<PAGE>
 
                                 UNITED STATES

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q
                                        

(Mark One)
[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended   September 4, 1998
                               -------------------------------------------------

                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934
  

For the transition period from ______________________ to ______________________

Commission File Number: 1-11841

                               PINKERTON'S, INC.
            (Exact name of registrant as specified in its charter)


            Delaware                              13-5318100
(State or other jurisdiction of       (I.R.S. Employer Identification No.)
incorporation or organization)

          4330 Park Terrace Drive, Westlake Village, California 91361
            (Address of principal executive offices)     (Zip Code)


      Registrant's telephone number, including area code: (818) 706-6800


         15910 Ventura Blvd, Suite 900, Encino, California 91436-2810
  (Former name, former address, and former fiscal year, if changed since last
                                   report.)


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 
                                        ---      ---

The number of shares of the Registrant's Common Stock, par value $.001 per
share, outstanding on October 2, 1998 was 12,305,600.
<PAGE>
 
                      PINKERTON'S, INC. AND SUBSIDIARIES

                                   FORM 10-Q
                                     INDEX

<TABLE>
<CAPTION>
                                                                                   PAGE NO.
                                                                                   --------
<S>                                                                                  <C>
PART I.  FINANCIAL INFORMATION  
                                                    
Item 1.  Condensed Financial Statements (Unaudited)
 
 Consolidated Balance Sheets-
   September 4, 1998 and December 26, 1997................................           3
 
 Consolidated Statements of Operations-
   For the Quarters and Nine Periods Ended September 4, 1998 and
   September 5, 1997......................................................           4
 
 Consolidated Statements of Cash Flows-
   For the Nine Periods Ended September 4, 1998 and September 5, 1997.....           5
 
 Notes to Consolidated Financial Statements...............................           6-7
 
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations........................................           8-12
 

PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K.................................           13

Signatures................................................................           14
</TABLE> 

                                       2
<PAGE>
 
                        PART I.  FINANCIAL INFORMATION
                                        
ITEM 1.  FINANCIAL STATEMENTS

                      PINKERTON'S, INC. AND SUBSIDIARIES
                                        
                          CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                SEPTEMBER 4,
                                                                                   1998                DECEMBER 26,
                                ASSETS                                          (Unaudited)                1997
                                                                          ---------------------   ---------------------
 
<S>                                                                       <C>                     <C>
Current assets:
   Cash and cash equivalents                                                      $  4,454                $ 24,243      
   Marketable securities available for sale                                         18,116                       -      
   Accounts receivable (includes unbilled amounts of                                                                    
     $31,339 in 1998 and $32,397 in 1997)                                          142,961                 149,668      
     Less allowance for doubtful receivables                                         2,738                   2,948      
                                                                                  --------                --------      
                                                                                   140,223                 146,720      
                                                                                  --------                --------      
                                                                                                                        
   Inventory                                                                         4,786                   4,190      
   Prepaid expenses                                                                  9,206                   8,111      
   Deferred income taxes                                                             6,351                   6,129      
                                                                                  --------                --------      
       Total current assets                                                        183,136                 189,393      
                                                                                  --------                --------      
                                                                                                                        
Equipment and leasehold improvements, net of                                                                            
   accumulated depreciation and amortization of                                                                         
   $30,099 in 1998 and $29,685 in 1997                                              16,111                  16,745      
                                                                                                                        
Other assets:                                                                                                           
   Intangible assets, net                                                           58,031                  68,210      
   Deferred income taxes                                                            26,718                  24,924      
   Other                                                                            26,297                  24,924      
                                                                                  --------                --------      
                                                                                   111,046                 118,058      
                                                                                  --------                --------      
                                                                                  $310,293                $324,196      
                                                                                  ========                ========      
          LIABILITIES AND STOCKHOLDERS' EQUITY                                                                          
                                                                                                                        
Current liabilities:                                                                                                    
   Accounts payable                                                               $ 15,396                $ 14,021      
   Accrued liabilities                                                              84,043                  80,198      
   Current maturities of long-term debt                                              8,575                   8,575      
                                                                                  --------                --------      
       Total current liabilities                                                   108,014                 102,794      
                                                                                  --------                --------      
                                                                                                                        
Accrued retirement benefits and other non-current liabilities                       52,994                  52,754      
                                                                                                                        
