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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of Earliest Event Reported): February 29, 2000
PROTECTION ONE, INC. PROTECTION ONE ALARM MONITORING, INC.
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(Exact Name of Registrant as Specified (Exact Name of Registrant as Specified
in its Charter) in its Charter)
DELAWARE DELAWARE
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(State or Other Jurisdiction (State or Other Jurisdiction
of Incorporation) of Incorporation)
0-247802 33-73002-1
(Commission File Number) (Commission File Number)
93-1063818 93-1065479
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
600 CORPORATE POINTE, 12TH FLOOR 600 CORPORATE POINTE, 12TH FLOOR
CULVER CITY, CALIFORNIA 90230 CULVER CITY, CALIFORNIA 90230
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(Address of Principal Executive offices, (Address of Principal Executive
Including Zip Code) offices, Including Zip Code)
(310) 342-6300 (310) 342-6300
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(Registrant's Telephone Number, (Registrant's Telephone Number,
Including Area Code) Including Area Code)
NOT APPLICABLE
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(Former Name or Former Address, if changed Since Last Report)
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NY2:\884601\03
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 29, 2000, Protection One, Inc. ("Protection One") and its
wholly owned subsidiary, Protection One Alarm Monitoring, Inc. ("Monitoring"),
sold the continental European and United Kingdom operations (collectively, the
"European Operations") and certain miscellaneous investments of Protection One
to Westar Capital, Inc. ("Westar"), Protection One's principal stockholder and
an unregulated subsidiary of Western Resources, Inc. ("Western"), for $244
million in cash and non-cash consideration. The transaction was completed
pursuant to the terms of the Agreement by and among Protection One, Monitoring
and Westar (the "Agreement"). The Agreement is filed herewith as Exhibit 10.1 to
this Report and is incorporated herein by reference.
Under the Agreement, Westar paid approximately $183 million in cash
and transferred to Protection One debt securities of Monitoring with a market
value of approximately $61 million. The Agreement includes, among other things,
a provision under which Westar is obligated to pay to Protection One a portion
of the net gain, if any, on a subsequent sale of the European Operations on a
declining basis over the four years following the date of the Agreement. Cash
proceeds from the transaction were used to reduce the outstanding balance owed
to Westar on Protection One 's revolving credit facility. The assets purchased
by Westar have a book value of approximately $230 million and EBITDA for the
nine-months ended September 30, 1999 of approximately $36 million. The
acquisition also included certain debt obligations of the European Operations in
the amount of approximately $60 million as of the closing date of the Agreement.
Protection One and Western also entered into Amendment No. 2, dated
as of February 29, 2000 (the "Contribution Agreement Amendment"), to the
Contribution Agreement, dated as of July 30, 1997 and amended on October 2,
1997, in order to permit Western to acquire the European Operations and certain
other investments of Protection One and to effect certain other matters. The
Contribution Agreement Amendment was approved by the continuing directors of
Protection One. The Contribution Agreement Amendment is filed herewith as
Exhibit 10.2 to this Report and is incorporated herein by reference.
In addition, Monitoring and Westar entered into the Second Amendment,
effective as of February 29, 2000 (the "Credit Agreement Amendment"), to the
Credit Agreement, dated as of December 21, 1998 and subsequently amended. The
Credit Agreement Amendment reduced the commitment under the credit facility to
$115 million (down from the amount of $250 million) and changed the maturity
date to January 2, 2001. An additional $40 million could be made available under
the credit facility for approved acquisitions. As a result of the transaction,
Protection One has approximately $60 million drawn under the facility as of the
date of the filing of this Report. As of the closing date of the Credit
Agreement Amendment, Western and its subsidiaries owned no Protection One debt
securities outside of the credit facility. The Credit Agreement Amendment is
filed herewith as Exhibit 10.3 to this Report and is incorporated herein by
reference.
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The Agreement, the Contribution Agreement Amendment and the Credit
Agreement Amendment were negotiated by a special committee of the Protection One
board of directors and approved by the independent members of the Protection One
and the Monitoring boards of directors.
