-----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, M2r5GC1ElY6rglxVwhB3HNbYsMiYAqa2HxoK1SGeudu90gwmoMssQArE7Gip7wVn X5snjJogYbWqZFgbCrUx9w== 0000950116-97-002370.txt : 19971230 0000950116-97-002370.hdr.sgml : 19971230 ACCESSION NUMBER: 0000950116-97-002370 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19971229 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLMES PROTECTION GROUP INC CENTRAL INDEX KEY: 0000926764 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 061070719 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-24510 FILM NUMBER: 97745729 BUSINESS ADDRESS: STREET 1: 440 9TH AVE CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 2127600630 MAIL ADDRESS: STREET 1: 440 9TH AVENUE CITY: NEW YORK STATE: NY ZIP: 10001 10-Q/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 Commission file number 0-24510 HOLMES PROTECTION GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 06-1070719 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 440 Ninth Avenue, New York, New York 10001-1695 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (212) 760-0630 ---------------------------------------------------- (Registrant's telephone number, including area code) 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____ Number of shares of Common Stock, par value $.01 per share, outstanding as of May 13, 1997: 5,872,537. Certain statements in this Quarterly Report on Form 10-Q/A constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; cancellation rates of subscribers; competitive factors in the industry, including additional competition from existing competitors or future entrants to the industry; social and economic conditions; local, state and federal regulations; changes in business strategy or development plans; the Company's indebtedness; availability, terms and deployment of capital; availability of qualified personnel; and other factors detailed in the Company's Annual Report on Form - 10K/A for the fiscal year ended December 31, 1996. 2 HOLMES PROTECTION GROUP, INC. AND SUBSIDIARIES FORM 10-Q/A FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 INDEX
PART I FINANCIAL INFORMATION PAGE NO. Item 1. FINANCIAL STATEMENTS Consolidated Statements of Operations for the three-month periods ended March 31, 1997 and 1996.................................................................4 Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996..................5 Consolidated Statements of Cash Flows for the three-month periods ended March 31, 1997 and 1996.................................................................6 Notes to Financial Statements...........................................................7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................9 PART II OTHER INFORMATION Item 6. EXHIBITS ...............................................................................12 Signatures..............................................................................13
3 Part 1 - Financial Information Item 1. Financial Statements HOLMES PROTECTION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (000's omitted, except earnings per share data) (Unaudited)
Three Months Ended ---------------------------------------------------- March 31, March 31, 1997 1996 ------------------ ------------------ (Restated) REVENUES: Monitoring and service $ 9,327 $ 9,093 Installation 3,072 2,232 Franchise royalties, product sales and other 1,301 980 ------------------ ------------------ Total revenues 13,700 12,305 ------------------ ------------------ COST OF SALES: Monitoring and service 4,762 4,552 Installation 1,848 972 Franchise royalties, product sales and other 1,125 905 ------------------ ------------------ Total cost of sales 7,735 6,429 ------------------ ------------------ Selling, general and administrative 5,336 3,195 Depreciation and amortization 2,668 2,663 Non-recurring charge 1,500 - ------------------ ------------------ 17,239 12,287 Income (Loss) from operations (3,539) 18 Other income (expense) 54 11 Interest expense, net (214) (184) ------------------ ------------------ Income (Loss) before income taxes (3,699) (155) Provision (Benefit) for income taxes (1,110) 90 ------------------ ------------------ Net Income (Loss) $ (2,589) $ (245) ================== ================== Earnings (Loss) per common share: $ (0.44) $ (0.05) ================== ================== Weighted Average Shares Outstanding 5,828 4,459 ================== ==================
(See accompanying notes.) 4 HOLMES PROTECTION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (000's omitted)
March 31, December 31, 1997 1996 -------------------- ------------------- (Unaudited) (Restated) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 179 $ 990 Accounts receivable, less allowance for doubtful accounts of $967 in 1997 and $973 in 1996 6,172 5,333 Inventories 2,585 2,795 Prepaid expenses and other 3,152 2,448 -------------------- ------------------- Total current assets 12,088 11,566 -------------------- ------------------- FIXED ASSETS, net 47,686 47,198 SUBSCRIBER CONTRACTS, at cost, less accumulated amortization of $27,575 in 1997 and $25,137 in 1996 22,898 19,650 TRADENAMES, less accumulated amortization of $2,088 in 1997 and $2,045 in 1996 4,022 4,063 OTHER ASSETS 7,960 7,917 -------------------- ------------------- $ 94,654 $ 90,394 ==================== =================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 562 $ 364 Accounts payable and