Long-term debt, less current maturities                                             15,476                  25,019      
                                                                                                                        
Commitments and contingencies                                                                                           
                                                                                                                        
Stockholders' equity:                                                                                                   
   Common stock                                                                         13                      12      
   Additional paid-in capital                                                       76,348                  75,329      
   Treasury stock                                                                   (5,235)                      -      
   Accumulated other comprehensive income                                           (8,190)                 (7,368)     
   Retained earnings                                                                70,873                  75,656      
                                                                                  --------                --------      
                                                                                   133,809                 143,629      
                                                                                  --------                --------      
                                                                                  $310,293                $324,196      
                                                                                  ========                ========      
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                      PINKERTON'S, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                   FOR THE QUARTER ENDED                  FOR THE NINE PERIODS ENDED
                                          ---------------------------------------   ---------------------------------------
                                          SEPTEMBER 4, 1998    SEPTEMBER 5, 1997    SEPTEMBER 4, 1998    SEPTEMBER 5, 1997
                                          ------------------   ------------------   ------------------   ------------------
 <S>                                       <C>                  <C>                  <C>                  <C>
Service revenues                                   $229,308             $233,736             $694,904             $684,993
 
Cost of services                                    199,963              204,001              610,936              601,525
                                                   --------             --------             --------             --------
 
Gross profit                                         29,345               29,735               83,968               83,468
 
Operating expenses                                   20,507               19,587               66,516               58,437
Amortization of intangible assets                     1,691                2,161                5,480                6,605
Write-down of long-lived assets and
other special charges                                     -                    -                9,853                    -
                                                   --------             --------             --------             --------
 
Operating profit                                      7,147                7,987                2,119               18,426
 
Other (income) deductions:
 Interest income                                       (112)                (283)                (534)                (976)
 Interest expense                                       629                1,016                2,351                3,288
                                                   --------             --------             --------             --------
                                                        517                  733                1,817                2,312
                                                   --------             --------             --------             --------
 
Income before income taxes                            6,630                7,254                  302               16,114
 
Provision for income taxes                            2,893                3,876                5,085                8,040
                                                   --------             --------             --------             --------
 
Net income (loss)                                  $  3,737             $  3,378             $ (4,783)            $  8,074
                                                   ========             ========             ========             ========
 
Basic earnings (loss) per share                    $    .30             $    .27             $   (.38)            $    .64
                                                   ========             ========             ========             ========
 
Diluted earnings (loss) per share                  $    .29             $    .26             $   (.38)                 .62
                                                   ========             ========             ========             ========
</TABLE>




See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                      PINKERTON'S, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      
                                                                                      FOR THE NINE PERIODS ENDED
                                                                        -----------------------------------------------------
                                                                            SEPTEMBER 4, 1998           SEPTEMBER 5, 1997
                                                                        -------------------------   -------------------------
 <S>                                                                     <C>                         <C>
OPERATING ACTIVITIES:
Net income (loss)                                                               $ (4,783)                   $  8,074         
Adjustments to reconcile net income (loss) to net cash                                                                       
 provided by operating activities:                                                                                           
 Amortization of intangible assets                                                 5,480                       6,605         
 Depreciation and other amortization                                               5,997                       5,126         
 Provision for losses on doubtful receivables                                        480                         540         
 Deferred income taxes                                                            (2,016)                     (1,405)        
 Write-down of long-lived assets and other special charges                         7,891                           -         
 Provision for relocation costs                                                    1,962                           -         
                                                                                                                             
Changes in assets, liabilities and stockholders' equity:                                                                     
 Accounts receivable                                                               3,667                     (10,394)        
 Inventory                                                                          (596)                      1,250         
 Prepaid expenses and taxes                                                       (1,095)                      4,461         
 Other assets                                                                       (462)                     (2,411)        
 Accounts payable                                                                  1,375                         338         
 Accrued and other non-current liabilities                                         4,132                        (628)        
 Foreign currency revaluation of net assets                                         (576)                       (796)        
                                                                                 -------                     -------         
                                                                                                                             
Net cash provided by operating activities                                         21,456                      10,760         
                                                                                 -------                     -------         
                                                                                                                             
