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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 JANUARY 3, 1999
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 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
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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 19, 1999, the aggregate value of 1,922,111 shares of Series
A Common Stock and 8,915,595 shares of Series B Common Stock held by
non-affiliates of the Registrant was $196,594,245.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant's Annual Report to Shareholders for the fiscal year
ended January 3, 1999 are incorporated by reference into Parts II and IV of this
Report.
Parts of the registrant's Proxy Statement for its 1999 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 outsourcer of
diversified services to business and government. The Company focuses
strategically on three major businesses worldwide - security related and other
operational support services, developer and manager of privatized correctional
and detention facilities and personnel employee leasing and temporary services.
The Security Services business is organized into two major business segments:
North American Operations and International Operations. The security-related
services businesses have expanded into a range of other support services to
include base operations, facility management, fire and emergency medical
services and food service to private and publicly managed correctional
facilities. The International Operations provides a greater variety of services
than the North American Operations offers domestically. These services include,
among other things, central station monitoring, cash-in-transit, satellite
tracking of vehicles and cargo, and building maintenance. The Company, through
its approximately 55% owned public subsidiary, Wackenhut Corrections Corporation
(NYSE: WHC) designs, constructs, finances and manages correctional, detention
and mental health psychiatric facilities and performs separate
correctional-related services, including prisoner transportation, home detention
monitoring and correctional health care. During the past three years, the
Company has established a national presence in the flexible staffing industry
which includes, personnel employee leasing, temporary services, recruiting, risk
management, payroll processing and human resource services. The Company has
approximately 70,000 full and part-time employees, worldwide, serving over 9,000
commercial and governmental customers through an extensive network of offices
and operations in 48 states and approximately 52 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 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 one of the largest security services organization in the
United States and is the leading United States-based provider of security
services abroad. In addition to its physical security and uniformed officer
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, financial institutions and gated communities. CPO
security professionals also are used as supplemental law enforcement forces by
public transportation authorities and other governmental entities. Custom
Protection Officer(R) is a Registered Service Mark of The Wackenhut Corporation.
Another market initiative is the Company's National Accounts program, developed
to provide focused and consistent service quality across its larger client's
national and regional organizations. These clients asked for, and received, a
dedicated executive within the Company to integrate and coordinate client
security programs. These quality-centered programs partner the Company and its
clients in performance excellence across the client's organization. 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*.
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* Refer to Forward Looking Statements included in Exhibit 13.0 - page 21 to
this Form 10-K.
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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 commercial and governmental support services,
supplemental police services, crash-fire-rescue services, fire protection
services, and airport services.
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 approximately 55% owned
Wackenhut Corrections Corporation subsidiary ("WHC"). As of December 1998, WHC
had contracts to manage 52 correctional and detention facilities, with a rated
capacity of 35,643 beds. As of December 1998, 39 of these facilities with a
rated capacity of 26,067 beds were in operation. It also had contracts for
mental health services, prisoner transportation, correctional health care
services, and electronic monitoring. From December 29, 1991 to January 3, 1999,
WHC's revenues increased from $37.9 million to $312.8 million and operating
income increased from $1.7 million to $22.5 million, representing compound
annual growth rates of 42.7% and 53.8%, respectively. As of February 19, 1999,
WHC's total equity market capitalization was approximately $442.0 million.
Building upon four decades of expertise in outsourcing services to
businesses and government, in the third quarter of 1996, the Company entered
into the professional employer organization ("PEO") employee leasing business by
establishing Oasis Outsourcing, Inc., a majority owned subsidiary. During 1997,
the Company continued to expand its market presence in these areas and,
consistent with that strategy, Wackenhut Resources, Inc. (WRI), a subsidiary of
the Company, acquired the King Companies, in May 1997, and Professional Employee
Management, Inc. (PEM Companies) in December 1997. Both companies are
professional employer organizations, and in addition, the King Companies is in
the temporary employment and recruiting service business. These two companies
were combined with Oasis Outsourcing, Inc., under Wackenhut Resources, Inc., to
form Flexible Staffing Services (Staffing Services). In November 1998, Flexible
Staffing Services acquired Sharp Services Inc. and Advantage Temporary Services
companies. By the end of 1998, Flexible Staffing Services, had 16 PEO and 14
staffing offices and personnel in over 30 states.
