-----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, RFEU3t/2EtsaT+5ewESrRVxcZ8Ish7w/9aKJyIrUnO9N/rq4YkKFxnPRTjAbvLJx Ve4tP9+2kujwEO7stiXJGA== 0000912057-00-022450.txt : 20000510 0000912057-00-022450.hdr.sgml : 20000510 ACCESSION NUMBER: 0000912057-00-022450 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000509 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTECTION ONE INC CENTRAL INDEX KEY: 0000916230 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 931063818 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12181-01 FILM NUMBER: 622422 BUSINESS ADDRESS: STREET 1: 600 CORPORATE POINTE STREET 2: 12TH FLOOR CITY: CULVER CITY STATE: CA ZIP: 90230 BUSINESS PHONE: 3103386930 MAIL ADDRESS: STREET 1: 3900 SW MURRAY BLVD CITY: BEAVERTON STATE: OR ZIP: 97005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTECTION ONE ALARM MONITORING INC CENTRAL INDEX KEY: 0000916310 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 931065479 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12181 FILM NUMBER: 622423 BUSINESS ADDRESS: STREET 1: 600 CORPORATE POINTE STREET 2: 12TH FLOOR CITY: CULVER CITY STATE: CA ZIP: 90230 BUSINESS PHONE: 3103386930 MAIL ADDRESS: STREET 1: 3900 SW MURRAY BLVD CITY: BEAVERTON STATE: OR ZIP: 97005 8-K 1 8-K 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) May 9, 2000 (May 9, 2000) Protection One, Inc. Protection One Alarm Monitoring, Inc. (Exact Name of Registrant (Exact Name of Registrant as Specified in Charter) as Specified in Charter) Delaware Delaware (State or Other Jurisdiction (State or Other Jurisdiction of Incorporation) of Incorporation) 0-247802 33-73002-1 (Commission File Number) (Commission File Number) 93-1063818 93-1065479 (I.R.S. Employer (I.R.S. Employer Identification No.) Identification No.) 6011 Bristol Parkway 6011 Bristol Parkway Culver City, California 90230 Culver City, California 90230 (Address of Principal Executive (Address of Principal Executive Offices, Including Zip Code) Offices, Including Zip Code) (310) 342-6300 (310) 342-6300 (Registrant's Telephone Number, (Registrant's Telephone Number, Including Area Code) Including Area Code) Item 5. Other Events On May 9, 2000, the Company gave a presentation to analysts in New York, New York. A copy of the presentation is posted on the Company's website and is attached as Exhibit 99.1. Item 7. Financial Statements and Exhibits (c) Exhibits Exhibit 99.1 - A copy of the May 9, 2000, Protection One, Inc. presentation made in New York, New York and posted on the Company's website. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Protection One, Inc. Date: MAY 9, 2000 By: /S/ ANTHONY D. SOMMA ----------------------- ----------------------- Anthony D. Somma Chief Financial Officer Protection One Alarm Monitoring, Inc. Date: MAY 9, 2000 By: /S/ ANTHONY D. SOMMA ----------------------- ----------------------- Anthony D. Somma Chief Financial Officer EXHIBIT INDEX Exhibit Number Description of Exhibit 99.1 May 9, 2000 Protection One, Inc. presentation made in New York, New York. EX-99.1 2 EX-99.1 [LOGO] PRESENTATION OF PROTECTION ONE, INC. May 9, 2000 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 describe our future plans, objectives, expectations, or goals. Such statements address future events and conditions concerning capital expenditures, earnings, litigation, the outcome of accounting issues reviewed by the SEC staff as disclosed in previous filings, possible corporate restructurings, mergers, acquisitions, dispositions, liquidity and capital resources, interest, environmental matters, and ability to enter new markets successfully. Our actual results may differ materially from those discussed here. See the company's 1999 Annual Report on Form 10-K and the 2000 1st Quarter Report on Form 10-Q which was filed on May 5, 2000 and current reports on Form 8-K for further discussion of factors affecting the company's performance. Protection One disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this seminar. 2 [LOGO] AGENDA - ------------------------------------------------------------------------------- - Introduction - Phase I - The Turn Around - North America Overview - Network Multifamily Review - Financial Review - Phase II - A Healthier Protection One - The Investment Opportunity 3 [LOGO] HISTORY - ------------------------------------------------------------------------------- - Founded in 1988 - IPO in 1994 - Merged with Western Resources security business in 1997 - Purchased Network Multifamily from Westar Capital in 1998 - Board of Directors installed new management team in 1999 - Protection One Europe sold to Westar Capital in February 2000 4 [LOGO] ADDRESSING CONCERNS - ------------------------------------------------------------------------------- - Management - Growth strategy - Attrition - SEC Overhang - Leverage/Liquidity 5 [LOGO] [LOGO] PROTECTION ONE TODAY - ------------------------------------------------------------------------------- PROTECTION ONE TODAY - ------------------------------------------------------------------------------- - One of the top three largest monitored security companies in the nation - 1.5 million subscribers - Retail 1,038,400 - Wholesale 140,000 - Network Multifamily 297,000 - North American Operations, Network Multifamily - Protection One Europe and Guardian investment separately owned by Westar Capital 7 [LOGO] MANAGEMENT - -------------------------------------------------------------------------------- Chairman Doug Lake President President and COO CFO Network Multifamily Annette Beck Tony Somma 25 years Steve Williams VP Operations Sr. VP Operations Controller 13 years 20 + years at Andy Devin Gary Skraehart ADT/Centennial Rich Simonetti VP Sales VP Customer Operations Executive Director 18 years 9 years at Westinghouse of Finance Chris Whipple Joe Sanchez Craig Liening VP Legal/HR & VP Sales Exec. Director Investor General Counsel 15 years at Relations & FinancialPlanning 8 years Brinks Craig Weingartner Steven Parker Doug Valenski Director Market Support VP Legal & Administration 11 years 10 years at Renee Caldwell Westinghouse Renee Kingsley Director ICS VP Patrol 2 years 10 years Ibrahim Kassem Retired DEA Craig Chretien Controller VP Wholesale 9 years 10 + years at Kelly James CMS Tony Wilson VP National Accounts 20 + years at ADT John Tosches 8 [LOGO] PROTECTION ONE TODAY - -------------------------------------------------------------------------------- Number of Subscribers: Total 1.5 million [MAP] Number of Subscribers / / > 125,000 / / 20,000 - 125,000 / / < 20,000 California Washington All other states Texas Oregon Florida Nevada Kansas Oklahoma Tennessee Kentucky Georgia Michigan Ohio New York Arizona Canada 9 [LOGO] PROTECTION ONE CALL CENTER LOCATIONS - -------------------------------------------------------------------------------
NUMBER OF CAPACITY* SUBSCRIBERS - - Main Centers - Beaverton, OR 305,000 750,000 - Irving, TX 403,600 460,000 - Wichita, KS 210,000 1,020,000 - Hagerstown, MD 66,000 98,000 - - Canadian - Vancouver, Canada 19,000 80,000 - Ottawa, Canada 24,000 50,000 - - Sonitrol - Norwalk, CT 6,600 7,000 - Phoenix, AZ 1,700 3,600 - Dayton, OH 1,500 2,000 - - Other - Portland, ME 32,000 60,000 - Addison, TX (NMF) 297,000 345,000 - Orlando, FL (wholesale) 109,000 150,000 ---------- ---------- Total 1,475,400 3,025,600
- ------------------------------------------------------------------------ EXCESS CAPACITY CREATES HUGE POTENTIAL FOR MARGIN IMPROVEMENT - ------------------------------------------------------------------------ * Receiver capacity 10 [LOGO] REVIEW OF PROTECTION ONE - LATE 1998 EARLY 1999 - ------------------------------------------------------------------------------- - - Europe, Multifamily, and North American stand alone entities - - Problems related to North American segment - Growth model with reliance on dealers at high multiples of MRR, (35 times) or $1200/customer - Financed solely with bank debt; peak monthly borrowings of $28M in April - Operational issues which led to poor customer service - Employee layoffs in call centers - High call abandonment rates - Low service response - No collections efforts - ------------------------------------------- RESULTED IN ATTRITION SPIKE - ------------------------------------------- - No integration efforts - Third party monitoring costs of $8M+ - Different call center and financial platforms 11 [LOGO] [LOGO] PHASE I THE TURN AROUND - -------------------------------------------------------------------------------- "PROTECTION ONE NORTH AMERICA IS FIXED" PHASE I - THE NORTH AMERICAN TURN AROUND - --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------- Before After Status - --------------------------------------------------------------------------------------------------------------------------- Cost of Growth 35x 20x - 23x Done - --------------------------------------------------------------------------------------------------------------------------- Customer Service 30% TSF 80+% TSF Done 25% Abandoned Call Rate 3% Abandoned - --------------------------------------------------------------------------------------------------------------------------- Technology Multiple Platforms One Platform MAS Rollout Q4 Information Internet Site Transactional Internet Site Walker Rollout Q4 Internet Rollout Q2 - --------------------------------------------------------------------------------------------------------------------------- Attrition 19% Q3 1999 11.9% Q1 2000 Done - --------------------------------------------------------------------------------------------------------------------------- Total Company Debt $1.1 B $700 M On-going - --------------------------------------------------------------------------------------------------------------------------- Executive and Back office Decentralized Centralized Done - ---------------------------------------------------------------------------------------------------------------------------
