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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 1-5450
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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.)
4200 Wackenhut Dr. #100, Palm Beach Gardens, FL 33410-4243
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (407) 622-5656
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, Series A, $.10 par value New York Stock Exchange
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Common Stock, Series B, $.10 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
At February 16, 1996, the aggregate market value of the 3,858,885 shares of
Common Stock, Series A, the registrant's sole class of voting stock, held by
non-affiliates of the registrant was $38,261,641. At March 28, 1996,
3,858,885 shares of Series A and 8,309,762 shares of Series B of the
registrant's Common Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant's Proxy Statement for its 1996 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Report.
EXHIBIT INDEX IS ON PAGE 46
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PART I
ITEM 1. BUSINESS
GENERAL
The Wackenhut Corporation (the "Company") is a leading international
provider of security-related and other support services and a leading
developer and manager of privatized correctional and detention facilities.
The Company provides security services, food services and other related
services to commercial and governmental customers through its services
business (the "Services Business"). Through its correctional business (the
"Correctional Business"), the Company also provides correctional and detention
facility design, development and management services to governmental agencies.
The Company has approximately 45,000 full and part-time employees serving over
14,000 commercial and governmental customers through an extensive network of
offices and operations in 48 states and 50 countries.
The Company was incorporated in 1958 to continue the businesses that were
originally established in 1954 by its Chairman and Chief Executive Officer,
George R. Wackenhut, to provide security-related services to commercial and
governmental customers. Since its founding, the Company has grown by: (i)
enhancing its position in its core security-related services business through
the development of specialized and upgraded services; (ii) targeting specific
segments of the security services industry; and (iii)expanding into a range of
other support services in response to a growing trend toward privatization of
governmental services and outsourcing by commercial customers.
The Company is the third largest security services organization in the
United States and is the leading United States-based provider of security
services abroad. In addition to its core security-related services, which
include guard and investigative services, the Company is a leader in the
development of specialized niche services. For example, in response to a growing
demand in the marketplace for security professionals with greater skill and
responsibility levels, the Company has developed its Custom Protection
Officer ("CPO") program to provide highly specialized and trained security
professionals to a broad range of customers such as national retailers, banks
and other financial institutions and gated communities. CPOs are also used as
supplemental law enforcement forces by public transportation authorities and
other governmental entities. Moreover, in seeking to respond to the specialized
needs of its larger clients, the Company developed its national accounts
("National Accounts") program to provide customized security services on a
national or regional level to large customers with multiple locations. The
National Accounts program provides customers with a high level of service by
providing a dedicated contact person with the Company who is responsible for
coordinating their accounts on a nationwide basis. The Company believes that
the National Accounts program may also enable it to expand the scope of
services offered worldwide to its National Account customers. Management
believes that the high quality and consistent service of its CPO and National
Accounts programs provide the Company with an opportunity to enhance long-term
relationships with its clients.
As part of its strategy to respond to the growing trend toward
privatization of governmental services, in 1984 the Company entered into the
development and management of privatized correctional and detention facilities,
a business which is now operated exclusively through its 55% owned Wackenhut
Corrections Corporation subsidiary ("WCC"). WCC presently has
contracts to manage 25 correctional and detention facilities, with a design
capacity of 16,653 beds. From December 29, 1991 to December 31, 1995, WCC's
revenues increased from $37.9 million to $99.4 million and operating income
increased from $1.7 million to $7.2 million, representing compound annual growth
rates of 27.3% and 43.5%, respectively. In addition, from December 29, 1991 to
December 31, 1995, the Company increased its design capacity of contracts at a
compound annual growth rate of 37.4%. As of March 27, 1996, WCC's total equity
market capitalization was approximately $394 million.
In addition to its expansion into the Correctional Business through WCC,
the Company has leveraged its management skills to expand into other support
services. In 1992, the Company entered into the foodservice business for
correctional institutions and, in January 1996, expanded its presence in this
market through the acquisition of contracts and certain assets of the
Correctional Food Services Division of Service America Corporation. In 1995, the
Company's Food Services Division had revenues of $34.7 million and the
Correctional Food Service Division of Service America Corporation, which the
Company acquired, had revenues of $41.1 million. Presently, only 10% of the
correctional foodservice market has been privatized. Consequently, the Company
believes that as privatization of correctional food services continues to gain
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acceptance at state and local levels, the Food Services Division will have
opportunities for expansion. In addition to the services which the Company has
specifically targeted for expansion, the Company continues to explore and
selectively invest in other service businesses, including temporary services,
commercial and governmental support services, supplemental police services,
crash-fire-rescue services, fire protection services, and airport services.
BUSINESS STRATEGY
The Company's business strategy is focused on two primary objectives: (i)
enhancing its position as a leading international provider of security and
security-related services by distinguishing the type and quality of security
services it provides; and (ii) using its security service expertise and contacts
to offer other support services to its clients. Key elements of the Company's
business strategy are described below:
- ENHANCE LEADERSHIP POSITION OF CORE SECURITY-RELATED SERVICE
BUSINESS. The Company strives to enhance its market position by
attempting to provide the most reliable and consistent service in the
industry. The Company believes its security professionals provide quality
service because of: (i) strictly enforced screening and hiring
procedures; (ii) intensive training; and (iii) well-organized supervisory
and feedback procedures. The Company's customer turnover ratio, the
industry benchmark for client satisfaction, has been significantly lower
than the industry average. Domestically, the Company experienced 9.1%
client turnover during 1995, a period in which the industry, the Company
believes, experienced an approximate 20% client turnover rate.
Furthermore, the Company's employee turnover ratio for security guards
has averaged approximately half of what the Company believes to be the
industry average.
- DEVELOP SPECIALIZED SECURITY SERVICES. The Company has identified and
targeted National Accounts and CPOs as its primary growth areas in the
security services business and seeks to expand its market position.
Management believes that the high quality and consistent service of its
National Accounts and CPO programs provide the Company with an
opportunity to establish and enhance long-term relationships with its
clients.
- DEVELOP COMPLEMENTARY SUPPORT SERVICES. The Company will seek to expand
the scope of complementary support services it offers. The Company's
successful identification and development of the correctional business
and the foodservice business has provided it with the experience it
believes will allow it to develop other specialized programs and support
services such as temporary services, building maintenance, supplemental
police services, crash-fire-rescue services, fire protection services,
and airport services.
- GEOGRAPHIC EXPANSION. The Company seeks to increase revenues and enhance
earnings stability by continuing to expand its international presence.
Historical revenue growth has been centered in Central and South America
and, more recently, Western Europe. The Company has also been expanding
into Central and Eastern Europe, the former Soviet Union, the People's
Republic of China and other countries in the Far East in an attempt to
capitalize on recent economic developments and political reforms in these
areas. The Company believes this geographic diversity helps to protect
its revenues and earnings from adverse regional economic and business
cycles. In addition, the Company believes that its far reaching
geographic presence, which includes 50 countries worldwide, provides it
with an advantage when pursuing contracts with multi-national
corporations.
- CORRECTIONAL BUSINESS. WCC's objective is to enhance its position as one
of the leading providers of privatized correctional and detention
services. Key elements of WCC's business strategy include: (i) effective
management of projects; (ii) selective development of new business
opportunities; (iii) selective pursuit of acquisitions; (iv) expansion of
its scope of services; (v) expansion into international markets by
establishing alliances with strategic local partners; and (vi) limiting
capital risk.
- PURSUE SELECTED ACQUISITIONS. In addition to internal growth in the
security-related services business, the Company's growth strategy
includes the selected acquisition of other support service businesses.
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For example, through its January 1996 acquisition of the Correctional
Food Services Division of Service America Corporation, the Company has
established a leading position in the growing correctional foodservice
industry.
MARKETS
SERVICES BUSINESS. The private security-related services industry includes
guard and investigative services, alarm monitoring services, security consulting
services, armored car transport and other security services. According to an
industry study by The Freedonia Group, Inc., dated June 1995 (the "Freedonia
Report"), the total private security-related services industry had revenues of
approximately $16.6 billion in 1994, which are projected to increase to $26.1
billion by the year 2000, a compound annual growth rate of 7.9%. The largest and
most visible component of the industry is the guard and investigative services
component which also accounts for the largest portion of the Company's revenues.
According to the Freedonia Report, the guard and investigative services market,
including security consulting services, had revenues of approximately $11.6
billion in 1994, which are projected to increase to $17.9 billion by the year
2000, a compound annual growth rate of 7.6%.
Guard and investigative services are often characterized within the
industry as either "proprietary" or "contract," depending on the service
provider. Under proprietary arrangements, end users of the services employ,
schedule and manage their own security officers and detectives. In contrast,
contract services are provided to end users pursuant to contracts with
independent security-related service firms such as the Company. The Company
believes that the advantages to clients of using contract security service
providers rather than providing services internally on a proprietary basis are
three-fold: (i) the client may realize cost and administrative savings; (ii) the
client is freed to concentrate on its core competencies; and (iii) the client
may be able to reduce labor management concerns with security-related employees,
who are employed by the Company. According to the Freedonia Report, the total
market for contract guard and investigative services was $10.9 billion in 1994,
representing approximately 66% of the total contract security-related services
market.
In addition to its presence in guard and investigative services, the
Company has identified opportunities in related services markets, such as
correctional food services. Only 10% of prisons and jails in the United States
have privatized their food services, of which the Company's market share is
approximately one-third. The Company believes that trends in privatization will
result in growth opportunities in this market component.
CORRECTIONAL BUSINESS. The trend in the United States and other countries
toward privatization of government services and functions has increased as
governments have faced continuing pressure to control costs and improve the
quality of services. Governmental agencies responsible for correctional and
detention facilities have privatized facilities in an attempt to address these
pressures. During the period from 1984 to 1994, the worldwide number of beds
under management at privatized correctional and detention facilities increased
from 885 to 49,154, with the majority of this growth occurring since 1989.
During 1994, the worldwide number of beds under management or construction at
privatized correctional and detention facilities increased 51.0% to 49,154 from
32,555 in 1993.
WCC markets its services in the United States to federal, state and local
governmental agencies. According to reports on privatization from the Private
Corrections Project Center for Studies in Criminology and Law, University of
Florida (the "Privatization Reports"), 18 states and Puerto Rico had awarded
management contracts to private companies at December 31, 1994. At December 31,
1994, there were a total of 80 facilities with a design capacity of 45,386 beds
privatized in the United States, of which the Company was awarded 19 facilities
with a design capacity of 11,838 beds. Federal agencies have privatized
Immigration and Naturalization Service detention facilities and United States
Marshal detention facilities. State agencies have privatized state prisons,
community corrections facilities, chemical dependency treatment centers,
intermediate sanction facilities, juvenile offender facilities, pre-release
centers, work program facilities and state jail facilities. Local agencies have
privatized city jail facilities and transfer facilities.
In the United Kingdom, the Home Office, the chief British governmental body
responsible for law enforcement, awarded its first contract for a
privately-managed prison in 1991. At December 1, 1995, there
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were a total of six facilities with a design capacity of 3,505 beds privatized
in the United Kingdom, including one managed by a WCC joint venture, with a
design capacity of 850 beds. The Home Office has stated that new correctional
and detention facilities in England and Wales will be privatized. Therefore, WCC
believes that significant growth opportunities exist in the United Kingdom. The
Home Office is also privatizing court escort services. In December 1995, the
Company's joint venture, PPS, was awarded contracts to perform court escort
services in two regions of the United Kingdom.
In Australia, Queensland privatized its first facility in 1989. At December
8, 1995, there were a total of five privatized facilities with a design capacity
of 2,233 beds privatized in Australia, of which WCC currently manages three
facilities with a design capacity of 1,778 beds (which includes the design
capacity of the Sale, Australia facility which is presently under construction).
COMPANY ORGANIZATION
The Company's business can be divided into the Services Business and
Correctional Business. The Services Business, which encompasses all business of
the Domestic Operations Group and the International Group, and all business of
the Government Services Group except for the operations of WCC, provides
security-related and other support services for commercial and governmental
clients. The Correctional Business, which consists exclusively of the business
conducted through WCC, provides correctional and detention facility design,
development and management services to government agencies. Provided below is
financial information for each business segment for Fiscal 1993, Fiscal 1994 and
Fiscal 1995. The following table sets forth the contribution to consolidated
revenues and operating income by each of the Company's business segments. See
Note 14 of Notes to Consolidated Financial Statements (which also includes a
summary of domestic and international operations) included elsewhere in
this Annual Report on Form 10-K.
FISCAL 1993 FISCAL 1994 FISCAL 1995
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BUSINESS SEGMENT AMOUNT % AMOUNT % AMOUNT %
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(in thousands)
Revenues:
Services.............................................. $600,472 91% $642,727 88% $697,301 88%
Correctional.......................................... 58,784 9 84,026 12 99,431 12
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Total Revenues...................................... $659,256 100% $726,753 100% $796,732 100%
Operating Income:
Services.............................................. $ 3,050 68% $ 10,846 71% $ 8,545 54%
Correctional.......................................... 1,446 32 4,446 29 7,229 46
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Operating Income before write-down of
headquarters building............................... 4,496 100% 15,292 100% 15,774 100%
Write-down of headquarters building................... -- (8,700) --
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Total Operating Income.............................. $ 4,496 $ 6,592 $ 15,774
SERVICES BUSINESS
The Services Business is conducted through three separate operating groups:
the Domestic Operations Group, the Government Services Group (excluding WCC) and
the International Group. The following table sets forth the contribution of each
operating group to the total revenues and total operating income of the Services
Business during Fiscal 1993, Fiscal 1994 and Fiscal 1995.
REVENUES
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FISCAL 1993 FISCAL 1994 FISCAL 1995
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OPERATING GROUP AMOUNT % AMOUNT % AMOUNT %
- --------------------------------------------------------- -------- --- -------- --- -------- ---
(in thousands)
Domestic Operations...................................... $336,048 56% $380,941 59% $423,743 61%
Government Services (excluding WCC)...................... 184,915 31 177,613 28 166,035 24
International............................................ 82,759 14 89,900 14 113,205 16
Other.................................................... 1,019 -- 1,222 -- 1,141 --
Inter-Group Revenues..................................... (4,269) (1) (6,949) (1) (6,823) (1)
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Total Services Business Revenues......................... $600,472 100% $642,727 100% $697,301 100%
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OPERATING INCOME
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FISCAL 1993 FISCAL 1994 FISCAL 1995
---------------- ---------------- ----------------
OPERATING GROUP AMOUNT % AMOUNT % AMOUNT %
- --------------------------------------------------------- -------- --- -------- --- -------- ---
(in thousands)
Domestic Operations...................................... $ 10,434 65% $ 12,977 61% 13,501 70%
Government Services (excluding WCC)...................... 3,499 22 5,162 25 2,871 15
International............................................ 2,164 13 2,992 14 2,783 15
-------- --- -------- --- -------- ---
Operating Income Before Corporate Expenses and
Underwriting Losses................................ 16,097 100% 21,131 100% 19,155 100%
Corporate Expenses and Underwriting Losses............... (13,047) (10,285) (10,610)
-------- -------- --------
Total Services Business Operating Income................. $ 3,050 $ 10,846 $ 8,545
DOMESTIC OPERATIONS GROUP. The Domestic Operations Group has historically
provided over half of the Company's consolidated revenues. This group provides
security-related and other support services throughout the United States. The
Domestic Operations Group is subdivided into the following divisions: the
Security Services Division, the Nuclear Division and the Food Services Division.