BUSINESS STRATEGY
The Company focuses strategically on three major businesses worldwide -
security related and other operational support services, developer and manager
of privatized correctional and detention facilities and personnel employee
leasing and temporary services. Key elements of the Company's business strategy
are described below:
SECURITY SERVICES
o ENHANCE LEADERSHIP POSITION OF SECURITY-RELATED SERVICES. 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.
o DEVELOP SPECIALIZED SECURITY SERVICES. The Company has identified and
targeted the National Account and CPO programs as its primary growth
avenues in the security services business as it 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*.
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* Refer to Forward Looking Statements included in Exhibit 13.0 - page 21 to
this Form 10-K.
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o 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 services and the
staffing services has provided it with the experience it believes will
allow it to develop other specialized programs and support services*.
o GEOGRAPHIC EXPANSION. The Company seeks to increase revenues and enhance
earnings stability by continuing to expand its international presence in
countries where its clients are expanding and building on its established
expertise of local operations in existing and emerging markets. Historical
revenue growth has been centered in Central and South America and, more
recently, the Company has established its presence in European and Asian
markets. Management believes that the Company's presence in approximately
52 countries worldwide provides it with an advantage when pursuing
contracts with multi-national corporations.
CORRECTIONAL SERVICES
WHC's objective is to enhance its position as one of the leading
providers of privatized correctional and detention services. Key elements
of WHC's business strategy include: (i) effective management of projects;
(ii) selective development of new business opportunities such as mental
health services provided through its subsidiary Atlantic Shores Healthcare,
Inc.; (iii) selective 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.
STAFFING SERVICES
Wackenhut Resources has methodically expanded to become one of the
largest outsourcing companies in the U.S. Its growth is resulting from the
increasing trend of small and medium size businesses to lease employees or
use temporary workers from PEOs in order to cut costs and provide more and
better employee benefits. Wackenhut Resources' strategy for growth is to
seek a balance between employee leasing and temporary staffing. It is felt
that this broader blend of human resources services will better meet the
needs of our clients as outsourcing trends continue. In addition to
internal growth the Company seeks to increase its presence in staffing
services through selective acquisitions* such as the acquisitions of the
King Companies, in May 1997, Professional Employee Management, Inc. (PEM
Companies), in December 1997, and Sharp Services, Inc. and Advantage
Temporary Services Companies in November 1998. (need disclosure)
o PURSUE SELECTED ACQUISITIONS. In addition to internal growth, the Company's
growth strategy includes selected acquisitions*.
MARKETS
SECURITY SERVICES. The private security-related services industry includes
guard 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 service component, which also accounts
for the largest portion of the Company's revenues.
Guard service is 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. In contrast, contract services are provided to end
users pursuant to contracts with
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* Refer to Forward Looking Statements included in Exhibit 13.0 - page 21 to
this Form 10-K.
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independent security-related service firms such as Wackenhut. Management
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.
CORRECTIONAL SERVICES. WHC views governmental agencies responsible for
state correctional facilities in the United States and governmental agencies
responsible for correctional facilities outside of the United States as its
primary potential customers. WHC's secondary customers include the INS, other
federal and local agencies in the United States and other foreign governmental
agencies.
FLEXIBLE STAFFING SERVICES. Flexible Staffing Services provides temporary
staffing, permanent placement, and Professional Employer Organization (PEO)
services. The PEO provides integrated human resource administration, such as
personnel employee leasing, risk management, payroll processing and human
resource services. Client companies outsource a large part of the human resource
function to the PEO. While the PEO becomes the employer of record for payroll
and tax purposes, the client maintains control of the activities of the worksite
employees. Due to the increasing complexity of the regulatory environment,
employment costs per employee are rising dramatically, and constitute one of the
market determinants. Outsourcing is expected to have a very compelling appeal to
companies in the process of downsizing and reengineering*.
