8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 8-K

Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 23, 2010

Protection One, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

1-12181-01
(Commission File Number)

93-1063818
(I.R.S. Employer Identification No.)

1035 N. 3rd Street, Suite 101
Lawrence, Kansas 66044
(Address of Principal Executive Offices, Including Zip Code)

(785) 856-5500
(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02  Results of Operations and Financial Condition

On March 23, 2010, the Company issued a press release announcing its financial results for the quarter and year ended December 31, 2009. The press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

All of the foregoing information in this Item 2.02, including Exhibit 99.1 hereto, is being furnished under Item 2.02 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

Item 9.01  Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
Exhibit 99.1	Press Release, dated March 23, 2010.

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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 hereunto duly authorized.

	PROTECTION ONE, INC.
Date: March 23, 2010	By:	/s/ Darius G. Nevin
	Name: Darius G. Nevin
	Title: Executive Vice President and Chief Financial Officer

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EX-99.1

Exhibit 99.1

NEWS RELEASE

MEDIA CONTACT

Robin J. Lampe

Phone: 785.856.9350

INVESTOR CONTACT

Darius G. Nevin

Phone: 785.856.9368

PROTECTION ONE ANNOUNCES FOURTH QUARTER AND ANNUAL 2009

FINANCIAL RESULTS

Operating Income More than Doubles

Adjusted EBITDA Increases 12.6%

Conference call scheduled for 10 a.m. Eastern time today to review results

LAWRENCE, Kan., March 23, 2010 — Protection One, Inc. (Nasdaq:PONE), one of the largest electronic security companies in the United States, today reported financial results for the fourth quarter and year ended December 31, 2009.

Richard Ginsburg, Protection One’s president and chief executive officer, said, “We are very pleased with the Company’s operating and financial improvements during 2009 and our net income of $17.5 million for the year. Despite the challenging economic environment this past year, we continued to invest in developing our commercial capabilities and alternate channels of distribution for our industry-leading eSecure interactive service.  We also achieved greater operational efficiency through continued focus on controlling costs, completed a refinancing of our debt structure and successfully negotiated a tax-related settlement with our former parent. As a result of these accomplishments, we ended the year with a strengthened balance sheet with reduced leverage and an extension of our debt maturities.

“Overall financial performance in fiscal year 2009 was strong, with significant improvements to operating income, which increased to $40.3 million for the year, and the generation of over $105 million in operating cash flow.  As we enter 2010, we believe Protection One is well positioned both operationally and financially to capitalize on improving economic conditions.”

Adjusted EBITDA, Recurring Monthly Revenue (“RMR”), and Net Debt, as described in this release, are all non-GAAP financial measures.  Please see the attached schedules for a more detailed explanation of these non-GAAP measures and a reconciliation to the most directly comparable GAAP financial measures.

Fourth Quarter Results

In the fourth quarter of 2009, consolidated revenue decreased by 3.9% to $90.3 million while cost of revenue decreased 7.2% to $36.9 million in 2009.  As anticipated, Wholesale monitoring revenue, along with the related costs, decreased as a result of this segment’s new arrangement with one of its larger customers.  Retail and Multifamily monitoring and service revenue also declined in the fourth quarter of 2009 compared to the same period in 2008 due to decreases in each segment’s customer base.

The Company’s consolidated monitoring and related services margin improved in the fourth quarter of 2009 to 69.7% compared to 67.6% in the fourth quarter of 2008 as reductions in the costs of monitoring and related services for both the Retail and Wholesale segments were proportionately greater than the decrease in related revenue.  Wholesale’s monitoring and related services gross margin improved to 48.3% in the fourth quarter of 2009 from 44.3% in the same period of 2008 due to efficiencies gained from the integration in early 2009 of its monitoring centers onto a common platform as well as the impact of the new customer arrangement mentioned previously.

