<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
-------- -------
Commission file number 1-5450
THE WACKENHUT CORPORATION
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-0857245
-------------------------------------------------------------------------------
(State of incorporation or organization) (I.R.S. Employer Identification No.)
4200 Wackenhut Drive #100, Palm Beach Gardens, FL 33410-4243
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (561) 622-5656
-------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
At July 31, 1998, 3,855,582 shares of Series A were issued and outstanding and
11,072,766 shares of Series B of the registrant's Common Stock was outstanding
after deducting 87,000 shares held in treasury.
Page 1 of 27
<PAGE> 2
THE WACKENHUT CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of The Wackenhut Corporation and
subsidiaries (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and therefore, omit or condense certain footnotes and
other information normally included in financial statements prepared in
accordance with generally accepted accounting principles. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial information for the interim
periods reported have been made. Results of operations for the twenty-six weeks
ended June 28, 1998 are not necessarily indicative of the results for the entire
fiscal year ending January 3, 1999.
Page 2 of 27
<PAGE> 3
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED
JUNE 28, 1998 and JUNE 29, 1997
(In thousands except per share data)
UNAUDITED
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $ 416,659 $ 273,592 $ 815,282 $ 515,726
--------- --------- --------- ---------
OPERATING EXPENSES:
Payroll and related taxes 325,223 200,915 639,371 380,369
Other operating expenses 79,250 65,904 153,199 122,707
Depreciation expense 2,208 1,363 4,174 2,799
Amortization of intangible assets 2,262 501 4,394 942
--------- --------- --------- ---------
408,943 268,683 801,138 506,817
--------- --------- --------- ---------
OPERATING INCOME 7,716 4,909 14,144 8,909
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest and investment income 1,140 1,002 1,838 1,914
Interest expense (781) (618) (1,367) (953)
--------- --------- --------- ---------
359 384 471 961
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 8,075 5,293 14,615 9,870
Provision for income taxes 3,159 1,987 5,885 3,695
Minority interest, net of income taxes 2,070 1,319 3,853 2,628
Equity income of foreign affiliates, net of
income taxes (794) (521) (1,424) (930)
--------- --------- --------- ---------
NET INCOME $ 3,640 $ 2,508 $ 6,301 $ 4,477
========= ========= ========= =========
EARNINGS PER SHARE:
Basic $ 0.24 $ 0.17 $ 0.42 $ 0.30
Assuming dilution $ 0.23 $ 0.17 $ 0.41 $ 0.30
========= ========= ========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
Page 3 of 27
<PAGE> 4
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, 1998 AND DECEMBER 28, 1997
(In thousands except share data)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 62,368 $ 45,168
Accounts receivable, less allowance for doubtful accounts
of $3,625 in 1998 and $2,713 in 1997 165,779 171,373
Inventories 12,336 10,270
Deferred taxes 4,014 3,548
Other 27,756 21,568
--------- ---------
272,253 251,927
--------- ---------
NOTES RECEIVABLE 665 667
--------- ---------
MARKETABLE SECURITIES of casualty reinsurance subsidiary 23,575 7,772
--------- ---------
PROPERTY AND EQUIPMENT, at cost 51,769 72,280
Accumulated depreciation (17,897) (15,810)
--------- ---------
33,872 56,470
--------- ---------
DEFERRED TAXES 8,078 450
--------- ---------
OTHER ASSETS:
Intangibles and deferred start-up costs 59,101 61,565
Investment in and advances to foreign affiliates 23,077 20,578
Other 10,648 5,013
--------- ---------
92,826 87,156
--------- ---------
$ 431,269 $ 404,442
========= =========
</TABLE>
See notes to unaudited consolidated financial statements
Page 4 of 27
<PAGE> 5
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, 1998 AND DECEMBER 28, 1997
(In thousands except share data)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 2,508
Accounts payable 24,288 38,640
Accrued payroll and related taxes 57,708 52,456
Accrued expenses 62,997 41,414
--------- ---------
144,993 135,018
--------- ---------
RESERVES FOR LOSSES of casualty reinsurance subsidiary 46,614 45,786
--------- ---------
LONG-TERM DEBT 4,326 13,341
--------- ---------
DEFERRED REVENUES 15,631 --
--------- ---------
OTHER 15,087 15,528
--------- ---------
MINORITY INTEREST 52,311 47,930
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized
Common stock, $.10 par value,
50,000,000 shares authorized:
Series A common stock, 3,855,582
issued and outstanding 386 386
Series B common stock, 11,159,766 issued
and outstanding in 1998
11,085,703 issued and outstanding in 1997 1,116 1,109
Additional paid-in capital 128,183 125,248
Retained earnings 31,684 27,614
Accumulated other comprehensive income (7,962) (6,418)
Treasury stock at cost, 87,000 shares of Series B
common stock (1,100) (1,100)
--------- ---------
152,307 146,839
--------- ---------
$ 431,269 $ 404,442
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
Page 5 of 27
<PAGE> 6
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 1998 AND JUNE 29, 1997
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net Income $ 6,301 $ 4,477
Adjustments -
Depreciation expense 4,174 2,799
Amortization expense 7,772 5,056
Provision for bad debts 958 563
Equity income, net of dividends (2,258) (1,385)
Minority interests in net income 6,422 4,171
Income tax benefit related to stock options 2,331 --
Other (1,192) (675)
(Increase) decrease in assets:
Accounts receivable (13,365) (8,138)
Inventories (5,147) (2,801)
Other current assets (6,186) 2,176
Deferred taxes (8,066) (254)
Other (1,078) 91
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,094 2,880
Accrued payroll and related taxes 5,252 3,772
Reserve for losses of casualty reinsurance subsidiary 828 1,051
Deferred taxes -- 882
Other (441) 2,302
-------- --------
Net Cash (Used In) Provided by Operating Activities $ (1,601) $ 16,967
-------- --------
</TABLE>
See notes to unaudited consolidated financial statements.
