<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 September 5, 1997
---------------------
OR
[X] 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)
<TABLE>
<S> <C>
Delaware 13-5318100
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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 October 3, 1997 was 12,573,396.
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets-
September 5, 1997 and December 27, 1996.................. 3
Consolidated Statements of Earnings-
For the Quarters and Nine Periods Ended September 5,
1997 and September 6, 1996.............................. 4
Consolidated Statements of Cash Flows-
For the Nine Periods Ended September 5, 1997 and
September 6, 1996........................................ 5
Notes to Consolidated Financial Statements................. 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................... 10
Signatures.................................................. 11
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 5,
1997 DECEMBER 27,
ASSETS (Unaudited) 1996
--------------------- ---------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,969 $ 33,761
Investment in marketable securities 8,000 8,460
Accounts receivable (includes unbilled amounts of
$35,341 in 1997 and $30,196 in 1996) 151,158 137,055
Less allowance for doubtful receivables 2,889 2,572
-------- --------
148,269 134,483
-------- --------
Inventory 3,080 3,799
Prepaid expenses and taxes 7,395 11,566
Deferred income taxes 7,452 7,121
-------- --------
Total current assets 182,165 199,190
-------- --------
Equipment and leasehold improvements, net of
accumulated depreciation and amortization of
$31,001 in 1997 and $26,818 in 1996 15,080 14,977
Other assets:
Intangible assets, net 70,720 57,311
Deferred income taxes 24,541 23,467
Other 24,114 20,336
-------- --------
119,375 101,114
-------- --------
$316,620 $315,281
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,006 $ 9,790
Accrued liabilities 81,273 76,366
Income taxes payable 1,594 -
Current maturities of long-term debt 8,575 8,575
-------- --------
Total current liabilities 102,448 94,731
-------- --------
Accrued retirement benefits and other non-current liabilities 51,853 52,856
Long-term debt, less current maturities 25,997 37,313
Commitments and contingencies
Stockholders' equity:
Common stock 8 8
Additional paid-in capital 75,216 74,887
Other adjustments (7,903) (5,441)
Retained earnings 69,001 60,927
-------- --------
136,322 130,381
-------- --------
$316,620 $315,281
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
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PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE PERIODS ENDED
--------------------------------------- ---------------------------------------
SEPTEMBER 5, 1997 SEPTEMBER 6, 1996 SEPTEMBER 5, 1997 SEPTEMBER 6, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Service revenues $233,736 $207,496 $684,993 $608,450
Cost of services 204,001 179,938 601,525 533,716
-------- -------- -------- --------
Gross profit 29,735 27,558 83,468 74,734
Operating expenses 19,587 19,145 58,437 53,384
Amortization of intangible assets 2,161 2,102 6,605 6,352
-------- -------- -------- --------
Operating profit 7,987 6,311 18,426 14,998
Other (income) deductions:
Interest income (283) (621) (976) (1,696)
Interest expense 1,016 987 3,288 3,359
Other - - - (1,962)
-------- -------- -------- --------
733 366 2,312 (299)
-------- -------- -------- --------
Income before income taxes 7,254 5,945 16,114 15,297
Provision for income taxes 3,876 2,914 8,040 7,510
-------- -------- -------- --------
Net income $ 3,378 $ 3,031 $ 8,074 $ 7,787
======== ======== ======== ========
Net income per common share $.26 $.24 $.62 $.61
======== ======== ======== ========
Weighted average common shares and
common share equivalents outstanding 13,204 12,806 13,040 12,753
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
FOR THE NINE PERIODS ENDED
------------------------------------------------------
SEPTEMBER 5, 1997 SEPTEMBER 6, 1996
-------------------------- -------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 8,074 $ 7,787
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets 6,605 6,352
Depreciation and other amortization 5,126 5,170
Provision for losses on doubtful receivables 540 914
Deferred income taxes (1,405) (2,354)
Changes in assets, liabilities and stockholders' equity:
Accounts receivable (10,394) (13,033)
Inventory 1,250 377
Prepaid expenses and taxes 4,461 5,158
Other assets (4,551) (3,151)
Accounts payable 338 (542)
Accrued and other non-current liabilities (2,222) 4,871
Income taxes payable 1,594 2,068
Foreign currency revaluation of net assets (796) 38
