ABM INDUSTRIES INC /DE/ABM
ABM INDUSTRIES INC /DE/ Income Taxes Disclosure
INCOME TAXES
Geographic Sources of Income Before Income Taxes
| Year Ended October 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| United States | $ | 170.4 | $ | 88.8 | $ | 294.3 | |||||||||||
| Foreign | 49.5 | 44.8 | 36.8 | ||||||||||||||
Income before income taxes | $ | 219.9 | $ | 133.6 | $ | 331.1 | |||||||||||
Components of Income Tax Provision
| Year Ended October 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (49.3) | $ | (53.7) | $ | (50.6) | |||||||||||
| State | (22.8) | (22.8) | (25.0) | ||||||||||||||
| Foreign | (7.4) | (0.4) | (9.0) | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 13.4 | 19.3 | (0.5) | ||||||||||||||
| State | 8.4 | 6.7 | 5.3 | ||||||||||||||
| Foreign | 0.1 | (1.3) | 0.1 | ||||||||||||||
| Income tax provision | $ | (57.6) | $ | (52.2) | $ | (79.7) | |||||||||||
Reconciliation of the U.S. Statutory Tax Rate to Annual Effective Tax Rate
| Year Ended October 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| U.S. statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State and local income taxes, net of federal tax benefit | 6.7 | 8.0 | 6.9 | ||||||||||||||
| Federal and state tax credits | (1.9) | (2.6) | (1.0) | ||||||||||||||
| Impact of foreign operations | (1.9) | (6.4) | 0.8 | ||||||||||||||
| Changes in uncertain tax positions | — | (2.2) | 0.1 | ||||||||||||||
| Incremental tax benefit from share-based compensation awards | (0.2) | (1.6) | (0.7) | ||||||||||||||
| Energy efficiency incentives | (0.4) | (4.1) | (0.1) | ||||||||||||||
Nondeductible executive compensation | 1.8 | 3.4 | 1.4 | ||||||||||||||
Nontaxable RavenVolt contingent consideration | (0.2) | 20.1 | (3.9) | ||||||||||||||
| Other nondeductible expenses | 1.4 | 2.1 | 0.6 | ||||||||||||||
| Other, net | (0.1) | 1.4 | (1.0) | ||||||||||||||
| Effective tax rate | 26.2 | % | 39.1 | % | 24.1 | % | |||||||||||
During 2025 and 2024, we had effective tax rates of 26.2% and 39.1%, respectively, resulting in an income tax provision of $57.6 million and $52.2 million, respectively. Our effective tax rate for 2025 was benefited by a $3.1 million return to provision adjustment related to our non-U.S. operations. Our effective tax rate for 2024 was negatively impacted by a $95.7 million non-taxable change to increase the fair value of the contingent consideration related to the RavenVolt Acquisition, partially offset by a $7.3 million tax benefit for return to provision adjustments related to our non-U.S. operations, and a $5.5 million benefit related to energy efficiency incentives.
Components of Deferred Tax Assets and Liabilities
| As of October 31, | |||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| Deferred tax assets attributable to: | |||||||||||
| Self-insurance claims (net of recoverables) | $ | 116.3 | $ | 106.3 | |||||||
| Deferred and other compensation | 35.3 | 29.0 | |||||||||
| Accounts receivable allowances | 6.1 | 5.6 | |||||||||
| Settlement liabilities | 2.6 | 3.4 | |||||||||
| Other accruals | 0.2 | 4.0 | |||||||||
| Other comprehensive income | 0.2 | — | |||||||||
| State taxes | 0.7 | 1.5 | |||||||||
| State net operating loss carryforwards | 2.9 | 2.5 | |||||||||
| Tax credits | 3.2 | 3.4 | |||||||||
| Unrecognized tax benefits | 3.3 | 3.5 | |||||||||
| Operating lease liabilities | 21.5 | 23.5 | |||||||||
| Gross deferred tax assets | 192.3 | 182.7 | |||||||||
| Valuation allowance | (1.2) | (1.1) | |||||||||
| Total deferred tax assets | 191.1 | 181.6 | |||||||||
| Deferred tax liabilities attributable to: | |||||||||||
| Property, plant and equipment | (2.7) | (1.0) | |||||||||
| Goodwill and other acquired intangibles | (191.8) | (194.8) | |||||||||
| Right-of-use assets | (23.4) | (25.1) | |||||||||
| Tax accounting method change | — | (6.3) | |||||||||
Other comprehensive income | — | (2.3) | |||||||||
| Other | (13.1) | (12.3) | |||||||||
| Total deferred tax liabilities | (231.0) | (241.8) | |||||||||
| Net deferred tax liabilities | $ | (39.9) | $ | (60.2) | |||||||
Net Operating Loss Carryforwards and Credits
State net operating loss carryforwards totaling $56.9 million at October 31, 2025, are being carried forward in several state jurisdictions where we are permitted to use net operating losses from prior periods to reduce future taxable income. These losses will expire between 2026 and 2045. Federal net operating loss carryforwards were fully utilized during 2024. Federal and state tax credit carryforwards totaling $3.7 million are available to reduce future cash taxes and will expire between 2026 and 2045.
