EX-99.1 2 a06-18052_1ex99d1.htm EX-99

Exhibit 99.1

PROTECTION ONE ANNOUNCES SECOND QUARTER 2006 RESULTS

Company increases retail RMR additions

Company to conduct conference call to review results tomorrow at 10 a.m. Eastern Time

LAWRENCE, Kan., August 14, 2006 — Protection One, Inc. (OTCBB: PONN), one of the leading providers of security monitoring services in the United States, today reported unaudited financial results for the second quarter ended June 30, 2006.

Richard Ginsburg, President and CEO, commented, “I am pleased to report another quarter of growing retail recurring monthly revenue (RMR) additions and total company RMR stability.  Compared to one year ago, we achieved a slight increase in RMR at our Protection One Monitoring reporting unit and improved RMR additions from our Network Multifamily reporting unit.  These solid operating results were achieved in a quarter when we also closed a successful debt offering that enabled us to pay a dividend to our shareholders.”

At the beginning of the fiscal year, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R, which requires the expensing of stock options; prior year results were not restated.  Through June 30, 2006, the Company has amortized $0.9 million of stock-based compensation (including $0.3 million in the second quarter) to expense under this new standard.

Second Quarter Fiscal 2006 Results

The Company realized monitoring and related services revenues of $61.7 million, compared to $61.5 million in the second quarter of fiscal 2005, an increase of 0.4%.  For comparison purposes, monitoring and related services revenues for the quarter ended June 30, 2005 decreased by 0.5% compared to the same period in 2004.  Slight declines in the Company’s customer base since June 30,




2005 have been more than offset by higher recurring monthly revenue per retail account added and by pricing adjustments to existing accounts.

 Total revenues were $67.1 million compared to $65.4 million in the second quarter of fiscal 2005.  Most of this increase is attributable to an increase in amortization of previously deferred installation revenues. Net loss was $(6.7) million, or $(0.36) per share, compared to $(7.9) million, or $(0.43) per share, in the second quarter of fiscal 2005.

First Half Fiscal 2006 Results

The Company realized monitoring and related services revenues of $123.2 million for the six months ended June 30, 2006.  In the 39-day period commencing January 1, 2005 and ending with and including February 8, 2005 (the “pre-push down period”) and in the 142-day period beginning after that date and ending on June 30, 2005, utilizing the new basis of accounting (the “post-push down period”), the Company recorded revenues of $26.5 million and $96.6 million, respectively.

 Total revenues were $133.8 million in the first six months of fiscal 2006 and, in the pre- and post-push down periods of 2005, were $28.5 million and $102.4 million, respectively.

Net loss in the first half of fiscal 2006 was $(9.2) million, or $(0.50) per share.  Net loss in the pre-push down period in the first half of fiscal 2005 was $(11.4) million, or $(5.80) per share, and, in the post-push down period, $(11.1) million, or $(0.61) per share.

The weighted average number of outstanding shares was 18,226,377 in the first half of 2006, 18,198,571 in the post-push down period and 1,965,654 million in the pre-push down period.

Recurring Monthly Revenue

Recurring monthly revenue (“RMR”) as of June 30, 2006 was $19.9 million, equal to RMR as of June 30, 2005. This stabilization is a result of the Company’s efforts to reduce attrition, add new customers, and the introduction of various pricing initiatives.  In the second quarter of fiscal 2006, the Company’s Protection One Monitoring reporting unit added $549,000 of retail RMR, 11.9% more than it added in the second quarter of 2005.  In the first half of fiscal 2006, the Protection One Monitoring

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reporting unit added $1,049,000 of retail RMR, 12.9% more than it added in the first half of fiscal 2005.  See “Non-GAAP Reconciliations” below for a reconciliation of RMR to reported revenue.

Customer Attrition

Excluding the benefit of move-in accounts (new residents in locations with pre-existing Company alarm systems) and Hurricane Katrina reactivations, the annualized gross retail customer attrition rate for the Protection One Monitoring reporting unit was 12.6% for the second quarter in both 2006 and 2005.  Calculated on a trailing 12 months basis ending June 30 and excluding net losses from Hurricane Katrina, the gross retail customer attrition rate decreased to 12.5% in 2006 from 12.7% in 2005.

Including the benefit of move-in accounts and excluding Hurricane Katrina reactivations, the annualized second quarter 2006 net retail customer attrition rate for the Protection One Monitoring reporting unit increased slightly to 10.3% from 10.0% during the second quarter of 2005.  Calculated on a trailing 12 months basis ending June 30 and excluding net losses from Hurricane Katrina, the net retail customer attrition rate remained at 10.2% in both 2006 and 2005.