-------- --------
Net cash provided by operating activities 8,620 13,655
-------- --------
INVESTING ACTIVITIES:
Purchase of marketable securities (11,081) (19,077)
Sales/redemptions of marketable securities 11,541 18,382
Purchase of equipment and leasehold improvements (3,699) (4,688)
Payments for net assets of acquired businesses, net
of cash acquired (21,793) (5,125)
-------- --------
Net cash used in investing activities (25,032) (10,508)
-------- --------
FINANCING ACTIVITIES:
Principal repayment of long-term debt (9,709) (8,575)
Exercise of stock options 329 223
Redemption of preferred stock - (15)
-------- --------
Net cash used in financing activities (9,380) (8,367)
-------- --------
Net decrease in cash (25,792) (5,220)
Cash and cash equivalents at beginning of year 33,761 20,215
-------- --------
Cash and cash equivalents at end of period $ 7,969 $ 14,995
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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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 nine periods ended September 5, 1997 and September 6, 1996. 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 27, 1996 and the Company's 1996 Annual Report to Stockholders. The
1996 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 27, 1996 and for
the year then ended. The results of operations for the fiscal quarters and nine
periods ended September 5, 1997 and September 6, 1996 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 was recorded as other income in the second quarter of
1996.
(4) NEWLY ISSUED ACCOUNTING STANDARDS
The Company will implement the provisions of Financial Accounting Standards
Board No. 128, Earnings Per Share, effective with the Company's fiscal year
ending December 26, 1997. The Company expects that the implementation of this
new accounting standard will not have a material impact on the reported earnings
per share.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 130 is effective for financial statements issued for
periods beginning after December 15, 1997. The Company has not determined the
impact of SFAS No. 130 on its consolidated financial statements.
6
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In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS No. 131 is effective for
financial statements issued for periods beginning after December 15, 1997. The
Company has not determined the impact of SFAS No. 131 on its consolidated
financial statements.
(5) STOCK SPLIT
On August 27, 1997, a three-for-two stock split in the form of a 50 percent
stock dividend was distributed. All per share amounts in the Company's
consolidated financial statements herein have been adjusted accordingly.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE QUARTERS AND NINE PERIODS ENDED SEPTEMBER 5, 1997 AND
SEPTEMBER 6, 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 $26.2 million, or 12.6%, from $207.5
million in the third quarter of 1996 to $233.7 million in the third quarter of
1997. For the nine periods ended September 5, 1997 and September 6, 1996,
service revenues increased by $76.6 million, or 12.6%, from $608.4 million in
1996 to $685.0 million in 1997.
Domestic Service Revenues -
The Company's domestic service revenues increased by $17.3 million, or 10.0%,
from $172.2 million in the third quarter of 1996 to $189.5 million in the third
quarter of 1997. For the nine periods ended September 5, 1997 and September 6,
1996, domestic service revenues increased by $42.9 million, or 8.4%, from $509.2
million in 1996 to $552.1 million in 1997. The increase in the third quarter
reflects the revenues of acquired systems integration businesses of $3.7 million
and service revenue increases of $13.6 million. The increase in the nine
periods reflects the revenues of acquired systems integration businesses of
$12.7 million and service revenue increases of $30.2 million.
International Service Revenues -
Service revenues of the Company's international operations increased by $8.9
million, or 25.2%, from $35.3 million in the third quarter of 1996 to $44.2
million in the third quarter of 1997. For the nine periods ended September 5,
1997 and September 6, 1996, service revenues of the Company's international
operations increased by $33.7 million, or 34.0%, from $99.2 million in 1996 to
$132.9 million in 1997. The increase in the third quarter reflects the revenues
of acquired businesses of $6.8 million and $2.1 million of net additional
business. The increase for the nine periods reflects the revenues of acquired
businesses of $22.6 million, $11.0 million of net additional business and
foreign currency exchange increases of $0.1 million.
