Exhibit 13
Management's Responsibility for Consolidated Financial Statements
Burns International Services Corporation
The information in this report is the responsibility of management. Burns
International Services Corporation has in place reporting guidelines and
policies designed to ensure that the statements and other information contained
in this report present a fair and accurate financial picture of the Company. In
fulfilling this management responsibility, we make informed judgments and
estimates conforming with generally accepted accounting principles.
The accompanying financial statements have been audited by Deloitte & Touche
LLP, independent auditors. Management has made available all of the Company's
financial records and related information deemed necessary by Deloitte & Touche
LLP. Furthermore, management believes that all representations made by it to
Deloitte & Touche LLP during their audit were valid and appropriate.
Management is responsible for maintaining a comprehensive system of internal
control through its operations that provides reasonable assurance that assets
are protected from improper use, that material errors are prevented or detected
within a timely period and that records are sufficient to produce reliable
financial reports. The system of internal control is supported by written
policies and procedures that are updated by management as necessary. The system
is reviewed and evaluated regularly by the Company's internal auditors, as well
as by the independent auditors in connection with their annual audit of the
financial statements.
The independent auditors conduct their audit in accordance with generally
accepted auditing standards and perform such tests of transactions and balances
as they deem necessary. Management considers the recommendations of its
internal auditors and independent auditors concerning the Company's system of
internal control and takes the necessary actions that are cost effective in the
circumstances. Management believes the Company's system of internal control is
adequate to accomplish the objectives set forth in the previous paragraph.
An audit committee composed entirely of directors of the Company, who are not
employees, meets periodically with the Company's management and independent
auditors to review financial results and procedures, internal financial
controls, and internal and external audit plans and recommendations. To
guarantee independence, the audit committee and the independent auditors have
unrestricted access to each other with or without the presence of management
representatives.
/s/ John A. Edwardson /s/ Robert E. T. Lackey /s/ Brian S. Cooper
John A. Edwardson Robert E. T. Lackey Brian S. Cooper
Chairman, President and Vice President, General Counsel Treasurer
Chief Executive Officer and Corporate Secretary
Consolidated Statistical Review
The following table sets forth selected financial information for Burns
International Services Corporation ("the Company"). The information is derived
from the audited financial statements of the Company. Previously reported
results have been restated to reflect the May 29, 1998 sales of the Company's
electronic security unit and the Company's courier services unit. As a result,
Wells Fargo Alarm Services Company and Pony Express Delivery Services are
reflected in discontinued operations for all years presented. In addition, the
Company's armored security services unit entered into a business combination
with Loomis Armored in January 1997. The combined company, known as Loomis,
Fargo & Co., is accounted for under the equity method. The armored security
services unit was included in the Company's results of operations for 23 days in
1997 and full years 1996 and 1995. The selected financial data should be read
in connection with the 1999 Consolidated Financial Statements and accompanying
notes.
Year Ended December 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------ ------------ ------------ ----------
Statement of Operations Data
- ----------------------------
(millions of dollars, except per share)
Net service revenues $ 1,378.6 $1,323.4 $1,304.6 $1,470.1 $1,453.8
Earnings before interest and taxes 56.2 40.4 57.6 61.0 55.4
Earnings before taxes 39.8 24.9 40.9 33.8 29.1
Provision for income taxes 14.6 9.8 15.1 13.6 13.1
Earnings from continuing operations 25.2 15.1 25.8 20.2 16.0
Earnings from continuing operations
per share - basic $ 1.16 $ 0.64 $ 1.10 $ 0.87 $ 0.69
Earnings from continuing operations
per share - diluted $ 1.14 $ 0.64 $ 1.07 $ 0.86 $ 0.68
Average common shares outstanding -
basic (in thousands) 21,634 23,575 23,475 23,266 23,097
Average common shares and
equivalents outstanding - diluted
(in thousands) 22,002 23,958 24,075 23,517 23,399
Balance Sheet Data
- ------------------
(at end of year)
Total assets $ 343.7 $ 431.9 $ 625.9 $ 728.9 $ 808.6
Balance sheet debt 137.2 126.7 338.7 437.1 479.0
Cash and cash equivalents available (10.4) (105.7) (8.0) (15.4) (17.3)
_________ ________ ________ ________ ________
Net balance sheet debt 126.8 21.0 330.7 421.7 461.7
Accounts receivable sold, net 115.0 82.4 102.4 110.2 88.9
Shareholders' equity 30.7 96.9 65.0 41.2 49.7
Net assets of discontinued operations -- -- $ 327.0 $ 327.5 $ 369.7
Stock Prices
- ------------
First Second Third Fourth
----------- ------------ ----------- -----------
1999 Quarters
- -------------
High $20 11/16 $ 22 $21 1/2 $16 1/16
Low $14 11/16 $ 15 3/8 $12 5/16 $ 8 1/4
1998 Quarters
- -------------
High $ 19 7/16 $ 24 3/4 $23 1/16 $20 1/16
Low $ 15 5/16 $ 17 7/8 $13 1/4 $13 1/16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
- ------------------
On February 3, 2000, the Company announced that James M. Froisland was appointed
Vice President and Chief Financial Officer. He will be responsible for all
finance and accounting functions as well as information technology and risk
management. Mr. Froisland replaces the former Vice President and Chief
Financial Officer, Timothy M. Wood, who announced his resignation on October 28,
1999 to pursue other interests.
On January 7, 2000, the Company announced that it had amended its senior credit
facility to provide for additional borrowing capacity, and had arranged for a
short-term additional credit facility in an amount up to $15 million for working
capital purposes during the transition to its new accounting and invoicing
system.
On October 28, 1999, the Company announced that Merrill Lynch Capital Partners,
Inc., ("MLCP"), intended to distribute to its partners the remaining shares of
the Company's common stock owned by the fund. The distribution was completed by
year-end 1999. MLCP owned 3,217,532 shares on October 28, 1999, representing
approximately 16.4% of the outstanding shares. The general partner of the fund
received approximately 412,300 shares in the distribution, and has agreed,
subject to certain conditions, to hold the shares until at least April 15, 2000.
Other Merrill Lynch affiliates, not part of the distribution, directly own
1,843,576 shares of the Company. Of these shares, affiliates owning 788,892
shares agreed to comply with the holdback arrangement.
On October 26, 1999, the Board of Directors approved a Stockholder Rights Plan
designed to enhance the Board's ability to protect the Company's shareholders.
The plan was adopted to protect against unsolicited attempts to acquire control
of the Company when adequate price is not offered to all shareholders or the
offer is not in the best interest of the Company and its shareholders. The
rights were distributed as a dividend at the rate of one right for each share of
common stock, par value $0.01 per share ("Voting Common Stock"), and Series I
Non-Voting Common Stock, par value $0.01 per share (together with the Voting
Common Stock, the "Common Stock") held by stockholders of record at the close of
business on November 8, 1999. Each right entitles the holder to purchase, upon
the occurrence of certain events, one unit of a share of preferred stock for
$55.00, or an aggregate 196,318 shares of preferred stock. The rights generally
are exercisable only if a person or group acquires beneficial ownership of 15%
or more of Burns International Services Corporation's Common Stock or commences
a tender or exchange offer that, upon consummation, would result in a person or
group owning 15% or more of Burns International Services Corporation's Common
Stock. Under certain circumstances, the rights are redeemable at a price of
$0.01 per right. The rights will expire on November 8, 2009.
On July 2, 1999, shareholder approval was received to change the Company's
corporate name to Burns International Services Corporation. The change is part
of an overall strategy, announced May 4, 1999, to unify under one brand name the
broad range of services offered by the Company. The brand unification should
eliminate existing market confusion with Wells Fargo & Company ("Wells Fargo")
and Borg-Warner Automotive, Inc. The NYSE ticker symbol remains as BOR.
On June 14, 1999, the Company repurchased 4,350,000 shares of its common stock
from a group of Merrill Lynch affiliated entities (the "ML Group"). The $18.375
per share purchase price totaled approximately $80 million and represented a
$0.50 per share discount to the closing market price on April 19, 1999. The
shares repurchased represented approximately 43% of ML Group's stock ownership
in the Company.
On June 11, 1999, the Company announced that the ML Group intended to sell up to
4,790,136 shares of their remaining interest in the Company. A preliminary
prospectus was filed outlining the offering. The offering was subsequently
postponed upon the Company's receipt of an unsolicited expression of a
preliminary interest in a business combination from another company. On August
3, 1999, the Company announced that discussions with that party had been
terminated.
On June 10, 1999, the Company repurchased $124.8 million gross principal amount
of 9 5/8% senior subordinated notes due 2007 at a premium of 12.35%. Total
consideration paid plus related fees were $140.9 million, including a $3.1
million consent payment. Associated with the repurchase, the Company recorded a
$12.1 million extraordinary loss (net of $7.8 million tax benefit) to capture
the call premium paid, cash fees paid on the transaction and the associated
write-off of unamortized finance charges.
On April 28, 1999, the Mission Trust and the Company settled a lawsuit against
the Company related to the Company's discontinued property and casualty
insurance subsidiary, Centaur Insurance Company, which ceased writing insurance
in 1984. The suit had alleged damages in excess of $100 million against the
Company due to Centaur's failure to satisfy its reinsurance obligations to
Mission. As part of the settlement, the Company paid the Mission Trust $4
million in the second quarter of 1999, and agreed to pay one-third of any future
dividend or other distribution that may be paid to the Company after
rehabilitation of Centaur.
As part of its brand unification strategy, the Company entered into an agreement
on March 30, 1999 (the "Agreement") with Wells Fargo to relinquish a royalty-
free license to the Wells Fargo name in the security field. In addition, Wells
Fargo granted the Company a royalty-free
license to use the Wells Fargo name and mark for a two-year period commencing on
the date of the Agreement. Under the Agreement, Wells Fargo has reimbursed the
Company for costs associated with the brand unification.
BUSINESS DESCRIPTION
- --------------------
The Company is North America's premier provider of contract security personnel
and related services with approximately 75,000 employees serving 14,000
customers in the United States, Canada, England, Scotland, Ireland and Colombia.
