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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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
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 DR. #100,
PALM BEACH GARDENS, FL 33410-4243
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:(561) 622-5656
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, Series A, $.10 par value New York Stock Exchange
Common Stock, Series B, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
At February 28, 1997, the aggregate market value of the 3,856,450 shares
of Common Stock, Series A, the registrant's sole class of voting stock, held by
non-affiliates of the registrant was $67,487,875. At February 28, 1997,
3,856,450 shares of Series A and 10,897,715 shares of Series B of the
registrant's Common Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant's Annual Report to Shareholders for the fiscal
year ended December 29, 1996 are incorporated by reference into Parts II and IV
of this Report.
Parts of the registrant's Proxy Statement for its 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
The Wackenhut Corporation (the "Company") is a leading international
provider of security-related and other support services and a leading developer
and manager of privatized correctional and detention facilities. The Company
provides security services, food services and other related services to
commercial and governmental customers through its services business (the
"Services Business"). Through its correctional business (the "Correctional
Business"), the Company also provides correctional and detention facility
design, development and management services to governmental agencies. The
Company has approximately 51,000 full and part-time employees serving over
16,000 commercial and governmental customers through an extensive network of
offices and operations in 48 states and 50 countries.
The Company was incorporated in 1958 to continue the businesses that were
originally established in 1954 by its Chairman and Chief Executive Officer,
George R. Wackenhut, to provide security-related services to commercial and
governmental customers. Since its founding, the Company has grown by: (i)
enhancing its position in its core security-related services business through
the development of specialized and upgraded services; (ii) targeting specific
segments of the security services industry; and (iii) expanding into a range of
other support services in response to a growing trend toward privatization of
governmental services and outsourcing by commercial customers.
The Company is the third largest security services organization in the
United States and is the leading United States-based provider of security
services abroad. In addition to its core security-related services, which
include guard and investigative services, the Company is a leader in the
development of specialized niche services. For example, in response to a
growing demand in the marketplace for security professionals with greater skill
and responsibility levels, the Company has developed its Custom Protection
Officer(R) ("CPO") program to provide highly specialized and trained security
professionals to a broad range of customers such as national retailers, banks
and other financial institutions and gated communities. CPOs are also used as
supplemental law enforcement forces by public transportation authorities and
other governmental entities. Custom Protection Officer is a Registered Service
Mark of The Wackenhut Corporation. Moreover, in seeking to respond to the
specialized needs of its larger clients, the Company developed its national
accounts ("National Accounts") program to provide customized security services
on a national or regional level to large customers with multiple locations. The
National Accounts program provides customers with a high level of service by
providing a dedicated contact person with the Company who is responsible for
coordinating their accounts on a nationwide basis. The Company believes that
the National Accounts program may also enable it to expand the scope of
services offered worldwide to its National Account customers. Management
believes that the high quality and consistent service of its CPO and National
Accounts programs provide the Company with an opportunity to enhance long-term
relationships with its clients.
As part of its strategy to respond to the growing trend toward
privatization of governmental services, in 1984 the Company entered into the
development and management of privatized correctional and detention facilities,
a business which is now operated exclusively through its 55% owned Wackenhut
Corrections Corporation subsidiary ("WCC"). WCC presently has contracts to
manage 34 correctional and detention facilities, with a rated capacity of
24,371 beds. From December 29, 1991 to December 29, 1996, WCC's revenues
increased from $37.9 million to $137.8 million and operating income increased
from $1.7 million to $9.7 million, representing compound annual growth rates of
29.5% and 41.7%, respectively. As of February 28, 1997, WCC's total equity
market capitalization was approximately $378.5 million.
In addition to its expansion into the Correctional Business through WCC,
the Company has leveraged its management skills to expand into other support
services. In 1992, the Company entered into the foodservice business for
correctional institutions and, in January 1996, expanded its presence in this
market through the acquisition of contracts and certain assets of the
Correctional Food Services Division of Service America
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Corporation. In 1996, the Company's Food Services Division had revenues of
$70.6 million. Presently, only 14% of the correctional foodservice market has
been privatized. Consequently, the Company believes that as privatization of
correctional food services continues to gain acceptance at state and local
levels, the Food Services Division will have opportunities for expansion*. In
the third quarter of 1996, the Company entered into the professional employer
organization ("PEO") business by establishing Oasis Outsourcing, Inc., a
majority owned subsidiary. By the end of 1996, Oasis had opened one office in
South Florida and one in Denver and has approximately 100 employees under
contract. In addition to the services which the Company has specifically
targeted for expansion, the Company continues to explore and selectively invest
in other service businesses, including temporary services, commercial and
governmental support services, supplemental police services, crash-fire-rescue
services, fire protection services, and airport services.
BUSINESS STRATEGY
The Company's business strategy is focused on two primary objectives: (i)
enhancing its position as a leading international provider of security and
security-related services by distinguishing the type and quality of security
services it provides; and (ii) using its security service expertise and
contacts to offer other support services to its clients. Key elements of the
Company's business strategy are described below:
- ENHANCE LEADERSHIP POSITION OF CORE SECURITY-RELATED SERVICE BUSINESS.
The Company strives to enhance its market position by attempting to
provide the most reliable and consistent service in the industry. The
Company believes its security professionals provide quality service
because of: (i) strictly enforced screening and hiring procedures; (ii)
intensive training; and (iii) well-organized supervisory and feedback
procedures.
- DEVELOP SPECIALIZED SECURITY SERVICES. The Company has identified and
targeted National Accounts and CPOs as its primary growth areas in the
security services business and seeks to expand its market position.
Management believes that the high quality and consistent service of its
National Accounts and CPO programs provide the Company with an
opportunity to establish and enhance long-term relationships with its
clients.
- DEVELOP COMPLEMENTARY SUPPORT SERVICES. The Company will seek to
expand the scope of complementary support services it offers. The
Company's successful identification and development of the correctional
business and the foodservice business has provided it with the
experience it believes will allow it to develop other specialized
programs and support services such as professional employer
organization, temporary services, building maintenance, supplemental
police services, crash-fire-rescue services, fire protection services,
and airport services.
- GEOGRAPHIC EXPANSION. The Company seeks to increase revenues and
enhance earnings stability by continuing to expand its international
presence. Historical revenue growth has been centered in Central and
South America and, more recently, Western Europe. The Company has also
been expanding into Central and Eastern Europe, the former Soviet
Union, the People's Republic of China and other countries in the Far
East in an attempt to capitalize on recent economic developments and
political reforms in these areas. The Company believes this geographic
diversity helps to protect its revenues and earnings from adverse
regional economic and business cycles. In addition, the Company
believes that its far reaching geographic presence, which includes 50
countries worldwide, provides it with an advantage when pursuing
contracts with multi-national corporations.
- CORRECTIONAL BUSINESS. WCC's objective is to enhance its position as
one of the leading providers of privatized correctional and detention
services. Key elements of WCC's business strategy include: (i)
effective management of projects; (ii) selective development of new
business opportunities; (iii) selective
- -------------------------
* Refer to Forward Looking Statements included as Exhibit 13.0 - page 23 to
this Form 10-K.
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pursuit of acquisitions; (iv) expansion of its scope of
services; (v) expansion into international markets by establishing
alliances with strategic local partners; and (vi) limiting capital
risk.
- PROFESSIONAL EMPLOYER ORGANIZATIONS. The Company has identified and
targeted PEO services as a key market that is in line with our
complementary support services strategy. PEO services is an emerging
outsourcing business, with industry growth continuing at about a thirty
percent annual rate, with penetration still under three percent of the
potential market. The Company seeks to enter the PEO business by
internal growth of Oasis Outsourcing, Inc. (a majority owned PEO) and
through selective acquisitions.
- PURSUE SELECTED ACQUISITIONS. In addition to internal growth in the
security-related services business, the Company's growth strategy
includes the selected acquisition of other support service businesses.
For example, through its January 1996 acquisition of the Correctional
Food Services Division of Service America Corporation, the Company has
established a leading position in the growing correctional foodservice
industry.
MARKETS
Services Business. The private security-related services industry includes
guard and investigative services, alarm monitoring services, security
consulting services, armored car transport and other security services. The
largest and most visible component of the industry is the guard and
investigative services component which also accounts for the largest portion of
the Company's revenues.
Guard and investigative services are often characterized within the
industry as either "proprietary" or "contract," depending on the service
provider. Under proprietary arrangements, end users of the services employ,
schedule and manage their own security officers and detectives. In contrast,
contract services are provided to end users pursuant to contracts with
independent security-related service firms such as the Company. The Company
believes that the advantages to clients of using contract security service
providers rather than providing services internally on a proprietary basis are
three-fold: (i) the client may realize cost and administrative savings; (ii)
the client is freed to concentrate on its core competencies; and (iii) the
client may be able to reduce labor management concerns with security-related
employees, who are employed by the Company.
In addition to its presence in guard and investigative services, the
Company has identified opportunities in related services markets, such as
correctional food services. Only 14% of prisons and jails in the United States
have privatized their food services, of which the Company's market share is
approximately one-third. The Company believes that trends in privatization will
result in growth opportunities in this market component.
Correctional Business. The trend in the United States and other countries
toward privatization of government services and functions has increased as
governments have faced continuing pressure to control costs and improve the
quality of services. Governmental agencies responsible for correctional and
detention facilities have privatized facilities in an attempt to address these
pressures. During the period from 1984 to 1995, the worldwide number of beds
under management at privatized correctional and detention facilities increased
from 885 to 63,595 with the majority of this growth occurring since 1989.
During 1995, the worldwide number of beds under management or construction at
privatized correctional and detention facilities increased 29.4% to 63,595 from
49,154 in 1994.
WCC markets its services in the United States to federal, state and local
governmental agencies. According to reports on privatization from the Private
Corrections Project Center for Studies in Criminology and Law, University of
Florida (the "Privatization Reports"), 19 states and Puerto Rico had awarded
management contracts to private companies at December 31, 1995. At December 31,
1995, there were a total of 104 facilities with a rated capacity of 63,595 beds
privatized in the United States, of which the Company was awarded 22 facilities
with a rated capacity of 15,657 beds. Federal agencies have privatized
Immigration and Naturalization Service detention facilities and United States
Marshal detention facilities. State agencies have privatized state prisons,
community corrections facilities, chemical dependency treatment centers,
intermediate sanction facilities, juvenile offender
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facilities, pre-release centers, work program facilities and state jail
facilities. Local agencies have privatized city jail facilities and transfer
facilities.
In the United Kingdom, the Home Office, the chief British governmental
body responsible for law enforcement, awarded its first contract for a
privately-managed prison in 1991. At December 31, 1995, there were a total of
six facilities with a rated capacity of 3,584 beds privatized in the United
Kingdom, including one managed by a WCC joint venture, with a rated capacity of
850 beds. The Home Office has stated that new correctional and detention
facilities in England and Wales will be privatized. Therefore, WCC believes
that significant growth opportunities exist in the United Kingdom*. The Home
Office is also privatizing court escort services.
In Australia, Queensland privatized its first facility in 1989. At
December 31, 1995, there were a total of six privatized facilities with a rated
capacity of 2,402 beds privatized in Australia, of which WCC currently manages
three facilities with a rated capacity of 1,778 beds.
COMPANY ORGANIZATION
The Company's business can be divided into the Services Business and
Correctional Business. The Services Business encompasses all commercial and
governmental business of the North American Operations Group (including
Wackenhut of Canada Limited) and the International Operations Group. The
Services Business provides security-related and other support services. The
Correctional Business, which consists exclusively of the business conducted
through WCC, provides correctional and detention facility design, development
and management services to government agencies. Provided below is financial
information for each business segment for Fiscal 1996, Fiscal 1995 and Fiscal
1994. The following table sets forth the contribution to consolidated revenues
and operating income by each of the Company's business segments. See Note 14 of
Notes to Consolidated Financial Statements (which also includes a summary of
domestic and international operations) included in Exhibit 13.0 to this Form
10-K.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995 FISCAL 1994
------------- ------------- -------------
BUSINESS SEGMENT AMOUNT % AMOUNT % AMOUNT %
- ---------------- ------ ---- --------- ---- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Services............................................ $ 768,272 85% $ 697,301 88% $ 642,727 88%
Correctional........................................ 137,784 15 99,431 12 84,026 12
--------- --- ---------- --- ---------- ---
Total Revenues................................ $ 906,056 100% $ 796,732 100% $ 726,753 100%
========= === ========== === ========== ===
Operating Income:
Services............................................ $ 7,339 43% $ 8,545 54% $ 10,846 71%
Correctional........................................ 9,731 57 7,229 46 4,446 29
--------- --- ---------- --- ---------- ---
Operating Income before provision for relocation
costs and write down of headquarters building..... 17,070 100% 15,774 100% 15,292 100%
=== === ===
Provision for relocation costs...................... (750) - -
Write-down of headquarters building................. - - (8,700)
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Total Operating Income........................ $ 16,320 $ 15,774 $ 6,592
========= =========== =========
</TABLE>
- -------------------------
* Refer to Forward Looking Statements included as Exhibit 13.0 - page 23 to
this Form 10-K.
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SERVICES BUSINESS
The Services Business is conducted through two separate operating groups:
the North American Operations Group and the International Operations Group. The
following table sets forth the contribution of each operating group to the
total revenues and total operating income of the Services Business during
Fiscal 1996, Fiscal 1995 and Fiscal 1994.
<TABLE>
<CAPTION>
REVENUES
-----------------------------------------------------------
FISCAL 1996 FISCAL 1995 FISCAL 1994
------------- ------------- --------------
OPERATING GROUP AMOUNT % AMOUNT % AMOUNT %
- --------------- -------- - -------- - -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
North American Operations Group........................ $ 660,457 86% $ 579,882 83% $ 547,016 85%
International Operations Group......................... 103,587 13 109,967 16 79,350 12
Other.................................................. 5,071 1 14,275 2 23,310 4
Inter-Group Revenues................................... (843) - (6,823) (1) (6,949) (1)
---------- --- ----------- --- ----------- ---
Total Services Business Revenues.................... $ 768,272 100% $ 697,301 100% $ 642,727 100%
========== === =========== === =========== ===
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME
-----------------------------------------------------------
FISCAL 1996 FISCAL 1995 FISCAL 1994
------------- ------------- -------------
OPERATING GROUP AMOUNT % AMOUNT % AMOUNT %
- --------------- -------- - -------- - -------- -
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
North American Operations Group........................ $ 19,993 107% $ 17,622 86% $ 17,125 86%
International Operations Group......................... (1,257) (7) 2,878 14 2,730 14
---------- --- -------- -- ----------- --
Operating Income Before Corporate
Expenses and Underwriting Losses.................. 18,736 100% 20,500 100% 19,855 100%
=== === ===
Corporate Expenses and Underwriting Losses............. (11,397) (11,955) (9,009)
---------- -------- -----------
Total Services Business Operating Income............ $ 7,339 $ 8,545 $ 10,846
========== ======== ===========
</TABLE>
NORTH AMERICAN OPERATIONS GROUP. The North American Operations Group has
historically provided the majority of the Company's consolidated revenues. This
group provides security-related and other support services throughout the
United States and Canada. The North American Operations Group is subdivided
into the following divisions: the Security Services Division, the Nuclear
Division, Wackenhut Services, Inc., and the Food Services Division. In
conducting its Services Business, the Company has adopted a quality management
approach. General management responsibilities for each operating group are
vested in a small group of managers located at Company headquarters. Day-to-day
management responsibility for each group is vested in field managers who have
primary responsibility for client contact and satisfaction. Field managers are
selected through an intensive screening process and receive what the Company
believes is state-of-the-art training. Supervisory personnel from Company
headquarters periodically visit sites and carefully monitor operating results.
Security Services Division. Through its Security Services Division, the
Company furnishes security officers (armed and unarmed) to protect its clients'
property against fire, theft, intrusion, vandalism and other physical harm.
Specialized security services offered by the Company include executive
protection, crash-fire-rescue services, fire protection services and airport
services. The Company also provides security consulting services including
security assessment and program development, specialized training programs for
security guards, fire-crash-rescue personnel, and investigative services for
attorneys, financial institutions and retail and industrial businesses. The
Company will attempt to further enhance its market position in the
security-related services industry through internal growth by continuing to:
(i) pursue domestic and international National Accounts; (ii) differentiate its
security-related services within the industry by emphasizing its CPO program;
and (iii) market the Company's services to specialized market niches such as
gated residential communities and hospitals.
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The Company intends to emphasize attracting and retaining National
Accounts that require security-related services on a national or regional level
at multiple locations. Such clients include retail chains, banks, manufacturers
and restaurant chains. Management believes that such clients value the
flexibility and service provided by a dedicated single point of contact with
the Company through the National Accounts program.
For its CPO program, the Company recruits law enforcement academy
graduates, former military police, members of elite military units and college
graduates with criminology-related degrees. These recruits are prepared for
critical security assignments after completing a Company training program that
surpasses any state or local requirements for security officer licensing. CPOs
perform such functions as prisoner transportation in Maryland and Colorado,
neighborhood and downtown security in Florida, transit security in Wisconsin
and California, rest-stop security in Florida and other supplemental law
enforcement-related services. Management believes that services provided by
CPOs distinguish the Company's services from those of the competition by
providing highly specialized and trained security personnel capable of
undertaking and accepting responsibilities that are beyond the capabilities of
traditional security guards.
The contracts of the Security Services Division with private industry
usually are for a one year term. Most of these contracts are subject to
termination by either party on 30 days prior notice. Billing rates are based on
a specified rate per hour and generally are subject to renegotiation or
escalation if related costs increase because of changes in minimum wage laws or
certain other events beyond the control of the Company.
The Company designs and engineers integrated security programs using both
security officers and electronic equipment. These services include planning
master security programs for particular facilities, custom designing security
systems, procuring requisite electronic equipment, managing contracts and
construction, training security personnel, and reviewing and evaluating
security programs. Contracts for these integrated security-related services
generally provide for a fixed fee and are awarded by competitive bidding.
The Company complements security services provided to its clients with
investigative services, such as employee background screening and insurance
fraud investigations. The Company maintains a national research center with the
latest information-gathering technology for public records and a "fraud-waste-
criminal" hotline for employees of clients to report workplace abuses. Clients
ordinarily are charged an hourly rate for investigative services and a flat
rate for background record searches.
Nuclear Division. The Company provides specialized security-related
services for nuclear power generating facilities owned by public and private
utility companies. The Company provides highly trained and qualified security
personnel, emergency planning, electronic detection equipment and integrated
security systems to these utility companies. The terms of contracts entered
into by the Nuclear Division generally are multi-year and include a variety of
fee arrangements. The Company's experience with requirements and standards of
the Nuclear Regulatory Commission ("NRC") enable it to assist customers in
ensuring NRC compliance.
Wackenhut Services, Inc. Wackenhut Services, Inc. ("WSI") generates
approximately 16% of the Company's consolidated revenues. WSI provides security
services primarily to United States federal government entities. Services
provided by WSI range from basic security and administrative support to
specialized emergency response teams. These response teams are staffed with
highly trained personnel, many with prior military experience. These response
teams are equipped with sophisticated weaponry and engage in such specialized
activities as aerial assault and rappelling operations.
In the United States, WSI provides security-related services at 10
sensitive government installations. For example, the Company has held the
operations and maintenance contract for the Savannah River Site in South
Carolina since 1983, the single largest government contract for
security-related services. Since 1990, the Company has managed the Rocky Flats
Environmental Technology Site near Denver and since 1964, has managed the
Nevada Test Site near Las Vegas. Since 1984, WSI has overseen training and
resource development for the United States Department of Energy at the Central
Training Academy in Albuquerque, New Mexico.
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The Company's service contracts with governmental agencies are typically
cost-reimbursable contracts providing the Company the ability to earn award
fees based upon the achievement of performance goals. The Company's service
contracts with governmental agencies are subject to annual governmental
appropriations.
Through WSI the Company also operates its accelerated access authorization
program. This program provides background investigation and research services
in support of individual clearances required for employment at United States
Department of Energy sites.
Food Services Division. The Company's correctional foodservice business,
the second largest in the industry, provides over 56 million meals annually to
over 100 jail and prison facilities in 27 states throughout the United States.