Operating income in the fourth quarter of 2009 increased to $11.3 million from $4.4 million in 2008 primarily due to a reduction in general and administrative costs.  Selling expense also decreased due to reduced internal marketing efforts.  Lastly, amortization and depreciation expense decreased due to the impact of the Company’s accelerated amortization method for its intangible assets.

The Company reported net income of $23.0 million or $0.90 per share in the fourth quarter of 2009 compared to net loss of $(7.2) million or $(0.29) per share in the prior year.  Net income in 2009 includes a gain of approximately $23 million recorded in connection with a settlement of a tax-related matter with our former parent, Westar Energy, Inc. (“Westar”) as well as higher operating income.

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Full Year Results

Consolidated revenue for the full year of 2009 was $368.1 million, representing a decrease of 1.1% from $372.0 million in 2008.  The decrease is due to a reduction in Retail and Multifamily monitoring and service revenue.  The Company’s monitoring and related services margin increased to 69.2% for the year ended December 31, 2009 from 66.8% in 2008 driven by a 9% reduction in cost of monitoring and related services for the year.

Operating income for the year increased to $40.3 million in 2009 compared to $10.3 million in 2008, resulting from reductions in monitoring and related services expense, as well as selling, general and administrative, and depreciation and amortization expenses, which more than offset the decrease in revenue.

Net income for the year was $17.5 million or $0.69 per share in 2009 compared to a net loss of $(50.5) million or $(2.00) per share in 2008.  The gain on the settlement with Westar and higher operating income contributed to net income in 2009.  In 2008, the Company recorded a $12.8 million loss on retirement of debt in connection with the refinancing of the Company’s senior subordinated notes.

Non-GAAP Results

Adjusted EBITDA

Adjusted EBITDA improved 12.6% to $31.9 million in the fourth quarter of 2009 from $28.3 million in the fourth quarter of 2008 and increased 12.4% to $122.8 million for the year ended December 31, 2009 from $109.3 million in 2008.  Lower customer acquisition costs, monitoring and services costs, and general and administrative expenses more than offset a decline in monitoring and services revenue.

Net Debt

The Company’s total debt and capital leases, excluding debt premiums and discounts, was $447.3 million as of December 31, 2009, $75.3 million lower than the $522.6 million outstanding as of December 31, 2008.  Cash and cash equivalents on hand at December 31, 2009 were $26.1 million compared to $38.9 million one year earlier.  Net Debt, which is the sum of the face value of our debt and

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capital leases less cash and cash equivalents, decreased $21.3 million in the fourth quarter of 2009 to $421.2 million, and decreased $62.5 million in 2009.

During the fourth quarter of 2009, the Company redeemed its $115.3 million Senior Secured Notes due November 15, 2011 with excess cash on hand and proceeds from increasing its term loan borrowings by $75.0 million.  The Company also made $30.0 million in principal prepayments under its senior credit facility in December 2009.

Recurring Monthly Revenue and Attrition

The Retail reporting unit ended 2009 with RMR of $20.1 million compared to $20.5 million one year earlier.  Annualized net Retail attrition in the fourth quarter of 2009 improved to 9.7% from 10.9% in the fourth quarter of 2008.  Net Retail attrition for the year improved to 10.3% in 2009 from 10.5% in 2008.

The Retail reporting unit added $0.4 million of RMR in the fourth quarter of 2009 compared to $0.5 million in the same quarter a year ago.  Net costs incurred related to Retail RMR additions were $13.0 million in the fourth quarter of 2009 compared to $16.8 million for the same period in 2008.  For the full year of 2009, the Retail reporting unit added $1.8 million of RMR at a net cost of $51.8 million compared to $2.4 million of RMR at a net cost of $69.2 million in 2008.

The Wholesale reporting unit ended 2009 with $3.0 million of RMR compared to $4.0 million one year earlier.  The reduction in 2009 is a result of the transition of $1.1 million of RMR related to the new customer arrangement discussed above.  Exclusive of the new arrangement, Wholesale RMR at the end of 2009 would have increased 3.6%, or $0.1 million, compared to the end of 2008.

