-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VhAy3qaQYAyIHChS/NhsvvUdD5z/t585yHv9onp2QTQ3bbL9dkZlA0hWHNPb2rnr fDD13grCXfFWirI9MBzU8Q== 0000950131-96-002297.txt : 19960517 0000950131-96-002297.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950131-96-002297 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BORG WARNER SECURITY CORP CENTRAL INDEX KEY: 0000817945 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DETECTIVE, GUARD & ARMORED CAR SERVICES [7381] IRS NUMBER: 133408028 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05529 FILM NUMBER: 96566156 BUSINESS ADDRESS: STREET 1: 200 S MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60604 BUSINESS PHONE: 3123228500 MAIL ADDRESS: STREET 1: 200 S. MICHIGAN AVENUE CITY: CHICAGO STATE: IL ZIP: 60604 FORMER COMPANY: FORMER CONFORMED NAME: BORG WARNER CORP /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BORG WARNER HOLDINGS CORP DATE OF NAME CHANGE: 19880328 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q QUARTERLY REPORT Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended March 31, 1996 Commission file number: 1-5529 BORG-WARNER SECURITY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3408028 - ------------------------------ ------------------- State or other jurisdiction of (I.R.S. Employer Incorporation or organization Identification No.) 200 South Michigan Avenue, Chicago, Illinois 60604 - -------------------------------------------- -------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312)322-8500 ------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- On April 30, 1996 the registrant had 22,110,542 shares of Common Stock and 1,149,600 shares of Series I Non-Voting Common Stock outstanding. ================================================================================ -1- BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES FORM 10-Q THREE MONTHS ENDED MARCH 31, 1996 INDEX Page No. -------- PART I. Financial Information --------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheet at March 31, 1996 and December 31, 1995....................... 2 Consolidated Statement of Earnings for the three months ended March 31, 1996 and 1995................ 3 Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 1996 and 1995................ 4 Notes to the Consolidated Financial Statements.......................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 10 PART II. Other Information ----------------- Item 1. Legal Proceedings....................................... 13 Item 2. Changes in Securities................................... 13 Item 3. Defaults Upon Senior Securities......................... 13 Item 4. Submission of Matters to a Vote of Security Holders....................................... 13 Item 5. Other Information....................................... 13 Item 6. Exhibits and Reports on Form 8-K........................ 13 SIGNATURES......................................................... 14 -2- Part I. Financial Information Item 1. Financial Statements -------------------- BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (MILLIONS OF DOLLARS)
March 31, December 31, 1996 1995 --------- ------------ ASSETS - ------ Cash and cash equivalents $ 16.4 $ 21.1 Receivables, net 95.0 102.7 Inventories 13.4 12.5 Other current assets 73.2 59.5 ------ ------ Total current assets 198.0 195.8 ------ ------ Property, plant and equipment, at cost 490.3 500.7 Less accumulated depreciation 249.7 249.8 ------ ------ Net property, plant and equipment 240.6 250.9 ------ ------ Net excess purchase price over net assets acquired 269.4 273.0 Deferred tax asset 52.8 52.8 Other assets 84.0 78.9 ------ ------ Total assets $844.8 $851.4 ====== ====== LIABILITIES & STOCKHOLDERS' EQUITY - ---------------------------------- Notes payable $ 5.9 $ 7.0 Accounts payable and accrued expenses 184.5 193.9 ------ ------ Total current liabilities 190.4 200.9 ------ ------ Long-term debt 488.8 482.1 Other long-term liabilities 115.4 118.7 Capital stock: Common stock 0.2 0.2 Series I non-voting common stock - - Other stockholders' equity 50.0 49.5 ------ ------ Total stockholders' equity 50.2 49.7 ------ ------ Total liabilities & stockholders' equity $844.8 $851.4 ====== ======
(The accompanying notes are an integral part of these financial statements) -3- BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
Three Months Ended March 31, ---------------------------- 1996 1995 ------ ------ Net service revenues $450.0 $462.4 Cost of services 363.2 371.2 Selling, general and administrative expenses 54.8 58.9 Depreciation 13.2 14.9 Amortization of excess purchase price over net assets acquired 3.6 3.8 Interest expense and finance charges 15.0 13.8 ------ ------ Earnings (loss) before income taxes 0.2 (0.2) Income tax benefit 0.3 0.3 ------ ------ Net earnings $ 0.5 $ 0.1 ====== ====== Net earnings per share $ 0.02 $ - ====== ======