INVESTING ACTIVITIES:                                                                                                        
Purchase of marketable securities                                                (22,000)                    (11,081)        
Sales/redemptions of marketable securities                                         3,884                      11,541         
Purchase of equipment and leasehold improvements                                  (9,193)                     (5,839)        
Payments for net assets of acquired businesses, net                                                                          
   of cash acquired                                                                  (33)                    (21,793)        
                                                                                 -------                     -------         
                                                                                                                             
Net cash used in investing activities                                            (27,342)                    (27,172)        
                                                                                 -------                     -------         
                                                                                                                             
FINANCING ACTIVITIES:                                                                                                        
Principal payments on long-term debt                                              (9,688)                     (9,709)        
Stock repurchase                                                                  (5,235)                          -         
Exercise of stock options                                                          1,020                         329         
                                                                                 -------                     -------         
                                                                                                                             
Net cash used in financing activities                                            (13,903)                     (9,380)        
                                                                                 -------                     -------         
                                                                                                                             
Net decrease in cash and cash equivalents                                        (19,789)                    (25,792)        
                                                                                                                             
Cash and cash equivalents at beginning of year                                    24,243                      33,761         
                                                                                 -------                     -------         
                                                                                                                             
Cash and cash equivalents at end of period                                      $  4,454                    $  7,969         
                                                                                ========                    ========         
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                       PINKERTON'S, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        

(1)  PRESENTATION OF FINANCIAL INFORMATION

The condensed consolidated financial statements included herein have been
prepared by the Company and include all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position and the
results of operations as of and for the fiscal quarters and nine periods ended
September 4, 1998 and September 5, 1997.  Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
although the Company believes the disclosures in these condensed consolidated
financial statements are adequate to make the information presented not
misleading.

The following material is written with the presumption that the users of the
interim financial statements have read or have access to the Company's Form 10-K
filed with the Securities and Exchange Commission for the fiscal year ended
December 26, 1997 and the Company's 1997 Annual Report to Stockholders.  The
1997 Annual Report contains the latest audited consolidated financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations as of December 26, 1997 and for
the year then ended.  The results of operations for the fiscal quarters and nine
periods ended September 4, 1998 and September 5, 1997 are not necessarily
indicative of the results for a full year.

(2)  ACCOUNTING CYCLE

Pinkerton's fiscal year comprises the 52-week (or 53-week) period ending on the
Friday closest to December 31, within the reporting year.  The Company's
quarterly reporting periods generally consist of three four-week periods for the
first, second and third quarters, and four four-week periods for the fourth
quarter.

(3)  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings
(loss) per share:

<TABLE>
<CAPTION>
                                               FOR THE QUARTER ENDED                 FOR THE NINE PERIODS ENDED
IN THOUSANDS,                            -------------------------------------   ----------------------------------------
EXCEPT PER SHARE DATA                    SEPTEMBER 4, 1998   SEPTEMBER 5, 1997   SEPTEMBER 4, 1998    SEPTEMBER 5, 1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                 <C>                 <C>                  <C>
NUMERATOR:
 Net income (loss)                                   $ 3,737             $ 3,378             $(4,783)             $ 8,074
                                        =================================================================================
DENOMINATOR:
 Denominator for basic earnings 
  per share - weighted average 
  common shares outstanding                           12,585              12,563              12,602               12,552
 
 
 
 Effect of dilutive securities:
  Employee stock options                                 382                 641                   -                  488       
                                        ---------------------------------------------------------------------------------
 Denominator for diluted earnings 
   per share - weighted average 
   common shares and dilutive 
   potential common shares 
   outstanding                                        12,967              13,204              12,602               13,040
                                        =================================================================================
Basic earnings (loss) per share                      $   .30             $   .27             $  (.38)             $   .64
Diluted earnings (loss) per share                    $   .29             $   .26             $  (.38)             $   .62
                                        =================================================================================
</TABLE>

                                       6
<PAGE>
 
For both the quarter and nine periods ended September 4, 1998, employee stock
options relating to 717,000 shares, and for the quarter and nine periods ended
September 5, 1997, employee stock options relating to 11,000 shares, were not
included in the computation of diluted earnings (loss) per share because the
options' exercise prices were greater than the average market price of the
common shares, and therefore, the effect would be antidilutive.  In addition,
employee stock options relating to 551,000 shares were not included in the
computation of diluted (loss) per share for the nine periods ended September 4,
1998 because their effect is antidilutive due to the net loss.

