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EXHIBIT 13(a)
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SELECTED FINANCIAL DATA
(In thousands except per share data)
The selected consolidated financial data should be read in conjunction with the
corporation's consolidated financial statements and the notes thereto.
FISCAL YEARS ENDED: (a) 1994 1993
=============================================================================================================================
RESULTS OF OPERATIONS:
Revenues $ 747,666 $ 664,160
Operating income 6,592 4,496
Income before income taxes 3,002 3,371
Income (loss) before extraordinary charge and cumulative effect of accounting change 2,272 3,609
Extraordinary charge - early extinguishment of debt, net of income taxes (887) (1,444)
Cumulative effect of accounting change for income taxes - -
Net income (loss) 1,385 2,165
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE: (b)
Income (loss) before extraordinary charge and cumulative effect of accounting change $ .24 $ .37
Extraordinary charge - early extinguishment of debt, net of income taxes (.10) (.15)
Cumulative effect of accounting change for income taxes - -
-----------------------
Net income (loss) $ .14 $ .22
- -----------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER SHARE OF COMMON STOCK: (b)
Regular quarterly dividends $ .29 $ .29
Special dividend - -
-----------------------
Total dividends $ .29 $ .29
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION:
Working capital $ 72,075 $ 56,163
Total assets 212,757 211,297
Long-term debt 38,991 57,484
Total debt 42,756 67,940
Shareholders' equity 57,459 47,362
=============================================================================================================================
(a) Fiscal years 1992 and 1987 included 53 weeks.
(b) Restated to reflect a 25% stock dividend declared during fiscal 1994 and
to reflect a 100% stock dividend, effected in the form of a stock split,
declared during fiscal 1992.
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1992 1991 1990 1989 1988 1987 1986 1985 1984
=============================================================================================================================
$ 630,320 $ 572,527 $ 521,191 $ 462,181 $ 400,996 $ 381,972 $ 328,795 $ 308,219 $ 282,269
3,367 13,859 12,097 10,225 5,334 6,032 1,680 7,536 8,638
1,588 11,867 10,664 8,524 7,382 7,915 3,247 10,026 302
1,137 7,721 6,963 5,874 5,195 5,660 2,418 6,779 (1,804)
- - - - - - - - -
7,370 - - - - - - - -
8,507 7,721 6,963 5,874 5,195 5,660 2,418 6,779 (1,804)
- -----------------------------------------------------------------------------------------------------------------------------
$ .12 $ .80 $ .72 $ .61 $ .54 $ .58 $ .25 $ .70 $ (.18)
- - - - - - - - -
.76 - - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
$ .88 $ .80 $ .72 $ .61 $ .54 $ .58 $ .25 $ .70 $ (.18)
- -----------------------------------------------------------------------------------------------------------------------------
$ .25 $ .24 $ .24 $ .24 $ .24 $ .24 $ .24 $ .24 $ .24
- - - - 1.20 - - - -
- -----------------------------------------------------------------------------------------------------------------------------
$ .25 $ .24 $ .24 $ .24 $ 1.44 $ .24 $ .24 $ .24 $ .24
- -----------------------------------------------------------------------------------------------------------------------------
$ 56,932 $ 48,599 $ 42,413 $ 40,635 $ 38,461 $ 35,588 $ 31,572 $ 21,904 $ 8,007
192,236 172,093 164,085 157,681 150,318 130,439 115,930 111,314 103,734
63,260 46,920 46,850 48,500 45,558 10,600 8,400 14,150 9,500
63,990 47,650 46,850 51,325 47,058 10,600 18,400 24,150 19,500
47,587 42,847 37,865 33,616 30,528 39,653 36,191 36,129 31,682
=============================================================================================================================
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Tabular information in thousands)
FINANCIAL CONDITION
Capital resources and liquidity
Cash and cash equivalents amounted to $13.8 million at January 1, 1995, or an
increase of $6 million from the end of 1993. Net cash generated by operating
activities was $13 million in 1994 and exceeded 1993 by $7.4 million.
Generally, the corporation has generated sufficient cash from operations to
finance normal growth.
Cash provided by investing activities amounted to $24.6 million and included
$14.0 million as a result of the reduction in marketable securities of the
captive reinsurance subsidiary and the $17.6 million proceeds from the sale of
a minority ownership (27%) in Wackenhut Corrections Corporation (WCC), a
subsidiary of the corporation. Capital expenditures of $5.1 million partially
offset these increases.
Funds generated by operating and investing activities were used principally by
the corporation to payoff the senior notes and to reduce bank borrowings. Cash
dividends paid amounted to $2.8 million.