13 [LOGO] [LOGO] NORTH AMERICAN OVERVIEW - -------------------------------------------------------------------------------- NORTH AMERICAN ACHIEVEMENTS - -------------------------------------------------------------------------------- - Reduced cost of growth - Strengthened our customer service - Continued to provide superb monitoring service - Reduced service order backlog - Lowered attrition 15 [LOGO] REVAMPED GROWTH MODEL - --------------------------------------------------------------------------------
BEFORE AFTER High Internal Cost Sales Dealers Sole New Reliance "Low-Cost" on Dealers Dealers Relaxed Paradigm Credit Direct Scoring Tightened Credit Scoring
16 [LOGO] RESIDENTIAL DISTRIBUTION CHANNELS - -------------------------------------------------------------------------------- QUALIFIED LEADS - Internet - Telemarketing - Mail - Direct TV - Referral - Retention Revamped Internal Third Party, Dealer Commissioned Scalable Network Sales Force Sales Platforms Protection One Sales 20-23x 17 [LOGO] DEALER PROGRAM - -------------------------------------------------------------------------------- - Old program peaked at 25,000 accounts in March 1999 - Cash outlay peaked in April 1999 at $28M - Average multiple 35x - Program revamped to 26x - Favorable economics to dealer at new multiple - Q1 purchases - 8,000 "old" program - 260 "alternative" program - 1,100 "new" program 18 [LOGO] DEALER PROGRAM PURCHASES - -------------------------------------------------------------------------------- Dealer Program Purchases Accounts Purchased and Multiple Trend
Number of Accounts Average Gross Multiple Paid Jan 15,894 35.04 Feb 20,808 34.08 Mar 24,871 34.45 Apr 22,497 34.63 May 20,865 34.75 Jun 20,139 34.96 July 17,678 35.02 Aug 14,437 35.00 Sep 12,606 34.97 Oct 10,616 34.91 Nov 7,812 34.78 Dec 6,866 34.93 Jan 3,468 33.56 Feb 3,771 32.54 Mar 2,152 29.40 Apr MTD 1,673 28.90
19 [LOGO] INTERNAL SALES PROGRAM - -------------------------------------------------------------------------------- - Commission only sales organization rolled out February 21, 2000 - Seventy-six hired in 1st Quarter - Leverage branch infrastructure - Utilize subcontractor installation network to fix labor costs - Telesales aimed at new owners and new installations - Commission only compensation plan rewards self-generated and add-on sales - $75-$200 per sale - 15% of add on revenue - Bonus based on hitting qualified volume levels - Q1 results - 1,900 sales - 2,600 new owners 20 [LOGO] PARADIGM DIRECT - -------------------------------------------------------------------------------- - Protection One transferred marketing department, to Paradigm in 1999 forming POMS - POMS focus: - Utilize new marketing channels; telemarketing, direct response TV, direct mail, affinity programs (Priceline.com, Ourhouse.com), internet - Lead machine - Create new fully installed customer creation vehicle - Pilot program underway - Contracted with RS&I for installations - Protection One installing in 11 markets - Rollout new transactional internet site Q2 - Q1 purchases - 87 accounts - 213 leads 21 [LOGO] [LOGO] COMMERCIAL BUSINESS - -------------------------------------------------------------------------------- COMMERCIAL INITIATIVE - -------------------------------------------------------------------------------- - 10% of North America revenue from commercial account base - Under utilized asset - Evaluation of business showed significant potential - Creating commercial business unit to unlock value 23 [LOGO] COMMERCIAL DISTRIBUTION MODEL - -------------------------------------------------------------------------------- Light Commercial National Accounts Dealers and Internal Sales National Accounts team Commercial Sales Internal Commercial Sales NJ and KC teams Medium Commercial Engineered Systems 24 [LOGO] COMMERCIAL BUSINESS PROFILE - -------------------------------------------------------------------------------- - Light commercial - Small retail stores, restaurants, strip mall locations - MRR - $25-$80 - Residential equipment, sales and installers - National Accounts - Multi location accounts of a larger parent company - MRR - $25-$50 per location - Moderate installation sophistication - Experienced, more knowledgeable sales - Medium Commercial - Established retailers, office/warehouse combinations, class A, B and C office - MRR $35-$100 - Moderate installation sophistication - Experienced, more knowledgeable sales 25 [LOGO] COMMERCIAL BUSINESS PROFILE (CONTINUED) - -------------------------------------------------------------------------------- - Engineered Systems - High risk accounts, property management integrated systems, fire systems - MRR $100-$500 plus generally up front equipment sale - Sophisticated design and installation 26 [LOGO] [LOGO] CUSTOMER SERVICE - -------------------------------------------------------------------------------- IMPROVED CUSTOMER SERVICE - --------------------------------------------------------------------------------