COMPANY ORGANIZATION
The Company's business can be divided into the Security Services ,
Correctional Services and Flexible Staffing Services. Securities Services
encompasses all commercial and governmental business of the North American
Operations (including Wackenhut of Canada Limited) and the International
Operations. Security Services provides security-related and other support
services. Correctional Services, which consists exclusively of the business
conducted through WHC, provides correctional, detention, and mental health
psychiatric facility design, development and management services to government
agencies. Flexible Staffing Services provides personnel employee leasing,
temporary services, recruiting, risk management, payroll processing and human
resource services. The following table sets forth the contribution to
consolidated revenues and operating income by each of the Company's business
segments for 1998 (53 weeks), 1997 and 1996 in millions of dollars. See Note 18
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.
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* Refer to Forward Looking Statements included in Exhibit 13.0 - page 21 to
this Form 10-K.
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1998 1997 1996
---- ---- ----
REVENUES
SECURITY SERVICES
North American Operations $ 810.0 $ 711.8 $ 664.5
International Operations 137.2 117.2 103.5
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947.2 829.0 768.0
CORRECTIONAL SERVICES 312.8 206.9 137.8
STAFFING SERVICES 495.1 90.9 0.2
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CONSOLIDATED REVENUES $1,755.1 $1,126.8 $ 906.0
======== ======== ========
OPERATING INCOME
SECURITY SERVICES
North American Operations $ 22.2 $ 20.1 $ 20.0
International Operations 2.0 0.2 (1.3)
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24.2 20.3 18.7
CORRECTIONAL SERVICES 22.5 16.5 9.7
STAFFING SERVICES 2.7 (0.3) (0.4)
UNALLOCATED CORPORATE EXPENSE (17.0) (14.9) (10.9)
ONE-TIME CHARGE AND IMPAIRMENT
OF ASSETS -- (18.3) (0.8)
-------- -------- --------
CONSOLIDATED OPERATING INCOME $ 32.4 $ 3.3 $ 16.3
-------- -------- --------
SECURITY SERVICES
Security Services is conducted through two separate operations: the North
American Operations and the International Operations.
NORTH AMERICAN OPERATIONS. The North American Operations (NAO) has historically
provided the majority of the Company's consolidated revenues. NAO provides
security-related and other support services throughout the United States and
Canada. The North American Operations is subdivided between commercial and
government and regulated industry accounts. In conducting its Security Services,
the Company has adopted a quality management approach to its services. General
management responsibilities for each operation is vested in managers of
geographic regions supported by a small group of managers located at Company
headquarters. Day-to-day management responsibility for each group is vested in
regional and site 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
region headquarters and sites and carefully monitor operating results.
COMMERCIAL ACCOUNTS. The Company furnishes security officers (armed and
unarmed) to protect its clients' property, in the United States and Canada,
against fire, theft, intrusion, vandalism and other physical harm. Specialized
security services offered by the Company include 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 background investigative services. The Company
will 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.
The Company intends to emphasize attracting and retaining National Accounts
that benefit from security-related services on a national or regional level at
multiple locations. Such clients include retail chains, banks,
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specialized manufacturers and high tech companies. 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, and 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.
CPO security personnel perform such functions as prisoner transportation in
Maryland and Colorado, neighborhood and downtown security in Florida, transit
security in Wisconsin and California, and other supplemental law
enforcement-related services. Management believes that services provided by CPO
security personnel 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.
Contracts with private industry generally are for a minimum of a one-year
term. Most of these contracts are subject to termination by either party on 30
days prior notice. For most small accounts billing rates are typically based on
a specified rate per hour and generally are subject to renegotiations or
escalation if related costs increase because of changes in minimum wage laws or
certain other events beyond the control of the Company. For many larger
accounts, cost plus performance and management fee contracts are increasingly
being negotiated.
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.
GOVERNMENT AND REGULATED INDUSTRY ACCOUNTS. The Company provides
specialized security-related and support services for United States federal
government entities, nuclear power generating facilities and prison and jail
commissaries. Wackenhut Services, Inc. ("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. 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 Nonproliferation and National
Security Institute in Albuquerque, New Mexico. 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.