Food for regular, therapeutic and religious diets is prepared using
conventional or cook-chill methods. The Company provides a quality assurance
program that encompasses all aspects of the foodservice business. Specifically,
the Company provides product testing and menu development through its staff of
nutritional experts, which includes professional dietitians. Also, to ensure
high quality of service and product, facility audits are conducted on an
on-going basis. The Company bids for foodservice contracts and provides food
services on a cost per meal basis. Complete foodservice management, commissary,
laundry and janitorial programs are available to correctional clients.
On January 5, 1996, the Company acquired the contracts and certain assets
of the Correctional Food Services Division of Service America Corporation. The
Company paid a cash purchase price of approximately $12.4 million.
Only 14% of the correctional foodservice business was privatized as of
December 29, 1996. Consequently, the Company sees substantial opportunity to
expand its operations in the Food Services Division, especially in light of the
recent trend toward privatization of certain governmental services.
Additionally, the correctional foodservice business has high barriers to entry,
including the need for substantial expertise to comply with strict governmental
dietary requirements and the capital resources necessary to finance start-up
costs and maintain inventory levels. The Company believes that its in-house
staff of highly-trained professional dietitians and managers provides it with a
competitive advantage. The Company intends to concentrate on expanding its Food
Services Division through internally-generated growth and selected
acquisitions.
INTERNATIONAL OPERATIONS GROUP. The International Operations Group
accounts for approximately 11% of the Company's consolidated revenues. The
International Operations Group's business is conducted primarily through
Wackenhut International, Inc. ("WII").
Since its organization in 1967, WII has grown to include a network of
subsidiaries, partnerships and affiliates in 50 countries. Management believes
the Company's international presence, through the operations of WII, is larger
than any of its domestic competitors. The Company believes that its risk
exposure in international operations conducted through WII is reduced
substantially by the fact that the vast majority of its international
operations are structured through joint ventures with parties who operate in
the given market. These parties often provide valuable insight into local
markets, in addition to sharing financial responsibility for the venture. WII
also provides a greater variety of services than the Company offers
domestically. These services include, among other things, central station
monitoring, armored cars and janitorial services. The Company believes that
this experience will be valuable in assisting the Company's domestic expansion
into new support service areas.
The Company's goal is to increase its international presence by further
developing existing markets and by expanding into new markets. Most recently,
WII has expanded into Central and Eastern Europe, the former Soviet Union, the
People's Republic of China and other countries in the Far East in an attempt to
capitalize on recent economic developments and political reforms in these
areas. In addition to providing traditional security services to commercial
customers at overseas locations, WII provides security for the U.S. Department
of State at embassies and missions in 19 locations. WII also provides
protective services at NASA space shuttle support sites in Africa. Major
competitors of WII include large United States-based companies with operations
overseas, sizable foreign concerns such as Group 4 and Securitas, and local and
regional companies.
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NEW VENTURES. In the third quarter of 1996, the Company created Oasis
Outsourcing, Inc., a professional employer organization, founded to take
advantage of the trend of small businesses to lease employees in order to
provide clients with more and better employee benefits at a reduced cost. By
the end of 1996, Oasis had opened one office in South Florida and one in
Denver, and has approximately 100 employees under contract.
CORRECTIONAL BUSINESS
The Company's Correctional Business is conducted through the operations of
WCC. WCC is a leading developer and manager of privatized correctional and
detention facilities in the United States, the United Kingdom and Australia.
WCC was founded in 1984 as a division of the Company to capitalize on emerging
opportunities in the private correctional services market. WCC presently has
contracts to manage 34 correctional and detention facilities with an aggregate
rated capacity of 24,371 beds, 19 are currently in operation, 13 are under
development by WCC and 2 are being developed by a third party. WCC offers
governmental agencies a comprehensive range of prison management services from
individual consulting projects to the integrated design, construction and
management of correctional and detention facilities. In addition to providing
the fundamental services relating to the security of facilities and the
detention and care of inmates, WCC has built a reputation as an effective
provider of a wide array of in-facility rehabilitative and educational
programs, such as chemical dependency counseling and treatment, basic
education, and job and life skills training. The Company believes that WCC's
experience in delivering a full range of quality privatization services on a
cost-effective basis to governmental agencies provides such agencies strong
incentives to choose WCC when awarding new contracts or renewing existing
contracts.
In the United States, there is a growing trend toward privatization of
correctional and detention services as governments have faced continuing
pressure to control costs and improve the quality of services. According to the
Privatization Reports, the rated capacity of privately-managed correctional and
detention facilities in the United States has increased significantly over the
last ten years. The majority of this growth has occurred since 1989, as the
number of correctional and detention facilities under contract for private
management increased from 26 facilities with a rated capacity of 10,973 beds in
1989 to 104 facilities with a rated capacity of 63,595 beds in 1995. Even after
such growth, according to the Privatization Reports, only 3.0% of inmates in
United States correctional and detention facilities were housed in
privately-managed facilities at December 31, 1994. The Company believes that
many factors have contributed to industry growth, the most important of which
are increasing inmate populations and the demonstrated ability of private
entities to design, construct and manage facilities on a cost-effective basis.
International recognition of the benefits of private sector management of
correctional and detention facilities also continues. WCC has contracts to
manage four of the twelve facilities that have been privatized in the United
Kingdom and Australia. In particular, WCC believes that significant growth
opportunities exist in the United Kingdom since the Home Office, the chief
British governmental body responsible for law enforcement, adopted a policy in
1993 to privatize all new prisons in England and Wales, as well as some
existing prisons and court escort services. In December 1995, WCC entered into
two contracts to provide court escort services in the West Midlands and
Southeast Areas of England. Under court escort contracts, a private company on
behalf of a governmental agency, transports prisoners between prisons, police
stations and courts and is responsible for the custody of such prisoners during
transportation and court appearances.
WCC's objective is to enhance its position as one of the leading
developers and managers of privatized correctional and detention facilities.
Key elements of WCC's business strategy include: (i) effective management of
projects; (ii) selective development of new business opportunities; (iii)
aggressive pursuit of acquisitions; (iv) expanded scope of services; (v)
expansion into international markets by establishing alliances with strategic
local partners; and (vi) limiting capital risk.
In September 1994, WCC completed an initial public offering ("IPO") in
which it sold 4,370,000 shares of common stock at an offering price of $4.50
per share. Following the completion of the IPO, the Company owned approximately
73.3% of the issued and outstanding shares of common stock of WCC. In January
1996, WCC completed a subsequent public offering of 4,600,000 shares of common
stock at an offering price of $12.00 per
9
<PAGE> 10
share, which resulted in the Company owning approximately 55% of the issued and
outstanding shares of common stock of WCC.
CUSTOMERS
During Fiscal 1996, the Company provided services to more than 16,000
customers. The Company's largest customer was the United States Department of
Energy, which accounted for approximately 15% of the Company's consolidated
revenue in Fiscal 1996. The service contracts at the Savannah River site (6%)
and the Rocky Flats Plant (5%) are the largest of the Company's contracts with
the United States Department of Energy. Contracts with governmental agencies of
the State of Texas accounted for 39% and 37% of WCC's revenues in Fiscal 1996
and Fiscal 1995, respectively. Contracts with the New South Wales Department of
Corrective Services accounted for 10% of WCC's revenues in Fiscal 1996.
Contracts with the Queensland Corrective Services Commission accounted for 11%
of WCC's revenues in Fiscal 1996. Contracts with the Louisiana Department of
Public Safety and Corrections accounted for 9% and 11% of WCC's revenues in
Fiscal 1996 and Fiscal 1995, respectively.
COMPETITION
The Company is the third largest security and protective services
organization in the United States and a leading provider of such services
worldwide. The Company competes domestically and internationally with
Borg-Warner Security Company and Pinkerton's, Inc. The Company also competes
with numerous local and regional security services companies. The top five
providers of services similar to those provided by the Company account for less
than 25% of the security-services market in the United States. Competition in
the security-related and other support services business is intense and is
based primarily on price in relation to quality of service, the scope of
services performed, and the extent of employee training and supervision.
However, potential competitors can enter the security-related and other support
services business without substantial capital investment or expense. WCC
competes primarily on the basis of the quality and range of services offered,
and its experience and reputation, both domestically and internationally, in
the design and management of facilities.
WCC competes with a number of companies domestically and internationally,
such as Corrections Corporation of America, Esmor Correctional Services, Inc.,
Group 4 International Corrections Service, Securicor Group, U.K. Detention
Services, Ltd., and United States Corrections Corp. Some of the competitors are
larger and have greater resources than WCC. WCC also competes on a localized
basis in some markets with small companies that may have better knowledge of
the local conditions and may be better able to gain political and public
acceptance. Potential competitors can enter the correctional business without
substantial capital investment or experience. In addition, in most markets WCC
competes with governmental agencies that are responsible for the development
and management of correctional facilities.
EMPLOYEES
The Company's principal business is labor intensive, and is affected
substantially by the availability of qualified personnel and the cost of labor.
As of March 11, 1997, the Company had over 51,000 full and part-time employees,
most of whom are security officers and other personnel providing physical
security services. The Company has not experienced any material difficulty in
employing sufficient numbers of suitable security officers. Security officers
and other personnel supplied by the Company to its clients are employees of the
Company, even though stationed regularly at a client's premises. A small
percentage of the employees of the Company are covered by collective bargaining
agreements. Relations with employees have been generally satisfactory. At March
4, 1997, WCC had 3,993 full-time employees and 235 part-time employees.
Employees at three of WCC's facilities are unionized.
BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS
The Company is subject to numerous city, county, and state firearm and
occupational licensing laws that apply to security officers and private
investigators. Many states have laws requiring training and registration of
security officers, regulating the use of badges and uniforms, and imposing
minimum bond, surety, or insurance standards.
10
<PAGE> 11
Many foreign countries have laws that restrict the Company's ability to render
certain services, including laws prohibiting security-related services or
limiting foreign investment.
The industry in which WCC operates is subject to national, federal, state
and local regulations in the United States, United Kingdom and Australia which
are administered by a variety of regulatory authorities. Generally, prospective
providers of correctional services must be able to detail their readiness to,
and must, comply with a variety of applicable state and local regulations,
including education, health care and safety regulations. WCC's contracts
frequently include extensive reporting requirements and require supervision and
on-site monitoring by representatives of contracting governmental agencies.
WCC's Kyle New Vision Chemical Dependency Treatment Center is licensed by the
Texas Department of Criminal Justice to provide substance abuse treatment.
Certain states, such as Florida and Texas, deem prison guards to be peace
officers and require WCC personnel to be licensed and may make them subject to
background investigation. State law also typically requires corrections
officers to meet certain training standards.
In addition, many state and local governments are required to enter into a
competitive bidding procedure before awarding contracts for products or
services. The laws of certain jurisdictions may also require the Company to
award subcontracts on a competitive basis or to subcontract with businesses
owned by women or members of minority groups.
The failure to comply with applicable laws, rules or regulations or the
loss of any required license could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
the current and future operations of the Company may be subject to additional
regulations as a result of, among other factors, new statutes and regulations
and changes in the manner in which existing statutes and regulations are or may
be interpreted or applied. Any such additional regulations could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company may, under certain circumstances, be responsible for the
actions of its employees and agents. Under the common law of negligence in many
states, the Company can be held vicariously liable for wrongful acts or
omissions of its agents or employees performed in the course and within the
scope of their agency or employment. In addition, some states have statutes
that expressly impose on the Company legal responsibility for the conduct of
its agents or employees. The nature of the security-related services provided
by the Company (such as armed security officers and fire rescue) may expose it
to greater risks of liability for employee acts or omissions than are posed to
other businesses. The Company maintains public liability insurance to mitigate
against this exposure, although the laws of many states limit or prohibit
insurance coverage of liability for punitive damages arising from willful,
wanton or grossly negligent conduct.
ITEM 2. PROPERTIES
The Company relocated its executive offices to The Wackenhut Center, a
newly constructed building located at 4200 Wackenhut Drive #100, Palm Beach
Gardens, Florida, in March 1996. The Wackenhut Center contains approximately
93,250 square feet and is leased from P.G.A. Professional Center, Ltd., for an
initial term of 15 years, with consecutive options to extend the term of the
lease for three additional five year periods. This lease requires annual rental
payments in the amount of $1,789,300 with no escalation during the initial 15
year term.
WCC owns a 66,000 square foot building in Aurora, Colorado, which is
operated by WCC as a detention center under a contract with the United States
Government and a 35,000 square foot building operated by WCC as a correctional
facility under contract with the State of California in McFarland, California.
The Company owns a 15,000 square foot warehouse building in Miami, Florida. In
addition, the Company owns two buildings in Ecuador and one each in the
Dominican Republic, Costa Rica, Puerto Rico and Uruguay that are used for the
operations of its foreign subsidiaries in those countries. All other offices of
the Company are leased. The aggregate annual rent for all non-cancelable
operating leases of office space, automobiles, data processing and other
equipment is approximately $9,625,000. The Company owns substantially all
uniforms, firearms, and accessories used by its security officers.
11
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
The Company is presently, and is from time to time, subject to claims
arising in the ordinary course of its business. In certain of such actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. In the opinion of management, the various asserted claims and
litigation in which the Company is currently involved will not materially
affect its financial position or future operating results, although no
assurance can be given with respect to the ultimate outcome for any such claim
or litigation. The foregoing opinion is based in part upon the fact that the
Company believes it has established adequate reserves for litigation
contingencies in its financial statements in accordance with generally accepted
accounting principles.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
GEORGE R. WACKENHUT is Chairman of the Board and Chief Executive Officer
of the Company and has been since its inception. He was President of the
Company from the time it was founded until April 26, 1986. He formerly was a
Special Agent of the Federal Bureau of Investigation. Mr. Wackenhut is also a
director of WCC. Mr. Wackenhut is on the Dean's Advisory Board of the
University of Miami School of Business. He is on the National Council of
Trustees, Freedoms Foundation at Valley Forge, and the President's Advisory
Council for the Small Business Administration, Region IV. He is a past
participant in the Florida Governor's War on Crime and a past member of the Law
Enforcement Council, National Council on Crime and Delinquency, and the Board
of Visitors of the U.S. Army Military Police School and the Board of Directors
of SSJ Medical Development, Inc., Miami, Florida. Mr. Wackenhut is also a
member of the American Society for Industrial Security. He was a recipient in
1990 of the Labor Order of Merit, First Class, from the government of
Venezuela. Mr. Wackenhut received his B.S. degree from the University of Hawaii
and his M.Ed. degree from Johns Hopkins University. Mr. Wackenhut is married to
Ruth J. Wackenhut, Secretary of the Company. His son, Richard R. Wackenhut, is
President and Chief Operating Officer of the Company and also a Director.
RICHARD R. WACKENHUT is President and Chief Operating Officer of the
Company and a member of the Board of Directors and has been since April 26,
1986. Prior to that, Mr. Wackenhut was Senior Vice President of Operations from
1983 to 1986. He was Manager of Physical Security from 1973 to 1974. He also
served as Manager, Development at the Company's Headquarters from 1974 to 1976;
Area Manager, Columbia, South Carolina, from 1976 to 1977; District Manager,
Columbia, South Carolina from 1977 to 1979; Director, Physical Security
Division at Corporate Headquarters from 1979 to 1980; Vice President,
Operations from 1981 to 1982; and Senior Vice President, Domestic Operations
from 1982 to 1983. Mr. Wackenhut is Director of Wackenhut del Ecuador, S.A.;
Wackenhut UK Limited; Wackenhut Dominicana, S.A.; and several domestic
subsidiaries of the Company, including WCC. He is a member of the St. Thomas
University Advisory Board. He is also a member of the American Society for
Industrial Security, the International Association of Chiefs of Police and the
International Security Management Association. He received his B.A. degree from
The Citadel in 1969 and completed the Advanced Management Program of the
Harvard University School of Business Administration in 1987. Mr. Wackenhut is
the son of George R. Wackenhut, Chairman of the Board and Chief Executive
Officer of the Company, and Ruth J. Wackenhut, Secretary of the Company.
ALAN B. BERNSTEIN is Executive Vice President of the Company and
President, North American Operations Group and has been since April 27, 1991.
Prior to that, Mr. Bernstein was Senior Vice President, Domestic Operations
from 1986 to 1991. He has been employed by the Company since 1976, except for a
brief absence during 1982 when he was a partner in a family-owned security
alarm business in New York State. Mr. Bernstein has served in the following
positions with the Company or its subsidiaries: Vice President of Domestic
Operations, 1985; Vice President, Corporate Business Development, 1984; Acting
President, Wackenhut Systems Corporation, 1983; Director of Integrated Guard
Security, 1981; and Manager of Wackenhut Electronic Systems
12
<PAGE> 13
Corporation (Miami) from 1976 to 1981. He received his B.S.E.E. degree from the
University of Rochester, and an M.B.A. degree from Cornell University.
FERNANDO CARRIZOSA is Senior Vice President and President, International
Operations Group and has been since January 28, 1989. Mr. Carrizosa was Vice
President of International Operations Group from January 31, 1988 to January
28, 1989. He joined Wackenhut de Colombia in 1968 as Manager of Investigations.
He was promoted to Manager of Human Resources, and then to Assistant to the
President in 1974. He moved to Headquarters as a trainee in 1974, and was
promoted to Manager of Latin American Operations in 1980, a capacity in which
he served until 1983. Mr. Carrizosa also served as Executive Vice President of
Wackenhut International, 1983 to 1984 and President of Wackenhut International,
1984 to 1988. He is a Director of several subsidiaries and affiliates of the
Company. He received a B.B.A. from Universidad Javeriana in Colombia, and an
M.B.A. with honors from Florida International University in 1976.
ROBERT C. KNEIP is Senior Vice President, Corporate Planning and
Development of the Company and has been since 1988. He joined the Company in
1982. Mr. Kneip has held various positions in the Company including Director,
Power Generating Services; Director, Contracts Management; Vice President,
Contracts Management; and Vice President, Planning and Development. Prior to
joining the Company, Mr. Kneip was employed by the Atomic Energy Commission,
the Nuclear Regulatory Commission and Dravo Utility Constructors, Inc. He
received a B.A. (Honors) from the University of Iowa, and an M.A. and Ph.D.
from Tulane University.
GEORGE C. ZOLEY is Senior Vice President of the Company and Vice Chairman
and Chief Executive Officer of the Wackenhut Corrections Corporation. He has
served as President and a Director of the Wackenhut Corrections Corporation
since it was incorporated in 1988, and Chief Executive Officer since April
1994. Dr. Zoley established Wackenhut Corrections Corporation as a division of
The Wackenhut Corporation in 1984, and continues to be a major factor in the
Company's development of privatized correctional and detention facilities
business. Dr. Zoley has also served as a manager, director and then Vice
President of Government Services for Wackenhut Services, Inc. from 1981 through
1988. Prior to joining Wackenhut Services, Inc., Dr. Zoley held various
administrative and management positions for city and county governments in
South Florida. Dr. Zoley has a Masters and Doctorate Degree in Public
Administration.
JAMES P. ROWAN is Vice President and General Counsel, and Assistant
Secretary of the Company. He joined the Company in 1979 as Assistant General
Counsel, became Associate General Counsel in 1982 and a Vice President in 1986.
He is an attorney admitted to the Bar of the States of Indiana, Iowa and
Michigan. He holds degrees of B.S.C. (Accounting) and J.D. (Law) from the
University of Iowa, and a C.P.A. from the University of Illinois.
RUTH J. WACKENHUT is Secretary of the Company and has been since 1958. She
is married to George R. Wackenhut, Chairman of the Board and Chief Executive
Officer of the Company and her son, Richard R. Wackenhut, is President and
Chief Operating Officer of the Company and also a director.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to page
15 of the Registrant's 1996 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to pages
16 through 17 of the Registrant's 1996 Annual Report to Shareholders,
Exhibit 13.0.
