavorable leases		(2,600	)

Net assets acquired	$	34,664

The acquired intangible assets and unfavorable leases will be amortized using the sum-of-the-years’-digits method, or where appropriate the straight-line method, over their useful lives: 11 years for managed customer contracts, 4 years for favorable leases, 6 years for unfavorable leases and 10 years for the non-compete agreement, which is consistent with the estimated useful life considerations used in the determination of their fair values. The amount of goodwill for tax purposes that is expected to be deductible is $30.2 million.

Contingent Payments

The Company increased its Janitorial goodwill balance by $0.5 million to reflect additional consideration earned in the year ended October 31, 2012 relating to a prior years’ acquisition. The additional consideration represents contingent amounts based on financial performance subsequent to the respective acquisition date.