The Company provides Nuclear Utility customers with 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.
The Company's correctional foodservice business, one of the largest in the
industry, provides over 74 million meals annually to over 100 jail and prison
facilities in 22 states throughout the United States. Food for regular,
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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.
INTERNATIONAL OPERATIONS. International Operations accounts for
approximately 8% of the Company's consolidated revenues. International Operation
services is conducted primarily through Wackenhut International, Inc., ("WII")
and its subsidiaries and affiliates.
Since its organization in 1967, WII has grown to include a network of
subsidiaries, partnerships and affiliates in over 50 countries. Management
believes the Company's international presence, through the operations of WII, is
larger than any of its United States-based competitors. Management believes that
its risk exposure in international operations conducted through WII is reduced
substantially by the fact that the 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, cash-in-transit,
satellite tracking of vehicles and cargo, and building maintenance. 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 where its
clients are expanding. With operations in every Latin American country, WII is
concentrating on establishing its presence in Europe and Asia. 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 17 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, Securitas, Securicor, and Chubb and local and regional
companies.
CORRECTIONAL SERVICES
Correctional Services is conducted through the operations of Wackenhut
Corrections, Inc. ("WHC"). WHC is a leading developer and manager of privatized
correctional and detention facilities in the United States, the United Kingdom,
Australia and South Africa. WHC was founded in 1984 as a division of the Company
to capitalize on emerging opportunities in the private correctional services
market. As of December 1998, WHC had contracts to manage 52 correctional and
detention facilities with an aggregate rated capacity of 35,643 beds, 39
contracts representing 26,067 beds were in operation and 13 were under
development by WHC. WHC offers governmental agencies a comprehensive range of
correctional and detention facility 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, WHC 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.
Management believes that WHC'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 WHC when awarding new
contracts or renewing existing contracts.
WHC's facility management contracts typically have original terms ranging
from one to ten years and give the governmental agency at least one renewal
option.
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STAFFING SERVICES
Building upon four decades of expertise in outsourcing services to
businesses and government the Company entered into the professional employer
organization ("PEO") employee leasing business by establishing Oasis
Outsourcing, Inc., a majority owned subsidiary, in the third quarter 1996.
During 1997, the Company continued to expand its market presence and, consistent
with that strategy Wackenhut Resources, Inc. (WRI), a subsidiary of the Company,
acquired the King Companies, in May 1997, and Professional Employee Management,
Inc. (PEM Companies) in December 1997. Both companies are professional employer
organizations, and in addition, the King Companies is in the temporary
employment and recruiting service business. These two companies were combined
with Oasis Outsourcing, Inc., under Wackenhut Resources, Inc., to form Flexible
Staffing Services (Staffing Services). In November 1998 Flexible Staffing
Services acquired Sharp Services Inc. and Advantage Temporary Services
companies. By the end of 1998 Wackenhut Resources had methodically expanded to
become one of the largest outsourcing companies in the U.S. with over 750
employee leasing clients in over 30 states.
CUSTOMERS
During 1998, the Security Services provided services to more than 8,600
customers worldwide. The Company's largest customer was the United States
Department of Energy, which accounted for approximately 7% and 11% of the
Company's consolidated revenue in Fiscal 1998 and Fiscal 1997, respectively.
Correctional Services contracts with governmental agencies of the State of Texas
accounted for 25% and 32% of WHC's revenues in Fiscal 1998 and Fiscal 1997,
respectively and Contracts with the California Department of Corrections
accounted for 17% and 10% of WHC's revenues in Fiscal 1998 and Fiscal 1997,
respectively. The Staffing Services Business provides services to approximately
750 employee leasing clients.
COMPETITION
The Company is one of the 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 Security Services account for
less than 15% 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.
WHC 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. WHC competes with a
number of companies domestically and internationally, such as Prison Realty,
Correctional Services Corporation, Group 4 International Corrections Service,
Securicor Group, U.K. Detention Services, Ltd., Cornell Corrections Corporation,
and United States Corrections Corp. Some of the competitors are larger and have
greater resources than WHC. WHC 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 some markets WHC may compete
with governmental agencies that are responsible for correctional facilities.