The transaction was announced in a press release issued March 1,
2000, which is filed herewith as Exhibit 99.1 to this Report and is incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed consolidated financial statements
have been prepared by Protection One's management and are shown for illustrative
purposes only. These statements are not necessarily indicative of the future
financial position or results of operations of Protection One, or of the
financial position or results of operations of Protection One that would have
actually occurred had the transaction been in effect as of the date or for the
periods presented.
The unaudited pro forma condensed consolidated balance sheet as of
September 30, 1999 gives effect to the transaction as though it had occurred on
that date. Pro forma adjustments reflected in the unaudited pro forma condensed
consolidated balance sheet generally reflect the repayment of a portion of the
outstanding borrowings on the revolving credit facility and the receipt and
cancellation of certain debt securities of Monitoring, which were received as
consideration from the sale of Protection One's European Operations and certain
other investments to Westar.
The unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1998, and the nine-month interim
period ended September 30, 1999 give effect to the transaction as though it had
occurred at the beginning of the earliest period presented. Pro forma
adjustments reflected in the unaudited pro forma condensed consolidated
statements of operations generally reflect reductions in revenues and expenses
related to the sale of the European Operations and the reduction of interest
expenses and the associated tax effect.
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PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
(in thousands)
(a)
Protection Pro Forma
One, Inc. Adjustments Pro Forma
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ASSETS
Current assets $ 218,583 (44,451) $ 174,132
Customer accounts, net 1,164,412 (110,291) 1,054,121
Goodwill and trademarks, net 1,118,678 (162,562) 956,116
Other long-term assets 103,992 (27,696) 76,296
-------------------- ------------------- ------------------
Total assets $ 2,605,665 (345,000) $2,260,665
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Current liabilities $ 238,702 (70,123) $ 168,579
Long-term debt, net of current portion 1,074,731 (328,920) (b) 745,811
Other long-term liabilities 3,154 (2,449) 705
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Total liabilities 1,316,587 (401,492) 915,095
Total stockholders' equity 1,289,078 56,492 1,345,570
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Total liabilities and stockholders equity $ 2,605,665 (345,000) $ 2,260,665
==================== =================== ==================
The pro forma adjustments consist of the following:
(a) To eliminate the effect of the European Operations and miscellaneous
other investments and marketable securities that were sold.
(b) This adjustment reflects the receipt and cancellation of certain debt
securities of Monitoring and the repayment of a portion of the
outstanding borrowings on the credit facility.
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PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(in thousands, except for per share amounts)
Protection Pro Forma
One, Inc. Adjustments Pro Forma
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Revenues:
Monitoring and related services $ 375,840 (25,400) (a) $ 350,440
Installation and other 45,255 (18,325) (a) 26,930
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Total revenues 421,095 377,370
Cost of revenues:
Monitoring and related services 103,521 (4,101) (a) 99,420
Installation and other 28,270 (7,712) (a) 20,558
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Total cost of revenues 131,791 119,978
Gross profit 289,304 257,392
Selling, general and administrative expense 111,798 (17,897) (a) 93,901
Amortization of intangibles and depreciation expense 119,211 (3,945) (a) 115,266
Acquisition expense 20,298 (22) (a) 20,276
Employee severance and transition cost 3,400 - 3,400
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Operating income 34,597 24,549
Other (income) expense
Interest expense, net 33,869 (9,110) (b) 24,759
Interest expense to parent, net 22,121 (11,989) (c) 10,132
Non-recurring gain on contract repurchase (16,348) - (16,348)
Non-recurring gain on exchange of securities (3,000) - (3,000)
Other (1,222) 75 (a) (1,147)
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Loss before income taxes & extraordinary item (823) 10,153
Income tax expense (4,114) (4,344) (d) (8,458)
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Net income (loss) before extraordinary item $ (4,937) $ 1,695
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Net income (loss) per common share $ (0.05) $ 0.02
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Weighted average common shares outstanding 107,999 107,999
The pro forma adjustments consist of the following:
(a) Recognition of reductions in revenues, cost of revenues, operating
expenses and other income associated with the European Operations sold.
(b) Recognition of reduction in interest expense associated with the
European Operations sold. In addition, this adjustment reflects a
decrease in interest expense assuming the debt securities received were
applied as a reduction to such debt as of January 1, 1998, or at such
date the debt securities were issued.