Current cash requirements consist of amounts needed for capital assets, working
capital related to increased revenue from corporate growth, the renovation or
construction of correctional facilities, possible acquisitions and the payment
of dividends. Cash requirements will be met from internally generated funds and
additional borrowings as necessary.
Management continues to pursue major contracts, to expand core business, and
pursue major contracts to provide security to detention centers and construct
detention facilities. These contracts may require substantial initial cash
outlays, which are partially or fully recoverable over the original term of the
contract.
As described in more detail in the Notes to Financial Statements, the
corporation and WCC entered into new credit agreements with banks that provide
$75 million for borrowings and the issuance of letters of credit. In addition,
subsequent to year end, the corporation entered into accounts receivable
securitization agreements with two financial institutions to sell an undivided
interest in a defined pool of trade accounts receivable up to a maximum of $40
million. In January 1995, the corporation prepaid the outstanding balance on
the first mortgage note on the headquarters building with proceeds from the
securitization of accounts receivable.
As a result of the debt restructuring and the initial public offering of WCC,
the corporation significantly increased its borrowing capacity and reduced the
ratio of total debt to total capital to 42% as of year-end 1994.
Management is unaware of any trends or events that are likely to result in
material changes in the liquidity of the corporation other than those factors
mentioned above.
RESULTS OF OPERATIONS
Significant trends
During 1994, operating income increased $2.1 million, in spite of increased
competitive pressures and reduced profit margins. In the fourth quarter of
1994, the carrying value of the headquarters building was written down to
estimated realizable value, and a charge of $8.7 million was recognized as a
result of management's decision to sell the facility and relocate its corporate
headquarters. Strategic decisions made in previous years to diversify into the
corrections business and to pursue national security service contracts were
major contributing factors to the increase in operating income. In addition,
the unprofitable businesses that were discontinued in 1993 contributed to this
turnaround. The downsizing of defense business continued to impact revenue, but
to date has not affected profit margins. The effort to diversify government
business will continue in 1995.
Competitive pressures on billing rates of security services and reductions in
Department of Energy business are expected to continue. Increases in the cost
of workers' compensation, liability and health insurance have continued. In
addition, since the majority of the corporation's business is labor-intensive,
increases in state and federal wage requirements could have an impact on the
corporation's results of operations.
WCC increased revenues to $105.5 million and operating profits to $4.4 million
in 1994. The growth in the corrections business has been significant and should
continue to be a major factor in the overall performance of the corporation in
the future. In 1994, WCC won ten major contracts that will result in annual
operating revenues of $105 million and one-time construction and consulting
fees of $80 million in 1995 and 1996.
The restructuring of the corporation's debt was started in 1994 and finalized
early in 1995. This restructuring increased the corporation's debt capacity and
is expected to reduce interest expense in 1995. Management's decision to sell
the corporation's headquarters building in Coral Gables and move to a more
efficient building in a less expensive location should result in reduced annual
operating costs. Proceeds from the sale of the headquarters building will make
it possible for the corporation to further reduce debt and interest expense.
PERIOD-TO-PERIOD COMPARISONS (1994 VERSUS 1993)
Change Change
1994 (vs. 1993) 1993 (vs. 1992)
=================================
REVENUES $ 747,666 13% $ 664,160 5%
=================================
Consolidated revenues increased $83.5 million (13%) in 1994 over the prior
year, compared with revenue growth of 5% in 1993. The revenue growth of the
corporation for 1994 includes $42.7 million of WCC and $37.6 million of the
Security Services Division. Revenues from contracts with the Department of
Energy (DOE) decreased $11.0 million, while the International Group recorded an
increase in revenues of $11.0 million over the previous year, due principally
to growth in Central and South America.
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The growth in 1994 revenues of WCC reflected the consolidation of Australasian
Correctional Management Pty., Ltd., (ACM), with revenues of $23.1 million. WCC
recorded a total increase in facility management revenues of $24.0 million,
including ACM. In addition, construction and design revenues increased fourfold
to $23.2 million during fiscal 1994 with revenues from the construction of
three facilities.
The increase in Security Services Division revenues, which represent the more
traditional line of business of the corporation, was largely due to the success
in obtaining national contracts with major corporations in the second half of
1993 and in 1994. In addition, the division was awarded a $34.7 million
contract by the State of Hawaii to supply security at eight airports in August
1994.
Revenues of Wackenhut Services were $8.1 million lower in 1994 than in 1993 as
a result of reductions in manpower requirements by the Department of Energy.
Contracts with the Department of Energy are typically cost reimbursable
contracts for which the division can earn award fees, based on performance
factors. Although award fees have not been reduced significantly, further
reductions in revenues could impact profit contribution from these contracts.
