<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 14, 1996
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _____________________
Commission File Number: 1-11841
PINKERTON'S, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-5318100
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15910 Ventura Boulevard, Suite 900, Encino, California 91436-2810
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 380-8800
Not Applicable
(Former name, former address, and formal fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of the Registrant's Common Stock, par value $.001 per
share, outstanding on July 12, 1996 was 8,350,269.
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets-
June 14, 1996 and December 29, 1995........................................... 3
Consolidated Statements of Earnings-
For the Quarters and Six Periods Ended June 14, 1996 and June 16, 1995........ 4
Consolidated Statements of Cash Flows-
For the Quarters and Six Periods Ended June 14, 1996 and June 16, 1995........ 5
Notes to Consolidated Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 7-9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders....................... 10
Item 6. Exhibits and Reports on Form 8-K.......................................... 10
Signatures......................................................................... 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 14,
1996 December 29,
(Unaudited) 1995
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 29,844 $ 20,215
Investment in marketable securities 21,407 19,396
Accounts receivable (includes unbilled amounts of
$24,788 in 1996 and $28,981 in 1995) 118,169 113,127
Less allowance for doubtful receivables 2,774 2,881
-------- --------
115,395 110,246
-------- --------
Inventory 2,115 2,516
Prepaid expenses and taxes 6,147 13,762
Deferred income taxes 7,283 6,836
-------- --------
Total current assets 182,191 172,971
-------- --------
Equipment and leasehold improvements, net of
accumulated depreciation & amortization of $24,304 in
1996 and $21,619 in 1995 13,909 14,017
Other assets:
Intangible assets, net 57,570 60,895
Deferred income taxes 25,185 23,612
Other 17,295 15,849
-------- --------
100,050 100,356
-------- --------
$296,150 $287,344
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,854 $ 7,304
Accrued liabilities 68,770 66,867
Income taxes payable 2,290 -
Current maturities of long-term debt 8,575 8,575
-------- --------
Total current liabilities 85,489 82,746
-------- --------
Accrued retirement benefits and other non-current liabilities 58,282 56,598
Long-term debt, less current maturities 34,275 34,275
Commitments and contingencies
Stockholders' equity:
Preferred stock - 15
Common stock 8 8
Additional paid-in capital 74,558 74,463
Other adjustments (9,695) (9,238)
Retained earnings 53,233 48,477
-------- --------
118,104 113,725
-------- --------
$296,150 $287,344
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Pinkerton's, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Periods Ended
---------------------------------------- -------------------------------------------
June 14, 1996 June 16, 1995 June 14, 1996 June 16, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service revenues $200,918 $195,442 $400,954 $393,763
Cost of services 176,928 175,882 353,778 355,452
-------- -------- -------- --------
Gross profit 23,990 19,560 47,176 38,311
Operating expenses 17,207 13,899 34,239 27,422
Amortization of intangible assets 2,114 1,892 4,250 3,935
-------- -------- -------- --------
Operating profit 4,669 3,769 8,687 6,954
Other (income) deductions:
Interest income (565) (816) (1,075) (1,482)
Interest expense 1,258 1,538 2,372 2,712
Other (1,962) - (1,962) -
-------- -------- -------- --------
(1,269) 722 (665) 1,230
-------- -------- -------- --------
Income before income taxes 5,938 3,047 9,352 5,724
Provision for income taxes 2,891 1,484 4,596 2,690
-------- -------- -------- --------
Net income $ 3,047 $ 1,563 $ 4,756 $ 3,034
======== ======== ======== ========
Net income per common share $ .36 $ .19 $ .56 $ .36
======== ======== ======== ========
Weighted average common
shares and common share
equivalents outstanding 8,563 8,303 8,485 8,318
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Pinkerton's, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Six Periods Ended
-----------------------------------
June 14, 1996 June 16, 1995
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,756 $ 3,034
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets 4,250 3,935
Depreciation and other amortization 3,010 2,671
Provision for losses on doubtful receivables 582 566
Changes in assets, liabilities and stockholders' equity:
Accounts receivable (4,687) (2,244)
Inventory 671 (1,362)
Prepaid expenses and taxes 7,642 2,979
Deferred income taxes (2,020) (4,143)
Other assets (1,517) (1,033)
Accounts payable (1,704) 840
Accrued and other non-current liabilities 3,737 2,612
Income taxes payable 2,290 -
Foreign currency revaluation of net assets (350) 262
-------- --------
Net cash provided by operating activities 16,660 8,117
-------- --------
INVESTING ACTIVITIES:
Purchase of marketable securities (10,925) (33,630)
Sales/redemptions of marketable securities 8,914 21,020
Purchase of equipment and leasehold improvements (2,616) (2,679)
Payments for net assets of acquired businesses, net
of cash acquired (2,484) (40)
-------- --------
Net cash (used in) investing activities (7,111) (15,329)
-------- --------
FINANCING ACTIVITIES:
Principal repayment of long-term debt - (8,575)
Exercise of stock options 95 22
Redemption of preferred stock (15) (1)
-------- --------
Net cash provided by (used in) financing activities 80 (8,554)
-------- --------
Net increase (decrease) in cash 9,629 (15,766)
Cash and cash equivalents at beginning of year 20,215 27,744
-------- --------
Cash and cash equivalents at end of period $ 29,844 $ 11,978
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Pinkerton's, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) PRESENTATION OF FINANCIAL INFORMATION
The consolidated financial statements included herein have been prepared by the
Company and include all adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the fiscal
quarters and six periods ended June 14, 1996 and June 16, 1995. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted, although the Company believes the disclosures in these
consolidated financial statements are adequate to make the information presented
not misleading.
