1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ________ to _______
Commission file number 1-5450
THE WACKENHUT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-0857245
- ------------------------------------------ ------------------------------------
(State of incorporation or organization) (I.R.S. Employer Identification No.)
4200 Wackenhut Drive #100,
Palm Beach Gardens, FL 33410-4243
- ------------------------------------------ ------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (561) 622-5656
- --------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
At August 2, 1996, 3,858,885 shares of Series A and 10,862,512 shares of Series
B of the registrant's Common Stock were issued and outstanding.
Page 1 of 22
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Corporation have been
prepared in accordance with the instructions to Form 10-Q and therefore, omit
or condense certain footnotes and other information normally included in
financial statements prepared in accordance with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the twenty-six weeks ended June 30, 1996 are not necessarily
indicative of the results for the entire fiscal year ending December 29, 1996.
Page 2 of 22
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
JUNE 30, 1996 and JULY 2, 1995
(In thousands except per share data)
(UNAUDITED)
1996 1995
-------------------------------
REVENUES $ 222,904 $ 193,371
-------------------------------
OPERATING EXPENSES:
Payroll and related taxes 163,281 140,664
Other operating expenses 55,902 48,740
-------------------------------
219,183 189,404
-------------------------------
OPERATING INCOME 3,721 3,967
-------------------------------
OTHER INCOME (EXPENSE):
Interest expense (979) (758)
Interest and investment income 1,110 330
-------------------------------
131 (428)
-------------------------------
INCOME BEFORE INCOME TAXES 3,852 3,539
Provision for income taxes 1,422 1,300
Minority interest, net of income taxes 923 667
Equity income of foreign affiliates, net of income taxes (400) (154)
-------------------------------
NET INCOME $ 1,907 $ 1,726
===============================
EARNINGS PER SHARE $ 0.15 $ 0.15
===============================
See notes to Consolidated Financial Statements.
Page 3 of 22
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWENTY-SIX WEEKS ENDED
JUNE 30,1996 AND JULY 2, 1995
(In thousands except share data)
(UNAUDITED)
1996 1995
-----------------------------------
REVENUES $ 435,378 $ 383,163
-----------------------------------
OPERATING EXPENSES:
Payroll and related taxes 316,684 282,272
Other operating expenses 112,160 93,869
Provision for relocation costs 750 -
-----------------------------------
429,594 376,141
-----------------------------------
OPERATING INCOME 5,784 7,022
-----------------------------------
OTHER INCOME (EXPENSE):
Interest expense (1,863) (1,495)
Interest and investment income 2,165 655
-----------------------------------
302 (840)
-----------------------------------
INCOME BEFORE INCOME TAXES 6,086 6,182
Provision for income taxes 2,191 2,198
Minority interest, net of income taxes 1,750 1,038
Equity income of foreign affiliates, net of income taxes (707) (379)
-----------------------------------
NET INCOME $ 2,852 $ 3,325
===================================
EARNINGS PER SHARE $ 0.23 $ 0.28
===================================
See notes to Consolidated Financial Statements.
Page 4 of 22
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(In thousands except share data)
(Unaudited)
1996 1995
-----------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 64,237 $ 20,185
Accounts receivable, less allowance for doubtful accounts
of $1,796 in 1996 and $1,268 in 1995 120,417 77,121
Inventories 6,277 6,798
Other 21,301 18,058
-----------------------------------
212,232 122,162
-----------------------------------
NOTES RECEIVABLE 10,613 10,540
-----------------------------------
MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT
of casualty reinsurance subsidiary 13,641 5,774
-----------------------------------
PROPERTY AND EQUIPMENT, at cost 32,818 29,132
Accumulated depreciation (10,578) (9,851)
-----------------------------------
22,240 19,281
-----------------------------------
DEFERRED TAX ASSET, net 1,203 6,170
-----------------------------------
OTHER ASSETS:
Investment in and advances to foreign affiliates, at cost, including equity
in undistributed earnings of $4,823 in 1996 and $4,098 in 1995 11,648 10,984
Other 36,265 23,016
-----------------------------------
47,913 34,000
-----------------------------------
$ 307,842 $ 197,927
===================================
See notes to Consolidated Financial Statements.