The Multifamily reporting unit ended 2009 with $1.9 million of RMR compared to $2.2 million one year earlier.  The decline is a result of Multifamily’s ongoing strategy of enhancing cash flow by focusing on serving and upgrading existing customers rather than on actively pursuing growth from new customers.

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Conference Call and Webcast

Protection One will host a conference call and audio webcast today at 10 a.m. EDT to review these results. The call may be accessed by dialing (877) 377-7099 or (631) 291-4577 (inside the United States and Canada) or via a webcast in the Company’s investor relations section at www.ProtectionOne.com.  The reference code associated with the call is 62694438.

A webcast replay will be available shortly after the call at www.ProtectionOne.com.  A telephonic replay of the call also will be available through March 30, 2010. To listen to the telephonic replay, dial (800) 642-1687 or (706) 645-9291 and enter the following passcode: 62694438.

Forward-looking Statements: Certain matters discussed in this news release are “forward-looking statements.”  The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability.  Forward-looking statements may include words or phrases such as “we believe,” “we anticipate,” “we expect” or words of similar meaning or their negatives.  Forward-looking statements may describe our future plans, objectives, expectations or goals, including, but not limited to, with respect to our earnings and financial condition, our ability to capitalize on improving economic conditions, RMR additions, attrition, investment in acquiring new customers, debt levels and liquidity. Our actual results may differ materially from those discussed here as a result of numerous factors, including, but not limited to, our substantial debt obligations, our process to explore strategic alternatives, a change in ownership and competition.  See our Annual Report on Form 10-K for the period ended December 31, 2009, which is expected to be filed with the SEC on March 23, 2010, for a further discussion of factors affecting our performance.  Protection One disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this news release.

Protection One is one of the largest vertically integrated national providers of sales, installation, monitoring, and maintenance of electronic security systems to homes and businesses and has been recognized as one of “America’s Most Trustworthy Companies” by Forbes.com. Network Multifamily, Protection One’s wholly owned subsidiary, is the largest security provider to the multifamily housing market. The Company also owns the nation’s largest provider of wholesale monitoring services, the combined operations of CMS and Criticom International. For more information about Protection One, visit www.ProtectionOne.com.

5

PROTECTION ONE, INC.

and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)

	Three Months						Twelve Months
	Ended December 31,						Ended December 31,
(in thousands, except per share amounts)	2009			2008			2009			2008
Revenue
Monitoring and related services	$	79,353		$	84,104		$	328,001		$	334,125
Installation and other	10,991			9,883			40,051			37,896
Total revenue	90,344			93,987			368,052			372,021
Cost of revenue (exclusive of amortization and depreciation shown below):
Monitoring and related services	24,040			27,215			100,983			110,980
Installation and other	12,874			12,583			49,285			48,750
Total cost of revenue (exclusive of amortization and depreciation shown below)	36,914			39,798			150,268			159,730
Selling	12,355			14,114			50,794			56,247
General and administrative	17,211			21,466			76,609			81,491
Amortization and depreciation	12,567			14,210			50,096			64,275
Total operating expenses	42,133			49,790			177,499			202,013
Operating income	11,297			4,400			40,285			10,278
Other expense (income)
Interest expense	11,540			11,663			45,386			48,539
Interest income	(34		)	(42		)	(75		)	(794		)
(Gain) loss on retirement of debt	(1,956		)	—			(1,956		)	12,788
(Gain) loss on settlement agreement	(22,867		)				(22,867		)
Other	—			22			—			(54		)
Total other expense	(13,317		)	11,643			20,488			60,479
income (loss) before income taxes	24,614			(7,243		)	19,797			(50,201		)
Income tax expense (benefit)	1,649			(13		)	2,290			341
Net income (loss)	$	22,965		$	(7,230	)	$	17,507		$	(50,542	)
Other comprehensive income (loss), net of tax
Net change in fair value of derivatives	1,172			(9,643		)	3,184			(8,639		)
Comprehensive income (loss)	$	24,137		$	(16,873	)	$	20,691		$	(59,181	)
Basic and diluted net income (loss) per common share	$	0.90		$	(0.29	)	$	0.69		$	(2.00	)
Weighted average common shares outstanding	25,333			25,317			25,324			25,310

