SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 3, 1994
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 0-2514
------
The Wackenhut Corporation
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(Exact name of registrant as specified in its charter)
Florida 59-0857245
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(State of incorporation ororganization) (I.R.S. Employer Identification No.)
1500 San Remo Avenue, Coral Gables, FL 33146
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 666-5656
--------------
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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 [ ]
At July 3, 1994, 3,858,885 shares of Series A and 3,864,287 shares of Series
B of the registrant's Common Stock were issued and outstanding.
1
THE WACKENHUT CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Corporation have been
prepared in accordance with the instructions to Form 10-Q and therefore, omit or
condense certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the twenty-six weeks ended July 3, 1994 are not necessarily
indicative of the results for the entire fiscal year ending January 1, 1995.
2
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
JULY 3, 1994 AND JULY 4, 1993
(In thousands except per share data)
(UNAUDITED)
1994 1993
---------------------------------
REVENUES $ 180,462 $ 162,051
---------------------------------
OPERATING EXPENSES:
Payroll and related taxes 133,085 120,762
Other operating expenses 43,335 39,562
---------------------------------
176,420 160,324
---------------------------------
OPERATING INCOME 4,042 1,727
---------------------------------
OTHER INCOME (EXPENSE):
Interest expense (1,149) (1,076)
Interest and investment income 346 540
Equity income of foreign affiliates (3) 827
---------------------------------
(806) 291
---------------------------------
INCOME BEFORE INCOME TAXES 3,236 2,018
Provision for income taxes 1,133 619
Minority interest, net of income taxes 150 51
---------------------------------
NET INCOME $ 1,953 $ 1,348
---------------------------------
---------------------------------
EARNINGS PER SHARE: $ 0.25 $ 0.18
---------------------------------
---------------------------------
See notes to Consolidated Financial Statements.
3
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWENTY-SIX WEEKS ENDED
JULY 3, 1994 AND JULY 4, 1993
(In thousands except per share data)
(UNAUDITED)
1994 1993
--------------------------------
REVENUES $ 354,999 $ 324,163
--------------------------------
OPERATING EXPENSES:
Payroll and related taxes 261,383 240,443
Other operating expenses 86,371 78,912
--------------------------------
347,754 319,355
--------------------------------
OPERATING INCOME 7,245 4,808
--------------------------------
OTHER INCOME (EXPENSE):
Interest expense (2,044) (2,109)
Interest and investment income 772 1,251
Equity income of foreign affiliates 243 1,046
--------------------------------
(1,029) 188
--------------------------------
INCOME BEFORE INCOME TAXES 6,216 4,996
Provision for income taxes 2,175 1,675
Minority interest, net of income taxes 268 114
--------------------------------
NET INCOME $ 3,773 $ 3,207
--------------------------------
--------------------------------
EARNINGS PER SHARE: $ 0.49 $ 0.42
--------------------------------
--------------------------------
See notes to Consolidated Financial Statements.
4
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 3, 1994 AND JANUARY 2, 1994
(In thousands except share data)
(UNAUDITED)
1994 1993
-----------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,769 $ 7,821
Accounts receivable, less allowance for doubtful
accounts of $1,178 in 1994 and $687 in 1993 89,515 94,937
Inventories, net 7,376 6,243
Other 18,029 14,760
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122,689 123,761
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NOTES RECEIVABLE 1,939 2,085
-----------------------------
MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT
of casualty reinsurance subsidiary 24,758 24,843
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PROPERTY AND EQUIPMENT, at cost 52,886 51,497
Accumulated depreciation (13,789) (13,374)
-----------------------------
39,097 38,123
-----------------------------
DEFERRED TAX ASSET, NET 6,821 6,374
-----------------------------
OTHER ASSETS:
Investment in and advances to foreign affiliates,
at cost, including equity 5,646 5,742
Other 11,164 10,369
-----------------------------
16,810 16,111
-----------------------------
$ 212,114 $ 211,297
-----------------------------
-----------------------------
See notes to Consolidated Financial Statements.