(The accompanying notes are an integral part of these financial statements) -4- BORG-WARNER SECURITY CORPORATION AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (MILLIONS OF DOLLARS)
Three Months Ended March 31, 1996 1995 ------ ------ OPERATING: Net earnings $ 0.5 $ 0.1 Adjustments to reconcile net earnings to net cash provided by operating activities: Non-cash charges to earnings: Depreciation and amortization 16.8 18.7 Provision for losses on receivables 1.3 0.8 Amortization of debt discounts 0.5 0.4 Changes in assets and liabilities: Decrease in receivables 6.2 8.4 Increase in other current assets (3.9) (4.1) Increase/(decrease) in accounts payable and accrued expenses (9.4) 1.6 Net change in other long-term assets and liabilities (0.3) (3.3) Other (1.0) (0.9) ------ ------ Net cash provided by operating activities 10.7 21.7 ------ ------ INVESTING: Capital expenditures and investments in sales-type leases (10.5) (13.3) Other, net 0.5 (0.3) ------ ------ Net cash used in investing activities (10.0) (13.6) ------ ------ FINANCING: Net decrease in notes payable (1.1) (4.7) Increase in debt outstanding under revolving credit facility 7.0 51.4 Reductions in long-term debt (0.8) (29.4) Net decrease in receivables sold (10.6) (24.0) Sales of treasury common stock 0.1 0.3 ------ ------ Net cash used in financing activities (5.4) (6.4) ------ ------ NET INCREASE(DECREASE)IN CASH AND CASH EQUIVALENTS (4.7) 1.7 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21.1 15.8 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16.4 $ 17.5 ====== ======
(The accompanying notes are an integral part of these financial statements) -5- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) The financial statements of Borg-Warner Security Corporation and Consolidated Subsidiaries ("Company") have been prepared in accordance with the instructions to Form 10-Q. The statements are unaudited, but include all adjustments, consisting of normal recurring items, which the Company considers necessary for a fair presentation of the information set forth herein. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for the entire year. Certain 1995 amounts have been reclassified to conform with the 1996 presentation. (2) The allowance for doubtful accounts was $7.2 million at March 31, 1996 and $7.3 million at December 31, 1995. The accumulated amortization on excess purchase price over net assets acquired was $86.8 million at March 31, 1996 and $93.0 million at December 31, 1995. In November 1995, the Company entered into a three-year agreement to sell a $120 million undivided interest in a revolving pool of customer receivables. This sold interest was reflected as a reduction of "Receivables" in the accompanying Condensed Consolidated Balance Sheet at March 31, 1996 and December 31, 1995. The Company retains, on a subordinated basis, an undivided interest in the pool of receivables. The Company's retained interest of $8.6 million and $17.0 million at March 31, 1996 and December 31, 1995, respectively, is included with "Receivables, net" on the balance sheet. "Other current assets" at March 31, 1996 and December 31, 1995 included interest-bearing cash deposits of $41.7 million and $31.1 million, respectively, held in trust under the terms of the accounts receivable facility. These deposits represent collections held back by the trustee based on the amount of eligible receivables in the revolving receivables pool. The Company's retained interest in the receivables and cash deposits is generally restricted. The full amount of the allowance for losses has been retained because the Company has retained substantially the same risk of credit loss as if the receivables had not been sold. The discount related to the sale of receivables is included with "Interest expense and finance charges" in the Consolidated Statement of Operations. Net cash payments for interest and income taxes were as follows (in millions of dollars):
Three Months Ended March 31, ------------------ 1996 1995 ---- ---- Interest paid $9.1 $9.4 Income taxes paid (refunded) 0.3 (2.4)
(3) The Company's provision for income taxes for the three months ended March 31, 1996 and 1995 reflect estimated annual tax rates for the year applied to federal, state and foreign income. -6- (4) The following tables summarize the capitalization of the Company at March 31, 1996 and December 31, 1995 (in millions of dollars):