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<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to
pages 18 through 23 of the Registrant's 1996 Annual Report to Shareholders,
Exhibit 13.0.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to
pages 24 through 36 of the Registrant's 1996 Annual Report to Shareholders,
Exhibit 13.0, except for the Financial Statement Schedule listed in Item 14 (a)
(2) of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
The information required by Items 10, 11, 12 and 13 of Form 10-K (except
such information as is furnished in a separate caption "Executive Officers of
the Registrant" and is included in Part I, hereto) is contained in, and is
incorporated by reference from, the proxy statement (with the exception of the
Board Compensation Committee Report and the Performance Graph) for the
Company's 1997 Annual Meeting of Shareholders, which has been filed with the
Securities and Exchange Commission pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Company,
included in the Registrant's Annual Report to Shareholders for the
fiscal year ended December 29, 1996 are incorporated by reference in
Part II, Item 8:
Consolidated Balance Sheets - December 29, 1996 and December 31, 1995
Consolidated Statements of Income - Fiscal years ended December 29,
1996, December 31, 1995 and January 1, 1995
Consolidated Statements of Cash Flows - Fiscal years ended December
29, 1996, December 31, 1995 and January 1, 1995
Consolidated Statements of Shareholders' Equity - Fiscal years ended
December 29, 1996, December 31, 1995 and January 1, 1995
Notes to Consolidated Financial Statements
With the exception of the information incorporated by reference
from the 1996 Annual Report to Shareholders in Part II, Items 5,6,7,8,
and Parts IV of the Form 10-K, the Registrant's 1996 Annual Report to
Shareholders is not to be deemed filed as part of this Report.
2. Financial Statement Schedule
14
<PAGE> 15
Schedule II - Valuation and Qualifying Accounts - Page 20
All other schedules specified in the accounting regulations of
the Securities and Exchange Commission have been omitted because they
are either inapplicable or not required. Individual financial
statements of the Company have been omitted because it is primarily an
operating company and all significant subsidiaries included in the
consolidated financial statements filed with this Annual Report are
majority-owned.
3. Exhibits
The following exhibits are filed as part of this Annual Report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1 Articles of Incorporation as amended (incorporated by reference to
the Registrant's Form 10-K Annual Report for the fiscal year ended
December 31, 1995)
3.2 Bylaws currently in effect (incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
December 31, 1995)
4.1 Revolving Credit and Reimbursement Agreement dated January 5, 1995
by and among The Wackenhut Corporation, NationsBank of Florida, N.A.
and Bank of America Illinois, as Lenders, and NationsBank of
Florida, N.A., as Agent (incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
January 1, 1995)
4.2 Letter dated June 8, 1995 concerning the Revolving Credit and
Reimbursement Agreement dated January 5, 1995 by and among The
Wackenhut Corporation, NationsBank of Florida, N.A., and Bank of
America Illinois, as Lenders, and NationsBank of Florida, N.A., as
Agent (incorporated by reference to the Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1995)
4.3 Letter dated August 24, 1995 concerning the Revolving Credit and
Reimbursement Agreement dated January 5, 1995 by and among The
Wackenhut Corporation, NationsBank of Florida, N.A., as Agent
(incorporated by reference to the Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1995)
4.4 Receivables Purchase Agreement dated as of January 5, 1995 among The
Wackenhut Corporation, as Seller, Receivables Capital Corporation
and Enterprise Funding Corporation, each as a Purchaser, Bank of
America National Trust and Savings Association and NationsBank of
North Carolina, N.A., each as a Managing Agent, and Bank of America
National Trust and Savings Association, as the Administrative Agent
(incorporated by reference to the Registrant's Form 10-K Annual
Report for the fiscal year ended January 1, 1995)
4.5 First Amendment dated December 15, 1995 to the Receivables Purchase
Agreement dated as of January 5, 1995 among The Wackenhut
Corporation, as Seller, Receivables Capital Corporation and
Enterprise Funding Corporation, each as a Purchaser, Bank of America
National Trust and Savings Association and NationsBank of North
Carolina, N.A., each as a Managing Agent, and Bank of America
National Trust and Savings Association, as the Administrative Agent
(incorporated by reference to the Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1995)
4.6 $15 Million Credit Agreement dated as of December 12, 1994
between Wackenhut Corrections Corporation, as Borrower, and Barnett
Bank of South Florida, N.A., as Lender (incorporated by reference to
the Registrant's Form 10-K Annual Report for the fiscal year ended
January 1, 1995)
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
4.7 Amendment Agreement Number One dated March 7, 1995 to the Revolving
Credit and Reimbursement Agreement dated January 5, 1995 by and
among The Wackenhut Corporation, NationsBank of Florida, N.A. and
Bank of America Illinois, as Lenders, and NationsBank of Florida,
N.A. as Agent.
4.8 Letter dated September 12, 1996 concerning the Receivables Purchase
Agreement dated as of January 5, 1995 among The Wackenhut
Corporation, as Seller, Receivables Capital Corporation and
Enterprise Funding Corporation, each as a Purchaser, Bank of America
National Trust and Savings Association and NationsBank of North
Carolina, N.A. each as a Managing Agent, and Bank of America
National Trust and Savings Association, as the Administrative Agent
4.9 Amendment Agreement Number Two dated October 28, 1996 to the
Revolving Credit and Reimbursement Agreement dated January 5, 1995
by and among The Wackenhut Corporation, NationsBank of Florida, N.A.
and Bank of America Illinois, as Lenders, and NationsBank of
Florida, N.A., as Agent
10.1 Form of Deferred Compensation Agreement for Executive Officers (the
"Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando
Carrizosa and Robert C. Kneip (incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
January 2, 1994)
10.2 Amendments to the Deferred Compensation Agreements for Executive
Officers (the "Senior Plan"): Alan B. Bernstein, Richard R.
Wackenhut, Fernando Carrizosa and Robert C. Kneip (incorporated by
reference to the Registrant's Form 10-K Annual and Report for the
fiscal year ended December 29, 1991)
10.3 Executive Officer Retirement Plan (incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
December 31, 1995)
10.4 Amended and Restated Split Dollar arrangement with George R. and Ruth
J. Wackenhut (incorporated by reference to the Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1995)
10.5 Office Lease dated April 18, 1995 by and between The Wackenhut
Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071
(incorporated by reference to the Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1995)
10.6 First Amendment dated November 3, 1995 to Office Lease dated April
18, 1995 by and between The Wackenhut Corporation and Daniel S.
Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference
to the Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1995)
10.7 $9 Million Promissory Note dated December 21, 1995 between The
Wackenhut Corporation and ACP-Atrium CG, L.P., a Florida limited
partnership (incorporated by reference to the Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1995)
10.8 Purchase Money Real Estate Mortgage, Assignment and Security
Agreement dated December 31, 1995 between The Wackenhut Corporation
and ACP-Atrium CG, L.P., a Florida limited partnership (incorporated
by reference to the Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1995)
10.9 Key Employee Long-Term Incentive Stock Plan dated July
1991(incorporated by reference to the Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1995)
10.10 Second Amendment dated August 1, 1996 to Office Lease dated April
18, 1995 by and between The Wackenhut Corporation and Daniel S.
Catalfumo, as Trustee under F.S. 689.071
10.11 Amended Nonemployee Director Stock Option Plan dated October 29, 1996
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
13.0 Annual Report to Shareholders for the year ended December 29, 1996,
beginning with page 15 (to be deemed filed only to the extent
required by the instructions to exhibits for reports on this Form
10-K)
21.1 Subsidiaries of The Wackenhut Corporation
23.1 Consent of Arthur Andersen LLP
24.1 Powers of Attorney
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(b). Reports on Form 8-K.
None
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE WACKENHUT CORPORATION
By: /s/ Juan D. Miyar Date: March 21, 1997
-----------------
Juan D. Miyar
Vice President
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ George R. Wackenhut Chairman of the Board and Chief Executive March 21, 1997
- ----------------------------------------- Officer (principal executive officer)
George R. Wackenhut
/s/ Juan D. Miyar Vice President and Corporate Controller March 21, 1997
- ----------------------------------------- (principal accounting officer)
Juan D. Miyar
/s/ Julius W. Becton, Jr. * Director March 12, 1997
- -----------------------------------------
Julius W. Becton, Jr.
Director
- -----------------------------------------
Richard G. Capen, Jr.
/s/ Anne N. Foreman * Director March 12, 1997
- -----------------------------------------
Anne N. Foreman
/s/ Edward L. Hennessy, Jr. * Director March 12, 1997
- -----------------------------------------
Edward L. Hennessy, Jr.
/s/ Paul X. Kelley * Director March 14, 1997
- -----------------------------------------
Paul X. Kelley
/s/ Nancy Clark Reynolds * Director March 14, 1997
- -----------------------------------------
Nancy Clark Reynolds
Director
- -----------------------------------------
George R. Wackenhut
/s/ Richard R. Wackenhut * Director March 12, 1997
- -----------------------------------------
Richard R. Wackenhut
*By: /s/ James P. Rowan Vice President, General Counsel and March 21, 1997
- ----------------------------------------- Assistant Secretary
James P. Rowan
Attorney-in-fact
</TABLE>
18
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in The Wackenhut Corporation's 1996
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 10, 1997. Our audits were made
for the purpose of forming an opinion on those statements taken as a whole. The
schedule listed above in Item 14(a)(2) of the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 29, 1996 is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not
part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
February 10, 1997.
19
<PAGE> 20
SCHEDULE II
THE WACKENHUT CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 AND
JANUARY 1, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED DEDUCTIONS, BALANCE AT
BEGINNING COST AND TO OTHER ACTUAL END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS CHARGE-OFFS PERIOD
- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 29, 1996:
Allowance for doubtful accounts.................. $ 1,268 $ 1,362 - $ (633) $ 1,997
Valuation allowance - deferred tax asset......... $ 162 - - $ (20) $ 142
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts.................. $ 1,056 $ 863 $ (162) $ (489) $ 1,268
Valuation allowance - deferred tax asset......... $ 150 $ 12 - - $ 162
YEAR ENDED JANUARY 1, 1995:
Allowance for doubtful accounts.................. $ 687 $ 508 - $ (139) $ 1,056
Valuation allowance - deferred tax asset......... $ 2,632 - - $(2,482) $ 150
</TABLE>
20
<PAGE> 1
EXHIBIT 4.7
AMENDMENT AGREEMENT NO. 1
TO
REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT made and entered into as of the 28th day of
March, 1996, by and among WACKENHUT CORPORATION, a Florida corporation (herein
called the "Company"), the financial institutions who are signatories hereto
(herein individually called the "Lender" and collectively the "Lenders"), and
NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (successor by merger of NationsBank
of Florida, National Association), as Agent for the Lenders (herein called the
"Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Agent and the Lenders have entered into a
Revolving Credit and Reimbursement Agreement dated January 5, 1995 (the
"Agreement") whereby the Lenders party thereto have agreed to make loans to the
Company and to provide Letters of Credit; and
WHEREAS, the Subsidiaries of the Company have guaranteed payment of
the Obligations pursuant to Guaranty Agreements dated January 5, 1995, all as
described in the Agreement and other Loan Documents; and
WHEREAS, the Company has requested that the Agreement be amended as
hereinafter provided;
NOW, THEREFORE, the Company, the Lenders and the Agent do hereby agree
as follows:
1. The term "Agreement" as used herein and in Loan Documents shall
mean the Agreement as hereby amended and modified. Unless the context otherwise
requires, all terms used herein without definition shall have the definition
provided therefor in the Agreement.
2. Subject to the conditions hereof, the Agreement is hereby amended,
effective June 30, 1995, as follows:
(a) Section 1.01 is hereby amended by adding the following
two new definitions immediately following the definition of "Advance":
"'Adjusted Consolidated Net Worth' means at any time
as of which the amount thereof is to be determined, the sum
of Consolidated Net Worth plus $5,351,000 (representing the
after tax loss associated with the sale of the headquarters
building located at 1500 San Remo Avenue, Coral Gables,
Florida);
'Adjusted Total Capitalization' means the sum of (i)
Consolidated Funded Debt plus (ii) Adjusted Consolidated Net
Worth;"
(b) The definition of "Applicable Interest Addition" in
Section 1.01 is hereby amended by deleting the phrase "Total
Capitalization" appearing therein and inserting in lieu thereof the
phrase "Adjusted Total Capitalization".
(c) Section 7.09 is amended in its entirety so that as
amended it shall read as follows:
"7.09 Trading Asset Ratio. The Company will at all
times keep and maintain a ratio of (a) the sum of (1)
unencumbered cash, net accounts receivable and net inventory
of the Company and its Subsidiaries (other than WCC) all as
determined in accordance with GAAP, plus, through June 30,
1996 but not thereafter, (2) the unpaid principal of the note
in the original principal amount of $9,000,000 payable by
ACP-Atrium CG, Ltd. Partnership held by the Company, provided
such note is
<PAGE> 2
at all times secured by the headquarters building located at
1500 San Remo Avenue, Coral Gables, Florida, to (b) the sum
of (1) Consolidated Funded Debt, excluding the Funded Debt of
WCC, (2) the stated amount of outstanding unsecured Letters
of Credit and (3) accounts payable of the Company and its
Subsidiaries (other than WCC) all determined as of the last
day of each fiscal quarter, of not less than 1.15 to 1.00."
3. In order to induce the Lenders to enter into this Amendment
Agreement, the Company represents and warrants to the Lenders as follows:
(a) The representations and warranties made by Company in
Article VI of the Agreement are true on and as of the date hereto
except that the financial statements referred to in Section 6.03(a)
shall be those most recently furnished to each Lender pursuant to
Section 7.17;
(b) There has been no material change in the condition,
financial or otherwise, of the Company and its Subsidiaries since the
date of the most recent financial reports of the Company received by
each Lender under Section 7.17 thereof, other than changes in the
ordinary course of business, none of which has been a material adverse
change;
(c) The business and properties of the Company and its
Subsidiaries are not, and since the date of the most recent financial
report of the Company and its Subsidiaries received by each Lender
under Section 7.17 thereof have not been adversely affected in any
substantial way as the result of any fire, explosion, earthquake,
accident, strike, lockout, combination of workers, flood, embargo,
riot, activities of armed forces, war or acts of God or the public
enemy, or cancellation or loss of any major contracts; and
(d) No event has occurred and no condition exists which,
upon the consummation of the transaction contemplated hereby,
constitutes a Default or an Event of Default on the part of the
Company under the Agreement or the Notes either immediately or with
the lapse of time or the giving of notice, or both.
4. Each of the Subsidiaries of the Company have joined in the
execution of this Agreement for the purpose of consenting hereto and hereby
reaffirm their respective guaranty of payment of the Obligations.
5. All instruments and documents incident to the consummation of the
transactions contemplated hereby shall be satisfactory in form and substance to
the Agent, the Lenders and their counsel; the Agent shall have received copies
of all additional agreements, instruments and documents which they may
reasonably request in connection therewith, including copies of resolutions of
the Company authorizing the transactions contemplated by this Amendment
Agreement, such documents, when appropriate, to be certified by appropriate
corporate or governmental authorities; and all proceedings of the Company
relating to the matters provided for herein shall be satisfactory to the Agent,
the Lenders and their counsel.
6. This Amendment Agreement sets forth the entire understanding and
agreement of the parties hereto in relation to the subject matter hereof and
supersedes any prior negotiations and agreements among the parties relative to
such subject matter. No promise, conditions, representation or warranty,
express or implied, not herein set forth shall bind any party hereto, and no
one of them has relied on any such promise, condition, representation or
warranty. Each of the parties hereto acknowledges that, except as in this
Amendment Agreement otherwise expressly stated, no representations, warranties
or commitments, express or implied, have been made by any other party to the
other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing,
signed by all the parties hereto, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any preceding or succeeding
breach thereof.
Except as hereby specifically amended, modified or supplemented, the
Agreement and all of the other Loan Documents are hereby confirmed and ratified
in all respects and shall remain in full force and effect according to their
respective terms.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
COMPANY:
WITNESS: WACKENHUT CORPORATION
By:
- ------------------------- --------------------------------
Name: Terry P. Mayotte
Title: Assistant Treasurer
- -------------------------
GUARANTORS:
WITNESS: WACKENHUT SERVICES, INCORPORATED
By:
- ------------------------- --------------------------------
Name: Terry P. Mayotte
Title: Assistant Treasurer
- -------------------------
WITNESS: WACKENHUT INTERNATIONAL, INCORPORATED
By:
- -------------------------- --------------------------------
Name: Terry P. Mayotte
Title: Assistant Treasurer
- -------------------------
WITNESS: AMERICAN GUARD AND ALERT, INCORPORATED
By:
- ------------------------- --------------------------------
Name: Terry P. Mayotte
Title: Assistant Treasurer
- -------------------------
WITNESS: WACKENHUT AIRLINE SERVICES, INC.
By:
- ------------------------- --------------------------------
Name: Terry P. Mayotte
Title: Assistant Treasurer
- -------------------------
WITNESS: WACKENHUT EDUCATION SERVICES, INC.
By:
- ------------------------- --------------------------------
Name: Terry P. Mayotte
Title: Assistant Treasurer
- -------------------------
WITNESS: TITANIA INSURANCE COMPANY OF AMERICA
By:
Name: Terry P. Mayotte
- ------------------------- -----------------------------------
Title: Assistant Treasurer
- -------------------------
WITNESS: TUHNEKCAW, INC.
By:
- ------------------------- --------------------------------
Name: Terry P. Mayotte
<PAGE> 4
Title: Assistant Treasurer
- -------------------------
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH) in its capacity as Agent
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH) as Lender
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
BANK OF AMERICA ILLINOIS
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 1
EXHIBIT 4.8
September 12, 1996
Mr. Erle Archer
Vice President
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, IL 60697
Dear Erle:
Pursuant to the Section 1.07 of the Receivables Purchase Agreement, dated
January 5, 1995, this letter serves to notify you that effective September 20,
1996 the Maximum Purchase Limit must be reduced from $50,000,000 to
$35,000,000.
Please let me know if you need any additional information to process this
change.
Sincerely,
/s/ Terry P. Mayotte
- --------------------
Terry P. Mayotte
Treasurer
c.c.: John Miller, NationsBank
<PAGE> 1
EXHIBIT 4.9
AMENDMENT AGREEMENT NO. 2
TO
REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT made and entered into as of the 28th day of
October, 1996, by and among WACKENHUT CORPORATION, a Florida corporation
(herein called the "Company"), the financial institutions who are signatories
hereto (herein individually called the "Lender" and collectively the
"Lenders"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (successor by merger
of NationsBank of Florida, National Association), as Agent for the Lenders
(herein called the "Agent").
W I T N E S S E T H:
WHEREAS, the Company, the Agent and the Lenders have entered into a
Revolving Credit and Reimbursement Agreement dated January 5, 1995, as amended
by Amendment Agreement No. 1 (the "Agreement") whereby the Lenders party
thereto have agreed to make loans to the Company and to provide Letters of
Credit; and
WHEREAS, the Subsidiaries of the Company have guaranteed payment of
the Obligations pursuant to Guaranty Agreements dated January 5, 1995, all as
described in the Agreement and other Loan Documents; and
WHEREAS, the Company has requested that the Agreement be amended as
hereinafter provided;
NOW, THEREFORE, the Company, the Lenders and the Agent do hereby agree
as follows:
1. The term "Agreement" as used herein and in Loan Documents shall
mean the Agreement as hereby amended and modified. Unless the context otherwise
requires, all terms used herein without definition shall have the definition
provided therefor in the Agreement.
2. Subject to the conditions hereof, clause (ii) of Section 7.11(a)
is amended in its entirety, effective October 1, 1996, so that as amended it
shall read as follows:
"7.11 Restricted Payments: Joint Venture Investments.
(a) ***
(ii) Directly or indirectly, or through any
Subsidiary, purchase, redeem or retire any shares of
its capital stock of any class or any warrants,
rights or options to purchase or acquire any shares
of its capital stock (other than (x) in exchange for
or out of the net cash proceeds to the
<PAGE> 2
Company from the substantially concurrent issue or
sale of other shares of capital stock of the Company
or warrants, rights or options to purchase or
acquire any shares of its capital stock, (y)
purchases or acquisitions of shares of Voting Stock
of the Company which were issued pursuant to an
employee stock plan, provided that the aggregate
amount expended therefor does not exceed $250,000 in
any one fiscal year of the Company, and (z)
purchases or acquisitions of shares of Voting Stock
of the Company after October 1, 1996 in the open
market for an aggregate purchase of not to exceed
$5,000,000, provided further, that such amounts
expended shall not exceed that amount necessary in
order to maintain beneficial ownership or control,
directly or indirectly, of 50.1% (by number of
votes) of the Voting Stock of the Company by the
Wackenhut Family Group);"
3. In order to induce the Lenders to enter into this Amendment
Agreement, the Company represents and warrants to the Lenders as follows:
(a) The representations and warranties made by Company in
Article VI of the Agreement are true on and as of the date hereto
except that the financial statements referred to in Section 6.03(a)
shall be those most recently furnished to each Lender pursuant to
Section 7.17;
(b) There has been no material change in the condition,
financial or otherwise, of the Company and its Subsidiaries since the
date of the most recent financial reports of the Company received by
each Lender under Section 7.17 thereof, other than changes in the
ordinary course of business, none of which has been a material adverse
change;
(c) The business and properties of the Company and its
Subsidiaries are not, and since the date of the most recent financial
report of the Company and its Subsidiaries received by each Lender
under Section 7.17 thereof have not been adversely affected in any
substantial way as the result of any fire, explosion, earthquake,
accident, strike, lockout, combination of workers, flood, embargo,
riot, activities of armed forces, war or acts of God or the public
enemy, or cancellation or loss of any major contracts; and
(d) No event has occurred and no condition exists which,
upon the consummation of the transaction contemplated hereby,
constitutes a Default or an Event of Default on the part of the
Company under the Agreement or the Notes either immediately or with
the lapse of time or the giving of notice, or both.
