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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 April 2, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-2514
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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 or organization) (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 April 2, 1995, 3,858,885 shares of Series A and 5,794,539 shares of
Series B of the registrant's Common Stock were issued and outstanding.
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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 thirteen weeks ended April 2, 1995 are not necessarily
indicative of the results for the entire fiscal year ending December 31, 1995.
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
APRIL 2, 1995 AND APRIL 3, 1994
(In thousands except per share data)
(UNAUDITED)
1995 1994
-----------------------------
REVENUES $ 194,832 $ 174,537
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OPERATING EXPENSES:
Payroll and related taxes 141,608 128,298
Other operating expenses 50,169 42,944
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191,777 171,242
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OPERATING INCOME 3,055 3,295
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OTHER INCOME (EXPENSE):
Interest and receivable discount expense (737) (987)
Interest and investment income 325 426
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(412) (561)
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INCOME BEFORE INCOME TAXES 2,643 2,734
Provision for income taxes 898 959
Minority interest, net of income taxes 371 117
Equity income of foreign affiliates, net of income taxes (225) (162)
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NET INCOME $ 1,599 $ 1,820
=============================
EARNINGS PER SHARE $ 0.17 $ 0.19
=============================
See notes to Consolidated Financial Statements.
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 2, 1995 AND JANUARY 1, 1995
(In thousands except share data)
(UNAUDITED)
1995 1994
----------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,509 $ 13,808
Accounts receivable (net of allowances for doubtful accounts
of $1,334 in 1995 and $1,056 in 1994) 70,252 100,425
Inventories, net 7,148 7,179
Other 18,446 16,233
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108,355 137,645
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NOTES RECEIVABLE 1,570 1,646
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MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT
of casualty reinsurance subsidiary 10,902 11,495
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PROPERTY AND EQUIPMENT, at cost 46,046 45,928
Accumulated depreciation (15,870) (15,102)
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30,176 30,826
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DEFERRED TAX ASSET, NET 9,752 11,021
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OTHER ASSETS:
Investment in and advances to foreign affiliates, at cost, including equity
in undistributed earnings of $2,674 in 1995 and $2,066 in 1994 6,950 6,165
Other 13,573 13,959
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20,523 20,124
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$ 181,278 $ 212,757
===========================
See notes to Consolidated Financial Statements.
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 2, 1995 AND JANUARY 1, 1995
(In thousands except share data)
(UNAUDITED)
1995 1994
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 10 $ -
Notes payable 3,345 3,765
Accounts payable 14,809 14,839
Accrued payroll and related taxes 28,331 25,761
Accrued expenses 19,406 20,609
Deferred tax liability, net 294 596
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66,195 65,570
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RESERVES FOR LOSSES of casualty reinsurance subsidiary 39,364 38,450
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LONG-TERM DEBT 3,470 38,991
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OTHER 4,657 4,029
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MINORITY INTEREST 9,071 8,258
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SHAREHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized - -
Common stock, $.10 par value, 20,000,000 shares authorized;
Series A common stock, 3,858,885 issued 386 386
Series B common stock, 5,794,539 issued 579 579
Additional paid-in capital 38,919 38,919
Retained earnings 22,550 21,681
Cumulative translation adjustment (3,654) (3,552)
Unrealized gain (loss) on marketable securities (259) (554)
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58,521 57,459
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$ 181,278 $ 212,757
===========================
See notes to Consolidated Financial Statements.
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED APRIL 2, 1995 AND APRIL 3, 1994
(UNAUDITED)
1995 1994
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CASH FLOWS PROVIDED BY (USED IN) (In thousands):
OPERATING ACTIVITIES
Net Income $ 1,599 $ 1,820
Adjustments -
Depreciation expense 1,153 1,076
Amortization expense 1,244 1,274
Provision for bad debts 276 232
Equity income, net of dividends (287) (242)
Minority interests in net earnings 562 117
Other (102) (243)
Changes in assets and liabilities, net of acquisition and divestitures-
(Increase) Decrease in assets:
Accounts receivable 957 5,884
Cash proceeds from sales of trade receivables 28,940 -
Inventories (560) (1,424)
Other current assets (2,213) (288)
Marketable securities and certificates of deposit (199) (762)
Other assets (251) (350)
Deferred tax asset 1,269 (408)
Increase (Decrease) in liabilities:
Accounts payable and accrued expenses (1,549) (4,615)
Accrued payroll and related taxes 2,570 3,168
Deferred tax liability - current (302) 521
Accrued retirement benefits and deferred compensation liabilities 628 93
Reserve for losses of casualty reinsurance subsidiary 914 894
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NET CASH PROVIDED BY OPERATING ACTIVITIES 34,649 6,747
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INVESTING ACTIVITIES
Net proceeds from sale of subsidiary's common stock 246 -
Payments on notes receivable 76 72
Payment for acquisitions, net of cash acquired - (931)
Investment in and advances to foreign affiliates (177) 507
Capital expenditures (503) (518)
Proceeds from sale of marketable securities of reinsurance subsidiary 1,087 1,633
Deferred charge expenditures (16) (65)
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NET CASH USED IN INVESTING ACTIVITIES 713 698
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(Continued)
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED APRIL 2, 1995 AND APRIL 3, 1994
(In thousands)
(UNAUDITED)
(Continued)
1995 1994
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CASH FLOWS PROVIDED BY (USED IN):
FINANCING ACTIVITIES
Proceeds from issuance of debt - 30,659
Payments on debt (35,931) (33,633)
Dividends paid (730) (694)
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NET CASH USED IN FINANCING ACTIVITIES (36,661) (3,668)
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NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,299) 3,777
Cash and Cash Equivalents, at beginning of year 13,808 7,821
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CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 12,509 $ 11,598
==============================
SUPPLEMENTAL DISCLOSURES
CASH PAID DURING THE YEAR FOR:
Interest $ 773 $ 927
Income taxes $ 34 $ 70
See notes to Consolidated Financial Statements.