In conducting its Services Business, the Company has adopted a quality
management approach. General management responsibilities for each operating
group are vested in a small group of managers located at Company headquarters.
Day-to-day management responsibility for each group is vested in field managers
who have primary responsibility for client contact and satisfaction. Field
managers are selected through an intensive screening process and receive what
the Company believes is state-of-the-art training. Supervisory personnel from
Company headquarters periodically visit sites and carefully monitor operating
results.
Security Services Division. Through its Security Services Division, the
Company furnishes security officers (armed and unarmed) to protect its clients'
property against fire, theft, intrusion, vandalism and other physical harm.
Specialized security services offered by the Company include executive
protection, crash-fire-rescue services, fire protection services and airport
services. The Company also provides security consulting services including
security assessment and program development, specialized training programs for
security guards, fire-crash-rescue personnel, and investigative services for
attorneys, financial institutions and retail and industrial businesses.
The Company will attempt to further enhance its market position in the
security-related services industry through internal growth by continuing to: (i)
pursue domestic and international National Accounts; (ii) differentiate its
security-related services within the industry by emphasizing its CPO program;
and (iii) market the Company's services to specialized market niches such as
gated residential communities and hospitals.
The Company intends to emphasize attracting and retaining National Accounts
that require security-related services on a national or regional level at
multiple locations. Such clients include retail chains, banks, manufacturers and
restaurant chains. Management believes that such clients value the flexibility
and service provided by a dedicated single point of contact with the Company
through the National Accounts program.
For its CPO program, the Company recruits law enforcement academy
graduates, former military police, members of elite military units and college
graduates with criminology-related degrees. These recruits are prepared for
critical security assignments after completing a Company training program that
surpasses any state or local requirements for security officer licensing. Only
about 6% of initial applicants for the Company's CPO program are eventually
hired by the Company. CPOs perform such functions as prisoner transportation in
Maryland and Colorado, neighborhood and downtown security in Florida, transit
security in Wisconsin and California, rest-stop security in Florida and other
supplemental law enforcement-related services. Management believes that services
provided by CPOs distinguish the Company's services from those of the
competition by providing highly specialized and trained security personnel
capable of undertaking and accepting responsibilities that are beyond the
capabilities of traditional security guards.
The contracts of the Security Services Division with private industry
usually are for a one year term. Most of these contracts are subject to
termination by either party on 30 days prior notice. Billing rates are based on
a specified rate per hour and generally are subject to renegotiation or
escalation if related costs increase because of changes in minimum wage laws or
certain other events beyond the control of the Company.
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The Company designs and engineers integrated security programs using both
security officers and electronic equipment. These services include planning
master security programs for particular facilities, custom designing security
systems, procuring requisite electronic equipment, managing contracts and
construction, training security personnel, and reviewing and evaluating security
programs. Contracts for these integrated security-related services generally
provide for a fixed fee and are awarded by competitive bidding.
The Company complements security services provided to its clients with
investigative services, such as employee background screening and insurance
fraud investigations. The Company maintains a national research center with the
latest information-gathering technology for public records and a "fraud-waste-
criminal" hotline for employees of clients to report workplace abuses. Clients
ordinarily are charged an hourly rate for investigative services and a flat rate
for background record searches.
Nuclear Division. The Company provides specialized security-related
services for nuclear power generating facilities owned by public and private
utility companies. The Company provides highly trained and qualified security
personnel, emergency planning, electronic detection equipment and integrated
security systems to these utility companies. The terms of contracts entered into
by the Nuclear Division generally are multi-year and include a variety of fee
arrangements. The Company's experience with requirements and standards of the
Nuclear Regulatory Commission ("NRC") enable it to assist customers in ensuring
NRC compliance.
Food Services Division. The Company's correctional foodservice business,
the second largest in the industry, provides over 31 million meals annually to
over 115 jail and prison facilities in 27 states throughout the United States.
Food for regular, therapeutic and religious diets is prepared using conventional
or cook-chill methods. The Company provides a quality assurance program that
encompasses all aspects of the foodservice business. Specifically, the Company
provides product testing and menu development through its staff of nutritional
experts, which includes professional dietitians. Also, to ensure high quality of
service and product, facility audits are conducted on an on-going basis. The
Company bids for foodservice contracts and provides food services on a cost per
meal basis. Complete foodservice management, commissary, laundry and janitorial
programs are available to correctional clients.
On January 5, 1996, the Company acquired the contracts and certain assets
of the Correctional Food Services Division of Service America Corporation, which
had revenues of approximately $41.1 million in 1995. The Company paid a cash
purchase price of approximately $12.4 million.
Only 10% of the correctional foodservice business was privatized as of
December 31, 1995. Consequently, the Company sees substantial opportunity to
expand its operations in the Food Services Division, especially in light of the
recent trend toward privatization of certain governmental services.
Additionally, the correctional foodservice business has high barriers to entry,
including the need for substantial expertise to comply with strict governmental
dietary requirements and the capital resources necessary to finance start-up
costs and maintain inventory levels. The Company believes that its in-house
staff of highly-trained professional dietitians and managers provides it with a
competitive advantage. The Company intends to concentrate on expanding its Food
Services Division through internally-generated growth and selected acquisitions.
GOVERNMENT SERVICES GROUP. The Government Services Group generates
approximately 21% of the Company's consolidated revenues. The Government
Services Group business is conducted primarily through WCC and Wackenhut
Services Inc. ("WSI"). For a discussion of WCC, see "Business -- Correctional
Business." Through WSI, the Government Services Group provides security services
primarily to United States federal government entities and has established a
commercial client base in Australia. Services provided by WSI range from basic
security and administrative support to specialized emergency response teams.
These response teams are staffed with highly trained personnel, many with prior
governmental intelligence experience. These response teams are equipped with
sophisticated weaponry and engage in such specialized activities as aerial
assault and rapelling operations.
In the United States, WSI provides security-related services at 11
sensitive government installations. For example, the Company has held the
operations and maintenance contract for the Savannah River Site in South
Carolina since 1983, the single largest government contract for security-related
services. Since 1990, the
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Company has managed the Rocky Flats Environmental Technology Site near Denver
and since 1964, has managed the Nevada Test Site near Las Vegas. Since 1986, WSI
also has provided security as a sub-contractor at the U.S. Strategic Petroleum
Reserves in Texas and Louisiana. Since 1984, WSI has overseen training and
resource development for the United States Department of Energy at the Central
Training Academy in Albuquerque, New Mexico.
The Company's service contracts with governmental agencies are typically
cost-reimbursable contracts providing the Company the ability to earn award fees
based upon the achievement of performance goals. The Company's service contracts
with governmental agencies are subject to annual governmental appropriations.
Through the Government Services Group the Company also operates its
accelerated access authorization program. This program provides background
investigation and research services in support of individual clearances required
for employment at United States Department of Energy sites. Currently, this
program provides services at two facilities.
INTERNATIONAL GROUP. International Group accounts for approximately 14% of
the Company's consolidated revenues. The International Group's business is
conducted primarily through Wackenhut International, Inc. ("WII").
Since its organization in 1967, WII has grown to include a network of
subsidiaries, partnerships and affiliates in over 50 countries. Management
believes the Company's international presence, through the operations of WII, is
larger than any of its domestic competitors. The Company believes that its risk
exposure in international operations conducted through WII is reduced
substantially by the fact that the vast majority of its international operations
are structured through joint ventures with parties who operate in the given
market. These parties often provide valuable insight into local markets, in
addition to sharing financial responsibility for the venture. WII also provides
a greater variety of services than the Company offers domestically. These
services include, among other things, central station monitoring, armored cars
and janitorial services. The Company believes that this experience will be
valuable in assisting the Company's domestic expansion into new support service
areas.
The Company's goal is to increase its international presence by further
developing existing markets and by expanding into new markets. Most recently,
WII has expanded into Central and Eastern Europe, the former Soviet Union, the
People's Republic of China and other countries in the Far East in an attempt to
capitalize on recent economic developments and political reforms in these areas.
In addition to providing traditional security services to commercial customers
at overseas locations, WII provides security for the U.S. Department of State at
embassies and missions in 23 locations. WII also provides protective services at
NASA space shuttle support sites in Africa. Major competitors of WII include
large United States-based companies with operations overseas, sizable foreign
concerns such as Group 4 and Securitas, and local and regional companies.
CORRECTIONAL BUSINESS
The Company's Correctional Business is conducted through the operations of
WCC. WCC is a leading developer and manager of privatized correctional and
detention facilities in the United States, the United Kingdom and Australia. WCC
was founded in 1984 as a division of the Company to capitalize on emerging
opportunities in the private correctional services market. WCC presently has
contracts to manage 25 correctional and detention facilities with an aggregate
design capacity of 16,653 beds, 17 of which are currently in operations, seven
of which are under development by WCC and one of which is being developed by a
third party. WCC offers governmental agencies a comprehensive range of prison
management services from individual consulting projects to the integrated
design, construction and management of correctional and detention facilities. In
addition to providing the fundamental services relating to the security of
facilities and the detention and care of inmates, WCC has built a reputation as
an effective provider of a wide array of in-facility rehabilitative and
educational programs, such as chemical dependency counseling and treatment,
basic education, and job and life skills training. The Company believes that
WCC's experience in delivering a full
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range of quality privatization services on a cost-effective basis to
governmental agencies provides such agencies strong incentives to choose WCC
when awarding new contracts or renewing existing contracts.
In the United States, there is a growing trend toward privatization of
correctional and detention services as governments have faced continuing
pressure to control costs and improve the quality of services. According to the
Privatization Reports, the design capacity of privately-managed correctional and
detention facilities in the United States has increased significantly over the
last ten years. The majority of this growth has occurred since 1989, as the
number of correctional and detention facilities under contract for private
management increased from 26 facilities with a design capacity of 10,973 beds in
1989 to 88 facilities with a design capacity of 49,154 beds in 1994. Even after
such growth, according to the Privatization Reports, only 3.0% of inmates in
United States correctional and detention facilities were housed in
privately-managed facilities at December 31, 1994. The Company believes that
many factors have contributed to industry growth, the most important of which
are increasing inmate populations and the demonstrated ability of private
entities to design, construct and manage facilities on a cost-effective basis.
International recognition of the benefits of private sector management of
correctional and detention facilities also continues. WCC has contracts to
manage four of the 11 facilities that have been privatized in the United Kingdom
and Australia. In particular, WCC believes that significant growth opportunities
exist in the United Kingdom since the Home Office, the chief British
governmental body responsible for law enforcement, adopted a policy in 1993 to
privatize all new prisons in England and Wales, as well as some existing prisons
and court escort services. In December 1995, WCC entered into two contracts to
provide court escort services in the West Midlands and Southeast Areas of
England, commencing in May 1996. Under court escort contracts, a private
company on behalf of a governmental agency, transports prisoners between
prisons, police stations and courts and is responsible for the custody of such
prisoners during transportation and court appearances.
WCC's objective is to enhance its position as one of the leading developers
and managers of privatized correctional and detention facilities. Key elements
of WCC's business strategy include: (i) effective management of projects; (ii)
selective development of new business opportunities; (iii) aggressive pursuit of
acquisitions; (iv) expanded scope of services; (v) expansion into international
markets by establishing alliances with strategic local partners; and (vi)
limiting capital risk.
In September 1994, WCC completed an initial public offering ("IPO") in
which it sold 2,185,000 shares of common stock at an offering price of $9 per
share. Following the completion of the IPO, the Company owned approximately
73.3% of the issued and outstanding shares of common stock of WCC. In January
1996, WCC completed a subsequent public offering of 2,300,000 shares of common
stock at an offering price of $24 per share, which resulted in the Company
owning approximately 55% of the issued and outstanding shares of common stock of
WCC.
CUSTOMERS
During Fiscal 1995, the Company provided services to more than 14,000
customers. The Company's largest customer was the United States Department of
Energy, which accounted for approximately 17% of the Company's consolidated
revenue in Fiscal 1995. The service contracts at the Savannah River site (8%)
and the Rocky Flats Plant (5%) are the largest of the Company's contracts with
the United States Department of Energy. Contracts with governmental agencies of
the State of Texas accounted for 37% and 41% of WCC's revenues in Fiscal 1995
and Fiscal 1994, respectively. Contracts with the New South Wales Department of
Corrective Services accounted for 13% of WCC's revenues in Fiscal 1995.
Contracts with the Queensland Corrective Services Commission accounted for 13%
of WCC's revenues in Fiscal 1995. Contracts with the Louisiana Department of
Public Safety and Corrections accounted for 11% and 13% of WCC's revenues in
Fiscal 1995 and Fiscal 1994, respectively.
COMPETITION
The Company is the third largest security and protective services
organization in the United States and a leading provider of such services
worldwide. The Company competes domestically and internationally with
10
Borg-Warner Security Company and Pinkerton's, Inc. The Company also competes
with numerous local and regional security services companies. The top five
providers of services similar to those provided by the Company account for less
than 25% of the security-services market in the United States. Competition in
the security-related and other support services business is intense and is based
primarily on price in relation to quality of service, the scope of services
performed, and the extent of employee training and supervision. However,
potential competitors can enter the security-related and other support services
business without substantial capital investment or expense.
WCC competes primarily on the basis of the quality and range of services
offered, and its experience and reputation, both domestically and
internationally, in the design and management of facilities. WCC competes with a
number of companies domestically and internationally, such as Corrections
Corporation of America, Esmor Correctional Services, Inc., Group 4 International
Corrections Service, Securicor Group, U.K. Detention Services, Ltd., and United
States Corrections Corp. Some of the competitors are larger and have greater
resources than WCC. WCC also competes on a localized basis in some markets with
small companies that may have better knowledge of the local conditions and may
be better able to gain political and public acceptance. Potential competitors
can enter the correctional business without substantial capital investment or
experience. In addition, in some markets WCC competes with governmental agencies
that are responsible for the development and management of correctional
facilities.
EMPLOYEES
The Company's principal business is labor intensive, and is affected
substantially by the availability of qualified personnel and the cost of labor.
As of March 28, 1996, the Company had over 45,000 full and part-time employees,
most of whom are security officers and other personnel providing physical
security services. The Company has not experienced any material difficulty in
employing sufficient numbers of suitable security officers. Security officers
and other personnel supplied by the Company to its clients are employees of the
Company, even though stationed regularly at a client's premises. A small
percentage of the employees of the Company are covered by collective bargaining
agreements. Relations with employees have been generally satisfactory. At March
28, 1996, WCC had 3,038 full-time employees and 78 part-time employees.
Employees at four of WCC's facilities are unionized.
BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS
The Company is subject to numerous city, county, and state firearm and
occupational licensing laws that apply to security officers and private
investigators. Many states have laws requiring training and registration of
security officers, regulating the use of badges and uniforms, and imposing
minimum bond, surety, or insurance standards. Many foreign countries have laws
that restrict the Company's ability to render certain services, including laws
prohibiting security-related services or limiting foreign investment.