RESULTS OF OPERATIONS
- ---------------------
Revenues
1999 vs 1998 1998 vs 1997
Percent Percent
(millions of dollars) 1999 1998 1997 Change Change
- ---------------------------------------------------------------------------------------------------------------------------------
Core Revenues $1,378.6 $1,323.4 $1,289.3 4.2% 2.6%
Armored Security
Revenues -- -- 15.3 -- NM
- ---------------------------------------------------------------------------------------------------------------------------------
Total Revenues $1,378.6 $1,323.4 $1,304.6 4.2% 1.4%
=================================================================================================================================
Revenue grew $55.2 million in 1999 through higher sales of new business,
improved client retention, higher billing rates achieved on new business and
existing customer contracts and acquisitions. In 1998, core revenues grew by
$34.1 million, primarily from business acquisitions and improvements in customer
retention and customer billing rates. Offsetting the 1998 growth was the impact
of withdrawal from certain low-margin businesses. Excluding the effect of
acquisitions in 1999, 1999 revenue was approximately $1,372.2 million. Excluding
the effect of acquisitions in 1998, 1998 revenue was approximately $1,310.9
million. International operations revenues for 1999 were $130.4 million
compared with $121.1 million in 1998 and $116.9 million in 1997. Operations are
located in Canada, England, Scotland, Ireland and Colombia.
Operating Income
Total operating income was $79.8 million in 1999, $82.7 million in 1998, and
$85.3 million in 1997. The $2.9 million decline in 1999 resulted from lower
profitability in the Foreign segment and Other segments group, which decreased
by $4.8 million and $7.1 million, respectively. The Foreign segment suffered
from poor management and cost controls in England, Scotland and Ireland
operations. The Other segments group experienced contract pricing problems at
Globe Aviation and loss of business at Energy/Government. These declines were
partially offset by improvements of $2.9 million in the Domestic Industrial
segment and $6.1 million in pension operations, risk management and other costs.
The $2.6 million decline in 1998 similarly resulted from lower profitability in
the Foreign segment and Other segments group that more than offset increased
income in the Domestic Industrial segment. Operating margins were 5.8% in 1999,
6.3% in 1998 and 6.5% in 1997.
Costs and Expenses
Cost of services, expressed as a percentage of revenues, were 84.2%, 84.4% and
84.4% in 1999, 1998, and 1997, respectively. The 1999 improvement was due to
better performance in risk management that was partially offset by labor cost
increases. Gross profit margins were 15.8%, 15.6% and 15.6% over the same three
year period.
Selling, general and administrative expenses (SG&A), expressed as a percentage
of revenues, were 11.0%, 11.8%, and 10.3% for the years 1999, 1998, and 1997
respectively. Year-to-year comparisons are impacted by various items of a non-
recurring nature that were recorded in 1999. These items include $8.8 million
of income related to legal settlements and $6.7 million related to the reversals
of excess legal reserves on litigation settled in the current year and excess
reimbursement of brand transition costs. These income items were offset by non-
recurring expenses of approximately $9.0 million related to organizational
changes, planned system upgrades and installations, costs related to the
modification of the Company's receivables securitization facility and
establishment of a casualty risk management subsidiary. The above income items
were further offset by $8.0 million of costs related to the write-down of
intangible assets, provisions related to the Globe Aviation operations,
restructuring actions and provisions related to the United Kingdom operations.
Excluding the non-recurring items, SG&A expenses were 10.9% of 1999 revenue.
Year-to-year comparisons are also impacted by a $14.4 million charge in the
second quarter of 1998 to record severance and lease termination costs resulting
from the reorganization of administrative operations, the adjustment of certain
intangible assets to their realizable value, the adjustment of certain other
asset valuation allowances, and other matters. Excluding the $14.4 million
charge, SG&A expenses were 10.7% of 1998 revenue.
Depreciation expense was $5.7 million, $4.2 million, and $5.0 million for the
years 1999, 1998, and 1997, respectively. The 1999 increase reflects investments
in computer technology and financial systems.
Other expense, net, includes the results from the Company's share of the Loomis,
Fargo joint venture. The Company recorded $1.9 million for its share of Loomis,
Fargo earnings in 1999, compared with $0.1 million in 1998 and $1.1 million in
1997 (which included an after-tax gain of $2.2 million relating to the business
combination that formed Loomis, Fargo). Also included in other expense, net, is
excess purchase price amortization of $5.4 million, $6.5 million and $8.1
million for the years 1999, 1998, and 1997, respectively. The 1999 and 1998
decreases are principally due to the revaluation of certain intangibles in 1998.
Net Interest Expense and Finance Charges
Interest expense attributed to continuing operations was $16.4 million in 1999,
$15.5 million in 1998 and $16.7 million in 1997. The 1999 increase of $0.9
million reflects higher average debt levels and rising interest rates,
particularly toward year-end. During the fourth quarter, borrowings increased
to finance a sharp increase in receivables that resulted from delays in customer
invoicing and collections, and from delays in the sale of receivables, due to
the implementation of new financial and invoicing systems and software. The
$1.2 million decrease in 1998 is principally due to lower average debt levels
after the sale of Wells Fargo Alarm.
Earnings from Discontinued Operations
Refer to Note 4 for a detailed explanation.
Extraordinary Item
On June 10, 1999, the Company repurchased $124.8 million gross principal amount
of 9 5/8% senior subordinated notes due 2007 at a premium of 12.35%. Total
consideration paid plus related fees was $140.9 million, including a $3.1
million consent payment. Associated with the repurchase, the Company recorded a
$12.1 million extraordinary loss (net of a $7.8 million tax benefit) to capture
the call premium paid, cash fees paid on the transaction and the associated
write-off of unamortized finance charges.
The Company recorded a $6.3 million extraordinary charge (net of a $4.1 million
tax benefit) in the second quarter of 1998 that resulted from early redemption
of $150 million principal amount of 9 1/8% senior subordinated notes due 2003
and the write-off of certain deferred financing fees.
Cash Flow
Cash and cash equivalents decreased $95.3 million and net debt increased $105.8
million in 1999, primarily as a result of the Company's second-quarter stock
repurchase and 9 5/8% senior subordinated debt buyback.
Operating activities resulted in a net cash outflow of $28.8 million in 1999.
Working capital needs increased $74.2 million due primarily to a sharp increase
in receivables levels and an expected recovery of income taxes paid in prior
periods. The receivables increase resulted from delays in customer invoicing
and collections, and from delays in receivable sales, due to the implementation
of new financial and invoicing systems and software. Discontinued operations
required a net $1.8 million, as retained liability payments were partially
offset by funds from a legal settlement.
Investing activities absorbed $13.6 million in 1999. Capital expenditures
totaling $11.0 million exceeded normal operating requirements primarily as a
result of investments in information systems and technology.
The Company used $52.9 million for financing activities during 1999.
Approximately $223 million was expended to repurchase 4.4 million shares of the
Company's stock and buy back $124.8 million face value of the Company's 9 5/8%
senior subordinated notes. Cash balances remaining from the 1998 sale of Wells
Fargo Alarm and borrowings under the senior credit facility financed the
transactions.
In 1998, cash and cash equivalents increased $97.7 million and net debt
decreased $309.7 million. The increased cash and related debt reduction
reflects proceeds from the Wells Fargo Alarm sale and the offsetting retirement
of the Company's 9 1/8% senior subordinated notes due 2003.
Liquidity
The Company's liquidity is provided by its operations and financial resources,
including the facility for sale of receivables. Net funding, which includes
accounts receivable sold through this facility, was as follows:
December 31, December 31,
(millions of dollars) 1999 1998
------------ ------------
Short-term borrowings $ 3.6 $ 2.3
Long-term debt 133.6 124.4
Securitized accounts receivables sold 115.0 82.4
Less: Cash and cash equivalents (10.4) (105.7)
-------- -------
Total net funding $ 241.8 $ 103.4
======== =======
The Company's net funding requirements increased $138.4 million from its
December 31, 1998 level. Available cash and cash equivalents and increased
funding provided under the Company's accounts receivable and revolving credit
facilities were used primarily to fund the Company's second-quarter 1999 stock
repurchase and 9 5/8% senior subordinated notes buyback, as well as to fund
increases in total accounts receivable.
The Company has access to a number of financing sources, including a $120
million revolving accounts receivable securitization facility and a $225 million
senior credit facility. As of December 31, 1999, the Company had sold $115.0
million of securitized accounts receivable and had borrowed $133.4 million under
the senior credit facility. At December 31, 1999, $0.2 million of 9 5/8% senior
subordinated notes remained outstanding.
The Company's senior credit facility, which carries a $225 million maximum
commitment from a group of financial institutions, provides for revolving
borrowings and bank letters of credit. Up to $125 million of the facility is
available for letters of credit. Borrowing availability under the facility
commitment is reduced by the total dollar amount of letters of credit issued and
outstanding under the facility, which totaled $47.1 million and $93.2 million
at December 31, 1999 and 1998, respectively. The entire bank facility is
available through March 31, 2002. The Company established an additional $12.5
million letter of credit in the fourth quarter of 1999 that was issued outside
of the senior credit facility and does not utilize the facility's borrowing
capacity.
On January 7, 2000, the Company announced it had amended its credit facility to
allow potential additional borrowing, and had arranged for a short-term
additional credit facility in an amount up to $15 million for potential working
capital requirements during the transition to new financial and invoicing
systems and software. The additional credit facility was not utilized and was
cancelled by the Company on February 14, 2000.
The Company has experienced delays in customer invoicing and collection of
receivables during implementation of its new financial and invoicing software.
As a result, the Company is arranging an amendment to certain financial
covenants in its senior credit facility that may be required to maintain
continued borrowing capacity. The Company believes that its invoicing timelines
and receivables levels will return to normal in the second quarter of 2000.
Following the 1999 repurchase of the 9 5/8% senior subordinated notes,
substantially all of the Company's funding carries variable rates of interest.
To diversify the inherent interest rate exposure, the Company entered into two
interest rate swap agreements in 1999. See Disclosures about Market Risk for
more information.
The Company believes that cash flow from operations, together with existing cash
and borrowing capacity, is adequate to meet its capital needs.