4. Each of the Subsidiaries of the Company have joined in the
execution of this Agreement for the purpose of consenting hereto and hereby
reaffirm their respective guaranty of payment of the Obligations.
5. All instruments and documents incident to the consummation of the
transactions contemplated hereby shall be satisfactory in form and substance to
the Agent, the Lenders and
<PAGE> 3
their counsel; the Agent shall have received copies of all additional
agreements, instruments and documents which they may reasonably request in
connection therewith, including copies of resolutions of the Company
authorizing the transactions contemplated by this Amendment Agreement, such
documents, when appropriate, to be certified by appropriate corporate or
governmental authorities; and all proceedings of the Company relating to the
matters provided for herein shall be satisfactory to the Agent, the Lenders and
their counsel.
6. This Amendment Agreement sets forth the entire understanding and
agreement of the parties hereto in relation to the subject matter hereof and
supersedes any prior negotiations and agreements among the parties relative to
such subject matter. No promise, conditions, representation or warranty,
express or implied, not herein set forth shall bind any party hereto, and no
one of them has relied on any such promise, condition, representation or
warranty. Each of the parties hereto acknowledges that, except as in this
Amendment Agreement otherwise expressly stated, no representations, warranties
or commitments, express or implied, have been made by any other party to the
other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing,
signed by all the parties hereto, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any preceding or succeeding
breach thereof.
Except as hereby specifically amended, modified or supplemented, the
Agreement and all of the other Loan Documents are hereby confirmed and ratified
in all respects and shall remain in full force and effect according to their
respective terms.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
COMPANY:
WITNESS: WACKENHUT CORPORATION
By:
- ------------------------- --------------------------------
Name: Terry P. Mayotte
Title: Treasurer
- -------------------------
GUARANTORS:
WITNESS: WACKENHUT SERVICES, INCORPORATED
WACKENHUT INTERNATIONAL,
INCORPORATED
- ------------------------- AMERICAN GUARD AND ALERT, INCORPORATED
WACKENHUT AIRLINE SERVICES, INC.
- ------------------------- WACKENHUT EDUCATION SERVICES, INC.
TITANIA INSURANCE COMPANY OF AMERICA
TUHNEKCAW, INC.
By:
- ------------------------- --------------------------------
Name: Terry P. Mayotte
Title: Treasurer
- -------------------------
<PAGE> 5
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH) in its capacity as Agent
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH) as Lender
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
BANK OF AMERICA ILLINOIS
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 1
EXHIBIT 10.10
SECOND AMENDMENT TO OFFICE LEASE
This Second Amendment is entered into this 1 day of August 1996, by
and between PGA PROFESSIONAL CENTER, LTD. ("Landlord") and THE WACKENHUT
CORPORATION ( "Tenant").
BACKGROUND
A. Landlord and Tenant have entered into that certain office Lease
dated April 18, 1995, (the "Lease") and that certain First Amendment to Lease
dated November 3, 1995 ("First Addendum").
B. Pursuant to paragraph 1.B. of the Lease, Landlord and Tenant agreed
to execute a revision to the Lease upon completion of the Demised Premises
setting forth the actual square footage of the Demised Premises, the actual
Rent to be paid and the amount of the actual Tenant Improvement Allowance.
NOW THEREFORE, in consideration of the sum of Ten and 00/100 ($10.00)
Dollars and other good and valuable consideration, the receipt and sufficiency
of which is acknowledged, the parties agree as follows:
1. The Referenced Data attached to the Lease is modified as
follows:
A. The Demised Premises are made up of 93,259 square feet
(1,500 square feet of which Tenant is not obligated to pay
Rent on).
B. The Annual Rental to be paid under the Lease is
$1,789,300.50.
C. Tenant's proportionate share shall be 97.03%.
2. Paragraph 1.B. is modified to provide that the Demised Premises
shall contain the 93,259 consisting of all of the second through fourth floors
and a portion of the first floor of the Building. The area of the remaining
space in the Building is 2,859 square feet. Accordingly, there shall be no
sharing of the Rent for the lobby of the Building.
3. Paragraph 2.A. of the Lease is modified to provide that the Rental
Commencement Date is February 15, 1996.
4. Paragraph 4.A. of the Lease is modified to provide that the minimum
Rent for the Demised Premises shall be $1,789,300.50. The monthly installments
of Rent shall be in the amount of $149,108.37 plus Sales Tax.
5. Exhibit "B" of the Lease is modified and replaced with Exhibit "B"
attached hereto.
6. The actual Tenant Improvement Allowance is $3,264,782.37.
7. Except as modified hereby, the Lease remains in full force and
effect and unmodified.
WITNESSES: LANDLORD:
PGA PROFESSIONAL CENTER, LTD
BY: PGA PROFESSIONAL CENTER, INC.
its general partner
- ----------------------
- ----------------------
BY:
----------------------------------
Daniel S. Catalfumo, President
<PAGE> 2
TENANT:
THE WACKENHUT CORPORATION
- ----------------------
- ----------------------
BY:
-----------------------------------
Robert C. Kneip
Senior Vice-President
<PAGE> 1
EXHIBIT 10.11
THE WACKENHUT CORPORATION
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
(Amended and restated as of October 29, 1996)
<PAGE> 2
THE WACKENHUT CORPORATION
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
(Amended and restated as of October 29, 1996)
CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE I. THE PLAN
1.1 Establishment of the Plan 1
1.2 Purpose of the Plan 1
1.3 Duration of the Plan 1
ARTICLE II. DEFINITIONS
2.1 Award Agreement 2
2.2 Board 2
2.3 Code 2
2.4 Company 2
2.5 Disability 2
2.6 Exchange Act 2
2.7 Fair Market Value 2
2.8 Nonemployee Director 2
2.9 Option 3
2.10 Participant 3
2.11 Plan Administrator 3
2.12 Shares 3
ARTICLE III. ADMINISTRATION
3.1 The Plan Administrator 4
3.2 Authority of the Plan Administrator 4
3.3 Decisions Binding 4
ARTICLE IV. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares 5
4.2 Lapsed Option Grants 5
4.3 Adjustments in Authorized Shares 5
</TABLE>
<PAGE> 3
THE WACKENHUT CORPORATION
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
(Amended and restated as of October 29, 1996)
CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE V. ELIGIBILITY AND PARTICIPATION
5.1 Eligibility 6
5.2 Actual Participation 6
ARTICLE VI. NONQUALIFIED STOCK OPTIONS
6.1 Grants of Options 7
6.2 Limitation on Grant of Options 7
6.3 Award Agreement 7
6.4 Option Price 7
6.5 Duration of Options 7
6.6 Vesting of Shares Subject to Option 7
6.7 Payment 8
6.8 Termination of Service on Board Due to Death 8
6.9 Termination of Service on Board Due to Disability 8
6.10 Termination of Service on Board for Other Reasons 8
6.11 Nontransferability of Options 9
6.12 Restrictions on Share Transferability 9
ARTICLE VII. AMENDMENT, MODIFICATION, AND TERMINATION
7.1 Amendment, Modification, and Termination 10
7.2 Options Previously Granted 10
ARTICLE VIII. MISCELLANEOUS
8.1 Indemnification 11
8.2 Beneficiary Designation 11
8.3 Successors 11
8.4 Severability 11
8.5 Requirements of Law 11
8.6 Governing Law 12
</TABLE>
<PAGE> 4
ARTICLE I. THE PLAN
1.1 ESTABLISHMENT OF THE PLAN
The Wackenhut Corporation, (the "Company"), hereby establishes an incentive
compensation plan providing for the grant of nonqualified stock options to
Nonemployee Directors, subject to the terms and provisions set forth herein.
This plan shall be known as The Wackenhut Corporation Nonemployee Director
Stock Option Plan (the "Plan").
This Plan was initially approved by an affirmative vote of a majority of Shares
present and entitled to vote at the 1996 Annual Meeting, with an original
effective date of April 28, 1995. The Plan is hereby amended and restated as of
October 29, 1996.
1.2 PURPOSE OF THE PLAN
The purpose of the Plan is to promote the achievement of long-term objectives
of the Company by linking the personal interests of Nonemployee Directors to
those of Company shareholders, and to attract and retain Nonemployee Directors
of outstanding competence.
1.3 DURATION OF THE PLAN
The Plan shall remain in effect, subject to the right of the Board to amend or
terminate the Plan at any time pursuant to section 7.1, until all Shares
subject to the Plan have been purchased or acquired according to the Plan's
provisions. However, in no event may an Option be granted under the Plan on or
after April 27, 2005.
<PAGE> 5
ARTICLE II. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below unless otherwise expressly provided. When the defined meaning is
intended, the term is capitalized. The definition of any term in the singular
shall also include the plural.
2.1 AWARD AGREEMENT
Award Agreement means an agreement entered into by the Company and each
Participant setting forth the terms and provisions applicable to Options
granted under this Plan.
2.2 BOARD
Board means the Board of Directors of The Wackenhut Corporation.
2.3 CODE
Code means the Internal Revenue Code of 1986, as amended from time to time.
2.4 COMPANY
Company means The Wackenhut Corporation and any successor organization as
provided in section 8.3.
2.5 DISABILITY
Disability means any disabling condition which entitles the Participant to
disability benefits under the federal Social Security Act.
2.6 EXCHANGE ACT
Exchange Act means the Securities Exchange Act of 1934, as amended from time to
time.
2.7 FAIR MARKET VALUE
Fair Market Value means the last closing sale price of a Share on or prior to
the relevant date that is reported by the principal securities exchange on
which the Shares are publicly traded.
2.8 NONEMPLOYEE DIRECTOR
Nonemployee Director means any individual who is a member of the Board, but who
has never otherwise been an employee of the Company.
2.9 OPTION
Option means an option to purchase Shares granted under Article VI. Such
Options are not intended to meet the requirements of Code section 422.
<PAGE> 6
2.10 PARTICIPANT
Participant means a Nonemployee Director of the Company who has one or more
outstanding Options under the Plan.
2.11 PLAN ADMINISTRATOR
Plan Administrator means the Compensation Committee of the Company's Board.
2.12 SHARES
Shares mean the series B common stock of the Company.
<PAGE> 7
ARTICLE III. ADMINISTRATION
3.1 THE PLAN ADMINISTRATOR
The Plan shall be administered by the Plan Administrator subject to the
restrictions set forth in this Plan. The Plan Administrator may delegate to one
or more individuals or a committee any of its powers and duties as Plan
Administrator that it deems desirable. In this case, every reference in the
Plan to the Plan Administrator shall be deemed to include these individuals or
the committee as to matters within their jurisdiction.
3.2 AUTHORITY OF THE PLAN ADMINISTRATOR
The Plan Administrator shall have the full power, discretion, and
authority to administer this Plan in a manner which is consistent with
its provisions. Except as provided below, the Plan Administrator shall
have the exclusive right to interpret the terms and provisions of the
Plan and to determine any and all questions arising under the
Plan or in connection with the administration thereof, including, without
limitation, the right to remedy or resolve possible ambiguities,
inconsistencies, or omissions, by general rule or particular decision.
However, in no event shall the Plan Administrator have the power to determine
Plan eligibility, or to determine the number, the purchase price, the vesting
period, or the frequency and timing of Options to be granted under the Plan to
any Participant. All such determinations are automatic pursuant to the
provisions of this Plan.
3.3 DECISIONS BINDING
All determinations and decisions made by the Plan Administrator pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
including the Company, its stockholders, employees, Participants, and their
estates and beneficiaries.
<PAGE> 8
ARTICLE IV. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES
Subject to adjustment as provided in section 4.3, no more than 100,000 Shares
shall be eligible for purchase by Participants pursuant to Options granted
under this Plan.
4.2 LAPSED OPTION GRANTS
If any Option granted under this Plan terminates, expires, or lapses for any
reason, any Shares subject to purchase pursuant to such Option shall again be
available for the grant of an Option under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES
In the event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split-up, Share combination, or other
change in the corporate structure of the Company affecting the Shares, such
adjustment shall be made in the number and class of and/or price of Shares
subject to outstanding Options granted under this Plan, as may be determined to
be appropriate and equitable by the Board, in its sole discretion, to prevent
dilution or enlargement of rights.
<PAGE> 9
ARTICLE V. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY
Nonemployee Directors shall be eligible to become Participants in accordance
with section 5.2.
5.2 ACTUAL PARTICIPATION
Subject to the provisions of Article VI, all Nonemployee Directors shall become
Participants by receiving grants of Options upon election and/or reelection to
serve on the Board.
<PAGE> 10
ARTICLE VI. NONQUALIFIED STOCK OPTIONS
6.1 GRANTS OF OPTIONS
Subject to the limitation on the number of Shares subject to this Plan, each
Nonemployee Director shall be granted an Option to purchase 2,000 shares upon
his or her election and/or reelection to serve on the Board.
6.2 LIMITATION ON GRANT OF OPTIONS
Other than those grants of Options set forth in section 6.1, no additional
Options shall be granted under this Plan.
6.3 AWARD AGREEMENT
Each Option grant shall be evidenced by an Award Agreement that shall specify
the Option Price (as defined in section 6.4), the duration of the Option, and
the number of Shares available for purchase under the Option as set forth in
this Plan.
6.4 OPTION PRICE
The purchase price per Share available for purchase under an Option shall be
equal to the Fair Market Value of such Share on the date the Option is granted.
6.5 DURATION OF OPTIONS
Each Option shall expire on the tenth (10th) anniversary date of its grant.
6.6 VESTING OF SHARES SUBJECT TO OPTION
Options granted under the Plan shall be 100 percent vested at all times.
Participants shall be entitled to exercise Options at any time and from time to
time, within the time period beginning on the date on which the Option is
granted, and ending ten (10) years after grant of the Option.
<PAGE> 11
6.7 PAYMENT
Options shall be exercised by the delivery of a written notice of exercise to
the Secretary of the Company, setting forth the number of Shares with respect
to which the Option is to be exercised. The Option Price (as defined in section
6.4) of any Option shall be payable to the Company in full in cash or its
equivalent upon exercise.
As soon as practicable after receipt of a written notification of exercise and
full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased pursuant to the exercise of the Option.
6.8 TERMINATION OF SERVICE ON BOARD DUE TO DEATH
If a Participant dies while he or she is actively serving as a Nonemployee
Director, any outstanding Options may be exercised by the Participant's legal
representative or beneficiary any time before the earlier of:
(a) the expiration date of such Options; or
(b) the second anniversary of the Participant's death.
6.9 TERMINATION OF SERVICE ON BOARD DUE TO DISABILITY
If a Participant incurs a Disability while he or she is actively serving as a
Nonemployee Director, the Participant may exercise any Options that are
outstanding at the time of such Disability before the earlier of:
(a) the expiration date of such Options; or
(b) the second anniversary of the date of Disability.
(If the Participant dies after incurring a Disability, but before the
expiration of the exercise period described above, the Participant's legal
representative or beneficiary may exercise any outstanding Options before the
expiration of such period.)
6.10 TERMINATION OF SERVICE ON BOARD FOR OTHER REASONS
If the service of the Participant on the Board shall terminate for any reason
other than for death or Disability, any outstanding Options held by the
Participant shall remain exercisable at any time prior to their expiration
date, or for ten years from the date of the grant of the Options, whichever is
shorter.
<PAGE> 12
6.11 NONTRANSFERABILITY OF OPTIONS
No Option granted under this Plan may be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, all Options granted to a Participant under
this Plan shall be exercisable during his or her lifetime only by such
Participant.
6.12 RESTRICTIONS ON SHARE TRANSFERABILITY
The Board may impose such restrictions on any Shares acquired pursuant to the
exercise of an Option under this Plan, as it may deem advisable, including,
without limitation, restrictions under applicable Federal securities laws,
under the requirements of any Stock exchange or market upon which such Shares
are then listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
<PAGE> 13
ARTICLE VII. AMENDMENT, MODIFICATION, AND TERMINATION
7.1 AMENDMENT, MODIFICATION, AND TERMINATION
The Board may at any time alter, amend, suspend, or terminate the Plan in whole
or in part. However, no amendment which fails to comply with the exemptions
available under Rule 16b-3 of the Exchange Act, including any successor to the
Rule, shall be effective.
7.2 OPTIONS PREVIOUSLY GRANTED
Unless required by law, no termination, amendment, or modification of this Plan
shall in any manner adversely affect any Option previously granted under this
Plan, without the written consent of the Participant holding the Option.
<PAGE> 14
ARTICLE VIII. MISCELLANEOUS
8.1 INDEMNIFICATION
The Company shall indemnify each person against any and all claims, losses,
damages, and expenses (including counsel fees) incurred by such individual for
the exercise of any duties as Plan Administrator, whether singly or as a member
of committee, and against any liability, including any amounts paid in
settlement with the Company's approval, arising from the individual's action or
failure to act, except when the same is judicially determined to be
attributable to the gross negligence or willful misconduct of the individual.
8.2 BENEFICIARY DESIGNATION
Each Participant under this Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to exercise
the rights described in sections 6.8 and 6.9. Each designation will revoke all
prior designations by the same Participant, shall be in a form prescribed by
the Plan Administrator and will be effective only when filed by the Participant
in writing with the Plan Administrator during his or her lifetime. In the
absence of any such designation, such rights may be exercised by the executor
of the Participant's estate.
8.3 SUCCESSORS
All obligations of the Company under this Plan, with respect to Options granted
hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Company.
8.4 SEVERABILITY
If a provision of this Plan shall be held illegal or invalid, the illegality or
invalidity shall not affect the remaining parts of the Plan. The Plan shall be
construed and enforced as if the illegal or invalid provision had not been
included herein.
8.5 REQUIREMENTS OF LAW
The granting of Options under this Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
<PAGE> 15
8.6 GOVERNING LAW
To the extent not preempted by Federal law, this Plan, and all Award Agreements
hereunder, shall be construed in accordance with the laws of the State of
Florida.
IN WITNESS WHEREOF, the authorized officers of the Company have signed this
amended document and have affixed the corporate seal on ________________, 1997,
but effective as of October 29, 1996.
THE WACKENHUT CORPORATION
ATTEST:
By
George R. Wackenhut
Its
---------------------------------
By
Its (Corporate Seal)
-------------------------
<PAGE> 1
EXHIBIT 13.0
FINANCIAL REVIEW
MARKET FOR THE CORPORATION'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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 $54,020,000 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 for general corporate purposes.
Regular quarterly dividends of $.065 per share and $.06 per share (adjusted for
the 25% stock dividend) on both its outstanding series A and B common stock
were declared and paid for each of the four quarters of fiscal 1996 and 1995,
respectively. The corporation intends to declare future quarterly dividends on
series A and B common stock, depending on its earnings, financial condition,
capital requirements and other relevant factors.
On October 31, 1995, the corporation declared a 25% stock dividend, effected in
the form of a stock split (the 25% stock dividend), paid on January 9, 1996 to
stockholders of record at the close of business on December 22, 1995. The 25%
stock dividend was paid in series B common stock to holders of the
corporation's series A and B shares. The accompanying consolidated financial
statements have been retroactively restated to reflect the 25% stock dividend.