Cost of Services and Gross Profit -
The Company's cost of services increased by $24.1 million, or 13.4%, from $179.9
million in the third quarter of 1996 to $204.0 million in the third quarter of
1997. Cost of services in the first nine periods of 1996 increased by $67.8
million, or 12.7%, from $533.7 million in 1996 to $601.5 million in 1997. The
increase in cost of services for the third quarter reflects payroll and related
expenses accompanying the acquired businesses and increased service revenues
discussed above, increased insurance costs, as well as increased costs in the
Company's international and systems integration businesses. Increased costs in
the Company's systems integration businesses occurred primarily as a result of
the ongoing consolidation of the Company's acquired system integration
businesses into a national organization pursuant to the Company's strategic
plan. Increased costs also were incurred as a result of the Company's
realignment of certain international operations.
Gross profit as a percentage of service revenues decreased from 13.3% in the
third quarter of 1996 to 12.7% in the third quarter of 1997. For the nine
periods ended September 5, 1997 and September 6, 1996, the gross profit
percentage decreased from 12.3% in 1996 to 12.2% in 1997. The decrease occurred
as a result of lower gross margins in the Company's system integration
8
<PAGE>
operations and international operations occurring primarily as a result of the
increased costs discussed above, partially offset by a billing adjustment with a
major customer.
Operating Expenses -
Operating expenses increased by $0.5 million, or 2.6%, from $19.1 million in the
third quarter of 1996 to $19.6 million in the third quarter of 1997. For the
nine periods ended September 5, 1997 and September 6, 1996, operating expenses
increased by $5.0 million, or 9.4%, from $53.4 million in 1996 to $58.4 million
in 1997. As a percentage of service revenues, operating expenses were 8.4% and
8.5% respectively, for the quarter and nine periods ended September 5, 1997, and
9.2% and 8.8%, respectively, for the comparable 1996 periods. Operating expenses
also reflect costs incurred to realign certain international operations.
Amortization -
Amortization of intangible assets increased by $0.1 million from $2.1 million in
the third quarter of 1996 to $2.2 million in the third quarter of 1997. For the
nine periods ended September 5, 1997 and September 6, 1996, amortization
increased $0.2 million, from $6.4 million in 1996 to $6.6 million in 1997.
These increases reflect additional amortization of intangible assets arising
from 1996 and 1997 acquisitions.
Operating Profit -
Operating profit was $8.0 million, or 3.4% of service revenues, for the third
quarter of 1997 as compared to $6.3 million, or 3.1% of service revenues, for
the same period last year. For the nine periods ended September 5, 1997,
operating profit was $18.4 million, or 2.7%, of service revenues, as compared to
$15.0 million, or 2.5% of service revenues, in the corresponding 1996 period.
Operating profit increased as a percentage of revenues primarily due to a
decrease in operating expenses as a percentage of revenues.
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 was recorded as other income in the second quarter of
1996.
Income Taxes -
The effective tax rate for the third quarter of 1997 was 53.4% as compared to
49.0% in 1996. The effective tax rate for the nine periods ended September 5,
1997 was 49.9% as compared to 49.1% in 1996. The higher tax rates in 1997 are
primarily attributable to realignment costs and losses in certain international
operations for which there are no corresponding tax benefits, partially offset
by the recognition of job-related tax credits that are newly available to the
Company in 1997.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
At September 5, 1997, the Company had $8.0 million in cash, a decrease of $25.8
million from December 27, 1996; and $8.0 million in marketable securities, a
$0.5 million decrease from December 27, 1996. Net cash provided by operating
activities of $8.6 million was reduced by $25.0 million of net cash payments
relating to investing activities and $9.4 million of net cash payments relating
to financing activities. The Company's principal investing activities during
the
9
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first nine periods of 1997 were acquisitions ($21.8 million), purchases of
computer and other equipment ($3.7 million) and net redemptions of marketable
securities ($0.5 million). The Company's principal financing activities during
the first nine periods of 1997 were payment of an annual principal installment
of $8.6 million reducing the Company's long-term debt, $1.1 million of payments
on the revolving line of credit and $0.3 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 and upgrade systems as required.
These activities will continue for the foreseeable future.
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 Senior Notes. The principal and
interest payments due in June 1997 occurred in the Company's third fiscal
quarter. A semi-annual interest payment of approximately $1.3 million related
to the long-term debt is due in December 1997.
The Company has an unsecured revolving credit facility with a group of banks.