5
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 3, 1994 AND JANUARY 2, 1994
(In thousands except share data)
(UNAUDITED)
1994 1993
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 6,975 $ 10,456
Short-term notes payable 4,500 -
Accounts payable 11,598 16,711
Accrued payroll and related taxes 24,495 22,444
Accrued expenses 27,273 22,124
Deferred tax liability, net 496 -
-------------------------
75,337 71,735
-------------------------
RESERVES FOR LOSSES of casualty reinsurance
subsidiary 34,440 33,500
-------------------------
LONG-TERM DEBT 51,700 57,484
-------------------------
MINORITY INTEREST 1,484 1,216
-------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized -- -
Common stock, $.10 par value, 20,000,000 shares
authorized;
Series A common stock, 3,858,885 issued 386 386
Series B common stock, 3,864,287 issued 386 386
Additional paid-in capital 26,234 26,234
Retained earnings 25,651 23,268
Cumulative translation adjustment (3,132) (3,058)
Unrealized gain (loss) on marketable securities (372) 146
-------------------------
49,153 47,362
-------------------------
$ 212,114 $ 211,297
-------------------------
-------------------------
See notes to Consolidated Financial Statements.
6
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JULY 3, 1994 AND JULY 4, 1993
(In thousands)
(UNAUDITED)
1994 1993
-------------------------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net Income $ 3,773 $ 3,207
Adjustments -
Depreciation expense 2,088 2,256
Amortization expense 2,724 2,574
Provision for bad debts 356 440
Equity income, net of dividends 290 (990)
Minority interests in net earnings 268 173
Other (74) (445)
Changes in assets and liabilities, net of effects of
purchase of controlling interest in foreign
subsidiaries and divestitures:
Decrease (increase) in assets:
Accounts receivable 5,147 3,515
Inventories (3,357) (2,643)
Other current assets (2,978) 733
Marketable securities and certificates of deposit (433) (402)
Other assets 1,840 1,681
Deferred tax asset (447) (489)
(Decrease) increase in liabilities:
Accounts payable and accrued expenses (2,253) (9,679)
Accrued payroll and related taxes 2,051 3,731
Deferred tax liability - current 496 315
Reserve for losses of casualty reinsurance
subsidiary 940 389
-------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,431 4,366
-------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payments on notes receivable 146 -
Payment for acquisitions, net of working capital (935) -
acquired
Investment in and advances to foreign affiliates (256) (1,803)
Capital expenditures (2,638) (1,603)
Deferred charge expenditures (645) -
-------------------------
NET CASH USED IN INVESTING ACTIVITIES (4,328) (3,406)
-------------------------
(Continued)
7
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JULY 3, 1994 AND JULY 4, 1993
(In thousands)
(UNAUDITED)
(Continued)
1994 1993
-------------------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of debt 72,059 35,269
Payments on debt (76,824) (32,583)
Dividends paid (1,390) (1,390)
-------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (6,155) 1,296
-------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (52) 2,256
Cash and Cash Equivalents, at beginning of year 7,821 4,899
-------------------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 7,769 $ 7,155
-------------------------
-------------------------
SUPPLEMENTAL DISCLOSURES
CASH PAID DURING THE YEAR FOR:
Interest $ 1,973 $ 1,670
Income taxes $ 92 $ 1,336
See notes to Consolidated Financial Statements.
8
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed for the quarterly financial reporting are the
same as those disclosed in Note 1 of the Notes to Consolidated Financial
Statements included in the Corporation's Annual Report on Form 10-K for the
fiscal year ended January 2, 1994. Certain prior year amounts have been
reclassified to conform with current year financial statement presentation.
2. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
JULY 3, January 2,
1994 1994
------------------------------
Senior note payable - 10.2% $ 12,500 $ 25,000
Revolving loan - 5.6% in 1994 and 4.2% in 1993 28,000 26,150
First mortgage note on headquarters building -
5.4% in 1994 and 4.3% in 1993 16,425 16,790
Revolving line of credit
- Wackenhut Corrections Corporation
Australia PTY, Ltd. 5.6% in 1994 1,750 -
------------------------------
58,675 67,940
Less - Current portion of long-term debt (6,975) (10,456)
------------------------------
$ 51,700 $ 57,484
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------------------------------
9
THE WACKENHUT CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
On August 2, 1994, Wackenhut Corrections Corporation, a subsidiary of the
Corporation (the "Subsidiary"), sold 1,900,000 (or 2,185,000 if oversubscribed)
shares of common stock at an offering price of $9.00 per share. Proceeds from
the offering were used in part by the Subsidiary to retire indebtedness to the
Corporation. The remainder of the proceeds will be used by the Subsidiary to
repay bank debt incurred to fund a special dividend to the Corporation and for
general corporate purposes, including working capital.
