WASHINGTON, D.C. 20549

 

FORM 10-Q

 

ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2004

 

or

 

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to           

 

1-12181-01		1-12181
(Commission File Number)		(Commission File Number)
PROTECTION ONE, INC.		PROTECTION ONE ALARM MONITORING, INC.
(Exact Name of Registrant As Specified In its Charter)		(Exact Name of Registrant As Specified In its Charter)
Delaware		Delaware
(State or Other Jurisdiction Of Incorporation or Organization)		(State of Other Jurisdiction Of Incorporation or Organization)
93-1063818		93-1064579
(I.R.S. Employer Identification No.)		(I.R.S. Employer Identification No.)
818 S. Kansas Avenue Topeka, Kansas 66612		818 S. Kansas Avenue Topeka, Kansas 66612
(Address of Principal Executive Offices, Including Zip Code)		(Address of Principal Executive Offices, Including Zip Code)
(785) 575-1707		(785) 575-1707
(Registrant’s Telephone Number, Including Area Code)		(Registrant’s Telephone Number, 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 ý  No o

 

Indicate by check mark whether each of the registrants is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý

 

As of August 10, 2004, Protection One, Inc. had outstanding 98,282,679 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.

 

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q and the materials incorporated by reference herein include “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995.  These forward-looking statements generally can be identified as such because the context of the statement includes words such as we “believe,” “expect,” “anticipate,” “will,” “should” or other words of similar import.  Similarly, statements herein that describe our objectives, plans or goals also are forward-looking statements.  Such statements include those made on matters such as our earnings and financial condition, litigation, accounting matters, our business, our efforts to consolidate and reduce costs, our customer account acquisition strategy and attrition, our efforts to implement new financial and human resources software, our liquidity and sources of funding and our capital expenditures.  All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.  We continue to face liquidity problems caused by our significant debt burdens and continuing net losses.  The consummation of the sale of its ownership interests in us by Westar Industries, Inc., a wholly owned subsidiary of Westar Energy, Inc., which we refer to collectively as Westar, our former majority owner that beneficially owned approximately 88% of our common stock, to POI Acquisition, L.L.C. and POI Acquisition I, Inc., entities formed by Quadrangle Capital Partners L.P., Quadrangle Select Partners L.P., Quadrangle Capital Partners-A L.P. and Quadrangle Master Funding Ltd., which we refer to collectively as Quadrangle, and the assignment of Westar’s rights and obligations as the lender under our revolving credit facility to POI Acquisition, L.L.C., has resulted in a $285.9 million non-cash charge against our income to establish a valuation allowance for deferred tax assets that we believe are not realizable, and the sale is expected to further materially adversely affect our financial position, results of operations and liquidity.  We may restructure our indebtedness in an out-of-court proceeding and/or seek the protection of federal bankruptcy laws to reorganize our debts.  In connection with a restructuring or reorganization of our indebtedness, the interests represented by the Company’s currently outstanding shares of common stock would likely be substantially diluted or cancelled in whole or in part.  Statements made in the Form 10-Q regarding the sale by Westar and its possible effects on us also constitute forward-looking statements.  The forward-looking statements included herein are made only as of the date of this report and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.  Please refer to “Risk Factors” in our Form 10-K for the year ended December 31, 2003 for more information regarding risks and uncertainties that may cause our actual results to differ materially from the results anticipated in our forward-looking statements.

 

Unless the context otherwise indicates, all references in this report to the “Company,” “Protection One,” “we,” “us” or “our” or similar words are to Protection One, Inc., its direct wholly owned subsidiary, Protection One Alarm Monitoring, Inc., and Monitoring’s wholly owned subsidiaries.  Protection One’s sole asset is, and Protection One operates solely through, Monitoring and Monitoring’s wholly owned subsidiaries.  Both Protection One and Monitoring are Delaware corporations organized in September 1991.

 

2

 

PART I

 

FINANCIAL INFORMATION

 

ITEM 1.                             FINANCIAL STATEMENTS

 

PROTECTION ONE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except for per share amounts)

(Unaudited)

 

		June 30, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents		$	30,213		$	35,203
Restricted cash		1,778			1,810
Receivables, net		21,961			23,670
Inventories, net		5,890			6,221
Prepaid expenses		3,706			5,522
Tax receivable from Westar		26,088			26,088
Deferred tax assets		30			33,899
Other		3,602			3,955
Total current assets		93,268			136,368
Property and equipment, net		29,540			31,921
Customer accounts, net		210,450			244,744
Goodwill		41,847			41,847
Deferred tax assets, net of current portion		—			252,411
Tax receivable from Westar, net of current portion		7,933			—
Deferred customer acquisition costs		101,190			94,225
Other		7,763			7,506
Total Assets		$	491,991		$	809,022
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Current portion of long-term debt, including $215,500 due to related parties		$	356,218		$	215,500
Accounts payable		3,140			5,314
Accrued liabilities		36,268			31,258
Deferred revenue		33,100			33,253
Total current liabilities		428,726			285,325
Long-term debt, net of current portion		190,925			331,874
Deferred customer acquisition revenue		50,695			44,209
Other liabilities		1,422			1,440
Total Liabilities		671,768			662,848
Commitments and contingencies (see Note 6)
Stockholders’ equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized		—			—
Common stock, $.01 par value, 150,000,000 shares authorized,  128,125,584 shares issued  at June 30, 2004 and December 31, 2003		1,281			1,281
Additional paid-in capital		1,379,474			1,379,434
Accumulated other comprehensive income		86			78
Deficit		(1,526,006		)	(1,200,007		)
Treasury stock, at cost, 29,842,905 shares at June 30, 2004 and December 31, 2003		(34,612		)	(34,612		)
Total stockholders’ equity (deficiency in assets)		(179,777		)	146,174
Total Liabilities and Stockholders’ Equity (Deficiency in Assets)		$	491,991		$	809,022

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 

PROTECTION ONE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE LOSS

 

(Dollars in thousands, except for per share amounts)

(Unaudited)

 

		Six Months Ended June 30,
		2004			2003
Revenues:
Monitoring and related services		$	123,702		$	129,125
Other		10,703			9,903
Total revenues		134,405			139,028
Cost of revenues (exclusive of amortization and depreciation shown below):
Monitoring and related services		34,334			37,189
Other		15,216			14,146
Total cost of revenues		49,550			51,335
Gross profit (exclusive of amortization and depreciation shown below)		84,855			87,693
Operating expenses:
Selling		15,561			16,079
General and administrative		55,544			40,320
Amortization and depreciation		39,335			40,314
Total operating expenses		110,440			96,713
Operating loss		(25,585		)	(9,020		)
Other (income) expense:
Interest expense		13,203			12,675
Related party interest