accrued expenses 8,094 7,290 Deferred revenue 4,793 3,969 Customer deposits 2,719 2,813 -------------------- ------------------- Total current liabilities 16,168 14,436 -------------------- ------------------- LONG-TERM LIABILITIES: Long-term debt 10,785 4,370 Other long-term liabilities 2,390 2,503 Deferred income taxes 9,272 10,457 -------------------- ------------------- Total long-term liabilities 22,447 17,330 -------------------- ------------------- SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value; 1,000 authorized; none outstanding - - Common stock, $0.01 par value; 12,000 authorized shares; 5,835 issued in 1997 and in 1996 58 58 Additional paid-in capital 133,251 133,251 Accumulated deficit (77,185) (74,596) -------------------- ------------------- 56,124 58,713 Less- Treasury stock - 7 shares in 1997 and 1996 at cost (85) (85) -------------------- ------------------- Total shareholders' equity 56,039 58,628 -------------------- ------------------- $ 94,654 $ 90,394 ==================== ===================
(See accompanying notes.) 5 HOLMES PROTECTION GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (000's omitted) (Unaudited)
Three Months Ended ---------------------------- March 31, March 31, 1997 1996 ---------- ---------- (Restated) CASH FLOW FROM OPERATING ACTIVITIES: Net Income (Loss) $ (2,589) $ (245) Adjustments to reconcile net income (loss) to cash provided by operating activities - Depreciation and amortization 2,668 2,663 Provision for doubtful accounts 15 54 Non-recurring charge 1,500 - Deferred income taxes (1,185) 40 Changes in operating assets and liabilities - (Increase) decrease in accounts receivable (772) 71 Decrease in inventories 247 83 Increase in prepaid expenses and other current assets (698) (183) Decrease in accounts payable and accrued expenses (770) (1,081) (Decrease) increase in customer deposits (94) 136 Increase in deferred revenue 573 633 Decrease in pension and other liabilities (105) (115) ---------- ----------- Net cash (used) provided by operating activities (1,210) 2,056 ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (2,223) (2,670) Acquisition of businesses, net of cash acquired (3,640) - Maturities of short-term investments - 2,043 ---------- ----------- Net cash used by investing activities (5,863) (627) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt obligations 6,500 - Payments on secured note and other long-term debt - (659) Payment on other long-term debt (238) - Payment on short-term borrowings - (943) ---------- ----------- Net cash provided (used) by financing activities 6,262 (1,602) ---------- ----------- Net decrease in cash and cash equivalents (811) (173) CASH AND CASH EQUIVALENTS, beginning of period 990 435 ---------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 179 $ 262 ========== =========== CASH PAYMENTS FOR: Interest $ 170 $ 166 Income taxes $ 205 $ 107 NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of notes payable in connection with acquired businesses $ 350 $ --
(See accompanying notes.) 6 HOLMES PROTECTION GROUP, INC. AND SUBSIDIARIES Notes to Interim Financial Statements Note 1 Restatement Effective January 1, 1995, the Company changed its method of accounting for installation revenue with respect to the recording of non-refundable payments received from customers upon the completion of the installation of Company owned systems. Previous to this change, the Company deferred the difference between these payments and the estimated selling costs and amortized such difference over the initial term of the non-cancelable customer monitoring and service contract (generally five years) (the "Deferral Method"). Following discussions with the staff of the Division of Corporation Finance of the Securities and Exchange Commission, in connection with a Registration Statement filed by the Company, the Company has determined to restate its consolidated financial statements for the interim periods of 1997 and the years ended December 31, 1996 and 1995 using the Deferral Method. Accordingly, the accompanying consolidated financial statements have been restated from those originally reported to reflect such determination. This Deferral Method of recording revenue had no impact on the Company's liquidity or cash flows. The following table provides selected summarized financial information illustrating the effect of the restatement on the Company's consolidated financial statements for the three months ended March 31, 1997 and March 31,1996:
March 31, 1997 March 31, 1996 -------------------------------- ------------------------------- As Originally As Originally Reported As Restated Reported As Restated --------------------------------------------------------------------------------------------------------- Revenue $13,650 $13,700 $12,292 $12,305 Loss before income taxes (3,749) (3,699) (168) (155) Net Loss (2,624) (2,589) (253) (245) Loss per common share (0.45) (0.44) (0.06) (0.05) ----------------------------------------------------------------------------------------------------------