Although the overwhelming majority of PEOs are small, regionally based
firms (the total number has been estimated at approximately 2,500), the Company
competes with other major companies such as Staff Leasing, NovaCare, Employee
Solutions, Administaff and The Vincam Group.
EMPLOYEES
Security Services principal business is labor intensive, and is affected
substantially by the availability of qualified personnel and the cost of labor.
As of December 1998, Security Services had over 61,000 full and part-time
employees worldwide, most of whom are security officers and other personnel
providing physical security
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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 Security Service business are covered by collective
bargaining agreements. Relations with employees have been generally
satisfactory.
As of December 1998, Correctional Services had approximately 8,000
full-time employees. Correctional Services employs management, administrative
and clerical, security, educational services, health services and general
maintenance personnel. Employees at seven of WHC's Australian facilities are
unionized.
Staffing Services had approximately 265 administrative employees. In
addition, Flexible Staffing Services had over 24,000 worksite employees as of
December 1998.
BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS
Security Services 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. 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.
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 industry in which the Correctional Services operates is subject to
national, federal, state and local regulations in the United States, Europe,
South Africa 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. WHC's contracts frequently include extensive reporting requirements
and require supervision and on-site monitoring by representatives of contracting
governmental agencies. WHC'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 WHC personnel to be licensed and
may make them subject to background investigation. State law also typically
requires corrections officers to meet certain training standards.
Flexible Staffing Services is subject to federal and state laws regarding
the employer-employee relationship, including numerous federal and state laws
relating to labor, tax and discrimination matters. While many states do not
explicitly regulate PEO activities, a number of states have passed laws that
have licensing or registration requirements for PEO companies and other states
are considering such regulation. Such laws vary from state to state but
generally provide for monitoring the fiscal responsibility of PEO companies.
Management believes it conducts its business in compliance with the licensing
and registration requirements of the states in which it operates and monitors
such compliance annually.
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.
10
<PAGE> 11
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 companies executive offices are in The Wackenhut Center, located at
4200 Wackenhut Drive #100, Palm Beach Gardens, Florida. The Wackenhut Center
contains approximately 91,800 square feet and is leased from Lepercq Corporate
Income Fund, L.P., for an initial term of 15 years, commencing in March 1996,
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
$1,758,102 with no escalation during the initial 15-year term.
In December 1997, WHC entered into a $220 million operating lease facility
that was established to acquire and develop new correctional institutions used
in its business. As a condition of this facility, WHC unconditionally agreed to
guarantee certain obligations of First Security Bank, N.A., a party to the
aforementioned operating lease facility. As of January 3. 1999, approximately
$100.9 million of this operating lease facility was utilized for properties
under development.
On April 28, 1998, Correctional Properties Trust ("CPV"), a Maryland real
estate investment trust, sold 6.2 million shares of common stock at $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. These facilities were then leased back to WHC. WHC
received approximately $42 million for the three facilities owned by it and for
its right to acquire four of the other five facilities realizing a profit of $18
million, which will be amortized over the ten-year lease term. The eighth
facility was purchased directly from a government entity. CPV was also granted
the option to acquire three additional correctional facilities then under
development by WHC and the fifteen-year right to acquire and lease back future
correctional and detention facilities developed or acquired by WHC. On October
30, 1998, CPV acquired the completed portion of one of the option facilities for
$26 million.
In 1997, WHC purchased and renovated an 86-bed psychiatric hospital in Ft.
Lauderdale, Florida.
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 fiscal 1998 rent expense for all non-cancelable operating
leases of office space, automobiles, data processing and other equipment was $16
million. 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, there are no pending legal
proceedings that would have a material effect on the consolidated financial
statements of the Company.
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 WHC. 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 WHC. He is a member of the Sewall's Point Police 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.
12
<PAGE> 13
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 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 Corporation (Miami) from 1976 to 1981. He received
his B.S.E.E. degree from the University of Rochester, and a M.B.A. degree from
Cornell University.