(c) Recognition of reduction in interest expense assuming the cash received
was applied against cash borrowings from the credit facility held by
Westar, as of January 1, 1998, or at such later date the borrowings
occurred.
(d) Recognition of decrease in income tax expense associated with the
business disposed of. In addition, this adjustment reflects the
associated income taxes related to the interest eliminated.
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PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(in thousands, except for per share amounts)
Protection Pro Forma
One, Inc. Adjustments Pro Forma
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Revenues:
Monitoring and related services $ 386,283 (70,423) (a) $ 315,860
Installation and other 66,197 (51,970) (a) 14,227
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Total revenues 452,480 330,087
Cost of revenues:
Monitoring and related services 99,497 (14,819) (a) 84,678
Installation and other 33,472 (21,821) (a) 11,651
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Total cost of revenues 132,969 96,329
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Gross profit 319,511 233,758
Selling, general and administrative expense 134,711 (49,526) (a) 85,185
Amortization of intangibles and depreciation expense 182,606 (22,071) (a) 160,535
Acquisition expense 21,932 (700) (a) 21,232
Employee severance and transition cost 4,308 - 4,308
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Operating income (24,046) (37,502)
Other (income) expense
Interest expense, net 64,334 (22,090) (b) 42,244
Gain on sale of Mobile Services Group (17,249) - (17,249)
Other (71) 1,518 (c) 1,447
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Loss before income taxes (71,060) (63,944)
Income tax benefit 17,615 77 (d) 17,692
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Net loss $ (53,445) $ (46,252)
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Net loss per common share $ (0.42) $ (0.36)
==================== ====================
Weighted average common shares outstanding 126,872 126,872
The pro forma adjustments consist of the following:
(a) Recognition of reductions in revenues, cost of revenues, operating
expenses and other income associated with the European Operations sold.
(b) Recognition of reduction in interest expense associated with the European
Operations sold. In addition, this adjustment reflects a decrease in
interest expense assuming the debt securities received were applied as a
reduction to such debt as of January 1, 1999, and the cash received was
applied against borrowings from the credit facility as incurred
throughout the period.
(c) Recognition of reductions in other income associated with the business
disposed of. In addition, this adjustment reflects the elimination of
dividends on investments included in the sale.
(d) Recognition of reduction of income tax benefit associated with the
business disposed of. In addition, this adjustment reflects the
associated income taxes related to the interest eliminated
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(c) Exhibits.
Exhibit No. Exhibit
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10.1 Agreement, dated as of February 29, 2000, by and among Protection
One, Inc., Protection One Alarm Monitoring, Inc. and Westar Capital,
Inc.
10.2 Amendment No. 2 to Contribution Agreement, dated as of February 29,
2000, by and between Protection One, Inc. and Western Resources, Inc.
10.3 Second Amendment of Credit Agreement, effective as of February 29,
2000, between Protection One Alarm Monitoring, Inc. and Westar
Capital, Inc. as Administrative Agent and a Lender.
99.1 Press Release, dated March 1, 2000, announcing the completion of the
transaction.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, each registrant have duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
PROTECTION ONE, INC.
Date: March 14, 2000. By: /s/ Anthony D. Somma
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Anthony D. Somma
Chief Financial Officer
PROTECTION ONE ALARM MONITORING, INC.
Date: March 14, 2000. By: /s/ Anthony D. Somma
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Anthony D. Somma
Chief Financial Officer
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EXHIBIT INDEX
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Exhibit No. Exhibit
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10.1 Agreement, dated as of February 29, 2000, by and among Protection
One, Inc., Protection One Alarm Monitoring, Inc. and Westar Capital,
Inc.
10.2 Amendment No. 2 to Contribution Agreement, dated as of February 29,
2000, by and between Protection One, Inc. and Western Resources, Inc.
10.3 Second Amendment of Credit Agreement, effective as of February 29,
2000, between Protection One Alarm Monitoring, Inc. and Westar
Capital, Inc. as Administrative Agent and a Lender.
99.1 Press Release, dated March 1, 2000, announcing the completion of the
transaction.
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