The ensuing table shows the high and low prices for the corporation's series A
and B common stock, as reported on the New York Stock Exchange, for each
quarterly period during fiscal 1996 and 1995. The prices shown in the table
have been rounded to the nearest 1/8th and reflect the 25% stock dividend. The
approximate number of record holders of series A and B common stock, as of
February 14, 1997, was 778 and 830, respectively.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
=================================================================================================
SERIES A SERIES B SERIES A SERIES B
- -------------------------------------------------------------------------------------------------
QUARTER HIGH LOW HIGH LOW HIGH LOW HIGH LOW
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $20-3/8 $14-1/4 $17-1/8 $12-3/8 $14 $ 8-3/8 $12-3/4 $ 8-1/2
Second 31-1/8 18-3/4 27-7/8 14-3/4 15-1/4 10-7/8 12-3/8 9
Third 24-5/8 16-3/4 18-1/2 13-3/8 12-3/4 11-1/8 11-1/4 9-7/8
Fourth 20-5/8 14-5/8 17-1/4 11-7/8 14-1/2 12 12-3/4 10-3/8
</TABLE>
15
<PAGE> 2
Selected Financial Data
(In thousands except per share data)
The selected consolidated financial data should be read in conjunction with the
corporation's consolidated financial statements and the notes thereto.
<TABLE>
FISCAL YEARS ENDED: (a) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
<S> <C> <C>
Revenues $ 906,056 $ 796,732
Operating income 16,320 15,774
Income before income taxes 17,875 13,733
Income before extraordinary charge and cumulative effect of accounting change 9,057 7,260
Extraordinary charge - early extinguishment of debt, net of income taxes -- --
Cumulative effect of accounting change for income taxes -- --
--------------------------------
Net income $ 9,057 $ 7,260
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE: (b)
Income before extraordinary charge and cumulative effect of accounting change $ .66 $ .60
Extraordinary charge-early extinguishment of debt, net of income taxes -- --
Cumulative effect of accounting change for income taxes -- --
--------------------------------
Net income $ .66 $ .60
- ------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER SHARE OF COMMON STOCK: (b)
Regular quarterly dividends $ .26 $ .24
Special dividend -- --
Total dividends $ .26 $ .24
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION:
Working capital $ 148,076 $ 51,865
Total assets 323,918 197,927
Current portion of long-term debt -- --
Long-term debt 5,890 5,387
Total debt (c) 5,890 6,502
Shareholders' equity 148,229 62,904
========================================================================================================================
</TABLE>
(a) Fiscal years 1992 and 1987 included 53 weeks.
(b) Restated to reflect a 25% stock dividend declared during fiscal 1995
and 1994 and to reflect a 100% stock dividend, effected in the form of
a stock split, declared during fiscal 1992.
(c) Includes current portion of long-term debt, notes payable and
long-term debt.
16
<PAGE> 3
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987 1986
======================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 726,753 $ 659,256 $ 615,378 $ 570,411 $ 521,191 $ 462,181 $ 400,996 $ 381,972 $ 328,795
6,592 4,496 3,367 13,859 12,097 10,225 5,334 6,032 1,680
3,002 3,371 1,588 11,867 10,664 8,524 7,382 7,915 3,247
2,272 3,609 1,137 7,721 6,963 5,874 5,195 5,660 2,418
(887) (1,444) -- -- -- -- -- -- --
-- -- 7,370 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------
$ 1,385 $ 2,165 $ 8,507 $ 7,721 $ 6,963 $ 5,874 $ 5,195 $ 5,660 $ 2,418
- -----------------------------------------------------------------------------------------------------
$ .19 $ .30 $ .09 $ .64 $ .58 $ .49 $ .43 $ .46 $ .20
(.08) (.12) -- -- -- -- -- -- --
-- -- .61 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------
.11 $ .18 $ .70 $ .64 $ .58 $ .49 $ .43 $ .46 $ .20
- -----------------------------------------------------------------------------------------------------
$ .23 $ .23 $ .20 $ .19 $ .19 $ .19 $ .19 $ .19 $ .19
-- -- -- -- -- -- .96 -- --
.23 $ .23 $ .20 $ .19 $ .19 $ .19 $ 1.15 $ .19 $ .19
- -----------------------------------------------------------------------------------------------------
$ 75,589 $ 56,163 $ 56,932 $ 48,599 $ 42,413 $ 40,635 $ 38,461 $ 35,588 $ 31,572
212,757 211,297 192,236 172,093 164,085 157,681 150,318 130,439 115,930
-- 10,456 730 730 -- 2,825 1,500 -- --
38,991 57,484 63,260 46,920 46,850 48,500 45,558 10,600 8,400
42,756 67,940 63,990 47,650 46,850 51,325 47,058 10,600 18,400
57,459 47,362 47,587 42,847 37,865 33,616 30,528 39,653 36,191
======================================================================================================
</TABLE>
17
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND RESULTS OF OPERATIONS
(Tabular information in thousands)
OVERVIEW
Since its inception in 1954, the company has become a leading international
provider of security-related and other support services and a leading developer
and manager of privatized correctional and detention facilities. The company
provides security-related and other support services through the Services
Business and correctional services through the Correctional Business. Through
the Services Business, the company provides physical security services, food
services and other related services to commercial and governmental customers.
Through the Correctional Business, the company provides correctional and
detention facility design, development and management services to government
agencies. In 1996, the company reorganized its business into three major
groups: the North American Operations Group (including Wackenhut of Canada,
Ltd.), Wackenhut Corrections Corporation and the International Operations
Group. The Services Business is operated through the North American and
International groups, while the Correctional Business is operated exclusively
by the company's 55%-owned Wackenhut Corrections subsidiary.
From a well established base in its core security-related services business,
the company has expanded into a range of other support services in response to
a trend toward privatization of governmental services and outsourcing by
commercial customers of non-core support functions. For example, in 1984 the
company expanded into the Correctional Business which in 1996 increased its
revenues by 38.6% and operating income by 34.6% from 1995. Moreover, in 1992
the company entered the foodservice business for correctional institutions,
which in 1996 generated $70.6 million in revenues. The company continues to
expand its market presence in these areas and, consistent with that strategy,
acquired the contracts and certain assets of the Correctional Food Service
Division of Service America Corporation in early 1996. The company continues to
explore and may selectively invest in other service businesses such as
temporary services, building maintenance, supplemental police services,
crash-fire-rescue services, fire protection services, and airport services.*
For example, in 1996 the company entered the employee leasing business with the
creation of Oasis Outsourcing, Inc., a professional employer organization.
Consolidated revenues increased 14% to $906.1 million in 1996 over 1995, and
consolidated net income reached a record high $9.1 million, or a 25% increase
over net income of $7.3 million last year. The North American Operations Group
led the growth in revenues of the Services Business with an increase of 13.9%
to $660.5 million in 1996 from $579.9 million in 1995, which was attributable
primarily to the performance of the Security Services and Food Services
Divisions. The continued strong performance of the Security Services Division
was attributable mainly to the Division's success in growing its national
account and its Custom Protection Officer(R) (CPO) businesses. The Food
Services Division doubled revenue to $70.6 Million in 1996 with the acquisition
of the correctional food service operation of Service America Corporation.
The North American Operations Group also provides sophisticated security
services to the Department of Energy through Wackenhut Services, Inc. (WSI).
WSI revenues decreased 3.1% to $142.2 million in 1996 from $146.7 million in
1995, primarily as a result of reductions in government funding for security at
United States Department of Energy facilities. Contracts with the Department of
Energy are typically cost reimbursable contracts for which the company can earn
award fees based on performance factors. Although award fee pools available to
the company have not been reduced significantly, further reductions in revenues
could impact profit contribution from these contracts.*
Revenues of the International Operations Group declined $6.4 million to $103.6
million due principally to the deconsolidation of the company's Chilean
operations. Although most of the operations of the International Operations
Group were profitable, the group reported an operating loss due to the
significant investment it made in Wackenhut of Australia. The company believes
that Australia offers substantial market opportunities in both commercial
outsourcing and government privatization.*
During 1996, Wackenhut Corrections continued to generate significant growth.
Between 1992 and 1996, Wackenhut Corrections generated compound annual revenue
growth of 24%. In 1996, revenues increased 39% to $137.8 million, and operating
income increased 35% to $9.7 million. Total compensated resident days increased
to 3.6 million at year-end 1996 from 2.4 million at year-end 1995 with the
total of revenue producing beds increasing to 12,000 from 8,000 during the same
period.
In December 1995, the company sold its headquarters building in Coral Gables,
Florida, and subsequently relocated to a newly constructed, leased building in
Palm Beach Gardens, Florida. A one-time charge for $750,000 was made in the
first quarter of 1996 for the cost of the move.
RESULTS OF OPERATIONS
The table on page 19 summarizes results of operations for the company's two
business segments by organizational group.
- --------------------
* Refer to Forward-Looking Statements on page 23.
18
<PAGE> 5
<TABLE>
<CAPTION>
REVENUES (In thousands)
-------------------------------------------------------------------
% Change % Change
1996 vs. 1995 1995 vs. 1994 1994
-------------------------------------------------------------------
SERVICES BUSINESS
<S> <C> <C> <C> <C> <C>
North American Operations Group $ 660,457 13.9 $ 579,882 6.0 $ 547,016
International Operations Group 103,587 (5.8) 109,967 38.6 79,350
Other 5,071 (64.5) 14,275 (38.8) 23,310
Inter-Group Revenues (843) (87.6) (6,823) (1.8) (6,949)
-------------------------------------------------------------------
768,272 10.2 697,301 8.5 642,727
CORRECTIONAL BUSINESS
Wackenhut Corrections 137,784 38.6 99,431 18.3 84,026
-------------------------------------------------------------------
Consolidated Revenues $ 906,056 13.7 $ 796,732 9.6 $ 726,753
-------------------------------------------------------------------
OPERATING INCOME
<CAPTION>
-------------------------------------------------------------------
% Change % Change
1996 vs. 1995 1995 vs. 1994 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SERVICES BUSINESS
North American Operations Group $ 19,993 13.5 $ 17,622 2.9 $ 17,125
International Operations Group (1,257) (143.7) 2,878 5.4 2,730
Corporate Expenses and Underwriting Losses (11,397) (4.7) (11,955) 32.7 (9,009)
-------------------------------------------------------------------
7,339 (14.1) 8,545 (21.2) 10,846
CORRECTIONAL BUSINESS
Wackenhut Corrections 9,731 34.6 7,229 62.6 4,446
Write-down of Headquarters Building -- -- -- -- (8,700)
Provision for Relocation Costs (750) -- -- -- --
-------------------------------------------------------------------
Consolidated Operating Income $ 16,320 3.5 $ 15,774 139.3 $ 6,592
===================================================================
</TABLE>
COMPARISON OF FISCAL YEAR 1996 TO FISCAL YEAR 1995
REVENUES
Consolidated revenues increased 13.7% to $906.1 million in 1996 from $796.7
million in 1995.
SERVICES BUSINESS
Services Business revenues increased 10.2% to $768.3 million in 1996 from
$697.3 million in 1995.
North American Operations Group
North American Operations Group revenues increased 13.9% to $660.5 million in
1996 from $579.9 million in 1995. Within the North American Operations Group,
revenues from the Security Services Division increased 13.1% to $380.1 million
in 1996 from $336.2 million in 1995 primarily as a result of increased billable
hours on the regular guard service, including an increase of 25% in revenues
derived from the provision of services to national accounts. In addition,
Custom Protection Officer(R) revenues increased 15.1% to $74.7 million in 1996
from $64.9 million in 1995. The Food Services Division increased its revenues
103.3% to $70.6 million in 1996 from $34.7 million in 1995, reflecting the
acquisition of the contracts of the Correctional Food Services Division of
Service America Corporation and new business development. Revenues of the
Nuclear Division increased slightly to $54.7 million in 1996 from $52.8 million
in 1995. However, revenues of Wackenhut Services, Inc. decreased 3.1% to $142.2
million in 1996 from $146.7 million in 1995, principally due to reductions in
government funding at U.S. Department of Energy facilities and the loss of the
Strategic Petroleum Reserve contract with DynMcDermott. Management believes
this reduction in funding will continue to affect Wackenhut Services, Inc.'s
revenues and operating income.*
International Operations Group
International Operations Group revenues decreased 5.8% to $103.6 million in
1996 from $110.0 million in 1995 due principally to the deconsolidation of the
former subsidiary in Chile which is now a minority-owned affiliate. Revenues of
the Chilean operations for the first nine months of 1995 amounted to $14.2
million. Excluding the effects of the Chilean operation, revenues of the
International Operations Group were actually $7.8 million higher than in 1995
due to the increased revenues in Europe and Australia.
- --------------------
* Refer to Forward-Looking Statements on page 23.
19
<PAGE> 6
CORRECTIONAL BUSINESS
Correctional Business revenues increased 38.6% to $137.8 million in 1996 from
$99.4 million in 1995. Of the increase in 1996 revenues, $35.4 million was
generated by domestic operations and $3.0 million was generated by operations
in Australia. The increase in domestic revenues in 1996 was primarily
attributable to an increase in compensated resident days of 1.2 million
resulting from the opening of new facilities and increased services to existing
facilities. Compensated resident days of the Australian subsidiary of Wackenhut
Corrections increased to 440,000 in 1996 from 420,000 in 1995.
OPERATING INCOME
Consolidated operating income increased to $16.3 million in 1996, after
deducting $750,000 for relocation costs, from $15.8 million in 1995. Excluding
the provision for relocation costs, consolidated operating income increased
8.2% in 1996 versus 1995.
SERVICES BUSINESS
Operating income from the Services Business decreased 14.1% to $7.3 million in
1996 from $8.5 million in 1995. Excluding the operating losses of Wackenhut of
Australia Pty., Ltd., as discussed below, the operating income from the
Services Business increased 9.1% to $9.8 million in 1996 from $9.0 million in
1995.
North American Operations Group
The operating income of the North American Operations Group increased 13.5% to
$20.0 million in 1996 from $17.6 million in 1995. There was a significant
increase in the profit contribution of the core security-related business
resulting from consistent profit margins and higher revenues. The Food Services
Division also realized a significant increase of $821,000 in operating profits
principally due to doubling its revenues as a result of the acquisition of
Service America's foodservice unit.
International Operations Group
The International Operations Group had an operating loss of $1.3 million in
1996 compared to operating income of $2.9 million in 1995. The operating loss
in 1996 was primarily due to: (i) the operating losses of $2.5 million from the
new security services subsidiary in Australia, Wackenhut of Australia Pty.,
Ltd.; (ii) the decrease in operating income which resulted from the
deconsolidation of the former subsidiary in Chile; and (iii) operating losses
in the Czech Republic and other subsidiaries principally in Africa.
CORPORATE EXPENSES AND UNDERWRITING LOSSES
Corporate expenses and underwriting losses decreased 4.7% to $11.4 million in
1996 from $12.0 million in 1995 as a result principally of cost reduction
measures implemented this year.
CORRECTIONAL BUSINESS
Wackenhut Corrections operating income increased 34.6% to $9.7 million in 1996
from $7.2 million in 1995. Of this increase, domestic operating income
increased 57.5% to $7.1 million in 1996 from $4.5 million in 1995, reflecting
the increase in compensated resident days. These increases in operating income
were partially offset by higher overhead expenses of WCC.
Wackenhut Corrections international operating income decreased 3.1% to $2.6
million in 1996 from $2.7 million in 1995, attributable to higher operating
expenses at Wackenhut Corrections' Australian facilities.
OTHER INCOME/EXPENSE
Other income was $1.6 million in 1996 compared to other expense of $2.0 million
in 1995. The increase in interest and investment income of $3.0 million in 1996
included interest income of approximately $2.1 million from the investment of
the net proceeds of Wackenhut Corrections' public offering. Interest expense
decreased by $590,000 in 1996 compared to 1995, primarily due to a decline in
costs associated with the accounts receivable securitization facility which was
repaid with the proceeds from the company's public offering.
INCOME BEFORE INCOME TAXES
Income before income taxes, which included a $750,000 provision for relocation
costs in 1996, increased 30.2% to $17.9 million in 1996 from $13.7 million in
1995.
The combined federal and state effective income tax rate was 35.3% for 1996 and
34.5% for 1995, respectively. The increase in the effective rate in 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 75.3% to $4.1 million
in 1996 from $2.4 million in 1995, reflecting principally the increase in
earnings of and the public ownership in Wackenhut Corrections.
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased 158.8% to
$1.6 million in 1996 from $631,000 in 1995, primarily resulting from the
increased earnings of security services affiliates in South America, the joint
venture of Wackenhut Corrections in the United Kingdom and the inclusion of the
corporation's equity income of the Chilean operations.
NET INCOME
Net income increased to $9.1 million in 1996, or $0.66 per share, after the
$750,000 provision for relocation costs
20
<PAGE> 7
($461,000 net of income taxes), compared to $7.3 million or $0.60 per share in
1995.
COMPARISON OF FISCAL YEAR 1995 TO FISCAL
YEAR 1994
REVENUES
Consolidated revenues increased 9.6% to $796.7 million in 1995 from $726.8
million in 1994.
SERVICES BUSINESS
Services Business revenues increased 8.5% to $697.3 million in 1995 from $642.7
million in 1994.
North American Operations Group
North American Operations Group revenues increased 6.0% to $579.9 million in
1995 from $547.0 million in 1994. Within the North American Operations Group,
revenues from the Security Services Division increased 11.2% to $336.2 million
in 1995 from $302.4 million in 1994 as a result of: (i) a significant increase
in revenues derived from the provision of security-related services to national
accounts; and (ii) an increase in its Custom Protection Officer(R) business
reflecting the growing demand for the specialized services offered in this
area. Revenues from the Foods Services Division increased 39.6% to $34.7
million in 1995 from $24.9 million in 1994, reflecting the company's increased
presence in the growing correctional foodservice market. Revenues from the
Nuclear Division remained relatively unchanged from 1994 to 1995, reflecting
the maturation of the nuclear power industry and limited opportunities for
growth in this market. Revenues of Wackenhut Services, Inc. decreased 5.6% to
$146.7 million in 1995 from $155.5 million in 1994, principally due to
reductions in government funding for security at United States Department of
Energy facilities. Management believes this reduction in funding will continue
to affect Wackenhut Services, Inc.'s revenues and operating income.*
International Operations Group
International Operations Group revenues increased 38.6% to $110.0 million in
1995 from $79.4 million in 1994, as this group continued to experience steady
geographical expansion. The increase was principally attributable to: (i)
increased revenues from Central and South American operations, where revenues
increased 27.0% to $74.0 million in 1995 from $58.3 million in 1994; (ii)
revenues of $6.2 million generated by the Wackenhut of Australia subsidiary,
which was acquired in 1995; and (iii) increased revenues from European
operations, which increased 40.0% to $15.0 million in 1995 from $10.7 million
in 1994. The increase in international revenues reflects returns on past
investment in new markets as well as continuing increased demand for physical
security services in those geographic regions serviced by the company.*
CORRECTIONAL BUSINESS
Correctional Business revenues increased 18.3% to $99.4 million in 1995 from
$84.0 million in 1994. Of the increase in 1995 revenues, $11.9 million was
generated by domestic operations and $3.5 million was generated by operations
in Australia.
The increase in domestic revenues of Wackenhut Corrections in 1995 was
primarily attributable to an increase in compensated resident days to 1.9
million in 1995 from 1.7 million in 1994, reflecting: (i) increased occupancy
at two facilities opened in late 1994; (ii) the opening of two facilities in
the second half of 1995; and (iii) the expansion of one facility in 1995. The
increase in domestic revenues also reflected management fees generated from the
development of four facilities.
The increase in international revenues of Wackenhut Corrections in 1995 was
primarily attributable to an increase in compensated resident days to 420,000
in 1995 from 371,000 in 1994, reflecting the expansion of one facility in
Australia and an increase in management fees generated from the development of
another facility in Australia.
OPERATING INCOME
Consolidated operating income increased to $15.8 million in 1995 from $6.6
million in 1994, which included an $8.7 million write-down of the headquarters
building.
SERVICES BUSINESS
Operating income from the Services Business decreased 21.2% to $8.5 million in
1995 from $10.8 million in 1994.
North American Operations Group
North American Operations Group operating income increased 2.9% to $17.6
million from $17.1 million in 1994. The growth in operating income within the
North American Operations Group was a result of: (i) continued strong
performance in the core security-related services business, particularly in
national accounts; (ii) increased demand for Custom Protection Officer(R)
business; and (iii) continued development of the foodservice business.
