<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
0-24780 33-73002-01
(Commission File Number) (Commission File Number)
PROTECTION ONE, INC. PROTECTION ONE ALARM MONITORING, INC.
(Exact Name of Registrant (Exact Name of Registrant
As Specified In its Charter) As Specified In its Charter)
DELAWARE DELAWARE
(State or Other Jurisdiction (State of Other Jurisdiction
Of Incorporation or Organization) Of Incorporation or Organization)
93-1063818 93-1064579
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
6011 BRISTOL PARKWAY, 6011 BRISTOL PARKWAY,
CULVER CITY, CALIFORNIA 90230 CULVER CITY, CALIFORNIA 90230
(Address of Principal Executive (Address of Principal Executive
Offices, Including Zip Code) Offices, Including Zip Code)
(310) 342-6300 (310) 342-6300
(Registrant's Telephone Number, (Registrant's Telephone Number,
Including Area Code) Including Area Code)
Indicate by check mark whether each of the registrants (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 such
registrants were required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 1, 2000, Protection One, Inc. had outstanding 127,029,361 shares
of Common Stock, par value $0.01 per share. As of such date, Protection One
Alarm Monitoring, Inc. had outstanding 110 shares of Common Stock, par value
$0.10 per share, all of which shares were owned by Protection One, Inc.
Protection One Alarm Monitoring, Inc. meets the conditions set forth in General
Instructions H(1)(a) and (b) for Form 10-Q and is therefore filing this form
with the reduced disclosure format set forth therein.
<PAGE>
EXPLANATORY NOTE
The undersigned hereby amend their quarterly report on Form 10-Q for the
quarterly period ended March 31, 2000 (filed on May 5, 2000), as follows:
(a) Note 5 to the financial statements included in Item 1 of Part I is
amended to change the amount of the debt reduction in the first
quarter to $407,689, as correctly reflected in the balance sheet as of
March 31,2000.
(b) The discussion of acquisition expenses in the section including the
comparison of operating results for the three months ended March 31,
2000 to March 31, 1999 is amended to change the number of customer
accounts acquired in the first quarter from 4,239 customers to 13,729
customers. The correct number of acquired accounts was used for
purposes of all attrition calculations.
(c) Part II is amended to delete the word "update" when used in the
headings appearing therein.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5 DEBT:
During the first quarter of 2000 the Company's outstanding debt decreased
by $407,689. The decrease resulted primarily from the $183,025 reduction of the
Senior Credit Facility and the extinguishment of debt securities received in the
sale of the European operations and related party transactions, as discussed in
Note 3. In March 2000, the Company used available cash to pay down an additional
$20,000 of the Senior Credit Facility and also purchased an additional $6,000
face value of the Senior Subordinated Discount Notes. The total first quarter
extraordinary gain from this extinguishment of debt and the extinguishment of
the debt securities received in the transactions with Westar Capital is $31,926,
net of tax of $17,191.
As of March 31, 2000, and December 31, 1999, total borrowings under the
Senior Credit Facility were $37,000 and $225,000, respectively. The remaining
availability under this facility as of March 31, 2000, and December 31, 1999 was
$78,000 and $25,000, respectively. The Company's ability to borrow under the
facility is subject to compliance with certain financial covenants, including a
leverage ratio of 5.75 to 1.0 and an interest coverage ratio of 2.10 to 1.0. At
March 31, 2000, these ratios were approximately 4.4 to 1.0 and 2.7 to 1.0,
respectively.
The indentures governing the Company's outstanding senior and subordinated notes
contain similar covenants with different calculations relating to the Company's
ability to incur indebtedness. The Company is in compliance with all covenants
contained in these indentures
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
We separate our business into three reportable segments: North America,
Multifamily, and through February 29, 2000, Europe. North America provides
security alarm monitoring services, which include sales, installation and
related servicing of security alarm systems in the United States and Canada.
Multifamily provides security alarm services to apartments, condominiums and
other multi-family dwellings. The Europe segment provided security alarm
services in Europe and was sold on February 29, 2000.