With proceeds from the retirement of debt from the Subsidiary and its revolving
credit facility, the Corporation prepaid $12,500,000 of its Senior Notes due
September 30, 2000, at a premium of approximately $1,344,000 on August 2, 1994.
Reference is made to Item 7, Part II of the Corporation's Annual Report on Form
10-K for the fiscal year ended January 2, 1994 for further discussion and
analysis of information pertaining to liquidity and capital resources.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Corporation's consolidated financial statements and the notes thereto.
CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTEEN WEEKS:
Consolidated revenues increased $18,411,000 (11.4%) in the second quarter of
1994 compared to the same quarter last year. The increase was principally
attributable to the Security Services division of the Domestic Operations Group,
which contributed $7,800,000 to the increase in revenues in the second quarter
of 1994, principally as a result of several major national contracts obtained in
the second and third quarters of 1993.
Revenues of Australasian Correctional Management Pty., Ltd., (ACM) a
wholly-owned subsidiary of Wackenhut Corrections Corporation, which are being
consolidated for the first time this year, represented $5,100,000 in the second
quarter of 1994 and more than offset reductions in revenues of contracts with
the Department of Energy (DOE). The decrease in revenues attributable to DOE
contracts in the second quarter of 1994, compared to the same quarter in 1993,
was approximately $3,600,000.
Payroll and related taxes increased $12,323,000 (10.2%) and other operating
expenses increased $3,773,000 (9.5%) in the second quarter of 1994 verses the
second quarter last year. The increase can be attributed mainly to the
consolidation of ACM and to the increase in costs related to other increases in
revenues.
10
Operating income was $2,315,000 (134%) higher in the second quarter of 1994 than
in the same quarter in 1993, principally as a result of profit margins of new
national and state contracts of the Security Services Division. In addition, a
significant portion of the increase in operating income can be attributed to the
consolidation of ACM. The Wackenhut Monitoring and Wackenhut Applied
Technologies Center divisions, which had combined operating losses of
approximately $405,000 in the second quarter of 1993, were sold or discontinued
late in 1993, and thus improved income from operations in the second quarter of
1994. As a result of quality improvements at certain DOE facilities, the
Wackenhut Services Inc. Division received better award fees from the Department
of Energy for the second quarter of 1994 than for the comparable period last
year.
Other expenses amounted to $806,000 for the second quarter of 1994, compared
with other income of $291,000 for the second quarter of 1993. The decrease was
due principally to the decrease in equity income of foreign affiliates in the
second quarter of 1994 when compared to the same quarter last year, which
included equity income of ACM. ACM is being consolidated for the first time in
1994. In addition, interest and investment income of the captive reinsurance
subsidiary amounted to $346,000 in the second quarter of 1994, whereas they
amounted to $540,000 for the second quarter of 1993. The decrease in interest
and investment income was attributable to a realignment of the investment
portfolio of the captive reinsurance subsidiary, which should better position
the subsidiary for future gains.
Income before provision for income taxes was $1,218,000 (60.4%) higher in the
second quarter of 1994 than in the second quarter of 1993. The effective income
tax rate was lower than the combined Federal and state corporate tax rates for
both, the second quarter of 1994 and the second quarter of 1993 due to targeted
job tax credits, tax exempt interest income and capital loss carryforwards. In
addition, the effective income tax rate for the second quarter of 1993 was
further reduced by a favorable IRS audit adjustment.
Minority interest, net of income taxes, increased $99,000 during the second
quarter of 1994 verses the second quarter of 1993 due to an increase in profits
from foreign subsidiaries, which was partially due to the consolidation of the
subsidiary in Russia.
Net income increased $605,000 (45%) during the second quarter of 1994 compared
with net income for the same quarter in 1993 due to the factors described
above..