The following material is written with the presumption that the users of the
interim financial statements have read or have access to the Company's Form 10-K
filed with the Securities and Exchange Commission for the fiscal year ended
December 29, 1995 and the Company's 1995 Annual Report to Stockholders. The
1995 Annual Report contains the latest audited consolidated financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations as of December 29, 1995 and for
the year then ended. The results of operations for the fiscal quarters and six
periods ended June 14, 1996 and, June 16, 1995 are not necessarily indicative of
the results for a full year.
(2) ACCOUNTING CYCLE
Pinkerton's fiscal year comprises the 52-week (or 53-week) period ending on the
Friday closest to December 31, within the reporting year. The Company's
quarterly reporting periods generally consist of three four-week periods for the
first, second and third quarters, and four four-week periods for the fourth
quarter.
(3) OTHER INCOME
During the second quarter of 1996, the Company entered into an agreement with
the previous owner related to the acquisition of Pinkerton's, Inc. by California
Plant Protection, Inc. in 1988. As a result of this agreement, the Company
received a cash payment of $5.2 million in the second quarter of 1996. Of this
amount, $3.2 million represents a recovery of income and other taxes paid on
behalf of the previous owner and recorded in the balance sheet; the remaining
amount of $2.0 million is recorded as other income in the second quarter of
1996.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTER AND SIX PERIODS ENDED JUNE 14, 1996.
Pinkerton's fiscal year comprises the 52-week (or 53-week) period ending on the
Friday closest to December 31, within the reporting year. The Company's
quarterly reporting periods consist of three four-week periods for the first,
second and third quarters, and four four-week periods for the fourth quarter.
RESULTS OF OPERATIONS
Service Revenues -
The Company's service revenues increased by $5.5 million, or 2.8%, from $195.4
million in the second quarter of 1995 to $200.9 million in the second quarter of
1996. For the six periods ended June 14, 1996 and June 16, 1995, service
revenues increased by $7.2 million, or 1.8%, from $393.8 million in 1995 to
$401.0 million in 1996.
Domestic Service Revenues -
The Company's domestic service revenues increased by $3.4 million, or 2.1%, from
$164.4 million in the second quarter of 1995 to $167.8 million in the second
quarter of 1996. For the six periods ended June 14, 1996 and June 16, 1995,
domestic service revenues increased by $4.5 million, or 1.4%, from $332.5
million in 1995 to $337.0 million in 1996. The increase in the second quarter
reflects the revenues of systems integration businesses acquired of $6.2 million
less service reductions of $2.8 million. The increase in the six periods
reflects revenues of system integration businesses acquired of $12.3 million
less service reductions of $7.8 million. The service reductions occurred
primarily as a result of an active program to improve profitability by
eliminating unprofitable accounts.
International Service Revenues -
Service revenues of the Company's international operations increased by $2.1
million, or 6.8%, from $31.0 million in the second quarter of 1995 to $33.1
million in the second quarter of 1996. For the six periods ended June 14, 1996
and June 16, 1995, service revenues of the Company's international operations
increased by $2.7 million, or 4.4%, from $61.3 million in 1995 to $64.0 million
in 1996. The increase in the second quarter reflects $3.4 million of additional
business offset by foreign currency exchange reductions of $1.3 million. The
increase for the six periods primarily results from $4.6 million of additional
business offset by foreign currency exchange reductions of $1.9 million.
Cost of Services and Gross Profit -
The Company's cost of services increased by $1.0 million, or 0.6%, from $175.9
million in the second quarter of 1995 to $176.9 million in the second quarter of
1996. Cost of services in the first six periods of 1996 decreased by $1.7
million, or 0.5%, from $355.5 million in 1995 to $353.8 million in 1996. The
increase in the second quarter was primarily due to payroll and related expenses
accompanying the increase in service revenues described above reduced by cost
efficiencies achieved during the quarter. The decrease in the six periods year-
to-date results primarily from the impact of cost efficiencies resulting from
the Company's ongoing efforts to reduce the cost of services.