International Operations Group
International Operations Group operating income increased 5.4% to $2.9 million
in 1995 from $2.7 million in 1994. The principal contribution to operating
income of the International Operations Group was made by subsidiaries in
Central and South America, and Europe. However, development costs in the Far
East and Africa substantially offset gains in Central and South America.
Wackenhut of Australia Pty., Ltd., which was acquired in July of 1995, had
operating losses of approximately $466,000 in 1995.
CORPORATE EXPENSES AND UNDERWRITING LOSSES
Corporate expenses and underwriting losses increased 32.7% to $12.0 million in
1995 from $9.0 million in 1994.
- -------------------
* Refer to Forward-Looking Statements on page 23.
21
<PAGE> 8
CORRECTIONAL BUSINESS
Wackenhut Corrections operating income increased 62.6% to $7.2 million in 1995
from $4.4 million in 1994.
Wackenhut Corrections domestic operating income increased 112.3% to $4.5
million in 1995 from $2.1 million in 1994, reflecting: (i) increased occupancy
at two facilities opened in late 1994; (ii) the opening of two facilities in
the second half of 1995; and (iii) the expansion of one facility in 1995. The
increase in domestic operating income also reflected management fees generated
from the development of four facilities.
Wackenhut Corrections international operating income increased 17.3% to $2.7
million in 1995 from $2.3 million in 1994. The increase in operating income
reflects the expansion of one facility in Australia and management fees
generated from the development of another facility in Australia.
OTHER EXPENSE
Other expense decreased 43.2% to $2.0 million in 1995 from $3.6 million in
1994, principally due to a decrease of $1.7 million in interest expense
attributable to a reduction in funding requirements. In addition there was a
decrease of $199,000 in interest and investment income principally due to a
decrease in fixed income securities investment holdings of the company's
captive reinsurance subsidiary. The proceeds from the company's sales of these
securities were used primarily to reduce the company's debt.
INCOME BEFORE INCOME TAXES
Income before income taxes increased to $13.7 million in 1995 from $3.0 million
in 1994, which included an $8.7 million write-down of the headquarters building
in 1994.
The combined federal and state effective income tax rate was 34.5% for 1995 and
0.6% for 1994, respectively. The lower effective rate in 1994 primarily
reflected reductions in the statutory rate attributable to tax exempt interest
income, targeted job credits, and the utilization of capital loss carryforwards
which was significantly higher in 1994.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $2.4 million in
1995 from $1.0 in 1994, reflecting the increase in earnings of Wackenhut
Corrections and other majority-owned international subsidiaries of the company.
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased 120.6% to
$631,000 in 1995 from $286,000 in 1994 primarily resulting from increased
earnings of security services affiliates in South America and Europe, and
decreased losses from Wackenhut Corrections' joint venture in the United
Kingdom.
EXTRAORDINARY CHARGE
In 1994, the company prepaid a note to an insurance company and recognized an
extraordinary charge of $887,000 (net of income taxes) for the early
extinguishment of such debt.
NET INCOME
Net income increased to $7.3 million in 1995, or $0.60 per share, compared to
$1.4 million, or $0.11 per share, in 1994 after the $887,000 extraordinary
charge and the write-down of the headquarters building ($5.4 million net of
income taxes).
INFLATION
Management believes that inflation has not had a material effect on the
company's results of operations during the past three fiscal years. However,
many of the company's service contracts provide for either fixed management
fees or for fees that increase by only small amounts during the terms of the
contracts. Since personnel costs represent the company's largest expense,
inflation could have a substantial adverse effect on the company's results of
operations in the future to the extent that wages and salaries increase at a
faster rate than the per diem or fixed rate received by the company for its
services.*
LIQUIDITY AND CAPITAL RESOURCES
The company's principal sources of liquidity have been borrowings under its
credit facilities, from internally generated funds, and from net proceeds in
connection with the public offering of the corporation's common stock. Cash and
equivalents totaled $52.8 million at December 29, 1996, compared to $20.2
million at December 31, 1995. Of this cash and cash equivalents, $17.0 million
serves as collateral for certain obligations of the company's captive
reinsurance subsidiary.
The company has additional sources of liquidity available in the form of a $50
million revolving line of credit and a $35 million accounts receivable
securitization facility. Additionally, at December 29, 1996, the company's
Wackenhut Corrections subsidiary had in place a $15 million revolving line of
credit, and subsidiaries of the company and Wackenhut Corrections had in place
credit agreements with banks providing Australian $7.5 million (approximately
$6.1 million United States at December 29, 1996).
At December 29, 1996, the company had $2.8 million outstanding under its $50
million revolving line of credit and $36.6 million outstanding in the form of
letters of credit securing reserves of the captive reinsurance subsidiary and
other corporate transactions. The unused portion of the revolving line of
credit was $10.6 million at December 29, 1996. There were no balances
outstanding under the accounts receivable securitization agreement at the end
of 1996. Under the terms of the accounts receivable securitization facility,
the company retains substantially
- ------------------
* Refer to Forward-Looking Statements on page 23.
22
<PAGE> 9
the same risk of credit loss as if receivables had not been sold under this
facility. At December 29, 1996, no amounts were outstanding under Wackenhut
Corrections' revolving credit facility, but approximately $100,000 were
outstanding in the form of standby letters of credit. In addition, subsidiaries
of the company and Wackenhut Corrections had $3.1 outstanding under their
credit agreements. At December 29, 1996 and December 31, 1995, the ratio of
total debt to total capitalization was 3.8% and 9.4%, respectively. See Note 6
to the Consolidated Financial Statements.
During the second quarter of 1996, the company sold 2,500,000 shares of its
series B common stock in connection with a public offering. Net proceeds of $54
million from the public offering were used to repay the outstanding balance on
the revolving loan, to repurchase receivables sold under the accounts
receivable securitization facility and for general corporate purposes. In
January 1996, Wackenhut Corrections, a subsidiary of the company, sold
4,600,000 shares of its common stock in connection with a public offering. Net
proceeds form the offering were approximately $52 million, which were partly
used for the acquisition or renovation of correctional facilities or
temporarily invested.
The company and Wackenhut Corrections anticipate making cash investments in
connection with future acquisitions.* In addition, Wackenhut Corrections plans
to use part of the net proceeds from its public offering of shares of its
common stock to finance start-up costs, leasehold improvements and equity
investments in correctional facilities, if appropriate, in connection with
undertaking new contracts.*
Net cash generated by operating activities was $14.9 million in 1996 compared
to $13.3 million in 1995.
Cash provided by investing activities amounted to $1.7 million in 1996,
including net proceeds of $51.6 million from the public offering of Wackenhut
Corrections' common stock. Capital expenditures of $19.9 million reflect
purchases of equipment related to the provision of security-related services
and investments in facilities by Wackenhut Corrections. In the first quarter of
1996, the company acquired the correctional food service operation of Service
America Corporation for $13.7 million. In addition, the net increase in
marketable securities of the company's captive reinsurance subsidiary was $9.1
million. Deferred charge expenditures, which represent mainly start-up costs of
new correctional facilities, amounted to $6.2 million.
Cash provided by financing activities amounted to $16.0 million in 1996,
including net proceeds of $54.0 million from the public offering of the
company's series B common stock. Proceeds from this public offering were used
principally to retire outstanding debt and to repurchase receivables sold under
the securitization agreement.
Cash dividends paid in 1996 amounted to $3.5 million.
Current cash requirements consist of amounts needed for capital expenditures,
increased working capital needs resulting from corporate growth and business
expansion, payment of liabilities incurred in the operation of the company's
business, the renovation or construction of correctional facilities by
Wackenhut Corrections, possible acquisitions and the payment of dividends. The
company continues to expand its domestic and international businesses and to
pursue major contracts, some of which may require substantial initial cash
outlays, which are partially or fully recoverable over the original term of the
contract.
As a result of the public stock offerings, both, the company and Wackenhut
Corrections significantly increased their borrowing capacity. In addition,
management believes that cash on hand, internally generated cash flows and
available lines of credit will be adequate to support currently planned
business expansion and various obligations incurred in the operation of the
company's business, both on a near term and long term basis.*
* Refer to Forward-Looking Statements on this page.
- -------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS: The Management's Discussion and Analysis of
Financial Condition and Results of Operations, Corporate Profile, Letter to
Shareholders, Corporate Diversity, and the February 12, 1997 press release
contain forward-looking statements that are based on current expectations,
estimates and projections about the segments in which the corporation operates.
These sections of the annual report also include management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions ("Future Factors") which
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. The corporation undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Future Factors include increasing price and product/service competition by
foreign and domestic competitors, including new entrants; rapid technological
developments and changes; the ability to continue to introduce competitive new
products and services on a timely, cost effective basis; the mix of
products/services; the achievement of lower costs and expenses; domestic and
foreign governmental and public policy changes including environmental
regulations; protection and validity of patent and other intellectual property
rights; reliance on large customers; technological, implementation and
cost/financial risks in increasing use of large, multi-year contracts; the
outcome of pending and future litigation and governmental proceedings and
continued availability of financing; financial instruments and financial
resources in the amounts, at the times and on the terms required to support the
corporation's future business. These are representative of the Future Factors
that could affect the outcome of the forward-looking statements. In addition,
such statements could be affected by general industry and market conditions and
growth rates, general domestic and international economic conditions including
interest rate and currency exchange rate fluctuations and other Future Factors.
- -------------------------------------------------------------------------------
23
<PAGE> 10
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 and JANUARY 1, 1995
<TABLE>
<CAPTION>
1996 1995 1994
==========================================================================================================================
<S> <C> <C> <C>
REVENUES $ 906,056 $ 796,732 $ 726,753
-----------------------------------------------------------------------------------------
OPERATING EXPENSES
Payroll and related taxes 657,275 587,644 538,297
Other operating expenses 231,711 193,314 173,164
Write-down of headquarters building - - 8,700
Provision for relocation costs 750 - -
-----------------------------------------------------
889,736 780,958 720,161
-----------------------------------------------------------------------------------------
OPERATING INCOME 16,320 15,774 6,592
-----------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (2,766) (3,356) (5,104)
Interest and investment income 4,321 1,315 1,514
-----------------------------------------------------
1,555 (2,041) (3,590)
-----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 17,875 13,733 3,002
PROVISION FOR INCOME TAXES 6,311 4,742 17
MINORITY INTEREST, NET OF INCOME TAXES 4,140 2,362 999
EQUITY INCOME OF FOREIGN AFFILIATES, NET OF INCOME TAXES (1,633) (631) (286)
-----------------------------------------------------
INCOME BEFORE EXTRAORDINARY CHARGE 9,057 7,260 2,272
EXTRAORDINARY CHARGE - EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAXES - - (887)
-----------------------------------------------------
NET INCOME $ 9,057 $ 7,260 $ 1,385
===========================================================================================================================
EARNINGS PER SHARE:
Income before extraordinary charge $ 0.66 $ 0.60 $ 0.19
Extraordinary charge - early extinguishment
of debt, net of income taxes - - (0.08)
-----------------------------------------------------
Net income $ 0.66 $ 0.60 $ 0.11
===========================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
24
<PAGE> 11
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
DECEMBER 29, 1996 and DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
==============================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 52,755 $ 20,185
Accounts receivable, less allowance for doubtful
accounts of $1,997 in 1996 and $1,268 in 1995 131,325 77,121
Inventories 10,082 7,527
Other 26,412 17,329
---------------------
220,574 122,162
---------------------------------------------------------------------------------------
NOTES RECEIVABLE 1,181 10,540
---------------------------------------------------------------------------------------
MARKETABLE SECURITIES AND
CERTIFICATES OF DEPOSIT - casualty reinsurance subsidiary 14,753 5,774
---------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost 46,726 29,132
Accumulated depreciation (12,184) (9,851)
---------------------
34,542 19,281
---------------------------------------------------------------------------------------
DEFERRED TAX ASSET, NET - 6,170
---------------------------------------------------------------------------------------
OTHER ASSETS Investment in and advances to foreign affiliates, at
cost, including equity in undistributed earnings
of $5,540 in 1996 and $4,098 in 1995 13,508 10,984
Other 39,360 23,016
----------------------
52,868 34,000
---------------------------------------------------------------------------------------
$323,918 $197,927
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES Notes payable $ - $ 1,115
Accounts payable 20,488 19,404
Accrued payroll and related taxes 35,715 30,330
Accrued expenses 16,295 19,331
Deferred tax liability, net - 117
----------------------
72,498 70,297
---------------------------------------------------------------------------------------
RESERVES FOR LOSSES - casualty reinsurance subsidiary 43,806 40,118
---------------------------------------------------------------------------------------
LONG-TERM DEBT 5,890 5,387
---------------------------------------------------------------------------------------
DEFERRED TAX LIABILITY, NET 1,165 -
---------------------------------------------------------------------------------------
OTHER 11,372 10,243
---------------------------------------------------------------------------------------
COMMITMENTS AND
CONTINGENCIES (notes 2,4,12 and 13)
---------------------------------------------------------------------------------------
MINORITY INTEREST 40,958 8,978
---------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY Preferred stock, 10,000,000 shares authorized - -
Common stock, $.10 par value, 50,000,000 and 20,000,000
shares authorized in 1996 and 1995
Series A, 3,858,885 issued and outstanding in 1996 and 1995 386 386
Series B, 10,902,199 issued and outstanding in 1996 and
8,272,887 in 1995 1,090 827
Additional paid-in capital 120,703 39,644
Retained earnings 31,347 25,790
Cumulative translation adjustment (4,128) (3,702)
Unrealized loss on marketable securities (69) (41)
Treasury stock at cost, 87,000 shares of Series B in 1996 (1,100) -
----------------------
148,229 62,904
---------------------------------------------------------------------------------------
$323,918 $197,927
=============================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
25
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 and JANUARY 1, 1995
<TABLE>
<CAPTION>
1996 1995 1994
=================================================================================================================================
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN):
OPERATING Net Income $ 9,057 $ 7,260 $ 1,385
Activities Adjustments -
Depreciation expense 4,735 4,489 4,374
Amortization expense 8,668 7,682 7,544
Provision for bad debts 1,362 863 508
Equity income, net of dividends (2,130) (562) (202)
Minority interests in net income 6,458 3,579 1,514
Write-down of headquarters building - - 8,700
Extraordinary loss on early extinguishment of debt - - 1,344
Other (59) (424) (495)
Changes in assets and liabilities, net of acquisitions and divestitures-
(Increase) Decrease in assets:
Accounts receivable (20,566) (14,200) (5,745)
Inventories (7,332) (5,460) (5,169)
Other current assets 766 (5,244) (1,122)
Marketable securities and certificates of deposit (35) 329 (1,352)
Deferred tax asset, net 5,918 4,529 (4,647)
Other assets (411) (2,233) (3,567)
Increase (Decrease) in liabilities:
Accounts payable and accrued expenses (2,736) 7,055 (2,288)
Accrued payroll and related taxes 5,385 3,801 2,534
Reserves for losses of casualty reinsurance subsidiary 3,688 1,668 4,950
Deferred tax liability, net 1,048 (479) 596
Other 1,129 609 4,175
--------------------------------------
Net Cash Provided By Operating Activities 14,945 13,262 13,037
================================================================================================================
INVESTING Net proceeds from public offerings of subsidiary's common stock 51,581 - 17,626
ACTIVITIES Net proceeds from exercise of stock options of subsidiary 766 1,147 -
Purchase of treasury stock (1,100) - -
Payments on notes receivable - - 438
Payments for acquisitions, net of cash acquired (13,703) (2,606) (935)
Investment in and advances to foreign affiliates (690) (1,410) (732)
Capital expenditures (19,917) (6,857) (5,091)
Proceeds from sales (payments for purchases) of marketable
securities of casualty reinsurance subsidiary, net (9,081) 6,227 14,000
Deferred charge expenditures (6,201) (7,430) (701)
Sale of headquarters building - 1,675 -
--------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,655 (9,254) 24,605
=================================================================================================================
FINANCING Net proceeds from public offering of the company's common stock 54,020 - -
ACTIVITIES Proceeds from the exercise of stock options 1,100 404 -
Proceeds from issuance of debt 11,142 314,365 196,411
Payments on debt (11,792) (344,491) (225,287)
Dividends paid (3,500) (2,909) (2,779)
Proceeds from sales (payments for repurchases) of
accounts receivable (35,000) 35,000 -
---------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 15,970 2,369 (31,655)
=================================================================================================================================
NET INCREASE IN CASH AND CASH EQUIVALENTS 32,570 6,377 5,987
CASH AND CASH EQUIVALENTS, at beginning of year 20,185 13,808 7,821
---------------------------------------
CASH AND CASH EQUIVALENTS, at end of year $ 52,755 $ 20,185 $ 13,808
=================================================================================================================================
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest $ 2,774 $ 3,366 $ 4,209
Income taxes $ 2,404 $ 1,531 $ 1,119
Non-cash financing and investing activities:
Note received related to sale of headquarters building $ - $ 9,000 $ -
Impact on equity from tax benefit related to the exercise of
stock options issued under the corporation's non-qualified
stock option plan $ 462 $ - $ -
=================================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
26
<PAGE> 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except share data)
FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 and JANUARY 1, 1995
<TABLE>
<CAPTION>
1996 1995 1994
===============================================================================================================================
<S> <C> <C> <C>
COMMON STOCK
Series A Balance, beginning and end of year $ 386 $ 386 $ 386
Number of shares, all years,
beginning and end, 3,858,885
-----------------------------------------------
Series B Balance, beginning of year 827 579 386
Proceeds from stock offering 250 - -
25% stock dividends effected in the
form of stock splits in 1995 and 1994 - 242 193
Proceeds from the exercise of stock options 13 6 -
-----------------------------------------------
Balance, end of year 1,090 827 579
Number of shares, end of year, 10,902,199
in 1996, 8,272,887 in 1995 and
5,794,539 in 1994
------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN Balance, beginning of year 39,644 38,919 26,234
Proceeds from stock offering 53,770 - -
Increase due to public offerings of subsidiary's
common stock and exercise of
stock options 25,740 327 12,685
Proceeds from the exercise of stock options 1,087 398 -
Tax benefit related to employee stock options 462 - -
-----------------------------------------------
Balance, end of year 120,703 39,644 38,919
------------------------------------------------------------------------------------------------
RETAINED EARNINGS Balance, beginning of year 25,790 21,681 23,268
Net income 9,057 7,260 1,385
Dividends (3,500) (2,909) (2,779)
25% stock dividend effected in the form of a
stock split - (242) (193)
-----------------------------------------------
Balance, end of year 31,347 25,790 21,681
------------------------------------------------------------------------------------------------
CUMULATIVE Balance, beginning of year (3,702) (3,552) (3,058)
ADJUSTMENT Translation adjustment (426) (150) (494)
-----------------------------------------------
Balance, end of year (4,128) (3,702) (3,552)
------------------------------------------------------------------------------------------------
UNREALIZED (LOSS) GAIN Balance, beginning of year (41) (554) 146
Net unrealized gains (losses) for the year (28) 513 (700)
-----------------------------------------------
Balance, end of year (69) (41) (554)
------------------------------------------------------------------------------------------------
TREASURY STOCK Balance, beginning of year - - -
Purchase of treasury stock (1,100) - -
-----------------------------------------------
Balance, end of year (1,100) - -
------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS'
EQUITY $ 148,229 $ 62,904 $ 57,459
------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE Restated for the effects of the 25%
stock dividends effected in the form of
stock splits declared in 1995 and 1994 $ 0.26 $ 0.24 $ 0.23
===============================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
27
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information: in thousands except per share data)
For the Fiscal Years Ended December 29, 1996, December 31, 1995, and January 1,
1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The corporation's fiscal year ends on the Sunday closest to the calendar year
end. Fiscal years 1996, 1995 and 1994 each included 52 weeks.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the corporation
and its subsidiaries, including its casualty reinsurance subsidiary. All
significant intercompany transactions and balances have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform
with current year presentation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
MINORITY INTEREST
The minority interest expense represents principally the separate public
ownership in Wackenhut Corrections Corporation (WCC) and the ownership by
foreign investors in several subsidiaries of Wackenhut International,
Incorporated.
INCOME TAXES
The corporation accounts for its income taxes using the liability method. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
EARNINGS PER SHARE
Earnings per share are computed using the average number of common shares
outstanding, including common stock equivalents and reflects the declaration of
the 25% stock dividends effected in the form of stock splits in 1995 and 1994.
