<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 29,1996
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
- -------------------------------------------------------------------------------
(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 Drive #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 (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 November 1, 1996, 3,858,885 shares of Series A and 10,902,199 shares of
Series B of the registrant's Common Stock were issued and outstanding.
Page 1 of 20
<PAGE> 2
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 thirty-nine weeks ended September 29, 1996 are not
necessarily indicative of the results for the entire fiscal year ending
December 29, 1996.
Page 2 of 20
<PAGE> 3
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
SEPTEMBER 29, 1996 and OCTOBER 1, 1995
(In thousands except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
REVENUES $ 236,869 $ 203,637
----------------------------
OPERATING EXPENSES:
Payroll and related taxes 171,915 145,571
Other operating expenses 59,730 53,672
----------------------------
231,645 199,243
----------------------------
OPERATING INCOME 5,224 4,394
----------------------------
OTHER INCOME (EXPENSE):
Interest expense (425) (772)
Interest and investment income 1,015 271
----------------------------
590 (501)
----------------------------
INCOME BEFORE INCOME TAXES 5,814 3,893
PROVISION FOR INCOME TAXES 2,010 1,325
MINORITY INTEREST, NET OF INCOME TAXES 1,335 703
Equity income of foreign affiliates,
net of income taxes (569) (91)
----------------------------
NET INCOME $ 3,038 $ 1,956
============================
EARNINGS PER SHARE $ 0.21 $ 0.16
============================
</TABLE>
See notes to Consolidated Financial Statements.
Page 3 of 20
<PAGE> 4
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTY-NINE WEEKS ENDED
SEPTEMBER 29,1996 AND OCTOBER 1, 1995
(In thousands except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
REVENUES $ 672,247 $ 586,800
OPERATING EXPENSES:
Payroll and related taxes 488,599 427,843
Other operating expenses 171,890 147,541
Provision for relocation costs 750 -
----------------------------
661,239 575,384
----------------------------
OPERATING INCOME 11,008 11,416
----------------------------
OTHER INCOME (EXPENSE):
Interest expense (2,288) (2,267)
Interest and investment income 3,180 926
----------------------------
892 (1,341)
----------------------------
INCOME BEFORE INCOME TAXES 11,900 10,075
Provision for income taxes 4,201 3,523
Minority interest, net of income taxes 3,085 1,741
Equity income of foreign affiliates,
net of income taxes (1,276) (470)
----------------------------
NET INCOME $ 5,890 $ 5,281
============================
EARNINGS PER SHARE $ 0.44 $ 0.44
============================
</TABLE>
See notes to Consolidated Financial Statements.
Page 4 of 20
<PAGE> 5
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1996 AND DECEMBER 31, 1995
(In thousands except share data)
<TABLE>
<CAPTION>
(Unaudited)
1996 1995
ASSETS ---------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 59,977 $ 20,185
Accounts receivable, less allowance for doubtful accounts
of $2,114 in 1996 and $1,268 in 1995 121,542 77,121
Inventories 9,337 7,527
Other 21,271 17,329
--------------------------
212,127 122,162
--------------------------
NOTES RECEIVABLE 10,313 10,540
--------------------------
MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT
of casualty reinsurance subsidiary 13,338 5,774
--------------------------
PROPERTY AND EQUIPMENT, at cost 41,573 29,132
Accumulated depreciation (11,197) (9,851)
--------------------------
30,376 19,281
--------------------------
DEFERRED TAX ASSET, net 659 6,170
--------------------------
OTHER ASSETS:
Investment in and advances to foreign affiliates, at cost,
including equity in undistributed earnings of $5,622 in
1996 and $4,098 in 1995 12,917 10,984
Other 36,283 23,016
--------------------------
49,200 34,000
--------------------------
$ 316,013 $ 197,927
==========================
</TABLE>
See notes to Consolidated Financial Statements.
Page 5 of 20
<PAGE> 6
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1996 AND DECEMBER 31, 1995
(In thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ - $ 1,115
Accounts payable 19,209 19,404
Accrued payroll and related taxes 34,924 30,330
Accrued expenses 17,039 19,331
Deferred tax liability, net - 117
----------------------------
71,172 70,297
----------------------------
RESERVES FOR LOSSES of casualty reinsurance subsidiary 43,096 40,118
----------------------------
LONG-TERM DEBT 4,925 5,387
----------------------------
OTHER 10,657 10,243
----------------------------
MINORITY INTEREST 39,487 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, 10,902,199 issued and outstanding in 1996
and 8,272,887 in 1995 1,090 827
Additional paid-in capital 119,846 39,644
Retained earnings 29,133 25,790
Cumulative translation adjustment (3,645) (3,702)
Unrealized loss on marketable securities (134) (41)
----------------------------
146,676 62,904
----------------------------
$ 316,013 $ 197,927
============================
</TABLE>
See notes to Consolidated Financial Statements.