Gross profit as a percentage of service revenues increased from 10.0% in the
second quarter of 1995 to 11.9% in the second quarter of 1996. For the six
periods ended June 14, 1996 and June 16, 1995, the gross profit percentage
increased from 9.7% in 1995 to 11.8% in 1996. These increases reflect the
changes in cost of services discussed above. Gross profit was also favorably
impacted by the inclusion of the Company's security systems integration service
operations, which
7
<PAGE>
typically experience higher gross margins than the Company's security service
operations. The security systems integration service operations were acquired
after the second quarter of 1995.
Operating Expenses -
Operating expenses increased by $3.3 million, or 23.7%, from $13.9 million in
the second quarter of 1995 to $17.2 million in the second quarter of 1996. For
the six periods ended June 14, 1996 and June 16, 1995, operating expenses
increased by $6.8 million, or 24.8%, from $27.4 million in 1995 to $34.2 million
in 1996. As a percentage of service revenues, operating expenses were 8.6% and
8.5% respectively, for the quarter and six periods ended June 14, 1996, and 7.1%
and 7.0%, respectively, for the comparable 1995 periods. The increased
operating expense percentage reflects the operations of the Company's security
systems integration service operations which have both higher gross profit
margins and operating expenses than the Company's security service operations.
Operating expenses also reflect the Company's ongoing expenditures for quality
processes and training programs implemented to enhance customer value.
Amortization -
Amortization of intangible assets increased by $0.2 million from $1.9 million in
the second quarter of 1995 to $2.1 million in the second quarter of 1996. For
the six periods ended June 14, 1996 and June 16, 1995, amortization increased
$0.4 million from $3.9 million in 1995 to $4.3 million in 1996. This reflects
additional amortization of intangible assets arising from acquisitions made
after the second quarter of 1995.
Operating Profit -
Operating profit was $4.7 million, or 2.3% of service revenues, for the second
quarter of 1996 as compared to $3.8 million, or 1.9% of service revenues, for
the same period last year. For the six periods ended June 14, 1996, operating
profit was $8.7 million, or 2.2% of service revenues, as compared to $7.0
million, or 1.8% of service revenues, in the corresponding 1995 period.
Operating profit increased due to improved gross profit margins, partially
offset by an increase in operating expenses discussed above.
OTHER INCOME
During the second quarter of 1996, the Company entered into an agreement with
the previous owner related to the acquisition of Pinkerton's, Inc. by California
Plant Protection, Inc. in 1988. As a result of this agreement, the Company
received a cash payment of $5.2 million in the second quarter of 1996. Of this
amount, $3.2 million represents a recovery of income and other taxes paid on
behalf of the previous owner and recorded in the balance sheet; the remaining
amount of $2.0 million is recorded as other income in the second quarter of
1996.
Income Taxes -
The effective tax rate for the six periods ended June 14, 1996 was 49.1% as
compared to 47.0% in 1995. The higher tax rate in 1996 is primarily
attributable to certain non-U.S. losses that provide no tax benefit as well as a
reduction in targeted jobs tax credits that expired in 1995.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
At June 14, 1996, the Company had $29.8 million in cash, an increase of $9.6
million from December 29, 1995; and $21.4 million in marketable securities, a
$2.0 million increase from December 29, 1995. Net cash provided by operating
activities of $16.6 million and net cash provided by financing activities of
$0.1 million were reduced by $7.1 million of net cash payments relating to
investing activities. The Company's principal investing activities during the
first six
8
<PAGE>
periods of 1996 were net purchases of marketable securities ($2.0
million), acquisitions ($2.5 million), and purchases of computer and other
equipment ($2.6 million). The Company's principal financing activity during the
first six periods of 1996 was $0.1 million of cash receipts related to the
exercise of stock options.
The Company has an acquisitions program intended to implement its strategy to
become a world-class, global security solutions provider. The Company also has
an ongoing program to replace capital equipment as required. Both of these
activities will continue for at least the balance of 1996.
Pinkerton's cash needs during the first six months of each year are greater
because of higher payroll taxes. In addition, the Company is required to make
annual principal payments of approximately $8.6 million (in the month of June)
through the year 2000 in repayment of its long-term debt. Semi-annual interest
payments of approximately $2.2 million and $1.8 million related to the long-term
debt are due in June and December 1996, respectively. The principal and
interest payments described above to be made in June 1996 occur in the Company's
third fiscal quarter.