Page 6 of 27
<PAGE> 7
THE WACKENHUT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 1998 AND JUNE 29, 1997
(In thousands)
UNAUDITED
(Continued)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Net proceeds from sale of prison facilities to CPV (note 7) $ 42,211 $ --
Net proceeds from exercise of stock options of subsidiary 1,189 412
Payments for acquisitions, net of cash acquired -- (10,349)
Investment in and advances to foreign affiliates (824) (2,148)
Capital expenditures (5,242) (12,871)
Net payments for purchases of marketable securities (15,888) (1,595)
Deferred charges (6,784) (9,779)
-------- --------
Net Cash Provided by (Used In) Investing Activities 14,662 (36,330)
-------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from exercise of stock options 862 --
Purchase and cancellation of common stock -- (139)
Net payment on notes payable (2,673) 175
Net payment on revolving credit agreement (8,850) --
Proceeds from sales of accounts receivable 18,000 --
Dividends paid (2,231) (1,911)
-------- --------
Net Cash Provided By (Used In) Financing Activities 5,108 (1,875)
-------- --------
Effect of Exchange Rate Changes on Cash (969) (250)
-------- --------
Net increase (decrease) in Cash and Cash Equivalents 17,200 (21,488)
Cash and Cash Equivalents, at beginning of period 45,168 52,755
-------- --------
Cash and Cash Equivalents, at end of period $ 62,368 $ 31,267
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 1,427 $ 932
Income taxes $ 1,200 $ 2,179
</TABLE>
See notes to unaudited consolidated financial statements.
Page 7 of 27
<PAGE> 8
THE WACKENHUT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. GENERAL
The consolidated financial statements of the Company are unaudited and, in the
opinion of management, include all adjustments necessary to fairly present the
Company's financial condition, results of operations and cash flows for the
interim period. The results for the twenty-six weeks ended June 28, 1998 are not
necessarily indicative of the results of operations to be expected for the full
year. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 28, 1997. Certain prior year amounts have been
reclassified to conform with current year presentation. The Company's
subsidiary, Wackenhut Corrections Corporation ("WHC"), is listed on the New York
Stock Exchange as "WHC."
2. INVESTMENT IN AFFILIATES
Equity in undistributed earnings of foreign affiliates approximated $10.5
million and $8.8 million at June 28, 1998 and December 28, 1997, respectively,
and is included in "Investment in and advances to foreign affiliates" in the
accompanying consolidated balance sheets. The following is a summary of
condensed unaudited financial information pertaining to foreign affiliates
(dollars in thousands):
<TABLE>
<CAPTION>
Jun. 28, Dec. 28,
Balance sheet items: 1998 1997
-------- --------
<S> <C> <C>
Current assets $47,770 $55,563
Noncurrent assets 39,277 31,229
Current liabilities 37,882 39,721
Noncurrent liabilities 16,601 19,413
Minority interest liability 189 292
Jun. 28, Jun. 29,
Income statement items for the twenty-six weeks ended: 1998 1997
-------- --------
Revenues $107,322 $90,840
Operating income 8,187 6,719
Net income before taxes 6,528 5,714
</TABLE>
Page 8 of 27
<PAGE> 9
3. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), "Reporting Comprehensive Income", effective December 29, 1997. SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components in financial statements. The components of the Company's
comprehensive income are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Twenty-six weeks ended
------------------------
June 28, June 29,
1998 1997
------- -------
<S> <C> <C>
Net income $ 6,301 $ 4,477
Unrealized loss on marketable securities,
net of income taxes (55) (50)
Foreign currency translation adjustments,
net of income taxes (1,489) (709)
------- -------
Comprehensive income $ 4,757 $ 3,718
======= =======
</TABLE>
The effect of income taxes on foreign currency translation adjustments was
$875,000 and $403,000 for 1998 and 1997 respectively.
4. INTANGIBLES AND DEFERRED START-UP COSTS
Intangibles and the long-term portion of deferred start-up costs at June 28,
1998 and December 28, 1997 consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Goodwill $35,128 $34,199
Contract value 15,587 15,586
Deferred start-up costs 22,081 21,550
Other 2,701 2,105
-------- --------
75,497 73,440
Accumulated amortization 16,396 11,875
-------- --------
$59,101 $61,565
======== ========
</TABLE>
Goodwill represents the excess of cost over net assets of businesses acquired.
Through December 28, 1997, WHC capitalized and amortized facility start-up costs
on a straight-line basis over the lesser of the original contract term plus
renewals or five years. Deferred facility start-up costs consist of costs of
initial employee training, travel and other direct expenses incurred in
connection with the opening of new facilities. Effective December 29, 1997, WHC
modified this policy to amortize facility start-up costs over the lesser of the
initial contract term or five years. Had this policy been followed in prior
periods, the impact would have been immaterial.