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(In thousands except share data)
1996 1995
-----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 11 $ 11
Notes payable - 1,115
Accounts payable 15,322 16,032
Accrued payroll and related taxes 34,416 33,793
Accrued expenses 19,509 21,456
Deferred tax liability, net - 117
-----------------------------------
69,258 72,524
-----------------------------------
RESERVES FOR LOSSES of casualty reinsurance subsidiary 41,543 40,118
-----------------------------------
LONG-TERM DEBT 8,012 5,376
-----------------------------------
OTHER 7,582 8,027
-----------------------------------
MINORITY INTEREST 37,401 8,978
-----------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized - -
Common stock, $.10 par value, 50,000,000 shares authorized:
Series A common stock, 3,858,885 issued and outstanding in 1996
and 1995 386 386
Series B common stock, 10,862,512 issued and outstanding in 1996
and 8,272,887 in 1995 1,086 827
Additional paid-in capital 119,411 39,644
Retained earnings 27,052 25,790
Cumulative translation adjustment (3,768) (3,702)
Unrealized loss on marketable securities (121) (41)
-----------------------------------
144,046 62,904
-----------------------------------
$ 307,842 $ 197,927
===================================
See notes to Consolidated Financial Statements.
Page 6 of 22
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 30, 1996 AND JULY 2, 1995
(In thousands)
(UNAUDITED)
1996 1995
-----------------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net Income $ 2,852 $ 3,325
Adjustments -
Depreciation expense 1,870 2,254
Amortization expense 6,553 3,780
Provision for bad debts 766 584
Equity income, net of dividends (963) (473)
Minority interests in net income 2,662 1,573
Other (109) (205)
Changes in assets and liabilities, net of acquisitions and divestitures -
(Increase) decrease in assets:
Accounts receivable (11,062) (8,031)
Inventories (1,767) (2,887)
Other current assets (3,243) (2,021)
Marketable securities and certificates of deposit (12) (240)
Other assets (1,543) (3,179)
Deferred tax asset, net 4,967 2,497
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (3,739) (3,714)
Accrued payroll and related taxes 623 916
Deferred tax liability, net (117) (388)
Reserve for losses of casualty reinsurance subsidiary 1,425 1,880
Other (444) 800
-----------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,281) (3,529)
-----------------------------------
(Continued)
Page 7 of 22
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 30, 1996 AND JULY 2, 1995
(In thousands)
(UNAUDITED)
(Continued)
1996 1995
-----------------------------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Net proceeds from public offering of subsidiary's common stock 51,606 -
Proceeds from exercise of stock options of subsidiary 320 897
Payments on notes receivable 153
Payments for acquisitions (13,703) -
Investment in and advances to foreign affiliates 349 (1,286)
Capital expenditures (4,615) (1,718)
Proceeds from sales (payments for purchases) of marketable securities of
casualty reinsurance subsidiary, net (7,980) 1,206
Deferred charge expenditures (2,482) (1,492)
-----------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 23,495 (2,240)
-----------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from public offering of the company's common stock 54,166 -
Proceeds from exercise of stock options 779 -
Proceeds from issuance of debt 9,871 64,657
Payments on debt (8,388) (95,242)
Proceeds from sales (payments for repurchases) of accounts
receivable (33,000) 34,928
Dividends paid (1,590) (1,454)
-----------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,838 2,889
-----------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 44,052 (2,880)
Cash and Cash Equivalents, at beginning of period 20,185 13,808
-----------------------------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 64,237 $ 10,928
===================================
SUPPLEMENTAL DISCLOSURES
CASH PAID DURING THE PERIOD FOR:
Interest $ 1,939 $ 1,451
Income taxes $ 131 $ 2,143
See notes to Consolidated Financial Statements.