The Company has an unsecured revolving credit facility with a group of banks for
borrowings up to $70.0 million, of which $50.0 million may be letters of credit.
The facility also provides for a possible increase up to $100.0 million of
borrowings (of which $50.0 million may be letters of credit) upon certain
conditions. No cash borrowings have been made during 1996. At July 1, 1996 no
amounts were outstanding under the cash borrowing facility and $39.1 million in
letters of credit had been issued by the Company to secure obligations under the
Company's self-insurance programs.
The Company believes existing liquid resources, cash generated from operations
and funds available under the revolving credit facility are sufficient for its
acquisition program and operating and capital requirements during the next 12
months. The Company also has access to capital markets, if necessary, to raise
funds for working capital, capital spending, acquisitions and other investments
for business growth.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 Annual Meeting of Stockholders of the Company was held on
April 26, 1996. At the Annual Meeting the stockholders elected two
directors of the Company for a term of three years, approved the Second
Amendment to the 1995 Pinkerton Performance and Equity Incentive Plan,
ratified the selection of the Company's independent auditors for the
current fiscal year, and voted against a stockholder proposal
requesting that the Board of Directors take the necessary steps to
declassify the Board so that all directors are elected annually.
The votes for the election of directors were:
Shares Voted "FOR" Shares "WITHHELD"
------------------ -----------------
Denis R. Brown 7,647,979 61,298
Peter H. Dailey 7,688,407 20,870
The votes for the approval of the Second Amendment to the 1995
Pinkerton Performance and Equity Incentive Plan were:
Shares Voted "FOR" Shares voted "AGAINST" Abstentions/ Non-Votes
------------------ ---------------------- ----------------------
6,409,389 1,100,262 147,155
The votes for the ratification of the selection of independent
auditors were:
Shares Voted "FOR" Shares voted "AGAINST" Abstentions/ Non-Votes
------------------ ---------------------- ----------------------
7,661,669 41,153 6,455
The votes for the stockholder proposal requesting that the Board of
Directors take the necessary steps to declassify the Board were:
Shares Voted "FOR" Shares voted "AGAINST" Abstentions/ Non-Votes
------------------ ---------------------- ----------------------
1,740,931 5,222,266 43,078
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings Per Share (Unaudited)
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
10
<PAGE>
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.
PINKERTON'S INC.
Date: July 26, 1996 BY: /s/ JAMES P. McCLOSKEY
---------------------------------
James P. McCloskey
ITS: Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: July 26, 1996 BY: /s/ STEVEN A. LINDSEY
---------------------------------
Steven A. Lindsey
ITS: Controller
(Principal Accounting Officer)
11
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Exhibit 11
Pinkerton's, Inc.
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Periods Ended
---------------------------------- ---------------------------------------
June 14, 1996 June 16, 1995 June 14, 1996 June 16, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 3,047 $ 1,563 $ 4,756 $ 3,034
======== ======== ======== ========
Weighted average number of
common shares outstanding 8,347 8,296 8,347 8,296
Dilutive effect of outstanding
stock options 216 7 138 22
-------- -------- -------- --------
Weighted average number of
common shares, as adjusted,
for calculation of earnings
per share 8,563 8,303 8,485 8,318
======== ======== ======== ========
Net income per common share $ .36 $ .19 $ .56 $ .36
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-29-1995 JUN-14-1996
<PERIOD-START> DEC-31-1994 DEC-30-1995
<PERIOD-END> DEC-29-1995 JUN-14-1996
<CASH> 20,215 29,844
<SECURITIES> 19,396 21,407
<RECEIVABLES> 113,127 118,169
<ALLOWANCES> 2,881 2,774
<INVENTORY> 2,516 2,115
<CURRENT-ASSETS> 172,971 182,191
<PP&E> 35,636 38,213
<DEPRECIATION> 21,619 24,304
<TOTAL-ASSETS> 287,344 296,150
<CURRENT-LIABILITIES> 82,746 85,489
<BONDS> 34,275 34,275
0 0
15 0
<COMMON> 74,471 74,566
<OTHER-SE> 39,239 43,538
<TOTAL-LIABILITY-AND-EQUITY> 287,344 296,150
<SALES> 862,793 400,954
<TOTAL-REVENUES> 862,793 400,954
<CGS> 771,172 353,778
<TOTAL-COSTS> 771,172 353,778
<OTHER-EXPENSES> 69,011 35,945
<LOSS-PROVISION> 1,719 582
<INTEREST-EXPENSE> 2,870 1,297
<INCOME-PRETAX> 18,021 9,352
<INCOME-TAX> 7,521 4,596
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,500 4,756
<EPS-PRIMARY> 1.26 .56
<EPS-DILUTED> 1.26 .56
</TABLE>
