<PAGE> 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 29, 1997
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 1, 1997, 3,855,582 shares of Series A were issued and outstanding and
10,879,016 shares of Series B of the registrant's Common Stock was outstanding
after deducting 87,000 shares held in treasury.
Page 1 of 26
<PAGE> 2
THE WACKENHUT CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of The Wackenhut Corporation
and subsidiaries ("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 29, 1997 are not necessarily indicative of the results for the entire
fiscal year ending December 28, 1997.
Page 2 of 26
<PAGE> 3
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
JUNE 29, 1997 AND JUNE 30, 1996
(In thousands except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
REVENUES $ 273,592 $ 222,904
--------- ---------
OPERATING EXPENSES:
Payroll and related taxes 200,915 163,281
Other operating expenses 65,904 54,353
Depreciation expense 1,363 984
Amortization of intangible assets 501 565
--------- ---------
268,683 219,183
--------- ---------
OPERATING INCOME 4,909 3,721
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (618) (979)
Interest and investment income 1,002 1,110
--------- ---------
384 131
--------- ---------
INCOME BEFORE INCOME TAXES 5,293 3,852
Provision for income taxes 1,987 1,422
Minority interest, net of income taxes 1,319 923
Equity income of foreign affiliates, net of income taxes (521) (400)
--------- ---------
NET INCOME $ 2,508 $ 1,907
========= =========
EARNINGS PER SHARE $ 0.17 $ 0.15
========= =========
</TABLE>
See notes to Consolidated Financial Statements.
Page 3 of 26
<PAGE> 4
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWENTY-SIX WEEKS ENDED
JUNE 29, 1997 AND JUNE 30, 1996
(In thousands except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
REVENUES $ 515,726 $ 435,378
--------- ---------
OPERATING EXPENSES:
Payroll and related taxes 380,369 316,684
Other operating expenses 122,707 109,176
Depreciation expense 2,799 1,870
Amortization of intangibles assets 942 1,114
Provision for relocation costs -- 750
--------- ---------
506,817 429,594
--------- ---------
OPERATING INCOME 8,909 5,784
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (953) (1,863)
Interest and investment income 1,914 2,165
--------- ---------
961 302
--------- ---------
INCOME BEFORE INCOME TAXES 9,870 6,086
Provision for income taxes 3,695 2,191
Minority interest, net of income taxes 2,628 1,750
Equity income of foreign affiliates, net of income taxes (930) (707)
--------- ---------
NET INCOME $ 4,477 $ 2,852
========= =========
EARNINGS PER SHARE $ 0.30 $ 0.23
========= =========
</TABLE>
See notes to Consolidated Financial Statements.
Page 4 of 26
<PAGE> 5
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 29, 1997 AND DECEMBER 29, 1996
(In thousands except per share data)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,267 $ 52,755
Accounts receivable, less allowance for doubtful accounts
of $2,496 in 1997 and $1,997 in 1996 142,571 131,325
Inventories 10,286 10,082
Other 27,213 26,412
--------- ---------
211,337 220,574
--------- ---------
NOTES RECEIVABLE 1,388 1,181
--------- ---------
MARKETABLE SECURITIES of casualty reinsurance subsidiary 16,797 14,753
--------- ---------
PROPERTY AND EQUIPMENT, at cost 59,387 46,726
Accumulated depreciation (13,913) (12,184)
--------- ---------
45,474 34,542
--------- ---------
OTHER ASSETS:
Investment in and advances to foreign affiliates, at cost 17,177 13,508
Other 57,264 39,360
--------- ---------
74,441 52,868
--------- ---------
$ 349,437 $ 323,918
========= =========
</TABLE>
(Continued)
Page 5 of 26
<PAGE> 6
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 29, 1997 AND DECEMBER 29, 1996
(In thousands except share data)
(Continued)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 26,701 $ 20,488
Accrued payroll and related taxes 40,706 35,715
Accrued expenses 18,645 16,295
--------- ---------
86,052 72,498
--------- ---------
RESERVES FOR LOSSES of casualty reinsurance subsidiary 44,688 43,806
--------- ---------
LONG-TERM DEBT 7,630 5,890
--------- ---------
DEFERRED TAX LIABILITY, NET 2,049 1,165
--------- ---------
OTHER 14,566 11,372
--------- ---------
MINORITY INTEREST 43,404 40,958
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized -- --
Common stock, $.10 par value, 50,000,000 shares authorized:
Series A common stock, 3,855,582 issued and outstanding in 1997
and 3,858,885 in 1996 386 386
Series B common stock, 10,966,016 issued in 1997 and
10,902,199 issued in 1996 1,097 1,090
Additional paid-in capital 121,708 120,703
Retained earnings 33,913 31,347
Cumulative translation adjustment (4,837) (4,128)
Unrealized loss on marketable securities (119) (69)
Treasury stock at cost, 87,000 shares of Series B (1,100) (1,100)
--------- ---------
151,048 148,229
--------- ---------
$ 349,437 $ 323,918
========= =========
</TABLE>
See notes to Consolidated Financial Statements.
