<PAGE>
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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 March 20, 1998
---------------------------------------------
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 April 17, 1998 was 12,616,820.
================================================================================
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Condensed Financial Statements (Unaudited)
Consolidated Balance Sheets-
March 20, 1998 and December 26, 1997..................................................... 3
Consolidated Statements of Earnings-
For the Quarters Ended March 20, 1998 and March 21, 1997................................. 4
Consolidated Statements of Cash Flows-
For the Quarters Ended March 20, 1998 and March 21, 1997................................ 5
Notes to Consolidated Financial Statements................................................ 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 8-9
PART II. OTHER INFORMATION
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>
MARCH 20,
1998 DECEMBER 26,
(UNAUDITED) 1997
ASSETS --------------------- ---------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,894 $ 24,243
Investment in marketable securities 17,000 -
Accounts receivable (includes unbilled amounts of
$31,535 in 1998 and $32,397 in 1997) 149,828 149,668
Less allowance for doubtful receivables 3,056 2,948
-------- --------
146,772 146,720
-------- --------
Inventory 4,911 4,190
Prepaid expenses 8,186 8,111
Deferred income taxes 6,605 6,129
-------- --------
Total current assets 192,368 189,393
-------- --------
Equipment and leasehold improvements, net of
accumulated depreciation and amortization of
$30,345 in 1998 and $29,685 in 1997 17,682 16,745
Other assets:
Intangible assets, net 65,599 68,210
Deferred income taxes 26,828 24,924
Other 26,395 24,924
-------- --------
118,822 118,058
-------- --------
$328,872 $324,196
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,669 $ 14,021
Accrued liabilities 79,570 80,198
Income taxes payable 4,240 -
Current maturities of long-term debt 8,575 8,575
-------- --------
Total current liabilities 106,054 102,794
-------- --------
Accrued retirement benefits and other non-current liabilities 53,572 52,754
Long-term debt, less current maturities 24,266 25,019
Commitments and contingencies
Stockholders' equity:
Common stock 12 12
Additional paid-in capital 75,677 75,329
Accumulated other comprehensive income (7,830) (7,368)
Retained earnings 77,121 75,656
-------- --------
144,980 143,629
-------- --------
$328,872 $324,196
======== ========
</TABLE>
See accompanying notes to condensed 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
--------------------------------------------------
MARCH 20, 1998 March 21, 1997
------------------------ ------------------------
<S> <C> <C>
Service revenues $231,295 $220,468
Cost of services 204,280 194,333
-------- --------
Gross profit 27,015 26,135
Operating expenses 21,855 18,950
Amortization of intangible assets 1,890 2,620
-------- --------
Operating profit 3,270 4,565
Other (income) deductions:
Interest income (245) (333)
Interest expense 850 1,161
-------- --------
605 828
-------- --------
Income before income taxes 2,665 3,737
Provision for income taxes 1,200 1,756
-------- --------
Net income $ 1,465 $ 1,981
======== ========
Basic earnings per share $ .12 $ .16
======== ========
Diluted earnings per share $ .11 $ .15
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
----------------------------------------------------
MARCH 20, 1998 March 21, 1997
------------------------- -------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,465 $ 1,981
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets 1,890 2,620
Depreciation and other amortization 1,837 1,670
Provision for losses on doubtful receivables 380 243
Deferred income taxes (2,380) (596)
Changes in assets, liabilities and stockholders' equity:
Accounts receivable (432) 656
Inventory (721) 292
Prepaid expenses and taxes (75) 1,329
Other assets (862) (1,079)
Accounts payable (352) (1,915)
Accrued and other non-current liabilities 155 (1,769)
Income taxes payable 4,240 -
Foreign currency revaluation of net assets 101 (475)
-------- --------
Net cash provided by operating activities 5,246 2,957
-------- --------
INVESTING ACTIVITIES:
Purchase of marketable securities (17,000) (3,081)
Sales/redemptions of marketable securities - 6,452
Purchase of equipment and leasehold improvements (3,381) (1,827)
Payments for net assets of acquired businesses, net
of cash acquired - (21,549)
-------- --------
Net cash used in investing activities (20,381) (20,005)
-------- --------
FINANCING ACTIVITIES:
Principal payments on long-term debt (562) -
Exercise of stock options 348 50
-------- --------
Net cash (used in) provided by financing activities (214) 50
-------- --------
Net decrease in cash and cash equivalents (15,349) (16,998)
Cash and cash equivalents at beginning of year 24,243 33,761
-------- --------
Cash and cash equivalents at end of period $ 8,894 $ 16,763