DISCLOSURES ABOUT MARKET RISK
- -----------------------------
Interest Rate Risk
The Company has limited financial markets risk exposures that are primarily
related to changes in interest rates. The Company's policy is to balance its
interest rate exposure, which it may manage with interest rate swap agreements
that hedge outstanding borrowings. Following the repurchase of the Company's
fixed-rate senior subordinated notes in June 1999, substantially all of the
Company's funding carries variable rates of interest. As of December 31, 1999,
approximately $133 million was financed through the senior credit facility,
which carries interest rates based on LIBOR and the prime rate. Approximately
$115 million was funded from the accounts receivable securitization facility,
which is discounted at rates based on short-term commercial paper.
Under current and expected market conditions, the Company believes near-term
interest rate movements will not have a material negative impact on its results
of operations. To reduce exposure to market interest rate volatility, the
Company entered into two interest rate swap agreements effective June 15, 1999.
The agreements protect the Company from rising market interest rates by
effectively fixing payment rates on a total of $75.0 million of its net funding.
In both swap agreements, the Company receives variable rate payments based on 3-
month LIBOR and pays fixed rate payments based on the terms of each swap. The
differential paid or received on the swap agreements is recognized as an
adjustment to interest expense in the period earned or incurred. Both swaps
call for settlement payments on a quarterly basis. The contract terms are as
follows:
Swap I Swap II
- --------------------------------------------------------------------------------
Termination date June 15, 2000 June 15, 2001
Notional amount US $25,000,000 US $50,000,000
Fixed payment rate 5.638% 6.015%
Floating rate 3-Month LIBOR 3-Month LIBOR
The Company does not use derivative instruments for speculative purposes.
Foreign Currency Risk
Currently, the Company does not use foreign currency forward contracts and
believes it does not have material foreign currency exposures.
Labor Market Risk
The Company's business is labor intensive and is exposed to the availability of
qualified personnel and the cost of labor. United States labor market
contractions caused by high economic growth or other factors may increase the
Company's direct costs through higher wages and increased amounts of unbilled
overtime. To help manage labor market fluctuations, the Company's customer
agreements typically allow for billing rate adjustments based on law changes,
rulings or collective bargaining agreements that increase the Company's wage
rates. However, competitive pricing conditions in the industry may constrain
the Company's ability to increase its billing rates to cover such increased
costs.
YEAR 2000
- ---------
General
Since the inception of computers, software applications were programmed to
identify a year as a two-digit data field. Certain computer applications and
software recognize the year 2000 as two zeros (00) or 1900. This incorrect date
recognition could cause systems and software malfunctions that could have a
material effect on business operations.
Company's Approach
The Company performed a review of all its software and computer applications for
the Year 2000 entry. Both "IT systems" and "non-IT systems" were reviewed. IT
systems refer to all pre-packaged and internally developed software applications
and programs.
The Company's approach to system date remediation was conducted in phases.
First, all relevant IT systems and non-IT systems were assessed as to
functionality and to determine Year 2000 impact. Second, for those systems and
software found to be non-compliant or in need of upgrading, corrective steps
were taken, such as the reprogramming or purchasing of replacement system
software. Finally, systems and software modifications were tested and then
implemented at all necessary levels.
Each of the Company's crucial systems was either remediated, upgraded or
replaced with compliant purchased software. All upgrades, remediations and
installations were completed by year-end.
No single customer or third party vendor of the Company could likely generate a
material adverse impact on Company operations. Critical third party vendors
were queried by the Company and responded with no warnings or indications of
non-compliance.
As a direct result of the Company's Year 2000 preparation, the date change from
1999 to 2000 had no material impact on the Company's IT systems and non-IT
systems. No system or software failure related to Year 2000 issues was noted
within the Company and no material problems were encountered with third-party
vendor systems. The Company also expects no future business interruption due to
the Year 2000 issue. However, the Company did experience some difficulties
which were unrelated to the Year 2000 in the implementation of its new financial
and invoicing systems and software. The impact of such implementation
difficulties is discussed above under the Net Interest Expense and Finance
Charges and Cash Flow sections.
Cost of Compliance
To date, the Company has spent approximately $1.1 million for its Year 2000
preparation, which includes computer consultant costs. Independent of the Year
2000 issue, the Company has had in process both upgrading and replacement of
certain systems and obsolete hardware to enhance their functionality.
The Company's Year 2000 analysis and disclosure contains "forward looking"
statements about matters that are inherently difficult to predict. Such
statements include statements regarding the intent, opinion and current
expectations of the Company and its management. Such "forward looking"
statements involve risks and uncertainties that may affect future developments,
such as, the inability to deal with a Year 2000 issue due to a problem arising
on the part of a third party or vendor. While the Company believes that it has
implemented methodologies to address the Year 2000 issue so that it should not
materially affect its financial position, future operating results or cash
flows, no assurance can be given with respect to the ultimate outcome.
Burns International Services Corporation
Consolidated Statement of Operations and Comprehensive Income
Year Ended December 31,
---------------------------------------------------
(millions of dollars, except per share) 1999 1998 1997
------------- ------------- -------------
Net service revenues $1,378.6 $1,323.4 $1,304.6
Cost of services 1,161.3 1,116.7 1,100.7
Selling, general and administrative expenses 151.9 155.7 134.3
Depreciation 5.7 4.2 5.0
Other expense, net 3.5 6.4 7.0
Interest expense and finance charges 16.4 15.5 16.7
------------- ------------- -------------
Earnings before income taxes 39.8 24.9 40.9
Provision for income taxes-Note 13 14.6 9.8 15.1
------------- ------------- -------------
Earnings from continuing operations 25.2 15.1 25.8
Gain (loss) from discontinued operations, net of income
taxes-Note 4 -- 20.3 (6.8)
------------- ------------- -------------
Earnings before extraordinary item 25.2 35.4 19.0
Extraordinary item:
Loss from early extinguishment of debt, net of $7.8 tax
benefit in 1999 and $4.1 million tax benefit in 1998 (12.1) (6.3) --
------------- ------------- -------------
Net earnings $ 13.1 $ 29.1 $ 19.0
============= ============= =============
Earnings (loss) per common share - basic:
Continuing operations $ 1.16 $ 0.64 $ 1.10
Discontinued operations -- 0.87 (0.29)
Extraordinary item (0.56) (0.27) --
------------- ------------- -------------
Net earnings per share $ 0.60 $ 1.24 $ 0.81
============= ============= =============
Earnings (loss) per common share - diluted:
Continuing operations $ 1.14 $ 0.64 $ 1.07
Discontinued operations -- 0.83 (0.28)
Extraordinary item (0.55) (0.26) --
------------- ------------- -------------
Net earnings per share $ 0.59 $ 1.21 $ 0.79
============= ============= =============
Comprehensive income
Net earnings $ 13.1 $ 29.1 $ 19.0
Other comprehensive income (loss):
Currency translation adjustment, net of tax ($0.1
expense in 1999, $1.0 benefit in 1998, $0.3
benefit in 1997) 0.2 (1.5) (0.5)
Minimum pension liability adjustment, net of tax ($1.0
expense in 1997) -- -- 2.1
------------- ------------- -------------
Comprehensive income $ 13.3 $ 27.6 $ 20.6
============= ============= =============
(See accompanying notes to consolidated financial statements)
Burns International Services Corporation
Consolidated Balance Sheet
December 31,
-----------------------------
(millions of dollars, except share data) 1999 1998
------------ ------------
ASSETS
- ------
Cash and cash equivalents $ 10.4 $ 105.7
Receivables, net 59.9 55.9
Income tax receivable 32.1 --
Other current assets 71.9 68.9
------------ ------------
Total current assets 174.3 230.5
Property, plant and equipment
Land and buildings 13.9 18.5
Equipment 29.4 25.2
------------ ------------
43.3 43.7
Less accumulated depreciation 19.7 25.6
------------ ------------
Net property, plant and equipment 23.6 18.1
Net excess purchase price over net assets acquired 107.1 111.1
Deferred tax asset, net 5.7 42.4
Other assets 33.0 29.8
------------ ------------
Total other assets 145.8 183.3
------------ ------------
Total assets $ 343.7 $ 431.9
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Overdraft facility $ 3.6 $ 2.3
Accounts payable and accrued expenses 125.1 130.5
------------ ------------
Total current liabilities 128.7 132.8
Long-term debt 133.6 124.4
Other long-term liabilities 50.7 77.8
Capital stock:
Common stock, issued 24,096,849 shares in
1999 and 23,879,092 shares in 1998 0.2 0.2
Series I non-voting common stock, issued
2,720,000 shares in 1999 and 1998 - -
Capital in excess of par value 37.6 35.2
Retained earnings 83.9 70.8
Accumulated other comprehensive income:
Currency translation adjustment (1.3) (1.5)
------------ ------------
120.4 104.7
Treasury common stock, at cost, 7,148,207 shares
in 1999 and 2,768,339 shares in 1998 (89.7) (7.8)
Total shareholders' equity 30.7 96.9
------------ ------------
Total liabilities and shareholders' equity $ 343.7 $ 431.9
============ ============
(See accompanying notes to consolidated financial statements)
Burns International Services Corporation
Consolidated Statement of Cash Flows
Year ended December 31,
-----------------------------------------------
(millions of dollars) 1999 1998 1997
----------- ------------ ------------
OPERATING:
Continuing operations:
Earnings from continuing operations $ 25.2 $ 15.1 $ 25.8
Adjustments to reconcile net earnings to net cash
provided by continuing operations:
Non-cash charges to earnings:
Depreciation and amortization 11.1 10.7 13.1
Provision for losses on receivables 5.4 5.1 3.1
Deferred income taxes 36.7 (5.5) 7.7
Adjustment to excess purchase price 1.1 5.5 --
Other, net (0.1) 0.8 --
Changes in assets and liabilities:
Increase in receivables (52.2) (16.9) (17.0)
(Increase) decrease in other current assets (31.5) 3.3 6.5
Increase (decrease) in accounts payable and accrued expenses 9.5 42.6 (23.1)