March 31, 1996 December 31,1995 ------------------ ------------------ DEBT Current Long-Term Current Long-Term ------------------ ------------------ Bank term loan due 1998 (at an average rate of 8.8% in 1996 and 8.3% in 1995; and 8.5% at March 31, 1996) $ - $100.0 $ - $100.0 Bank revolving commitment loan due through 1999 (at an average rate of 8.6% in 1996 and 7.3% in 1995; and 8.3% at March 31, 1996) - 131.6 - 124.6 8% notes (face amount of $100 million due 1996) - 100.0 - 99.5 Unsecured notes (at an average rate of 7.4% in 1996 and 7.0% in 1995; and 7.3% at March 31, 1996) 0.2 0.7 0.4 0.6 Capital lease liability (at an average rate of 8.0% in 1996 and 8.4% in 1995; and 8.0% at March 31, 1996) 5.7 7.4 6.6 8.3 9-1/8% senior subordinated notes (face amount of $150 million due 2003) - 149.1 - 149.1 ---- ------ ---- ------ Total notes payable and long-term debt $5.9 $488.8 $7.0 $482.1 ==== ====== ==== ======
-7-
STOCKHOLDERS' EQUITY March 31, December 31, 1996 1995 --------- ------------ Common stock: Common stock $ 0.2 $ 0.2 Series I non-voting common stock - - Preferred stock - - Capital in excess of par value 28.2 28.1 Notes receivable - management stock purchase (0.3) (0.3) Retained earnings 31.5 31.2 Cumulative translation adjustment (0.4) (0.4) ----- ----- 59.2 58.8 Less treasury common stock, 1,913,008 shares in 1996 and 1,928,861 shares in 1995, at cost (9.0) (9.1) ----- ----- Total stockholders' equity $50.2 $49.7 ===== =====
CAPITAL STOCK - NUMBER OF SHARES March 31, December 31, (Thousands of shares) 1996 1995 --------- ------------ Common Stock, $.01 par value: Authorized 50,000.0 50,000.0 Issued 22,446.1 22,446.1 Outstanding 22,103.5 22,087.6 Series I non-voting common stock, $.01 par value: Authorized 25,000.0 25,000.0 Issued 2,720.0 2,720.0 Outstanding 1,149.6 1,149.6 Preferred stock, $.01 par value: Authorized 5,000.0 5,000.0 Issued and outstanding - -
-8- (5) Earnings per common share are 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. The number of shares used in the computation of earnings per share were as follows (in thousands of shares):
Three Months Ended March 31, ------------------ 1996 1995 ------ ------ Average common shares outstanding 23,245 22,933 Common share equivalents 279 174 ------ ------ Total used for computation of per share earnings 23,524 23,107 ====== ======
(6) The Company's discontinued property and casualty insurance subsidiary ("Centaur") ceased writing insurance in 1984 and has been operating under rehabilitation since September 1987. Rehabilitation is a process supervised by the Illinois Director of Insurance to attempt to compromise claim liabilities at an aggregate level that is not in excess of Centaur's assets. In rehabilitation, Centaur's assets are currently being used to satisfy claim liabilities under direct insurance policies written by Centaur. Any remaining assets will be applied to Centaur's obligations to other insurance companies under reinsurance contracts. If all of Centaur's obligations are not satisfied through rehabilitation, it is possible that satisfaction could be sought from the Company for Centaur's liabilities. The foregoing has resulted in one pending lawsuit against the Company, certain of its current and former subsidiaries, and directors and officers of certain current and former subsidiaries for recovery of alleged damages incurred because of Centaur's failure to satisfy its reinsurance obligations. The lawsuit seeks in excess of $100 million for current losses, future losses and other damages and also seeks punitive damages. The Company believes that any damages for failure to satisfy reinsurance obligations are solely the responsibility of Centaur and that the resolution of the lawsuit relating to Centaur, including the Company's indemnification obligations to certain former officers and directors, will not have a material adverse effect on its financial position or future operating results; however, no assurance can be given as to the ultimate outcome with respect to such lawsuit. 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 -9- 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, estimated legal fees and other factors, the Company has made provisions for indicated environmental liabilities in the aggregate amount of approximately $9 million (relating to environmental matters with respect to discontinued operations of the Company). If any environmental liability claim relating to the Company's former chemical and plastics business is made, the Company is indemnified by the purchaser of such business, General Electric Company. Since the disposition, the Company has notified General Electric Company of various claims made with respect to the Company's former chemical and plastic business, and General Electric Company has assumed all of such claims and has not contested its indemnification obligations. There is no dollar limitation on the General Electric Company's indemnification obligations and there are no other material limitations or exclusions with respect thereto. If any environmental liability claim relating to the operations of the Company's discontinued automotive subsidiary is made, the Company will be indemnified by such former subsidiary. The Company believes that the various