Page 6 of 26
<PAGE> 7
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 29, 1997 AND JUNE 30, 1996
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net Income $ 4,477 $ 2,852
Adjustments -
Depreciation expense 2,799 1,870
Amortization of intangible assets 942 1,114
Other amortization expense 4,114 5,439
Provision for bad debts 563 766
Equity income, net of dividends (1,385) (963)
Minority interests in net income 4,171 2,662
Other (925) (109)
Changes in assets and liabilities, net of acquisitions and divestitures -
(Increase) decrease in assets:
Accounts receivable (8,138) (11,062)
Inventories (2,801) (1,767)
Other current assets 2,176 (3,243)
Marketable securities 28 (12)
Other assets (254) (1,543)
Deferred tax asset, net 91 4,967
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,880 (3,739)
Accrued payroll and related taxes 3,772 623
Deferred tax liability, net 1,051 (117)
Reserve for losses of casualty reinsurance subsidiary 882 1,425
Other long term liabilities 2,274 (444)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 16,717 (1,281)
-------- --------
</TABLE>
(Continued)
Page 7 of 26
<PAGE> 8
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 29, 1997 AND JUNE 30, 1996
(In thousands)
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
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 412 320
Payments for acquisitions, net of cash acquired (10,349) (13,703)
Investment in and advances to foreign affiliates (2,148) 349
Capital expenditures (12,871) (4,615)
Proceeds from sales (payments for purchases) of marketable securities of
casualty reinsurance subsidiary, net (1,595) (7,980)
Deferred charge expenditures (9,779) (2,482)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (36,330) 23,495
-------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net proceeds from public offering of the Corporation's common stock -- 54,166
Proceeds from exercise of stock options -- 779
Purchase and cancellation of Corporation's common stock (139) --
Proceeds from issuance of debt 2,149 9,871
Payments on debt (1,974) (8,388)
Proceeds from sales of accounts receivable -- (33,000)
Dividends paid (1,911) (1,590)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,875) 21,838
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (21,488) 44,052
Cash and Cash Equivalents, at beginning of period 52,755 20,185
-------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 31,267 $ 64,237
======== ========
SUPPLEMENTAL DISCLOSURES
CASH PAID DURING THE PERIOD FOR:
Interest $ 932 $ 1,939
Income taxes $ 2,179 $ 131
</TABLE>
See notes to Consolidated Financial Statements.
Page 8 of 26
<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 29, 1996. Certain prior year amounts have been
reclassified to conform with current year financial statement presentation.
2. ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS
On occasion the Corporation enters into interest rate swap agreements to reduce
the interest rate exposure associated with a portion of its variable rate
indebtedness. The Corporation does not utilize derivative financial instruments
for trading or other speculative purposes. The accounting policy for these
derivative financial instruments, which are designated as hedges of its interest
rate risk, follows -
- - Interest rate swap - Interest rate swap agreements modify the interest
characteristics of the Corporation's variable rate indebtedness by
synthetically converting a portion of the indebtedness to fixed rate. Interest
earned (payable) under the interest rate swap is credited (charged) to interest
expense using the accrual method. The related accrued receivable or payable is
included in accounts receivable or accrued expenses. The fair market value of
the swap agreement is not reflected in the financial statements.
Derivative financial instruments terminated at a loss (gain) prior to maturity
are (credited) charged to interest expense over the remaining original life of
the derivative financial instrument.
3. ACCOUNTS RECEIVABLE
The Corporation has entered into a three year agreement expiring in January 1998
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
$35,000,000. 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 29, 1997 and December 29, 1996, there
were no accounts receivable sold under this agreement.
4. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 29, December 29,
1997 1996
-------- ------------
<S> <C> <C>
Revolving loans - 6.3% in 1997 and 6.1% in 1996 $4,200 $2,800
Other debt principally related to WHC and
international subsidiaries 3,430 3,090
------ ------
$7,630 $5,890
====== ======
</TABLE>
Wackenhut Corrections Corporation, a majority-owned subsidiary of the
Corporation, is listed on the NYSE as "WHC."
5. INVESTMENT IN AFFILIATES
Equity in undistributed earnings of foreign affiliates approximated $7,061,000
and $5,540,000 at June 29, 1997 and December 29, 1996, respectively, and is
included in "Investment in and advances to foreign affiliates" in the
accompanying consolidated balance sheets.
Page 9 of 26
<PAGE> 10
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following is a summary of condensed unaudited financial information
pertaining to foreign affiliates (in thousands):
JUNE 29,
1997
--------
Current assets $49,921
Noncurrent assets 27,123
Current liabilities 39,749
Noncurrent liabilities 13,954
Revenues 90,840
Operating income 6,719
Net income before taxes 5,714
6. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
requires the disclosure of basic and diluted earnings per share for periods
ending after December 15, 1997. The computation under SFAS No. 128 differs from
the primary and fully diluted earnings per share computed under APB Opinion No.