Note 2 Financial Statements The restated consolidated statements of operations and statements of cash flows for the three-month periods ended March 31, 1997 and 1996 and the restated balance sheet as of March 31, 1997 have been prepared by Holmes Protection Group, Inc. ("Holmes" or "the Company") without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated results should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K/A, filed with the Securities and Exchange Commission. Results of operations for the three-months ended March 31, 1997 are not necessarily indicative of the operating results expected for the full year. Interim statements are prepared on a basis consistent with year-end statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary for a fair presentation of the results of the operations of the Company. All such adjustments are of a normal recurring nature. 7 Note 3 Outsourcing Agreement Termination On March 12, 1997, the Company announced that it had reached an agreement in principle (the "Agreement") with PremiTech to terminate its outsourcing agreement effective April 1, 1997. Recent changes in the Company's growth strategy and the sale by PremiTech of its alarm monitoring business in late 1995 led both parties to re-evaluate the outsourcing agreement. On April 1, 1997, pursuant to the Agreement, the Company paid $650,000 in cash and executed a noninterest bearing promissory note ("Note") in the amount of $1,000,000 payable to EDS in twenty quarterly installments of $50,000, beginning January 1, 1998. The Note is secured by an irrevocable letter of credit for $1,000,000. In addition, the Company agreed to lease certain computer equipment for a three year term with an option to purchase the equipment at the end of the lease for the fair market value. The Company has recorded a pretax charge of $1,500,000 in connection with the Agreement. Note 4 Acquisitions In the first quarter of 1997, the Company acquired five alarm companies for an aggregate purchase price of $3,640,000. These acquisitions were accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated based on their estimated values and the results of operations of the acquired entities have been included in the accompanying consolidated statements of operations from the respective dates of the acquisition. The results of operations for these acquisitions were not significant to the consolidated financial statements of the Company. Note 5 Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. This statement establishes standards for computing and presenting earnings per share (EPS), replacing the presentation of currently required primary EPS with a presentation of Basic EPS. For entities with complex capital structures, the statement requires the dual presentation of both Basic EPS and Diluted EPS on the face of the statement of operations. Under this new standard, Basic EPS is computed based on weighted average shares outstanding and excludes any potential dilution; Diluted EPS reflects potential dilution from the exercise or conversion of securities into common stock or from other contracts to issue common stock and is similar to the currently required fully diluted EPS. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods, and earlier application is not permitted. When adopted, the Company will be required to restate its EPS data for all prior periods presented. The Company does not expect the impact of the adoption of this statement to be material to previously reported EPS amounts. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Restatement Effective January 1, 1995, the Company changed its method of accounting for installation revenue with respect to the recording of non-refundable payments received from customers upon the completion of the installation of Company owned systems. Previous to this change, the Company deferred the difference between these payments and the estimated selling costs and amortized such difference over the initial term of the non-cancelable customer monitoring and service contract (generally five years) (the "Deferral Method"). Following discussions with the staff of the Division of Corporation Finance of the Securities and Exchange Commission, in connection with a Registation Statement filed by the Company, the Company has determined to restate its consolidated financial statements for the interim periods of 1997 and the years ended December 31, 1996 and 1995 using the Deferral Method. Accordingly, the accompanying consolidated financial statements have been restated from those originally reported to reflect such determination. This Deferral Method of recording revenue had no impact on the Company's liquidity or cash flows. First Quarter 1997 Compared to First Quarter 1996 Revenues increased $1.4 million (11.3%) to $13.7 million in the first quarter of 1997 from $12.3 million in the first quarter of 1996. This increase was primarily attributable to an increase in installation revenue of $0.8 million (37.6%) from $2.2 million in the first quarter of 1996 to $3.1 million in the first quarter of 1997. Increased revenues from the One Service business and growth in the Company's recurring revenue base also contributed to the increase. The Company's annual recurring revenue base increased from $35.0 million at December 31, 1996 to $36.1 million at March 31, 1997 as a result of the Company's increased sales efforts and recurring revenues acquired during the fourth quarter of 1996 and the first quarter of 1997. The recurring revenue base at March 31, 1996 was $35.2 million. Cost of sales increased $1.3 million (20.3%) to $7.7 million in the first quarter of 1997 from $6.4 million for the comparable period of 1996, due primarily to increased installation costs related to the growth in related revenue and lower than anticipated margins on customer owned systems. Selling, general, and