Net change in other long-term assets and liabilities (32.2) (30.0) (0.9)
Gain on sale of assets of armored services unit -- -- (2.2)
----------- ------------ ------------
Net cash (used in) provided by continuing operations (27.0) 30.7 13.0
Discontinued operations:
Net loss, excluding gain on Wells Fargo Alarm sale -- (22.2) (6.8)
Other cash related to discontinued operations (1.8) (17.5) (0.3)
----------- ------------ ------------
Net cash used in discontinued operations (1.8) (39.7) (7.1)
----------- ------------ ------------
Net cash (used in) provided by operating activities (28.8) (9.0) 5.9
INVESTING:
Capital expenditures (11.0) (6.9) (4.3)
Proceeds from sale of subsidiaries, net of tax paid ($58.5
million in 1998) -- 362.9 92.9
Proceeds from assets sales 0.7 6.7 --
Net cash paid for acquisitions (3.3) (11.5) --
Other, net -- 0.2 0.1
----------- ------------ ------------
Net cash (used in) provided by investing activities (13.6) 351.4 88.7
FINANCING:
Increase (decrease) in overdraft facility and notes payable 1.3 1.1 (1.5)
Increase (decrease) in debt outstanding under senior credit
facility 133.4 (63.9) (22.9)
Increase (decrease) in receivables sold 32.6 (20.0) (7.8)
Issuance of long-term debt -- -- 125.0
Retirement of long-term debt (124.2) (150.0) (197.8)
Treasury shares (acquired) sold (81.9) (0.1) 1.1
Repurchase of old BW Corporation shares -- (7.9) --
Premium on extinguishment of debt (16.7) (6.8) --
Other, net 2.6 2.9 1.9
----------- ------------ ------------
Net cash used in financing activities (52.9) (244.7) (102.0)
Net (decrease) increase in cash and cash equivalents (95.3) 97.7 (7.4)
Cash and cash equivalents at beginning of year 105.7 8.0 15.4
----------- ------------ ------------
Cash and cash equivalents at end of year $ 10.4 $ 105.7 $ 8.0
=========== ============ ============
Supplemental cash flow information:
Interest paid $ 19.2 $ 34.6 $ 40.8
Income taxes paid 3.0 60.4 9.4
(See accompanying notes to consolidated financial statements)
Burns International Services Corporation
Consolidated Statement of Shareholders' Equity
Year Ended December 31,
--------------------------------------------------------------------------------------
1999 1998 1997
------------------------- -------------------------- ---------------------------
(millions of dollars, except share data) Shares Amount Shares Amount Shares Amount
------------ ---------- ------------ ---------- ------------ -----------
Common Stock Issued
Beginning balance 26,599,092 $ 0.2 26,082,806 $ 0.2 25,166,100 $ 0.2
Shares issued under stock option and
related plans 217,757 -- 266,686 -- 16,706 --
Conversion of Series I non-voting shares
to common shares -- -- 249,600 -- 900,000 --
------------ ---------- ------------ ---------- ------------ -----------
Balance at December 31 26,816,849 0.2 26,599,092 0.2 26,082,806 0.2
------------ ---------- ------------ ---------- ------------ -----------
Capital in Excess of Par Value
Beginning balance 35.2 30.8 29.0
Shares issued under stock option and
related plans 2.2 3.2 1.0
Tax benefit from trust distribution and
exercise of stock options 0.2 1.2 0.8
---------- ---------- -----------
Balance at December 31 37.6 35.2 30.8
---------- ---------- -----------
Retained Earnings
Beginning balance 70.8 41.7 20.6
Net earnings 13.1 29.1 19.0
Adjustment for deferred pension
experience loss -- -- 2.1
---------- ---------- -----------
Balance at December 31 83.9 70.8 41.7
---------- ---------- -----------
Notes Receivable-Management Stock Purchase
Beginning balance -- -- (0.3)
Net activity -- -- 0.3
---------- ---------- -----------
Balance at December 31 -- -- --
---------- ---------- -----------
Accumulated Other Comprehensive Income-
Currency Translation Adjustment
Beginning balance (1.5) -- 0.5
Current year adjustment 0.2 (1.5) (0.5)
---------- ---------- -----------
Balance at December 31 (1.3) (1.5) --
---------- ---------- -----------
Treasury Stock
Beginning balance 2,768,339 (7.8) 2,506,400 (7.7) 1,862,311 (8.8)
Shares issued under stock
option and related plans (14,950) 0.2 -- -- (255,911) 1.1
Shares acquired 4,394,818 (82.1) 12,339 (0.1) -- --
Conversion of Series I non-voting
shares to common shares -- 249,600 900,000
------------ ---------- ------------ ---------- ------------ -----------
Balance at December 31 7,148,207 (89.7) 2,768,339 (7.8) 2,506,400 (7.7)
============ ========== ============ ========== ============ ===========
Total shareholders' equity $ 30.7 $ 96.9 $ 65.0
========== ========== ===========
(See accompanying notes to consolidated financial statements)
Note 1-Summary of Significant Accounting Policies
The following paragraphs briefly describe significant accounting policies.
Certain amounts in the Consolidated Financial Statements have been reclassified
to conform to the 1999 presentation.
Principles of Consolidation
The consolidated financial statements include all significant subsidiaries. Due
to the May 29, 1998 sales of the electronic security and courier services units,
the assets, liabilities, results of operations and cash flows of such units have
been segregated and reported as discontinued operations for all periods
presented. Previously reported results have been restated (see Note 4). The
Company's 49% investment in Loomis, Fargo is accounted for under the equity
method (see Note 3).
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and use assumptions that affect the reported amounts and related disclosures.
Actual results may differ from those estimates. Specifically, the allowance for
doubtful accounts is a reasonable estimate based on historic trends and
information currently available to management.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash and short-term investments
in money market funds.
Property, Plant and Equipment and Depreciation
Property, plant and equipment is carried at cost less accumulated depreciation.
Expenditures for maintenance, repairs and renewals of relatively minor items are
generally charged to expense as incurred. Renewals of significant items are
capitalized. Depreciation is computed generally on the straight-line method
over the following estimated useful lives:
Buildings and improvements 40 years
Equipment 3 to 5 years
Capitalized software 5 years
Amortization of Excess Purchase Price Over Net Assets Acquired
The excess of purchase price over net assets acquired is amortized on a
straight-line basis over 5 to 40 years, with the majority being amortized over
35 to 40 years. The Company periodically reviews its operations to determine
whether there has been a diminution in value of its excess purchase price over
net assets acquired. As a result of such review, based on anticipated future
cash flows, the Company adjusted the carrying value of such excess purchase
price related to certain security services acquisitions by $1.1 million in 1999
and $5.5 million in 1998. The charges are included in selling, general and
administrative expenses in the Consolidated Statement of Operations and
Comprehensive Income.
Derivative Financial Instruments
The Company periodically uses off-balance-sheet interest rate swap agreements to
manage exposure to interest rate fluctuations. The Company does not use
derivative instruments for speculative purposes. The differential paid or
received on interest rate swap agreements is recognized as an adjustment to
interest expense in the period incurred or earned. Two interest rate swap
agreements were outstanding as of December 31, 1999. None were outstanding at
December 31, 1998.
Casualty Insurance Liabilities
The Company has accrued a discounted liability for the retained portion of
insurance costs related to its various deductible policies. This insurance
liability is determined by the Company based on claims filed and an estimate of
claims incurred but not yet reported (see Note 2).
Revenue Recognition
Revenue is recognized at the time services are provided. In certain
circumstances this can result in revenue recognition prior to customer billing.
Retirement Benefit Plans
A number of eligible salaried and hourly employees participate in contributory
or noncontributory defined benefit or defined contribution plans. Funding policy
is based upon independent actuarial valuations and is within the limits required
by ERISA for U.S. defined benefit plans.
The benefits provided to certain salaried employees covered under various
defined benefit plans are based on years of service and final average pay and
utilize the projected unit credit method for cost allocation. The benefits
provided to certain hourly employees under various defined benefit plans are
based on years of service and utilize the unit credit method for cost
allocation.
Under the defined contribution plans, contributions by the Company or its
subsidiaries sponsoring the plans are based on the employees' salary, age, years
of service, and/or a fixed schedule. These contributions are charged to
earnings as they are made to the various plans (see Note 9).
Stock Options
The Company uses the intrinsic value method of accounting for stock-based
compensation expense under APB 25. The impact of using the fair value method is
included in the notes to the financial statements (see Note 10).
Income Taxes
Income taxes are determined using the liability method, under which deferred tax
assets and liabilities are determined based on the differences between the
financial accounting and tax bases of assets and liabilities. Deferred tax
assets or liabilities at the end of each period are determined using the
currently enacted tax rate expected to apply to taxable income in the periods in
which the deferred tax asset or liability is expected to be settled or realized
(see Note 13).
Earnings Per Common Share (EPS)
Earnings per share is presented on a basic and a fully diluted basis in the
financial statements. Basic EPS is based on average outstanding common shares.
Diluted EPS is based on average outstanding common shares and common share
equivalents. Common share equivalents recognize the dilutive effects of common
shares which may be issued in the future upon exercise of certain stock options
(see Note 15).
Comprehensive Income
Comprehensive income includes all changes in equity during a period except those
resulting from investments by or distributions to shareholders. For the
Company, comprehensive income consists of net income, foreign currency
translation adjustments and adjustments from any minimum pension liability.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133
will require the Company, to the extent it makes use of derivative financial
instruments, to record them on the balance sheet at fair value. Changes of the
fair value of derivatives will be recognized to earnings or other comprehensive
income, depending on whether the derivative is designated as part of a hedge
transaction. In June 1999, FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement 133," which postponed the effective date of SFAS 133 until calendar
year 2001. The Company has not yet determined the impact SFAS 133 will have
upon its financial position or results of operations.