For the Company’s Network Multifamily reporting unit, the annualized second quarter 2006 customer attrition rate, excluding Hurricane Katrina reactivations, increased to 8.8% from 7.0% during the second quarter of 2005.  On a trailing 12 months basis ending June 30, the customer attrition rate was 7.0% in 2006 compared to 6.3% in 2005, again excluding net losses from Hurricane Katrina.

Adjusted EBITDA

Adjusted earnings before interest, taxes, depreciation, amortization and other items (“Adjusted EBITDA”) in the second quarter of fiscal 2006 was $21.4 million, up from $21.2 million in the second quarter of fiscal 2005.   The $0.2 million increase in monitoring and related services revenues and $0.9 million reduction in G&A costs offset an increase of $0.8 million from creation activities.

Adjusted EBITDA was $42.2 million in the first half of fiscal 2006 and, in the pre- and post-push down periods in the first half of fiscal 2005, was $9.0 million and $33.5 million, respectively.

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See “Non-GAAP Reconciliations” below for a reconciliation of Adjusted EBITDA to reported net loss and a discussion of certain uses and limitations related to Adjusted EBITDA.

Balance Sheet

On April 26, 2006, as previously reported, the Company increased the aggregate principal amount outstanding under its senior secured credit facility by $66.8 million to $300.0 million and announced its intention to use the incremental proceeds from the amended credit facility, together with a portion of its excess cash, to pay a one-time cash dividend to all of its common stockholders, and to make corresponding payments to employees who are option holders.  The total amount of the distribution was $75.0 million and was paid on May 12, 2006, to stockholders of record as of May 8, 2006 and employee option holders.

The Company’s total debt outstanding, excluding debt discounts and premiums, as of June 30, 2006, was $411.5 million, compared to $344.2 million as of December 31, 2005, reflecting the additional financing obtained through the senior secured credit facility.  The Company had $299.3 million outstanding under its senior secured credit facility as of June 30, 2006.

The Company’s cash and equivalents as of June 30, 2006, were $21.1 million compared to $19.9 million at December 31, 2005.

Push-Down Accounting

On February 8, 2005, as previously reported, the Company consummated a debt-for-equity exchange with affiliates of Quadrangle Group LLC that resulted in Quadrangle reducing the aggregate principal amount outstanding under the Company’s credit facility with Quadrangle by $120 million, in exchange for 16 million shares of the Company’s common stock. The issuance of the new shares, together with shares already owned by Quadrangle, resulted in Quadrangle owning approximately 97.3% of the Company’s common stock.

As a result of Quadrangle’s increased ownership interest from the February 8, 2005, debt-for-equity exchange, the Company has ‘‘pushed down’’ Quadrangle’s basis to a proportionate amount of its

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underlying assets and liabilities acquired, based on the estimated fair market values of the assets and liabilities. It is important to note that the “push-down” accounting adjustments did not impact cash flows.

Due to the impact of the changes resulting from the push-down accounting adjustments described above, some results in 2006 may not be comparable to results achieved in 2005. Therefore, the income statement presentation of the Company’s results for the six months ended June 30, 2005, accompanying this release and to be included in the Company’s Form 10-Q for the quarterly period ended June 30, 2006 (and in subsequent filings), separates the Company’s results into two periods:  (1) the 39-day period commencing January 1, 2005, and ending on and including February 8, 2005, upon consummation of the debt-for-equity exchange, and (2) the 142-day period beginning after that date and ending on June 30, 2005, utilizing the new basis of accounting.

Non-GAAP Reconciliations

Adjusted EBITDA

Adjusted EBITDA is used by management in evaluating operating performance and allocating resources, and management believes it is used by many analysts who follow the security industry.  Management also believes that presentation of Adjusted EBITDA with standard GAAP financial measures is useful because such measures collectively allow investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful manner.  Adjusted EBITDA should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States of America, 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. For example, Adjusted EBITDA does not reflect historical or future interest expense; principal payments; changes in working capital needs; cash requirements for acquiring new customers, replacing certain assets that are being depreciated or amortized, or other capital expenditures; or certain event-related expenses such as change in control, debt restructuring, consolidation, employee retention or sale-related expenses.  Accordingly, Adjusted EBITDA has limitations as an analytical tool, and you should

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not consider it in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.  The Company’s calculation of Adjusted EBITDA may be different from the calculation used by other companies and comparability may be limited.  See the table below for the reconciliation of Adjusted EBITDA to consolidated loss before income taxes.