The industry in which WCC operates is subject to national, federal, state
and local regulations in the United States, United Kingdom and Australia which
are administered by a variety of regulatory authorities. Generally, prospective
providers of correctional services must be able to detail their readiness to,
and must, comply with a variety of applicable state and local regulations,
including education, health care and safety regulations. WCC's contracts
frequently include extensive reporting requirements and require supervision and
on-site monitoring by representatives of contracting governmental agencies.
WCC's Kyle New Vision Chemical Dependency Treatment Center is licensed by the
Texas Department of Criminal Justice to provide substance abuse treatment.
Certain states, such as Florida and Texas, deem prison guards to be peace
officers and require WCC personnel to be licensed and may make them subject to
background investigation. State law also typically requires corrections officers
to meet certain training standards.
In addition, many state and local governments are required to enter into a
competitive bidding procedure before awarding contracts for products or
services. The laws of certain jurisdictions may also require the Company to
award subcontracts on a competitive basis or to subcontract with businesses
owned by women or members of minority groups.
11
The failure to comply with applicable laws, rules or regulations or the
loss of any required license could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
the current and future operations of the Company may be subject to additional
regulations as a result of, among other factors, new statutes and regulations
and changes in the manner in which existing statutes and regulations are or may
be interpreted or applied. Any such additional regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company may, under certain circumstances, be responsible for the
actions of its employees and agents. Under the common law of negligence in many
states, the Company can be held vicariously liable for wrongful acts or
omissions of its agents or employees performed in the course and within the
scope of their agency or employment. In addition, some states have statutes that
expressly impose on the Company legal responsibility for the conduct of its
agents or employees. The nature of the security-related services provided by the
Company (such as armed security officers and fire rescue) may expose it to
greater risks of liability for employee acts or omissions than are posed to
other businesses. The Company maintains public liability insurance to mitigate
against this exposure, although the laws of many states limit or prohibit
insurance coverage of liability for punitive damages arising from willful,
wanton or grossly negligent conduct.
12
ITEM 2. PROPERTIES
The Company relocated its executive offices to The Wackenhut Center, a
newly constructed building located at 4200 Wackenhut Drive #100, Palm Beach
Gardens, Florida, in March 1996. The Wackenhut Center contains approximately
90,500 square feet and is leased from P.G.A. Professional Center, Ltd., for an
initial term of 15 years, with consecutive options to extend the term of the
lease for three additional five year periods. This lease requires annual rental
payments in the amount of $1,764,750 with no escalation during the initial 15
year term.
WCC owns a 66,000 square foot building in Aurora, Colorado, which is
operated by WCC as a detention center under a contract with the United States
Government. The Company owns a 15,000 square foot warehouse building in Miami,
Florida. In addition, the Company owns two buildings in Ecuador and one each in
the Dominican Republic, Costa Rica and Puerto Rico that are used for the
operations of its foreign subsidiaries in those countries. All other offices of
the Company are leased. The aggregate annual rent for all non-cancelable
operating leases of office space, automobiles, data processing and other
equipment is approximately $6,994,000. The Company owns substantially all
uniforms, firearms, and accessories used by its security officers.
ITEM 3. LEGAL PROCEEDINGS
On March 29, 1996, the Company settled a lawsuit alleging tortious
interference with contract and other related torts by the Company ("Essex
Company vs. Wackenhut Services, Inc.," Case No. 94-908 JC/DJS United States
District Court for the District of New Mexico). The reserves previously provided
by the Company are adequate to cover the exposure in this matter.
The Company is presently, and is from time to time, subject to claims
arising in the ordinary course of its business. In certain of such actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. In the opinion of management, the various asserted claims and
litigation in which the Company is currently involved will not materially affect
its financial position or future operating results, although no assurance can be
given with respect to the ultimate outcome for any such claim or litigation. The
foregoing opinion is based in part upon the fact that the Company believes it
has established adequate reserves for litigation contingencies in its financial
statements in accordance with generally accepted accounting principles.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
GEORGE R. WACKENHUT has been Chairman of the Board and Chief Executive
Officer of the Company since its inception. He was President of the Company
from the time it was founded until April 26, 1986. He formerly was a Special
Agent of the Federal Bureau of Investigation. Mr. Wackenhut is also a director
of WCC. Mr. Wackenhut is on the Dean's Advisory Board of the University of
Miami School of Business. He is on the National Council of Trustees, Freedoms
Foundation at Valley Forge, and the President's Advisory Council for the Small
Business Administration, Region IV. He is a past participant in the Florida
Governor's War on Crime and a past member of the Law Enforcement Council,
National Council on Crime and Delinquency, and the Board of Visitors of the
U.S. Army Military Police School and the Board of Directors of SSJ Medical
Development, Inc., Miami, Florida. Mr. Wackenhut is also a member of the
American Society for Industrial Security. He was a recipient in 1990 of the
Labor Order of Merit, First Class, from the government of Venezuela.
Mr. Wackenhut received his B.S. degree from the University of Hawaii and his
M.Ed. degree from Johns Hopkins University. Mr. Wackenhut is married to
Ruth J. Wackenhut, Secretary of the Company. His son, Richard R. Wackenhut,
is President and Chief Operating Officer of the Company and also a Director.
RICHARD R. WACKENHUT has been President and Chief Operating Officer of the
Company and a member of the Board of Directors since April 26, 1986, and was
formerly Senior Vice President of Operations from 1983 to 1986. He was Manager
of Physical Security from 1973 to 1974. He also served as Manager, Development
at the Company's Headquarters from 1974 to 1976; Area Manager, Columbia, South
Carolina, from 1976 to 1977; District Manager, Columbia, South Carolina from
1977 to 1979; Director, Physical Security Division at Corporate Headquarters
from 1979 to 1980; Vice President, Operations from 1981 to 1982; and Senior Vice
President, Domestic Operations from 1982 to 1983. Mr. Wackenhut is Director of
Wackenhut del Ecuador, S.A.; Wackenhut UK Limited; Wackenhut Dominicana, S.A.;
and several domestic subsidiaries of the Company, including WCC. He is a member
of the St. Thomas University Advisory Board. He is also a member of the American
Society for Industrial Security, the International Association of Chiefs of
Police and the International Security Management Association. He received his
B.A. degree from The Citadel in 1969 and completed the Advanced Management
Program of the Harvard University School of
13
Business Administration in 1987. Mr. Wackenhut is the son of George R.
Wackenhut, Chairman of the Board and Chief Executive Officer of the Company, and
Ruth J. Wackenhut, Secretary of the Company.
ALAN B. BERNSTEIN has been Executive Vice President of the Company and
President, Domestic Operations Group since April 27, 1991. Prior to that, Mr.
Bernstein was Senior Vice President, Domestic Operations from 1986 to 1991. He
has been employed by the Company since 1976, except for a brief absence during
1982 when he was a partner in a family-owned security alarm business in New York
State. Mr. Bernstein has served in the following positions with the Company or
its subsidiaries: Vice President of Domestic Operations, 1985; Vice President,
Corporate Business Development, 1984; Acting President, Wackenhut Systems
Corporation, 1983; Director of Integrated Guard Security, 1981; and Manager of
Wackenhut Electronic Systems Corporation (Miami) from 1976 to 1981. He received
his B.S.E.E. degree from the University of Rochester, and an M.B.A. degree from
Cornell University.
FERNANDO CARRIZOSA has been Senior Vice President, International Operations
since January 28, 1989. Mr. Carrizosa was Vice President of International
Operations from January 31, 1988 to January 28, 1989. He joined Wackenhut de
Colombia in 1968 as Manager of Investigations. He was promoted to Manager of
Human Resources, and then to Assistant to the President in 1974. He moved to
Headquarters as a trainee in 1974, and was promoted to Manager of Latin American
Operations in 1980, a capacity in which he served until 1983. Mr. Carrizosa also
served as Executive Vice President of Wackenhut International, 1983 to 1984 and
President of Wackenhut International, 1984 to 1988. He is a Director of several
subsidiaries and affiliates of the Company. He received a B.B.A. from
Universidad Javeriana in Colombia, and an M.B.A. with honors from Florida
International University in 1976.
TIMOTHY P. COLE has been Executive Vice President and President, Government
Services Group since April 27, 1991. Mr. Cole was Senior Vice President
Government Services from 1989 to 1991. He joined the Company as President of
Wackenhut Services, Inc. in 1988. Mr. Cole was associated with the Martin
Marietta Corporation from 1982 to 1988 and served in various capacities,
including Program Director and Director of Subcontracts. He received his B.B.A.
degree from the University of Oklahoma and his M.B.A. from Pepperdine
University. Mr. Cole completed the Advanced Management Program of the Harvard
University Graduate School of Business Administration in 1987. Mr. Cole is also
the Chairman of the Board of Directors of WCC.
ROBERT C. KNEIP has been the Senior Vice President, Corporate Planning and
Development of the Company since 1988. He joined the Company in 1982. Mr. Kneip
has held various positions in the Company including Director, Power Generating
Services; Director, Contracts Management; Vice President, Contracts Management;
and Vice President, Planning and Development. Prior to joining the Company, Mr.
Kneip was employed by the Atomic Energy Commission, the Nuclear Regulatory
Commission and Dravo Utility Constructors, Inc. He received a B.A. (Honors) from
the University of Iowa, and an M.A. and Ph.D. from Tulane University.
JAMES P. ROWAN is Vice President and General Counsel, and Assistant
Secretary of the Company. He joined the Company in 1979 as Assistant General
Counsel, became Associate General Counsel in 1982 and a Vice President in 1986.
He is an attorney admitted to the Bar of the States of Indiana, Iowa and
Michigan. He holds degrees of B.S.C. (Accounting) and J.D. (Law) from the
University of Iowa.
DANIEL E. MASON has been Vice President and Chief Financial Officer,
Domestic Operations Group since June 1992. Prior to that he was Controller,
Domestic Operations, since joining the Company in June 1990. Mr. Mason came to
the Company from Coastal Corporation, where he was Corporate Controller of its
Miami-based, refined products marketing subsidiary, Coastal Fuels Marketing,
Inc. During his eleven years at Coastal, he held various positions including
Manager of Accounting Services, Director of Planning and Analysis, and Division
Controller, Retail Operations. Mr. Mason received his B.S. in Accounting from
Florida International University and an M.B.A. from the University of Miami.
RUTH J. WACKENHUT has been Secretary of the Company since 1958. She is
married to George R. Wackenhut, Chairman of the Board and Chief Executive
Officer of the Company and her son, Richard R. Wackenhut, is President and
Chief Operating Officer of the Company and also a director.
14
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On October 31, 1995, the Company declared a 25% stock dividend, effected in
the form of a stock split (the 25% stock dividend), paid on January 9, 1996 to
stockholders of record at the close of business on December 22, 1995. The 25%
stock dividend was paid in Series B Common Stock to holders of the
Company's Series A Common Stock and Series B Common Stock. The accompanying
Consolidated Financial Statements have been retroactively restated to reflect
the 25% stock dividend.
Regular quarterly dividends of $.0575 and $.0600 per share (adjusted for the
25% stock dividend) on both outstanding Series A Common Stock and Series B
Common Stock were declared and paid by the Company for each of the four
quarters of fiscal years ended January 1, 1995 and December 31, 1995,
respectively. The Company intends to declare future quarterly dividends on
Series A Common Stock and Series B Common Stock, depending on its earnings,
financial condition, capital requirements and other relevant factors.
The ensuing table shows the high and low prices for the Company's Series A
Common Stock and Series B Common Stock, as reported on the New York Stock
Exchange, for each quarterly period during fiscal years ended January 1, 1995
and December 31, 1995, respectively. The prices shown in the table have been
rounded to the nearest 1/8th and reflect the 25% stock dividend. The
approximate number of record holders of Series A Common Stock and Series B
Common Stock, as of February 22, 1996 was 876 and 943, respectively.
Fiscal 1994 Fiscal 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Series A Series B Series A Series B
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter High Low High Low High Low High Low
- ------------------------------------------------------------------------------------------------------------------------------------
First $ 9-1/4 $ 7-7/8 $ 7-3/8 $6-3/8 $ 14 $ 8-3/8 $12-3/4 $ 8-1/2
Second 9-3/4 8-1/8 7-1/2 6 15-1/4 10-7/8 12-3/8 9
Third 10-3/8 8-3/4 9 6-5/8 12-3/4 11-1/8 11-1/4 9-7/8
Fourth 10-1/4 7-1/4 8-7/8 6-7/8 14-1/2 12 12-3/4 10-3/8
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the Company set forth below with respect to
the Statement of Income Data and Balance Sheet Data for and at the end of the
Company's fiscal years ended December 29, 1991 ("Fiscal 1991"), January 3, 1993
("Fiscal 1992"), January 2, 1994 ("Fiscal 1993"), January 1, 1995 ("Fiscal
1994") and December 31, 1995 ("Fiscal 1995") are derived from the
Consolidated Financial Statements of the Company. The Selected Financial
Data should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Annual Report on Form 10-K.
FISCAL(1)
--------------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
STATEMENT OF INCOME DATA(2):
Revenues................................................. $570,411 $615,378 $659,256 $726,753 $796,732
Non-recurring charges.................................... -- -- (1,726) -- --
Write-down of headquarters building...................... -- -- -- (8,700)(3) --
Operating income......................................... 13,859 3,367 4,496 6,592 15,774
Income before income taxes............................... 11,867 1,588 3,371 3,002 13,733
Provision for income taxes............................... 4,378 834 485 17 4,742
Income before extraordinary charge and
cumulative effect of accounting change................. 7,721 1,137 3,609 2,272 7,260
Extraordinary charge -- early extinguishment of debt,
net of income taxes.................................... -- -- (1,444) (887) --
Cumulative effect of accounting change for income
taxes.................................................. -- 7,370 -- -- --
Net income............................................... 7,721 8,507 2,165 1,385 7,260
======== ======== ======== ======== ========
Income per share before extraordinary charge and
cumulative effect of accounting change................. $ .64 $ .09 $ .30 $ .19 $ .60
Extraordinary charge per share -- early extinguishment of
debt,
net of income taxes.................................... -- -- (.12) (.08) --
Cumulative effect per share of accounting change for
income taxes........................................... -- .61 -- -- --
-------- -------- -------- -------- --------
Net income per share..................................... $ .64 $ .70 $ .18 $ .11 $ .60
Total dividends per share................................ $ .19 $ .20 $ .23 $ .23 $ .24
END OF YEAR
------------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................................ $ 48,599 $ 56,932 $ 56,163 $ 75,589 $ 49,638
Total assets............................................... 172,093 192,236 211,297 212,757 197,927
Current portion of long-term debt.......................... 730 730 10,456 -- 11
Long-term debt............................................. 46,920 63,260 57,484 38,991 5,376
Total debt................................................. 47,650 63,990 67,940 42,756 6,502
Shareholders' equity....................................... 42,847 47,587 47,362 57,459 62,904
- ---------------
(1) The Company's fiscal year ends on the Sunday closest to the calendar year
end. Fiscal 1991, Fiscal 1993, Fiscal 1994 and Fiscal 1995 each included 52
weeks. Fiscal 1992 included 53 weeks.