(4)  COMPREHENSIVE INCOME

The Company adopted the reporting required in SFAS No. 130, Reporting
Comprehensive Income.  The following table shows the Company's comprehensive
income:

<TABLE>
<CAPTION>
                                                 FOR THE QUARTER ENDED                  FOR THE NINE PERIODS ENDED
                                        ---------------------------------------   --------------------------------------
IN THOUSANDS                            SEPTEMBER 4, 1998    SEPTEMBER 5, 1997    SEPTEMBER 4, 1998    SEPTEMBER 5, 1997
------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>                  <C>                  <C>
 
Net income (loss)                                  $3,737               $3,378              $(4,783)             $ 8,074
Other comprehensive income, 
net of tax:
  Foreign currency translation
  adjustments                                        (148)                (543)                (822)              (1,231)
                                     -----------------------------------------------------------------------------------
Comprehensive income (loss)                        $3,589               $2,835              $(5,605)             $ 6,843
                                     ===================================================================================
</TABLE>

(5)  WRITE-DOWN OF LONG-LIVED ASSETS AND OTHER SPECIAL CHARGES

In the second quarter, the Company accrued $1,962,000 for lease termination and
moving costs in connection with the relocation of the Company's corporate
offices.  The move occurred in early October 1998.

Other write-downs of goodwill and fixed assets associated with the Company's
United Kingdom and Systems Integration operations were recorded in the second
quarter.  These write-downs and other costs amounted to $7,891,000.  The Company
has determined that these assets are not recoverable and has written them off.

(6)  INSURANCE PROCEEDS

In the third quarter of 1998, the Company recorded $963,000 in net proceeds from
an insurance policy as a reduction of net benefit costs.

(7)  TREASURY STOCK

The Board of Directors has authorized the repurchase of up to 500,000 shares of
the Company's common stock.  These shares have been and may be purchased in the
open market with the timing and terms of such purchases determined by management
based on market conditions.  Any such purchases have been and will be made from
cash on-hand and any shares acquired are being held as treasury shares.  In the
third quarter, the Company repurchased 311,100 shares of the Company's common
stock.  The treasury stock is accounted for using the cost method.

(8)  NEWLY ISSUED ACCOUNTING STANDARDS

The Company will implement the provisions of Financial Accounting Standards
Board No. 133, Accounting for Derivative Instruments and Hedging Activities
which is effective June 15, 1999. The Company expects that the implementation of
this new accounting standard will not have a material impact on its reported
earnings per share.

                                       7
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTERS AND NINE PERIODS ENDED SEPTEMBER 4, 1998
AND SEPTEMBER 5, 1997.

Pinkerton's fiscal year comprises the 52-week (or 53-week) period ending on the
Friday closest to December 31, within the reporting year.  The Company's
quarterly reporting periods consist of three four-week periods for the first,
second and third quarters, and four four-week periods for the fourth quarter.

RESULTS OF OPERATIONS

Service Revenues -

The Company's service revenues decreased by $4.4 million, or 1.9%, from $233.7
million in the third quarter of 1997 to $229.3 million in the third quarter of
1998.  For the nine periods, service revenues increased by $9.9 million, or
1.5%, from $685.0 million in 1997 to $694.9 in 1998.

Domestic Service Revenues -

The Company's domestic service revenues decreased by $2.0 million, or 1.1%, from
$189.5 million in the third quarter of 1997 to $187.5 million in the third
quarter of 1998.  This decrease was primarily due to a favorable billing
adjustment with General Motors in the third quarter of 1997 and a reduction of
revenues in the third quarter of 1998 relating to the General Motors protracted
labor dispute, partially offset by revenues from additional business, including
acquisitions.  For the nine periods, domestic service revenues increased by
$17.6 million, or 3.2%, from $552.1 million in 1997 to $569.7 million in 1998.
This increase reflects revenues from additional business, including
acquisitions, partially offset by the items discussed above.