Prior years' earnings per share have been restated to give effect to the stock
splits. The average number of shares and common stock equivalents outstanding
was 13,635,943, 12,131,772 and 12,066,780 in 1996, 1995 and 1994, respectively.
CASH AND CASH EQUIVALENTS
The corporation considers highly liquid investments purchased with a maturity
of three months or less to be cash equivalents. The effect on cash flows of
exchange rate changes in foreign currency has not been significant for any of
the fiscal years presented.
INVENTORIES
Food, alarm systems and electronics inventories are carried at the lower of
cost or market, on a first-in first-out basis. Uniform inventories are carried
at amortized cost.
REVENUES
Revenue is recognized as services are provided. During fiscal years 1996, 1995
and 1994, the largest client of the corporation was the U.S. Department of
Energy, accounting for approximately 15%, 17% and 20% respectively, of the
corporation's consolidated revenues.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable, other
receivables, notes receivable, notes payable and accounts payable approximates
fair value. Marketable securities are classified as available-for-sale in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Marketable securities are recorded at fair value and
unrealized holding gains and losses are excluded from earnings and reported as
a net amount in a separate component of shareholders' equity. Realized gains
and losses from the sale of securities are based on specific identification of
the security. The fair value of marketable securities and certificates of
deposit is presented under "wholly-owned casualty reinsurance subsidiary" in
Note 4 of these financial statements. The carrying value of long-term debt
approximates fair value.
INTEREST RATE SWAPS
The corporation has entered into two interest rate swap agreements in order to
manage interest rate costs. Under the terms of the interest rate swaps, the
corporation agrees with counterparties to exchange at specific intervals, the
difference between fixed rate (5.20% and 6.87%) and floating rate (5.70% for
both swaps) interest amounts calculated in reference to an agreed-upon notional
principal
28
<PAGE> 15
amount. Interest to be paid or received is accrued over the life of the
agreement as an adjustment to interest expense.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. Subsequent to its acquisitions, the
corporation continually evaluates factors, events and circumstances which
include, but are not limited to, the historical and projected operating
performance of acquired businesses, specific industry trends and general
economic conditions to assess whether the remaining estimated useful life of
intangible assets may warrant revision or that the remaining balance of
intangible assets may not be recoverable. When such factors, events or
circumstances indicate that intangible assets should be evaluated for possible
impairment, the corporation uses an estimate of undiscounted cash flow over the
remaining lives of the intangible assets in measuring their recoverability. The
impact of adopting this statement in 1996 did not have a material impact upon
the corporation's results of operations or financial position.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation plans using a fair value based method. The corporation has chosen
to continue to account for stock-based compensation using the intrinsic value
based method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the corporation's stock at the date of the grant over the amount an employee
must pay to acquire the stock.
NEWLY ISSUED ACCOUNTING STANDARD
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," which requires adoption in fiscal 1997, with certain
provisions deferred until fiscal 1998 under SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 125
provides, among other things, consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured borrowings.
The impact of adopting this statement is not expected to have a material impact
upon the corporation's results of operations or financial position.
FOREIGN CURRENCY TRANSLATION
Foreign currency transactions and financial statements (except for countries
with highly inflationary economies) are translated into U.S. dollars at current
exchange rates, except for revenues, costs and expenses which are translated at
average exchange rates during each reporting period. Adjustments resulting from
translation of financial statements are reflected as a separate component of
shareholders' equity. The financial statements of subsidiaries located in
highly inflationary economies are remeasured as if the functional currency were
the U.S. dollar. The remeasurement of their local currencies into U.S. dollars
creates translation adjustments which are included in the statements of income.
(2) ACCOUNTS RECEIVABLE SECURITIZATION
The corporation has entered into a three-year agreement expiring in December
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 December 29, 1996, there were no accounts
receivable sold under this agreement. At December 31, 1995, $35,000,000 of
accounts receivable had been sold under this agreement. The defined pool of
accounts receivable sold at December 31, 1995 approximated fair value. The
corporation retains substantially the same risk of credit loss as if the
receivables had not been sold.
(3) PROPERTY AND EQUIPMENT AND DEPRECIATION METHODS
Property and equipment are stated at cost, less accumulated depreciation. The
corporation uses principally the straight-line method of depreciation for
property and equipment. The components of property and equipment and their
estimated lives are as follows:
<TABLE>
<CAPTION>
Years 1996 1995
==================================================================
<S> <C> <C> <C>
Land - $ 2,234 $ 1,451
Buildings and improvements 20 to 33-1/3 22,386 10,121
Furniture and fixtures 5 to 20 5,090 3,910
Equipment 5 to 20 12,195 9,448
Automobiles 3 4,821 4,202
----------------------------------
$ 46,726 $ 29,132
==================================================================
</TABLE>
In the fourth quarter of 1995, the corporation sold its headquarters building
located in Coral Gables, Florida. In 1994, the building was written down by
$8,700,000 to reflect the estimated realizable value based on a third party
valuation. The corporation sold its headquarters building in
29
<PAGE> 16
exchange for a $9,000,000 note (bearing interest at 6.5% and maturing in
December 1997) and $1,675,000 in cash (after payment of related expenses) which
resulted in no additional gain or loss on the transaction.
(4) WHOLLY-OWNED CASUALTY REINSURANCE SUBSIDIARY
The corporation has a wholly-owned casualty insurance subsidiary which
reinsures a portion of the corporation's workers' compensation and general and
automobile liability insurance. Incurred losses are recorded as reported.
Provision is made to cover losses incurred but not reported. Loss reserves are
computed based on actuarial studies and, in the opinion of management, are
adequate. Future adjustments of the amounts recorded as of December 29, 1996,
resulting from a continuous review process as well as differences between
estimates and ultimate payments, will be reflected in the corporation's
consolidated statements of income as such adjustments become determinable. A
summary of operations for the last three fiscal years is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
=========================================================================================
<S> <C> <C> <C>
Premiums recognized $ 18,624 $ 17,642 $ 17,900
Loss expense (19,101) (18,239) (18,499)
---------------------------------------------
Underwriting loss (477) (597) (599)
Investment income 2,667 2,245 1,486
---------------------------------------------
$ 2,190 $ 1,648 $ 887
=========================================================================================
</TABLE>
Premiums paid by the corporation to the reinsurance subsidiary of $18,624,000,
$17,642,000 and $17,900,000, for the fiscal years ended 1996, 1995 and 1994,
respectively, have been eliminated in consolidation.
Marketable securities and certificates of deposit, carried at fair value,
consisted of the following at December 29, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
==========================================================================================
FAIR VALUE COST Fair Value Cost
<S> <C> <C> <C> <C>
Municipal Bonds $ 2,061 $ 2,076 $ 1,556 $ 1,559
Government Bonds 6,228 6,243 844 847
Preferred Stock 3,964 4,040 1,980 2,040
Other 2,500 2,500 1,394 1,394
----------------------------------------------
$ 14,753 $ 14,859 $ 5,774 $ 5,840
==========================================================================================
</TABLE>
The unrealized loss on marketable securities of $106,000 and $66,000 at
December 29,1996 and December 31,1995, respectively, has been reflected in the
accompanying consolidated balance sheets net of applicable income taxes. The
corporation has placed in trust, in favor of certain insurance companies, its
marketable securities and $2,289,000 in cash and cash equivalents, and has
issued irrevocable standby letters of credit for $31,983,000. Municipal bonds
mature from 2018 to 2023, government bonds mature in periods ranging from 3 to
25 years, and other marketable securities mature in 1997. As of December
29,1996, the corporation's reinsurance subsidiary has specific restrictions on
future purchases of marketable securities, and on withdrawals from the trust.
(5) OTHER ASSETS
The components of other assets at December 29, 1996 and December 31, 1995
consists of the following:
<TABLE>
<CAPTION>
1996 1995
====================================================================
<S> <C> <C>
Intangibles, net of amortization $ 20,793 $ 10,009
Deferred information system costs 5,479 3,737
Other 13,088 9,270
------------------------
$ 39,360 $ 23,016
====================================================================
</TABLE>
Intangibles include contract value and goodwill which arose primarily in
connection with the purchase of the correctional foodservice operations of
Service America Corporation in January 1996, the purchase of security services
contracts by Wackenhut Australia Pty., Ltd in 1995, and the purchase of WCC's
former Australian joint venture in January 1994. Intangibles are being
amortized over 10-20 years. Accumulated amortization totaled approximately
$3,775,000 and $2,003,000 at December 29, 1996 and December 31, 1995,
respectively.
The corporation is in the process of redesigning its information systems. The
costs of these projects are being deferred until the projects are complete, at
which time the costs will be amortized over 5 to 7 years.
(6) NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1995 the corporation had an outstanding note payable of
$1,115,000 which represented short-term borrowings of an international
subsidiary incurred for working capital, bearing interest at 8.0%. During 1996,
this note payable was refinanced and is included in long-term debt.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
=====================================================================
<S> <C> <C>
Revolving loan -
6.1% in 1996 and 6.2% in 1995 $ 2,800 $ 1,400
Other debt principally related to
WCC and international subsidiaries 3,090 3,987
-------------------------
$ 5,890 $ 5,387
=====================================================================
</TABLE>
At year end, the corporation had in place a revolving credit agreement with one
bank under which the corporation may borrow up to $50,000,000. The unused
portion of the revolving line of credit was $10,558,000 at December 29, 1996
after deducting $36,642,000 in outstanding letters of credit. The interest
payable is, at the corporation's option, a function of the applicable LIBOR or
certificate of deposit rates. The agreement requires, among other things, that
30
<PAGE> 17
the corporation maintain a minimum consolidated net worth, as defined, and
limits certain payments and distributions.
In December 1994, WCC entered into a revolving credit agreement with a bank
under which the subsidiary may borrow up to $15,000,000 until September 30,
2002. The corporation is not a guarantor of the revolving credit agreement
which requires, among other things, that WCC maintain a minimum tangible net
worth, as defined, and limits certain payments and distributions. No amounts
were outstanding at December 29, 1996 or December 31, 1995 under the revolving
credit agreement.
At December 29, 1996, subsidiaries of the corporation and Wackenhut Corrections
had in place $7.5 million Australian (approximately $6.1 million United States)
credit facilities with banks. The credit facilities bore interest at the bank
bill rate plus 0.4% and mature in January 1997 and June 1998. The credit
facilities were secured by irrevocable standby letters of credit guaranteed by
the corporation. The corporation's outstanding balances under the credit
facilities were $3.5 million Australian (approximately $2.8 million United
States) at December 29, 1996 and $5 million Australian (approximately $3.5
million United States) at December 31, 1995.
Aggregate annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Annual Maturity
================================================
<C> <C>
1997 $ 0
1998 5,677
1999 13
2000 15
2001 16
Thereafter 169
------------
$5,890
================================================
</TABLE>
The corporation is a party to two offsetting interest rate swaps with Union
Bank of Switzerland and Bank of America Illinois at year end. The notional
principal amount under both agreements was $81,200,000 and the agreements
expire in December 1998. Based on the interest rates in effect at December 29,
1996, the corporation was not exposed to a material loss in the event that
either party failed completely to perform according to the terms of the
contract.
The extraordinary charge of $887,000 ($1,344,000 before tax) in 1994 resulted
from the prepayment of certain long-term notes.
(7) PREFERRED, COMMON AND TREASURY STOCK
The board of directors has authorized 10,000,000 shares of preferred stock. In
October 1995 and 1994, the board of directors declared 25% stock dividends,
effected in the form of stock splits. Prior periods' per share data have been
restated. The stock dividends were paid in series B common stock to holders of
the corporation's series A and B shares. Series B common stock has all the
rights and privileges of the series A common stock with the exception of voting
privileges.
In early 1996, the Board of Directors increased the authorized shares of the
corporation's common stock from 20 million shares to 50 million shares, with
3,858,885 shares to be designated as series A common stock and 46,141,115
shares to be designated as series B common stock.
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 $54,020,000 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 for general corporate purposes.
The Board of Directors has authorized the buy back of up to 500,000 shares of
series B common stock. At December 29, 1996 the corporation had bought back
87,000 shares of series B common stock at an average price of $12.64.
(8) STOCK INCENTIVE AND STOCK OPTION PLANS
Key employees of the corporation and its subsidiaries are eligible to
participate in the Key Employee Long-Term Incentive Stock Plan (incentive stock
plan). Under the incentive stock plan, options for the corporation's series B
common stock are granted to participants as approved by the Nominating and
Compensation Committee of the corporation's board of directors (committee).
Under terms of the incentive stock plan, options are granted at prices not less
than the fair market value at date of grant (or as otherwise determined by the
committee), become exercisable after a minimum of six months, and expire no
later than ten years after the date of grant. The committee may grant incentive
stock options or non-qualified stock options. Options are subject to adjustment
upon the occurrence of certain events, including stock splits and stock
dividends. The incentive stock plan authorizes the corporation to award or
grant, from time to time to key employees, restricted stock and performance
stock.
Nonemployee directors of the corporation are eligible to participate in The
Wackenhut Corporation Nonemployee Director Stock Option Plan (directors' stock
option plan) Under the directors' stock option plan, nonemployee directors are
granted 2,000 stock options for series B common stock upon their election or
reelection to the board of directors. Under terms of the directors' stock
option plan, options are granted at the fair market value at date of grant,
become exercisable at date of grant, and expire ten years after the date of
grant.
31
<PAGE> 18
At December 29, 1996, 862,248 shares of series B common stock were reserved for
issuance, including 138,197 shares available for future grants or awards.
Changes in outstanding non-qualified stock options for series B common stock,
as adjusted for 25% stock dividends in 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
=========================================================================================
<S> <C> <C> <C>
Outstanding at beginning of year 557,818 391,568 --
Options granted 202,000 218,750 391,568
Options exercised (129,312) (52,500) --
Options forfeited (33,251) -- --
---------------------------------------------
Outstanding at end of year 597,255 557,818 391,568
---------------------------------------------
Exercisable at end of year 424,255 339,068 --
=========================================================================================
</TABLE>
Weighted average option exercise price on information for the fiscal years
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
========================================================================================
<S> <C> <C> <C>
Outstanding at beginning of year $ 7.98 $ 6.16 --
Granted during the year $ 14.00 $ 10.80 $ 6.16
Exercised during the year $ 8.50 $ 6.16 --
Forfeited during the year $ 10.69 -- --
-------------------------------------------
Outstanding at end of year $ 9.75 $ 7.98 $ 6.16
-------------------------------------------
Exercisable at end of year $ 8.02 $ 6.16 --
========================================================================================
</TABLE>
Significant option groups outstanding at December 29, 1996 and related weighted
average price and life information are as follows:
<TABLE>
<CAPTION>
Grant Options Options Exercise Remaining
Date Outstanding Exercisable Price Life (Years)
=========================================================================
<S> <C> <C> <C> <C>
4/30/94 254,255 254,255 $ 6.16 7
1/28/95 170,000 170,000 $ 10.80 8
1/31/96 173,000 - $ 14.00 9
=========================================================================
</TABLE>
The corporation applies APB Opinion 25 and related Interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
cost has been recognized for its stock option plans. Had compensation for the
corporation's stock-based compensation plans been determined pursuant to FASB
Statement No. 123, the corporation's net income and earnings per share would
have decreased accordingly. Using the Black-Scholes option pricing model for
all options granted after January 1, 1995, the corporation's pro forma net
income, pro forma net income per share and pro forma weighted average fair
value of options granted, with related assumptions, are as follows:
<TABLE>
<CAPTION>
1996 1995
=====================================================================
<S> <C> <C>
Pro forma net income $ 8,425 $ 6,708
Pro forma earnings per share $ 0.62 $ 0.55
Pro forma weighted average fair value
of options granted $ 4.81 $ 4.86
Expected life (years) 5 5
Risk-free interest rate 5.6% 7.4%
Expected volatility 36.0% 36.0%
Quarterly dividend $ 0.065 $ 0.075
=====================================================================
</TABLE>
Because the FASB Statement No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
(9) RETIREMENT AND DEFERRED COMPENSATION PLANS
The corporation has a noncontributory defined benefit pension plan covering
certain of its executives. Retirement benefits are based on years of service,
employees' average compensation for the last five years prior to retirement and
social security benefits. The plan currently is not funded. The corporation
purchases and is the beneficiary of life insurance policies for each
participant enrolled in the plan.
The assumptions for the discount rate and the average increase in compensation
used in determining the pension expense and funded status information are 7.5%
and 4.0%, respectively.
Total pension expense for 1996, 1995, and 1994 was $422,000, $329,000, and
$267,000, respectively. The present value of accumulated pension benefits at
year end 1996, 1995 and 1994 was $2,444,000, $1,895,000 and $1,400,000,
respectively and is included in "Other liabilities" in the accompanying
consolidated balance sheets.
The corporation has established non-qualified deferred compensation agreements
with certain senior executives providing for fixed annual benefits ranging from
$100,000 to $175,000 payable upon retirement at approximately age 60 for a
period of 20 years. In the event of death before retirement, annual benefits
are paid for a period of 10 years. Benefits are funded by life insurance
contracts purchased by the corporation. The cost of these agreements is being
charged to expense and accrued using a present value method over the expected
terms of employment. The charge to expense for fiscal 1996, 1995 and 1994 was
$532,000, $468,000 and $444,000, respectively. The liability for deferred
compensation was $3,479,000 and $3,274,000 at year end 1996 and 1995,
respectively and is included in "Other liabilities" in the accompanying
consolidated balance sheets.
32
<PAGE> 19
(10) INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal year ended 1996 1995 1994
=========================================================================================
Federal income taxes:
<S> <C> <C> <C>
Current $ (3,356) $ 581 $ 3,014
Deferred 8,590 3,578 (3,112)
--------------------------------------------
5,234 4,159 (98)
State income taxes:
Current $ 319 $ 104 $ 527
Deferred 595 479 (412)
--------------------------------------------
914 583 115
--------------------------------------------
Foreign $ 163 $ -- $ --
--------------------------------------------
Total $ 6,311 $ 4,742 $ 17
=========================================================================================
</TABLE>
Deferred income taxes resulted from timing differences in the recognition of
revenues and expenses for tax and financial reporting purposes. The tax effects
of the principal timing differences are as follows:
<TABLE>
<CAPTION>
Fiscal year ended 1996 1995 1994
========================================================================================
<S> <C> <C> <C>
Senior note prepayment
premium $ -- $ -- $ 904
Income of foreign subsidiaries
and affiliates 534 1,336 1,186
Reserve for losses of reinsurance
subsidiary 4,854 (1,222) (8)
Reserve for claims of employee
health trust 779 (412) (1,191)
Building write-down 374 2,976 (3,350)
Deferred compensation (765) (491) (398)
Depreciation (8) (824) (486)
Amortization of deferred charges 2,339 2,601 205
Non-deductible reserves (930) (40) (341)
Non-qualified stock options 2,289 -- --
Other, net (281) 133 (45)
--------------------------------------------
$ 9,185 $ 4,057 $ (3,524)
========================================================================================
</TABLE>
The reconciliation of income tax computed at the federal statutory tax rate
(34%) to income tax expense is as follows:
<TABLE>
<CAPTION>
Fiscal year ended 1996 1995 1994
========================================================================================
<S> <C> <C> <C>
Provision using statutory
federal tax rate $ 6,077 $ 4,670 $ 1,021
Foreign income, net of foreign
provision for income taxes (264) -- --
Capital loss carryforward
utilization (358) (330) (814)
Targeted jobs tax credit -- (117) (235)
Tax exempt interest (128) (167) (295)
Other, net 457 138 404
--------------------------------------------
5,784 4,194 81
State income taxes, net of
federal benefit 527 548 (64)
--------------------------------------------
$ 6,311 $ 4,742 $ 17
========================================================================================
</TABLE>
The components of the net non-current deferred tax asset (liability) at
December 29, 1996 and December 31, 1995 are shown below:
<TABLE>
<CAPTION>
Fiscal year ended 1996 1995
================================================================================
<S> <C> <C>
Reserve for losses of reinsurance subsidiary $ 1,638 $ 6,492
Income of foreign subsidiaries and affiliates (7,484) (6,950)
Reserve for claims of employee health trust 4,325 5,104
Reserves for legal and other expenses 211 430
Capital loss carryforward 142 162
Deferred compensation 3,915 3,133
Depreciation 447 439
Building write-down -- 373
Deferred charges (4,517) (3,238)
Other, net 300 387
--------------------------
(1,023) 6,332
Valuation allowance (142) (162)
--------------------------
Deferred tax asset (liability), net $ (1,165) $ 6,170
================================================================================
</TABLE>
The components of the net current deferred tax asset (liability) at December
29, 1996 and December 31, 1995 are shown below:
<TABLE>
<CAPTION>
Fiscal year ended 1996 1995
=================================================================================
<S> <C> <C>
Amortization of uniforms and accessories $ (1,939) $ (1,774)
Accrued vacation pay 1,374 1,242
Other reserves 817 415
------------------------
Deferred tax asset (liability), net $ 252 $ (117)
=================================================================================
</TABLE>
At December 29, 1996, the corporation had available a capital loss carryforward
of $368,000 of which $338,000 expires in 1998 and $30,000 expires in 2000. The
deferred tax asset arising from the capital loss carryforward has been fully
reserved due to the uncertainty of the corporation's ability to generate future
capital gains.