NORTH AMERICA SEGMENT
We present the table below for comparison of the North America operating
results for the periods presented. Next to each period's results of operations,
we provide the relevant percentage of total revenues so that you can make
comparisons about the relative change in revenues and expenses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
2000 1999
------------------------ --------------------------
Revenues: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Monitoring and related services.......... $93,167 96.4% $95,247 96.2%
Installation and rental.................. 3,511 3.6 3,770 3.8
------------ ---------- ------------- -----------
Total revenues........................... 96,678 100.0 99,017 100.0
Cost of revenues:
Monitoring and related services.......... 28,125 29.1 23,833 24.1
Installation and rental.................. 3,224 3.3 3,561 3.6
------------ ---------- ------------- -----------
Total cost of revenues................... 31,349 32.4 27,394 27.7
------------ ---------- ------------- -----------
Gross profit............................. 65,329 67.6 71,623 72.3
Selling, general and administrative
expenses................................. 26,261 27.2 21,889 22.1
Acquisition and transition expense......... 4,145 4.3 4,719 4.8
Amortization of intangibles and
depreciation expense..................... 50,843 52.6 35,223 35.5
Other charges.............................. 3,050 3.1 2,000 2.0
------------ ---------- ------------- -----------
Operating income (loss).................... $ (18,970) (19.6)% $7,792 7.9%
============ ========== ============= ===========
</TABLE>
2000 COMPARED TO 1999. We had a net decrease of 26,246 customers in the
first quarter of 2000 as compared to a net increase of 32,367 customers in the
first quarter of 1999. The average customer base for the first quarters of 2000
and 1999 were 1,191,519 and 1,212,231, respectively, or a decrease of 20,712
customers. The decrease in customers is primarily attributable to the
significant decrease in the number of accounts being purchased from dealers
which has not yet been offset by growth from our other customer acquisition
strategies.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Beginning Balance, January 1,....................................... 1,204,642 1,196,047
Additions, net of holdback put backs................................ 9,280 66,269
Customer losses, net of holdback put backs.......................... (35,526) (33,902)
-------------- -------------
Ending Balance, March 31,........................................... 1,178,396 1,228,414
============== =============
Annualized quarterly attrition...................................... 11.9% 11.2%
============== =============
</TABLE>
<PAGE>
MONITORING AND RELATED SERVICE REVENUES decreased approximately $2.3
million in the first quarter of 2000 as compared to the first quarter of 1999
due to the smaller average customer base. The average monthly revenue per
account based on the average number of customers for the respective period was
$26.06 for 2000 and $26.19 for 1999. Although we have had some price increases
during the past year, an increase in customer credits issued in the first
quarter of 2000 more than offset the higher monthly rates. We issued additional
customer credits to maintain customer goodwill because of billing problems
encountered when we implemented a new billing and collections system in our
Beaverton monitoring station. We believe these problems have been corrected and
therefore expect the level of credits to decrease in the second quarter of 2000.
INSTALLATION AND RENTAL REVENUES consist primarily of revenues generated
from our internal installations of new alarm systems. These revenues decreased
by approximately $0.26 million or 6.9% from the first quarter of 1999.
COST OF MONITORING AND RELATED SERVICES REVENUES for the first quarter of
2000 increased by $4.3 million, or 18.0%, to $28.1 million from $23.8 million
for the first quarter of 1999. Compensation costs for the monitoring stations
increased by approximately $2.7 million due primarily to an increase in
personnel from approximately 1,090 to 1,300 employees. The increase in employees
is a direct result of our efforts to improve the level of customer service. In
addition, telecom costs increased $0.4 million, vehicle costs increased $0.6
million and parts and materials costs increased $0.8 million.
COST OF INSTALLATION AND RENTAL REVENUES was $0.34 million or 9.5% less
than in the first quarter of 1999. These costs as a percentage of installation
and rental revenues were approximately 92% for the first quarter of 2000 as
compared to approximately 94% for the first quarter of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $4.4 million from
$21.9 million in the first quarter of 1999 to $26.3 million in the first quarter
of 2000. The increase is generally comprised of an increase in bad debt and
collection expenses of approximately $2.1 million, and an increase of $1.6
million in subcontract expense primarily for outside information technology
support. We attribute these increases to problems encountered in connection with
the implementation of our new billing and collection software which started in
November 1999. We believe the significant problems have been resolved and that
these costs will decrease in the second quarter.
ACQUISITION EXPENSES generally decreased due to the reduced level of
account acquisitions in the first quarter of 2000 as compared to 1999. In the
first quarter of 1999 we acquired nearly 27,000 new accounts, over 90% of which
were through the dealer program. In the first quarter of 2000 we acquired 13,729
accounts, approximately 50% of which were through the dealer program. The most
significant decrease was third party monitoring expense which dropped from $1.9
million to $0.8 million. This decrease was a direct result of our concentrated
effort in late 1999 to move such accounts to our own monitoring stations. The
overall decrease was partially offset by increases in costs related to the old
dealer program of $1.9 million.