administrative expenses increased $2.1 million (67.0%) to $5.3 million from $3.2 million for the same period of 1996. This increase is primarily related to costs associated with increased sales, marketing and administrative support as the Company implements its nation-wide growth strategy including National Accounts. Depreciation and amortization expense remained constant at $2.7 million in both the first quarter of 1997 and the first quarter of 1996. Additionally, in the first quarter of 1997, the Company incurred a non-recurring charge of $1.5 million related to the termination of its Outsourcing Agreement with PremiTech (See Note 2). Income (Loss) from operations reflected a loss of $3.5 million for the first quarter of 1997 compared to income of $18,000 for the first quarter of 1996, primarily as a result of the investment the Company has made in selling and marketing costs and the non-recurring charge, as described above. 9 Liquidity and Capital Resources Three months Ended March 31, 1997 Cash and cash equivalents decreased by $0.8 million from $1.0 million to $0.2 million during the three months ended March 31, 1997. Net cash provided by financing activities was $6.3 million, offset by cash utilized by operating activities of $1.2 million and net cash utilized by investing activities of $5.9 million. Net cash utilized by operating activities of $1.2 million principally consisted of cash provided by sales of electronic security services, adjusted for non-cash charges for depreciation and amortization, a decrease in accounts payable and accrued expenses ($0.8 million), an increase in prepaid expenses and other current assets ($0.7 million), and an increase in deferred revenue ($0.6 million). Net cash used in investing activities consisted primarily of acquisition costs and the additions to Company-owned equipment on subscribers' premises and other fixed assets. Net cash provided by financing activities of $6.3 million during this period consisted of bank borrowings of $6.5 million, offset by repayments of other long term debt obligations of $0.2 million. Future Commitments and Cash Requirements Liquid assets available to the Company as of March 31, 1997 included cash and cash equivalents of $0.2 million. On August 30, 1996, the Company entered into a new credit agreement (the "Credit Agreement"), amended and restated on December 31, 1996 and subsequently amended with Merita Bank Ltd. and Bank of Boston Connecticut (together, the "Banks") pursuant to which the Banks have agreed, subject to the terms and conditions set forth therein, to provide a two-year $25 million revolving credit facility to the Company, the borrowings pursuant to which would automatically convert into a five-year term loan on September 30, 1998. The Company is required to comply with various financial covenants, tests and ratios, including those relating to (i) ratios of total debt to EBITDA, (ii) ratios of total debt to recurring monthly revenue, (iii) minimum debt service coverage, (iv) minimum net worth, (v) maximum capital expenditures and (vi) maximum subscriber attrition rate (as defined in the Agreement). On March 31, 1997, the outstanding balance under the Credit Agreement was $10.0 million. On April 4, 1995, the Company entered into a ten-year, $51 million Outsourcing Agreement with PremiTech Corporation ("Premitech"), a subsidiary of Electronic Data Systems Corporation ("EDS"), which provided for PremiTech to assist in the consolidation of the Company's central monitoring facilities, to manage the Company's technological infrastructure and to perform certain of the Company's administrative functions. On March 12, 1997, the Company reached an agreement in principle (the "Agreement") with Premitech to terminate its Outsourcing Agreement effective April 1, 1997. As a result, on April 1 1997, the Company paid $650,000 in cash and executed a noninterest bearing promissory note ("Note") in the amount of $1,000,000 payable to EDS in twenty quarterly installments of $50,000, beginning January 1, 1998. The Note is secured by an irrevocable letter of credit for $1,000,000. In addition, the Company agreed to lease certain computer equipment for a three year term with an option to purchase the equipment at the end of the lease for the fair market value. 10 The forgoing information under this caption "Future Commitments and Cash Equivalents" is set forth as of May 14, 1997, the date of filing of the Form 10-Q being amended by this Form 10-Q/A. For current information relating to the Company's liquidity and other matters set forth under such captions, see the Company's Form 10-Q/A for the quarterly period ended September 30, 1997. 11 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit-27 Financial Data Schedule Worksheet (For SEC Use Only). (b) No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended March 31, 1997. 12 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. HOLMES PROTECTION GROUP, INC. ----------------------------- (Registrant) Date: December 29, 1997 /s/ George V. Flagg George V. Flagg President and Chief Executive Officer Date: December 29, 1997 /s/ Lawrence R. Irving Lawrence R. Irving Vice President - Finance 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 MAR-31-1997 179 0 7,139 967 2,585 12,088 124,307 76,621 94,654 16,168 11,347 0 0 58 55,981 94,654 2,629 13,700 2,261 7,735 8,004 0 (214) (3,699) (1,110) (2,589) 0 0 0 (2,589) (0.44) (0.44)
-----END PRIVACY-ENHANCED MESSAGE-----