Note 2-Balance Sheet Information
Detailed balance sheet data are as follows:
December 31,
-------------------------------
(millions of dollars) 1999 1998
------------ ----------
Receivables
Customers $ 67.8 $ 53.5
Other 0.1 9.4
----------- -----------
67.9 62.9
Less allowance for losses 8.0 7.0
----------- -----------
Net receivables $ 59.9 $ 55.9
=========== ===========
Other current assets
Retained interest in receivables $ 51.9 $ 15.7
Restricted interest-bearing cash deposits 5.0 37.6
Other 15.0 15.6
----------- -----------
Total other current assets $ 71.9 $ 68.9
=========== ===========
Other assets
Investment in joint venture $ 9.0 $ 7.1
Deferred pension asset 20.2 15.8
Other 3.8 6.9
----------- -----------
Total other assets $ 33.0 $ 29.8
=========== ===========
Accounts payable and accrued expenses
Trade payables $ 19.6 $ 21.8
Payroll and related 39.0 36.4
Casualty insurance 35.5 31.0
Other 31.0 41.3
----------- -----------
Total accounts payable and accrued expenses $ 125.1 $ 130.5
=========== ===========
The Company has an agreement to sell a revolving pool of trade accounts
receivable to a special purpose subsidiary of the Company. Under the facility
the subsidiary can sell up to a $120 million undivided interest in such accounts
receivable. At December 31, 1999, the subsidiary had purchased $171.9 million
of the Company's accounts receivable and sold a $120.0 million undivided
interest in such receivables. At December 31, 1998, the subsidiary had
purchased $135.7 million of the Company's accounts receivable and had sold an
undivided interest therein equal to $120.0 million. The subsidiary's unsold
interest in such receivables is considered an interest in a security and is
included in "Other current assets." The fair value of the retained interest
approximates its carrying value due to the short-term nature of the receivables.
Also included in "Other current assets" is $5.0 million and $37.6 million at
December 31, 1999 and 1998, respectively, representing interest-bearing cash
deposits held in trust under the terms of the agreement. The deposits represent
proceeds of collections held back based on the amount of eligible receivables in
the pool. The Company's retained interests in the receivables and cash deposits
are generally restricted.
Selling, general and administrative expenses include provisions for losses on
receivables of $5.4 million, $5.1 million and $3.1 million in 1999, 1998 and
1997, respectively.
Accumulated amortization related to excess purchase price over net assets
acquired amounted to $17.9 million and $53.7 million at December 31, 1999 and
1998, respectively.
Trade payables include checks outstanding in excess of bank deposits in the
Company's central disbursement accounts, since
arrangements with the banks generally do not call for reimbursement until checks
are presented for payment. Such amounts were $19.1 million and $21.1 million at
December 31, 1999 and 1998, respectively.
The non-current portion of the casualty insurance liability, included in other
long-term liabilities, was $32.4 million and $47.9 million at December 31, 1999
and 1998, respectively. The total discounted insurance accrual, including the
portion reflected in accounts payable and accrued liabilities after allowing for
discounting of future liabilities, was $67.9 million and $78.9 million at
December 31, 1999 and 1998, respectively. The estimated aggregate undiscounted
insurance liability was $76.4 million and $85.2 million at December 31, 1999 and
1998, respectively. The discount rate used to value the future obligation was
6.3% and 4.5% at December 31, 1999 and 1998, respectively.
Note 3-Investment in Affiliates
On January 24, 1997, the Company's armored security services unit entered into a
business combination with Loomis Armored. The combined company, known as
Loomis, Fargo & Co., is owned 51 percent by the former Loomis shareholders and
49 percent by the Company. The Company's armored services unit contributed
substantially all of its assets and assigned certain of its liabilities to
Loomis, Fargo in exchange for (i) 4,900,000 shares of Loomis, Fargo common stock
and (ii) a cash payment of approximately $105 million which includes amounts
paid to satisfy intercompany indebtedness assumed by Loomis, Fargo. The cash
proceeds received were net of transaction costs and subject to certain
adjustments.
The business combination impacts the comparison of the Company's 1999 and 1998
results to prior periods because the armored services unit was included in the
Company's results of consolidated operations for 23 days in 1997. Armored
security revenues were $15.3 million and operating profit was $0.9 million in
1997.
The Company accounts for its interest in Loomis, Fargo as an equity investment.
The Company recorded net income related to Loomis, Fargo of $1.9 million in
1999, $0.1 million in 1998, and $1.1 million in 1997, including a $2.2 million
gain recognized in the combination. The Company does not guarantee the
indebtedness of Loomis, Fargo nor is it required to fund Loomis, Fargo's future
operations.
Note 4-Discontinued Operations
On May 29, 1998, the Company sold its electronic security services unit to ADT
Security Services, a subsidiary of Tyco International, Ltd., for approximately
$425 million plus the assumption of approximately $6 million of debt by the
buyer. The Company recorded a net after-tax gain of $42.5 million in the second
quarter of 1998.
On May 29, 1998, the Company sold its courier services unit. In the first
quarter of 1998, the Company recorded a $15.9 million after-tax charge (net of
$11.0 million tax benefit) to reduce its investment in this unit, to provide for
costs associated with its disposition, and for anticipated further losses prior
to sale. No gain or loss was recorded as a result of completing the sale.
Courier services had been carried as a discontinued operation since September
1996, when the Company reduced the assets to realizable value and provided for
anticipated future operating losses.
The assets, liabilities, results of operations and cash flows have been
segregated and reported as discontinued operations for all periods presented.
Previously reported discontinued operations have been restated to reflect the
discontinued presentation of both units.
Year ended December 31,
- -------------------------------------------------------------------------------------
(millions of dollars, except per share) 1998 1997
- -------------------------------------------------------------------------------------
Net service revenues :
Electronic security services unit $ 81.2 $243.4
Courier services unit 56.0 142.2
- -------------------------------------------------------------------------------------
Total net service revenue $137.2 $385.6
- -------------------------------------------------------------------------------------
Net income (loss) from discontinued operations:
Electronic security services loss from operations before $(10.3) $(10.8)
income taxes
Income tax benefit 4.0 4.0
- -------------------------------------------------------------------------------------
Loss from operations (6.3) (6.8)
Adjustment of courier assets to realizable value and
provision for future losses (net of $11.0 million tax (15.9) --
benefit in 1998)
Gain on sale of electronic security services unit (net of
$59.8 million tax expense) 42.5 --
- -------------------------------------------------------------------------------------
Net income (loss) from discontinued operations $ 20.3 $ (6.8)
- -------------------------------------------------------------------------------------
Discontinued operations income (loss) per common share
(fully diluted):
Loss from operations $(0.27) $(0.28)
Gain on sale and net asset adjustment 1.10 --
- -------------------------------------------------------------------------------------
Income (loss) per common share $ 0.83 $(0.28)
- -------------------------------------------------------------------------------------
Note 5-Overdraft Facility and Long-Term Debt
The following is a summary of all borrowings of the Company and its consolidated
subsidiaries:
December 31, 1999 December 31, 1998
----------------------------- -----------------------------
(millions of dollars) Current Long-Term Current Long-Term
--------- ----------- --------- -----------
9-5/8% senior subordinated notes due 2007 $--- $ 0.2 $--- $124.4
Senior credit facility (at an average rate
of 7.7% in 1999) --- 133.4 --- ---
Overdraft facilities (at an average rate
of 6.9% in 1999 and 8.8% in 1998) 3.6 --- 2.3 ---
--------- ----------- --------- -----------
Total overdraft facility and long-term debt $3.6 $133.6 $2.3 $124.4
========= =========== ========= ===========
Included in long-term debt at December 31, 1999 and 1998 were obligations of
$0.2 million and $124.4 million, respectively, with fixed interest rates. At
December 31, 1999 there was $133.4 million of long-term debt with variable
interest rates (generally based on LIBOR or bank prime rates).
In 1999, the Company tendered for early redemption of $124.8 million gross
principal amount of its 9 5/8% senior subordinated notes. The Company recorded a
$12.1 million extraordinary charge (net of a $7.8 million tax benefit) in the
second quarter of 1999 associated with the costs of early redemption and the
write-off of certain deferred financing fees. Prior to the tender, the Company
amended its existing senior credit facility to provide flexibility for a
subsequent repurchase of common stock.
In 1998, the Company called the entire $150 million gross principal amount of
its 9 1/8% senior subordinated notes for early redemption. The Company recorded
a $6.3 million extraordinary charge (net of a $4.1 million tax benefit) in the
second quarter of 1998 associated with its early redemption and the write-off of
certain deferred financing fees.
The Company's senior credit facility, which carries a $225 million maximum
commitment from a group of financial institutions, provides for revolving
borrowings and bank letters of credit. Up to $125 million of the facility is
available for letters of credit. Borrowing availability under the facility
commitment is reduced by the total dollar amount of letters of credit issued and
outstanding under the facility, which totaled $47.1 million and $93.2 million at
December 31, 1999 and 1998, respectively. The entire facility is available
through March 31, 2002. The Company established an additional $12.5 million
letter of credit in the fourth quarter of 1999 that was issued outside of the
senior credit facility and does not utilize the facility's borrowing capacity.
On January 7, 2000, the Company announced it had amended its credit facility to
allow potential additional borrowing, and had arranged for a short-term
additional credit facility in an amount up to $15 million for potential working
capital requirements during the transition to new financial and invoicing
systems and software. The additional credit facility was not utilized and was
cancelled by the Company on February 14, 2000.
The Company has experienced delays in customer invoicing and collection of
receivables during implementation of its new financial and invoicing software.
As a result, the Company is arranging an amendment to certain financial
covenants in its senior credit facility that may be required to maintain
continued borrowing capacity. The Company believes that its invoicing timelines
and receivables levels will return to normal in the second quarter of 2000.
The credit facilities contain numerous financial and operating covenants
including, among others, covenants requiring the Company to maintain certain
financial ratios and restricting its ability to incur additional indebtedness,
to create or permit to exist certain liens, to pay dividends, or to make certain
other restricted payments. To secure its obligations under these facilities, the
Company has pledged the stock of certain of its subsidiaries.
Note 6-Fair Value of Financial Instruments
The methods and assumptions used to estimate the fair value of each class of
financial instrument are as follows:
Cash and cash equivalents, receivables, notes payable and accounts payable
The carrying amounts approximate fair value because of the short maturity of
these instruments.