6

PROTECTION ONE, INC.

and Subsidiaries

Supplemental Financial Information

(unaudited)

	Three Months						Twelve Months
	Ended December 31,						Ended December 31,
(in thousands)	2009			2008			2009			2008
Segment Information
Retail
Revenue
Monitoring and related services	$	62,351		$	63,840		$	251,585		$	255,104
Installation and other	10,065			9,653			37,730			36,691
Total revenue	72,416			73,493			289,315			291,795
Cost of revenue (exclusive of amortization and depreciation shown below):
Monitoring and related services	16,885			18,127			67,709			75,154
Installation and other	11,939			11,874			45,955			46,180
Total cost of revenue (exclusive of amortization and depreciation shown below)	28,824			30,001			113,664			121,334
Selling	11,653			13,437			48,187			52,558
General and administrative	14,069			16,140			61,676			62,077
Amortization and depreciation	10,612			11,928			41,943			51,474
Total operating expenses	36,334			41,505			151,806			166,109
Operating income	$	7,258		$	1,987		$	23,845		$	4,352
Operating margin	10.0		%	2.7		%	8.2		%	1.5		%
Wholesale
Revenue
Monitoring and related services	$	10,530		$	12,900		$	49,021		$	48,660
Other	652			171			1,167			817
Total revenue	11,182			13,071			50,188			49,477
Cost of revenue (exclusive of amortization and depreciation shown below):
Monitoring and related services	5,445			7,180			26,169			28,108
Selling	457			453			1,776			2,253
General and administrative	2,007			2,396			9,146			9,685
Amortization and depreciation	1,107			1,303			4,713			7,216
Total operating expenses	3,571			4,152			15,635			19,154
Operating income	$	2,166		$	1,739		$	8,384		$	2,215
Operating margin	19.4		%	13.3		%	16.7		%	4.5		%
Multifamily
Revenue
Monitoring and related services	$	6,473		$	7,364		$	27,395		$	30,361
Installation and other	274			59			1,154			388
Total revenue	6,747			7,423			28,549			30,749
Cost of revenue (exclusive of amortization and depreciation shown below):
Monitoring and related services	1,709			1,908			7,105			7,718
Installation and other	934			710			3,330			2,570
Total cost of revenue (exclusive of amortization and depreciation shown below)	2,643			2,618			10,435			10,288
Selling	245			224			831			1,436
General and administrative	1,136			2,930			5,787			8,804
Amortization and depreciation	848			978			3,440			6,510
Total operating expenses	2,229			4,132			10,058			16,750
Operating income	$	1,875		$	673		$	8,056		$	3,711
Operating margin	27.8		%	9.1		%	28.2		%	12.0		%

7

PROTECTION ONE, INC.

and Subsidiaries

Supplemental Financial Information (cont.)

(unaudited)

	Three Months					Twelve Months
	Ended December 31,					Ended December 31,
(in thousands)	2009		2008			2009		2008
Supplemental Financial Information
FAS 123(R) Expense in G&A
Retail	$	71	$	359		$	496	$	1,448
Wholesale	—		—			—		—
Multifamily	—		—			—		—
FAS 123(R) expense in G&A	71		359			496		1,448
Amortization of Deferred Costs in Excess of Amort. of Deferred Rev.
Retail	$	6,569	$	7,240		$	28,006	$	28,556
Wholesale	—		—			—		—
Multifamily	737		677			2,508		2,176
Amortization of deferred costs in excess of amort. of deferred rev.	7,306		7,917			30,514		30,732
Investment in New Accounts and Rental Equipment, Net
Retail	$	6,075	$	8,357		$	23,371	$	37,605
Wholesale	—		—			—		—
Multifamily	702		1,002			2,218		4,014
Investment in new accounts and rental equipment, net	6,777		9,359			25,589		41,619
Property Additions, Exclusive of Rental Equipment, Net
Retail	$	2,754	$	3,659		$	5,784	$	8,002
Wholesale	779		162			1,399		1,569
Multifamily	—		(193		)	—		240
Property additions, exclusive of rental equipment, net	3,533		3,628			7,183		9,811