Page 8 of 22
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed for the quarterly financial reporting are the
same as those disclosed in Note 1 of the Notes to Consolidated Financial
Statements included in the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995. Certain prior year amounts have been
reclassified to conform with current year financial statement presentation.
2. ACCOUNTS RECEIVABLE
In January 1995, the Corporation entered into a three year agreement 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
June 30, 1996, $2,000,000 of accounts receivable had been sold under this
agreement. The defined pool of accounts receivable sold at June 30, 1996
approximates fair value. The Corporation retains substantially the same risk
of credit loss as if the receivables had not been sold.
3. LONG-TERM DEBT
JUNE 30, December 31,
1996 1995
-----------------------------------
Revolving loans - 6.1% in 1996 and 6.2% in 1995 $ 1,850 $ 1,400
Other debt principally related to WCC and international subsidiaries 6,173 3,987
-----------------------------------
8,023 5,387
Less - Current portion of long-term debt (11) (11)
-----------------------------------
$ 8,012 $ 5,376
===================================
4. THE WACKENHUT CORPORATION'S STOCK OFFERING
During the second quarter of 1996, the Corporation sold 2,500,000 shares of
Series B common stock in connection with a public offering at a price of $23.50
per share. Net proceeds of approximately $54,166,000 from the offering will be
used to repay the outstanding balance on the revolving loan, to repurchase a
portion of the receivables sold under the accounts receivable securitization
facility, for possible future acquisitions, for systems and technology upgrades
and for general corporate purposes.
Page 9 of 22
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5. 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. WCC provides facility
management and construction services to detention and correctional facilities.
Provided below is various financial information for each segment:
TWENTY-SIX WEEKS ENDED
------------------------------------
(THOUSANDS OF DOLLARS) JUNE 30, 1996 JULY 2, 1995
------------- ------------
REVENUES:
Security-related and other support services $372,528 $337,119
Correctional services 62,850 46,044
-------- --------
Total revenues $435,378 $383,163
-------- --------
OPERATING INCOME:
Security-related and other support services $ 2,902 $ 3,614
Correctional services 3,632 3,408
Provision for relocation costs (750) -
-------- --------
Total operating income $ 5,784 $ 7,022
-------- --------
EQUITY INCOME (LOSS) OF AFFILIATES, NET OF TAXES:
Security-related and other support services $ 525 $ 477
Correctional services 182 (98)
-------- --------
Total equity income $ 707 $ 379
-------- --------
CAPITAL EXPENDITURES:
Security-related and other support services $ 3,508 $ 1,085
Correctional services 1,107 633
-------- --------
Total capital expenditures $ 4,615 $ 1,718
-------- --------
DEPRECIATION AND AMORTIZATION EXPENSE:
Security-related and other support services $ 6,817 $ 5,023
Correctional services 1,606 1,011
-------- --------
Total expenses $ 8,423 $ 6,034
-------- --------
IDENTIFIABLE ASSETS AT JUNE 30, 1996 AND
DECEMBER 31, 1995:
Security-related and other support services $212,218 $159,087
Correctional services 95,624 38,840
-------- --------
Total identifiable assets $307,842 $197,927
-------- --------
Page 10 of 22
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DOMESTIC AND INTERNATIONAL OPERATIONS
Non-U.S. Operations of the Corporation and its subsidiaries are conducted
primarily in South American and Australia. The Corporation carries its
investments 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 on the
accompanying financial statements. A summary of domestic and international
operations is shown below.