AMORTIZATION OF INTANGIBLES AND DEPRECIATION EXPENSE for the first quarter
of 2000 increased by $15.6 million, or 44.3%, to $50.8 million from $35.2
million in the first quarter of 1999. As discussed in our 1999 Annual Report on
Form 10-K, we changed our amortization method from a 10-year straight line
method to a 10-year declining balance method as of the third quarter in 1999.
Therefore, the amortization expense for the first quarter of 1999 was calculated
using a straight line method whereas the amortization expense for the first
quarter of 2000 is calculated using the declining balance method. Subscriber
amortization for these periods increased from $26.7 million for the first
quarter of 1999 to $32.4 million for the first quarter of 2000.
As discussed above, we also changed our estimate of the useful life of
goodwill from 40 years to 20 years. As a result, in amortization expense
increased $5.0 million from $6.0 million in the first quarter of 1999 to $11.0
million for the first quarter of 2000. Additionally, in the first quarter of
2000 depreciation expense increased $4.8 million from $2.6 million for the first
quarter of 1999 to $7.4 million in the first quarter of 2000. This increase is
due to accelerated depreciation of the general ledger and accounts receivable
systems installed in 1999. We have decided to move to another general ledger and
accounts receivable system in 2000 which we believe is better suited to our
needs. Depreciation charges for the old system have been accelerated so that no
remaining costs will be left unamortized when we move to the new systems later
in 2000.
OTHER CHARGES for the first quarter of 1999 consisted of officer's
severance costs of $2.0 million. For the first quarter of 2000, these charges
consist of $1.5 million for officer's severance and $1.55 million for expenses
relating to the sale of the European operations.
<PAGE>
INTEREST EXPENSE, NET for the first quarter was $18.4 million and $17.1
million for 2000 and 1999, respectively. During the first quarter of 1999,
borrowings under the Senior Credit Facility rose from $42.4 million to $124.0
million with interest rates as low as 6.2%. During the first quarter of 2000,
borrowings under the Senior Credit Facility decreased from $225.0 million to
$37.0 million at interest rates ranging from 7.8% to 8.4%. In the first quarter
of 1999 we accrued interest charges on the $350 million Senior Subordinated
Notes at 8.125%, however, since we have not completed the required exchange
offer, the interest rate relating to this debt increased to 8.625% in June 1999.
Total debt decreased during the first quarter of 2000 from $1,048.1 million to
$702.4 million.
MULTIFAMILY SEGMENT
We present the table below for comparison of the Multifamily operating
results for the periods presented. Next to each period's results of operations,
we provide the relevant percentage of total revenues so that you can make
comparisons about the relative change in revenues and expenses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------
2000 1999
------------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Monitoring and related services............................ $8,688 85.7% $8,580 85.8%
Installation and rental.................................... 1,453 14.3 1,416 14.2
------------ ----------- ---------- -----------
Total revenues............................................. 10,141 100.0 9,996 100.0
Cost of revenues:
Monitoring and related services............................ 1,935 19.1 1,676 16.8
Installation and rental.................................... 1,382 13.6 1,042 10.4
------------ ----------- ---------- -----------
Total cost of revenues..................................... 3,317 32.7 2,718 27.2
------------ ----------- ---------- -----------
Gross profit............................................... 6,824 67.3 7,278 72.8
Selling, general and administrative expenses................. 2,702 26.7 2,680 26.8
Amortization of intangibles and depreciation expense......... 3,834 37.8 2,297 23.0
------------ ----------- ---------- -----------
Operating income............................................. $288 2.8% $2,301 23.0%
============ =========== ========== ===========
</TABLE>
2000 COMPARED TO 1999. We increased our customer base a total of 6,719
customers, or 2.3%, from March 31, 1999 to March 31, 2000. The average customer
base was 295,982 for the first quarter of 2000 compared to 288,119 for the first
quarter of 1999. The change in Multifamily's customer base for the period is
shown below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Beginning Balance, January 1,....................................... 294,960 285,954
Additions, net of holdback put backs................................ 7,868 7,849
Customer losses, net of holdback put backs.......................... (5,825) (3,519)
=========== ===========
Ending Balance ..................................................... 297,003 290,284
=========== ===========
Annualized quarterly attrition...................................... 7.9% 4.9%
=========== ===========
</TABLE>
MONITORING AND RELATED SERVICES REVENUES for the first quarter increased by
$0.1 million, or 1.2%, to $8.7 million from $8.6 million for the first quarter
of 1999.