Page 6 of 20
<PAGE> 7
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net Income $ 5,890 $ 5,281
Adjustments -
Depreciation expense 3,112 3,304
Amortization expense 6,943 6,058
Provision for bad debts 966 840
Equity income, net of dividends (1,676) (611)
Minority interests in net income 4,674 2,638
Other 201 (57)
Changes in assets and liabilities, net of acquisitions and divestitures -
(Increase) decrease in assets:
Accounts receivable (18,427) (12,898)
Inventories (5,316) (5,553)
Other current assets (3,692) (1,202)
Marketable securities and certificates of deposit (190) (300)
Deferred tax asset, net 5,511 2,342
Other assets 1,259 (8,585)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (3,428) 965
Accrued payroll and related taxes 4,594 3,059
Deferred tax liability, net (117) (596)
Reserve for losses of casualty reinsurance subsidiary 2,978 2,495
Other 414 930
--------------------------
Net Cash Provided by (Used In) Operating Activities 3,696 (1,890)
--------------------------
</TABLE>
(Continued)
Page 7 of 20
<PAGE> 8
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(In thousands)
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
1996 1995
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: ----------------------------
<S> <C> <C>
Net proceeds from public offering of subsidiary's common stock 51,593 -
Proceeds from exercise of stock options of subsidiary 719 975
Payments on notes receivable - 232
Payments for acquisitions (13,703) -
Investment in and advances to foreign affiliates (261) (2,455)
Capital expenditures (14,128) (3,527)
Proceeds from sales (payments for purchases) of marketable securities of
casualty reinsurance subsidiary, net (7,752) 1,256
Deferred charge expenditures (4,339) (2,566)
-----------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 12,129 (6,085)
-----------------------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net proceeds from public offering of the company's common stock 54,029 -
Proceeds from exercise of stock options 1,100 270
Proceeds from issuance of debt 10,171 121,267
Payments on debt (11,786) (153,021)
Proceeds from sales (payments for repurchases) of accounts
receivable (27,000) 32,929
Dividends paid (2,547) (2,182)
-----------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 23,967 (737)
-----------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39,792 (8,712)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 20,185 13,808
-----------------------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 59,977 $ 5,096
=============================
SUPPLEMENTAL DISCLOSURES
CASH paid during the period for:
Interest $ 2,356 $ 2,295
Income taxes $ 1,043 $ 2,166
</TABLE>
See notes to Consolidated Financial Statements.
Page 8 of 20
<PAGE> 9
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
September 29, 1996, $8,000,000 of accounts receivable had been sold under this
agreement. The defined pool of accounts receivable sold at September 29, 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
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 29, December 31,
1996 1995
---------------------------------
<S> <C> <C>
Revolving loans - 6.2% in 1996 and 1995 $ 2,150 $ 1,400
Other debt principally related to WCC and international 2,775 3,987
subsidiaries ---------------------------------
$ 4,925 5,387
=================================
</TABLE>
Page 9 of 20
<PAGE> 10
4. 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:
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------
(THOUSANDS OF DOLLARS) SEPTEMBER 29, 1996 OCTOBER 1, 1995
------------------ -----------------
<S> <C> <C>
REVENUES:
Security-related and other support services $ 572,612 $ 514,999
Correctional services 99,635 71,801
---------- ----------
Total revenues $ 672,247 $ 586,800
---------- ----------
OPERATING INCOME:
Security-related and other support services $ 5,187 $ 6,083
Correctional services 6,571 5,333
Provision for relocation costs (750) -
---------- ----------
Total operating income $ 11,008 $ 11,416
---------- ----------
EQUITY INCOME (LOSS) OF AFFILIATES, NET OF TAXES:
Security-related and other support services $ 814 $ 617
Correctional services 462 (147)
---------- ----------
Total equity income $ 1,276 $ 470
---------- ----------
CAPITAL EXPENDITURES:
Security-related and other support services $ 5,317 $ 2,191
Correctional services 8,811 1,336
---------- ----------
Total capital expenditures $ 14,128 $ 3,527
---------- ----------
DEPRECIATION AND AMORTIZATION EXPENSE:
Security-related and other support services $ 7,501 $ 7,748
Correctional services 2,554 1,614
---------- ----------
Total expenses $ 10,055 $ 9,362
---------- ----------
IDENTIFIABLE ASSETS AT SEPTEMBER 29, 1996 AND
DECEMBER 31, 1995:
Security-related and other support services $ 216,705 $ 159,087
Correctional services 99,308 38,840
---------- ----------
Total identifiable assets $ 316,013 $ 197,927
---------- ----------
</TABLE>
Page 10 of 20
<PAGE> 11
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
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.