 

 

Consolidated

 

 

 

2006

 

2005

 

 

 

Six Months
Ended
June 30,

 

February 9
through
June 30

 

January 1
through
February 8

 

 

 

(dollar amounts in thousands)

 

Loss before income taxes

 

($9,005

)

($10,939

)

($11,370

)

Plus:

 

 

 

 

 

 

 

Interest expense

 

16,795

 

15,362

 

4,544

 

Amortization of intangibles and depreciation expense

 

21,448

 

20,080

 

6,638

 

Amortization of deferred costs in excess of amortization of
deferred revenues

 

7,592

 

2,916

 

2,837

 

Amortization of stock based compensation

 

872

 

 

 

Reorganization costs (a)

 

 

 

6,374

 

Corporate consolidation costs

 

20

 

 

 

Recapitalization costs (b)

 

4,452

 

 

 

Loss on retirement of debt

 

 

6,657

 

 

Less:

 

 

 

 

 

 

 

Other expense (income)

 

11

 

(550

)

(15

)

Adjusted EBITDA

 

$

42,185

 

$

33,526

 

$

9,008

 


(a)             Reorganization costs include fees paid upon completion of the restructuring transactions, key employee retention plan payments and legal fees.

(b)            Recapitalization costs include $1.2 million of expense to third parties related to the amendment to the bank credit facility and $3.3 million related to the make-whole payment to option holders.

 

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Consolidated

 

 

 

Three Months Ended June 30,

 

 

 

2006

 

2005

 

 

 

(dollar amounts in thousands)

 

Loss before income taxes

 

($6,590

)

($7,733

)

Plus:

 

 

 

 

 

Interest expense

 

8,836

 

8,457

 

Amortization of intangibles and depreciation expense

 

10,362

 

12,604

 

Amortization of deferred costs in excess of amortization of deferred revenues

 

4,061

 

2,038

 

Amortization of stock based compensation

 

340

 

 

Recapitalization costs

 

4,452

 

 

Loss on retirement of debt

 

 

6,068

 

Less:

 

 

 

 

 

Other income

 

(36

)

(267

)

Adjusted EBITDA

 

$

21,425

 

$

21,167

 

 

Recurring Monthly Revenue

The Company believes the presentation of recurring monthly revenue is useful to investors because the measure is often used by investors and lenders to evaluate companies such as Protection One with recurring revenue streams. Management monitors recurring monthly revenue, among other things, to evaluate the Company’s ongoing performance.

The table below reconciles recurring monthly revenue to revenues reflected on the consolidated statements of operations.

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Six

 

 

 

 

 

Months

 

Feb. 9,

 

 

 

Ended

 

through

 

 

 

June 30,

 

June 30,

 

 

 

2006

 

2005

 

 

 

(dollar amounts in millions)

 

Recurring Monthly Revenue at June 30

 

$

19.9

 

$

19.9

 

Amounts excluded from RMR:

 

 

 

 

 

Amortization of deferred revenue

 

0.6

 

0.3

 

Other revenues (a)

 

1.9

 

1.9

 

Revenues (GAAP basis):

 

 

 

 

 

June

 

22.4

 

22.1

 

January — May, 2006

 

111.4

 

 

February 9 — May 31, 2005

 

 

80.3

 

Total period revenue

 

$

133.8

 

$

102.4

 


(a) Revenues not pursuant to monthly contractual billings.

Conference Call and Webcast

Protection One will host a conference call and audio webcast August 15, 2006 at 10 a.m. EDT to review these results. The call may be accessed by dialing (800) 289-0494 (inside the United States and Canada) or via a webcast at www.ProtectionOne.com. The reference code associated with the call is 6444270.

A webcast replay will be available shortly after the call at www.ProtectionOne.com. A telephonic replay of the call also will be available until August 29, 2006. To listen to the telephonic replay, dial (719) 457-0820 or (888) 203-1112 and enter the following passcode: 6444270.

Protection One, Inc. is one of the largest providers of security monitoring services in the United States.  Including its Network Multifamily subsidiary, a leading security provider to the multifamily housing market, Protection One provides monitoring and related security services to more than one million residential and commercial customers.  For more information about Protection One, visit http://www.ProtectionOne.com.

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.  Forward-looking statements may describe our future plans, objectives, expectations or goals.  Such statements may address future events and conditions concerning customer retention, debt levels, debt service capacity, revenue stabilization and stabilization of our customer account base.  Our actual results may differ materially from those discussed here as a result of numerous factors, including our significant debt obligations, net losses and competition.  See our Annual Report on Form 10-K and Form 10K/A for the year ended December 31, 2005 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, which we filed with the SEC on August 14, 2006, 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.