(2) Per share amounts are restated to reflect a 100% stock dividend declared in
Fiscal 1992, a 25% stock dividend declared during Fiscal 1994 and a 25%
stock dividend declared during Fiscal 1995 (in each case, effected in the
form of a stock split).
(3) In Fiscal 1994, the Company recognized a one-time operating expense of
$8,700,000 in connection with the writedown of its former headquarters
building.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in 1954, the Company has become a leading international
provider of security-related and other support services and a leading developer
and manager of privatized correctional and detention facilities. The Company
provides security-related and other support services through the Services
Business and correctional services through the Correctional Business. Through
the Services Business, the Company provides physical security services, food
services and other related services to commercial and governmental customers.
Through the Correctional Business, the Company provides correctional and
detention facility design, development and management services to government
agencies. The Company is managed through three operating groups: the Domestic
Operations Group, the Government Services Group and the International Group. The
Services Business is operated through all three groups, while the Correctional
Business is operated by the Government Services Group exclusively through the
Company's 55%-owned WCC subsidiary. For presentation purposes, the financial
results of WCC are described separately from the results of the Government
Services Group's other operations.
From a well established base in its core security-related services
business, the Company has expanded into a range of other support services in
response to a trend toward privatization of governmental services and
outsourcing by commercial customers of non-core support functions. For example,
in 1984 the Company expanded into the Correctional Business which in Fiscal 1995
increased its revenues by 18.3% and operating income by 62.6% from Fiscal 1994.
Moreover, in Fiscal 1992 the Company entered the foodservice business for
correctional institutions, which in Fiscal 1995 generated $34.7 million in
revenues. The Company continues to expand its market presence in these areas
and, consistent with that strategy, acquired the contracts and certain assets of
the Correctional Food Service Division of Service America Corporation in early
1996. The Company continues to explore and may selectively invest in other
service businesses such as temporary services, building maintenance,
supplemental police services, crash-fire-rescue services, fire protection
services, and airport services.
During Fiscal 1995, the Company continued to achieve sustained growth.
Between Fiscal 1991 and Fiscal 1995, the Company's consolidated revenues
increased at a compound annual growth rate of 8.7%, including a 9.6% increase
from Fiscal 1994 to Fiscal 1995.
The Domestic Operations Group lead the growth in revenues of the Services
Business with an increase of 11.2% to $423.7 million in Fiscal 1995 from $380.9
million in Fiscal 1994, which was attributable to: (i) a significant increase in
revenues derived from the provision of core security-related services to
National Accounts; (ii) an increase in its CPO business; and (iii) expansion of
market share in the correctional foodservice business.
The International Group also achieved significant growth, with revenues
increasing 25.9% to $113.2 million in Fiscal 1995 from $89.9 million in Fiscal
1994. The increase in revenues was principally attributable to steady
geographical expansion, including expansion in the Central and South American
and European operations.
Government Services Group (excluding WCC) revenues decreased 6.5% to $166.0
million in Fiscal 1995 from $177.6 million in Fiscal 1994, primarily as a result
of reductions in government funding for security at United States Department of
Energy facilities. Contracts with the Department of Energy are typically cost
reimbursable contracts for which the Company can earn award fees based on
performance factors. Although award fee pools available to the Company have not
been reduced significantly, further reductions in revenues could impact profit
contribution from these contracts.
During Fiscal 1995, WCC continued to generate sustained growth. Between
Fiscal 1991 and Fiscal 1995, WCC generated compound annual revenue growth of
27.3%, which included an 18.3% increase in Fiscal 1995. Operating income
increased 62.6% in Fiscal 1995, and has grown from $1.7 million in Fiscal 1991
to $7.2 million in Fiscal 1995. Revenue and operating income increases reflect
an increase from eight facilities
16
and 1.0 million compensated resident days in Fiscal 1991 to 16 facilities and
2.4 million compensated resident days in Fiscal 1995.
In December 1995, the Company sold its headquarters building in Coral
Gables, Florida, and subsequently relocated to a newly constructed, leased
building in Palm Beach Gardens, Florida. The move to a more efficient building
in a less expensive location should result in reduced annual operating costs.
However, a one-time $750,000 charge against first quarter 1996 earnings is
anticipated for the cost of the move.
RESULTS OF OPERATIONS
The table below summarizes results of operations for the Company's two
business segments by organizational group.
% CHANGE % CHANGE
FISCAL VS. FISCAL FISCAL VS. FISCAL FISCAL
1993 1993 1994 1994 1995
-------- ---------- -------- ---------- --------
(IN THOUSANDS)
REVENUES:
Services Business
Domestic Operations Group................................... $336,048 13.4% $380,941 11.2% $423,743
Government Services Group (excluding WCC)................... 184,915 (3.9) 177,613 (6.5) 166,035
International Group......................................... 82,759 8.6 89,900 25.9 113,205
Other....................................................... 1,019 19.9 1,222 (6.6) 1,141
Inter-Group Revenues........................................ (4,269) -- (6,949) -- (6,823)
-------- ----- -------- ----- --------
600,472 7.0 642,727 8.5 697,301
Correctional Business -- WCC.................................. 58,784 42.9 84,026 18.3 99,431
-------- ----- -------- ----- --------
Consolidated Revenues......................................... $659,256 10.2% $726,753 9.6% $796,732
-------- ----- -------- ----- --------
OPERATING INCOME:
Services Business
Domestic Operations Group................................... $ 10,434 24.4% $ 12,977 4.0% $ 13,501
Government Services Group (excluding WCC)................... 3,499 47.5 5,162 (44.4) 2,871
International Group......................................... 2,164 38.3 2,992 (7.0) 2,783
Corporate Expenses and Underwriting Losses.................. (13,047) 21.2 (10,285) (3.2) (10,610)
-------- ----- -------- ----- --------
3,050 255.6 10,846 (21.2) 8,545
Correctional Business -- WCC.................................. 1,446 207.5 4,446 62.6 7,229
Write-down of Headquarters Building........................... -- -- (8,700) -- --
-------- ----- -------- ----- --------
Consolidated Operating Income................................. $ 4,496 46.6% $ 6,592 139.3% $ 15,774
-------- ----- -------- ----- --------
COMPARISON OF FISCAL 1995 TO FISCAL 1994
REVENUES
Consolidated revenues increased 9.6% to $796.7 million in Fiscal 1995 from
$726.7 million in Fiscal 1994.
SERVICES BUSINESS
Services Business revenues increased 8.5% to $697.3 million in Fiscal 1995
from $642.7 million in Fiscal 1994.
Domestic Operations Group. Domestic Operations Group revenues increased
11.2% to $423.7 million in Fiscal 1995 from $380.9 million in Fiscal 1994.
Within the Domestic Operations Group, revenues from the Security Services
Division increased 11.2% to $336.2 million in Fiscal 1995 from $302.4 million in
Fiscal 1994 as a result of: (i) a significant increase in revenues derived from
the provision of security-related services to National Accounts; and (ii) an
increase in its CPO business reflecting the growing demand for the specialized
services offered in this area. Revenues from the Food Services Division
increased 39.6% to $34.7 million in Fiscal 1995 from $24.9 million in Fiscal
1994, reflecting the Company's increased presence in the growing correctional
foodservice market. Revenues from the Nuclear Division remained relatively
unchanged from
17
Fiscal 1994 to Fiscal 1995, reflecting the maturation of the nuclear power
industry and limited opportunities for growth in this market.
Government Services Group. Government Services Group revenues (excluding
WCC) decreased 6.5% to $166.0 million in Fiscal 1995 from $177.6 million in
Fiscal 1994. Within the Government Services Group, revenues of Wackenhut
Services, Inc. decreased 5.6% to $146.7 million in Fiscal 1995 from $155.5
million in Fiscal 1994, principally due to reductions in government funding for
security at United States Department of Energy facilities. Management believes
this reduction in funding will continue to affect Government Services Group
revenues and operating income. Revenues of Wackenhut Educational Services, Inc.
decreased 40.3% to $13.1 million in Fiscal 1995 from $22.0 million in Fiscal
1994, principally due to the loss of two contracts. The decrease in Government
Services Group revenues in Fiscal 1995 was partially offset by revenues of $6.1
million generated by the Wackenhut of Australia subsidiary, which was acquired
in Fiscal 1995, and provides security-related services.
International Group. International Group revenues increased 25.9% to
$113.2 million in Fiscal 1995 from $89.9 million in Fiscal 1994, as this group
continued to experience steady geographical expansion. The increase in revenues
was principally attributable to: (i) increased revenues from Central and South
American operations, where revenues increased 21.2% to $83.4 million in Fiscal
1995 from $68.8 million in Fiscal 1994; and (ii) increased revenues from
European operations, which increased 40.0% to $15.0 million in Fiscal 1995 from
$10.7 million in Fiscal 1994. The increase in international revenues reflects
returns on past investment in new markets as well as continuing increased demand
for physical security services in those geographic regions serviced by the
Company.
CORRECTIONAL BUSINESS
The Correctional Business revenues increased 18.3% to $99.4 million in
Fiscal 1995 from $84.0 million in Fiscal 1994. Of the increase in Fiscal 1995
revenues, $11.9 million was generated by domestic operations and $3.5 million
was generated by operations in Australia.
The increase in domestic revenues of WCC in Fiscal 1995 was primarily
attributable to an increase in compensated resident days to 1.9 million in
Fiscal 1995 from 1.7 million in Fiscal 1994, reflecting: (i) increased occupancy
at two facilities opened in late 1994; (ii) the opening of two facilities in the
second half of 1995; and (iii) the expansion of one facility in 1995. The
increase in domestic revenues also reflected management fees generated from the
development of four facilities.
The increase in international revenues of WCC in Fiscal 1995 was primarily
attributable to an increase in compensated resident days to 420,000 in Fiscal
1995 from 371,000 in Fiscal 1994, reflecting the expansion of one facility in
Australia, and an increase in management fees generated from the development of
another facility in Australia.
In Fiscal 1995, "pass-through" revenues and expenses were reclassified to
exclude amounts related to construction and design activities, consistent with
industry practice. As a result, only management fees for development and design
services are included in revenues. All prior periods have been restated to
reflect this reclassification. See Note 1 of Notes to the Consolidated Financial
Statements.
OPERATING INCOME
Consolidated operating income increased to $15.8 million in Fiscal 1995
from $6.6 million in Fiscal 1994, which included an $8.7 million write-down of
the headquarters building in Fiscal 1994.
SERVICES BUSINESS
Operating income from the Services Business decreased 21.2% to $8.5 million
in Fiscal 1995 from $10.8 million in Fiscal 1994.
Domestic Operations Group. Domestic Operations Group operating income
increased 4.0% to $13.5 million in Fiscal 1995 from $13.0 million in Fiscal
1994. The growth in operating income within the
18
Domestic Operations Group was a result of: (i) continued strong performance in
the core security-related services business, particularly in National Accounts;
(ii) increased demand for Custom Protection Officers; (iii) continued
development of the foodservice business.
Government Services Group. Government Services Group (excluding WCC)
operating income decreased 44.4% to $2.9 million in Fiscal 1995 from $5.2
million in Fiscal 1994, reflecting: (i) lower than expected ratings at one
facility, resulting in a decrease in award fees paid to the Company by the
United States Department of Energy for such facility; and (ii) the termination
of two contracts in Wackenhut Educational Services, Inc.
International Group. International Group operating income decreased 7.0%
to $2.8 million in Fiscal 1995 from $3.0 million in Fiscal 1994. The principal
contribution to operating income of the International Group was made by
subsidiaries in Central and South America and Europe. However, development costs
in the Far East and Africa substantially offset gains in Central and South
America and Europe.
CORRECTIONAL BUSINESS
WCC operating income increased 62.6% to $7.2 million in Fiscal 1995 from
$4.4 million in Fiscal 1994.
WCC domestic operating income increased 112.3% to $4.5 million in Fiscal
1995 from $2.1 million in Fiscal 1994, reflecting: (i) increased occupancy at
two facilities opened in late Fiscal 1994; (ii) the opening of two facilities in
the second half of Fiscal 1995; and (iii) the expansion of one facility in
Fiscal 1995. The increase in domestic operating income also reflected management
fees generated from the development of four facilities.
WCC international operating income increased 17.3% to $2.7 million in
Fiscal 1995 from $2.3 million in Fiscal 1994. The increase in operating income
reflects the expansion of one facility in Australia and management fees
generated from the development of another facility in Australia.
OTHER EXPENSE
Other expense decreased 43.2% to $2.0 million in 1995 from $3.6 million in
1994, principally due to a decrease of $1.7 million in interest expense
attributable to a reduction in funding requirements. In addition there was a
decrease of $199,000 in interest and investment income which was principally due
to a decrease in fixed income securities investment holdings of the Company's
captive reinsurance subsidiary. The proceeds from the Company's sales of these
securities were used primarily to reduce the Company's debt.
INCOME BEFORE INCOME TAXES
Income before income taxes increased to $13.7 million in Fiscal 1995 from
$3.0 million in Fiscal 1994, which included an $8.7 million write-down of the
headquarters building in Fiscal 1994.
The combined federal and state effective income tax rate was 34.5% for
Fiscal 1995 and 0.6% for Fiscal 1994, respectively. The lower effective rate in
Fiscal 1994 primarily reflected reductions in the statutory rate attributable to
tax exempt interest income, targeted job credits and the utilization of capital
loss carryforwards which was significantly higher in 1994.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $2.4 million
in Fiscal 1995 from $1.0 million in Fiscal 1994, reflecting the increase in
earnings of WCC and other majority-owned international subsidiaries of the
Company.
19
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased 120.6%
to $631,000 in Fiscal 1995 from $286,000 in Fiscal 1994 primarily resulting from
increased earnings of security services affiliates in South America and Europe
and decreased losses from WCC's joint venture in the United Kingdom.
EXTRAORDINARY CHARGE
In Fiscal 1994, the Company prepaid a note to an insurance company and
recognized an extraordinary charge of $887,000 (net of income taxes) for the
early extinguishment of such debt.
NET INCOME
Net income increased to $7.3 million in Fiscal 1995, or $0.60 per share,
compared to $1.4 million, or $0.11 per share in Fiscal 1994, after the $887,000
extraordinary charge and the write-down of the headquarters building ($5.4
million net of income taxes).
COMPARISON OF FISCAL 1994 TO FISCAL 1993
REVENUES
Consolidated revenues increased 10.2% to $726.7 million in Fiscal 1994 from
$659.2 million in Fiscal 1993.
SERVICES BUSINESS
Revenues from the Services Business increased 7.0% to $642.7 million in
Fiscal 1994 from $600.5 million in Fiscal 1993.
Domestic Operations Group. Domestic Operations Group revenues increased
13.4% to $380.9 million in Fiscal 1994 from $336.0 million in Fiscal 1993.