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PINKERTON'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) PRESENTATION OF FINANCIAL INFORMATION
The condensed 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 financial position and the
results of operations as of and for the fiscal quarters ended March 20, 1998 and
March 21, 1997. 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 condensed 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 26, 1997 and the Company's 1997 Annual Report to Stockholders. The
1997 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 26, 1997 and for
the year then ended. The results of operations for the fiscal quarters ended
March 20, 1998 and March 21, 1997 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) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
---------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA MARCH 20, 1998 MARCH 21, 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
NUMERATOR:
Net income $ 1,465 $ 1,981
================================
DENOMINATOR:
Denominator for basic earnings per share -
weighted average common shares outstanding 12,589 12,545
Effect of dilutive securities:
Employee stock options 663 388
--------------------------------
Denominator for diluted earnings per share -
weighted average common shares and dilutive
potential common shares outstanding 13,252 12,933
================================
Basic earnings per share $ .12 $ .16
Diluted earnings per share $ .11 $ .15
================================
</TABLE>
6
<PAGE>
For the quarters ended March 20, 1998 and March 21, 1997, employee stock options
relating to 26,000 and 465,000 shares respectively, were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common shares, and therefore,
the effect would be antidilutive.
(4) COMPREHENSIVE INCOME
The Company adopted the reporting required in SFAS No. 130, Reporting
Comprehensive Income. The following table shows the Company's comprehensive
income:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-------------------------------------------
IN THOUSANDS MARCH 20, 1998 MARCH 21, 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $1,465 $1,981
Other comprehensive income, net of tax:
Foreign currency translation adjustments (254) (757)
-------------------------------------------
Comprehensive income $1,211 $1,224
===========================================
</TABLE>
(5) SUBSEQUENT EVENTS
Subsequent to the close of the Company's first quarter, the Company signed a
Letter of Intent to relocate its headquarters from Encino, California to
eliminate space constraints and reduce future costs. Although no definitive
agreement has been signed to date, an agreement is expected to be finalized
during the second quarter, in which case current lease termination and moving
costs estimated at approximately $2.0 million would impact second quarter
earnings.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 20, 1998 AND MARCH 21, 1997.
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 $10.8 million, or 4.9%, from $220.5
million in the first quarter of 1997 to $231.3 million in the first quarter of
1998.
Domestic Service Revenues -
The Company's domestic service revenues increased by $14.3 million, or 8.1%,
from $176.7 million in the first quarter of 1997 to $191.0 million in the first
quarter of 1998. This increase reflects revenues from additional business.
International Service Revenues -
Service revenues of the Company's international operations decreased by $3.5
million, or 8.0%, from $43.8 million in the first quarter of 1997 to $40.3
million in the first quarter of 1998. This decrease reflects reductions arising
from currency fluctuations of $1.3 million and a $2.2 million decrease resulting
primarily from lower revenues at the Company's United Kingdom subsidiary.
Cost of Services and Gross Profit -
The Company's cost of services increased by $10.0 million, or 5.1%, from $194.3
million in the first quarter of 1997 to $204.3 million in the first quarter of
1998. This increase was primarily due to payroll and related expenses
accompanying the increase in service revenues, noted above, higher insurance and
risk costs, and ongoing operations issues at the Company's United Kingdom
subsidiary.
Gross profit as a percentage of service revenues decreased from 11.9% in the
first quarter of 1997 to 11.7% in the first quarter of 1998.
Operating Expenses -
Operating expenses increased by $2.9 million, or 15.3%, from $19.0 million in
the first quarter of 1997 to $21.9 million in the first quarter of 1998. As a
percentage of service revenues, operating expenses were 9.4% for the quarter
ended March 20, 1998 and 8.6% for the comparable 1997 period. Higher operating
expenses resulted from operating expenses at the Company's systems integration
businesses which typically experience higher operating expenses than the
Company's security service operations, a provision for closing an administrative
office in Germany to reduce future facility costs, and the costs related to
installation of new enterprise systems.