15 primarily in the manner in which potential common stock is treated. Basic
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding. In the computation of diluted earnings per
share, the weighted-average number of common shares outstanding is adjusted for
the effect of all potential common stock.
The pro forma basic and diluted earnings per share computed according to SFAS
No. 128 are as follows:
Pro forma
Thirteen Weeks Ended
-----------------------------
June 29, 1997 June 30, 1996
------------- -------------
Basic earnings per share $ 0.17 $ 0.15
Diluted earnings per share 0.17 0.14
Pro forma
Twenty-six Weeks Ended
-----------------------------
June 29, 1997 June 30, 1996
------------- -------------
Basic earnings per share $ 0.30 $ 0.23
Diluted earnings per share 0.30 0.23
Page 10 of 26
<PAGE> 11
7. 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. In the third quarter of
1996, the Corporation entered into the professional employer organization
("PEO") and temporary staffing businesses by establishing the Staffing Services
Group. The financial information related to Staffing Services Group is not
material and has been included in "Security-related and other support services".
Wackenhut Corrections Corporation, a subsidiary of the Corporation, provides
facility management and construction services to detention and correctional
facilities. Provided below is various financial information for each segment:
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
--------------------------------
(thousands of dollars) JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
REVENUES:
Security-related and other support services $ 422,990 $ 372,528
Correctional services 92,736 62,850
--------- ---------
Total revenues $ 515,726 $ 435,378
--------- ---------
OPERATING INCOME:
Security-related and other support services $ 1,848 $ 2,902
Correctional services 7,061 3,632
Provision for relocation costs -- (750)
--------- ---------
Total operating income $ 8,909 $ 5,784
--------- ---------
EQUITY INCOME OF AFFILIATES, NET OF TAXES:
Security-related and other support services $ 433 $ 525
Correctional services 497 182
--------- ---------
Total equity income $ 930 $ 707
--------- ---------
CAPITAL EXPENDITURES:
Security-related and other support services $ 1,817 $ 3,508
Correctional services 11,054 1,107
--------- ---------
Total capital expenditures $ 12,871 $ 4,615
--------- ---------
DEPRECIATION AND AMORTIZATION EXPENSE:
Security-related and other support services $ 5,197 $ 6,817
Correctional services 2,658 1,606
--------- ---------
Total expenses $ 7,855 $ 8,423
--------- ---------
IDENTIFIABLE ASSETS AT JUNE 29, 1997 AND
DECEMBER 29, 1996:
Security-related and other support services $ 232,133 $ 217,107
Correctional services 117,304 106,811
--------- ---------
Total identifiable assets $ 349,437 $ 323,918
--------- ---------
</TABLE>
Page 11 of 26
<PAGE> 12
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>
TWENTY-SIX WEEKS ENDED
----------------------------
(thousands of dollars) JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
REVENUES:
Domestic operations $ 432,287 $ 365,765
International operations 83,439 69,613
--------- ---------
Total revenues $ 515,726 $ 435,378
--------- ---------
OPERATING INCOME:
Domestic operations $ 7,534 $ 6,140
International operations 1,375 394
Provision for relocation costs -- (750)
--------- ---------
Total operating income $ 8,909 $ 5,784
--------- ---------
EQUITY INCOME OF AFFILIATES, NET OF TAXES:
Domestic operations $ -- $ --
International operations 930 707
--------- ---------
Total equity income $ 930 $ 707
--------- ---------
CAPITAL EXPENDITURES:
Domestic operations $ 10,569 $ 3,644
International operations 2,302 971
--------- ---------
Total capital expenditures $ 12,871 $ 4,615
--------- ---------
DEPRECIATION AND AMORTIZATION EXPENSE:
Domestic operations $ 5,651 $ 4,782
International operations 2,204 3,641
--------- ---------
Total expenses $ 7,855 $ 8,423
--------- ---------
IDENTIFIABLE ASSETS AT JUNE 29, 1997 AND
DECEMBER 29, 1996:
Domestic operations $ 278,425 $ 263,044
International operations 71,012 60,874
--------- ---------
Total identifiable assets $ 349,437 $ 323,918
--------- ---------
</TABLE>
Page 12 of 26
<PAGE> 13
8. FINANCING INSTRUMENTS
In June 1997, WHC entered into a $30 million multi-currency revolving credit
facility with a syndicate of banks, the proceeds of which may be used for
working capital, acquisitions and general corporate purposes. The credit
facility also includes a letter of credit of up to $10 million for the
issuance of standby letters of credit. As of August 1, 1997, no amounts were
outstanding under this facility.