On June 27, 1997, the facility was amended to increase the available borrowings
from up to $70.0 million to up to $100.0 million, of which $50.0 million may be
letters of credit. No cash borrowings have been made during the first nine
periods of 1997. At September 5, 1997 there were DM 16.0 million ($8.9 million)
of cash borrowings outstanding under the revolving line of credit and $34.5
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
regular operating and capital requirements during the next 12 months. The
Company also has access to capital markets, if necessary, to raise funds for
acquisitions and other investments for business growth.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Second Amendment to Revolving Credit Agreement dated as of June 27,
1997
11. Computation of Earnings Per Share (Unaudited)
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
10
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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: October 16, 1997 BY: /s/ JAMES P. McCLOSKEY
----------------------------------
James P. McCloskey
ITS: Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: October 16, 1997 BY: /s/ STEVEN A. LINDSEY
----------------------------------
Steven A. Lindsey
ITS: Vice President and Controller
(Principal Accounting Officer)
11
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EXHIBIT 10.1
PINKERTON'S, INC.
SECOND AMENDMENT TO
REVOLVING CREDIT AGREEMENT
This SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "AMENDMENT")
is dated as of June 27, 1997 and entered into by and among Pinkerton's, Inc., a
Delaware corporation (the "COMPANY"), the Designated Subsidiaries (as defined in
the Credit Agreement referred to below), the financial institutions listed on
the signature pages hereof (the "LENDERS") and Citicorp USA, Inc., as agent for
the Lenders (the "AGENT"), and, for purposes of Section 5 hereof, the Subsidiary
Guarantors listed on the signature pages hereof, and is made with reference to
that certain Revolving Credit Agreement dated as of November 21, 1995 as amended
to the date hereof (the "CREDIT AGREEMENT"), by and among the Company, the
Designated Subsidiaries, the Lenders and the Agent. Capitalized terms used
herein without definition shall have the same meanings herein as set forth in
the Credit Agreement.
RECITALS
WHEREAS, the Company, the Designated Subsidiaries and the Lenders have
entered into the Credit Agreement, pursuant to which certain credit facilities
were extended to the Company and the Designated Subsidiaries;
WHEREAS, the Company wishes to finance its acquisition of the assets of
the Enterprise Accounts Division of Sensormatic Electronics Corporation in part
through the Credit Agreement; and
WHEREAS, the Company, the Designated Subsidiaries, and the Lenders
desire to amend the Credit Agreement to (i) increase the Commitment from $70
million to $100 million; (ii) increase the Senior Debt allowed from $42,850,000
to $100,000,000, and (iii) make certain other amendments as set forth below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
<PAGE>
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO ARTICLE I: DEFINITIONS AND ACCOUNTING TERMS
----------------------------------------------------------
A. Section 1.01 of the Credit Agreement is hereby amended by deleting
the definition of "Financial Institution" therein in its entirety and
substituting the following therefor:
"'FINANCIAL INSTITUTION' means the financial institutions listed on
Schedule A of the Second Amendment to the Credit Agreement."
B. Section 1.01 of the Credit Agreement is hereby amended by deleting
the definition of "Senior Notes" in its entirety and substituting the following
therefor:
"'SENIOR NOTES' means the $60,000,000 aggregate principal amount of
10.35% Senior Notes due June 15, 2000 issued by the Company pursuant to
the Senior Note Purchase Agreement and any Senior Notes issued by the
Company pursuant to the New Note Purchase Agreement."
C. Section 1.01 of the Credit Agreement is hereby amended by adding a
new definition as follows:
"'NEW NOTE PURCHASE AGREEMENT' means one or more note purchase
agreements entered into between the Company and purchasers of the
Company's unsecured senior notes, which note purchase agreements shall
contain principal, interest and repayment terms as the Company and such
purchasers shall agree upon, and other covenants and conditions no more
restrictive on the Company and its Subsidiaries than the terms,
covenants and conditions set forth in the Senior Note Purchase
Agreement, and which note purchase agreement shall be satisfactory in
form and substance to the Majority Lenders, such approval of the
Majority Lenders not to be unreasonably withheld."
1.2 AMENDMENTS TO ARTICLE II: AMOUNTS AND TERMS OF THE ADVANCES
------------------------------------------------------------
A. Subsection 2.01(a) of the Credit Agreement is hereby amended by
deleting "on the signature pages hereof" and substituting "on Schedule A of the
Second Amendment to the Credit Agreement" therefor.