asserted claims and litigation in which it is involved will not materially affect its financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation. -10- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS - --------------------- Operating profit increased 8.9% for the first quarter of 1996 compared to 1995 despite a 2.7% decline in revenue to $450.0 million from $462.4 million. Net earnings were $0.5 million, or $.02 per share, in 1996 compared with break-even results in the 1995 first quarter. Revenue increased at the Armored unit, primarily from higher volume, but was lower at Guard and Alarm as severe weather in the Eastern and Northeast sections of the United States disrupted service and restricted billings. The revenue contributed by each of the Company's business units was as follows (in millions of dollars):
Three Months Ended March 31 ------------------ 1996 1995 ------ ------ Guard $296.2 $302.0 Alarm 58.9 65.1 Armored 59.0 56.7 Courier 35.9 38.6 ------ ------ Total $450.0 $462.4 ====== ======
Operating profit, which is pretax earnings before interest expense and unallocated corporate expenses, increased 8.9% over the first quarter of 1995. Higher margins at the Guard and Alarm units were the primary reason for the improvement. A combination of improved profitability on service contracts and cost reduction efforts led to the improved operating margin. Guard revenue for the first quarter of 1996 decreased 1.9% from 1995. The decline was partly due to substantial snowfall in the Eastern United States. This disrupted service and adversely impacted billable hours. Volume, as measured by average guard hours-in-force, declined 5.6% as reductions, cancellations, and terminations exceeded new sales. The unit's program to reduce under-performing contracts contributed to improved margins as operating profit increased 26.8% in the first quarter of 1996. Field cost reduction and streamlining programs and reduced amounts of unbilled overtime also contributed to the improvement. Alarm revenue decreased 9.5% in the first quarter of 1996 compared to 1995. The decrease was partially due to severe weather conditions in the Northeast, Mid- Atlantic and Midwest regions, which limited new installation revenue and the subsequent monitoring revenue from those installations. In 1995, Alarm began recognizing installation contracts -11- as sales-type leases rather than operating leases. This resulted in a 2.8% revenue reduction in 1996 since related rental charges declined. There is no significant impact on operating income since the rental revenue is substantially offset by finance income earned on sales-type leases and lower depreciation expense on operating leases. Alarm's 1996 operating profit increased 26.9% primarily due to improved investment control performance, lower operating costs and emphasis on improved sales productivity. Armored revenue increased 4.1% in the first quarter of 1996 due primarily to higher volume in the ATM service operations. Revenue for the armored transport and cash services operations were comparable to 1995. Operating profit declined 18.4% due to higher labor and vehicle costs, and the absence of a pricing surcharge implemented in the first quarter of 1995. Courier revenue decreased 7.0% in the first quarter of 1996 compared to 1995. The lower revenue reflects the reduced volume of traditional financial document shipments and weather-related problems affecting deliveries. Operating results declined due to the impact of reduced revenues over a fixed cost base in established route structures. The Company is reviewing its route structure and branch organization in light of the reduced volume of business. Certain federal legislative forces have proposed an increase in the minimum wage. The Company believes that it will be able to adjust its billing rates in response to any such increase and that there would not be a material effect on operating income from any increase in the minimum wage. Interest expense and finance charges increased 8.7% in the first quarter of 1996 from the comparable 1995 period due to higher interest rates associated with refinancing activities in late 1995. FINANCIAL CONDITION AND LIQUIDITY - --------------------------------- In November 1995 the Company entered into a three-year agreement to sell a $120 million undivided interest in a revolving pool of customer receivables. Other current assets at March 31, 1996 and December 31, 1995 included interest-bearing cash deposits of $41.7 million and $31.1 million, respectively, held in trust under the terms of the accounts receivable facility. These deposits represent collections held back based on the amount of eligible receivables in the revolving receivables pool. The levels of receivables and current liabilities are influenced by the timing of billings, collections and payrolls. The Company's policy