In June 1997, WHC also entered into an $80 million operating lease facility
that has been established to acquire and develop new correctional institutions
used in its business. As of August 1, 1997, approximately $16 million of
properties were under development.
9. SUBSEQUENT EVENT
On July 18, 1997, Atlantic Shores Healthcare, Inc. a wholly-owned subsidiary of
Wackenhut Corrections Corporation completed the purchase of an 86-bed
psychiatric hospital in Fort Lauderdale, Florida for $6 million in cash. The
hospital has been renamed Atlantic Shores Hospital.
Page 13 of 26
<PAGE> 14
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, correctional services through the Correctional Business and
temporary employment and employee leasing through Staffing Services. 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. The Correctional Business includes the
Australian subsidiary and United Kingdom affiliate of WHC. In the third quarter
of 1996, the Corporation entered into the temporary employment and PEO business.
Staffing Services is operated through Wackenhut Resources, Inc., a wholly-owned
subsidiary of the Corporation.
FINANCIAL CONDITION
In May 1997, the Corporation purchased the King Companies in Jacksonville,
Florida, for approximately $11.5 million in cash and shares of Wackenhut series
B (non-voting) common stock. The King Companies operate PEO and temporary
employment businesses.
On March 14, 1997, WHC unconditionally agreed to guarantee the obligations of
First Security Bank, National Association, as Owner Trustee under the Promissory
Note and Trust arrangement disclosed in Note 8 of the Notes to Consolidated
Financial Statements. As of August 1, 1997, approximately $5 million had been
advanced by NationsBank to the Trust.
In June 1997, WHC also entered into an $80 million operating lease facility
that has been established to acquire and develop new correctional institutions
used in its business. As a condition of this facility, WHC unconditionally
agreed to guarantee certain obligations of First Security Bank, National
Association, a party to the aforementioned operating lease facility. As of
August 1, 1997, approximately $16 million of properties were under development.
In June 1997, WHC entered into a $30 million multi-currency revolving credit
facility with a syndicate of banks, the proceeds of which may be used for
working capital, acquisitions and general corporate purposes. The credit
facility also includes a letter of credit of up to $10 million for the issuance
of standby letters of credit. As of August 1, 1997, no amounts were outstanding
under this facility.
In June 1997, WHC purchased the Queens Private Correctional Facility, a 66,000
square foot building currently being used by WHC as a 200-bed federal detention
facility, for $6.6 million. WHC also has invested another $5.5 million to
renovate the building.
Reference is made to Item 7, Part II of the Corporation's Annual Report on Form
10-K for the fiscal year ended December 29, 1996 for further discussion and
analysis of information pertaining to the Corporation's financial condition.
Page 14 of 26
<PAGE> 15
RESULTS OF OPERATIONS
COMPARISON OF THIRTEEN WEEKS ENDED JUNE 29, 1997 AND THIRTEEN WEEKS ENDED
JUNE 30, 1996
The table below summarizes the Corporation's results of operations for the
thirteen weeks ended June 29, 1997 ("Second Quarter of 1997") and June 30, 1996
("Second Quarter of 1996") by the Corporation's business segments by
organizational group. The following discussion and analysis should be read in
conjunction with the Corporation's consolidated financial statements and the
notes thereto.
<TABLE>
<CAPTION>
(Dollars in thousands)
===================================
SECOND Second
QUARTER % Change Quarter
1997 vs. 1996 1996
--------- -------- --------
<S> <C> <C> <C>
REVENUES
SERVICES BUSINESS
North American Operations Group $ 174,970 7.2 $163,261
International Operations Group 28,309 16.3 24,337
Other 112 (94.1) 1,890
--------- --------
203,391 7.3 $189,488
CORRECTIONAL BUSINESS
Wackenhut Corrections Corporation 51,508 54.1 33,416
STAFFING SERVICES
Wackenhut Resources, Inc. 18,693 -- --
--------- --------
$ 273,592 22.7 $222,904
========= ========
OPERATING INCOME
SERVICES BUSINESS
North American Operations Group $ 4,929 7.7 4,578
International Operations Group (195) (71.7) (688)
Corporate Expenses and Underwriting Losses (3,486) 67.4 (2,082)
--------- --------
1,248 (31.0) 1,808
CORRECTIONAL BUSINESS
Wackenhut Corrections Corporation 3,789 98.1 1,913
STAFFING SERVICES
Wackenhut Resources, Inc. (128) -- --
--------- --------
$ 4,909 31.9 $ 3,721
========= ========
</TABLE>
Page 15 of 26
<PAGE> 16
REVENUES
Consolidated revenues increased 22.7% to $273.6 million in the thirteen weeks
ended June 29, 1997 (the "Second Quarter of 1997") from $222.9 million in the
thirteen weeks ended June 30, 1996 (the "Second Quarter of 1996").