Long-term debt
The fair values of the Company's long-term debt are estimated based on quoted
market prices of the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The carrying amounts and
fair values of long-term debt at December 31, 1999 and 1998 were as follows:
December 31,
------------------------
(millions of dollars) 1999 1998
-------- --------
Carrying amount $133.6 $124.4
Fair value 133.6 134.0
Interest rate swaps
There were two interest rate swap agreements outstanding at December 31, 1999,
in the amounts of $50.0 million maturing June 15, 2001 with a fixed rate of
6.015% and $25.0 million maturing June 15, 2000 with a fixed rate of 5.6375%.
In both swap agreements, the Company receives variable rate payments based on 3-
month LIBOR and pays fixed rate payments based on the terms of each swap. Both
swaps call for settlement on a quarterly basis. The aggregate fair value of the
two swap agreements is estimated at a $0.4 million asset.
Letters of credit
The Company utilizes third-party letters of credit to guarantee certain casualty
insurance activities. The letters of credit reflect fair value as a condition
of their underlying purpose and are subject to fees competitively determined in
the marketplace. The contract value and fair value of the letters of credit
were $59.6 million at December 31, 1999 and $93.2 million at December 31, 1998.
Letters of credit of $12.5 million outstanding at December 31, 1999 are issued
outside of the Company's senior credit facility, and do not utilize the
facility's borrowing capacity. To assure the ability of counter-parties to
perform, these letters of credit are only executed with major financial
institutions.
Note 7-Commitments
The Company is committed to pay rents on non-cancelable operating leases with
terms exceeding one year. Future rental commitments are summarized at December
31, 1999 as follows:
Fiscal year (millions of dollars)
----------- ---------------------
2000 $11.2
2001 8.1
2002 5.2
2003 2.8
2004 1.7
2005 and after 4.6
---------------------
Total $33.6
=====================
Total rental expense amounted to $15.7 million, $14.3 million and $12.3 million
in 1999, 1998 and 1997, respectively.
Note 8-Contingent Liabilities
On April 28, 1999, the Mission Trust and the Company settled a lawsuit against
the Company related to the Company's discontinued property and casualty
insurance subsidiary, Centaur Insurance Company, which ceased writing insurance
in 1984. The suit had alleged damages in excess of $100 million against the
Company due to Centaur's failure to satisfy its reinsurance obligations to
Mission. As part of the settlement, the Company paid the Mission Trust $4
million in the second quarter of 1999, and agreed to pay one-third of any future
dividend or other distribution that may be paid to the Company after
rehabilitation of Centaur.
The Company and certain of its current and former subsidiaries have been
identified by the U.S. Environmental Protection Agency and certain state
environmental agencies as potentially responsible parties ("PRPs") at several
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") and equivalent state laws and, as
such, may be liable for the cost of cleanup and other remedial activities at
these sites. Responsibility for cleanup and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
The Company believes that none of these matters individually or in the aggregate
will have a material adverse effect on its financial position or future
operating results, generally either because the maximum potential liability at a
site is not large or because liability will be shared with other PRPs, although
no assurance can be given with respect to the ultimate outcome of any such
liability. Based on its estimate of allocations of liability among PRPs, the
probability that other PRPs, many of whom are large, solvent public companies,
will fully pay the costs allocated to them, currently available information
concerning the scope of contamination at such sites, estimated remediation costs
at such sites, indemnification obligations in favor of the Company from the
current owners of certain sold or discontinued operations, estimated legal fees
and other factors, the Company has made provisions for indicated environmental
liabilities in the aggregate amount of approximately $2 million. Additionally,
the Company will be indemnified by its former subsidiary, BorgWarner Inc.,
against certain future costs relating to environmental liabilities associated
with certain former automotive operations.
In November and December, 1998, Loomis, Fargo & Company ("Loomis, Fargo") made
various claims against the Company for indemnification, under the Contribution
Agreement dated November 28, 1996 under which Loomis, Fargo was formed, for
certain cargo losses and environmental losses. The Company and Loomis, Fargo
resolved all such matters in 1999 without a material adverse effect on the
Company.
The Company believes that the various asserted claims and litigation in which it
is involved will not materially affect its financial position, future operating
results or cash flows, although no assurance can be given with respect to the
ultimate outcome of any such claim or litigation.
Note 9-Retirement Benefits
The Company provides various defined benefit and contribution plans as well as
other post-retirement benefit plans to employees. The following provides a
reconciliation of benefit obligations, plan assets, and funded status of plans.
------------------------------- --------------------------------
Pension Benefits Other Post-retirement Benefits
------------------------------- --------------------------------
(millions of dollars) 1999 1998 1999 1998
Change in benefit obligation
Benefit obligation at January 1 $108.6 $106.6 $ 11.2 $ 10.8
Service cost 0.6 1.4 -- --
Interest cost 7.1 7.5 0.3 0.3
Actuarial (gain) loss (8.6) 3.3 2.9 1.2
Curtailment gain -- (0.9) -- --
Benefits paid from plan assets (8.6) (9.3) (1.1) (1.1)
------------------------------- --------------------------------
Benefit obligation at December 31 $ 99.1 $108.6 $ 13.3 $ 11.2
=============================== ================================
Change in plan assets
Fair value of plan assets at January 1 $139.4 $124.4
Actual return on plan assets 13.5 24.3
Company contributions 0.1 --
Benefits paid from plan assets (8.6) (9.3)
-------------------------------
Fair value of plan assets at December 31 $144.4 $139.4
===============================
Funded status of the plans $ 45.3 $ 30.8 $(13.3) $(11.2)
Unrecognized actuarial (gain) loss (25.3) (15.2) 2.6 (0.3)
Unrecognized prior service cost 0.2 0.2 -- --
------------------------------- --------------------------------
Prepaid (accrued) benefit cost $ 20.2 $ 15.8 $(10.7) $(11.5)
=============================== ================================
Assumptions as of December 31
Discount rate 8.00% 7.00% 8.00% 7.00%
Expected return on plan assets 10.00% 10.00% n/a n/a
Rate of compensation increase 4.00% 4.00% n/a n/a
Medical trend for valuation year n/a n/a 8.00-10.00% 7.00%
Medical cost escalation, long-term n/a n/a 5.25% 5.25%
For measurement purposes, an 8.00% and 10.00% annual rate of increase in the per
capita cost of covered health care benefits for pre-medicare and post-medicare,
respectively, was assumed for 2000. The rate was assumed to decrease gradually
to 5.25% for 2005, and remain at that level thereafter.
Assumed health care cost trend rates have an effect on the amounts reported for
the other post-retirement benefit plans. A 1% change in assumed health care
cost trend rates would have the following effects:
(millions of dollars) 1% Increase 1% Decrease
- ------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components in 1999 $0.1 ($0.1)
Effect on post-retirement benefit obligation as of December 31, 1999 1.0 (0.9)
Net periodic pension and other post-retirement benefit costs include the
following components:
Pension Benefits Other Post-retirement Benefits
--------------------------------------- --------------------------------------
(millions of dollars) 1999 1998 1997 1999 1998 1997
--------------------------------------- --------------------------------------
Service cost $ 0.6 $ 1.4 $ 2.4 $ -- $ -- $ --
Interest cost 7.1 7.5 7.6 0.3 0.3 0.3
Return on plan assets (expected) (12.0) (10.8) (9.4) -- -- --
Amortization and deferrals -- 0.1 0.5 0.1 -- --
--------------------------------------- --------------------------------------
Subtotal (4.3) (1.8) 1.1 0.4 0.3 0.3
Curtailment gain -- (0.5) (3.7) -- -- --
--------------------------------------- --------------------------------------
Net periodic (benefit) cost $ (4.3) $ (2.3) $(2.6) $ 0.4 $ 0.3 $ 0.3
======================================= ======================================
Defined contribution plan expenses were $1.1 million, $1.2 million, and $1.5
million in 1999, 1998, and 1997, respectively.
Under the provisions of SFAS No. 88, "Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
benefit freezes resulted in the recognition of gains in 1998 and 1997. These
gains resulted from the net decrease in the Company's benefit obligation for
employees affected by the armored unit combination with Loomis Armored and other
benefit freezes. Assets held in trust for the defined benefit plans are
comprised primarily of marketable equity and fixed income securities.
Note 10 - Stock Incentive Plans
The Company's stock incentive plans authorize the grant of options to purchase
shares of the Company's common stock. The options are granted to key employees
and directors at the market price on the date of grant and carry ten year lives.
Vesting periods vary among individual grants, ranging from less than one year to
seven years. Certain options granted in 1999 accelerate their vesting periods
from seven years to three years or less if preset Company performance goals are
reached.
Under other stock incentive programs, the Company granted 100,000 shares of
restricted stock in 1999. The shares vest in equal installments over the next
five years. Under the Company's Performance Share plan, approximately 111,400
previously granted performance shares vested to key employees during 1999.
Total compensation expense recorded for stock incentive programs was $1.3
million in 1999 and $0.1 million 1998.
Common shares under option for the years ended December 31, 1999, 1998, and 1997
are summarized as follows:
Number of Shares (thousands of shares) Weighted-Average Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Shares under option at January 1 1,547 1,972 1,545 $12.49 $12.38 $12.20
Granted 1,467 39 843 16.86 18.90 11.30
Exercised (71) (267) (273) 12.79 11.04 6.12
Cancelled -- (104) -- -- 14.83 --
Forfeited (98) (93) (143) 17.35 14.29 16.03
- --------------------------------------------------------------------------------------------------------------------------
Shares under option at end of year 2,845 1,547 1,972 $14.57 $12.49 $12.38
- --------------------------------------------------------------------------------------------------------------------------
Options exercisable 1,061 820 917
- ------------------------------------------------------------------------------------
Shares available for future grant 622 713 664
- ------------------------------------------------------------------------------------
Weighted-average fair value of options
granted during the year $ 8.69 $ 7.12 $ 4.39
- ------------------------------------------------------------------------------------
Additional information regarding options outstanding as of December 31, 1999 is
as follows (thousands of shares):
Options Outstanding Options Exercisable
------------------------------------------------------------- -----------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life (yrs) Exercise Price Exercisable Exercise Price
- --------------------------------------------------------------------------------------------------------------------------
$ 8.44-8.91 326 5.7 $ 8.52 300 $ 8.49
10.22-15.94 1,131 7.3 11.60 536 12.38
16.03-18.83 1,312 8.1 18.30 175 17.83
19.88-21.59 76 5.9 20.47 50 20.02
- --------------------------------------------------------------------------------------------------------------------------
$ 8.44-21.59 2,845 7.5 14.57 1,061 12.54
- --------------------------------------------------------------------------------------------------------------------------
Approximately 1,784,000 options outstanding are not presently exercisable.
