Exhibit 99.1
Media contact:
Robin J. Lampe
Phone: (785) 575-6468
Investor contact:
Adam M. Goldston
Phone: (310) 258-6502
PROTECTION ONE OUTLINES AMORTIZATION CHANGES
AND ANNOUNCES 3RD QUARTER RESULTS
CULVER CITY, Calif., Nov. 13, 1999 (8 a.m. CST) -- Protection One, Inc.
(NYSE:POI), the nation's second-largest provider of monitored services, today
announced a loss of $16.9 million in the third quarter, excluding one-time and
non-operating items, versus a $7.4 million loss in the second quarter of 1999.
Related to its third quarter, Protection One also addresses in this news
release:
- Change in accounting principle for customer accounts;
- Customer attrition and new customer creation initiatives;
- Third-quarter financial highlights; and
- Credit facility.
Change in Accounting Principle
Protection One today announced it has changed its accounting principle
used to amortize customer accounts, addressing an issue it has been discussing
with the staff of the Securities and Exchange Commission (SEC).
"We have worked closely with our outside independent auditors to
address the technical accounting issues the SEC has raised with regard to the
amortization of customers' accounts," said John E. Mack III, chief executive
officer of Protection One.
The company's amortization methodology has changed from a 10-year
straight line method to a 10-year accelerated amortization method for two of
three distinct customer pools being established. The company has adopted a 130
percent declining balance method for its North America accounts and 125
percent declining balance method for the Europe subscribers. Protection One
will continue to use a 10-year straight line amortization method for its
Network Multifamily accounts.
The effect of the change in accounting principle increased amortization
expense reported in the third quarter by $47 million. The accumulated
amortization would have been approximately $41 million higher on the balance
sheet if the company had used the declining balance method through the end of
the second quarter of 1999.
The amortization issue has been the subject of review by the SEC staff
since April. While the company believes this change in accounting principle
addresses the issue, the SEC has not indicated it concurs with, nor has the
SEC determined not to object to, the accounting changes the company is making.
In addition, the company restated its results to reflect changes to the
original purchase price allocation for the Multifamily business by increasing
the amount allocated to subscriber accounts by approximately $19 million and
reducing recorded goodwill. This increases annual amortization costs by
approximately $900,000, net of taxes.
Customer Attrition and Creation
The company's total customer attrition rate increased from 10.5 percent
to 12.2 percent for the trailing twelve months and from an annualized 14.3
percent for the second quarter to an annualized 16.0 percent for the third
quarter. As of September 30, the company's customer base decreased slightly
from June 30, from 1.653 million to 1.643 million, but increased 12.5 percent
when compared with last year's third-quarter base of 1.460 million.
Focusing on lowering the cost it pays to create customers, the company
announced several initiatives during the third quarter. In September,
Protection One announced its agreement with Paradigm Direct, a multifaceted
national direct marketing company, with the purpose of acquiring up to 50,000
monitored security accounts within the next year at a cost of $775 per account
or 23.5 times monthly recurring revenues. This agreement is expected to reduce
Protection One's cost to add new customers.
Paradigm Direct is launching pilot programs this month in Ft.
Lauderdale, Miami, Dallas, Houston, San Diego and the metropolitan Los Angeles
area.
The company also announced changes in its dealer program designed to
increase the quality of customer accounts acquired and reduce the cost of the
program. Dealers are being advised that existing agreements will not be
renewed on current terms and conditions and customer credit standards are
being tightened to better coincide with the cost of the account.
Acquisitions of customers through the company's dealer program decreased
in the third quarter 1999 to 45,000 customers compared with 64,000 customers
in the second quarter 1999. The company has reduced the number of accounts
being purchased from dealers each month from 25,000 in March to 10,600 in
October.
Third-Quarter Highlights
The net loss for the third quarter of 1999 was $41.0 million, or $0.32
per share. The adjusted net loss, excluding the increased customer
amortization expense, a one-time gain for the sale of the Mobile Services
Group and nonrecurring and non-operating items, is $16.9 million.
Third-quarter financial results are calculated as follows:
*$(41.0) reported net loss
30.4 increased amortization expense
(11.2) one-time gain from Mobile Services sale
4.9 one-time and non-operating items recognized in third quarter
$ (16.9) adjusted net loss *(dollars in millions)
Compared with the third-quarter 1998, revenues increased 48 percent to
$153.1 million and earnings before interest, taxes, depreciation and
amortization (EBITDA), excluding one-time expenses, was $46.5 million or 30
percent of total revenues. Compared with the second quarter 1999, revenues
increased 1.5 percent and EBITDA decreased 20.2 percent.