SERVICES BUSINESS
Services Business revenues increased 7.3% to $203.4 million in the Second
Quarter of 1997 from $189.5 million in the Second Quarter of 1996.
NORTH AMERICAN OPERATIONS GROUP. Revenues of the North American Operations Group
increased 7.2% to $175.0 million in the Second Quarter of 1997 from $163.3
million in the Second Quarter of 1996. The Security Services Division of the
North American Operations Group continued to increase its revenue base due to an
increase in billable hours over the same quarter last year, which was
principally attributable to the emphasis in its national accounts program. In
addition, the Custom Protection Officer(R) revenues increased 42.6% to $25.1
million during the Second Quarter of 1997 compared to $17.6 million from the
Second Quarter of 1996. Food Services revenues increased 12.2% to $19.7 million
from $17.6 million in the Second Quarter of 1996. However, revenues of Wackenhut
Services, Inc. ("WSI") decreased 8.4% to $34.1 million in the Second Quarter of
1997 from $37.3 million in the Second Quarter of 1996, due principally to the
loss of the Strategic Petroleum Reserve contract with DynMcDermott in September
1996.
INTERNATIONAL OPERATIONS GROUP. International Operations Group revenues
increased 16.3% to $28.3 million in the Second Quarter of 1997 from $24.3
million in the Second Quarter of 1996. The European Division revenues increased
41.6% to $6.1 million in the Second Quarter of 1997 from $4.3 million in the
Second Quarter of 1996. Revenues of Wackenhut of Australia Pty., Ltd. increased
to $3.7 million in the Second Quarter of 1997 from $2.3 million in the Second
Quarter of 1996.
CORRECTIONAL BUSINESS
Correctional Business revenues increased 54.1% to $51.5 million in the Second
Quarter of 1997 from $33.4 million in the Second Quarter of 1996. During the
Second Quarter of 1997, WHC increased the number of compensated resident days to
1,284,000 from 864,000 during the Second Quarter of 1996.
STAFFING SERVICES
Staffing Services revenues were $18.7 million in the Second Quarter of 1997. The
Staffing Services Group was started in the Third Quarter of 1996 and, in May
1997, a subsidiary of the Corporation acquired the business and certain assets
of the Jim King Companies. The King Companies contributed $12.0 million to
Staffing Services revenues this quarter.
Page 16 of 26
<PAGE> 17
OPERATING INCOME
Consolidated operating income increased 31.9% to $4.9 million in the Second
Quarter of 1997 from $3.7 million in the Second Quarter of 1996.
SERVICES BUSINESS
Operating income from the Services Business decreased 31.0% to $1.2 million in
the Second Quarter of 1997 from $1.8 million in the Second Quarter of 1996.
NORTH AMERICAN OPERATIONS GROUP. The operating income of the North American
Operations Group increased 7.7% to $4.9 million in the Second Quarter of 1997
from $4.6 million in the Second Quarter of 1996. Security Services Division
operating income increased 13.3% to $3.5 million this quarter from $3.1 million
for the same quarter last year due to consistent increases in revenues and
profit margins.
INTERNATIONAL OPERATIONS GROUP. The operating loss of the International
Operations Group decreased $493,000 in the Second Quarter of 1997 compared to
the Second Quarter of 1996. Wackenhut of Australia Pty., Ltd. had an operating
loss of $487,000 in the Second Quarter of 1997 compared to an operating loss of
$861,000 in the Second Quarter of 1996. Wackenhut of Australia Pty., Ltd. is
expected to generate operating losses throughout fiscal 1997, and management
continues to monitor the operations of this subsidiary closely. Management is
considering several alternatives in relation to its Australian operations
some of which could impact the carrying value of this investment.
CORPORATE EXPENSES AND UNDERWRITING LOSSES. Corporate expenses and underwriting
losses increased 67.4% to $3.5 million in the Second Quarter of 1997 from $2.1
million in the Second Quarter of 1996. There was an increase in labor
costs due to the increase in headquarters personnel to fully staffed levels
after the relocation of the Corporation. Also, costs related to pension and
deferred compensation plans increased due to the rising market price of the
Corporation's common stock.
During the Second Quarter of 1997, the Corporation deferred additional costs
related to the development of information systems. Approximately $5.8 million of
costs related to systems development has been deferred as of June 29, 1997.
Management continues to evaluate the costs of these projects on a regular basis.
CORRECTIONAL BUSINESS
WHC's operating income increased by 98.1% to $3.8 million in the Second Quarter
of 1997 from $1.9 million in the Second Quarter of 1996, reflecting the openings
of new facilities and improved occupancy at the San Antonio facility. The higher
operating income in the Second Quarter of 1997 was partly offset by increased
depreciation and amortization costs compared to the Second Quarter of 1996.