International Service Revenues -

Service revenues of the Company's international operations decreased by $2.4
million, or 5.4%, from $44.2 million in the third quarter of 1997 to $41.8
million in the third quarter of 1998.  For the nine periods, service revenues of
the Company's international operations decreased by $7.7 million or 5.8%, from
$132.9 million in 1997 to $125.2 million in 1998.  The decrease in the third
quarter reflects reductions arising primarily from currency fluctuations of $2.1
million.  The decrease in the nine periods reflects reductions arising from
currency fluctuations of $4.7 million and a $3.0 million decrease primarily
resulting from the wind down of a large contract at the Company's United Kingdom
subsidiary.

Cost of Services and Gross Profit -

The Company's cost of services decreased by $4.0 million, or 2.0%, from $204.0
million in the third quarter of 1997 to $200.0 million in the third quarter of
1998. This decrease was primarily due to payroll and related expenses related to
the decrease in service revenues.  For the nine periods, cost of services
increased by $9.4 million, or 1.6%, from $601.5 million in 1997 to $610.9
million in 1998.  This increase was primarily due to payroll and related
expenses accompanying the increase in service revenues noted above and higher
insurance and risk costs.

Gross profit as a percentage of service revenues increased from 12.7% in the
third quarter of 1997 to 12.8% in the third quarter of 1998.  For the nine
periods ended September 4, 1998 and September 5, 1997, the gross profit
percentage decreased from 12.2% in 1997 to 12.1% in 1998.

Operating Expenses -

Operating expenses increased by $0.9 million, or 4.6%, from $19.6 million in the
third quarter of 1997 to $20.5 million in the third quarter of 1998.  For the
nine periods, operating expenses increased by $8.1 million, or 13.9%, from $58.4
million in 1997 to $66.5 million in 1998.  As a percentage of service revenues,
operating expenses were 8.9% and 9.6%, respectively, for the

                                       8
<PAGE>
 
quarter and nine periods ended September 4, 1998, and 8.4% and 8.5%,
respectively, for the quarter and nine periods ended September 5, 1997. Higher
operating expenses in the third quarter reflects higher operating expenses at
the Company's systems integration businesses, including the impact of
acquisitions, partially offset by lower operating expenses at the Company's
United Kingdom subsidiary and reduced net benefit costs that included the
receipt of $1.0 million in net proceeds from an insurance policy.

Higher operating expenses for the first nine periods reflect higher operating
expenses at the Company's system integration businesses and the Company's United
Kingdom subsidiary, a provision for closing an administrative office in Germany
and the Company's share of losses amounting to $0.7 million from its equity
investment in Chile; partially offset by reduced net benefit costs that included
the receipt of $1.0 million in net proceeds from an insurance policy.

Write-Down of Long-Lived Assets and Other Special Charges -

In the second quarter the Company accrued $1,962,000 for lease termination and
moving costs in connection with the relocation of the Company's corporate
offices.

Other write-downs of goodwill and fixed assets associated with the Company's
United Kingdom and System Integration operations were recorded in the second
quarter.  These write-downs and other costs amounted to $7,891,000.  The Company
has determined that these assets are not recoverable and has written them off.

Amortization of Intangible Assets-

Amortization of intangible assets decreased by $0.5 million from $2.2 million in
the third quarter of 1997 to $1.7 million in the third quarter of 1998.  This
decrease reflects the write-down of goodwill in the second quarter of 1998 and
the completion during the latter part of 1997 of the amortization of several
intangible assets.

For the nine periods, amortization decreased $1.1 million from $6.6 million in
1997 to $5.5 million in 1998, primarily reflecting the write-down of goodwill in
the second quarter of 1998 and the completion during the latter part of 1997 of
the amortization of several intangible assets, partially offset by additional
amortization from 1997 acquisitions.

Operating Profit -

Operating profit was $7.1 million, or 3.1% of service revenues, for the third
quarter of 1998 as compared to $8.0 million, or 3.4% of service revenues, for
the same period last year.  Operating profit for the quarter decreased due to
higher operating expenses, partially offset by an increase in the gross profit
margin.  For the nine periods ended September 4, 1998, operating profit was $2.1
million, or 0.3%, of service revenues as compared to an operating profit of
$18.4 million, or 2.7%, in the corresponding 1997 period.  Operating profit
decreased for the nine periods due to a decrease in the gross profit margin,
higher operating expenses and the write-down of long-lived assets and other
special charges.