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
SEPTEMBER 29, 1996 OCTOBER 1, 1995
REVENUES: ------------------- ---------------
Domestic operations $ 562,263 $ 486,858
International operations 109,984 99,942
---------- ----------
Total revenues $ 672,247 $ 586,800
---------- ----------
OPERATING INCOME:
Domestic operations $ 10,475 $ 7,687
International operations 1,283 3,729
Provision for relocation costs (750) -
---------- ----------
Total operating income $ 11,008 $ 11,416
---------- ----------
EQUITY INCOME OF AFFILIATES, NET OF TAXES:
Domestic operations $ - $ -
International operations 1,276 470
---------- ----------
Total equity income $ 1,276 $ 470
---------- ----------
CAPITAL EXPENDITURES:
Domestic operations $ 12,169 $ 1,405
International operations 1,959 2,122
---------- ----------
Total capital expenditures $ 14,128 $ 3,527
---------- ----------
DEPRECIATION AND AMORTIZATION EXPENSE:
Domestic operations $ 7,430 $ 7,508
International operations 2,625 1,854
---------- ----------
Total expenses $ 10,055 $ 9,362
---------- ----------
IDENTIFIABLE ASSETS AT SEPTEMBER 29, 1996 AND
DECEMBER 31, 1995:
Domestic operations $ 257,855 $ 141,431
International operations 58,158 56,496
---------- ----------
Total identifiable assets $ 316,013 $ 197,927
---------- ----------
</TABLE>
Page 11 of 20
<PAGE> 12
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 $54,029,000 from the offering
were used to repay the outstanding balance on the revolving loan, to repurchase
a portion of the receivables sold under the accounts receivable securitization
facility, and will be used for possible 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 $51,593,000 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 20
<PAGE> 13
COMPARISON OF THIRTEEN WEEKS ENDED SEPTEMBER 29, 1996 AND THIRTEEN WEEKS ENDED
OCTOBER 1, 1995
REVENUES
Consolidated revenues increased 16.3% to $236.9 million in the thirteen weeks
ended September 29, 1996 (the "Third Quarter of 1996") from $203.6 million in
the thirteen weeks ended October 1, 1995 (the "Third Quarter of 1995").
SERVICES BUSINESS
Services Business revenues increased 12.5% to $200.1 million in the Third
Quarter of 1996 from $177.9 million in the Third Quarter of 1995.
North American Operations Group. North American Operations Group revenues
increased 14.7% to $170.8 million in the Third Quarter of 1996 from $148.9
million in the Third Quarter of 1995. The North American Operations Group
continued to increase its revenue base with an increase of approximately 853,000
billable hours over the same quarter last year. The CPO business revenues
increased 14.2% to $18.9 million during the Third Quarter of 1996 compared to
the Third Quarter of 1995. Revenues of the Food Division almost doubled during
the Third Quarter of 1996 to $17.8 million, compared to revenues of $9.1 million
for the Third 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 0.6% to $29.0 million in the Third Quarter of 1996 from $28.9 million
in the Third 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 Third Quarter of 1995 amounted to $5.4
million. Excluding the effect of the Chilean operation, revenues of the
International Operations Group increased approximately $5.5 million. Revenues
of Wackenhut of Australia Pty., Ltd., which was acquired in July of last year,
amounted to $3.8 million in the Third Quarter of 1996.
CORRECTIONAL BUSINESS
Correctional Business revenues increased 42.8% to $36.8 million in the Third
Quarter of 1996 from $25.8 million in the Third Quarter of 1995. The increase
in revenues in the Third 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), two facilities that opened in the first half of 1996
(Willacy County Unit in Texas, and Marshall County Correctional Facility in
Mississippi), one facility for which WCC assumed correctional services in the
first half of 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 20
<PAGE> 14
OPERATING INCOME
Consolidated operating income increased 18.9% to $5.2 million in the Third
Quarter of 1996.
SERVICES BUSINESS
Operating income from the Services Business decreased 7.5% to $2.3 million in
the Third Quarter of 1996 from $2.5 million for the same period last year.
North American Operations Group. North American Operations Group operating
income increased 4.9% to $5.0 million in the Third Quarter of 1996 from $4.8
million in the Third Quarter of 1995. Increased profit contribution resulted
from better profit margins on contracts with national accounts and lower group
insurance costs.