Page 17 of 26
<PAGE> 18
OTHER INCOME/EXPENSE
Other income was $384,000 in the Second Quarter of 1997 compared to other income
of $131,000 for the comparable period in 1996. Interest and investment income
decreased to $1.0 million in the Second Quarter of 1997 from $1.1 million in the
Second Quarter of 1996, but interest expense decreased by $361,000 during the
same period due principally to decreases in the level of corporate bank
borrowings and fees incurred under the accounts receivable securitization
facility.
INCOME BEFORE INCOME TAXES
Income before income taxes increased 37.4% to $5.3 million in the Second Quarter
of 1997 from $3.9 million in the Second Quarter of 1996.
The combined federal and state effective income tax rate was 37.4% for the
Second Quarter of 1997 and 36.0% for the same period in 1996 due to decreases in
the tax exempt income of the reinsurance subsidiary and the utilization of
capital loss carryforwards.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $1.3 million in the
Second Quarter of 1997 from $923,000 in the Second Quarter of 1996, reflecting
principally the increase in earnings attributable to the public ownership in
WHC.
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased to $521,000
in the Second Quarter of 1997 from $400,000 in the Second Quarter of 1996,
primarily resulting from increased earnings of the joint venture of WHC in the
United Kingdom.
NET INCOME
Net income increased to $2,508,000 in the Second Quarter of 1997, or $0.17 per
share, compared to $1,907,000 or $0.15 per share for the Second Quarter of 1996.
Page 18 of 26
<PAGE> 19
COMPARISON OF TWENTY-SIX WEEKS ENDED JUNE 29, 1997 AND TWENTY-SIX WEEKS ENDED
JUNE 30, 1996
The table below summarizes the Corporation's results of operations for the
twenty-six weeks ended June 29, 1997 and June 30, 1996 by the Corporation's
three business segments by organizational group. The following discussion and
analysis should be read in conjunction with the Corporation's consolidated
financial statements and the notes thereto.
<TABLE>
<CAPTION>
(Dollars in thousands)
==================================
FIRST First
HALF % Change Half
1997 vs. 1996 1996
-------- --------- --------
<S> <C> <C> <C>
REVENUES
SERVICES BUSINESS
North American Operations Group $343,315 7.5 $319,413
International Operations Group 56,980 14.5 49,750
Other 199 (94.1) 3,365
-------- --------
$400,494 7.5 $372,528
CORRECTIONAL BUSINESS
Wackenhut Corrections Corporation 92,735 47.5 62,850
STAFFING SERVICES
Wackenhut Resources, Inc. 22,497 -- --
-------- --------
$515,726 18.5 $435,378
======== ========
OPERATING INCOME
SERVICES BUSINESS
North American Operations Group $ 9,540 13.4 $ 8,413
International Operations Group (85) (86.4) (625)
Corporate Expenses and Underwriting Losses (7,142) 46.2 (4,886)
-------- --------
2,313 (20.3) 2,902
CORRECTIONAL BUSINESS
Wackenhut Corrections Corporation 7,061 94.4 3,632
STAFFING SERVICES
Wackenhut Resources, Inc. (465) -- --
Provision for Relocation Costs -- -- (750)
-------- --------
$ 8,909 54.0 $ 5,784
======== ========
</TABLE>
Page 19 of 26
<PAGE> 20
REVENUES
Consolidated revenues increased 18.5% to $515.7 million in the twenty-six weeks
ended June 29, 1997 (the "First Half of 1997") from $435.4 million in the
twenty-six weeks ended June 30, 1996 (the "First Half of 1996").
SERVICES BUSINESS
Services Business revenues increased 7.5% to $400.5 million in the First Half of
1997 from $372.5 million in the First Half of 1996.
NORTH AMERICAN OPERATIONS GROUP. Revenues of the North American Operations Group
increased 7.5% to $343.3 million in the First Half of 1997 from $319.4 million
in the First Half of 1996. The Security Services Division of the North American
Operations Group continued to increase its revenue base due to an increase in
billable hours over the same period last year, which was principally
attributable to the emphasis in its national accounts program. In addition, the
Custom Protection Officer(R) revenues increased 37.6% to $47.9 million during
the First Half of 1997 compared to $34.8 million from the First Half of 1996.
Revenues of the Food Services Division increased 16.9% to $39.0 million in the
First Half of 1997 from $33.4 million in the First Half of 1996. However,
revenues of the WSI Division decreased 10.1% to $64.4 million in the First Half
of 1997 from $71.7 million in the First Half of 1996, due principally to the
loss of the Strategic Petroleum Reserve contract with DynMcDermott in September
1996.
INTERNATIONAL OPERATIONS GROUP. International Operations Group revenues
increased 14.5% to $57.0 million in the First Half of 1997 from $49.8 million in
the First Half of 1996. The European Division revenues increased 36.8% to $11.9
million in the First Half of 1997 from $8.7 million in the First Half of 1996.