<PAGE>
COST OF MONITORING AND RELATED REVENUES for the first quarter of 2000
increased by $0.2 million, or 15.4% to $1.9 million from $1.7 million for the
first quarter of 1999. Monitoring and related service expenses as a percentage
of monitoring and related service revenues increased to 22.2% from 19.5% during
1999. The percentage increase is primarily related to an increase in salaries as
a result of the current competitive labor market.
COST OF INSTALLATION AND RENTAL REVENUES increased by $0.4 million or 32.6%
to $1.4 million in the first quarter of 2000 from $1.0 million in the first
quarter of 1999. Installation and rental cost of revenues increased primarily
due to the significant number of installations in 1999 which used less
sophisticated monitoring equipment than Multifamily's standard contracts,
combined with the increased use in 2000 of wireless systems which is expected to
reduce future service costs.
AMORTIZATION OF INTANGIBLES AND DEPRECIATION EXPENSE for the first quarter
of 2000 increased by $1.9 million, or 102.5% to $3.8 million in 1999 reflecting
a change in estimate of goodwill life to 20 years which will increase annual
goodwill amortization by approximately $5 million.
EUROPE SEGMENT
The results of operations for the first quarter of 2000 reflect only those
results through February 29, 2000. The operating results for the first quarter
of 1999 reflect activity for the three months ended March 31, 1999.
<TABLE>
<CAPTION>
TWO MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 29, MARCH 31,
-------------------------- -------------------------
2000 1999
-------------------------- -------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Monitoring and related services............................ $14,316 51.3% $23,417 59.2%
Installation and rental.................................... 13,588 48.7 16,117 40.8
------------- ----------- ------------ ----------
Total revenues............................................. 27,904 100.0 39,534 100.0
Cost of revenues:
Monitoring and related services............................ 3,702 13.3 4,187 10.6
Installation and rental.................................... 5,504 19.7 7,181 18.2
------------- ----------- ------------ ----------
Total cost of revenues..................................... 9,206 33.0 11,368 28.8
------------- ----------- ------------ ----------
Gross profit............................................... 18,698 67.0 28,166 71.2
Selling, general and administrative expenses................. 12,081 43.3 15,831 40.0
Acquisition and transition expense........................... 217 0.8 148 0.4
Amortization of intangibles and depreciation expense......... 5,420 19.4 5,486 13.9
------------- ----------- ------------ ----------
Operating income............................................. $980 3.5% $6,701 16.9%
============= =========== ============ ==========
</TABLE>
2000 Compared to 1999. The change in our customer base from January 1,
2000 through February 29, 2000 is shown below:
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
FEBRUARY 29,
------------
2000
-----------
<S> <C>
Beginning Balance, January 1,....................................... 123,599
Additions, net of holdback put backs................................ 5,718
Customer losses, net of holdback put backs.......................... (2,285)
-----------
Ending Balance ..................................................... 127,032
===========
Annualized attrition for two months ended February 29, 2000........ 10.9%
===========
</TABLE>
Revenues of approximately $4.5 million in the first two months of 2000 and
$9.5 million in the first quarter of 1999 were recognized as revenue as a result
of ongoing reductions in the liability under recourse obligations. In relation
to this revenue, we also recognized interest expense of approximately $1.0
million and $2.7 million and depreciation expense of approximately $0.8 million
and $1.6 million for the respective periods.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Information relating to legal proceedings is set forth in Note 6 of the
Notes to Consolidated Financial Statements included in Part I of this report,
which information is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibit is filed with this Current Report on
Form 10-Q or incorporated by reference.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
27.1 Financial Data Schedule.
---------
(b) During the quarter ended March 31, 2000, the Company filed five Reports on
Form 8-K. A Current Report on Form 8-K dated January 18, 2000, reported the
receipt of a waiver on Monitoring's Senior Credit Facility until January 31,
2000. A Current Report on Form 8-K dated January 26, 2000, reported Western
Resources reached agreement with its banks to eliminate the cross-default
provisions relating to the Company. A Current Report on Form 8-K dated February
1, 2000, reported the receipt of a waiver on Monitoring's Senior Credit Facility
until February 29, 2000. A current report on Form 8-K dated February 29, 2000,
reported the sale of the Company's European operations and certain investments
to Westar Capital. A Current Report on Form 8-K dated March 29, 2000, reported
fourth quarter and 1999 year-end earnings.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
Date: October 26, 2000 PROTECTION ONE, INC.
---------------------- PROTECTION ONE ALARM MONITORING, INC.
By: /s/ Anthony D. Somma
----------------------------
Anthony D. Somma
Chief Financial Officer