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 1, 1995. Certain prior year amounts have been
reclassified to conform with current year financial statement presentation.
1. ACCOUNTS RECEIVABLE
In January 1995, the corporation entered into a $40,000,000, three year,
revolving trade receivable securitization facility agreement to sell undivided
fractional interests in a pool of eligible receivables. At April 2, 1995
$28,940,000 had been sold, and is presented as a reduction in accounts
receivable in the accompanying balance sheet and as providing operating cash
flow in the Consolidated Statement of Cash Flows. The costs associated with
this program are based upon the purchasers' level of investment and cost of
issuing commercial paper plus predetermined fees. The corporation will retain
substantially the same risk of credit loss as if the receivables had not been
sold. Such costs are included in "Interest and receivable discount expense,"
in the Consolidated Statement of Income. In January 1995, the corporation also
prepaid the outstanding balance of the first mortgage note on the headquarters
building with proceeds from the sale of eligible trade accounts receivable.
2. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
APRIL 2, JANUARY 1,
1995 1995
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Revolving loans - 7.0% in 1995 and 1994 $ 200 $ 20,450
First mortgage note on headquarters building - 7.1% - 16,060
Mortgage notes on buildings of international subsidiaries, varying
interest rates from 11.0% to 11.4%, due in 2002 702 947
Secured credit lines and other debt, principally of Australasian
Correctional Management Pty., Ltd., varying interest rates
from 5.9% to 8.0% due 1997 to 2009 735 1,412
Other debt principally related to international subsidiaries 1,843 122
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3,480 38,991
Less - Current portion of long-term debt (10) -
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$ 3,470 $ 38,991
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3. BUSINESS SEGMENTS
WACKENHUT CORRECTIONS CORPORATION
The corporation's principal business consists of security guard services to
commercial and governmental clients. A subsidiary of the corporation,
Wackenhut Corrections Corporation ("WCC"), provides facility management and
construction services to detention and correctional facilities. WCC operates
in a different industry segment than other divisions of the corporation. A
summary of financial data of WCC is presented below:
Thirteen Weeks Ended
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April 2, 1995 April 3, 1994
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Revenues
Facility management $21,631 $19,113
Construction and design 6,883 3,782
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28,514 22,895
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Operating income before general corporate office expenses 2,306 1,655
Equity loss of affiliates, net of income taxes 78 -
Assets at April 2, 1995 and January 1, 1995 31,474 30,333
Capital expenditures 443 82
Depreciation expense 185 140
Identifiable assets of equity affiliates at April 2, 1995 and
January 1, 1995 1,775 3,420
NON-U.S. OPERATIONS
A summary of financial data for foreign operations is shown below. Non-U.S.
operations of the corporation and its subsidiaries are conducted primarily in
South America and Australia. Profit is before the allocation of corporate
office general and administrative expenses and income taxes.
Thirteen Weeks Ended
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April 2, 1995 April 3, 1994
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Revenues $30,672 $25,371
Income before general corporate office expense and
income taxes 1,688 958
Assets at April 2, 1995 and January 1, 1995 51,945 48,893
The corporation carries its investments in affiliates (20% to 50% owned) on the
equity method. U.S. income taxes which would be payable upon remittance of
affiliates' earning to the corporation are provided currently. Minority
interest in consolidated foreign subsidiaries have been reflected net of
applicable income taxes on the accompanying financial statements for 1995 and
1994.