Page 9 of 27
<PAGE> 10
In April 1998, the Financial Accounting Standards Board issued Statement of
Position 98-5 ("SOP 98-5") on Accounting for Costs of Start-up Activities. SOP
98-5 requires the expensing of start-up costs, defined as pre-opening,
pre-operating and pre-contract type costs, as incurred and is effective for
fiscal years beginning after December 15, 1998. If adopted by the Company in
fiscal 1998, the Company anticipates a pre-tax write-off of approximately $18.2
million (or $10.9 million after-tax) to record the cumulative effect of the
change in accounting principle. Further, the Company will concurrently record a
$4.9 million reduction in minority interest expense. The write-off includes both
current and long-term portions of deferred start-up costs. The current portion
of deferred start-up costs is approximately $6.6 million.
5. INCOME TAXES
The combined Federal and state effective income tax rate was 40.3% for the first
twenty-six weeks of 1998 and 37.4% for the first twenty-six weeks of 1997. The
higher effective rate in the first twenty-six weeks of 1998 was due to decreases
in the utilization of capital loss carryforwards and tax exempt income of the
reinsurance subsidiary. In addition, the statutory Federal income tax rate
applicable to the Company increased to 35% from 34%. In 1998, consolidated
taxable income is expected to exceed the threshold where the 35% taxable rate is
applicable.
6. EARNINGS PER SHARE
The table below shows the amounts used in computing earnings per share and the
effects on income and the weighted average number of shares of potential
dilutive common stock (in thousands except for per share amounts).
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------------------------------------------
June 28, 1998 June 29, 1997
-------------------------------- ---------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 3,640 $2,508
======= ======
Basic EPS:
Income available to common
shareholders $ 3,640 14,897 $ 0.24 $2,508 14,709 $0.17
====== =====
Effect of dilutive securities:
Stock options 381 404
Stock options of WHC (57) -
------- ------ ------ ------
Diluted EPS:
Income available to common
shareholders $ 3,583 15,278 $ 0.23 $2,508 15,113 $0.17
======== ====== ====== ====== ====== =====
</TABLE>
Page 10 of 27
<PAGE> 11
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
-----------------------------------------------------------------------
June 28, 1998 June 29, 1997
------------------------------- --------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 6,301 $ 4,477
======= =======
Basic EPS:
Income available to common
shareholders $ 6,301 14,877 $ 0.42 $ 4,477 14,690 $ 0.30
====== ======
Effect of dilutive securities:
Stock options 401 377
Stock options of WHC (90) (6)
------- ------ ------- ------
Diluted EPS:
Income available to common
shareholders $ 6,211 15,278 $ 0.41 $ 4,471 15,067 $ 0.30
======= ====== ====== ======= ====== ======
</TABLE>
Options to purchase 16,000 shares of series B common stock at $22.625 per share
were outstanding during the first half of 1998 but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the series B common shares. The options, which
expire in April 2008, were still outstanding at June 28, 1998.
7. SALE OF FACILITIES TO CORRECTIONAL PROPERTIES TRUST
On April 28, 1998, Correctional Properties Trust ("CPV"), a Maryland real estate
investment trust, sold 6.2 million shares of common stock at an offering price
of $20.00 per share in an initial public offering. Approximately $113.0 million
of the net proceeds of the offering were used to acquire eight correctional and
detention facilities operated by WHC. WHC received approximately $42 million for
the three facilities owned by it and for the rights to acquire four of the
remaining five facilities, resulting in a net profit of approximately $18
million to WHC which will be amortized over the ten-year lease term. Deferred
revenue of $15.6 million on the balance sheet at June 28, 1998 represents the
long term portion of the unamortized net profit. Subsequent to the purchase, CPV
is leasing these eight facilities to WHC. CPV also was granted the option to
acquire three additional correctional facilities currently under development by
WHC and the fifteen-year right to acquire and lease back future correctional and
detention facilities developed or acquired by WHC.
8. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. Management believes
the impact of adopting this statement in 2000 will not have a material impact
upon the Company's results of operations or financial position.
Page 11 of 27
<PAGE> 12
9. BUSINESS SEGMENTS
The Company's principal segments are security services, correctional services,
and staffing services. Security services provides security-related and other
support services to commercial and governmental/regulated industries worldwide
clients. A subsidiary of the Company, WHC, provides design, construction,
financing and management services to detention and correctional facilities.
Staffing services provides employee leasing and temporary staffing services.