BEFORE AFTER Busy Appropriately Signal Staffed Call Centers Rollout Vision and Performance Objectives High Improved Attrition Technology Refocused Collections
28 [LOGO] CUSTOMER SERVICE PERFORMANCE - --------------------------------------------------------------------------------
% OF CALLS ANSWERED WITHIN 20 SECONDS Jan Feb Mar Apr May Jun July Aug Sep Oct D Goal 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 TSF 52.0% 49.0% 51.0% 59.0% 52.0% 33.0% 61.0% 79.0% 87.0% 78.0% Nov Dec Jan Feb Mar Apr MTD Goal 0.8 0.8 0.8 0.8 0.8 0.8 TSF 86.0% 84.0% 85.0% 82.0% 85.0% 84.0%
[GRAPH] 29 [LOGO] CUSTOMER SERVICE PERFORMANCE - -------------------------------------------------------------------------------- Customer Service Performance Abandoned Call Rate
Goal Abandon Jan 5% 9% Feb 5% 14% Mar 5% 18% Apr 5% 14% May 5% 12% Jun 5% 26% Jul 5% 10% Aug 5% 4% Sept 5% 3% Oct 5% 3% Nov 5% 2% Dec 5% 2% Jan 5% 2% Feb 5% 2% Mar 5% 2% Apr 5% 3%
30 [LOGO] FIELD OPERATIONS - --------------------------------------------------------------------------------
AVERAGE BACKLOG OF SERVICE ORDERS Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Goal 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Average Backlog 2.1 1.6 1.7 1.8 2.0 2.1 2.6 2.3 2.3 2.0 1.9 2.0 2.1 1.8 1.8
[GRAPH] 31 [LOGO] NORTH AMERICA ATTRITION - --------------------------------------------------------------------------------
QUARTERLY ANNUALIZED '98 Q1 '98 Q2 '98 Q3 '98 Q4 '99 Q1 '99 Q2 '99 Q3 '99 Q4 '00 Q1 Attrition 10.40% 12.60% 10.90% 8.30% 11.20% 15.90% 19.00% 16.30% 11.93%
- - Goal for 2000 is 13% [GRAPH] 32 [LOGO] [LOGO] OTHER INITIATIVES - -------------------------------------------------------------------------------- COST REDUCTIONS - -------------------------------------------------------------------------------- - Third Party monitored accounts decrease - 108K accounts in March, 1999 - 47K accounts as of March, 2000 - Expenditure reduced from $8.1M to $2.7M annually - Culver City office move March 15; $2M savings over 4 years - Irving office sublease in process; $2M savings over 5 years 34 [LOGO] COMPENSATION PROGRESS - -------------------------------------------------------------------------------- - Watson Wyatt study implemented as of March 1 - 15 pay grade structure - Standard titles - Stock options being given to all exempt employees - Annualize salary increases 35 [LOGO] [LOGO] NETWORK MULTIFAMILY OVERVIEW - -------------------------------------------------------------------------------- HISTORY - -------------------------------------------------------------------------------- - Founded in 1982 - Acquired by Westar Capital in late 1997 - Purchased by Protection One in early 1998 - Acquired two largest competitors in 1998 37 [LOGO] - -------------------------------------------------------------------------------- Total Number of Subscribers: 300,000 [MAP] Number of Subscribers Yellow = 40,000 and above Red = 10,000 - 39,999 Blue = less than 10,000 Texas California Alaska Florida Nevada Oregon Georgia Washington Virginia Utah North Carolina New Mexico Maryland Arizona Colorado Kansas Oklahoma Missouri Arkansas Louisiana Mississippi Kentucky Tennessee Illinois Minnesota Wisconsin Michigan Ohio Indiana West Virginia Pennsylvania New York New Jersey New Hampshire Connecticut Massachusetts Rhode Island Alabama South Carolina Deleware *States not listed have no subscribers 38 [LOGO] ESTABLISH OUR FOCUS - -------------------------------------------------------------------------------- Security Market Segments Multifamily Residential Security Segment Single Family 30 MM MFP's Nationwide 11% Penetration 20 MM Garden Style 15 MM Target Mutilfamily 3% Penetration Commercial 20% + Penetration 39 [LOGO]
SEGMENT COMPARISONS - -------------------------------------------------------------------------------- SINGLE FAMILY MULTIFAMILY 110 Million Homes 30 Million Apartments 110 Million Decision Makers 2,000 Individuals Control 50% of the Apartment Market >16,000 Alarm Companies < 50 Alarm Companies 2-5 year agreements 10 year agreements with automatic escalators
40 [LOGO] TYPICAL CONTRACTUAL ARRANGEMENTS - -------------------------------------------------------------------------------- - Long term contract with 10 year primary term and 5 year renewal term - Lower Attrition - Contract rate of $10 - $11 per unit with annual CPI increase - Contract executed by property owner/developer - Approximately 2,000 owner/developers versus approximately 300,000 monitored units/residents - Bill and collect from only 2,000 customers - Minimal credit risk with very few contracts canceling prior to completion of primary contract term - Contracts typically assumed by new owner/developers as properties turn over 41 TARGET PROPERTY - -------------------------------------------------------------------------------- [PHOTO] 42 BUYING MOTIVE - -------------------------------------------------------------------------------- -- > < -- AMENITY VS PROTECTION 43 THE MFP DISTRIBUTION CHANNEL - --------------------------------------------------------------------------------