Income Taxes -

The effective tax rate for the third quarter of 1998 was 44.0% as compared to
53.0% in 1997 primarily due to tax-free insurance proceeds and a more favorable
mix of international results. The Company's positive tax provision year-to-date,
in spite of an overall loss, reflects the non-deductibility of the Company's
write-down of goodwill and other intangibles.

                                       9
<PAGE>
 
FINANCIAL CONDITION

CAPITAL RESOURCES AND LIQUIDITY

At September 4, 1998, the Company had $4.5 million in cash, a decrease of $19.8
million from December 26, 1997; and $18.1 million in marketable securities, a
$18.1 million increase from December 26, 1997.  Net cash provided by operating
activities of $21.4 million was reduced by $27.3 million of net cash payments
relating to investing activities and $13.9 million of net cash payments relating
to financing activities.  The Company's principal investing activities during
the first nine periods of 1998 were net purchases of marketable securities
($18.1 million) and the purchase of computer and other equipment ($9.2 million).
The Company's principal financing activities during the first nine periods of
1998 were payment of an annual principal installment of $8.6 million, reducing
the Company's Senior Note debt, $1.1 million of payments on the revolving line
of credit, $5.2 million of payments related to the repurchase of the Company's
common stock and $1.0 million of cash receipts related to the exercise of stock
options.

Pinkerton's cash needs during the first six months of each year are greater
because of higher payroll taxes.  In addition, the Company is required to make
annual principal payments of approximately $8.6 million (in the month of June)
through the year 2000 in repayment of its Senior Notes.  The principal and
interest payments due in June 1998 occurred in the Company's third fiscal
quarter.  A semi-annual interest payment of approximately $0.9 million related
to the Senior Notes is due in December 1998.

The Company has an acquisitions program intended to implement its strategy to
become a world-class, global security solutions provider.  The Company also has
an ongoing program to replace capital equipment and upgrade systems as required.
See Year 2000 disclosure below for related discussion.  Both of these activities
will continue for the foreseeable future.

The Board of Directors has authorized the repurchase of up to 500,000 shares of
the Company's common stock.  These shares have been and may be purchased in the
open market with the timing and terms of such purchases determined by management
based on market conditions.  Any such purchases have been and will be made from
cash on-hand and any shares acquired are being held as treasury shares.  In the
third quarter, the Company repurchased 311,100 shares of the Company's common
stock.

The Company has an unsecured revolving credit facility with a group of banks for
borrowings up to $100.0 million, of which $50.0 million may be letters of
credit.  No cash borrowings have been made during the first nine periods of
1998.  At September 4, 1998 there were DM 12.0 million ($6.9 million) of cash
borrowings outstanding under the revolving line of credit and $29.6 million in
letters of credit had been issued by the Company to secure obligations under the
Company's self-insurance programs.  The Company believes existing liquid
resources, cash generated from operations and funds available under the
revolving credit facility are sufficient for all planned operating and capital
requirements.  The Company also has access to capital markets, if necessary, to
raise funds for working capital, capital spending and other investments for
business growth.

YEAR 2000 UPDATE

GENERAL:
--------

In June 1997, the Company established an enterprise-wide program to address its
Year 2000 issues.  The Year 2000 effort, which includes the implementation of
previously planned business critical systems and specific Year 2000 projects, is
on track to be completed before the year 2000.  The majority of those
applications that are not Year 2000 compliant have been, or will be, replaced by
new systems.  The costs of new systems have been, or will be, recorded as an
asset and amortized.  A significant portion of the costs associated with making
the remaining applications not covered by new systems Year 2000 compliant do not
represent incremental costs to the Company, but rather the redeployment of
existing information technology ("IT") resources. Accordingly, the

                                       10
<PAGE>
 
Company does not expect the Year 2000 effort to have a material impact on its
results of operations, liquidity or financial condition. In addition, the
Company has not deferred any other projects that will have a material impact on
its results of operations, liquidity or financial condition.

IT SYSTEMS:
-----------

In April 1996, prior to the establishment of its enterprise-wide Year 2000
program, the Company began converting its domestic U.S. security computer
information systems to a new client server enterprise system.  This new client
server system is Year 2000 compliant.  Two of four implementations are complete,
and the two remaining systems are expected to be implemented by June 1999.