<TABLE>
<CAPTION>
Twenty-six weeks ended
--------------------------------
(dollars in thousands) June 28, 1998 June 29, 1997
------------- -------------
<S> <C> <C>
Revenues:
Security services $ 450,343 $ 400,494
Correctional services 145,886 92,735
Staffing services 219,053 22,497
--------- ---------
Total revenues $ 815,282 $ 515,726
========= =========
Operating Income:
Security services $ 11,077 $ 9,455
Correctional services 10,884 7,061
Staffing services 756 (465)
Unallocated corporate expenses (8,573) (7,142)
--------- ---------
Total operating income $ 14,144 $ 8,909
========= =========
Equity Income of Affiliates, net of taxes:
Security services $ 625 $ 433
Correctional services 799 497
--------- ---------
Total equity income $ 1,424 $ 930
========= =========
Capital Expenditures:
Security services $ 2,356 $ 722
Correctional services 1,799 11,764
Staffing services 449 14
Unallocated corporate expenditures 638 371
--------- ---------
Total capital expenditures $ 5,242 $ 12,871
========= =========
Depreciation and Amortization:
Security services $ 5,345 $ 4,761
Correctional services 5,614 2,658
Staffing services 639 93
Unallocated corporate expenses 348 343
--------- ---------
Total expenses $ 11,946 $ 7,855
========= =========
Identifiable Assets: June 28, 1998 Dec. 28, 1997
------------- -------------
Security services $ 185,777 $ 171,288
Correctional services 169,603 139,203
Staffing services 47,164 45,137
Unallocated corporate assets 28,725 48,814
--------- ---------
Total identifiable assets $ 431,269 $ 404,442
========= =========
</TABLE>
Page 12 of 27
<PAGE> 13
DOMESTIC AND INTERNATIONAL OPERATIONS
Non-U.S. operations of the Company and its subsidiaries are conducted primarily
in South America and Australia. Minority interest in consolidated foreign
subsidiaries have been reflected net of applicable income taxes on the
accompanying financial statements. The Company carries its investments in
affiliates (20% to 50% owned) under the equity method. U.S. income taxes which
would be payable upon remittance of affiliates' earnings to the Company are
provided currently. A summary of domestic and international operations is shown
below.
<TABLE>
<CAPTION>
Twenty-six weeks ended
------------------------------
(dollars in thousands) June 28, 1998 June 29, 1997
------------- -------------
<S> <C> <C>
Revenues:
Domestic operations $716,354 $432,287
International operations 98,928 83,439
-------- --------
Total revenues $815,282 $515,726
======== ========
Operating Income:
Domestic operations $ 11,486 $ 7,534
International operations 2,658 1,375
-------- --------
Total operating income $ 14,144 $ 8,909
======== ========
Equity Income of Affiliates, net of taxes:
International operations $ 1,424 $ 930
-------- --------
Total equity income $ 1,424 $ 930
======== ========
Capital Expenditures:
Domestic operations $ 3,346 $ 10,569
International operations 1,896 2,302
-------- --------
Total capital expenditures $ 5,242 $ 12,871
======== ========
Depreciation and Amortization:
Domestic operations $ 9,114 $ 5,651
International operations 2,832 2,204
-------- --------
Total expenses $ 11,946 $ 7,855
======== ========
Identifiable Assets: June 28, 1998 Dec. 28, 1997
------------- -------------
Domestic operations $389,687 $368,349
International operations 41,582 36,093
-------- --------
Total identifiable assets $431,269 $404,442
======== ========
</TABLE>
Page 13 of 27
<PAGE> 14
THE WACKENHUT CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Wackenhut Corporation and its Subsidiaries (the "Company") is a worldwide
pioneer in providing outsourcing services to business and industry and
privatizing services for federal, state and local governmental agencies. Its
diversified services include security and physical protection, employee leasing
and temporary staffing, personnel and facility management, food service, cash
in-transit, and fire, emergency and supplemental police services. The Company's
business is organized into four major groups: North American Operations
(security services), International Operations (security services), Wackenhut
Corrections Corporation and Staffing Services. The Company provides
security-related, outsourcing and other support services through the security
services business. The Wackenhut Corrections Corporation, a 54% owned
corrections subsidiary, provides design, construction, financing and management
services for a broad spectrum of detention and correctional facilities to
government agencies. In 1996 the Company entered into the employee leasing and
temporary staffing businesses.
FINANCIAL CONDITION
Reference is made to pages 24 through 29 of the Company's Annual Report to
Shareholders, filed as Exhibit 13.0 with the Company's Annual Report Form 10-K
for the fiscal year ended December 28, 1997 for further discussion and analysis
of information pertaining to the Company's financial condition.
During the twenty-six weeks ended June 28, 1998, the Company sold $18 million of
accounts receivable under its accounts receivable securitization agreement, and
paid down its revolving credit agreement by $8.9 million. On April 28, 1998, WHC
sold three facilities and the rights to acquire four facilities to Correctional
Properties Trust ("CPV") for approximately $42 million, resulting in a net
profit of approximately $18 million which will be amortized over the ten-year
lease term. In connection with the sale, WHC entered into a ten-year lease with
CPV for eight correctional and detention facilities currently operated by WHC.
During the second quarter of 1998 cash and cash equivalents increased to $62.3
million due primarily to proceeds received from the sale of correctional and
detention facilities to CPV.
On August 7, 1998 the Company announced that it is considering the repurchase of
up to 413,000 shares of its series B, nonvoting, common stock. Also on August 7,
1998, WHC announced that it is considering the repurchase of up to 500,000
shares of its common stock.
FORWARD-LOOKING STATEMENTS: The management's discussion and analysis of
financial condition and results of operations and the July 24, 1998, press
release contain forward-looking statements that are based on current
expectations, estimates and projections about the segments in which the Company
operates. This section of the quarterly report also includes management's
beliefs and assumptions made by management. Words such as "expects,"
"anticipates." "intends," "plans," "believes," "seeks," "estimates," variation
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 Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
Page 14 of 27
<PAGE> 15
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
Company'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.