TWENTY-SIX WEEKS ENDED
-------------------------------
(THOUSANDS OF DOLLARS) JUNE 30, 1996 JULY 2, 1995
------------- ------------
REVENUES:
Domestic operations $ 365,765 $ 320,984
International operations 69,613 62,179
--------- ----------
Total revenues $ 435,378 $ 383,163
--------- ----------
OPERATING INCOME:
Domestic operations $ 6,140 $ 4,899
International operations 394 2,123
Provision for relocation costs (750) -
--------- ----------
Total operating income $ 5,784 $ 7,022
--------- ----------
EQUITY INCOME OF AFFILIATES, NET OF TAXES:
Domestic operations $ - $ -
International operations 707 379
--------- ----------
Total equity income $ 707 $ 379
--------- ----------
CAPITAL EXPENDITURES:
Domestic operations $ 3,644 $ 1,277
International operations 971 441
--------- ----------
Total capital expenditures $ 4,615 $ 1,718
--------- ----------
DEPRECIATION AND AMORTIZATION EXPENSE:
Domestic operations $ 4,782 $ 4,788
International operations 3,641 1,246
--------- ----------
Total expenses $ 8,423 $ 6,034
--------- ----------
IDENTIFIABLE ASSETS AT JUNE 30, 1996 AND
DECEMBER 31, 1995:
Domestic operations $ 248,863 $ 141,431
International operations 58,979 56,496
--------- ----------
Total identifiable assets $ 307,842 $ 197,927
--------- ----------
Page 11 of 22
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Corporation provides security-related and other support services through
the Services Business and correctional services through the Correctional
Business. Through the Services Business, the Corporation provides physical
security services, food services and other related services to commercial and
governmental customers. Through the Correctional Business, the Corporation
provides correctional and detention facility design, development and management
services to government agencies. The Services Business is managed through two
operating groups: the North American Operations Group and the International
Operations Group. The Correctional Business is operated through the
Corporation's 55%-owned Wackenhut Corrections Corporation subsidiary ("WCC").
The Correctional Business includes the Australian subsidiary and United Kingdom
affiliate of WCC.
FINANCIAL CONDITION
During the second quarter of 1996, the Corporation sold 2,500,000 shares of its
Series B common stock in connection with a public offering at a price of $23.50
per share, before deducting underwriting discounts and commissions and
estimated offering expenses. Net proceeds of approximately $54,166,000 from
the offering will be used to repay the outstanding balance on the revolving
loan, to repurchase a portion of the receivables sold under the accounts
receivable securitization facility, for possible future acquisitions, for
systems and technology upgrades and for general corporate purposes.
In January 1996, WCC sold 2,300,000 shares of its common stock in connection
with a public offering at a price of $24.00 per share, before deducting
underwriting discounts and commissions and estimated offering expenses. Net
proceeds of approximately $51,606,000 from WCC's offering will be used for
possible future acquisitions, capital investments in new facilities, working
capital requirements and general corporate purposes.
Reference is made to Item 7, Part II of the Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 for further discussion and
analysis of information pertaining to the Corporation's financial condition.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Corporation's consolidated financial statements and the notes thereto.
Page 12 of 22
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COMPARISON OF THIRTEEN WEEKS ENDED JUNE 30, 1996 AND THIRTEEN WEEKS ENDED JULY
2, 1995
REVENUES
Consolidated revenues increased 15.3% to $222.9 million in the thirteen weeks
ended June 30, 1996 (the "Second Quarter of 1996") from $193.4 million in the
thirteen weeks ended July 2, 1995 (the "Second Quarter of 1995").
SERVICES BUSINESS
Services Business revenues increased 10.9% to $189.5 million in the Second
Quarter of 1996 from $170.8 million in the Second Quarter of 1995.
North American Operations Group. North American Operations Group revenues
increased 12.8% to $163.8 million in the Second Quarter of 1996 from $145.2
million in the Second Quarter of 1995. The North American Operations Group
continued to increase its revenue base, primarily as a result of obtaining and
maintaining contracts with major national accounts and continuing success in
the Custom Protection Officer ("CPO") business. The CPO business revenues
increased 9.8% during the Second Quarter of 1996 compared to the Second Quarter
of 1995. Revenues of the Food Division almost doubled during the Second
Quarter of 1996 to $17.6 million, compared to revenues of $9.4 million for the
Second Quarter of 1995, reflecting the acquisition of the contracts and certain
assets of the Correctional Food Services Division of Service America
Corporation and new business development.