Revenues from the Security Services Division of the Domestic Operations Group
contributed $37.4 million to this increase in Fiscal 1994 largely due to the
success in obtaining National Accounts with major corporations in the second
half of Fiscal 1993 and in Fiscal 1994. In Fiscal 1994 the Company was also
awarded a $34.7 million contract with the State of Hawaii to supply security
services at eight airports. CPO revenues increased $14.3 million (35.9%) over
Fiscal 1993. Revenues of the Nuclear Division remained essentially flat in
Fiscal 1994, reflecting the maturation of the nuclear power industry and limited
opportunities for growth in this market. Food Services Division revenues
increased 36.0% to $24.9 million in Fiscal 1994 from $18.3 million in Fiscal
1993.
Government Services Group. Government Services Group revenues (excluding
WCC) decreased 3.9% to $177.6 million in Fiscal 1994 from $184.9 million in
Fiscal 1993. Revenues of Wackenhut Services, Inc. decreased $8.1 million as a
result of reductions in manpower requirements by the Department of Energy. The
decrease in the Government Services Group revenues in Fiscal 1994 was partially
offset by an increase at Wackenhut Educational Services, Inc. of $3.4 million
(18.4%) over Fiscal 1993.
International Group. The International Group revenues increased 8.6% to
$89.9 million in Fiscal 1994 from $82.8 million in Fiscal 1993 primarily due to
growth in Central and South America.
CORRECTIONAL BUSINESS
Correctional Business revenues increased 42.9% to $84.0 million in Fiscal
1994 from $58.8 million in Fiscal 1993. This increase was primarily generated by
international operations due to the consolidation of Australasian Correctional
Management Pty Limited ("ACM") and the opening of two facilities in Fiscal 1994.
20
OPERATING INCOME
Consolidated operating income, which included an $8.7 million write-down of
the headquarters building in Fiscal 1994, increased to $6.6 million in Fiscal
1994 from $4.5 million in Fiscal 1993.
SERVICES BUSINESS
Operating income from the Services Business increased to $10.8 million in
Fiscal 1994 from $3.0 million in Fiscal 1993.
Domestic Operations Group. Domestic Operations Group operating income
increased 24.4% to $13.0 million in Fiscal 1994 from $10.4 million in Fiscal
1993. This increase was principally due to improvements in the profit
contribution of the core security-related services business.
Government Services Group. Government Services Group operating income
(excluding WCC) increased 47.5% to $5.2 million in Fiscal 1994 from $3.5 million
in Fiscal 1993. The increase was principally due to higher award fees resulting
from excellent ratings at Department of Energy facilities. In addition, two
unprofitable divisions of the Government Services Group which had combined
losses of $2.0 million in Fiscal 1993 were sold in that year.
International Group. International Group operating income increased 38.3%
to $3.0 million in Fiscal 1994 from $2.2 million in Fiscal 1993. This increase
was principally due to growth in Central and South America.
CORPORATE EXPENSES AND UNDERWRITING LOSSES
The decrease in Corporate Expenses and Underwriting Losses in Fiscal 1994
resulted principally from a decrease in underwriting losses of the Company's
captive reinsurance subsidiary.
CORRECTIONAL BUSINESS
Operating income from the Correctional Business increased 207.5% to $4.4
million in Fiscal 1994 from $1.4 million in Fiscal 1993. This increase was
primarily attributable to the consolidation of ACM and the opening of two
facilities.
OTHER EXPENSE
Other expense was $3.6 million in Fiscal 1994 compared to $1.1 million in
Fiscal 1993, resulting from the following 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 to reduce
corporate debt resulted in lower interest and investment income ($1.6 million)
to the Company.
INCOME BEFORE INCOME TAXES
Income before income taxes, which included an $8.7 million write-down of
the headquarters building in Fiscal 1994, was $3.0 million in Fiscal 1994
compared to $3.4 million in Fiscal 1993.
The provision for income taxes in 1994 was $17,000, reflecting an effective
income tax rate of 0.6% due to partial utilization of capital loss
carryforwards, targeted job tax credits and tax exempt interest income of the
captive reinsurance subsidiary. The effective income tax rate was 14.4% in
Fiscal 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
Minority interest expense (net of income taxes) increased $637,000
reflecting the sale of a minority interest in WCC.
21
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) decreased
$799,000 to $286,000 in Fiscal 1994 from $1.1 million in Fiscal 1993, mainly
as a result of the consolidation of ACM in Fiscal 1994.
INCOME BEFORE EXTRAORDINARY CHARGE
Income before extraordinary charge was $2.3 million or $0.19 per share in
Fiscal 1994. In Fiscal 1993, net income before extraordinary charge was $3.6
million, or $0.30 per share, restated for the stock dividends declared in Fiscal
1995 and Fiscal 1994.
EXTRAORDINARY CHARGE
In Fiscal 1994, the Company prepaid a 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 Company also recognized a $1.4
million extraordinary charge (net of income taxes) for the early extinguishment
of another senior note in Fiscal 1993.
NET INCOME
Net income, which included an $8.7 million ($5.4 million net of income
taxes) write-down of the Company's headquarters building, was $1.4 million in
Fiscal 1994, or $0.11 per share, compared to $2.2 million, or $0.18 per share in
1993, both restated for stock dividends declared in Fiscal 1995 and Fiscal 1994.
INFLATION
Management believes that inflation has not had a material effect on the
Company's results of operations during the past three fiscal years. However,
many of the Company's service contracts provide for either fixed management fees
or for fees that increase by only small amounts during the terms of the
contracts. Since personnel costs represent the Company's largest expense,
inflation could have a substantial adverse effect on the Company's results of
operations in the future to the extent that wages and salaries increase at a
faster rate than the per diem or fixed rates received by the Company for its
services.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have been, and are expected to
continue to be, cash flows from operations and borrowings under lines of credit
provided by banks in the United States and abroad. Cash and cash equivalents
amounted to $20.2 million at December 31, 1995 compared to $13.8 million at
January 1, 1995. Of this cash and cash equivalents, $9.3 million serves as
collateral for certain obligations of the Company's captive reinsurance
subsidiary.
The Company has additional sources of liquidity available in the form of a
$50 million revolving line of credit and a $50 million accounts receivable
securitization facility. Additionally, at December 31, 1995, WCC had in place a
$15 million revolving line of credit, and subsidiaries of the Company and WCC
had in place credit agreements with banks providing Australian $9.5 million
(approximately $7.1 million U.S. at December 31, 1995). WCC's $15 million
revolving line of credit contains certain covenants that restrict WCC's ability
to pay dividends to the Company.
At December 31, 1995, the Company had $1.4 million outstanding under its
$50 million revolving line of credit and $36 million outstanding in the form of
letters of credit securing reserves of the captive reinsurance subsidiary and
other corporate transactions. The unused portion of the revolving line of credit
was $12.6 million at December 31, 1995. In addition, at December 31, 1995, the
Company had sold $35 million of accounts receivable under its accounts
receivable securitization facility. Under the terms of the accounts receivable
securitization facility, the Company retains substantially the same risk of
credit loss as if receivables had not been sold under this facility. At December
31, 1995, WCC and the subsidiaries of the Company and
22
WCC had $5.1 million outstanding under their credit agreements. At December 31,
1995 and January 1, 1995, the ratio of total debt to total capitalization was
9.4% and 42.7%, respectively. See Note 5 to the Consolidated Financial
Statements.
WCC anticipates making cash investments in connection with future
acquisitions. In addition, in line with a developing industry trend toward
requiring private operators to make capital investments in facilities and to
enter into direct financing arrangements in connection with the development of
such facilities, WCC plans to use part of the net proceeds of $51.8 million from
the January 1996 public offering of shares of its common stock to finance
start-up costs, leasehold improvements and equity investments in facilities, if
appropriate, in connection with undertaking new contracts. In connection with
the award of one project, WCC recently has agreed to make an approximate $4.0
million equity investment in the project and to assist in the financing of the
project by guaranteeing up to approximately $20.0 million of the permanent
pass-through financing. The governmental entity that has contracted for the
project is the ultimate pass-through source of payments and the recourse
obligations of WCC and the subsidiary through which it will hold its investment
in the project are substantially limited in type and likelihood. WCC and its
subsidiary have made application to restructure the pass-through financing to a
non-recourse basis. WCC has structured the transaction so that the financing for
the project will be repaid from funds generated by the project. In addition, to
the extent that WCC elects to receive dividends from its subsidiary, it will be
required to arrange for a letter of credit in favor of the subsidiary to provide
security for the payment of certain possible future tax obligations of the
subsidiary. The letter of credit will not be issued any earlier than the second
half of 1997 and, consequently, any financing arrangements with respect to such
letter of credit have not been determined. The Company does not believe that the
issuance of the letter of credit will have a material impact on its liquidity or
capital resources or the liquidity or capital resources of WCC.
Net cash generated by operating activities was $13.3 million in Fiscal 1995
compared to $13.0 million in Fiscal 1994.
Cash used in investing activities amounted to $9.3 million in Fiscal 1995.
Capital expenditures of $6.9 million reflect purchases of equipment related to
the provision of security-related services and investments in facilities by WCC.
In the second half of Fiscal 1995, the Company acquired the contracts and
certain assets of Protection Management International Pty., Ltd. and Checkmate
Security Group, two companies in Australia engaged in the Services Business for
$2.6 million. In December 1995, the Company sold its headquarters building in
exchange for a $9.0 million first mortgage note and $1.7 million in cash (after
payment of related expenses).
Cash provided by financing activities amounted to $2.4 million in Fiscal
1995. In Fiscal 1995, the Company sold certain receivables for $35 million in
cash to prepay amounts outstanding under the mortgage on the Company's
headquarters building and to reduce the amounts outstanding under the Company's
revolving loan.
Cash dividends paid in Fiscal 1995 amounted to $2.9 million.
Current cash requirements consist of amounts needed for capital
expenditures, increased working capital needs resulting from corporate growth,
payment of liabilities incurred in the operation of the Company's business, the
renovation or construction of correctional facilities by WCC, possible
acquisitions and the payment of dividends. The Company continues to expand its
domestic and international businesses and to pursue major contracts, some of
which may require substantial initial cash outlays, which are partially or fully
recoverable over the original term of the contract.
Subsequent to year end, WCC sold 2.3 million shares of its common stock at
a price of $24.00 per share. Such proceeds are only available to WCC. The
offering resulted in net proceeds to WCC of approximately $51.8 million.
Management believes that cash on hand, internally generated cash flows and
available lines of credit will be adequate to support currently planned business
expansion and various obligations incurred in the operation of the Company's
business, both on a near term and long term basis.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
The Wackenhut Corporation:
We have audited the accompanying consolidated balance sheets of The
Wackenhut Corporation (a Florida corporation) and subsidiaries as of January 1,
1995 and December 31, 1995, and the related consolidated statements of income,
cash flows and shareholders' equity for each of the three fiscal years in the
period ended December 31, 1995. These financial statements are the
responsibility of the corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Wackenhut Corporation
and subsidiaries as of January 1, 1995 and December 31, 1995, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects of financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 22, 1996.
24
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 1995 AND DECEMBER 31, 1995
END OF PERIOD
-------------------------
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
(IN THOUSANDS EXCEPT
SHARE DATA)
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................................... $ 13,808 $ 20,185
Accounts receivable, less allowance for doubtful accounts of $1,056 in 1994
and
$1,268 in 1995.............................................................. 100,425 77,121
Inventories................................................................... 7,179 6,798
Other......................................................................... 16,233 18,058
---------- ------------
137,645 122,162
---------- ------------
NOTES RECEIVABLE................................................................ 1,646 10,540
---------- ------------
MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT -- CASUALTY REINSURANCE
SUBSIDIARY.................................................................... 11,495 5,774
---------- ------------
PROPERTY AND EQUIPMENT, AT COST................................................. 45,928 29,132
Accumulated depreciation...................................................... (15,102) (9,851)
---------- ------------
30,826 19,281
---------- ------------
DEFERRED TAX ASSET, NET......................................................... 11,021 6,170
---------- ------------
OTHER ASSETS
Investment in and advances to foreign affiliates, at cost, including equity in
undistributed earnings of $2,066 in 1994 and $4,098 in 1995................. 6,165 10,984
Other......................................................................... 13,959 23,016
---------- ------------
20,124 34,000
---------- ------------
$212,757 $197,927
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt............................................. $ -- $ 11
Notes payable................................................................. 3,765 1,115
Accounts payable.............................................................. 14,839 20,223
Accrued payroll and related taxes............................................. 25,761 29,602
Accrued expenses.............................................................. 17,095 21,456
Deferred tax liability, net................................................... 596 117
---------- ------------
62,056 72,524
---------- ------------
RESERVES FOR LOSSES -- CASUALTY REINSURANCE SUBSIDIARY.......................... 38,450 40,118
---------- ------------
LONG-TERM DEBT.................................................................. 38,991 5,376
---------- ------------
OTHER........................................................................... 7,543 8,027
---------- ------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 4, 11 and 13)...........................
MINORITY INTEREST............................................................... 8,258 8,978
---------- ------------
SHAREHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized................................. -- --
Common stock, $.10 par value, 20,000,000 shares authorized
Series A, 3,858,885 issued and outstanding in 1994 and 1995................. 386 386
Series B, 5,794,539 issued and outstanding in 1994 and 8,272,887 in 1995.... 579 827
Additional paid-in capital.................................................... 38,919 39,644
Retained earnings............................................................. 21,681 25,790
Cumulative translation adjustment............................................. (3,552) (3,702)
Unrealized loss on marketable securities...................................... (554) (41)
---------- ------------
57,459 62,904
---------- ------------
$212,757 $197,927
========= ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
25
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
FISCAL YEAR
------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
REVENUES....................................................... $659,256 $726,753 $796,732
-------- -------- --------
OPERATING EXPENSES
Payroll and related taxes.................................... 491,408 538,297 587,644
Other operating expenses..................................... 161,626 173,164 193,314
Write-down of headquarters building.......................... -- 8,700 --
Non-recurring charges........................................ 1,726 -- --
-------- -------- --------
654,760 720,161 780,958
-------- -------- --------
OPERATING INCOME............................................... 4,496 6,592 15,774
-------- -------- --------
OTHER INCOME (EXPENSE)
Interest expense............................................. (4,230) (5,104) (3,356)
Interest and investment income............................... 3,105 1,514 1,315
-------- -------- --------
(1,125) (3,590) (2,041)
-------- -------- --------
INCOME BEFORE INCOME TAXES..................................... 3,371 3,002 13,733
PROVISION FOR INCOME TAXES..................................... 485 17 4,742
MINORITY INTEREST, NET OF INCOME TAXES......................... 362 999 2,362
EQUITY INCOME OF FOREIGN AFFILIATES, NET OF INCOME TAXES....... (1,085) (286) (631)
-------- -------- --------
INCOME BEFORE EXTRAORDINARY CHARGE............................. 3,609 2,272 7,260
EXTRAORDINARY CHARGE -- EARLY EXTINGUISHMENT OF DEBT, NET OF
INCOME TAXES................................................. (1,444) (887) --
-------- -------- --------
NET INCOME........................................... $ 2,165 $ 1,385 $ 7,260
======== ======== ========
EARNINGS PER SHARE:
Income before extraordinary charge........................... $ 0.30 $ 0.19 $ 0.60
Extraordinary charge -- early extinguishment of debt, net of
income taxes.............................................. (0.12) (0.08) --
-------- -------- --------
Net income........................................... $ 0.18 $ 0.11 $ 0.60
======== ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
26
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
1993 1994 1995
------- ------- -------
(IN THOUSANDS EXCEPT SHARE
DATA)
COMMON STOCK
Series A
Balance, beginning and end of year....................... $ 386 $ 386 $ 386
Number of shares, all years, beginning and end,
3,858,885..............................................