The valuation allowance represents the amount of tax benefits related to state net operating loss carryforwards that are not likely to be realized. We believe the remaining deferred tax assets are more likely than not to be realizable based on estimates of future taxable income.
Changes to the Valuation Allowance
| Years Ended October 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Valuation allowance at beginning of year | $ | 1.1 | $ | 1.2 | $ | 1.6 | |||||||||||
| Other, net | 0.1 | (0.1) | (0.4) | ||||||||||||||
| Valuation allowance at end of year | $ | 1.2 | $ | 1.1 | $ | 1.2 | |||||||||||
Unrecognized Tax Benefits
At October 31, 2025, 2024, and 2023, there were $13.5 million, $15.5 million, and $20.7 million, respectively, of unrecognized tax benefits that if recognized in the future would impact our effective tax rate. We estimate that a decrease in unrecognized tax benefits of up to approximately $3.3 million is reasonably possible over the next 12 months due to lapses of applicable statutes of limitations. At October 31, 2025 and 2024, accrued interest and penalties were $1.9 million and $1.3 million, respectively. For interest and penalties, we recognized a $0.6 million expense, a $0.1 million benefit, and a $0.7 million expense in 2025, 2024, and 2023, respectively.
Reconciliation of Total Unrecognized Tax Benefits
| Years Ended October 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at beginning of year | $ | 15.5 | $ | 20.7 | $ | 22.0 | |||||||||||
| Additions for tax positions related to prior years | 0.3 | — | 2.1 | ||||||||||||||
| Reductions for tax positions related to prior years | (2.2) | (1.5) | (1.5) | ||||||||||||||
| Reductions for lapse of statute of limitations | (0.1) | (0.1) | (1.9) | ||||||||||||||
| Settlements | — | (3.6) | — | ||||||||||||||
| Balance at end of year | $ | 13.5 | $ | 15.5 | $ | 20.7 | |||||||||||
On July 4, 2025, the United States enacted the One Big Beautiful Bill Act (“OBBBA”), which contains a broad range of tax reform provisions affecting businesses. The impact of OBBBA has been reflected in our consolidated financial statements for the year ended October 31, 2025. While the provisions of the legislation are expected to primarily take effect for ABM in fiscal year 2026, we do not anticipate that their adoption will have a material impact on our financial position, results of operations, or cash flows for that period.
The Organisation for Economic Co-operation and Development (“OECD”) Pillar Two Model Rules established a minimum global effective tax rate of 15% on country-by-country profits of large multinational companies. European Union member states along with many other countries have adopted or expect to adopt the OECD Pillar Two Model effective January 1, 2024, or thereafter. The OECD and other countries continue to publish guidelines and legislation that include transition and safe harbor rules. We continue to monitor new legislative changes and assess the global impact of the Pillar Two Model Rules. Based on our initial assessment, Pillar Two does not have a material impact to the Company’s income tax provision.
Jurisdictions
We conduct business in all 50 states, significantly in California, Texas, and New York, as well as in various foreign jurisdictions. Our most significant income tax jurisdiction is the United States. Due to expired statutes and closed audits, our federal income tax returns for years prior to fiscal 2021 are no longer subject to examination by the U.S. Internal Revenue Service. Generally, for the majority of state and foreign jurisdictions where we do business, periods prior to fiscal 2021 are no longer subject to examination. We are currently being examined by Massachusetts and the city of New York City.
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About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.