OWNER PROPERTY RESIDENT MANAGER - - Increased - Leasing Tool - Reliability Occupancy Peace of Mind - Quality - - Reduced Service - High Value Turnover - Management - Ease of Use - - Higher Rents Incentives Convenience
NETWORK'S TAILORED APPROACH - Sales Executive - Market Support - Customer Service 44 ACCEPTANCE AND ENDORSEMENTS - -------------------------------------------------------------------------------- - FROM THE INDUSTRY... - Private in-unit alarm systems are #1 TECHNOLOGY ITEM in new apartment homes. (1998, National Multi Housing Council and the National Apartment Association) - Apartment residents' PRIMARY CONCERN is for safety and security. (1998, CEL & Associates) - The fast-growing luxury sector ATTRACTS RESIDENTS with built-in alarm systems. (1998, National Multi Housing Council) - 77% of residents consider security alarms in their units TO BE IMPORTANT OR VERY IMPORTANT. (1995, Multi-Housing News Survey). - Apartment residents choose their homes because of location, unit size and SAFETY AND SECURITY CONCERNS. (Multi-Housing News). 45 POSITION IN THE INDUSTRY - -------------------------------------------------------------------------------- - Nation's oldest and largest provider of alarm amenities - More than ten times its nearest competitor - Operations in 42 states, 260 major cities and Canada - Industry leader with memberships in the following: - National Multi Housing Council and its Board of Directors - National Apartment Association and its National Suppliers Council - National Association of Home Builders' Multifamily Services Division Pillars of the Industry Sponsor - Active Product Supplier Member of 23 apartment associations at the state and local level - Expertise is recognized by industry trade journals and publications evidenced by editorial requests and executive interviews 46 GROWTH - --------------------------------------------------------------------------------
BULK UNIT INSTALLATIONS AND SALES 1994 1995 1996 1997 1998 1999 Installations 12,760 15,148 26,857 35,053 40,420 45,366 Sales 18,518 25,845 31,933 40,028 48,438 58,276
47 FINANCIAL PERFORMANCE - --------------------------------------------------------------------------------
EBITDA ($ in thousands) 1997 1998 1999 10,133 13,978 16,236
48 FUTURE OUTLOOK - -------------------------------------------------------------------------------- - Subscriber growth - Units in Backlog - Synergies with North America - Feeder of leads - New business opportunities - Telecom [LOGO] 49 [LOGO] FINANCIAL REVIEW - -------------------------------------------------------------------------------- 50 CASH ON CASH RETURN ANALYSIS - --------------------------------------------------------------------------------
--------------------------------- Average Life in Years ------------------------------------------------------------ Multiple 8 9 10 ------------------------------------------------------------ Old Program 35 4.5% 7.0% 8.9% ------------------------------------------------------------ ------ 33 5.2% 7.7% 9.5% DEALER ------------------------------------------------------------ ------ 31 6.6% 9.1% 10.9% ------------------------------------------------------------ 29 8.3% 10.7% 12.4% ------------------------------------------------------------ New Program 26 11.2% 13.5% 15.1% ------------------------------------------------------------ 25 12.3% 14.5% 16.1% ------------------------------------------------------------ 24 13.5% 15.7% 17.2% ------------------------------------------------------------ 23 14.8% 16.9% 18.4% ------------------------------------------------------------
------------------------------- Average Life in Years -------------------------------------------------- Multiple 8 9 10 -------------------------------------------------- 24 15.3% 17.3% 18.7% --------- -------------------------------------------------- INTERNAL/ 23 16.4% 18.3% 19.7% PARADIGM -------------------------------------------------- --------- 22 17.5% 19.4% 20.7% -------------------------------------------------- 21 18.7% 20.5% 21.8% -------------------------------------------------- 20 20.0% 21.7% 23.0% --------------------------------------------------
------------------------------- Average Life in Years ------------- --------------------------------------------------- NETWORK Multiple 10 13 15 MULTIFAMILY --------------------------------------------------- ------------- 30 17.7% 19.5% 20.3% ---------------------------------------------------