------- ------- -------
Series B
Balance, beginning of year............................... 386 386 579
25% stock dividends effected in the form of stock splits
in
1994 and 1995.......................................... -- 193 242
Proceeds from the exercise of stock options.............. -- -- 6
------- ------- -------
Balance, end of year..................................... 386 579 827
Number of shares, end of year, 3,858,885 in 1993,
5,794,539 in 1994 and 8,272,887 in 1995................
------- ------- -------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year.................................. 26,234 26,234 38,919
Increase due to initial public offering of subsidiary's
common stock and exercise of stock options............... -- 12,685 327
Proceeds from the exercise of stock options................. -- -- 398
------- ------- -------
Balance, end of year........................................ 26,234 38,919 39,644
------- ------- -------
RETAINED EARNINGS
Balance, beginning of year.................................. 23,880 23,268 21,681
Net income.................................................. 2,165 1,385 7,260
Dividends................................................... (2,777) (2,779) (2,909)
25% stock dividend effected in the form of a stock split.... -- (193) (242)
------- ------- -------
Balance, end of year........................................ 23,268 21,681 25,790
------- ------- -------
CUMULATIVE TRANSLATION ADJUSTMENT
Balance, beginning of year.................................. (3,395) (3,058) (3,552)
Translation adjustment...................................... 337 (494) (150)
------- ------- -------
Balance, end of year........................................ (3,058) (3,552) (3,702)
------- ------- -------
UNREALIZED (LOSS) GAIN ON MARKETABLE SECURITIES
Balance, beginning of year.................................. 96 146 (554)
Net unrealized (losses) gains for the year.................. 50 (700) 513
------- ------- -------
Balance, end of year........................................ 146 (554) (41)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY.......................... $47,362 $57,459 $62,904
------- ------- -------
DIVIDENDS PER SHARE
Restated for the effects of the 25% stock dividends effected
in the form of stock splits declared in 1994 and 1995.... $ 0.23 $ 0.23 $ 0.24
======= ======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
FISCAL YEARS
----------------------------
1993 1994 1995
------- ------- --------
(IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income..................................................... $ 2,165 $ 1,385 $ 7,260
Adjustments --
Depreciation expense........................................ 4,354 4,374 4,489
Amortization expense........................................ 6,787 7,544 7,682
Provision for bad debts..................................... 735 508 863
Equity income, net of dividends............................. (1,487) (202) (562)
Minority interests in net income............................ 548 1,514 3,579
Write-down of headquarters building......................... -- 8,700 --
Extraordinary loss on early extinguishment of debt.......... 2,348 1,344 --
Other....................................................... (75) (495) (424)
Changes in assets and liabilities, net of
acquisitions and divestiture --
(Increase) Decrease in assets:
Accounts receivable....................................... (9,607) (5,745) (14,200)
Inventories............................................... (4,985) (5,137) (5,497)
Other current assets...................................... (3,006) (1,154) (5,207)
Marketable securities and certificates of deposit......... (3,116) (1,352) 329
Other assets.............................................. (2,947) (3,567) (2,233)
Deferred tax asset, net................................... 624 (4,647) 4,529
Increase (Decrease) in liabilities:
Accounts payable and accrued expenses..................... 234 (2,981) 7,047
Accrued payroll and related taxes......................... 5,482 3,280 3,934
Deferred tax liability, net............................... (545) 596 (479)
Reserves for losses of casualty reinsurance subsidiary.... 7,573 4,950 1,668
Other..................................................... 534 4,122 484
------- ------- --------
Net Cash Provided By Operating Activities.............. $ 5,616 $13,037 $ 13,262
------- ------- --------
(Continued)
28
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
FISCAL YEARS
---------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
INVESTING ACTIVITIES
Net proceeds from initial public offering of
subsidiary's common stock.............................. $ -- $ 17,626 $ --
Net proceeds from exercise of stock options of
subsidiary............................................. -- -- 1,147
Payments on notes receivable.............................. 852 438
Payments for acquisitions, net of cash acquired........... -- (935) (2,606)
Investment in and advances to foreign affiliates.......... (1,310) (732) (1,410)
Capital expenditures...................................... (3,409) (5,091) (6,857)
Proceeds from sales of marketable securities of
casualty reinsurance subsidiary, net................... -- 14,000 6,227
Deferred charge expenditures.............................. -- (701) (7,430)
Sale of headquarters building............................. -- -- 1,675
--------- --------- ---------
Net Cash Provided By (Used In) Investing
Activities...................................... (3,867) 24,605 (9,254)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of debt............................ 113,270 196,411 314,365
Payments on debt.......................................... (109,320) (225,287) (344,491)
Dividends paid............................................ (2,777) (2,779) (2,909)
Proceeds from the exercise of stock options............... -- -- 404
Proceeds from sales of accounts receivable................ -- -- 35,000
--------- --------- ---------
Net Cash Provided By (Used In) Financing
Activities...................................... 1,173 (31,655) 2,369
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,922 5,987 6,377
CASH AND CASH EQUIVALENTS,
AT BEGINNING OF YEAR...................................... 4,899 7,821 13,808
--------- --------- ---------
CASH AND CASH EQUIVALENTS, AT END OF YEAR................... $ 7,821 $ 13,808 $ 20,185
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest............................................... $ 4,172 $ 4,209 $ 3,366
Income taxes........................................... 1,545 1,119 1,531
Non-cash financing and investing activities:
Note received related to sale of headquarters
building............................................. -- -- 9,000
Note received related to sale of subsidiary............ 1,250 -- --
========= ========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
29
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31,
1995
(TABULAR INFORMATION: IN THOUSANDS EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal year
The corporation's fiscal year ends on the Sunday closest to the calendar
year end. Fiscal years 1993, 1994 and 1995 each included 52 weeks.
Basis of financial statement presentation
The consolidated financial statements include the accounts of the
corporation and its subsidiaries, including its casualty reinsurance subsidiary.
All significant intercompany transactions and balances have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform with
current year presentation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Minority interest
The minority interest expense represents principally the separate public
ownership in Wackenhut Corrections Corporation (WCC) and the ownership by
foreign investors in several subsidiaries of Wackenhut International,
Incorporated.
Income taxes
The corporation accounts for its income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Earnings per share
Earnings per share are computed using the average number of common shares
outstanding, including common stock equivalents and reflects the declaration of
the 25% stock dividends effected in the form of stock splits in 1994 and 1995.
Prior years' earnings per share have been restated to give effect to the stock
splits. The average number of shares and common stock equivalents outstanding
was 12,058,340, 12,066,780, and 12,131,772 in 1993, 1994 and 1995, respectively.
Cash and cash equivalents
The corporation considers highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. The effect on cash
flows of exchange rate changes in foreign currency has not been significant for
any of the fiscal years presented.
30
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Alarm systems and electronics inventories are carried at the lower of cost
or market, on a first-in first-out basis. Uniform inventories are carried at
amortized cost.
Revenues
Revenue is recognized as services are provided. During fiscal years 1993,
1994 and 1995, the largest client of the corporation was the U.S. Department of
Energy, accounting for approximately 24%, 20% and 17% respectively, of the
corporation's consolidated revenues.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts receivable,
other receivables, notes receivable, notes payable and accounts payable
approximates fair value. Marketable securities are classified as
available-for-sale in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Marketable securities are recorded
at fair value and unrealized holding gains and losses are excluded from earnings
and reported as a net amount in a separate component of shareholders' equity.
Realized gains and losses from the sale of securities are based on specific
identification of the security. The fair value of marketable securities and
certificates of deposit is presented under "wholly-owned casualty reinsurance
subsidiary" in Note 4 of these financial statements. The carrying value of
long-term debt (including current portion) approximates fair value.
Interest rate swaps
The corporation has entered into two interest rate swap agreements in order
to manage interest rate costs. Under the terms of the interest rate swaps, the
corporation agrees with counterparties to exchange at specific intervals, the
difference between fixed rate (5.2% and 6.87%) and floating rate (5.66% for both
swaps) interest amounts calculated in reference to an agreed-upon notional
principal amount. Interest to be paid or received is accrued over the life of
the agreement as an adjustment to interest expense.
Newly Issued Accounting Standards
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation," which requires adoption in fiscal
1996. SFAS No. 123 requires that the corporation's financial statements include
certain disclosures about stock-based employee compensation arrangements and
permits the adoption of a change in accounting for such arrangements. Changes in
accounting for stock-based compensation are optional and the corporation plans
to adopt only the disclosure requirements in 1996.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which requires adoption in fiscal 1996. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The impact of adopting this statement is
not expected to have a material impact upon the corporation's results of
operations or financial position.
Foreign currency translation
Foreign currency transactions and financial statements (except for
countries with highly inflationary economies) are translated into U.S. dollars
at current exchange rates, except for revenues, costs and expenses
31
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which are translated at average exchange rates during each reporting period.
Adjustments resulting from translation of financial statements are reflected as
a separate component of shareholders' equity. The financial statements of
subsidiaries located in highly inflationary economies are remeasured as if the
functional currency were the U.S. dollar. The remeasurement of their local
currencies into U.S. dollars creates translation adjustments which are included
in the statements of income.
(2) ACCOUNTS RECEIVABLE SECURITIZATION
In January 1995, the corporation entered into a three-year agreement with
two financial institutions to sell, on an on-going basis, an undivided interest
in a defined pool of eligible receivables up to a maximum of $40,000,000. In
December 1995, the accounts receivable securitization facility was increased to
$50,000,000. The costs associated with this program are based upon the
purchasers' level of investment and cost of issuing commercial paper plus
predetermined fees. Such costs are included in "Interest expense" in the
consolidated statements of income. At December 31, 1995, $35,000,000 of accounts
receivable had been sold under this agreement. The defined pool of accounts
receivable sold at December 31, 1995 approximates fair value. The corporation
retains substantially the same risk of credit loss as if the receivables had not
been sold.
(3) PROPERTY AND EQUIPMENT AND DEPRECIATION METHODS
Property and equipment are stated at cost, less accumulated depreciation.
The corporation uses principally the straight-line method of depreciation for
property and equipment. The components of property and equipment and their
estimated lives are as follows:
YEARS 1994 1995
------------ ------- -------
Land................................................ -- $ 4,444 $ 1,451
Buildings and improvements.......................... 20 to 33 1/3 24,722 10,121
Furniture and fixtures.............................. 5 to 20 3,608 3,910
Equipment........................................... 5 to 20 9,026 9,448
Automobiles and trucks.............................. 3 4,128 4,202
------- -------
$45,928 $29,132
======= =======
In the fourth quarter of 1995, the corporation sold its headquarters
building located in Coral Gables, Florida. In 1994, the building was written
down by $8,700,000 to reflect the estimated realizable value based on a third
party valuation. The corporation sold its headquarters building in exchange for
a $9,000,000 note (bearing interest at 6.5% and maturing in December 1997) and
$1,675,000 in cash (after payment of related expenses) which resulted in no
additional gain or loss on the transaction.
(4) WHOLLY-OWNED CASUALTY REINSURANCE SUBSIDIARY
The corporation has a wholly-owned casualty insurance subsidiary which
reinsures a portion of the corporation's workers' compensation and general and
automobile liability insurance. Incurred losses are recorded as reported.
Provision is made to cover losses incurred but not reported. Loss reserves are
computed based on actuarial studies and, in the opinion of management, are
adequate. Future adjustments of the amounts recorded as of December 31, 1995,
resulting from a continuous review process as well as differences between
estimates and ultimate payments, will be reflected in the corporation's
consolidated statements of
32
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income as such adjustments become determinable. A summary of operations for the
last three fiscal years is as follows:
1993 1994 1995
-------- -------- --------
Premiums recognized................................... $ 16,282 $ 17,900 $ 17,642
Loss expense.......................................... (20,863) (18,499) (18,239)
-------- -------- --------
Underwriting loss..................................... (4,581) (599) (597)
Investment income..................................... 2,033 1,486 2,245
-------- -------- --------
$ (2,548) $ 887 $ 1,648
======== ======== ========
Premiums paid by the corporation to the reinsurance subsidiary of
$16,282,000, $17,900,000 and $17,642,000, for the fiscal years ended 1993, 1994
and 1995, respectively, have been eliminated in consolidation.
Marketable securities and certificates of deposit, carried at fair value,
consisted of the following at January 1, 1995 and December 31, 1995:
1994 1995
FAIR 1994 FAIR 1995
VALUE COST VALUE COST
------- ------- ------ ------
Municipal Bonds..................................... $ 7,332 $ 7,899 $1,556 $1,559
Government Bonds.................................... 968 975 844 847
Preferred Stock..................................... 1,713 2,040 1,980 2,040
Other............................................... 1,482 1,482 1,394 1,394
------- ------- ------ ------
$11,495 $12,396 $5,774 $5,840
------- ------- ------ ------
The unrealized loss on marketable securities of $901,000 and $66,000 at
January 1, 1995 and December 31, 1995, respectively, has been reflected in the
accompanying consolidated balance sheets net of applicable income taxes. The
corporation has placed in trust, in favor of certain insurance companies,
$1,345,000 in time deposits and $9,300,000 in cash and cash equivalents, and has
issued irrevocable standby letters of credit for $31,392,000. Municipal bonds
mature in 2018, government bonds mature in periods after 10 years and
certificates of deposit mature within one year. As of December 31, 1995,
marketable securities and certain other investments of the corporation's
reinsurance subsidiary have specific restrictions on future sales.
(5) NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1995 the corporation had an outstanding note payable of
$1,115,000 which represented short-term borrowings of an international
subsidiary incurred for working capital, bearing interest at 8.0%, with a
maturity in 1996.
Long-term debt consists of the following:
1994 1995
------- ------
Revolving loan -- 7.0% in 1994 and 6.2% in 1995 .................... $20,450 $1,400
First mortgage note on headquarters building -- 7.1%................ 16,060 --
Other debt principally related to WCC and international
subsidiaries...................................................... 2,481 3,987
------- ------
38,991 5,387
Less -- current portion of long-term debt........................... -- 11
------- ------
$38,991 $5,376
======= ======
33
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1994, the corporation used short-term borrowings to prepay the
first $12,500,000 of its senior notes. In August 1994, the corporation prepaid
the remaining $12,500,000 of senior notes to an insurance company with proceeds
from WCC's initial public offering (IPO) (see Note 10). The prepayments resulted
in extraordinary charges of $1,444,000 ($2,348,000 before tax) or $.12 per share
in 1993 and $887,000 ($1,344,000 before tax) or $.08 per share in 1994.
In January 1995, the corporation prepaid the outstanding balance on the
first mortgage note with proceeds from the sales of accounts receivable under
the securitization facility. The corporation also used proceeds from the
accounts receivable securitization to reduce the outstanding balance of the
revolving loan.