International Operations Group. International Operations Group revenues
increased 4.2% to $24.7 million in the Second Quarter of 1996 from $23.7
million in the Second Quarter of 1995. During the fourth quarter of 1995 the
former subsidiary in Chile was deconsolidated and is now a minority-owned
affiliate. Revenues of the Chilean operation for the Second Quarter of 1995
amounted to $4.7 million. Excluding the effect of the Chilean operation,
revenues of the International Operations Group increased approximately $5.7
million. Revenues of Wackenhut of Australia Pty., Ltd., which was acquired in
July of last year, amounted to $2.3 million in the Second Quarter of 1996.
CORRECTIONAL BUSINESS
Correctional Business revenues increased 48.1% to $33.4 million in the Second
Quarter of 1996 from $22.6 million in the Second Quarter of 1995. The increase
in revenues in the Second Quarter of 1996 was primarily attributable to
increased compensated resident days resulting from the opening of two
facilities in the second half of 1995 (Moore Haven Correctional Facility in
Florida, and John R. Lindsey Unit in Texas), one facility that opened in the
first half of 1996 (Willacy County Unit in Texas), one facility for which WCC
assumed correctional services in 1996 (Delaware County Prison in Pennsylvania)
and the expansion of two facilities in the second half of 1995 (Arthur Gorrie
Correctional Centre in Australia, and Allen Correctional Center in
Louisiana).
Page 13 of 22
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OPERATING INCOME
Consolidated operating income decreased 6.2% to $3.7 million in the Second
Quarter of 1996.
SERVICES BUSINESS
Operating income from the Services Business decreased 15.9% to $1.8 million in
the Second Quarter of 1996 from $2.1 million for the same period last year.
North American Operations Group. North American Operations Group operating
income remained relatively unchanged at $4.6 million from the Second Quarter
of 1995. Increases in the profit contribution of the core security-related and
foodservice businesses were offset by higher group overhead costs and greater
absorption of direct corporate general and administrative expenses which
increased as a result of higher payroll related costs.
International Operations Group. International Operations Group incurred an
operating loss of $765,000 in the Second Quarter of 1996 compared to operating
income of $580,000 for the same period in 1995. The operating loss in the
Second Quarter of 1996 was primarily due to the operating losses from the new
security services subsidiary in Australia, Wackenhut of Australia Pty., Ltd.,
which recorded an operating loss of approximately $852,000 in the Second
Quarter of 1996. Currently, the Corporation is in the process of aligning its
organizational structure in Australia to that of its other security operations
in order to enhance operational efficiency and to increase its revenue base in
that country. Increases in operating losses in Venezuela, decreases in
operating income in Ecuador and the deconsolidation of operations in Chile
offset increases in operating income in other countries.
CORPORATE EXPENSES AND UNDERWRITING LOSSES
Corporate expenses and underwriting losses decreased 33.9% to $2.0 million in
the Second Quarter of 1996 from $3.0 million in the Second Quarter of 1995.
CORRECTIONAL BUSINESS
WCC's operating income increased by 5.2% to $1.9 million in the Second Quarter
of 1996 from $1.8 million in the Second Quarter of 1995 due to additional
income from the opening of three new facilities, assumption of correctional
services at one facility, and two expansions, partially offset by higher
general and administrative expenses.
OTHER INCOME/EXPENSE
Other income was $131,000 in the Second Quarter of 1996 compared to other
expense of $428,000 for the comparable period in 1995. Interest and investment
income increased $780,000 including interest income of approximately $553,000
from the investment of the net proceeds of WCC's public offering in January
1996. This increase was partially offset by an increase in interest expense of
$221,000 due principally to the increase in the level of corporate bank
borrowings and fees incurred under the accounts receivable securitization
facility. Proceeds from the additional bank borrowings and sales of
receivables under the accounts receivable securitization facility were used by
the Corporation
Page 14 of 22
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principally to effect the foodservice acquisition, for the improvement of its
information systems, and to penetrate the Australian security-services market.