8

PROTECTION ONE, INC.

and Subsidiaries

Supplemental Financial Information (cont.)

(unaudited)

	Three Months						Twelve Months
	Ended December 31,						Ended December 31,
(in thousands)	2009			2008			2009			2008
Supplemental Financial Information (Non-GAAP)
Recurring Monthly Revenue (RMR)	$	25,057		$	26,746		$	25,057		$	26,746
RMR Rollforward - Retail
Beginning RMR	$	20,183		$	20,551		$	20,543		$	20,628
RMR additions from direct sales	440			532			1,775			2,316
RMR additions from account purchases	2			15			38			44
RMR losses	(643		)	(712		)	(2,713		)	(2,823		)
Price increases and other	125			157			464			378
Ending RMR	$	20,107		$	20,543		$	20,107		$	20,543
RMR Rollforward - Wholesale
Beginning RMR	$	4,129		$	4,038		$	3,998		$	3,615
Net change in Wholesale RMR	14			(40		)	145			373
Price increases and other (1)	(1,112		)	—			(1,112		)	10
Ending RMR	$	3,031		$	3,998		$	3,031		$	3,998
RMR Rollforward - Multifamily
Beginning RMR	$	2,015		$	2,294		$	2,205		$	2,463
RMR additions from direct sales	14			12			101			98
RMR losses	(108		)	(120		)	(396		)	(428		)
Price increases and other	(2		)	19			9			72
Ending RMR	$	1,919		$	2,205		$	1,919		$	2,205
RMR Rollforward - Consolidated
Beginning RMR	$	26,327		$	26,883		$	26,746		$	26,706
RMR additions from direct sales	454			544			1,876			2,414
RMR additions from account purchases	2			15			38			44
Net change in Wholesale RMR	14			(40		)	145			373
RMR losses	(751		)	(832		)	(3,109		)	(3,251		)
Price increases and other (1)	(989		)	176			(639		)	460
Ending RMR	$	25,057		$	26,746		$	25,057		$	26,746

(1) Price increases and other for the Wholesale segment in 2009 reflects the RMR impact of the APX Agreement.

	Annualized Three Months				Twelve Months
	Ended December 31,				Ended December 31,
RMR Attrition	2009		2008		2009		2008
RMR Attrition - Gross
Retail	12.8	%	13.9	%	13.3	%	13.7	%
Multifamily	21.9	%	21.3	%	19.2	%	18.3	%
RMR Attrition - Net (2)
Retail	9.7	%	10.9	%	10.3	%	10.5	%

(2) Attrition excluding price decreases and net of new owners and relocation accounts

	December 31,	December 31,
Monitored Sites	2009	2008
Retail Monitored Sites	540,968	574,001
Wholesale Monitored Sites	677,286	991,014
Multifamily Monitored Sites	213,025	240,648

9

PROTECTION ONE, INC.

and Subsidiaries

Non-GAAP Reconciliations

(unaudited)

Recurring Monthly Revenues (RMR)

RMR is the sum of all the monthly revenue we are entitled to receive under contracts with customers in effect at the end of a period.