International Operations Group. International Operations Group had operating
income of $58,000 in the Third Quarter of 1996 compared to operating income
of $889,000 for the same period in 1995. The decline in operating income in the
Third 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 $585,000 in the Third Quarter
of 1996. A decrease in operating income in Russia, 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 12.8% to $2.8 million in
the Third Quarter of 1996 from $3.2 million in the Third Quarter of 1995.
CORRECTIONAL BUSINESS
WCC's operating income increased by 52.7% to $2.9 million in the Third Quarter
of 1996 from $1.9 million in the Third Quarter of 1995 due to additional income
from the opening of four 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 $590,000 in the Third Quarter of 1996 compared to other expense
of $501,000 for the comparable period in 1995. Interest and investment income
increased $744,000 including interest income of approximately $333,000 from the
investment of the net proceeds of WCC's public offering in January 1996.
Interest expense in the Third Quarter of 1996 decreased by $347,000 compared to
the Third Quarter of 1995 due principally to the decrease in the level of
corporate bank borrowings and fees incurred under the accounts receivable
securitization facility.
Page 14 of 20
<PAGE> 15
INCOME BEFORE INCOME TAXES
Income before income taxes increased 49.3% to $5.8 million in the Third Quarter
of 1996 from $3.9 million in the Third Quarter of 1995.
The combined federal and state effective income tax rate was 36.0% for the Third
Quarter of 1996 and 35.1% for the same period in 1995. The higher effective
rate in the Third Quarter was due to: (i) the elimination of targeted job tax
credits; (ii) a decrease in capital loss carryforward utilization; and (iii) a
decrease in tax exempt income of the captive reinsurance subsidiary.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $1,335,000 in the
Third Quarter of 1996 from $703,000 in the Third 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 to $569,000
in the Third Quarter of 1996 from $91,000 in the Third 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 $3,038,000 in the Third Quarter of 1996, or $0.21 per
share compared to $1,956,000 or $0.16 per share for the Third Quarter of 1995.
Comparison of Thirty-nine Weeks Ended September 29, 1996 and Thirty-nine Weeks
Ended October 1, 1995
REVENUES
Consolidated revenues increased 14.6% to $672.2 million in the thirty-nine weeks
ended September 29, 1996 (the "First Nine Months of 1996") from $586.8 million
in the thirty-nine weeks ended October 1, 1995 (the "First Nine Months of
1995").
SERVICES BUSINESS
Services Business revenues increased 11.2% to $572.6 million in the First Nine
Months of 1996 from $515.0 million in the First Nine Months of 1995.
North American Operations Group. North American Operations Group revenues
increased 13.1% to $490.8 million in the First Nine Months of 1996 from $433.8
million in the First Nine Months of 1995. The North American Operations Group
continued to increase its revenue base, primarily as a result of increased
billable hours and obtaining contracts with major national accounts. The CPO
business
Page 15 of 20
<PAGE> 16
revenues increased 12.6% to $53.8 million during the First Nine Months of
1996 compared to the First Nine Months of 1995. Revenues of the Food Division
almost doubled during the First Nine Months of 1996 to $51.2 million, compared
to revenues of $26.8 million for the First Nine Months 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 5.8% to $79.4 million in the First Nine Months of 1996 from $75.1
million in the First Nine Months 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 Nine Months of 1995
amounted to $14.2 million. Excluding the effect of the Chilean operation,
revenues of the International Operations Group increased approximately $18.6
million. Revenues of Wackenhut of Australia Pty., Ltd., which was acquired in
July of last year, amounted to $9.9 million in the First Nine Months of 1996.
CORRECTIONAL BUSINESS
Correctional Business revenues increased 38.8% to $99.6 million in the First
Nine Months of 1996 from $71.8 million in the First Nine Months of 1995. The
increase in revenues in the First Nine Months 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), two facilities that opened in
the first half of 1996 (Willacy County Unit in Texas, and Marshall County
Correctional Facility in Mississippi), one facility for which WCC assumed
correctional services in the first half of 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 Nine Months of 1996, decreased 3.6% to $11.0
million. Excluding relocation costs, consolidated operating income increased
3.0%.
SERVICES BUSINESS
Operating income from the Services Business decreased 14.7% to $5.2 million in
the First Nine Months of 1996 from $6.1 million for the same period last year.
North American Operations Group. North American Operations Group operating
income increased 8.8% to $14.3 million in the First Nine Months of 1996 from
$13.1 million in the First Nine Months 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.