INCOME BEFORE INCOME TAXES
Income before income taxes increased 8.8% to $3.9 million in the Second
Quarter of 1996 from $3.5 million in the Second Quarter of 1995.
The combined federal and state effective income tax rate was 36.0% for the
Second Quarter of 1996 and 35.7% for the same period in 1995. The higher
effective rate in the Second Quarter of 1996 was due to: (i) the statutory
elimination of targeted job tax credits; and (ii) a decrease in tax exempt
income of the captive reinsurance subsidiary.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $923,000 in the
Second Quarter of 1996 from $667,000 in the Second Quarter of 1995, reflecting
principally the increase in earnings of and the public ownership in WCC.
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased 159.7% to
$400,000 in the Second Quarter of 1996 from $154,000 in the Second Quarter of
1995, primarily resulting from increased earnings of security services
affiliates in South America and Europe, the joint venture of WCC in the United
Kingdom, and the inclusion of the Corporation's equity income of the Chilean
operations.
NET INCOME
Net income increased to $1,907,000 in the Second Quarter of 1996, or $0.15 per
share compared to $1,726,000 or $0.15 per share for the Second Quarter of 1995.
COMPARISON OF TWENTY-SIX WEEKS ENDED JUNE 30, 1996 AND TWENTY-SIX WEEKS ENDED
JULY 2, 1995
REVENUES
Consolidated revenues increased 13.6% to $435.4 million in the twenty-six weeks
ended June 30, 1996 (the "First Half of 1996") from $383.2 million in the
twenty-six weeks ended July 2, 1995 (the "First Half of 1995").
SERVICES BUSINESS
Services Business revenues increased 10.5% to $372.5 million in the First Half
of 1996 from $337.1 million in the First Half of 1995.
Page 15 of 22
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North American Operations Group. North American Operations Group revenues
increased 12.3% to $320.0 million in the First Half of 1996 from $284.9 million
in the First Half of 1995. The North American Operations Group continued to
increase its revenue base, primarily as a result of obtaining and maintaining
contracts with major national accounts and continuing success in the CPO
business. The CPO business revenues increased 11.8% during the First Half of
1996 compared to the First Half of 1995. Revenues of the Food Division almost
doubled during the First Half of 1996 to $33.4 million, compared to revenues of
$17.7 million for the First Half of 1995, reflecting the acquisition of the
contracts and certain assets of the Correctional Food Services Division of
Service America Corporation and new business development.
International Operations Group. International Operations Group revenues
increased 9.1% to $50.4 million in the First Half of 1996 from $46.2 million in
the First Half of 1995. During the fourth quarter of 1995 the former
subsidiary in Chile was deconsolidated and is now a minority-owned affiliate.
Revenues of the Chilean operation for the First Half of 1995 amounted to $8.9
million. Excluding the effect of the Chilean operation, revenues of the
International Operations Group increased approximately $13.1 million. Revenues
of Wackenhut of Australia Pty., Ltd., which was acquired in July of last year,
amounted to $6.1 million in the First Half of 1996.
CORRECTIONAL BUSINESS
Correctional Business revenues increased 36.5% to $62.9 million in the First
Half of 1996 from $46.0 million in the First Half of 1995. The increase in
revenues in the First Half of 1996 was primarily attributable to increased
compensated resident days resulting from the opening of two facilities in the
second half of 1995 (Moore Haven Correctional Facility in Florida, and John R.
Lindsey Unit in Texas), one facility that opened in the first half of 1996
(Willacy County Unit in Texas), one facility for which WCC assumed correctional
services in 1996 (Delaware County Prison in Pennsylvania) and the expansion of
two facilities in the second half of 1995 (Arthur Gorrie Correctional Centre in
Australia, and Allen Correctional Center in Louisiana).