The American Division revenues increased to $29.6 million in the First Half of
1997 from $28.1 million in the First Half of 1996. Revenues of Wackenhut of
Australia Pty., Ltd. increased to $7.7 million in the First Half of 1997 from
$6.1 million in the First Half of 1996.
CORRECTIONAL BUSINESS
Correctional Business revenues increased 47.5% to $92.7 million in the First
Half of 1997 from $62.9 million in the First Half of 1996. During the First Half
of 1997, WHC increased the number of compensated resident days to 2,335,000 from
1,613,000 during the First Half of 1996.
STAFFING SERVICES
Staffing Services revenues were $22.5 million in the First Half of 1997. The
Staffing Services Group was started in the Third Quarter of 1996 and, in May
1997, a subsidiary of the Corporation acquired the business and certain assets
of the Jim King Companies in Jacksonville, Florida.
Page 20 of 26
<PAGE> 21
OPERATING INCOME
Consolidated operating income increased 54.0% to $8.9 million in the First Half
of 1997 from $5.8 million in the First Half of 1996.
SERVICES BUSINESS
Operating income from the Services Business decreased 20.3% to $2.3 million in
the First Half of 1997 from $2.9 million in the First Half of 1996.
NORTH AMERICAN OPERATIONS GROUP. The operating income of the North American
Operations Group increased 13.4% to $9.5 million in the First Half of 1997 from
$8.4 million in the First Half of 1996. Security Services Division operating
income increased 15.1% to $6.5 million in the First Half of 1997 from $5.6
million in the First Half of 1996 due to consistent increases in revenues and
profit margins. WSI Division operating income decreased 8.5% to $2.0 million for
the First Half of 1997 from $2.2 million in the First Half of 1996, principally
as a result of the termination of the Strategic Petroleum Reserve contract.
INTERNATIONAL OPERATIONS GROUP. The operating loss of the International
Operations Group decreased $540,000 in the First Half of 1997 compared to the
First Half of 1996. Wackenhut of Australia Pty., Ltd. had an operating loss of
$983,000 in the First Half of 1997 compared to an operating loss of $1,250,000
in the First Half of 1996. Wackenhut of Australia Pty., Ltd. is expected to
generate operating losses throughout fiscal 1997, and management continues to
monitor the operations of this subsidiary closely. Management is considering
several alternatives in relation to its Australian operations some of which
could impact the carrying value of this investment.
CORPORATE EXPENSES AND UNDERWRITING LOSSES. Corporate expenses and underwriting
losses increased 46.2% to $7.1 million in the First Half of 1997 from $4.9
million in the First Half of 1996. There was a increase in labor costs due to
the increase in headquarters personnel to fully staffed levels after the
relocation of the Corporation. Also, costs related to pension and deferred
compensation plans increased due to the rising market price of the Corporation's
common stock.
CORRECTIONAL BUSINESS
WHC's operating income increased by 94.4% to $7.1 million in the First Half of
1997 from $3.6 million in the First Quarter of 1996, reflecting the openings of
new facilities and improved occupancy at the San Antonio facility. The higher
operating income in the First Half of 1997 was partly offset by increased
depreciation and amortization costs compared to the First Half of 1996.
OTHER INCOME/EXPENSE
Other income was $961,000 in the First Half of 1997 compared to other income of
$302,000 for the comparable period in 1996. Interest and investment income
decreased to $1.9 million in the First Half of 1997 from $2.2 million in the
First Half of 1996, but interest expense decreased to $1.0 million in the
Page 21 of 26
<PAGE> 22
First Half of 1997 from $1.9 million in the First Half of 1996 due principally
to decreases in the level of corporate bank borrowings and fees incurred under
the accounts receivable securitization facility.
INCOME BEFORE INCOME TAXES
Income before income taxes increased 62.2% to $9.9 million in the First Half of
1997 from $6.1 million in the First Half of 1996.
The combined federal and state effective income tax rate was 37.4% for the First
Half of 1997 and 36.0% for the same period in 1996 due to decreases in the tax
exempt income of the reinsurance subsidiary and the utilization of capital loss
carryforwards.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $2.6 million in the
First Half of 1997 from $1.8 million in the First Half of 1996, reflecting
principally the increase in earnings attributable to the public ownership in
WHC.
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased to $930,000
in the First Half of 1997 from $707,000 in the First Half of 1996, primarily
resulting from increased earnings of the joint venture of WHC in the United
Kingdom.
NET INCOME
Net income increased to $4,477,000 in the First Half of 1997, or $0.30 per
share, compared to $2,852,000 or $0.23 per share for the First Half of 1996.