2
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1.3 AMENDMENTS TO ARTICLE V: COVENANTS OF THE COMPANY
-------------------------------------------------
A. Subsection 5.02(b)(ii) of the Credit Agreement is hereby amended
by deleting "$42,850,000" and substituting "$100,000,000" therefor.
B. Subsection 5.02(e)(iii) of the Credit Agreement is hereby amended
by (a) adding the following after "Persons": "(or, in the case of an acquisition
of assets, an operating division of a Person)" and (b) adding the following
after "$50,000,000": "provided that such amount for the Company's fiscal year
ending December 26, 1997 shall be $100,000,000 if (and only if) the Company
completes the acquisition of substantially all of the assets of the Enterprise
Accounts Division of Sensormatic Electronics Corporation in such fiscal year.
C. Subsection 5.02(i) of the Credit Agreement is hereby amended by
replacing the period at the end of said section by a comma, and adding the
following after such comma:
"or enter into or otherwise agree to any amendment or other variation
of the New Note Purchase Agreement that would make the New Note
Purchase Agreement more restrictive or would otherwise materially
adversely affect the interests of the Lenders or the Issuing Lender
under this Agreement."
SECTION 2. REALLOCATION OF COMMITMENTS AND A ADVANCES
On the Second Amendment Effective Date (as defined below), each Lender
that has, after giving effect to this Amendment, a larger percentage share of
the Aggregate Commitments than it had prior to the effectiveness of this
Amendment will, through the Agent, make a payment to the Lenders with smaller
percentage shares of the Aggregate Commitments after giving effect to this
Amendment, such that each Lender's pro rata share of outstanding A Advances and
Letter of Credit Usage is reallocated in accordance with such Lender's pro rata
share of the new Aggregate Commitments. Prior to the Effective Date, the Agent
will notify each Lender of the amount to be paid or received by it pursuant to
this Section 2 on the Effective Date. In the event that any such payment of any
A Advance that is a Eurocurrency Rate Advance occurs on a date other than the
end of the Eurocurrency Rate Interest Period for such Advance, the Company will
indemnify each Lender paying and/or receiving such amounts against any loss (not
including loss of anticipated profits), cost or expense incurred by such Lender
as a result of such payment.
SECTION 3. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "SECOND
AMENDMENT EFFECTIVE DATE"):
3
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A. On or before the Second Amendment Effective Date, the Company
shall deliver to Lenders (or to Agent for Lenders with sufficient originally
executed copies, where appropriate, for each Lender and its counsel) the
following, each, unless otherwise noted, dated the Second Amendment Effective
Date:
1. Certified copies of its Certificate of Incorporation, together
with a good standing certificate from the Secretary of State of the State of
Delaware, each dated a recent date prior to the Second Amendment Effective
Date;
2. Copies of its Bylaws, certified as of the Second Amendment
Effective Date by its corporate secretary or an assistant secretary;
3. Resolutions of its Board of Directors approving and authorizing
the execution, delivery, and performance of this Amendment certified as of
the Second Amendment Effective Date by its corporate secretary or an
assistant secretary as being in full force and effect without modification
or amendment;
4. Signature and incumbency certificates of its officers executing
this Amendment; and
5. Executed copies of this Amendment.
B. The Lenders and their respective counsel shall have received
originally executed copies of the favorable written opinion of C. Michael
Carter, Esq., counsel for the Company, in form and substance reasonably
satisfactory to Agent and its counsel, dated as of the Second Amendment
Effective Date and setting forth substantially the matters in the opinions
designated in Annex A to this Amendment and as to such other matters as the
Agent acting on behalf of the Lenders may reasonably request.
C. On or before the Second Amendment Effective Date, all corporate
and other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Agent, acting on behalf of the Lenders, and its counsel shall
be satisfactory in form and substance to the Agent and such counsel, and the
Agent and such counsel shall have received all such counterpart originals or
certified copies of such documents as the Agent may reasonably request.
4
<PAGE>
SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Each of the Company and the
Designated Subsidiaries has all requisite corporate power and authority to enter
into this Amendment and to carry out the transactions contemplated by, and
perform its obligations under, the Credit Agreement as amended by this Amendment
(the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of the Company and the Designated
Subsidiaries.