A reconciliation of RMR to Protection One, Inc.’s reported total revenue follows:

	Three Months				Twelve Months
	Ended December 31,				Ended December 31,
(in thousands)	2009		2008		2009		2008
RMR at December 31	$	25,057	$	26,746	$	25,057	$	26,746
Amounts excluded from RMR:
Amortization of deferred revenue	1,694		1,211		1,694		1,211
Installation and other revenue (a)	3,533		3,303		3,533		3,303
Revenue (GAAP basis)
December	$	30,284	$	31,260	$	30,284	$	31,260
October - November	60,060		62,727		—		—
January - November	—		—		337,768		340,761
Total period revenue	$	90,344	$	93,987	$	368,052	$	372,021

(a) Revenue that is not pursuant to periodic contractual billings

The Company believes the presentation of RMR is useful to investors because the measure is widely used in the industry to assess the amount of recurring revenues from customer fees produced by a monitored security alarm company such as Protection One, Inc. Management monitors RMR, among other things, to evaluate the Company’s ongoing performance.

Adjusted EBITDA

A reconciliation of Adjusted EBITDA to Protection One, Inc.’s reported income (loss) before income taxes follows:

	Three Months						Twelve Months
	Ended December 31,						Ended December 31,
(in thousands)	2009			2008			2009			2008
Income (loss) before income taxes	$	24,614		$	(7,243	)	$	19,797		$	(50,201	)
Plus:
Interest expense, net	11,506			11,621			45,311			47,745
Amortization and depreciation expense	12,567			14,210			50,096			64,275
Amortization of deferred costs in excess of amort. of deferred revenue	7,306			7,917			30,514			30,732
Stock based compensation expense	71			359			496			1,448
Other costs	641			970			1,441			1,655
(Gain) loss on retirement of debt	(1,956		)	—			(1,956		)	12,788
Loss on impairment of trade name	—			450			—			925
(Gain) on settlement agreement	(22,867		)	—			(22,867		)	—
Less:
Other income	—			22			—			(54		)
Adjusted EBITDA	$	31,882		$	28,306		$	122,832		$	109,313

Adjusted EBITDA is used by management and reviewed by the Board of Directors in evaluating segment performance and determining how to allocate resources across segments for investments in customer acquisition activities, capital expenditures and spending in general. The Company believes it is also utilized by the investor community which follows the security monitoring industry. Adjusted EBITDA is useful because it allows investors and management to evaluate and compare operating results from period to period in a meaningful and consistent manner in addition to standard GAAP financial measures. Specifically, Adjusted EBITDA allows the chief operating decision maker to evaluate segment results of operations, including operating performance of monitoring and service activities, effects of investments in creating new customer relationships, and sales and installation of security systems, without the effects of non-cash amortization and depreciation. This information should not be considered an alternative to any measure of performance as promulgated under GAAP, such as income (loss) before income taxes or cash flow from operations. Items excluded from Adjusted EBITDA are significant components in understanding and assessing the consolidated financial performance of the Company. See the table above for the reconciliation of Adjusted EBITDA to consolidated income (loss) before income taxes. The Company’s calculation of Adjusted EBITDA may be different from the calculation used by other companies and comparability may be limited.

Net Debt Reconciliation

	December 31,			December 31,
(in thousands)	2009			2008
New and Extending Term Loans, maturing March 31, 2014, variable	$	277,305		$	—
Non-Extending Term Loans, maturing March 31, 2012, variable	56,359			291,750
Senior Secured Notes, maturing November 15, 2011, fixed	—			115,345
Unsecured Term Loan, maturing March 14, 2013, variable	110,340			110,340
Capital leases	3,285			5,140
	$	447,289		$	522,575
Less cash and cash equivalents	(26,068		)	(38,883		)
Net Debt	$	421,221		$	483,692

Net Debt is utilized by management as a measure of the Company’s financial leverage and the Company believes that investors also may find Net Debt to be helpful in evaluating the Company’s financial leverage. This supplemental non-GAAP information should be viewed in conjunction with the Company’s consolidated balance sheets in the Company’s report on Form 10-K for the period ended December 31, 2009. While not included in Net Debt, the Company also had notes receivable due from its Wholesale dealers of approximately $2.9 million and $4.2 million as of December 31, 2009 and 2008, respectively.

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