The Company has retained the "intrinsic value" method of accounting for stock-
based compensation expense under APB 25. Accordingly, no compensation expense is
recorded for stock option awards given to employees. Had the Company elected
"fair value" presentation under SFAS 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
Year Ended December 31,
- -------------------------------------------------------------------------------
(millions of dollars, except per share) 1999 1998
- -------------------------------------------------------------------------------
Net income As reported $ 13.1 $ 29.1
Pro forma 10.7 28.5
Earnings per share-basic As reported $ 0.60 $ 1.24
Pro forma 0.49 1.21
Earnings per share-diluted As reported $ 0.59 $ 1.21
Pro forma 0.48 1.18
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used in valuing grants in 1999 and 1998, respectively: expected
volatility of 47% and 40%; risk-free interest rates of 6.33-6.61% and 4.54-
4.72%; and expected lives of 5-8 years and 4 years.
Note 11 - Business Segment Information
General Information - The Company provides security officers to deter crime,
monitor electronic security systems and control public and private access to
facilities, and it performs general investigative services and background
screening of individuals, primarily upon their consideration for employment by a
client. The Company also offers non-security related services to customers
through its temporary employee leasing operation, Burns International Staffing.
The Company's largest segment, Domestic Industrial, provides security services
to clients in a wide variety of industries across the United States. Industrial
security segments in Canada, Europe and Colombia serve similar industries abroad
and are aggregated into the Foreign Industrial segment. The unique security
needs of the aviation industry, and the regulated and governmental sectors of
the economy are serviced by the Company's Globe Aviation and Energy/Government
segments. These two segments, along with the Investigative Services,
Information Services (background screening) and Burns International Staffing
segments, are grouped together and reported as "Other".
The Company has changed the format under which it reviews segment operating
performance. The segments are currently evaluated based primarily on operating
income before interest expense, finance charges and taxes, and exclusive of bad
debt provisions and corporate expense allocations. Prior period disclosures
have been changed to conform to the current presentation. The Company does not
allocate assets to individual segments because asset deployment is not material
for management of the business. The accounting policies for the segments are
the same as those described in Note 1. Unallocated amounts include: year-end
calendar accrual adjustments to revenue, depreciation and amortization not
allocated to operating segments, consolidated benefits from risk management and
pension operations and other costs not allocated to operating segments, and
$15.3 million revenue and $0.9 million operating income from the armored
security services unit for 23 days in 1997. Information concerning the segments
is set forth below:
Domestic Foreign Unallocated
(millions of dollars) Industrial Industrial Other Amounts Consolidated
- ----------------------------------------------------------------------------------------------------------------------------
1999
- ----------------------------------------------------------------------------------------------------------------------------
Revenue $1,031.6 $130.4 $211.5 $ 5.1 $1,378.6
Depreciation and amortization 3.1 1.6 0.7 1.8 7.2
Operating income 71.6 (1.9) 3.2 6.9 79.8
1998
- ----------------------------------------------------------------------------------------------------------------------------
Revenue $ 981.0 $121.1 $219.0 $ 2.3 $1,323.4
Depreciation and amortization 2.0 1.2 0.9 4.9 9.0
Operating income 68.7 2.9 10.3 0.8 82.7
1997
- ----------------------------------------------------------------------------------------------------------------------------
Revenue $ 974.0 $116.9 $197.5 $16.2 $1,304.6
Depreciation and amortization 1.8 1.1 0.9 5.2 9.0
Operating income 66.2 4.5 12.3 2.3 85.3
The following reconciles combined segment operating income to consolidated
earnings before income taxes:
(millions of dollars) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Combined segment operating income $ 79.8 $ 82.7 $ 85.3
Unallocated items, net (21.6) (40.7) (24.7)
Amortization of excess purchase price not included in operating income (2.1) (0.4) (2.1)
Depreciation not included in operating income (1.8) (1.3) (2.0)
Equity income in joint venture 1.9 0.1 1.1
Interest expense (16.4) (15.5) (16.7)
- ----------------------------------------------------------------------------------------------------------------------------
Consolidated earnings before income taxes $ 39.8 $ 24.9 $ 40.9
Unallocated items include corporate administrative expense and operating charges
not used in evaluating segment performance. Included in 1998 is a $14.4 million
charge from the reorganization of administrative support operations, the
reduction of certain intangible assets and other provisions.
Information about Major Customers - The Company has no individual customer from
whom it derives 10% or more of its revenues.
Information on Long-Lived Assets - The Company's long-lived assets include
plant, property and equipment, and intangibles. Long-lived assets in the United
States were $119.7 million and $119.0 million in 1999 and 1998, respectively.
Long-lived foreign assets were $11.0 million and $10.2 million in 1999 and 1998,
respectively. No assets attributed to an individual foreign country exceed 10%
or more of consolidated assets.
Note 12 - Other Expense
Other expense, net is comprised of the following:
December 31,
(millions of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------------------------
Excess purchase price amortization $ 5.4 $ 6.5 $ 8.1
Loomis, Fargo income (1.9) (0.1) (1.1)
- --------------------------------------------------------------------------------------------------
Total other expense, net $ 3.5 $ 6.4 $ 7.0
==================================================================================================
Note 13 - Income Taxes
Earnings before income taxes from continuing operations and provision for income
taxes consist of:
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(millions of dollars) U.S. Non-U.S. Total U.S. Non-U.S. Total U.S. Non-U.S. Total
- ----------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 46.6 ($6.8) $ 39.8 $22.6 $2.3 $24.9 $37.5 $3.4 $40.9
============================================================================================================================
Income taxes:
Current:
Federal/Foreign ($23.5) $ 0.5 ($23.0) $ 9.0 $1.2 $10.2 $ 4.9 $1.0 $ 5.9
State 0.9 -- 0.9 1.5 -- 1.5 1.5 -- 1.5
- ----------------------------------------------------------------------------------------------------------------------------
(22.6) 0.5 (22.1) 10.5 1.2 11.7 6.4 1.0 7.4
Deferred 39.2 (2.5) 36.7 (1.9) -- (1.9) 7.7 -- 7.7
- ----------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 16.6 ($2.0) $ 14.6 $ 8.6 $1.2 $ 9.8 $14.1 $1.0 $15.1
============================================================================================================================
The analysis of the variance of income taxes as reported from income taxes
computed at the U.S. statutory federal income tax rate for continuing operations
is as follows:
(million of dollars) 1999 1998 1997
- ------------------------------------------------------------------------------------------
Income taxes at U.S. statutory rate of 35% $13.9 $ 8.7 $14.3
Increases (decreases) resulting from:
State income taxes 0.5 1.0 1.0
Non-temporary differences 0.8 0.2 0.1
Other, net (0.6) (0.1) (0.3)
- ------------------------------------------------------------------------------------------
Income taxes reported $14.6 $ 9.8 $15.1
==========================================================================================
The following are the components of the deferred tax asset as of December 31,
1999 and 1998:
(millions of dollars) 1999 1998
- -----------------------------------------------------------------------------------------------
Deferred tax assets:
Liabilities for casualty insurance $ -- $32.0
Liabilities related to discontinued operations -- 5.1
Liabilities for other post-retirement benefits 4.7 5.1
Fixed assets 1.1 --
Net operating loss carryforward 13.8 --
Other, net -- 3.4
General business credit 6.9 --
Minimum tax credit 24.3 5.5
- -----------------------------------------------------------------------------------------------
Subtotal deferred tax assets 50.8 51.1
- -----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Risk management subsidiary (31.0) --
Investments (12.7) (7.0)
Net excess purchase price over net assets acquired (1.3) (1.7)
Other, net (0.1) --
- -----------------------------------------------------------------------------------------------
Subtotal deferred tax liabilities (45.1) (8.7)
- -----------------------------------------------------------------------------------------------
Net deferred tax asset $ 5.7 $42.4
===============================================================================================
Responsibility for the strategic management and administration of certain of the
Company's casualty risks was transferred to a newly formed subsidiary in 1999.
As a result of this new structure, a capital loss was recognized by the Company
which may be carried back to recover taxes paid in prior years.
Note 14 - Capital Stock
The following table summarizes the Company's capital stock at December 31, 1999
and 1998:
December 31,
(thousands of shares) 1999 1998
---------- ----------
Common stock, $.01 par value:
Authorized 50,000.0 50,000.0
Issued 24,096.8 23,879.1
Outstanding 19,668.6 23,830.8
Series I non-voting common stock, $.01 par value:
Authorized 25,000.0 25,000.0
Issued 2,720.0 2,720.0
Outstanding --- ---
Preferred stock, $.01 par value:
Authorized 5,000.0 5,000.0
Issued and Outstanding --- ---
On October 26, 1999, the Board of Directors approved a Stockholder Rights Plan
designed to enhance the Board's ability to protect the Company's shareholders.
The plan was adopted to protect against unsolicited attempts to acquire control
of the Company when adequate price is not offered to all shareholders or the
offer is not in the best interest of the Company and its shareholders. The
rights were distributed as a dividend at the rate of one right for each share of
common stock, par value $0.01 per share ("Voting Common Stock"), and Series I
Non-Voting Common Stock, par value $0.01 per share (together with the Voting
Common Stock, the "Common Stock") held by stockholders of record at the close of
business on November 8, 1999. Each right entitles the holder to purchase, upon
the occurrence of certain events, one unit of a share of preferred stock for
$55.00, or an aggregate 196,318 shares of preferred stock. The rights generally
are exercisable only if a person or group acquires beneficial ownership of 15%
or more of Burns International Services Corporation's Common Stock or commences
a tender or exchange offer that, upon consummation, would result in a person or
group owning 15% or more of Burns International Services Corporation's Common
Stock. Under certain circumstances, the rights are redeemable at a price of
$0.01 per right. The rights will expire on November 8, 2009.