In order to compensate for the decreased DOE revenues, the division has
expanded the scope of its services and is actively pursuing contracts from
other governmental authorities and departments.
Change Change
1994 (vs. 1993) 1993 (vs. 1992)
===================================
PAYROLL AND RELATED
TAXES $538,297 10% $491,408 5%
-----------------------------------
% of Revenues 72% 74%
-----------------------------------
OTHER OPERATING
EXPENSES $194,077 17% $166,530 5%
-----------------------------------
% of Revenues 26% 25%
-----------------------------------
WRITE-DOWN OF
HEADQUARTERS
BUILDING $ 8,700 -- -- --
-----------------------------------
% of Revenues 1.2%
-----------------------------------
NON-RECURRING
CHARGES -- -- $ 1,726 --
-----------------------------------
% of Revenues -- .3%
===================================
The increase in labor costs of $46.9 million (10%) and other operating expenses
of $27.6 million (17%) reflected the growth in business in Security Services
and WCC facility management. Furthermore, pass-through construction costs of
WCC increased $17.5 million in 1994 compared to 1993. The total increase in
other operating expenses was partially offset by a decrease in underwriting
losses of the casualty reinsurance subsidiary of $4.0 million.
Change Change
1994 (vs. 1993) 1993 (vs. 1992)
==================================
OPERATING INCOME $6,592 147% $4,496 34%
% of Revenues .9% .7%
==================================
Operating income was $6.6 million, or 0.9% of revenues in 1994, after deducting
$8.7 million to write-down the carrying value of the headquarters building to
estimated realizable value, compared to $4.5 million, or 0.7% of revenues in
1993. Several factors contributed to this increase. First, the increase in
Security Services revenues made a major contribution to operating income, in
spite of reduced profit margins. Second, excellent ratings at DOE facilities
increased operating income due to higher award fees. The Wackenhut Monitoring
Systems and Wackenhut Applied Technologies Center Divisions, which were sold or
discontinued in 1993, had combined operating losses of approximately $2 million
in that year, and underwriting losses of the casualty reinsurance subsidiary
decreased $4 million in fiscal 1994. And in 1993, the corporation also recorded
a $1.7 million non-recurring charge to operating income. In addition, in 1994
WCC reported operating income of $4.4 million, including the effect of the
consolidation of ACM, which represented $2.3 million. These favorable factors
were significantly offset by a charge of $8.7 million as a result of the
write-down of the carrying value of the headquarters building to estimated
realizable value.
Total other expense (net) of $12.3 million in 1994 resulted mainly from three
factors. First, interest expense amounted to $5.1 million and exceeded the
previous year by $874,000. Second, the liquidation of investments of the
captive reinsurance subsidiary resulted in lower interest and investment income
($1.6 million); however, the positive effect of this transaction on earnings
was not fully realized in 1994, but should be a factor in 1995.
Change Change
1994 (vs. 1993) 1993 (vs. 1992)
==================================
INCOME BEFORE INCOME
TAXES $3,002 (11)% $3,371 112%
----------------------------------
% of Revenues .4% .5%
----------------------------------
NET INCOME $1,385 (36)% $2,165 (75)%
----------------------------------
% of Revenues .2% .3%
==================================
Income before income taxes and extraordinary charge was $3 million for fiscal
1994, compared with $3.4 million in 1993. The provision for income taxes was
$17,000, due to partial utilization of capital loss carryforwards, targeted
jobs tax credits and tax exempt interest income of the captive reinsurance
subsidiary. The effective income tax rate was 14% in 1993 due to similar
factors, and a favorable federal income tax adjustment of $637,000 that
resulted from a revenue agent's examination for the years 1980 to 1986.
Minority interest expense (net of income taxes) increased $637,000 reflecting
the sale of a minority interest (27%) in WCC. Equity income of foreign
affiliates (net of income taxes) decreased $799,000 mainly as a result of the
consolidation of ACM in 1994.
Income before extraordinary charge was $2.3 million in 1994 versus $3.6 million
the year before. In 1994, the corporation prepaid the second senior note to an
insurance company and recognized an extraordinary charge for the early
extinguishment of debt in the amount of $887,000 (net of income taxes). The
corporation also recognized a $1.4 million extraordinary charge (net of income
taxes) for the early extinguishment of the first senior note in 1993.
Net income was $1.4 million in 1994, compared with $2.2 million in 1993.