At year end, the corporation had in place a revolving credit agreement with
one bank under which the corporation may borrow up to $50,000,000. The unused
portion of the revolving line of credit was $12,640,000 at December 31, 1995
after deducting $35,960,000 in outstanding letters of credit. The interest
payable is, at the corporation's option, a function of the applicable LIBOR or
certificate of deposit rates. The agreement requires, among other things, that
the corporation maintain a minimum consolidated net worth, as defined, and
limits certain payments and distributions.
In December 1994, WCC entered into a revolving credit agreement with a bank
under which the subsidiary may borrow up to $15,000,000 until September 30,
2002. The corporation is not a guarantor of the revolving credit agreement which
requires, among other things, that WCC maintain a minimum tangible net worth, as
defined, and limits certain payments and distributions.
Aggregate annual maturities of long-term debt are as follows:
YEAR ANNUAL MATURITY
---------------------------------------------------------------------- ---------------
1996.................................................................. $ 11
1997.................................................................. 763
1998.................................................................. 4,399
1999.................................................................. 13
2000.................................................................. 15
Thereafter............................................................ 186
-------
$ 5,387
============
The corporation is a party to two offsetting interest rate swaps with Union
Bank of Switzerland and Bank of America Illinois at year end. The notional
principal amount under both agreements was $81,200,000 and the agreements expire
in December 1998. Based on the interest rates in effect at December 31, 1995,
the corporation was not exposed to a material loss in the event that either
party failed completely to perform according to the terms of the contract.
(6) PREFERRED AND COMMON STOCK
The board of directors has authorized 10,000,000 shares of preferred stock.
In October 1994 and in 1995, the board of directors declared 25% stock
dividends, effected in the form of stock splits. The 1995 stock dividend was
payable on January 9, 1996 to stockholders of record at the close of business on
December 22, 1995. Prior periods' per share data have been restated. The stock
dividends were paid in series B common stock to holders of the corporation's
series A and B shares. Series B common stock has all the rights and privileges
of the series A common stock with the exception of voting privileges.
(7) STOCK INCENTIVE AND STOCK OPTION PLANS
Key employees of the corporation and its subsidiaries are eligible to
participate in the Key Employee Long-Term Incentive Stock Plan (incentive stock
plan). Under the incentive stock plan, options for the corporation's common
stock are granted to participants as approved by the Nominating and Compensation
34
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Committee of the corporation's board of directors (committee). Under terms of
the incentive stock plan, options are granted at prices not less than the fair
market value at date of grant (or as otherwise determined by the committee),
become exercisable after a minimum of six months, and expire no later than ten
years after the date of grant. The committee may grant incentive stock options
or non-qualified stock options. Options are subject to adjustment upon the
occurrence of certain events, including stock splits and stock dividends.
At December 31, 1995, 1,707,185 shares of series B common stock were
reserved for issuance, including 1,149,997 shares available for future grants or
awards.
Changes in outstanding non-qualified stock options for series B common
stock, as adjusted for 25% stock dividends in 1994 and 1995, are as follows:
STOCK OPTION PRICE
OPTIONS PER SHARE
------- --------------
Granted in 1994............................................ 390,938 $6.16
Granted in 1995............................................ 218,750 $10.80
Exercised in 1995.......................................... (52,500) $6.16
-------
Outstanding at December 31, 1995........................... 557,188 $6.16 - $10.80
=======
At December 31, 1995, 338,438 options with an exercise price of $6.16 were
exercisable. The remaining 218,750 options with an exercise price of $10.80
become exercisable in January 1996.
At December 31, 1995, options were outstanding with expiration dates
ranging from April 2004 to January 2005.
On January 30, 1996, the corporation granted 202,000 non-qualified stock
options to purchase shares of the corporation's series B common stock at
$14.00 per share. The options become exercisable in January 1997 and expire in
January 2006.
(8) RETIREMENT AND DEFERRED COMPENSATION PLANS
The corporation has a noncontributory defined benefit pension plan covering
certain of its executives. Retirement benefits are based on years of service,
employees' average compensation for the last five years prior to retirement and
social security benefits. The plan currently is not funded. The corporation
purchases and is the beneficiary of life insurance policies for each participant
enrolled in the plan.
The assumptions for the discount rate and the average increase in
compensation used in determining the pension expense and funded status
information are 7.5% and 4.0%, respectively.
Total pension expense for 1993, 1994 and 1995 was $236,000, $267,000 and
$329,000, respectively. The present value of accumulated pension benefits at
year end 1993, 1994 and 1995 was $1,161,000, $1,400,000 and $1,895,000,
respectively and is included in "Other liabilities" in the accompanying
consolidated balance sheets.
The corporation has established non-qualified deferred compensation
agreements with certain senior executives providing for fixed annual benefits
ranging from $100,000 to $175,000 payable upon retirement at approximately age
60 for a period of 20 years. In the event of death before retirement, annual
benefits are paid for a period of 10 years. Benefits are funded by life
insurance contracts purchased by the corporation. The cost of these agreements
is being charged to expense and accrued using a present value method over the
expected terms of employment. The charge to expense for fiscal 1993, 1994 and
1995 was $403,000, $444,000 and $468,000, respectively. The liability for
deferred compensation was $2,629,000 and $3,274,000 at year-end 1994 and 1995,
respectively and is included in "Other liabilities" in the accompanying
consolidated balance sheets.
35
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INCOME TAXES
The provision (credit) for income taxes consists of the following:
FISCAL YEAR ENDED
------------------------
1993 1994 1995
----- ------- ------
Federal income taxes:
Current.................................................... $ 669 $ 3,014 $ 581
Deferred................................................... (385) (3,112) 3,578
----- ------- ------
284 (98) 4,159
State income taxes:
Current.................................................... 252 527 104
Deferred................................................... (51) (412) 479
----- ------- ------
201 115 583
----- ------- ------
Total.............................................. $ 485 $ 17 $4,742
===== ======= ======
Deferred income taxes resulted from timing differences in the recognition
of revenues and expenses for tax and financial reporting purposes. The tax
effects of the principal timing differences are as follows:
FISCAL YEAR ENDED
-------------------------
1993 1994 1995
----- ------- -------
Senior note prepayment premium.............................. $(904) $ 904 $ --
Income of foreign subsidiaries and affiliates............... 972 1,186 1,336
Reserve for losses of reinsurance subsidiary................ (462) (8) (1,222)
Reserve for claims of employee health trust................. (148) (1,191) (412)
Building write-down......................................... -- (3,350) 2,976
Deferred compensation....................................... (268) (398) (491)
Depreciation................................................ 106 (486) (824)
Amortization of deferred charges............................ 173 205 2,601
Other, net.................................................. 95 (386) 93
----- ------- -------
$(436) $(3,524) $ 4,057
===== ======= =======
The reconciliation of income tax computed at the federal statutory tax rate
(34%) to income tax expense is as follows:
FISCAL YEAR ENDED
------------------------
1993 1994 1995
------ ------ ------
Provision using statutory federal tax rate................... $1,146 $1,021 $4,670
Capital loss carryforward utilization........................ (228) (814) (330)
Targeted jobs tax credits.................................... (109) (235) (117)
Tax exempt interest.......................................... (321) (295) (167)
Other, net................................................... (204) 225 103
------ ------ ------
284 (98) 4,159
State income taxes........................................... 201 115 583
------ ------ ------
$ 485 $ 17 $4,742
====== ====== ======
The tax effect of the extraordinary charge for the early extinguishment of
debt during fiscal 1993 and 1994 amounted to $904,000 and $457,000, respectively
(see Note 5).
36
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net non-current deferred tax asset at January 1, 1995
and December 31, 1995 are shown below:
FISCAL YEAR ENDED
-----------------
1994 1995
------- -------
Reserve for losses of reinsurance subsidiary....................... $ 5,270 $ 6,492
Income of foreign subsidiaries and affiliates...................... (5,614) (6,950)
Reserve for claims of employee health trust........................ 4,692 5,104
Reserve for legal and other expenses............................... 899 430
Capital loss carryforward.......................................... 150 162
Deferred compensation.............................................. 2,660 3,133
Depreciation....................................................... (363) 439
Building write-down................................................ 3,350 373
Deferred charges................................................... -- (3,238)
Other, net......................................................... 127 387
------- -------
11,171 6,332
Valuation allowance...................................... (150) (162)
------- -------
Deferred tax asset, net.................................. $11,021 $ 6,170
======= =======
The components of the net current deferred tax liability at January 1, 1995
and December 31, 1995 are shown below:
FISCAL YEAR ENDED
-----------------
1994 1995
------- -------
Amortization of uniforms and accessories........................... $ 1,818 $ 1,774
Accrued vacation pay............................................... (1,033) (1,242)
Other, net......................................................... (189) (415)
------- -------
Deferred tax liability, net.............................. $ 596 $ 117
======= =======
At December 31, 1995, the corporation had available a capital loss
carryforward of $421,000 of which $391,000 expires in 1998 and $30,000 expires
in 2000. The deferred tax asset arising from the capital loss carryforward has
been fully reserved due to the uncertainty of the corporation's ability to
generate future capital gains.
(10) WACKENHUT CORRECTIONS CORPORATION PUBLIC OFFERINGS
WCC, formerly a wholly-owned subsidiary of the corporation, sold 2,185,000
shares of common stock at an offering price of $9.00 per share in connection
with its initial public offering in 1994. Net proceeds of approximately
$17,626,000 from the IPO were used to repay bank debt and indebtedness to the
corporation. Following the offering, WCC had 8,185,000 shares outstanding of
which the corporation owned approximately 73%.
During 1995, the exercise of 354,697 non-qualified stock options of WCC
reduced the corporation's ownership in WCC to approximately 70% at December 31,
1995.
In January 1996, WCC sold 2,300,000 shares of common stock at a price of
$24.00 per share. Net proceeds of approximately $51,764,000 from the offering
will be used for possible future acquisitions, capital investments in new
facilities, working capital requirements and general corporate purposes. After
the offering, the corporation's ownership in WCC was reduced to approximately
55%.
37
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The board of directors of WCC has granted non-qualified stock options to
purchase common stock which, if fully exercised, would reduce the corporation's
ownership in WCC to approximately 52%.
(11) WACKENHUT MONITORING SYSTEMS BUSINESS
In 1993, the corporation sold its Wackenhut Monitoring Systems subsidiary
in exchange for a $1,250,000 note and $100,000 cash which resulted in a loss of
approximately $95,000. In connection with this transaction, the corporation has
guaranteed indebtedness related to certain operating leases which totaled
approximately $2,402,000 at December 31, 1995 and expire from 1996 to 1997.
(12) NON-RECURRING CHARGES
In the fourth quarter of 1993, the corporation recognized non-recurring
charges of $1,726,000. A significant portion of these charges was due to a
$791,000 decrease in the value of guard contracts acquired in 1991. The
remaining components of the non-recurring charges consist principally of
write-downs of various long-term assets, none of which are individually
significant to the consolidated financial statements.
(13) COMMITMENTS AND CONTINGENCIES
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 pending legal proceedings that would have a material
effect on the consolidated financial statements of the corporation.
The corporation leases office space, data processing equipment and
automobiles under non-cancelable operating leases expiring between 1996 and
2011. The corporation has entered into a lease for new corporate headquarters in
Palm Beach Gardens, Florida, commencing in early 1996. The lease requires annual
payments of $1,764,750 for an initial term of 15 years with 3 five-year options
to extend the term of the lease. Rent expense for the fiscal years ended January
2, 1994, January 1, 1995 and December 31, 1995 was $6,312,000, $4,993,000, and
$6,994,000, respectively. The minimum commitments under these leases and the 15
year lease for the new corporate headquarters are as follows:
MINIMUM
YEAR COMMITMENT
------------------------------------------------------------------------- ----------
1996..................................................................... $ 6,870
1997..................................................................... 5,224
1998..................................................................... 3,737
1999..................................................................... 2,969
2000..................................................................... 2,084
Thereafter............................................................... 18,437
----------
$ 39,321
=========
38
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) BUSINESS SEGMENTS
Security-Related and Other Support Services and Correctional Services
The corporation's principal business consists of security related and other
support services to commercial and governmental clients. A subsidiary of the
corporation, Wackenhut Corrections Corporation, provides facility management and
construction services to detention and correctional facilities. Provided below
is various financial information for each segment:
FISCAL YEAR ENDED
------------------------------
1993 1994 1995
-------- -------- --------
Revenues:
Security-related and other support services......... $600,472 $642,727 $697,301
Correctional services............................... 58,784 84,026 99,431
-------- -------- --------
Total revenues.............................. 659,256 726,753 796,732
-------- -------- --------
Operating Income:
Security-related and other support services......... 3,050 10,846 8,545
Correctional services............................... 1,446 4,446 7,229
Write-down of headquarters building................. -- (8,700) --
-------- -------- --------
Total operating income...................... 4,496 6,592 15,774
-------- -------- --------
Equity income (loss) of foreign affiliates, net of
taxes:
Security-related and other support services......... 824 617 744
Correctional services............................... 261 (331) (113)
-------- -------- --------
Total equity income......................... 1,085 286 631
-------- -------- --------
Capital expenditures:
Security-related and other support services......... 3,083 4,829 4,137
Correctional services............................... 326 262 2,720
-------- -------- --------
Total capital expenditures.................. 3,409 5,091 6,857
-------- -------- --------
Depreciation and amortization expense:
Security-related and other support services......... 9,040 9,631 9,868
Correctional services............................... 2,101 2,287 2,303
-------- -------- --------
Total expenses.............................. 11,141 11,918 12,171
-------- -------- --------
Identifiable assets:
Security-related and other support services......... 192,149 182,424 159,087
Correctional services............................... 19,148 30,333 38,840
-------- -------- --------
Total identifiable assets................... $211,297 $212,757 $197,927
======== ======== ========
39
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Domestic and International Operations
Non-U.S. operations of the corporation and its subsidiaries are conducted
primarily in South America and Australia. The corporation carries its investment
in affiliates (20% to 50% owned) under the equity method. U.S. income taxes
which would be payable upon remittance of affiliates' earnings to the
corporation are provided currently. Minority interest in consolidated foreign
subsidiaries have been reflected net of applicable income taxes in the
accompanying financial statements. A summary of domestic and international
operations is shown below:
FISCAL YEAR ENDED
------------------------------
1993 1994 1995
-------- -------- --------
Revenues:
Domestic operations................................. $575,733 $615,727 $652,723
International operations............................ 83,523 111,026 144,009
-------- -------- --------
Total revenues.............................. $659,256 $726,753 $796,732
-------- -------- --------
Operating Income:
Domestic operations................................. $ 2,904 $ 10,630 $ 11,407
International operations............................ 1,592 4,662 4,367
Write-down of headquarters building................. -- (8,700) --
-------- -------- --------
Total operating income...................... $ 4,496 $ 6,592 $ 15,774
-------- -------- --------
Equity income of foreign affiliates, net of taxes:
Domestic operations................................. $ -- $ -- $ --
International operations............................ 1,085 286 631
-------- -------- --------
Total equity income......................... $ 1,085 $ 286 $ 631
-------- -------- --------
Capital expenditures:
Domestic operations................................. $ 1,932 $ 1,498 $ 2,911
International operations............................ 1,477 3,593 3,946
-------- -------- --------
Total capital expenditures.................. $ 3,409 $ 5,091 $ 6,857
-------- -------- --------
Depreciation and amortization expense:
Domestic operations................................. $ 9,240 $ 9,751 $ 9,512
International operations............................ 1,901 2,167 2,659
-------- -------- --------
Total expenses.............................. $ 11,141 $ 11,918 $ 12,171
-------- -------- --------
Identifiable assets:
Domestic operations................................. $179,565 $163,864 $141,431
International operations............................ 31,732 48,893 56,496
-------- -------- --------
Total identifiable assets................... $211,297 $212,757 $197,927
-------- -------- --------
40
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the corporation and its subsidiaries
for the fiscal years ended January 1, 1995 and December 31, 1995 is as follows:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
1994
Revenues...................................... $171,522 $175,016 $191,205 $189,010
Income (loss) 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)............................. $ 1,820 $ 1,953 $ 1,095 $ (3,483)
-------- -------- -------- --------
Earnings (loss) per share:(2)
Income (loss) before extraordinary charge... $ 0.15 $ 0.16 $ 0.17 $ (0.29)
Extraordinary charge........................ -- -- (0.08) --
-------- -------- -------- --------
Net income (loss)................... $ 0.15 $ 0.16 $ 0.09 $ (0.29)
======== ======== ======== ========
1995
Revenues...................................... $189,792 $193,371 $203,637 $209,932
Income from operations........................ 3,055 3,967 4,394 4,358
Net income.................................... 1,599 1,726 1,956 1,979
Earnings per share(2)......................... $ 0.13 $ 0.15 $ 0.16 $ 0.16
======== ======== ======== ========
- ---------------
(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 3). Additionally, an extraordinary
charge of $887,000 (after tax) or $.08 per share, was recognized in the
third quarter of 1994 for the early retirement of senior debt (see Note 5).