OPERATING INCOME
Consolidated operating income, which included a $750,000 provision for
relocation costs in the First Half of 1996, decreased 17.6% to $5.8 million.
Excluding relocation costs, consolidated operating income decreased 7.0%.
SERVICES BUSINESS
Operating income from the Services Business decreased 19.7% to $2.9 million in
the First Half of 1996 from $3.6 million for the same period last year.
North American Operations Group. North American Operations Group operating
income increased 11.0% to $9.2 million in the First Half of 1996 from $8.3
million in the First Half of 1995. Increases in the profit contribution of the
core security-related and foodservice businesses were partially offset by
higher group overhead costs and greater absorption of direct corporate general
and administrative expenses which increased as a result of higher payroll
related costs.
Page 16 of 22
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International Operations Group. International Operations Group incurred an
operating loss of $1.0 million in the First Half of 1996 compared to operating
income of $1.1 million for the same period in 1995. The operating loss in the
First Half of 1996 was primarily due to the operating losses from the new
security services subsidiary in Australia, Wackenhut of Australia Pty., Ltd.,
which recorded an operating loss of approximately $1.2 million in the First
Half of 1996. Currently, the Corporation is in the process of aligning its
organizational structure in Australia to that of its other security operations
in order to enhance operational efficiency and to increase its revenue base in
that country. Increases in operating losses in Venezuela, decreases in
operating income in Ecuador and the deconsolidation of operations in Chile
offset increases in operating income in other countries.
CORPORATE EXPENSES AND UNDERWRITING LOSSES
Corporate expenses and underwriting losses decreased 6.8% to $5.4 million in
the First Half of 1966 from $5.8 million in the First Half of 1995.
CORRECTIONAL BUSINESS
WCC's operating income increased by 6.6% to $3.6 million in the First Half of
1996 from $3.4 million in the First Half of 1995 due to additional income from
the opening of three new facilities, assumption of correctional services at one
facility, and two expansions, partially offset by higher general and
administrative expenses.
OTHER INCOME/EXPENSE
Other income was $302,000 in the First Half of 1996 compared to other expense
of $840,000 for the comparable period in 1995 due to two principal factors.
First, interest and investment income increased $1,510,000 including interest
income of approximately $1,194,000 from the investment of the net proceeds of
WCC's public offering in January 1996. Second, interest expense increased
$368,000 due principally to the increase in the level of corporate bank
borrowings and fees incurred under the accounts receivable securitization
facility. Proceeds from the additional bank borrowings and sales of
receivables under the accounts receivable securitization facility were used by
the Corporation principally to effect the foodservice acquisition, for the
improvement of its information systems, and to penetrate the Australian
security-services market.
INCOME BEFORE INCOME TAXES
Income before income taxes, which included a $750,000 provision for relocation
costs in the First Half of 1996, decreased 1.6% to $6.1 million from $6.2
million in the First Half of 1995.
The combined federal and state effective income tax rate was 36.0% for the
First Half of 1996 and 35.7% for the same period in 1995. The higher effective
rate in the First Half was due to: (i) the statutory elimination of targeted
job tax credits; and (ii) a decrease in tax exempt income of the captive
reinsurance subsidiary.
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MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $1.8 million in
the First Half of 1996 from $1.0 million in the First Half of 1995, reflecting
principally the increase in earnings of and the public ownership in WCC.
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased 86.5% to
$707,000 in the First Half of 1996 from $379,000 in the First Half of 1995,
primarily resulting from increased earnings of security services affiliates in
South America and Europe, the joint venture of WCC in the United Kingdom, and
the inclusion of the Corporation's equity income of the Chilean operations.
NET INCOME
Net income decreased to $2,852,000 in the First Half of 1996, or $0.23 per
share, after the $750,000 provision for relocation costs ($461,000 net of
income taxes), compared to $3,325,000 or $0.28 per share for the First Half of
1995.
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19
THE WACKENHUT CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation 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 Corporation 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 from any such
claims or litigation.