Page 15 of 27
<PAGE> 16
RESULTS OF OPERATIONS
COMPARISON OF THIRTEEN WEEKS ENDED JUNE 28, 1998 AND THIRTEEN WEEKS ENDED JUNE
29, 1997
The table below summarizes the Company's results of operations for the thirteen
weeks ended June 28, 1998 ("second quarter of 1998") and June 29, 1997 ("second
quarter of 1997") by the Company's organizational business segments. The
following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto (dollars in
thousands):
<TABLE>
<CAPTION>
Thirteen weeks ended
------------------------ ------------------------
Jun. 28, 1998 Jun. 29, 1997
------------------------ ------------------------
$ % $ %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
REVENUES [a]
Security Services:
North American Operations 194,316 46.6 175,082 64.0
International Operations 33,159 8.0 28,309 10.4
-------- ----- -------- -----
227,475 54.6 203,391 74.4
Correctional Services 74,617 17.9 51,508 18.8
Staffing Services 114,567 27.5 18,693 6.8
-------- ----- -------- -----
Consolidated revenues 416,659 100.0 273,592 100.0
======== ===== ======== =====
OPERATING INCOME [b]
Security Services:
North America Operations 5,356 2.8 4,929 2.8
International Operations 814 2.5 (195) (0.7)
-------- --------
6,170 2.7 4,734 2.3
Correctional Services 5,328 7.1 3,789 7.4
Staffing Services 476 0.4 (128) (0.7)
Unallocated corporate expense (4,258) (1.0) (3,486) (1.3)
-------- --------
Consolidated operating income 7,716 1.9 4,909 1.8
======== ========
</TABLE>
[a] Percentages represent percent of total revenues.
[b] Percentages represent percent of respective business related revenues.
Page 16 of 27
<PAGE> 17
REVENUES
Security Services
Second quarter 1998 Security Services revenues increased $24.1 million, or
11.8%, to $227.5 million from $203.4 million in the second quarter of 1997.
Revenues from North American Operations increased $19.2 million, or 11%, to
$194.3 million in the first quarter of 1998 from $175.1 million in the first
quarter of 1997. Both commercial and government/regulated services showed good
revenue performance in the quarter versus the second quarter 1997. International
Operations revenues increased $4.9 million, or 17.1%, to $33.2 million in the
second quarter of 1998 compared to $28.3 million in the second quarter of 1997.
Increases in international security revenues were partially offset by the exit
from the Australian security market. Revenues of Wackenhut of Australia Pty.,
Ltd., were $3.7 million in the second quarter of 1997.
Correctional Services
Second quarter 1998 Correctional Services revenues increased $23.1 million, or
44.9%, to $74.6 million from $51.5 million in the comparable quarter last year.
The increase was due principally to the increase in compensated resident days by
45.5% to approximately 1,868,685 in the second quarter of 1998 from 1,284,447 in
the second quarter of 1997, which resulted principally from the opening of new
facilities during 1997 and in the first quarter of 1998. During the past 12
months Corrections has opened 13 facilities with a total of 8,068 new beds.
Occupancy increased slightly to approximately 96.9% of capacity compared to
96.8% of capacity in the second quarter of 1997.
Staffing Services
Staffing Services was started in the third quarter of 1996. In May 1997, the
Company acquired the business and certain assets of the King Companies in
Jacksonville, Florida and in December 1997, the Company acquired the business
and substantially all of the assets of Professional Employee Management, Inc.,
of Sarasota, Florida. Revenues of Staffing Services amounted to $114.6 million
in the second quarter of 1998, compared to $18.7 million in the comparable
quarter last year. In addition to increased revenues from acquisitions made in
1997, Staffing Services has increased its number of employees by 38% since the
beginning of 1998 through internal growth. Its leased employee base is now in
excess of 22,100 personnel.
OPERATING INCOME
Second quarter 1998 consolidated operating income increased $2.8 million, or
57.2%, to $7.7 million from $4.9 million in the second quarter of 1997. The
operating margin for the second quarter of 1998 increased slightly to 1.9% from
1.8% for the comparable second quarter of 1997.
Page 17 of 27
<PAGE> 18
Security Services
The operating income of the security services business increased $1.4 million,
or 30.3%, to $6.2 million in the second quarter of 1998 from $4.7 million for
the comparable quarter last year. North American Operations operating income
increased $427,000, or 8.7%, to $5.4 million in the second quarter of 1998 from
$4.9 million in the second quarter of 1997. The increase in operating income of
North American Operations can be attributed mainly to increased revenue growth
from commercial and government/regulated security services and improved profit
margins in food services; these increases were partially offset by increases in
direct corporate general and administrative costs. The increase in corporate
general and administrative expenses as compared to the second quarter of 1997
was due to increases in information technology as the Company rolls out new
enterprise wide systems and payroll related costs attributable to corporate
staff. The operating income of North American Operations, as a percentage of
revenues, stayed the same at 2.8% in the second quarter of 1998 and 1997.
International Operations operating income increased $1.0 million in the second
quarter of 1998 as compared with the second quarter of 1997. In January 1998,
the Company sold the security business and certain related assets of Australian
security operations, which incurred an operating loss of $487,000 in the second
quarter of 1997.
Correctional Services
Second quarter 1998 operating income increased $1.5 million, or 40.6%, to $5.3
million from $3.8 million in the comparable period in 1997. The improved results
are attributable principally to profit contribution from new facilities,
increased utilization of existing facilities and continued leveraging of
overhead. Second quarter 1998 operating income as a percent of revenue declined
to 7.1% from 7.4% in 1997. The decrease is due partly to increased depreciation
and amortization from the start-up of new facilities and from a reduction in the
amortization period of start-up costs. The introduction of lease payments to CPV
(note 7 to the financial statements) also reduced the relative percentage of
operating income. However, during the second quarter of 1998 these additional
costs have been substantially offset by increased interest earnings.