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CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
FISCAL YEARS ENDED JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
1994 1993 1992
===============================================================================================================
REVENUES $ 747,666 $ 664,160 $ 630,320
-----------------------------------------------------------------------------
OPERATING EXPENSES
Payroll and related taxes 538,297 491,408 467,934
Other operating expenses 194,077 166,530 159,019
Write-down of headquarters building 8,700 - -
Non-recurring charges - 1,726 -
---------------------------------------
741,074 659,664 626,953
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OPERATING INCOME 6,592 4,496 3,367
-----------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (5,104) (4,230) (4,129)
Interest and investment income 1,514 3,105 2,350
---------------------------------------
(3,590) (1,125) (1,779)
-----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,002 3,371 1,588
PROVISION FOR INCOME TAXES 17 485 834
MINORITY INTEREST, NET OF INCOME TAXES 999 362 -
EQUITY INCOME OF FOREIGN AFFILIATES, NET OF INCOME TAXES (286) (1,085) (383)
---------------------------------------
INCOME BEFORE EXTRAORDINARY CHARGE AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,272 3,609 1,137
EXTRAORDINARY CHARGE - EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAXES (887) (1,444) -
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
INCOME TAXES - - 7,370
---------------------------------------
NET INCOME $ 1,385 $ 2,165 $ 8,507
===============================================================================================================
EARNINGS PER SHARE:
Income before extraordinary charge and
cumulative effect of accounting change $ 0.24 $ 0.37 $ 0.12
Extraordinary charge - early extinguishment
of debt, net of income taxes (0.10) (0.15) -
Cumulative effect of accounting change for
income taxes - - 0.76
---------------------------------------
Net income $ 0.14 $ 0.22 $ 0.88
===============================================================================================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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On April 30, 1994, the committee granted non-qualified stock options to
purchase 323,750 shares of series B common stock at an exercise price of $7.70
per share, as adjusted for the 25% stock dividend. The options are exercisable
after May 1, 1995 and expire on April 30, 2004. All options were outstanding at
January 1, 1995. On January 27, 1995, the committee granted additional
non-qualified stock options to purchase 175,000 shares of the corporation's
series B common stock at $13.50 per share.
(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the corporation and its subsidiaries for
the fiscal years ended January 1, 1995 and January 2, 1994, is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
===================================================================================================================================
1994
Revenues $ 174,537 $ 180,462 $ 196,031 $ 196,636
Income from operations (1) $ 3,203 $ 4,042 $ 3,863 $ (4,516)
Income (loss) before extraordinary charge $ 1,820 $ 1,953 $ 1,982 $ (3,483)
Extraordinary charge - early extinguishment of debt, net of income taxes (1) - - $ (887) -
Net income (loss) (1) $ 1,820 $ 1,953 $ 1,095 $ (3,483)
Earnings (loss) per share: (3)
Before extraordinary charge $ 0.19 $ 0.20 $ 0.21 $ (0.36)
Extraordinary charge - - $ (.10) -
Net income (loss) $ 0.19 $ 0.20 $ 0.11 $ (0.36)
===================================================================================================================================
1993
Revenues $ 162,112 $ 162,051 $ 165,111 $ 174,886
Income (loss) from operations (2) $ 3,081 $ 1,727 $ 2,669 $ (2,981)
Income (loss) before extraordinary charge $ 1,859 $ 1,348 $ 1,627 $ (1,225)
Extraordinary charge - early extinguishment of debt, net of income taxes (2) - - - $ (1,444)
Net income (loss) $ 1,859 $ 1,348 $ 1,627 $ (2,669)
Earnings (loss) per share: (3)
Before extraordinary charge $ 0.19 $ 0.14 $ 0.17 $ (0.13)
Extraordinary charge - - - (0.15)
Net income (loss) $ 0.19 $ 0.14 $ 0.17 $ (0.28)
===================================================================================================================================
(1) In the fourth quarter of 1994, the carrying value of the headquarters
building was written down to its estimated realizable value and a charge of
$8,700,000 was recognized (see Note 4). Additionally, an extraordinary
charge of $887,000 (after tax), or $.10 per share, was recognized in the
third quarter of 1994 for the early retirement of senior debt (see Note 7).
(2) In the fourth quarter of 1993, the corporation recognized unusual charges
to income from operations in the amount of $1,726,000, or $1,061,000 after
tax (see Note 12) and an extraordinary charge of $1,444,000 (after tax), or
$.15 per share, for the early retirement of senior debt (see Note 7). In
addition, the insurance loss reserves were increased by $3,600,000.
(3) Earnings per share have been restated to include the 25% stock dividend to
be effected in the form of a stock split, declared on October 29, 1994 and
paid on January 9, 1995 (see Notes 1 and 8).
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