ITEM 2. CHANGES IN SECURITIES
The Corporation increased the number of authorized shares of the Corporation's
Common Stock from 20,000,000 shares, par value $.10 per share, to 50,000,000
shares, par value of $.10 per share, with 3,858,885 shares designated as Series
A Common Stock and 46,141,115 shares designated as Series B Common Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Corporation was held on April 30,
1996 in Palm Beach Gardens, Florida. All directors nominated for election were
elected in an uncontested election. A tabulation of the results is as follows:
Name Votes for Votes Withheld
- ---- --------- --------------
Julius W. Becton 3,293,145 8,837
Richard G. Capen, Jr. 3,293,545 8,437
Anne Newman Foreman 3,293,618 8,364
Edward L. Hennessy, Jr. 3,293,145 8,837
Paul X. Kelley 3,294,830 7,152
Nancy Clark Reynolds 3,294,800 7,182
Thomas P. Stafford 3,293,145 8,837
George R. Wackenhut 3,294,660 7,322
Richard R. Wackenhut 3,295,403 6,579
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Tabulations of the results of other matters voted upon at the Annual Meeting is
as follows:
Proposal No. 2
Appointment of Independent Certified Public Accountants -
FOR.....3,296,552 AGAINST.....3,593 ABSTAIN.....1,836
Proposal No. 3
Approval of Non-Employee Director Stock Option Plan -
FOR.....2,619,502 AGAINST.....371,004 ABSTAIN.....16,569
Proposal No. 4
Proposal to set aside a total of 900,000 shares of series B Common Stock of the
corporation to be utilized for future issuance under the Key Employee Long Term
Incentive Stock Plan -
FOR.....2,555,079 AGAINST.....422,980 ABSTAIN.....18,245
A Special Meeting of the holders of the Series A Common Stock and the Series B
Common Stock of The Wackenhut Corporation was held on May 23, 1996 in Palm
Beach Gardens, Florida. A tabulation of the results of matters voted upon at
the Special Meeting is as follows:
Proposal No. 1
Proposal to amend Article III of the Corporation's Articles of Incorporation to
increase the number of authorized shares of the Corporation's Common Stock from
20,000,000 shares, par value $.10 per share, to 50,000,000 shares, par value
$.10 per share, with 3,858,885 shares designated as Series A Common Stock and
46,141,115 shares designated as Series B Common Stock -
SERIES A SERIES B
--------- ---------
FOR 2,048,358 4,202,587
AGAINST 191,949 370,569
ABSTAIN 2,218 3,160
Proposal No. 2
Proposal to amend Article III of the Corporation's Articles of Incorporation to
confirm that one class or series of the Corporation's capital stock may be
issued (by action of the Board of Directors without the necessity of further
shareholder action) through a share dividend or a stock split on shares of
another class or series of the Corporation's capital stock -
SERIES A SERIES B
--------- ---------
FOR 2,100,940 4,213,706
AGAINST 139,612 360,199
ABSTAIN 1,973 2,411
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Proposal No 3
Proposal to ratify, confirm and approve prior issuances by the Corporation of
shares of one series of the Corporation's Common Stock to holders of another
series of the Corporation's Common Stock, through a share dividend, a stock
split, or otherwise -
SERIES A SERIES B
--------- ---------
FOR 2,098,385 4,207,045
AGAINST 141,543 364,715
ABSTAIN 2,597 4,556
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits -
Exhibit 3.1 - Articles of Incorporation as amended
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b). Reports on Form 8-K
The Corporation did not file a Form 8-K during the second quarter
of 1996
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THE WACKENHUT CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Quarterly Report on Form 10-Q for the
twenty-six weeks ended June 30, 1996 to be signed on its behalf by the
undersigned hereunto duly authorized.
THE WACKENHUT CORPORATION
DATE: August 12, 1996 /s/ JUAN D. MIYAR
--------------------------------------
Juan D. Miyar, Duly Authorized Officer
and Chief Accounting Officer
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