is to keep working capital as low as is operationally feasible to minimize related carrying costs. Net cash provided by operating activities was $10.7 million in the first quarter of 1996 compared with $21.7 million in the first quarter of 1995. The decline in cash provided by operating activities is primarily due to timing fluctuations in payroll accruals. Cash used for investing activities declined by $3.6 million due primarily to controlled Alarm investment and lower capital expenditures. Total funding, including debt and off-balance sheet facilities, declined to $571.5 million at March 31, 1996 from $576.3 million at December 31, 1995. The Company expects that continuing operations, together with -12- existing credit facilities and replacements thereof, will generate sufficient cash to fund current operating requirements and capital expenditures. On October 17, 1995, the Company entered into a credit agreement with a syndicate of banks, providing for a $200 million term loan due December 31, 1998. On such date the Company also amended its existing revolving credit and letter of credit facilities, principally to permit the term loan, change pricing, amend covenants relating to interest coverage, leverage, net worth and earnings, extend the maturity of the letter of credit facility to December 31, 1998 and reduce the level of commitments under the letter of credit facility to $155 million. The Company used the initial $100 million of proceeds from the term loan to prepay an existing $50 million term loan and for general corporate purposes. The remaining $100 million of term loan proceeds was used to repay the $100 million principal amount of its 8% notes, which matured on April 1, 1996. The Company is required to prepay the term loan with the proceeds from certain asset sales, certain reversions of surplus pension plan assets, issuance of debt or equity securities and excess cash flow. In the event that, as of the end of each quarter beginning with the quarter ended March 31, 1997, the Company has not achieved required covenants for the four consecutive quarters ending on such date, the Company is required to prepay $150 million of the term loan not later than 120 days after the end of such quarter. If the Company is required to make such payment, it expects to fund such amount through some combination of transactions that may include the issuance of debt or equity securities, the sale of assets or other financing alternatives. In March 1996 the Company entered into an agreement that provides for the purchase of the installation and equipment lease payments due under certain alarm unit customer leased installations. As discussed more fully in Note 6 of the Notes to Consolidated Financial Statements, various complaints seeking substantial dollar amounts have been filed against the Company. The Company believes that it has established adequate provisions for litigation liabilities in its financial statements in accordance with generally accepted accounting principles. 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, although no assurance can be given with respect to the ultimate outcome of any such proceeding. -13- Part II. Other Information Item 1. Legal Proceedings ----------------- As previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, Centaur Insurance Company ("Centaur"), the Company's discontinued property and casualty insurance subsidiary, has been operating under rehabilitation since September 1987. Rehabilitation is a process supervised by the Illinois Director of Insurance to attempt to compromise Centaur's liabilities at an aggregate level that is not in excess of its assets. The foregoing has resulted in one pending lawsuit against the Company for recovery of alleged damages incurred as a result of Centaur's failure to satisfy its reinsurance obligations. The liability phase of such lawsuit has begun and the Company intends to defend this lawsuit vigorously. Item 2. Changes in Securities --------------------- Inapplicable Item 3. Defaults Upon Senior Securities ------------------------------- Inapplicable Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 27 - Financial Data Schedule 99 - Cautionary Statement (b) Reports on Form 8-K: None -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Borg-Warner Security Corporation -------------------------------- (Registrant) By /s/ Timothy M. Wood ----------------------------- (Signature) Timothy M. Wood Vice President, Finance (Principal Financial and Accounting Officer) Date: May 15, 1996 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 16 0 102 7 13 198 490 250 845 190 489 0 0 0 50 845 0 450 0 363 17 1 15 0 0 1 0 0 0 1 .02 .02