At December 29, 1996, WCC had federal and state net operating loss
carryforwards of $9,533,894 and $9,238,521, respectively. The federal net
operating losses will expire between 2010 and 2011, while certain state net
operating losses will expire between 2000 and 2011. Utilization of net
operating losses in future years may be subject to annual limitations due to
the ownership change limitations provided by the Internal Revenue Code of 1986
and similar state provisions. Such limitations, if any, are not expected to
impact the ultimate utilization of the carryforwards.
The corporation's loss carryforwards are solely attributable to WCC
compensation deductions on its income tax return which were not recognized for
financial accounting purposes. The exercise of stock options which have been
granted under WCC's stock option plans give rise to compensation which is
includable in the taxable income of the applicable employees and deducted by
WCC for federal and state income tax purposes. In the years ended December 29,
1996 and December 31, 1995, such deductions resulted in
33
<PAGE> 20
significant federal and state deductions which may be carried forward.
Utilization of such deductions will increase additional paid-in-capital.
At December 29, 1996, WCC's foreign subsidiaries have unremitted earnings of
$1,300,000 on which the corporation has not accrued a provision for federal or
state income taxes since the earnings are considered permanently invested.
(11) WACKENHUT CORRECTIONS CORPORATION PUBLIC OFFERINGS
WCC, formerly a wholly-owned subsidiary of the corporation, sold 2,185,000
shares of common stock at an offering price of $9.00 per share in connection
with its initial public offering in 1994. Net proceeds of approximately
$17,626,000 from the IPO were used to repay bank debt and indebtedness to the
corporation. Following the offering, WCC had 8,185,000 shares outstanding of
which the corporation owned approximately 73%.
During 1995, the exercise of 354,697 non-qualified stock options of WCC reduced
the corporation's ownership in WCC to approximately 70% at December 31, 1995.
In January 1996, WCC sold 4,600,000 shares of common stock at an offering price
of $12.00 per share. Net proceeds of approximately $51,581,000 from the
offering have been and will be used for possible future acquisitions, capital
investments in new facilities, working capital requirements and general
corporate purposes. After the offering, the corporation's ownership in WCC was
reduced to approximately 55%.
During 1996, the exercise of 258,598 non-qualified stock options of WCC reduced
the corporation's ownership in WCC to 54.7% at December 29, 1996.
The board of directors of WCC has granted non-qualified stock options to
purchase common stock which, if fully exercised, would reduce the corporation's
ownership in WCC to approximately 52%.
(12) WACKENHUT MONITORING SYSTEMS BUSINESS
The corporation sold its Wackenhut Monitoring Systems subsidiary in 1993. In
connection with this transaction, the corporation received a 6% note, which was
refinanced in January 1997 for $1.4 million, and calls for quarterly payments
of $115,000. The corporation has also guaranteed indebtedness related to
certain operating leases which totaled approximately $2,363,000 at December 29,
1996 and expire from 1997 to 2000.
(13) COMMITMENTS AND CONTINGENCIES
The nature of the corporation's business results in claims for damages arising
from the conduct of its employees or others. In the opinion of management,
there are no pending legal proceedings that would have a material effect on the
consolidated financial statements of the corporation.
The corporation leases office space, data processing equipment and automobiles
under non-cancelable operating leases expiring between 1997 and 2017. The
corporation entered into a lease for its new corporate headquarters in Palm
Beach Gardens, Florida, in 1996. The lease requires annual payments of
$1,789,000 for an initial term of 15 years with 3 five-year options to extend
the term of the lease. Rent expense for the fiscal years ended December 29,
1996, December 31, 1995 and January 1, 1995 was $9,625,000, $6,994,000 and
$4,993,000, respectively. The minimum commitments under these leases and the 15
year lease for the new corporate headquarters, are as follows:
<TABLE>
<CAPTION>
Minimum
Year Commitment
========================================================
<S> <C>
1997 $ 8,223
1998 6,310
1999 4,828
2000 3,456
2001 3,047
Thereafter 17,926
--------
$ 43,790
========================================================
</TABLE>
(14) BUSINESS SEGMENTS
SECURITY-RELATED AND OTHER SUPPORT SERVICES AND CORRECTIONAL SERVICES
The corporation's principal business consists of security-related and other
support services to commercial and governmental clients. A subsidiary of the
corporation, Wackenhut Corrections Corporation, provides facility management
and construction services to detention and correctional facilities. Provided
below is various financial information for each segment:
<TABLE>
<CAPTION>
Fiscal year 1996 1995 1994
=======================================================================================
<S> <C> <C> <C>
REVENUES:
Security-related and other
support services $768,272 $697,301 $642,727
Correctional services 137,784 99,431 84,026
-------------------------------------------
Total revenues $906,056 $796,732 $726,753
- ---------------------------------------------------------------------------------------
OPERATING INCOME:
Security-related and other
support services $ 7,339 $ 8,545 $ 10,846
Correctional services 9,731 7,229 4,446
Provision for relocation costs (750) -- --
Write-down of headquarters
building -- -- (8,700)
-------------------------------------------
Total operating income $ 16,320 $ 15,774 $ 6,592
=======================================================================================
</TABLE>
34
<PAGE> 21
<TABLE>
<CAPTION>
Fiscal year 1996 1995 1994
=================================================================================
<S> <C> <C> <C>
EQUITY INCOME (LOSS) OF
FOREIGN AFFILIATES,
NET OF TAXES:
Security-related and other
support services $ 1,029 $ 744 $ 617
Correctional services 604 (113) (331)
----------------------------------------
Total equity income $ 1,633 $ 631 $ 286
- --------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Security-related and other
support services $ 7,441 $ 4,137 $ 4,829
Correctional services 12,476 2,720 262
---------------------------------------
Total capital expenditures $ 19,917 $ 6,857 $ 5,091
- --------------------------------------------------------------------------------
DEPRECIATION AND
AMORTIZATION EXPENSE:
Security-related and other
support services $ 9,871 $ 9,868 $ 9,631
Correctional services 3,532 2,303 2,287
----------------------------------------
Total expenses $ 13,403 $ 12,171 $ 11,918
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
Security-related and other
support services $ 217,107 $159,087 $182,424
Correctional services 106,811 38,840 30,333
---------------------------------------
Total identifiable assets $ 323,918 $197,927 $212,757
================================================================================
</TABLE>
DOMESTIC AND INTERNATIONAL OPERATIONS
Non-U.S. operations of the corporation and its subsidiaries are conducted
primarily in South America and Australia. The corporation carries its investment
in affiliates (20% to 50% owned) under the equity method. U.S. income taxes
which would be payable upon remittance of affiliates' earnings to the
corporation are provided currently, except for Australia, see note 10. Minority
interest in consolidated foreign subsidiaries have been reflected net of
applicable income taxes in the accompanying financial statements.
A summary of domestic and international operations is shown below:
<TABLE>
<CAPTION>
Fiscal year 1996 1995 1994
===================================================================================
<S> <C> <C> <C>
REVENUES:
Domestic operations $ 760,038 $ 652,723 $ 615,727
International operations 146,018 144,009 111,026
-------------------------------------------
Total revenues $ 906,056 $ 796,732 $ 726,753
- ----------------------------------------------------------------------------------
OPERATING INCOME:
Domestic operations $ 15,675 $ 11,407 $ 10,630
International operations 1,395 4,367 4,662
Provision for relocation costs (750) - -
Write-down of headquarters
building - - (8,700)
-------------------------------------------
Total operating income $ 16,320 $ 15,774 $ 6,592
- ----------------------------------------------------------------------------------
EQUITY INCOME OF
FOREIGN AFFILIATES,
NET OF TAXES:
Domestic operations $ - $ - $ -
International operations 1,633 613 286
-------------------------------------------
Total equity income $ 1,633 $ 613 $ 286
- ----------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Domestic operations $ 16,569 $ 2,911 $ 1,498
International operations 3,348 3,946 3,593
-------------------------------------------
Total capital expenditures $ 19,917 $ 6,857 $ 5,091
- ----------------------------------------------------------------------------------
DEPRECIATION AND
AMORTIZATION EXPENSE:
Domestic operations $ 9,241 $ 9,512 $ 9,751
International operations 4,162 2,659 2,167
-------------------------------------------
Total expenses $ 13,403 $ 12,171 $ 11,918
- ----------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
Domestic operations $ 294,066 $ 141,431 $ 163,864
International operations 29,852 56,496 48,893
-------------------------------------------
Total identifiable assets $ 323,918 $ 197,927 $ 212,757
===================================================================================
</TABLE>
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the corporation and its subsidiaries for
the fiscal years ended December 29, 1996 and December 31, 1995 is as follows:
<TABLE>
<CAPTION> First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
===========================================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 212,474 $ 222,904 $ 236,869 $ 233,809
Income from operations $ 2,063 $ 3,721 $ 5,224 $ 5,312
Net income $ 945 $ 1,907 $ 3,038 $ 3,167
Earnings per share $ 0.08 $ 0.15 $ 0.21 $ 0.22
- ---------------------------------------------------------------------------------------------------------------------------
1995
- ---------------------------------------------------------------------------------------------------------------------------
Revenues $ 189,792 $ 193,371 $ 203,637 $ 209,932
Income from operations $ 3,055 $ 3,967 $ 4,394 $ 4,358
Net income $ 1,599 $ 1,726 $ 1,956 $ 1,979
Earnings per share (1) $ 0.13 $ 0.15 $ 0.16 $ 0.16
===========================================================================================================================
</TABLE>
(1) Earnings per share have been restated to include the 25% stock dividend
effected in the form of stock split, declared on October 31, 1995 and paid on
January 9, 1996 (see Notes 1 and 7).
35
<PAGE> 22
Report of Independent Certified Public Accountants
To the Shareholders of
The Wackenhut Corporation:
We have audited the accompanying consolidated balance sheets of The Wackenhut
Corporation (a Florida corporation) and subsidiaries as of December 29, 1996
and December 31, 1995, and the related consolidated statements of income, cash
flows and shareholders' equity for each of the three fiscal years in the period
ended December 29, 1996. These financial statements are the responsibility of
the corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Wackenhut Corporation and
subsidiaries as of December 29, 1996 and December 31, 1995, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 29, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
February 10, 1997.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Shareholders of
The Wackenhut Corporation:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. They include amounts based on
judgments and estimates.
Representations in the financial statements and the fairness and integrity of
such statements are the responsibility of management. In order to meet
management's responsibility, the corporation maintains a system of internal
controls and procedures and a program of internal audits designed to provide
reasonable assurance that the corporation's assets are controlled and
safeguarded, that transactions are executed in accordance with management's
authorization and properly recorded, and that accounting records may be relied
upon in the preparation of financial statements.
The financial statements have been audited by Arthur Andersen LLP, independent
public accountants, whose appointment was ratified by shareholders. Their
report expresses a professional opinion as to whether management's financial
statements considered in their entirety present fairly, in conformity with
generally accepted accounting principles, the corporation's financial position
and results of operations. Their audit was conducted in accordance with
generally accepted auditing standards. As part of this audit, Arthur Andersen
LLP considered the corporation's system of internal controls to the degree they
deemed necessary to determine the nature, timing and extent of their audit
tests which support their opinion on the financial statements.
The audit committee of the board of directors meets periodically with
representatives of management, the independent public accountants and the
corporation's internal auditors to review matters relating to financial
reporting, internal accounting controls and auditing. Both the internal
auditors and the independent public accountants have unrestricted access to the
audit committee to discuss the results of their reviews.
/s/ G. R. Wackenhut /s/ Juan D. Miyar
- ------------------- -----------------
GEORGE R. WACKENHUT JUAN D. MIYAR
Chairman of the Board Vice President
and Chief Executive Officer Corporate Controller
Palm Beach Gardens, Florida,
February 10, 1997.
36
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE CORPORATION
SUBSIDIARIES OF THE WACKENHUT CORPORATION
American Guard and Alert, Inc. (Alaska)
Elcoban S.A. (Uruguay)
Oasis Outsourcing, Inc. (Florida)
Titania Advertising, Inc. (Florida)
Titania Insurance Company of America (Vermont)
Tuhnekcaw, Inc. (Delaware)
Wackenhut Airline Services, Inc. (Florida)
Wackenhut Australia, Pty., Ltd.
Wackenhut Corrections Corporation (Florida)
Wackenhut Educational Services, Inc. (Florida)
Wackenhut Financial, Inc. (Delaware)
Wackenhut International, Incorporated (Florida)
Wackenhut of Nevada, Inc. (Nevada)
Wackenhut Services, Incorporated (Florida)
Wackenhut Sports Security, Inc. (Florida)
SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED
Central African Republic
Essiad Security Systems & Services Ltd. (Ghana)
Instituto Wackenhut, S.A. (Ecuador)
Peruana de Seguridad y Vigilancia, S.A. (PESEVISA) (Peru)
Seguridad Movil del Ecuador, S.A. (Ecuador)
Seguridad Wackenhut, S.A. de CV (Mexico)
Servicios Estrategicos, S.A. (Peru)
Wackenhut A/O (Russia)
Wackenhut Belize Ltd. (Belize)
Wackenhut Bolivia, S.A. (Bolivia)
Wackenhut Cameroon, S.A. (Cameroon)
Wackenhut Central Europe GMBH (Germany)
Wackenhut Czech, SPOL, S.R.O. (Czech Republic)
Wackenhut de El Salvador, S.A. (El Salvador)
Wackenhut de Guatemala, S.A. (Guatemala)
Wackenhut de Honduras, S.A. (Honduras)
Wackenhut de Nicaragua, S.A. (Nicaragua)
Wackenhut de Venezuela, S.A. (Venezuela)
Wackenhut del Ecuador, S.A. (Ecuador)
Wackenhut Dominicana, S.A. (Dominican Republic)
Wackenhut France, S.A.R.L. (France)
Wackenhut Gambia, Ltd. (Gambia)
Wackenhut Ghana Limited (Ghana)
Wackenhut Pakistan (PVT) Limited (Pakistan)
Wackenhut Korea Corporation (Korea)
Wackenhut of Canada Limited (Canada)
Wackenhut Maghreb, S.A. (Morocco)
Wackenhut Mozambique Lda (Mozambique)
Wackenhut Paraguay, S.A. (Paraguay)
Wackenhut Puerto Rico, Inc. (Puerto Rico)
Wackenhut S.A. (Costa Rica)
<PAGE> 2
SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED CONTINUED
Wackenhut Seges (Ivory Coast)
Wackenhut Sierra Leone (Sierra Leone)
Wackenhut U.K. Limited (United Kingdom)
Wackenhut Uruguay, S.A. (Uruguay)
WII/Sound and Security Engineering Co. (Jordan)
SUBSIDIARIES OF WACKENHUT U.K. LIMITED
Advance Security Technology, Ltd. (United Kingdom)
Wackenhut Appointments Limited (United Kingdom)
Wackenhut Investigations Limited (United Kingdom)
SUBSIDIARY OF AMERICAN GUARD AND ALERT
Ahtna AGA Security, Inc. (Alaska)
SUBSIDIARY OF WACKENHUT CORRECTIONS CORPORATION
Wackenhut Corrections (U.K.), Limited (United Kingdom)
Wackenhut Corrections Corporation Australia (Australia)
WCC Financial, Inc. (Delaware)
WCC RE Holdings, Inc. (Florida)
SUBSIDIARY OF WACKENHUT CORRECTIONS CORPORATION AUSTRALIA
Australasian Correctional Management PTY, Limited (Australia)
SUBSIDIARY OF WACKENHUT SERVICES, INCORPORATED
Wackenhut Services, LLC. (Colorado)
SUBSIDIARIES OF OASIS OUTSOURCING, INC.
Oasis Outsourcing of Florida, Incorporated (Florida)
Oasis Outsourcing of Colorado, Incorporated (Florida)
SUBSIDIARIES OF OASIS OUTSOURCING OF FLORIDA, INCORPORATED
00/FL/01, Inc. (Florida)
00/FL/02, Inc. (Florida)
00/FL/03, Inc. (Florida)
SUBSIDIARIES OF OASIS OUTSOURCING OF COLORADO, INCORPORATED
00/COL/01, Inc. (Florida)
00/COL/02, Inc. (Florida)
00/COL/03, Inc. (Florida)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into the Company's
previously filed Registration Statements on Form S-8 File Nos. 33-59159,
33-67158, 333-11833 and 333-11837.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
March 17, 1997.
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT
CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE,
AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ JULIUS W. BECTON, JR. DATE: MARCH 12, 1997
- ------------------------------------
JULIUS W. BECTON, JR.
DIRECTOR
<PAGE> 2
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT
CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE,
AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ ANNE N. FOREMAN DATE: MARCH 12, 1997
- ----------------------------------- --------------
ANNE N. FOREMAN
DIRECTOR
<PAGE> 3
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT
CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE,
AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ EDWARD L. HENNESSY DATE: MARCH 12, 1997
- ----------------------------------- ----------------------
EDWARD L. HENNESSY
DIRECTOR
<PAGE> 4
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT
CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE,
AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ PAUL X. KELLEY DATE: MARCH 14, 1997
- ------------------------------- --------------
PAUL X. KELLEY
DIRECTOR
<PAGE> 5
POWER OF ATTORNEY
-----------------
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT
CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE,
AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ NANCY CLARK REYNOLDS DATE: MARCH 14, 1997
- ------------------------ ----------------
NANCY CLARK REYNOLDS
DIRECTOR
<PAGE> 6
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT
CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE,
AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ RICHARD R. WACKENHUT DATE: MARCH 12, 1997
- --------------------------------- --------------
RICHARD R. WACKENHUT
DIRECTOR
<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-K FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<EXCHANGE-RATE> 1
<CASH> 52,755
<SECURITIES> 14,753<F1>
<RECEIVABLES> 131,325<F2>
<ALLOWANCES> 1,997
<INVENTORY> 10,082
<CURRENT-ASSETS> 220,574<F3>
<PP&E> 46,726
<DEPRECIATION> 12,184
<TOTAL-ASSETS> 323,916
<CURRENT-LIABILITIES> 72,498
<BONDS> 5,890
0
0
<COMMON> 1,476
<OTHER-SE> 146,753
<TOTAL-LIABILITY-AND-EQUITY> 323,918<F4>
<SALES> 0
<TOTAL-REVENUES> 906,056
<CGS> 0
<TOTAL-COSTS> 889,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 508
<INTEREST-EXPENSE> 2,766
<INCOME-PRETAX> 17,875
<INCOME-TAX> 6,311
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,057<F5>
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.00
<FN>
<F1>MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT ARE CLASSIFIED AS NON-CURRENT
ASSETS ON THE BALANCE BALANCE SHEET.
<F2>THE CORPORATION HAS ENTERED INTO A THREE YEAR AGREEMENT EXPIRING IN DECEMBER
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 DECEMBER 29, 1996 THERE WERE NO NO BALANCES OUTSTANDING
UNDER THE ACCOUNT RECEIVABLES SECURITIZATION AGREEMENT.
<F3>INCLUDES $26,412 OF OTHER CURRENT ASSETS.
<F4>INCLUDES $43,806 RESERVE FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY, $40,958
MINORITY INTEREST, $1,165 DEFERRED TAX LIABILITY NET AND $11,372 OTHER
LIABILITIES.
<F5>INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES-NET OF
INCOME TAXES OF $4,140 AND $(1,633) RESPECTIVELY.
</FN>
</TABLE>