[LOGO] 51 IMPROVED FINANCIAL PERFORMANCE - -------------------------------------------------------------------------------- PROTECTION ONE NORTH AMERICA FREE CASH FLOW ANALYSIS ($ IN MILLIONS) [GRAPH]
------------------------------------------------- '99 Q1 '99 Q2 '99 Q3 '99 Q4 '00 Q1* - -------------------------------------------------------------------------- - ---CASH FLOW 36.7 34.6 38.6 27.5 30.9 - -------------------------------------------------------------------------- - ---SUBSCRIBER CAP X (72.0) (69.7) (53.6) (29.6) (9.7) - -------------------------------------------------------------------------- - ---FREE CASH FLOW (35.3) (35.1) (15.0) (2.1) 21.2 - --------------------------------------------------------------------------
* Excludes extraordinary gain - -Free Cash Flow = Net Income + Depr. + Amort. - Subscriber Cap X - -Self funding in 2000 [LOGO] 52 [LOGO] DEBT REDUCTION - -------------------------------------------------------------------------------- 53 EUROPEAN TRANSACTION WITH WR - -------------------------------------------------------------------------------- - - European assets most likely candidate for sale - European cash flow did not service Protection One Alarm Monitoring debt - All cash flow stayed in Europe to service European obligations - Cash flow from North America and Multifamily used to service public debt obligations and revolver totaling over $1B - - Protection One received the following in exchange for Europe, other assets and tax payment from Westar Capital Cash $183,025 Market value of bonds 75,959* Note 14,199 -------- Result $273,184
*Face amount of $131,340 [LOGO] 54 OPEN MARKET BOND REPURCHASE - -------------------------------------------------------------------------------- - - Market continues to present unique opportunity to delever balance sheet - Protection One bonds still trading at a discount to face - - Subsequent to European transaction Protection One has retired an additional $20.4M face amount bonds in the 1st Quarter - $14.5M face amount of bonds received from Westar Capital as repayment of note - $6.0M face amount of bonds purchased in open market - - Subsequent to 1st Quarter, Protection One has retired an additional $20.9M face amount bonds - $7.5M face amount bonds received from Westar Capital as repayment of note - $13.4M face amount bonds purchased in open market [LOGO] 55 PROFORMA FINANCIAL IMPACT - --------------------------------------------------------------------------------
DEBT AT (1)PROFORMA 4Q 99 (1)PROFORMA INTEREST 12/31/99 DEBT TODAY INTEREST EXPENSE EXPENSE -------- ---------- ---------------- ------- $1,110,162 $698,463 $22,588 $13,804
Q1 00 Annualized EBITDA w/o Europe $156M Leverage ratio proforma(2) 4.4x Leverage ratio proforma(2) 2.7x
- ---------------------------------------------------------------------------- As a result of deleveraging the balance sheet, North America and Multifamily support $698M in debt vs. $1B; interest expense reduced $35M/year - ---------------------------------------------------------------------------- (1)Reflects debt reduction through April 21, 2000 (2)Ratios calculated are not consistent with definitions in the Company's indentures and senior credit facility [LOGO] 56 [LOGO] YTD FINANCIALS - --------------------------------------------------------------------------------
1ST QUARTER 2000 FINANCIALS (W/O EUROPE) - -------------------------------------------------------------------------------------------------------------------- Pro-1 Pro-1 Consolidated Monitoring Executive Multi-Family Eliminations POI ---------- --------- ------------ ------------ --- Revenues: Monitoring and Related Services $93,167 $0 $8,688 $0 $101,855 Installation and Other 3,511 0 1,453 0 4,964 ------------- ---------------- --------------- --------------- --------------- Total Revenues 96,678 0 10,141 0 106,819 Cost of Revenues: Monitoring and Related Services 28,125 0 1,935 0 30,060 Installation and Other 3,224 0 1,382 0 4,606 ------------- ---------------- --------------- --------------- --------------- Total Cost of Revenues 31,349 0 3,317 0 34,666 Gross Profit 65,329 0 6,824 0 72,153 Gross Margin 68% 0% 67% 68% Selling Expense 1,221 0 676 0 1,897 General and Administrative Expense 23,438 1,602 2,026 0 27,066 Acquisition and Transition Expense 4,145 0 0 0 4,145 ------------- ---------------- --------------- --------------- --------------- EBITDA 36,525 (1,602) 4,122 0 39,045 EBITDA Margin 38% 0% 41% 37% Depreciation and Amortization Expense 50,840 3 3,834 0 54,677 Other 0 3,050 0 0 3,050 ------------- ---------------- --------------- --------------- --------------- Operating Income(Loss) (14,315) (4,655) 288 0 (18,682) Interest Expense 0 (17,129) 0 0 (17,129) Other Income (Expense) 25 (1,712) 0 1,994 307 ------------- ---------------- --------------- --------------- --------------- Income (Loss) Before Taxes & Extraordinary Items (14,290) (23,496) 288 1,994 (35,504) Extraordinary Gain (Loss), net of tax 31,926 0 0 0 31,926 ------------- ---------------- --------------- --------------- --------------- Income (Loss) Before Taxes 17,636 (23,496) 288 1,994 (3,578) Income Tax Expense ( Benefit) (3,851) (5,678) 0 0 (9,529) ------------- ---------------- --------------- --------------- --------------- Net Income (Loss) 21,487 (29,174) 288 1,994 5,951 ============= ================ =============== =============== =============== Average Customer Base (In Thousands) 1,197 NMF 297 NMF 1,492 Monitoring and Service Revenue per sub/month $25.95 NMF $9.75 NMF $23.42 Monitoring and Service Margin per sub/month $11.59 NMF $5.31 NMF $9.86 Monitoring Margin 1 45% NMF 54% NMF 44%