Staffing Services
The operating profit of Staffing Services was $476,000 in the second quarter of
1998, as compared to an operating loss of $128,000 for the second quarter of
1997. The improvement in operating profit is attributable principally to the
acquisitions of new businesses and improvement in the profit contribution of
internally developed staffing services.
UNALLOCATED CORPORATE EXPENSES AND INFORMATION SYSTEMS
Unallocated corporate general and administrative expenses increased 22.1% to
$4.3 million in the second quarter of 1998 from $3.5 million in the second
quarter of 1997. The increase was due principally to an increase in information
technology costs as the Company rolls out new enterprise wide systems and
payroll related costs attributable to corporate staff. However, as a percentage
of consolidated revenues, unallocated corporate general and administrative
expenses decreased to 1.0% of revenues in the second quarter of 1998 from 1.3%
of revenues in the second quarter of 1997.
During the second quarter of 1998, management continued its review of the
installation of new systems hardware and software and determined that the
installation is on schedule for completion before the year 2000. In addition,
management is continuing to assess the company wide effect of the Year 2000
issue. The Company has not completely determined the effect of expenditures
related to the Year 2000 issue, but they are not expected to be significant and
will be expensed as incurred.
Page 18 of 27
<PAGE> 19
OTHER INCOME/EXPENSE
Other income decreased $25,000, or 6.5%, to $359,000 in the second quarter of
1998 from $384,000 in the second quarter of 1997. Interest income was slightly
higher in the second quarter of 1998, as compared to the second quarter of 1997,
due to proceeds received from the sale of correctional and detention facilities
to Correctional Properties Trust, a REIT that will provide financing and
ownership of WHC managed properties. Higher interest costs were incurred on
increased borrowings under the accounts receivable securitization agreement in
the second quarter of 1998.
INCOME BEFORE INCOME TAXES
Second quarter 1998 income before taxes increased $2.8 million, or 52.6%, to
$8.0 million from $5.3 million in the second quarter of 1997.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization, was $13.9 million, or 3.3% of revenues for the second quarter
of 1998, which was $4.9 million, or 54.3%, higher than the second quarter of
1997. EBITDA does not necessarily indicate that cash flow is sufficient to fund
all the Company's cash needs or represent cash flow from operations as defined
by generally accepted accounting principles.
INCOME TAXES
The combined Federal and state effective income tax rate was 39.1% for the
second quarter of 1998 and 37.5% for the second quarter of 1997. The higher
effective rate in the second quarter of 1998 was due to decreases in the
utilization of capital loss carryforwards and tax exempt income of the
reinsurance subsidiary. In addition, the statutory federal income tax rate
applicable to the Company increased to 35% from 34%. In 1998, consolidated
taxable income is expected to exceed the threshold where the 35% taxable rate is
applicable.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased $0.8 million to $2.1
million in the second quarter of 1998 from $1.3 million in the second quarter of
1997, reflecting principally the increase in earnings of WHC.
Page 19 of 27
<PAGE> 20
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased $273,000, or
52.4%, to $794,000 in the second quarter of 1998 from $521,000 in the second
quarter of 1997, primarily due to improved operations in Greece, Argentina and
Chile.
NET INCOME
Net income increased $1.1 million, or 45.1%, to $3.6 million in the second
quarter of 1998 compared to $2.5 million in the second quarter of 1997. Earnings
per share on a diluted basis was $0.23 in the second quarter of 1998 compared to
$0.17 in the second quarter of 1997.
Page 20 of 27
<PAGE> 21
COMPARISON OF TWENTY-SIX WEEKS ENDED JUNE 28, 1998 AND TWENTY-SIX WEEKS ENDED
JUNE 29, 1997
The table below summarizes the Company's results of operations for the
twenty-six weeks ended June 28, 1998 ("first half of 1998") and June 29, 1997
("first half of 1997") by the Company's organizational business segments. The
following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto (dollars in
thousands):
<TABLE>
<CAPTION>
Twenty-six weeks ended
---------------- ----------------
Jun. 28, 1998 Jun. 29, 1997
---------------- ----------------
$ % $ %
------- ------ ------- -----
<S> <C> <C> <C> <C>
REVENUES [a]
Security Services:
North American Operations 386,151 47.3 343,514 66.6
International Operations 64,192 7.9 56,980 11.1
------- ------ ------- -----
450,343 55.2 400,494 77.7
Correctional Services 145,886 17.9 92,735 18.0
Staffing Services 219,053 26.9 22,497 4.3
------- ------ ------- -----
Consolidated revenues 815,282 100.0 515,726 100.0
======= ====== ======= =====
OPERATING INCOME [b]
Security Services:
North America Operations 10,177 2.6 9,540 2.8
International Operations 900 1.4 (85) (0.1)
------- -------
11,077 2.5 9,455 2.4
Correctional Services 10,884 7.5 7,061 7.6
Staffing Services 756 0.3 (465) (2.1)
Unallocated corporate expense (8,573) (1.1) (7,142) (1.4)
------- -------
Consolidated operating income 14,144 1.7 8,909 1.7
======= =======
</TABLE>
[a] Percentages represent percent of total revenues.
[b] Percentages represent percent of respective business related revenues.