Page 22 of 26
<PAGE> 23
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
The Annual Meeting of Shareholders of the Corporation was held on April 29, 1997
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 3,560,587 136,335
Richard G. Capen, Jr 3,562,375 134,547
Anne Newman Foreman 3,562,375 134,547
Edward L. Hennessy, Jr 3,560,729 136,193
Paul X. Kelley 3,561,271 135,651
Nancy Clark Reynolds 3,561,629 135,293
George R. Wackenhut 3,560,913 136,009
Richard R. Wackenhut 3,561,663 135,259
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...3,679,310 Against....8,088 Abstain....9,524
Page 23 of 26
<PAGE> 24
Proposal No. 3
Approval of Employee Stock Purchase Plan
For...3,046,031 Against....256,080 Abstain....11,075
Proposal No. 4
Approval of an Amendment to Key Employee Long-Term Incentive Stock Plan
For...3,291,429 Against....383,976 Abstain....21,517
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits -
Exhibit 4.1 - Credit Agreement, dated as of June 19, 1997, by and
among Wackenhut Corrections Corporation, as Borrower,
NationsBank National Association, as Agent and as Lender,
ScotiaBanc Inc. and Barnett Bank, N.A., as Co-Agents and as
Lenders, and the Lenders Party thereto from time to time.
(incorporated by reference to Wackenhut Corrections
Corporation's Form 10-Q for the quarter ended June 29, 1997)
Exhibit 4.2 - Participation Agreement, dated as of June 19, 1997,
among Wackenhut Corrections Corporation, as Construction
Agent and as Lessee, First Security Bank, National
Association, as Owner Trustee under the Wackenhut
Corrections Trust 1997-1, the Various Banks and Other
Lending Institutions which are Parties thereto from time to
time, as Holders, the Various Banks and Other Lending
Institutions which are parties thereto from time to time, as
the Lenders, and NationsBank, National Association, as
Administrative Agent for the Lenders. (incorporated by
reference to Wackenhut Corrections Corporation's Form 10-Q
for the quarter ended June 29, 1997)
Exhibit 4.3 - Credit Agreement, dated as of June 19, 1997, among
First Security Bank, National Association, as Owner Trustee
for Wackenhut Corrections Trust 1997, as Borrower, the
Several Lenders from time to time parties thereto, and
NationsBank, National Association, as Administrative Agent.
(incorporated by reference to Wackenhut Corrections
Corporation's Form 10-Q for the quarter ended June 29, 1997)
Page 24 of 26
<PAGE> 25
Exhibit 4.4 - Second Amended and Restated Trust Agreement (Wackenhut
Corrections Trust 1997-1), dated as of June 19, 1997, among
NationsBank, National Association, and the other financial
institutions parties thereto, as Holders, and First Security
Bank, National Association, as Owner Trustee. (incorporated
by reference to Wackenhut Corrections Corporation's Form
10-Q for the quarter ended June 29, 1997)
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
1997.
Page 25 of 26
<PAGE> 26
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 29, 1997 to be signed on its behalf by the undersigned hereunto
duly authorized.
THE WACKENHUT CORPORATION
DATE: August 11, 1997
/s/ Juan D. Miyar
--------------------------------------
Juan D. Miyar, Duly Authorized Officer
and Vice President, Corporate Controller
Page 26 of 26
<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 QUARTERLY PERIOD ENDED JUNE 29, 1997.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 31,267
<SECURITIES> 16,797<F1>
<RECEIVABLES> 142,571<F2>
<ALLOWANCES> 2,496
<INVENTORY> 10,286
<CURRENT-ASSETS> 211,337<F3>
<PP&E> 59,387
<DEPRECIATION> 13,913
<TOTAL-ASSETS> 349,437
<CURRENT-LIABILITIES> 86,052
<BONDS> 7,630
0
0
<COMMON> 1,483
<OTHER-SE> 149,565
<TOTAL-LIABILITY-AND-EQUITY> 349,437<F4>
<SALES> 0
<TOTAL-REVENUES> 515,726
<CGS> 0
<TOTAL-COSTS> 506,817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 563
<INTEREST-EXPENSE> 953
<INCOME-PRETAX> 9,870
<INCOME-TAX> 3,695
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,477<F5>
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.00
<FN>
<F1>MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT ARE CLASSIFIED AS
NON-CURRENT ASSETS ON THE BALANCE SHEET.
<F2>THE CORPORATION HAS ENTERED INTO A THREE YEAR AGREEMENT EXPIRING IN JANUARY 1998
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 $35
MILLION. AS OF JUNE 29, 1997 THERE WERE NO BALANCES OUTSTANDING UNDER THE
ACCOUNT RECEIVABLES SECURITIZATION AGREEMENT.
<F3>INCLUDES $27,213 OF OTHER CURRENT ASSETS
<F4>INCLUDES $44,688 RESERVE FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY, $43,404
MINORITY INTEREST, $2,049 DEFERRED TAX LIABILITY NET AND $14,566 OTHER
LIABILITIES.
<F5>INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES - NET OF
INCOME TAXES OF $2,628 AND $(930) RESPECTIVELY.
</FN>
</TABLE>