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Protection One and Subsidiaries

Summary Income Statement

Unaudited

(Amounts in thousands, except per share and weighted average shares outstanding amounts)

 

 

 

2006

 

2005

 

 

 

January 1 -
June 30

 

February 9 -
June 30

 

January 1 -
February 8

 

Revenue:

 

 

 

 

 

 

 

Monitoring & related services

 

$

123,228

 

$

96,624

 

$

26,455

 

Other

 

10,598

 

5,728

 

2,088

 

Total revenue

 

133,826

 

102,352

 

28,543

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

Monitoring & related services

 

34,808

 

26,895

 

7,400

 

Other

 

13,575

 

7,660

 

3,314

 

Total cost of revenue

 

48,383

 

34,555

 

10,714

 

 

 

 

 

 

 

 

 

Selling expenses

 

19,585

 

11,423

 

3,989

 

General & administrative

 

32,137

 

25,764

 

8,104

 

Change in control and debt restructuring costs

 

 

 

5,939

 

Corporate consolidation costs

 

20

 

 

 

Recapitalization costs

 

4,452

 

 

 

Amortization of intangibles and depreciation expense

 

21,448

 

20,080

 

6,638

 

Total operating expenses

 

77,642

 

57,267

 

24,670

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

7,801

 

10,530

 

(6,841

)

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

Interest expense, net

 

(16,795

)

(15,362

)

(4,544

)

Other

 

(11

)

(6,107

)

15

 

Loss before income taxes

 

(9,005

)

(10,939

)

(11,370

)

Income tax expense

 

(165

)

(194

)

(35

)

 

 

 

 

 

 

 

 

Net loss

 

$

(9,170

)

$

(11,133

)

$

(11,405

)

 

 

 

 

 

 

 

 

Net loss per common share (a)

 

$

(0.50

)

$

(0.61

)

$

(5.80

)

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (a)

 

18,226,377

 

18,198,571

 

1,965,654

 


(a)—gives effect to the one-for-fifty-shares reverse stock split on February 8, 2005.

 

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Protection One and Subsidiaries

Summary Income Statement

Unaudited

(Amounts in thousands, except per share and weighted average shares outstanding amounts)

 

 

Quarter Ended June 30,

 

 

 

2006

 

2005

 

Revenue:

 

 

 

 

 

Monitoring & related services

 

$

61,735

 

$

61,502

 

Other

 

5,415

 

3,939

 

Total revenue

 

67,150

 

65,441

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

Monitoring & related services

 

17,412

 

16,967

 

Other

 

7,113

 

5,235

 

Total cost of revenue

 

24,525

 

22,202

 

 

 

 

 

 

 

Selling expenses

 

10,020

 

7,627

 

General & administrative

 

15,581

 

16,483

 

Recapitalization costs

 

4,452

 

 

Amortization of intangibles and depreciation expense

 

10,362

 

12,604

 

Total operating expenses

 

40,415

 

36,714

 

 

 

 

 

 

 

Operating income

 

2,210

 

6,525

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

Interest expense

 

(8,836

)

(8,457

)

Other

 

36

 

(5,801

)

Loss before income taxes

 

(6,590

)

(7,733

)

Income tax expense

 

(73

)

(158

)

 

 

 

 

 

 

Net loss

 

$

(6,663

)

$

(7,891

)

 

 

 

 

 

 

Net loss per common share

 

$

(0.36

)

$

(0.43

)

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

End of period RMR

 

$

19,924

 

$

19,907

 

Weighted average common shares outstanding

 

18,239,724

 

18,198,571

 

 

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Protection One and Subsidiaries

Summary Balance Sheet and Cash Flow Data

Unaudited

 (Dollars in thousands)

Balance Sheet Data:

 

 

June 30,
2006

 

December 31,
2005

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

$

59,476

 

$

60,586

 

 

 

Restricted cash

 

1,931

 

1,597

 

 

 

Property and equipment, net

 

21,658

 

21,553

 

 

 

Customer accounts, net

 

216,637

 

232,875

 

 

 

Goodwill

 

12,160

 

12,160

 

 

 

Tradename

 

25,812

 

25,812

 

 

 

Deferred customer acquisition costs

 

90,347

 

73,198

 

 

 

Other assets

 

9,807

 

8,521

 

 

 

 

 

$

437,828

 

$

436,302

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY IN ASSETS)

 

 

 

 

 

Current liabilities

 

$

66,346

 

$

65,653

 

 

 

Long term debt and capital leases, net of current portion

 

390,070

 

321,293

 

 

 

Deferred customer acquisition revenue

 

51,620

 

39,873

 

 

 

Other liabilities

 

1,203

 

1,416

 

 

 

Total liabilities

 

509,239

 

428,235

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficiency in assets)

 

(71,411

)

8,067

 

 

 

 

 

$

437,828

 

$

436,302

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2006

 

2005

 

 

 

January 1 -
June 30

 

February 9 -
June 30

 

January 1 -
February 8

 

Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

23,169

 

$

12,065

 

$

3,710

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

$

(16,650

)

$

(5,380

)

$

(2,473

)

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

$

(5,321

)

$

(48,950

)

$

 

 

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