Page 21 of 27
<PAGE> 22
REVENUES
Security Services
Year to date 1998 Security Services revenues increased $49.8 million, or 12.4%,
to $450.3 million from $400.5 million in the first half of 1998. Revenues from
North American Operations increased $42.6 million, or 12.4%, to $386.1 million
in the first half of 1998 from $343.5 million in the first half of 1997.
Commercial and government/regulated services showed good revenue performance in
the first half of 1998 versus the first half of 1997. International Operations
revenues increased $7.2 million, or 12.7%, to $64.2 million in the first half of
1998 compared to $57.0 million in the first half of 1997. Increases in
international security revenues were partially offset by the exit from the
Australian security market in January 1998. Revenues of Wackenhut of Australia
Pty., Ltd., were $7.7 million in the first half of 1997.
Correctional Services
First half 1998 Correctional Services revenues increased $53.2 million, or
57.3%, to $145.9 million from $92.7 million in the comparable half of 1997. The
increase was due principally to the increase in compensated resident days by
54.4% to approximately 3,636,541 in the first half of 1998 from 2,355,701 in the
first half of 1997, which resulted principally from the opening of new
facilities during 1997 and in the first half of 1998. During the past 12 months
Corrections has opened 13 facilities with a total of 8,068 new beds. Occupancy
decreased slightly to approximately 96.3% of capacity compared to 97.2% of
capacity in the first half of 1997.
Staffing Services
Staffing Services was started in the third quarter of 1996. In May 1997, the
Company acquired the business and certain assets of the King Companies in
Jacksonville, Florida and in December 1997, the Company acquired the business
and substantially all of the assets of Professional Employee Management, Inc.,
of Sarasota, Florida. Revenues of Staffing Services amounted to $219.1 million
in the first half of 1998, compared to $22.5 million in the comparable half of
1997. In addition to increased revenues from acquisitions made in 1997, Staffing
Services has increased its number of employees by 38% since the beginning of
1998 through internal growth. Its leased employee base is now in excess of
22,100 personnel.
OPERATING INCOME
First half 1998 consolidated operating income increased $5.2 million, or 58.8%,
to $14.1 million from $8.9 million in the first half of 1997. The operating
margin for the first half of 1998 remained the same at 1.7% from the comparable
twenty-six week period.
Security Services
The operating income of the Security Services business increased $1.6 million,
or 17.2%, to $11.1 million in the first half of 1998 from $9.5 million for the
comparable half of last year. North American Operations operating income
increased $0.7 million or 6.7%, to $10.2 million in the first half of 1998 from
$9.5 million in the first half of 1997. The increase in operating income of
North American Operations can be attributed mainly to increased revenue growth
in commercial and government/regulated services and improved profit margins in
food services; these increases were partially offset by increases in direct
corporate general and administrative costs. The increase in corporate general
and administrative expenses this half, as compared to the first half of 1997 was
due to increases in information technology as the Company rolls out new
enterprise wide systems and payroll related costs attributable to corporate
staff. The operating income of North American Operations as a percentage of
revenues decreased to 2.6% in the first half of 1998 from
Page 22 of 27
<PAGE> 23
2.8% in the first half of 1997. International Operations operating income
increased $985,000 to $900,000 in the first half of 1998 from a loss of $85,000
in the first half of 1997. In January 1998, the Company sold the security
business and certain related assets of Australian security operations, which
incurred an operating loss of $983,000 in the first half of 1997. International
Operations operating income (excluding Australian security operations) remained
relatively flat in the first half of 1998 as compared with the first half of
1997. In addition, there were increases in corporate general and administrative
expenses for the half of 1998, as compared to the first half of 1997, as
discussed above.
Correctional Services
First half 1998 operating income increased $3.8 million, or 54.1%, to $10.8
million from $7.1 million in the comparable period in 1997. The improved results
are attributable principally to increased profit contribution from new
facilities, increased utilization of existing facilities and continued
leveraging of overhead.
Staffing Services
The operating profit of Staffing Services was $756,000 in the first half of
1998, as compared to an operating loss of $465,000 for the first half of 1997.
The improvement in operating profit is attributable principally to the
acquisitions of new businesses and improvement in the profit contribution of
internally developed staffing services.
UNALLOCATED CORPORATE EXPENSES
Unallocated corporate general and administrative expenses increased 20% to $8.6
million in the first half of 1998 from $7.1 million in the first half of 1997.
The increase was due principally to an increase in information technology costs
as the Company rolls out new enterprise wide systems and payroll related costs
attributable to corporate staff. However, as a percentage of consolidated
revenues, unallocated corporate general and administrative expenses decreased to
1.1% of revenues in the first half of 1998 from 1.4% of revenues in the first
half quarter of 1997.
OTHER INCOME/EXPENSE
Other income decreased $490,000, or 51%, to $471,000 in the first half of 1998
from $961,000 in the first half of 1997. Interest expense increased $414,000 on
increased borrowings under the accounts receivable securitization agreement in
the first half of 1998. Interest income was lower in the first half of 1998, as
compared to the first half of 1997 contributing to the overall decrease in other
income.
INCOME BEFORE INCOME TAXES
First half 1998 income before taxes increased $4.7 million, or 48.1%, to $14.6
million from $9.9 million in the first half of 1997.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization, was $26.1 million, or 3.2% of revenues for the first half of
1998, which was $9.3 million, or 55.6%, higher than the first quarter of 1997.