Note 15 - Earnings Per Share
1999 1998 1997
Per Share Per Share Per Share
(millions of dollars, except per share) Earnings Shares Amount Earnings Shares Amount Earnings Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations $25.2 $15.1 $25.8
Basic EPS
Earnings available to common
shareholders 25.2 21.6 $1.16 15.1 23.6 $0.64 25.8 23.5 $1.10
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Outstanding stock options -- 0.4 -- 0.4 -- 0.6
Diluted EPS
Earnings available to common
shareholders plus assumed conversions
$25.2 22.0 $1.14 $15.1 24.0 $0.64 $25.8 24.1 $1.07
- -----------------------------------------------------------------------------------------------------------------------------------
Note 16 - Acquisition of Businesses
The Company purchased two security services businesses in 1999, one in the
United States and one in Canada, for purchase prices totaling $3.3 million.
Three security services businesses were purchased in 1998, two located in the
United States and one with operations in England, Scotland and Ireland. The
purchase prices totaled $11.5 million. The results of operations of these
acquired businesses are included from the respective dates of acquisition. The
acquisitions were accounted for under the purchase method. Substantially all of
the purchase price amounts represent the excess of purchase price over net
assets acquired and are being amortized on a straight-line basis over 5 to 10
years. None of the acquisitions individually, or in the aggregate, had a
significant effect on revenues or the results of operations in 1999 or 1998.
Approximately $6.4 million was contributed to 1999 revenue from 1999
acquisitions, and approximately $12.5 million was contributed to 1998 revenue
from 1998 acquisitions.
Note 17-Interim Financial Information (Unaudited)
1999 Quarter Ended
(millions of dollars, except per share) Mar. 31 June 30 Sept. 30 Dec. 31 Year 1999
------------------------------------------------------------------------------------------------------------------
Net service revenues $330.5 $338.6 $349.4 $360.1 $1,378.6
Cost of services 277.4 284.9 295.0 304.0 1,161.3
Selling, general and administrative (1)(2) 36.2 36.4 37.5 41.8 151.9
Depreciation 1.2 1.3 1.5 1.7 5.7
Other expense, net (1) 1.3 1.0 0.8 0.4 3.5
Interest expense and finance charges 3.8 3.9 4.0 4.7 16.4
------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 10.6 11.1 10.6 7.5 39.8
Provision for income taxes 4.1 4.3 3.9 2.3 14.6
------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 6.5 6.8 6.7 5.2 25.2
Gain from discontinued operations, net of taxes --- --- --- --- ---
Extraordinary loss, early extinguishment of debt --- (12.1) --- --- (12.1)
------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 6.5 $ (5.3) $ 6.7 $ 5.2 $ 13.1
==================================================================================================================
Earnings (loss) per common share - basic:
Continuing operations $ 0.27 $ 0.30 $ 0.34 $ 0.26 $ 1.16
Discontinued operations --- --- --- --- ---
Extraordinary loss, early extinguishment of debt --- (0.53) --- --- (0.56)
------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ 0.27 $(0.23) $ 0.34 $ 0.26 $ 0.60
==================================================================================================================
Earnings (loss) per common share - diluted:
Continuing operations $ 0.27 $ 0.29 $ 0.33 $ 0.26 $ 1.14
Discontinued operations --- --- --- --- ---
Extraordinary loss, early extinguishment of debt --- (0.52) --- --- (0.55)
------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ 0.27 $(0.23) $ 0.33 $ 0.26 $ 0.59
==================================================================================================================
1998 Quarter Ended
(millions of dollars, except per share) Mar. 31 June 30 Sept. 30 Dec. 31 Year 1998
------------------------------------------------------------------------------------------------------------------
Net service revenues $318.6 $323.9 $336.6 $344.3 $1,323.4
Cost of services 269.1 273.0 284.2 290.4 1,116.7
Selling, general and administrative 35.7 50.0 35.5 34.5 155.7
Depreciation 1.0 1.0 1.0 1.2 4.2
Other expense, net 2.4 2.1 1.2 0.7 6.4
Interest expense and finance charges 4.2 4.2 3.4 3.7 15.5
------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 6.2 (6.4) 11.3 13.8 24.9
Provision (benefit) for income taxes 2.3 (2.4) 4.5 5.4 9.8
------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 3.9 (4.0) 6.8 8.4 15.1
Loss (gain) from discontinued operations, net of taxes (19.1) 39.4 --- --- 20.3
Extraordinary loss, early extinguishment of debt --- (6.3) --- --- (6.3)
------------------------------------------------------------------------------------------------------------------
Net (loss) earnings $(15.2) $ 29.1 $ 6.8 $ 8.4 $ 29.1
==================================================================================================================
Earnings (loss) per common share - basic:
Continuing operations $ 0.17 $(0.17) $ 0.29 $ 0.35 $ 0.64
Discontinued operations (0.81) 1.68 --- --- 0.87
Extraordinary loss, early extinguishment of debt --- (0.27) --- --- (0.27)
------------------------------------------------------------------------------------------------------------------
Net (loss) earnings per share $(0.64) $ 1.24 $ 0.29 $ 0.35 $ 1.24
==================================================================================================================
Earnings (loss) per common share - diluted:
Continuing operations $ 0.16 $(0.16) $ 0.29 $ 0.35 $ 0.64
Discontinued operations (0.79) 1.62 --- --- 0.83
Extraordinary loss, early extinguishment of debt --- (0.26) --- --- (0.26)
------------------------------------------------------------------------------------------------------------------
Net (loss) earnings per share $(0.63) $ 1.20 $ 0.29 $ 0.35 $ 1.21
==================================================================================================================
(1) Other expense, net, included $1.5 million of insurance settlement
proceeds in Form 10-Q filed May 17, 1999. Settlement proceeds are
reclassified to SG&A expenses for the current presentation.
(2) Included in SG&A expenses for quarter ended December 31, 1999, are
expenses totaling $3.6 million for severance costs and other provisions.
Independent Auditors' Report
To the Board of Directors and Shareholders,
Burns International Services Corporation
We have audited the consolidated balance sheets of Burns International
Services Corporation and subsidiaries ("the Company") as of December 31, 1999
and 1998, and the related consolidated statements of operations and
comprehensive income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Burns International Services
Corporation and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Chicago, Illinois
March 1, 2000
Directors, Officers and Shareholder Information
Officers
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Edwardson James M. Froisland Robert E.T. Lackey Craig J. Bollinger
Chairman, President Vice President Vice President, General Counsel Vice President, Risk
and Chief Executive Officer and Chief Financial Officer and Corporate Secretary Management
John D. O'Brien Nancy E. Kittle James F. McNulty Brian S. Cooper
Senior Vice President Vice President, Human Vice President Treasurer
and President, Burns International Resources and President, Total Security
Security Services Solutions
Directors
- -----------------------------------------------------------------------------------------------------------------------------------
John A. Edwardson /1/ James J. Burke, Jr. /2/ Albert J. Fitzgibbons, III /3, 4/ Arthur F. Golden /1, 2/
Chairman, President Partner Partner Partner
and Chief Executive Officer Stonington Partners Stonington Partners Davis Polk & Wardwell
Dale W. Lang /3, 4/ Terry L. Lengfelder /2/ Robert A. McCabe /3, 4/ Andrew McNally IV /1, 3, 4/
President Retired Managing Partner Chairman Retired Chairman
KX Acquisition Corporation Arthur Andersen LLP Pilot Capital Corporation and Chief Executive Officer
Rand McNally & Company
Alexis P. Michas /1, 2, 3/ H. Norman Schwarzkopf /4/
Managing Partner General
Stonington Partners U.S. Army, Retired
Committees of the Board
1 - Executive Committee 2 - Finance & Audit 3 - Compensation Committee 4 - Nominating Committee
Business Unit Presidents
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Guard David Cairns Richard H. Chenoweth John D. Donohue
Peter D. Boulais Managing Director President President
President UK Business Unit Canadian Business Unit Northeast Business Unit
Northwest Business Unit London, England Markham, Ontario Parsippany, NJ
Campbell, CA
William C. Ewing John D. Howard Frederick L. Kohnke Patrick O. McNulty
President President President President
Southwest Business Unit Gulf States Business Unit Midwest Business Unit Southeast Business Unit
Houston, TX Altamonte Springs, FL Chicago, IL Atlanta, GA
Energy & Government Globe Aviation Information Services Investigative Services
John D. Decker William J. Andres Larry E. White John D. Donohue
President President General Manager President
Parsippany, NJ Irving, TX Oldsmar, FL Parsippany, NJ
National Accounts Staffing
Brian A. O'Connell Joseph W. Arwady
Vice President President
Chicago, IL Parsippany, NJ
- ------------------------------------------------------------------------------------------------------------------------------------
Company Headquarters Investor Contact Securities Information Shareholder inquiries to:
Burns International Anne B. Ireland The common stock of Shareholder Relations
Services Corporation Director of Investor Relations Burns International Services Department - 11E
200 South Michigan Avenue 312-322-8550 Corporation is listed on the P.O. Box 11258
Chicago, IL 60604 New York Stock Exchange. Church Street Station
312-322-8800 The ticker symbol is BOR. New York, NY 10286-1258
Form 10-K Report
Web Site A copy of the Company's Annual
www.burnsinternational.com Report on Form 10-K is Send certificates of
available to shareholders Independent Accountants transfer and address
Shareholder Information without charge upon request Deloitte & Touche LLP changes to:
The 2000 annual meeting of to the Investor Relations 180 North Stetson Receive and Deliver
Shareholders will be held on Department. Chicago, IL 60601 Department - 11W
Monday, April 24, at 10:00 a.m. P.O. Box 11002
at the Company headquarters, Transfer Agent Church Street Station
200 South Michigan Avenue, The Bank of New York New York, NY 10286-1002
Chicago, IL. 1-800-524-4458