C. NO CONFLICT. The execution and delivery by the Company and the
Designated Subsidiaries of this Amendment and the performance by the Company and
the Designated Subsidiaries of the Amended Agreement do not and will not (i)
violate any provision of any law or any governmental rule or regulation
applicable to Company or any of its Subsidiaries, the Certificate or Articles of
Incorporation or Bylaws of the Company or any of its Subsidiaries or any order,
judgment or decree of any court or other agency of government binding on Company
or any of its Subsidiaries, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of the Company or any of its Subsidiaries, (iii) result
in or require the creation or imposition of any Lien upon any of the properties
or assets of the Company or any of its Subsidiaries (other than Liens created
under any of the Loan Documents in favor of the Agent on behalf of the Lenders),
or (iv) require any approval of stockholders or any approval or consent of any
Person under any Contractual Obligation of Company or any of its Subsidiaries
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Company
and the Designated Subsidiaries of this Amendment and the performance by the
Company and the Designated Subsidiaries of the Amended Agreement do not and will
not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any federal, state or other governmental authority
or regulatory body.
E. BINDING OBLIGATION. This Amendment and the Amended Agreement have
been duly executed and delivered by the Company and the Designated Subsidiaries
and are the legally valid and binding obligations of the Company and the
Designated Subsidiaries, enforceable against the Company and the Designated
Subsidiaries in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable principles relating
to enforceability.
5
<PAGE>
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article IV of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the Second Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.
SECTION 5. ACKNOWLEDGEMENT AND CONSENT
Each of the Subsidiary Guarantors is a party to a Subsidiary Guaranty
and such Subsidiary Guarantor has guarantied the Obligations.
Each Subsidiary Guarantor hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Amendment and consents to
the amendment of the Credit Agreement effected pursuant to this Amendment. Each
Subsidiary Guarantor hereby confirms that the Subsidiary Guaranty to which it is
a party or otherwise bound will continue to guaranty to the fullest extent
possible the payment and performance of all "Subsidiary Guarantied Obligations"
as such term is defined in the applicable Subsidiary Guaranty, including without
limitation the payment and performance of all such "Subsidiary Guarantied
Obligations" in respect of the Obligations of Company and the Designated
Subsidiaries now or hereafter existing under or in respect of the Amended
Agreement.
Each Subsidiary Guarantor acknowledges and agrees that Subsidiary
Guaranty to which it is a party or otherwise bound shall continue in full force
and effect and that all of its obligations thereunder shall be valid and
enforceable and shall not be impaired or limited by the execution or
effectiveness of this Amendment. Each Subsidiary Guarantor represents and
warrants that all representations and warranties contained in the Amended
Agreement and the Subsidiary Guaranty to which it is a party or otherwise bound
are true, correct and complete in all material respects on and as of the Second
Amendment Effective Date to the same extent as though made on and as of that
date, except to the extent such representations and warranties specifically
relate to an earlier date, in which case they were true, correct and complete in
all material respects on and as of such earlier date.
Each Subsidiary Guarantor acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this Amendment,
such Subsidiary Guarantor is not required by the terms of the Credit Agreement
or any other Loan Document to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the Credit Agreement,
this Amendment or any other Loan Document shall be deemed to require the consent
of such Subsidiary Guarantor to any future amendments to the Credit Agreement.
6
<PAGE>
SECTION 6. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the Second Amendment Effective Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference
in the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement shall
mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of Agent
or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in Section 9.04 of the Credit Agreement incurred by Agent
and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be paid by the Company in accordance with
Section 9.04.
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment shall become
effective upon the execution of a counterpart hereof by (i) the Majority
Lenders, (ii) each Lender whose
7
<PAGE>
Commitment will be increased as a result of this Amendment, and (iii) each of
the other parties hereto and receipt by Company and Agent of written or
telephonic notification of such execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
PINKERTON'S, INC.