1 (Monitoring and service revenue - monitoring and service cost - G&A expense)/ Monitoring and service revenue. 58 COST TO REPLACE AN ACCOUNT - ------------------------------------------------------------------------------ - North America - Wholesale accounts - no capital required - Retail accounts - Move ins: No capital required as service technician does site visit to activate account - Competitive takeover: Capital may or may not be required depending on the system - Internal sales/Paradigm - capitalize only direct labor and equipment which approximates $400 per account, balance expensed - Dealer tuck-in acquisitions - total multiple capitalized - Holdback reduces cash outlay - Multifamily - $230 per account gets capitalized, balance expensed 59 THEORETICAL EXAMPLE - CAPITAL REQUIRED - -------------------------------------------------------------------------------- - Assume 10,000 accounts lost (pro rata customer base) - 880 Network Multifamily - 990 wholesale - 8,922 retail - Capital spent - 880 Network Multifamily $230 - 900 wholesale 0 - 825 move-ins 0 - 4,200 dealer/tuck-in acquisitions 825 - 3,195 internal 400* ----- - Total Average $495 * $375 expensed, $400 capitalized 60 PHASE II A HEALTHIER PROTECTION ONE - -------------------------------------------------------------------------------- SYSTEMS OVERVIEW - --------------------------------------------------------------------------------
CURRENT PLANNED ----------------------------------------------------------------------------------- ------------------ HAGERSTOWN/ BEAVERTON IRVING WICHITA PORTLAND ALL CENTERS ----------------------------------------------------------------------------------- ------------------ Accounts 305,000 430,000 210,000 80,000 1.2M - ------------------------------------------------------------------------------------------------------ ------------------ Database MS SQL SVR SYBASE B32/C1SAM 1332/CISAM Oracle - ------------------------------------------------------------------------------------------------------ ------------------ Monitoring S1R 3 WEC MAS MAS MAS - ------------------------------------------------------------------------------------------------------ ------------------ Customer Service S1R 3 WEC AS400 None MAS - ------------------------------------------------------------------------------------------------------ ------------------ Operating System NT 4.5 SP5 AIX4.3 AIX4.3/OS400 AIX 4.2.1 AIX - ------------------------------------------------------------------------------------------------------ ------------------ Hardware Compaq/Intel RS6000 RS6000 RS6000 RS6000 - ------------------------------------------------------------------------------------------------------ ------------------ A/R Billing PS IBS/Intergy RPG/Intergy MAS BR MAS - ------------------------------------------------------------------------------------------------------ ------------------ Accounting PS:GL/AP/PUR PS:GL/AP/PUR PS:GL/AP/PUR Spreadsheet Walker ----------------------------------------------------------------------------------- ------------------
ONE COMMON PLATFORM Q4 2000 62 TECHNOLOGY BENEFITS - -------------------------------------------------------------------------------- - MAS implementation scheduled Q4 2000 - One common platform for all customers - Allows call sharing between centers; reduces customer transfers - Gives flexibility to shut down and/or backup centers - Improves reporting - Implements common procedures - Improves accuracy of billing - Walker financials implementation by year end - Ability to see performance by business unit - Automates manual processes - Internet strategy implemented Q2 - On-line distribution channel - Affinity relationships - Customer interaction 63 SECURITY INDUSTRY - -------------------------------------------------------------------------------- MARKET SHARE - --------------------------------------------------------------------------------
Average RMR ($ Millions) RELATIVE SIZE - TOP 25 COMPANIES 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1996 51.5 11.1 9.8 8.5 5.4 3 2.9 2.8 2.3 2.2 2.2 2 1.7 1.7 1.4 1999 93 38 30 14 7 2.7 2.6 2.3 2.2 1.8 1.8 1.7 1.6 1.4 1.2 16 17 18 19 20 21 22 23 24 25 1996 1.4 1.3 1.2 1.2 1.2 1.1 0.9 0.8 0.7 0.7 1999 1 0.9 0.9 0.7 0.7 0.7 0.6 0.6 0.6 0.5