The remaining IT systems, including systems within the Company's international
divisions, have been inventoried, and necessary Year 2000 replacements and
retrofits identified.  These projects are in various phases of analysis,
development and implementation.

Overall, these Year 2000 efforts are approximately 50.0% complete (as of
September 1998) with the business critical system implementations being furthest
along.  The completion percentage includes both planned business critical
systems as well as specific Year 2000 projects.

NON-IT SYSTEMS:
---------------

Non-IT Systems may contain date sensitive embedded technology requiring Year
2000 upgrades.  Examples of this technology include security equipment such as
access and alarm systems, as well as facilities equipment such as elevators and
heating and air conditioning units.

The Company is not a product manufacturer; therefore, the "embedded chip" issue
relates to equipment used by the Company and hence, primarily to the Company's
internal facilities.  Facilities and equipment inventories and assessments are
in progress.  The Company is conducting a Year 2000 certification of worldwide
facilities through its building landlords.

The Company is also addressing the readiness of its critical suppliers and
customers.  The Company has inventoried its critical suppliers, and has sent
approximately 1,000 letters to suppliers and, where appropriate, contacted
certain suppliers requesting Year 2000 certification.  The Company has also
contacted certain key customers where potential Year 2000 problems may exist.
In certain areas where the Company relies on products supplied by manufacturers
for systems provided to its customers, the Company is seeking standard Year 2000
warranties that, to the extent assignable, may be transferred to customers.

COSTS:
-------

The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's results of operations,
liquidity and financial condition.  The estimated total cost of the Year 2000
effort is approximately $6.0 million.  This estimate does not include the cost
of the Company's previously planned business critical systems which have not
been accelerated due to the Year 2000 problem.  The total amount expended
through September 1998, was approximately $2.0 million.  The estimated future
cost of completing the Year 2000 effort is estimated to be approximately $4.0
million.  The Year 2000 effort is funded primarily from the existing IT budget
and has been ongoing since 1997.  The total estimate for the Year 2000 effort
represents approximately 11.0% of the total IT budget for the three-year period.

RISKS AND CONTINGENCY PLANNING:
-------------------------------

The Company has identified and assessed its areas of risk related to the Year
2000 problem.  The failure to correct a material Year 2000 problem could result
in an interruption in, or a failure of, certain normal business activities or
operations.  Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition.  Due to the general

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<PAGE>
 
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company is
unable to determine at this time whether the consequences of the Year 2000
failures will have a material impact on the Company's results of operations,
liquidity or financial condition.  The Year 2000 effort is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
critical suppliers.  The Company believes that, with the implementation of new
business critical systems and completion of the Year 2000 specific projects as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.

The Company plans to document its preliminary contingency plans by December 31,
1998 and to finalize these plans no later than June 30, 1999.

Readers are cautioned that forward looking statements contained in the Year 2000
Update should be read in conjunction with the Company's disclosures under the
heading "Forward-Looking Statements."

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.  Such forward-looking statements involve estimates, assumptions and
uncertainties, and accordingly, actual results could differ materially from
those expressed in the forward-looking statements.  Such uncertainties include,
among others, the factors referred to in the Company's Annual Report on Form
10-K for the fiscal year ended December 26, 1997.

                                       12
<PAGE>
 
                          PART II.  OTHER INFORMATION
                                        
                                        
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

 (a)    Exhibits

        10.1  Lease for real property located at 4330 Park Terrace Drive,
              Westlake Village, California, by and between Corporate Spectrum,
              LLC and Pinkerton's, Inc., dated June 25, 1998.

        27.1  Financial Data Schedule

        27.2  Financial Data Schedule (Restated)

 (b)    Form 8-K

        No Current Reports on Form 8-K were filed during the period covered by
        this report.

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<PAGE>
 
                                  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.




                                                   PINKERTON'S, INC.
 
 
Date: October 16, 1998             BY: /S/    JAMES P. McCLOSKEY
                                      -----------------------------------
                                              James P. McCloskey
                                   ITS:    Executive Vice President and
                                             Chief Financial Officer
                                           (Principal Financial Officer)
 
 
 
 
Date: October 16, 1998             BY: /S/    GREGG S. LAMB
                                      -----------------------------------
                                               Gregg S. Lamb
                                   ITS:      Worldwide Controller
                                           (Principal Accounting Officer)

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