By: /s/ James P. McCloskey
----------------------------
Title: EVP & CFO
-------------------------
PINKERTON'S GMBH
By: /s/ James P. McCloskey
--------------------------------
Title: MANAGING DIRECTOR
-----------------------------
PINKERTON NORTH ATLANTIC LIMITED
By: /s/ James P. McCloskey
--------------------------------
Title: DIRECTOR
-----------------------------
WKD PINKERTON SECURITY SERVICES GMBH & CO. KG
By PINKERTON'S GMBH
general partner
By: /s/ James P. McCloskey
---------------------------------
Title: MANAGING DIRECTOR
------------------------------
PINKERTON MANAGEMENT CORPORATION (for purposes of
Section 3 only) as a Subsidiary Guarantor
By: /s/ Gary J. Hasenbank
--------------------------------
Title: VICE PRESIDENT
------------------------------
PINKERTON SERVICE CORPORATION (for purposes of
Section 3 only) as a Subsidiary Guarantor
By: /s/ Gary J. Hasenbank
-----------------------------
Title: VICE PRESIDENT
--------------------------
CITICORP USA., INC., AS A LENDER AND AS AGENT
By: /s/ [illegible]
---------------------------------
Title: ATTORNEY-IN-FACT
------------------------------
CITIBANK, N.A., AS ISSUING LENDER
By: /s/ Marjorie Futornick
----------------------------------
Title: VICE PRESIDENT
-------------------------------
BANK OF MONTREAL, AS A LENDER
By: /s/ [illegible]
---------------------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------------
DRESDNER BANK AG, AS A LENDER
New York and Grand Cayman Branches
By: /s/ Thomas J. Nadramia /s/ Brigitte Sacin
------------------------------------------
Title: VICE PRESIDENT ASSISTANT TREASURER
---------------------------------------
PNC BANK, NATIONAL ASSOCIATION, AS A LENDER
By: /s/ [illegible]
-----------------------------
Title: VICE PRESIDENT
--------------------------
UNION BANK OF CALIFORNIA, N.A., AS A LENDER
By: /s/ Linda L. Beaven
------------------------------
Title: VICE PRESIDENT
---------------------------
9
<PAGE>
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 Nine Periods Ended
------------------------------------- -------------------------------------
SEPTEMBER 5, 1997 September 6, 1996 September 5, 1997 September 6, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net income $ 3,378 3,031 $ 8,074 $ 7,787
======= ======== ======= =======
Weighted average number of
common shares outstanding 12,563 12,534 12,552 12,525
Dilutive effect of outstanding
stock options 641 272 488 228
------- -------- ------- -------
Weighted average number of
common shares, as adjusted,
for calculation of earnings
per share 13,204 12,806 13,040 12,753
======= ======== ======= =======
Net income per common share $ .26 $ .24 $ .62 $ .61
======= ======== ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-27-1996 SEP-05-1997
<PERIOD-START> DEC-30-1995 DEC-28-1996
<PERIOD-END> DEC-27-1996 SEP-05-1997
<CASH> 33,761 7,969
<SECURITIES> 8,460 8,000
<RECEIVABLES> 137,055 151,158
<ALLOWANCES> 2,572 2,889
<INVENTORY> 3,799 3,080
<CURRENT-ASSETS> 199,190 182,165
<PP&E> 41,795 46,081
<DEPRECIATION> 26,818 31,001
<TOTAL-ASSETS> 315,281 316,620
<CURRENT-LIABILITIES> 94,731 102,448
<BONDS> 37,313 25,997
0 0
0 0
<COMMON> 74,895 75,224
<OTHER-SE> 55,486 61,098
<TOTAL-LIABILITY-AND-EQUITY> 315,281 316,620
<SALES> 906,247 684,993
<TOTAL-REVENUES> 906,247 684,993
<CGS> 791,877 601,525
<TOTAL-COSTS> 791,877 601,525
<OTHER-EXPENSES> 86,994 64,502
<LOSS-PROVISION> 1,635 540
<INTEREST-EXPENSE> 2,253 2,312
<INCOME-PRETAX> 23,488 16,114
<INCOME-TAX> 11,038 8,040
<INCOME-CONTINUING> 12,450 8,074
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,450 8,074
<EPS-PRIMARY> .97 .62<F1>
<EPS-DILUTED> .97 .62
<FN>
<F1>EARNINGS PER SHARE OF THE REGISTRANT HAVE BEEN RESTATED TO REFLECT A
THREE-FOR-TWO STOCK SPLIT ON AUGUST 27, 1997.
</FN>
</TABLE>