- - After Brinks and Honeywell, next 200+ largest companies would need to be acquired to yield additional 13% market share gain. - - Each and every of next 1,000+ would need to be acquired to yield next 13% gain in market share. - - Current structure limits probable share of top 3 players...near term (3-5 years) at roughly 45% to 50%. Source: Barnes Associates 2/2000 65 MARKET POTENTIAL - -------------------------------------------------------------------------------- - Huge growth potential: approx. 30-40 million new residential alarm customers created in North America over the next ten years (from current base of 12 million) - Total North American industry revenue: $16.1B - $6.5B of monitoring and service revenue growing at > 10% per year - 110 million households in North America - 11% alarm penetration - 16,000 North American alarm companies - Positive demographic trends - Penetration goes from 12 million residences to 35 million residences equals an 11.3% CAGR Source: SDM Magazine 66 BUSINESS DRIVERS/GOALS - ---------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------ Today Future HOW? - ------------------------------------------------------------------------------------------------------------------------------ IMPROVE QUALITY AND VOLUME OF LEADS NEW CHANNELS Customer Growth 20-23x 15-20x INCREASE NEW OWNER SALES Replace Attrition 7% in 2001 GROW INTERNAL SALES 10% to 15% in 2002 and beyond INCREASE UP FRONT CUSTOMER REVENUE - ------------------------------------------------------------------------------------------------------------------------------ ONE CALL RESOLUTION Attrition 13% < 10% COMMON BILLING IMPROVED SCHEDULING - ------------------------------------------------------------------------------------------------------------------------------ Montioring and TECHNOLOGY IN CENTERS AND BRANCHES Service Margin 68% 75+% PROCESS EFFICIENCIES CALL CENTER INTEGRATION - ------------------------------------------------------------------------------------------------------------------------------ Monitoring Margin 45% 50+% BACK OFFICE TECHNOLOGY EXPAND COMMERCIAL BUSINESS - ------------------------------------------------------------------------------------------------------------------------------
INCREASE SHAREHOLDER VALUE 67 PROTECTION ONE FOCUS - -------------------------------------------------------------------------------- - Positioned for significant customer growth for 2001 and beyond - Expand monitoring and related service profit margins - Enhance customer retention - Reduce cost of adding customers - Build preeminent brand name - Leverage synergies between businesses - Create affinity partnerships to enhance services to customers - Focus on flawless execution 68 VALUATION - -------------------------------------------------------------------------------- Protection One VS. (1)Peer Group (2)5.5x EBITDA 7.2x EBITDA - If Protection One were to trade at peer group average then stock price would increase to $3.31/share or a 165% increase - If Protection One executes plan then the following occur: - Faster growth in revenues - Margin expansion - Lower attrition - Higher EBITDA THEN PROTECTION ONE WOULD COMMAND A HIGHER MULTIPLE (1) See Index (2) Closing price as of April 28, 2000 69 INDEX - -------------------------------------------------------------------------------- INDEX - --------------------------------------------------------------------------------
COMPARABLE EBITDA MUTIPLES (U.S. DOLLARS IN MILLIONS, EXCEPT STOCK PRICE) EQUITY MARKET FIRM VALUE/LTM COMPANY STOCK PRICE (a) HIGH* LOW* VALUE FIRM VALUE (b) EBITDA - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Sensormatic Electronics (SRM) $16.69 (28.0%) 58.9% $1,280 $1,745 11.1x Pittston Brink's Group (PZB) 16.38 (45.4%) 9.2% 848 1,234 4.9x Checkpoint Systems (CKP) 8.94 (28.5%) 27.7% 270 494 8.8x Armor Holdings (AH) 11.19 (16.4%) 31.6% 243 234 9.3x Burns International (BOR) 10.81 (51.0%) 31.1% 215 348 5.6x Wackenhut (WAK) 13.19 (55.7%) 6.6% 143 82 1.3x LOJACK Corp. (LOJN) 7.19 (39.5%) 15.0% 116 113 6.6x Lifeline Systems (LIFE) 11.50 (45.2%) 53.3% 68 71 6.2x VOXCOM Incorporated (VOX) 3.03 (42.7%) 45.2% 24 56 13.8x American Medical Alert (AMAC) 2.19 (48.5%) 75.0% 14 13 4.8x Alarmforce Industries (AF) 0.79 (36.2%) 47.5% 7 8 6.5x ------------------------------------------------------------------------------------ MEDIAN: - - 6.5x MEAN: - - 7.2x ------------------------------------------------------------------------------------ Protection One (POI) $1.19 (81.0%) 18.8% $ 151 $ 852 5.5x
* % of 52 Week Note: EBITDA adjusted for unusual and nonrecurring items. LTM: Latest Twelve Months as of 12/31/99. (a) Stock price as of April 28, 2000 (b) Firm Value equals equity value plus straight debt, minority interest, straight preferred stock, all out-of-money convertibles, less investments in unconsolidated affiliates and cash. 71 -----END PRIVACY-ENHANCED MESSAGE-----