Adjusted net income (loss), defined as net income (as reported) plus
goodwill amortization, was $(33.7) million for the third quarter 1999 compared
with break even adjusted net income, or $0.00 per share, for second quarter
1999 and $12.2 million, or $0.10 per share, for third quarter 1998.
Cash flow, defined as net loss (as reported) plus depreciation and
amortization, was $53.3 million, or $0.42 per share, in the third quarter
1999, compared with $37.5 million in the second quarter 1999, or $0.29 per
share, and $32.7 million, or $0.26 per share, in the third quarter 1998.
Credit Facility
As previously disclosed, the company's senior credit facility lenders
have waived compliance with the leverage and interest coverage ratio covenants
through December 3, 1999. The company continues to work with the lenders to
resolve this issue. For further discussion of the company's credit facility,
including the lender's request for credit support from Western Resources or
its affiliates, see the company's quarterly report on Form 10-Q for the
quarter ended September 30, 1999.
Protection One, one of the leading residential security alarm companies
in the United States, provides monitoring and related security services to
more than 1.6 million residential and commercial subscribers in North America
and Europe.
Statements contained in this press release concerning statements of
management's beliefs, goals and expectations are "forward-looking statements"
as that term is defined in the Private Securities Litigation Reform Act of
1995, and are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in or implied by the
statements. Certain information in this release constitutes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, and is subject to the safe harbor protections of that Act. Other
risks and uncertainties are described in Protection One's 1998 Form 10-K/A
filed with the Securities and Exchange Commission on June 2, 1999, and
quarterly reports on Form 10-Q filed on May 17, 1999, August 16, 1999 and
November 12, 1999. Protection One disclaims any obligation to update any
forward-looking statements as a result of developments occurring after the
date of this press release.
-- Tables Follow
Protection One and Subsidiaries
Summary Balance Sheet and Cash Flow Data
(Dollars in thousands)
Balance Sheet Data:
September 30, December 31,
1999 1998
Assets
Current assets $ 218,583 $ 187,840
Property and equipment, net 59,671 46,959
Customer accounts, net 1,164,412 1,031,956
Goodwill and trademarks, net 1,118,678 1,175,153
Other assets 44,321 68,528
$ 2,605,665 $ 2,510,436
Liabilities and Stockholders' Equity
Current liabilities $ 238,702 $ 235,991
Long term debt, net of current portion 1,074,731 926,971
Other liabilities 3,154 3,238
Total liabilities 1,316,587 1,166,200
Stockholders' equity 1,289,078 1,344,236
$ 2,605,665 $ 2,510,436
Cash Flow Data:
Three Months Ended September 30,
1999 1998
Net cash provided by operating activities $ 4,003 $ 25,038
Net cash used in investing activities $ (47,648) $ (305,761)
Net cash provided by financing activities $ 44,693 $ 278,689
Protection One and Subsidiaries
Summary Income Statement
(Dollars in thousands, except per share and subscriber amounts)
Three Months Ended September 30,
1999 1998
Revenues:
Monitoring and related services $ 131,220 $ 96,527
Installation and other 21,911 6,734
Total Revenues 153,131 103,261
Cost of revenues:
Monitoring and related services 39,631 27,159
Installation and other 10,181 5,396
Total Cost of Revenues 49,812 32,555
Gross Profit 103,319 70,706
Selling, general and administrative expense 50,203 23,454
Acquisition and transition expense 10,298 4,970
Amortization of intangibles and
depreciation expense 94,250 31,761
Employee severance cost 2,309 -
Operating income (53,741) 10,521
Other (income)/expense:
Interest expense, net 22,319 7,875
Interest expense to parent, net - 4,554
Gain on sale of Mobile Services Group (17,249) -
Other 945 (7,372)
Income (loss) before income taxes (59,756) 5,464
Income tax (expense)/benefit 18,770 (4,489)
Net income (loss) (40,986) 975
Net income (loss) per common share (0.32) 0.01
Net loss before one-time and
non-operational items (16,854) (6,025)
Net loss before one-time and
non-operational items per share (0.13) (0.05)
Other data:
EBITDA (1) 46,509 42,282
Cash Flow per share (2) 0.42 0.26
Adjusted Net Income/(Loss) (3) (33,747) 12,195
Adjusted Net Income/(Loss) per share (0.27) 0.10
End of period Monitoring/related
service revenue 43,908 35,450
End of period subscribers 1,642,669 1,459,566
(1) - For 1999, excludes a charge of $3.691 million related to the Lifeline
Systems, Inc. proposed merger which was terminated during the quarter.
(2) - Cash flow is defined as net income (loss) as reported, plus depreciation
and amortization.
(3) - Adjusted net income is defined as net income (loss) as reported, plus
goodwill amortization.