(2) Earnings per share have been restated to include the 25% stock dividend
effected in the form of a stock split, declared on October 29, 1994 and
paid on January 9, 1995 and the 25% stock dividend effected in the form of
a stock split, declared on October 31, 1995 and paid on January 9, 1996
(see Notes 1 and 6).
41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
The information required by Items 10, 11, 12 and 13 of Form 10-K (except such
information as is furnished in a separate caption "Executive Officers of the
Registrant" and is included in Part I, hereto) is contained in,
and is incorporated by reference from, the proxy statement (with the exception
of the Board Compensation Committee Report and the Performance Graph) for the
Company's 1996 Annual Meeting of Shareholders, which has been filed with the
Securities and Exchange Commission pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Company
are included in Item 8:
Consolidated Balance Sheets - January 1, 1995 and December 31, 1995
Consolidated Statements of Income - Fiscal years ended January 2, 1994,
January 1, 1995 and December 31, 1995
Consolidated Statements of Cash Flows - Fiscal years ended January
2, 1994, January 1, 1995 and December 31, 1995
Consolidated Statements of Shareholders' Equity - Fiscal years ended
January 2, 1994, January 1, 1995 and December 31, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
SCHEDULE II
THE WACKENHUT CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995
AND DECEMBER 31, 1995
(In thousands)
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS, BALANCE AT
BEGINNING COSTS AND TO OTHER ACTUAL END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS CHARGE-OFFS PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JANUARY 2, 1994:
Allowance for doubtful accounts $1,580 $735 - ($1,628) $ 687
==================================================================================
Valuation allowance - deferred tax asset $2,932 - - ($ 300) $2,632
==================================================================================
YEAR ENDED JANUARY 1, 1995:
Allowance for doubtful accounts $ 687 $508 - ($ 139) $1,056
==================================================================================
Valuation allowance - deferred tax asset $2,632 - - ($2,482) $ 150
==================================================================================
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts $1,056 $863 ($162) ($ 489) $1,268
==================================================================================
Valuation allowance - deferred tax asset $ 150 $ 12 - - $ 162
==================================================================================
All other schedules specified in the accounting regulations of the Securities
and Exchange Commission have been omitted because they are either inapplicable
or not required. Individual financial statements of the Company have been
omitted because it is primarily an operating company and all significant
subsidiaries included in the consolidated financial statements filed with
this Annual Report are majority-owned.
3. Exhibits
The following exhibits are filed as part of this Annual Report:
42
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
3.1 -- Articles of Incorporation as amended
3.2 -- Bylaws currently in effect
4.1 -- Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and
among The Wackenhut Corporation, NationsBank of Florida, N.A. and Bank of
America Illinois, as Lenders, and NationsBank of Florida, N.A., as Agent
(incorporated by reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended January 1, 1995)
4.2 -- Letter dated June 8, 1995 concerning the Revolving Credit and
Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut
Corporation, NationsBank of Florida, N.A., and Bank of America Illinois,
as Lenders, and NationsBank of Florida, N.A., as Agent
4.3 -- Letter dated August 24, 1995 concerning the Revolving Credit and
Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut
Corporation, NationsBank of Florida, N.A., as Agent
4.4 -- Receivables Purchase Agreement dated as of January 5, 1995 among The
Wackenhut Corporation, as Seller, Receivables Capital Corporation and
Enterprise Funding Corporation, each as a Purchaser, Bank of America
National Trust and Savings Association and NationsBank of North Carolina,
N.A., each as a Managing Agent, and Bank of America National Trust and
Savings Association, as the Administrative Agent (incorporated by
reference to the Registrant's Form 10-K Annual Report for the fiscal year
ended January 1, 1995)
4.5 -- First Amendment dated December 15, 1995 to the Receivables Purchase
Agreement dated as of January 5, 1995 among The Wackenhut Corporation, as
Seller, Receivables Capital Corporation and Enterprise Funding
Corporation, each as a Purchaser, Bank of America National Trust and
Savings Association and NationsBank of North Carolina, N.A., each as a
Managing Agent, and Bank of America National Trust and Savings
Association, as the Administrative Agent
4.6 -- $15,000,000 Credit Agreement dated as of December 12, 1994 between
Wackenhut Corrections Corporation, as Borrower, and Barnett Bank of South
Florida, N.A., as Lender (incorporated by reference to the Registrant's
Form 10-K Annual Report for the fiscal year ended January 1, 1995)
4.7 -- Amended and Restated Revolving Credit and Reimbursement Agreement dated
July 1, 1993 between The Wackenhut Corporation and NationsBank of Florida,
National Association (incorporated by reference to the Registrant's Form
10-K Annual Report for the fiscal year ended January 2, 1994)
4.8 -- Amendment dated May 18, 1994 to the Amended and Restated Revolving Credit
and Reimbursement Agreement dated July 1, 1993 between The Wackenhut
Corporation and NationsBank of Florida, N.A.
4.9 -- Amendment dated March 7, 1995 to the Amended and Restated Revolving Credit
and Reimbursement Agreement dated July 1, 1993 between The Wackenhut
Corporation and NationsBank of Florida, N.A. (incorporated by reference to
the Registrant's Form 10-K Annual Report for the fiscal year ended January
1, 1995)
10.1 -- Form of Deferred Compensation Agreement for Executive Officers
(the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando
Carrizosa, Timothy P. Cole and Robert C. Kneip (incorporated by
reference to the Registrant's Form 10-K Annual Report for the fiscal year
ended January 2, 1994)
10.2 -- Amendments to the Deferred Compensation Agreements for Executive Officers
(the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando
Carrizosa, Timothy P. Cole and Robert C. Kneip (incorporated by reference
to the Registrant's Form 10-K Annual and Report for the fiscal year ended
December 29, 1991)
43
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
10.3 -- Executive Officer Retirement Plan
10.4 -- Amended and Restated Split Dollar arrangement with George R. and Ruth J. Wackenhut
10.5 -- Office Lease dated April 18, 1995 by and between The Wackenhut Corporation
and Daniel S. Catalfumo, as Trustee under F.S. 689.071
10.6 -- First Amendment dated November 3, 1995 to Office Lease dated April 18,
1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as
Trustee under F.S. 689.071
10.7 -- $9,000,000 Promissory Note dated December 21, 1995 between The Wackenhut
Corporation and ACP-Atrium CG, L.P., a Florida limited partnership
10.8 -- Purchase Money Real Estate Mortgage, Assignment and Security Agreement
dated December 31, 1995 between The Wackenhut Corporation and ACP-Atrium
CG, L.P., a Florida limited partnership
10.9 -- Key Employee Long-Term Incentive Stock Plan dated July 1991
21.1 -- Subsidiaries of The Wackenhut Corporation
23.1 -- Consent of Arthur Andersen LLP
24.1 -- Powers of Attorney
27.1 -- Financial Data Schedule (for SEC use only)
44
(b). Reports on Form 8-K.
On January 30, 1995, the Company filed a current report on Form 8-K to
report that it would take a special, one-time charge 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. The loss
resulting from the write-down of the headquarters building carrying value of
$8.7 million is due to management's decision to sell the Company's
headquarters building.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 29, 1996 By: /s/ Juan D. Miyar*
---------------------------------------
Juan D. Miyar, Vice President - Accounting
Services and Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 /s/ George R. Wackenhut*
--------------------------------------
- -
45
George R. Wackenhut, Chairman of the
Board and Chief Executive Officer
(principal executive officer)
Date: March 29, 1996 /s/ Daniel E. Mason*
----------------------------------
Daniel E. Mason, Vice President
and Chief Financial Officer,
Domestic Operations (principal
financial officer)
Date: March 29, 1996 /s/ Juan D. Miyar*
-----------------------------------
Juan D. Miyar, Vice President -
Accounting Services and Corporate
Controller (principal accounting
officer)
Date: March 29, 1996 /s/ Julius W. Becton, Jr.*
-----------------------------------
JULIUS W. BECTON, JR.
Director
-----------------------------------
RICHARD G. CAPEN, JR.
Director
-----------------------------------
ANNE N. FOREMAN
Director
-----------------------------------
EDWARD L. HENNESSY, JR.
Director
Date: March 29, 1996 /s/ Paul X. Kelley *
-----------------------------------
PAUL X. KELLEY
Director
-----------------------------------
NANCY CLARK REYNOLDS
Director
Date: March 29, 1996 /s/ Thomas P. Stafford *
-----------------------------------
THOMAS P. STAFFORD
Director
Date: March 29, 1996 /s/ George R. Wackenhut *
-----------------------------------
GEORGE R. WACKENHUT
Director
Date: March 29, 1996 /s/ Richard R. Wackenhut *
-----------------------------------
RICHARD R. WACKENHUT
Director
Date: March 29, 1996 *By /s/ Daniel E. Mason
-----------------------------------
DANIEL E. MASON, Attorney-in-fact
46
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
3.1 -- Articles of Incorporation as amended
3.2 -- Bylaws currently in effect
4.1 -- Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and
among The Wackenhut Corporation, NationsBank of Florida, N.A. and Bank of
America Illinois, as Lenders, and NationsBank of Florida, N.A., as Agent
(incorporated by reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended January 1, 1995)
4.2 -- Letter dated June 8, 1995 concerning the Revolving Credit and
Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut
Corporation, NationsBank of Florida, N.A., and Bank of America Illinois,
as Lenders, and NationsBank of Florida, N.A., as Agent
4.3 -- Letter dated August 24, 1995 concerning the Revolving Credit and
Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut
Corporation, NationsBank of Florida, N.A., as Agent
4.4 -- Receivables Purchase Agreement dated as of January 5, 1995 among The
Wackenhut Corporation, as Seller, Receivables Capital Corporation and
Enterprise Funding Corporation, each as a Purchaser, Bank of America
National Trust and Savings Association and NationsBank of North Carolina,
N.A., each as a Managing Agent, and Bank of America National Trust and
Savings Association, as the Administrative Agent (incorporated by
reference to the Registrant's Form 10-K Annual Report for the fiscal year
ended January 1, 1995)
4.5 -- First Amendment dated December 15, 1995 to the Receivables Purchase
Agreement dated as of January 5, 1995 among The Wackenhut Corporation, as
Seller, Receivables Capital Corporation and Enterprise Funding
Corporation, each as a Purchaser, Bank of America National Trust and
Savings Association and NationsBank of North Carolina, N.A., each as a
Managing Agent, and Bank of America National Trust and Savings
Association, as the Administrative Agent
4.6 -- $15,000,000 Credit Agreement dated as of December 12, 1994 between
Wackenhut Corrections Corporation, as Borrower, and Barnett Bank of South
Florida, N.A., as Lender (incorporated by reference to the Registrant's
Form 10-K Annual Report for the fiscal year ended January 1, 1995)
4.7 -- Amended and Restated Revolving Credit and Reimbursement Agreement dated
July 1, 1993 between The Wackenhut Corporation and NationsBank of Florida,
National Association (incorporated by reference to the Registrant's Form
10-K Annual Report for the fiscal year ended January 2, 1994)
4.8 -- Amendment dated May 18, 1994 to the Amended and Restated Revolving Credit
and Reimbursement Agreement dated July 1, 1993 between The Wackenhut
Corporation and NationsBank of Florida, N.A.
4.9 -- Amendment dated March 7, 1995 to the Amended and Restated Revolving Credit
and Reimbursement Agreement dated July 1, 1993 between The Wackenhut
Corporation and NationsBank of Florida, N.A. (incorporated by reference to
the Registrant's Form 10-K Annual Report for the fiscal year ended January
1, 1995)
10.1 -- Form of Deferred Compensation Agreement for Executive Officers
(the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando
Carrizosa, Timothy P. Cole and Robert C. Kneip (incorporated by
reference to the Registrant's Form 10-K Annual Report for the fiscal year
ended January 2, 1994)
10.2 -- Amendments to the Deferred Compensation Agreements for Executive Officers
(the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando
Carrizosa, Timothy P. Cole and Robert C. Kneip (incorporated by reference
to the Registrant's Form 10-K Annual and Report for the fiscal year ended
December 29, 1991)
47
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
10.3 -- Executive Officer Retirement Plan
10.4 -- Amended and Restated Split Dollar arrangement with George R. and Ruth J. Wackenhut
10.5 -- Office Lease dated April 18, 1995 by and between The Wackenhut Corporation
and Daniel S. Catalfumo, as Trustee under F.S. 689.071
10.6 -- First Amendment dated November 3, 1995 to Office Lease dated April 18,
1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as
Trustee under F.S. 689.071
10.7 -- $9,000,000 Promissory Note dated December 21, 1995 between The Wackenhut
Corporation and ACP-Atrium CG, L.P., a Florida limited partnership
10.8 -- Purchase Money Real Estate Mortgage, Assignment and Security Agreement
dated December 31, 1995 between The Wackenhut Corporation and ACP-Atrium
CG, L.P., a Florida limited partnership
10.9 -- Key Employee Long-Term Incentive Stock Plan dated July 1991
21.1 -- Subsidiaries of The Wackenhut Corporation
23.1 -- Consent of Arthur Andersen LLP
24.1 -- Powers of Attorney
27.1 -- Financial Data Schedule (for SEC use only)