Amortization -
Amortization of intangible assets decreased by $0.7 million from $2.6 million in
the first quarter of 1997 to $1.9 million in the first quarter of 1998. This
decrease reflects a change in the amortization of the WKD acquisition made
subsequent to the first quarter of 1997 and the completion during the latter
part of 1997 of the amortization of several intangible assets, partially offset
by additional amortization from 1997 acquisitions.
8
<PAGE>
Operating Profit -
Operating profit was $3.3 million, or 1.4% of service revenues, for the first
quarter of 1998 as compared to $4.6 million, or 2.1% of service revenues, for
the same period last year. Operating profit decreased as a percentage of
revenues due to a decrease in the gross profit margin and an increase in
operating expenses discussed above.
Income Taxes -
The effective tax rate for the first quarter of 1998 was 45.0% as compared to
47.0% in 1997. The lower tax effective tax rate was the result of the tax
benefit of foreign losses.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
At March 20, 1998, the Company had $8.9 million in cash, a decrease of $15.3
million from December 26, 1997; and $17.0 million in marketable securities, a
$17.0 million increase from December 26, 1997. Net cash provided by operating
activities of $5.3 million was reduced by $20.4 million of net cash payments
relating to investing activities and $0.2 million of net cash payments relating
to financing activities. The Company's principal investing activities during
the first quarter of 1998 were net purchases of marketable securities ($17.0
million) and the purchase of computer and other equipment ($3.4 million). The
Company's principal financing activities during the first quarter of 1998 were
$0.6 million of payments on the revolving line of credit and $0.4 million of
cash receipts related to the exercise of stock options.
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. Semi-annual interest
payments of approximately $1.3 million and $0.9 million related to the Senior
Notes are due in June and December 1998, respectively.
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.
Both of these activities will continue for the foreseeable future.
The Company has an unsecured revolving credit facility with a group of banks for
borrowings up to $100.0 million, of which $50.0 million may be letters of
credit. No cash borrowings have been made during the first quarter of 1998. At
March 20, 1998 there were DM 13.0 million ($7.1 million) of cash borrowings
outstanding under the revolving line of credit and $31.7 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 all planned operating and capital requirements. The
Company also has access to capital markets, if necessary, to raise funds for
working capital, capital spending and other investments for business growth.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve estimates, assumptions and
uncertainties, and accordingly, actual results could differ materially from
those expressed in the forward-looking statements. Such uncertainties include,
among others, the factors referred to in the Company's Annual Report on Form 10-
K for the fiscal year ended December 26, 1997.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
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: May 01, 1998 BY: /S/ JAMES P. McCLOSKEY
-------------------------------------
James P. McCloskey
ITS: Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 01, 1998 BY: /S/ STEVEN A. LINDSEY
--------------------------------------
Steven A. Lindsey
ITS: Vice President and Controller
(Principal Accounting Officer)
11
<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 3-MOS
<FISCAL-YEAR-END> DEC-26-1997 MAR-20-1998
<PERIOD-START> DEC-27-1996 DEC-27-1997
<PERIOD-END> DEC-26-1997 MAR-20-1998
<CASH> 24,243 8,894
<SECURITIES> 0 17,000
<RECEIVABLES> 149,668 149,828
<ALLOWANCES> 2,948 3,056
<INVENTORY> 4,190 4,911
<CURRENT-ASSETS> 189,393 192,368
<PP&E> 46,430 48,027
<DEPRECIATION> 29,685 30,345
<TOTAL-ASSETS> 324,196 328,872
<CURRENT-LIABILITIES> 102,794 106,054
<BONDS> 25,019 24,266
0 0
0 0
<COMMON> 75,341 75,689
<OTHER-SE> 68,288 69,291
<TOTAL-LIABILITY-AND-EQUITY> 324,196 328,872
<SALES> 1,001,889 231,295
<TOTAL-REVENUES> 1,001,889 231,295
<CGS> 877,016 204,280
<TOTAL-COSTS> 877,016 204,280
<OTHER-EXPENSES> 97,551 23,365
<LOSS-PROVISION> 885 380
<INTEREST-EXPENSE> 2,897 605
<INCOME-PRETAX> 23,540 2,665
<INCOME-TAX> 8,807 1,200
<INCOME-CONTINUING> 14,733 1,465
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,733 1,465
<EPS-PRIMARY> 1.17 .12
<EPS-DILUTED> 1.12 .11
</TABLE>