CONSOLIDATED STATEMENTS OF INCOME FOR THE TWENTY SIX WEEKS:
Consolidated revenues of $354,999,000 increased $30,836,000 (9.5%) in the first
half of 1994 compared to $324,163,000 in the first half of 1993. The Security
Services Division of the Domestic Operations Group contributed $21,853,000 to
the increase in revenues in the first half of 1994. This increase in revenues
was attributable to several new national contracts obtained in the second and
third quarters of 1993. These revenue gains were complemented by increases in
the Nuclear Division of $562,000 and the Food Service Division of $975,000. The
increase in revenue of the Food Service Division was the result of new contracts
at correctional facilities.
Revenues of the Government Services Group were $6,484,000 higher in the second
half of 1994 than in the second half of last year as a result of an increase of
$14,047,000 in revenues generated by the Corrections Division. The
consolidation of ACM since the beginning of the year has increased revenues of
the Corrections Division by $10,097,000 through the end of the second half of
1994.
11
This increase was partially offset by a $6,632,000 decrease in revenues related
to DOE government contracts.
Payroll and related taxes increased $20,940,000 (8.7%) and other operating
expenses increased $7,459,000 (9.5%) in the first half of 1994 compared to the
first half of 1993. These increases in costs resulted from the growth of
business from new security contracts and the consolidation of payroll and
operating expenses of ACM.
Operating income increased to $7,245,000 from $4,808,000 or $2,437,000 (50.7%)
in the first half of 1994 compared to the same period last year. The Security
Services Division was able to capitalize on higher revenues and lower start up
costs associated with prior year new contracts. The Government Services Group
benefited from the sale and discontinuation of non-core businesses which
incurred $892,000 in operating losses in the first half of 1993. In addition, a
significant portion of the increase in operating income can be attributed to the
consolidation of ACM.
Other expenses amounted to $1,029,000 for the first half of 1994 compared to
other income of $188,000 for the first half of 1993. The decrease was due
principally to the decrease of $803,000 in equity income of affiliates, which
included equity income of ACM in the first half of 1993, whereas ACM is being
consolidated for the first time in 1994. In addition, interest and investment
income declined $479,000 in the first half of 1994 from $1,251,000 recorded for
the comparable period in 1993, principally as a result of a realignment of the
investment portfolio of the reinsurance subsidiary, which should better position
the subsidiary for future gains.
Income before provision for income taxes was $1,220,000 (24.4%) higher for the
first half of 1994 than for the first half of 1993. The provision for income
taxes was lower than the combined Federal and state corporate tax rates for
both, the first half of 1994 and the comparable period in 1993 due to targeted
jobs tax credits, tax exempt interest income and capital loss carryforwards. In
addition, the effective Federal income tax rate for the first half of 1993 had
been reduced by a favorable IRS audit adjustment.
Minority interest expense net of income taxes increased $154,000 in the first
half of this year in comparison to the same period last year due to an increase
in profits from foreign subsidiaries.
Net Income was $3,773,000 in the first half of 1994 compared to $3,207,000 in
the same period last year. The increase of $566,000 (17.6%) was attributable to
the factors described above.
12
THE WACKENHUT CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the Corporation's business results in claims or litigation
alleging that the Corporation is liable for damages arising from the conduct of
its employees or others.
Reference is made to Item 1 of the Corporation's Quarterly Report on Form 10-K
for the quarterly period ended April 3, 1994.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 1
Waiver Amendment, Prepayment and Right of First Offer Agreement between The
Wackenhut Corporation and The Principal Mutual Life Insurance Company dated July
1, 1994.
EXHIBIT 2
Amendment No. 1 to Amended and Restated Revolving Credit and Reimbursement
Agreement between The Wackenhut Corporation and NationsBank of Florida dated May
18, 1994.
The Corporation did not file a Form 8-K during the second quarter of 1994.
13
THE WACKENHUT CORPORATION AND SUBSIDIARIES
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.
THE WACKENHUT CORPORATION
DATE: August 12, 1994 /s/ RICHARD C. DECOOK
------------------------------------------
Richard C. DeCook, Senior Vice President -
Finance and Chief Financial Officer
DATE: August 12, 1994 /s/ JUAN D. MIYAR
------------------------------------------
Juan D. Miyar, Vice President - Accounting
Services and Corporate Controller
14