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Reference is made to Item 7, Part II of the Corporation's Annual Report on Form
10-K for the fiscal year ended January 1, 1995 for discussion and analysis of
information pertaining to the Corporation's financial condition.
RESULTS OF OPERATIONS
PERIOD-TO-PERIOD COMPARISONS (1ST QUARTER 1995 VERSUS 1ST QUARTER 1994)
The following discussion and analysis should be read in conjunction with the
Corporation's consolidated financial statements and the notes thereto.
Consolidated revenues increased $20,295,000 (11.6%) in the first quarter of
1995 compared to the same quarter in 1994. This increase is principally
attributed to the Security Services Division which reported an increase in
revenues of $12,562,000 from new national contracts.
Wackenhut Corrections Corporation reported increased construction and design
revenues of $3,100,000 related to the Moore Haven and South Bay (Florida)
contracts and increased facility management revenues of $2,518,000 related to
the Coke County and Lockhart Female (Texas) facilities. The Food Services
Division reported increased revenues of $3,600,000 attributable to new
contracts acquired during 1994 and 1995.
Payroll and related taxes increased $13,310,000 (10.4%) compared to 1994 as a
result of the growth in business from the new security contracts. Other
operating expenses increased $7,225,000 (16.8%) in the first quarter of 1995
compared to the same period last year. This increase was due primarily to
revenue growth and related increases of $2,859,000 in correctional facilities
construction, management and operating expenses, as well as a $2,321,000
increase in food costs associated with new contracts. General increases in
other operating expenses were experienced by domestic, government and
international operations contributing to the remaining increase in this expense
category.
Operating income decreased $240,000 (7.3%) during the first quarter of 1995
compared to the same period last year. A significant portion of the decrease in
operating income can be attributed to the absence of one-time profits from the
American Airlines strike and the Florida Department of Transportation
Interstate Highway contract which were reported in the first quarter of 1994 by
the Security Services Division. The remainder of the decrease was primarily due
to increased business development costs in the Government Services Group which
have resulted from efforts to capitalize on opportunities in the privatization
of government services.
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THE WACKENHUT CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Interest and receivable discount expense decreased $250,000 due to reductions
in funding requirements partially offset by increased interest rates. Interest
and investment income decreased $101,000 during the first quarter of 1995
compared to the same period in 1994 principally due to a decrease in fixed
income securities investment holdings. Minority interest increased $254,000,
net of applicable taxes, during the same period in 1995 compared to 1994
reflecting the public ownership in the earnings of Wackenhut Corrections
Corporation and an increase in profits from foreign affiliates.
Net income was $1,599,000 in the first quarter of 1995, compared to $1,820,000
in the same period in 1994. The combined Federal and state effective income
tax rates of 34% and 35% for the first quarter of 1995 and 1994 respectively,
included reductions in the statutory corporate tax rate attributable to
targeted job credits, tax exempt interest and capital loss carryforwards.
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the first quarter of 1994, the Corporation and its insurance carriers
settled a $6,000,000 judgment for $4,500,000. The Corporation's insurance
carriers contributed funds for that settlement, but these carriers dispute
their legal obligation for the amounts paid. In the opinion of management,
after consultation with outside counsel, it is more likely than not that the
judgment will be covered by the Corporation's insurance carriers. In a second
Case, a former employee has obtained a $1.8 million judgment against the
Corporation comprised almost entirely of punitive damages. The Corporation is
cautiously optimistic that its appeal will result in the diminution of the
punitive damages awarded. Finally, in a case alleging tortious interference
with contract and other related torts, plaintiff claims multimillion dollar
damages, which the insurance carrier for the Corporation has denied coverage.
The Corporation denies these claims and intends to vigorously defend the
action. While there can be no assurance that reserves provided by the
Corporation are adequate, management has made its best estimate of the
potential exposure in these matters.
The nature of the Corporation's business results in claims for damages arising
from the conduct of its employees or others. In the opinion of management,
there are no other pending legal proceedings that would have a material effect
on the consolidated financial statements of the Corporation.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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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
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - The Corporation filed a Form 8-K dated January 30,
1995 to report that it would take a special, one-time charge of $8.7 million in
the fourth quarter of fiscal 1994 to provide for a loss resulting from the
write-down in the carrying value of its headquarters building in Coral Gables,
Florida. This charge resulted from management's decision to sell the
Corporation's headquarters building.
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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: May 12, 1995 /s/ Richard C. DeCook
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Richard C. DeCook, Senior Vice President -
Finance and Chief Financial Officer
(Duly Authorized Officer)
DATE: May 12, 1995 /s/ Juan D. Miyar
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Juan D. Miyar, Vice President - Accounting
Services and Corporate Controller
(Principal Accounting Officer)
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