EX-99 3 CAUTIONARY STATEMENT Information provided by the Company from time to time may contain "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties including, but not limited to, those discussed below, which could cause actual results to differ materially from those projected in the forward-looking statement. 1. The Company's business is labor intensive and, accordingly, is affected by the availability of qualified personnel and the cost of labor. Contraction of the labor market in the various regions of the United States where the Company has its principal operations may increase the Company's direct costs through higher wages and increased amounts of unbilled overtime. In addition, while the Company's customer agreements typically adjust the billing rate based on changes in any law, ruling or collective bargaining agreement causing change in wage rates or other costs, competitive pricing conditions in the industry may constrain the Company's ability to adjust its billing rates to reflect such increased costs. 2. The Company has a significant amount of debt compared to stockholders' equity. The degree to which the Company is leveraged could have important consequences to the Company's operations, including (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be limited; (ii) a significant portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds available to the Company for its operations; (iii) certain of the Company's borrowings are and will continue to be at variable rates of interest, which could result in higher interest expenses in the event of increases in interest rates; (iv) such indebtedness contains and will contain financial and restrictive covenants, the failure to comply with which may result in an event of default which, if not cured or waived, could have a material adverse effect on the Company. 3. The Company continues to remain responsible for certain liabilities of businesses which the Company discontinued or disposed of in prior years, consisting primarily of environmental liabilities and indemnity obligations under contracts for sale of businesses. Although the Company believes that any liabilities remaining with respect to discontinued operations (including any potential environmental liabilities) will not have a material adverse effect on its financial position or operating results, no assurance can be given as to the ultimate outcome with respect to such liabilities. 4. Due to the nature of the Company's security services business, its operations are subject to a variety of federal, state, county and municipal laws, regulations and licensing requirements. Changes in such laws, regulations and licensing requirements may constrain the Company's ability to provide services to customers or increase the costs of such services. Competitive pricing conditions in the industry may constrain the Company's ability to adjust its billing rates to reflect such increased costs. 5. The nature of the Company's services potentially exposes it to greater risks of liability for employee acts, injuries (including workers' compensation claims) or omissions than may be posed by other service businesses. In addition to self-insurance reserves, the Company carries insurance of various types, including general liability coverage. The Company obtains such insurance at rates and upon terms negotiated periodically with various underwriters. The loss experience of the Company and, to some extent, other protective services companies affects premium rates charged to the Company. Any significant increase in the rates charged to the Company could have an adverse effect on the Company's operating results. 6. Historically, the Company has grown through acquisitions. Recently, cost pressures facing the Company and the entire protective services industry and expectations on pricing of acquisitions have made acquisitions less attractive to the Company. While the Company will continue to pursue acquisitions when attractive opportunities arise, there can be no assurance that the Company will complete acquisitions at favorable prices. 7. The protective services industry generally is highly fragmented and very competitive. Certain of the Company's business units compete in a business environment with low barriers to entry, while other business units compete in a business environment characterized by relatively high capital investment due to the equipment and technology required. Consequently, the Company's business is subject to additional competition and the introduction of new technology or enhancements to existing technology. Some of the Company's competitors are materially larger than the Company and have access to additional capital than does the Company. Given the Company's high degree of leverage and the restrictions on capital spending contained in its credit facilities, there can be no assurance that the Company will be able to maintain levels of spending required to provide customers with advanced technological equipment. -2- -----END PRIVACY-ENHANCED MESSAGE-----