EBITDA does not necessarily indicate that cash flow is sufficient to fund all
the Company's cash needs or represent cash flow from operations as defined by
generally accepted accounting principles.
Page 23 of 27
<PAGE> 24
INCOME TAXES
The combined Federal and state effective income tax rate was 40.3% for the first
half of 1998 and 37.4% for the first half of 1997. The higher effective rate in
the first quarter of 1998 was due to decreases in the utilization of capital
loss carryforwards and tax exempt income of the reinsurance subsidiary. In
addition, the statutory federal income tax rate applicable to the Company
increased to 35% from 34%. In 1998, consolidated taxable income is expected to
exceed the threshold where the 35% taxable rate is applicable.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased $1.2 million to $3.9
million in the first half of 1998 from $2.6 million in the first half of 1998,
reflecting principally the increase in earnings of WHC.
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased $494,000, or
53.1%, to $1.4 million in the first half of 1998 from $930,000 in the first half
of 1997, primarily due to improved operations in Greece, Argentina and Chile.
NET INCOME
Net income increased $1.8 million, or 40.7%, to $6.3 million in the first half
of 1998 compared to $4.5 million in the first half of 1997. Earnings per share
on a diluted basis was $0.41 in the first half of 1998 compared to $0.30 in the
first half of 1997.
Page 24 of 27
<PAGE> 25
THE WACKENHUT CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. 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 from any such claims or litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on April 24, 1998 in
Palm Beach, Florida. All directors nominated for election were elected in an
uncontested election. A tabulation of the results is as follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
- ---- --------- --------------
<S> <C> <C>
Julius W. Becton, Jr. 3,479,259 158,631
Alan B. Bernstein 3,627,040 10,850
Carroll A. Campbell, Jr. 3,622,326 15,564
Benjamin R. Civiletti 3,622,326 15,564
Anne Newman Foreman 3,627,111 10,779
Edward L. Hennessy, Jr. 3,625,779 12,111
Paul X. Kelley 3,626,436 11,454
Nancy Clark Reynolds 3,626,365 11,525
John F. Ruffle 3,622,826 15,064
George R. Wackenhut 3,626,535 11,355
Richard R. Wackenhut 3,626,216 11,674
</TABLE>
Tabulation of the results of other matters voted upon at the Annual Meeting is
as follows:
Proposal No. 2
Appointment of Independent Certified Public Accountants -
For..3,629,004 Against...3,537 Abstain....5,349
Page 25 of 27
<PAGE> 26
ITEM 5. OTHER INFORMATION
Wackenhut Corrections Corporation, a majority owned subsidiary of the Company
has filed Amendment No. 4 to Registration Statement on Form S-3 under the
Securities Act of 1993 on April 22, 1998 in connection with the public offering
of Correctional Properties Trust, a Maryland real estate investment trust,
formed to acquire correctional and detention facilities from both private prison
operators and governmental entities.
Correctional Properties Trust has also filed Amendment No. 4 to Registration
Statement on Form S-11 under the Securities Act of 1993 on April 22, 1998. The
Registration Statements on Form S-3 and S-11 and subsequent amendments are
hereby incorporated by reference into this Quarterly Report on Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits -
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b). Reports on Form 8-K
The Company did not file a Form 8-K during the second quarter of 1998.
Page 26 of 27
<PAGE> 27
THE WACKENHUT CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Quarterly Report on Form 10-Q for the twenty-six
weeks ended June 28, 1998 to be signed on its behalf by the undersigned hereunto
duly authorized.
THE WACKENHUT CORPORATION
DATE: August 7, 1998 /s/ Philip L. Maslowe
---------------------------
Philip L. Maslowe,
Senior Vice President and
Chief Financial Officer
Page 27 of 27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME OF THE WACKENHUT
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED JUNE 28, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1998
<PERIOD-END> JUN-28-1998
<EXCHANGE-RATE> 1
<CASH> 62,368
<SECURITIES> 23,575<F1>
<RECEIVABLES> 169,404
<ALLOWANCES> 3,625
<INVENTORY> 12,336
<CURRENT-ASSETS> 272,253<F2>
<PP&E> 51,769
<DEPRECIATION> 17,897
<TOTAL-ASSETS> 431,269
<CURRENT-LIABILITIES> 144,993
<BONDS> 4,326
0
0
<COMMON> 1,502
<OTHER-SE> 150,805
<TOTAL-LIABILITY-AND-EQUITY> 431,269<F3>
<SALES> 0
<TOTAL-REVENUES> 815,282
<CGS> 0
<TOTAL-COSTS> 801,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 901
<INTEREST-EXPENSE> 1,367
<INCOME-PRETAX> 14,615
<INCOME-TAX> 5,885
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,301<F4>
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
<FN>
<F1>MARKETABLE SECURITIES ARE CLASSIFIED AS NON-CURRENT ASSETS ON THE BALANCE
SHEET.
<F2>INCLUDES $27,756 OF OTHER CURRENT ASSETS.
<F3>INCLUDES $46,614 RESERVES FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY,
$52,311 MINORITY INTEREST, $15,631 DEFERRED REVENUES AND $15,087 OTHER
LIABILITIES.
<F4>INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES - NET OF
INCOME TAXES OF $3,863 AND $(1,424) RESPECTIVELY.
</FN>
</TABLE>