International Operations Group. International Operations Group incurred an
operating loss of $900,000 in the First Nine Months of 1996 compared to
operating income of $1.9 million for the same
Page 16 of 20
<PAGE> 17
period in 1995. The operating loss in the First Nine Months 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 $1.8 million in the First Nine Months of 1996.
Operating losses in Czechoslovakia and Venezuela, decreased 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 8.9% to $8.2 million in the
First Nine Months of 1966 from $9.0 million in the First Nine Months of 1995.
CORRECTIONAL BUSINESS
WCC's operating income increased by 23.2% to $6.6 million in the First Nine
Months of 1996 from $5.3 million in the First Nine Months of 1995 due to
additional income from the opening of four 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 $892,000 in the First Nine Months of 1996 compared to other
expense of $1,341,000 for the comparable period in 1995. The increase in
interest and investment income of $2.3 million in the First Nine Months of 1996
included interest income of approximately $1.8 million from the investment of
the net proceeds of WCC's public offering in January 1996. Interest on notes
receivable increased approximately $243,000 in the First Nine Months of 1996
compared to the First Nine Months of 1995.
INCOME BEFORE INCOME TAXES
Income before income taxes, which included a $750,000 provision for relocation
costs in the First Nine Months of 1996, increased 18.1% to $11.9 million from
$10.1 million in the First Nine Months of 1995.
The combined federal and state effective income tax rate was 36.0% for the First
Nine Months of 1996 and 35.1% for the same period in 1995. The higher effective
rate in the First Nine Months of 1996 was due to: (i) the statutory elimination
of targeted job tax credits; (ii) a decrease in capital loss carryforward
utilization; and (iii) a decrease in tax exempt income of the captive
reinsurance subsidiary.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $3.1 million in the
First Nine Months of 1996 from $1.7 million in the First Nine Months of 1995,
reflecting principally the increase in earnings of and the public ownership in
WCC.
Page 17 of 20
<PAGE> 18
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased 171.5% to
$1,276,000 in the First Nine Months of 1996 from $470,000 in the First Nine
Months 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 $5,890,000 in the First Nine Months of 1996, or $0.44
per share, after the $750,000 provision for relocation costs ($461,000 net of
income taxes), compared to $5,281,000 or $0.44 per share for the First Nine
Months of 1995.
Page 18 of 20
<PAGE> 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
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits -
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 third quarter of 1996
Page 19 of 20
<PAGE> 20
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
thirty-nine weeks ended September 29, 1996 to be signed on its behalf by the
undersigned hereunto duly authorized.
THE WACKENHUT CORPORATION
DATE: November 13, 1996 /s/ JUAN D. MIYAR
--------------------------------------
Juan D. Miyar, Duly Authorized Officer
and Chief Accounting Officer
Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO FORM 10-Q FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 29,
1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<EXCHANGE-RATE> 1
<CASH> 59,977
<SECURITIES> 13,338
<RECEIVABLES> 121,542<F1>
<ALLOWANCES> 2,114
<INVENTORY> 9,337
<CURRENT-ASSETS> 212,127<F2>
<PP&E> 41,573
<DEPRECIATION> 3,112
<TOTAL-ASSETS> 316,013
<CURRENT-LIABILITIES> 71,172
<BONDS> 4,925
0
0
<COMMON> 1,476
<OTHER-SE> 145,200
<TOTAL-LIABILITY-AND-EQUITY> 316,013<F3>
<SALES> 0
<TOTAL-REVENUES> 672,247
<CGS> 0
<TOTAL-COSTS> 661,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 966
<INTEREST-EXPENSE> 2,288
<INCOME-PRETAX> 11,900
<INCOME-TAX> 4,201
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,890<F4>
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.00
<FN>
<F1>IN JANUARY 1995, THE CORPORATION ENTERED INTO A THREE YEAR AGREEMENT TO SELL
UNDIVIDED FRACTIONAL INTEREST IN A POOL OF ELIGIBLE RECEIVABLES UP TO A MAXIMUM
OF $40,000,000 WHICH WAS INCREASED TO $50,000,000. AT SEPTEMBER 29, 1996
$8,000,000 HAD BEEN SOLD AND IS INCLUDED AS A REDUCTION IN ACCOUNTS RECEIVABLE
ON THIS SCHEDULE.
<F2>INCLUDES $21,271 OF OTHER CURRENT ASSETS.
<F3>INCLUDES $43,096 RESERVES FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY,
$39,487 MINORITY INTEREST AND $10,657 OTHER LIABILITIES.
<F4>INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES, NET OF
INCOME TAXES, OF $3,085 AND $(1,276) RESPECTIVELY.
</FN>
</TABLE>