FERNANDO CARRIZOSA is Senior Vice President and President, Wackenhut
International, Inc. and has been since January 28, 1989. Mr. Carrizosa was Vice
President of International Operations 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 a M.B.A. with
honors from Florida International University in 1976. He also completed the
Advanced Management Program at the Wharton School of Business in 1989.
ROBERT C. KNEIP is Senior Vice President, Corporate Planning and
Development of the Company, and Chief Executive Officer of Wackenhut Resources,
Inc. Since he joined the Company in 1982, Dr. 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. Dr. Kneip started Flexible Staffing Services by
establishing OASIS Outsourcing, Inc., a majority owned subsidiary of the Company
in 1996 and continues to be a major factor in the Company's development of the
Staffing Services Business. Prior to joining the Company, Dr. 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.
PHILIP L. MASLOWE is Senior Vice President and Chief Financial Officer of
the Company. He joined the Company in August 1997. Prior to joining the Company,
Mr. Maslowe was employed by KinderCare Learning Centers, Inc., as Executive Vice
President and Chief Financial Officer since 1993. Before joining KinderCare, he
was Executive Vice President and Chief Financial Officer of Thrifty Corporation.
From 1980 to 1991, Mr. Maslowe was with The Vons Companies, Inc., where he
served as Group Vice President, Finance. Mr. Maslowe is a graduate of Loyola
University of Chicago and holds a M.B.A. from the J.L. Kellogg Graduate School
of Management at Northwestern University.
SANDRA L. NUSBAUM is Senior Vice President, Human Resources of the Company.
Since she joined the Company in 1981 Ms. Nusbaum has held various positions in
the Company including Personnel Representative, Director of Compensation and
Benefits, and Vice President, Human Resources. Prior to joining the Company, Ms.
Nusbaum was employed by DAK Industries. Ms. Nusbaum received a BBA degree in
Personnel Management and Marketing from Florida International University.
JAMES P. ROWAN is Senior Vice President 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.
13
<PAGE> 14
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.
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.
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
21 of the Registrant's 1998 Annual Report to Shareholders, Exhibit 13.0.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to pages
22 through 23 of the Registrant's 1998 Annual Report to Shareholders, Exhibit
13.0.
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
24 through 29 of the Registrant's 1998 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
30 through 41 of the Registrant's 1998 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
1999 Annual Meeting of Shareholders, which has been filed with the Securities
and Exchange Commission pursuant to Regulation 14A.
14
<PAGE> 15
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 January 3, 1999 are incorporated by reference in Part
II, Item 8:
Consolidated Balance Sheets - January 3, 1999 and December 28, 1997
Consolidated Statements of Income - Fiscal years ended January 3,
1999, December 28, 1997 and December 29, 1996
Consolidated Statements of Cash Flows - Fiscal years ended January 3,
1999, December 28, 1997 and December 29, 1996
Consolidated Statements of Shareholders' Equity Notes to Consolidated
Financial Statements - Fiscal years ended January 3, 1999, December
28, 1997 and December 29, 1996
With the exception of the information incorporated by reference
from the 1998 Annual Report to Shareholders in Part II, Items 5,6,7,8,
and Parts IV of the Form 10-K, the Registrant's 1998 Annual Report to
Shareholders is not to be deemed filed as part of this Report.
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts - Page 23
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:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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)
15
<PAGE> 16
4.1 Revolving Credit and Reimbursement Agreement dated December 30, 1997
by and among The Wackenhut Corporation, Nations Bank, N.A.,
ScotiaBanc, and SunTrust Bank, as Lenders, and NationsBank, N.A., as
Agent (incorporated by reference to the Registrant's Form 10-K Annual
Report for the fiscal year ended December 28, 1997)
4.2 Receivables Purchase Agreement dated as of December 30, 1997 among
Wackenhut Funding Corporation, as Transferor, The Wackenhut
Corporation, as Servicer, Enterprise Funding Corporation, as a
Purchaser, and Nations Bank, N.A., as Agent (incorporated by
reference to the Registrant's Form 10-K Annual Report for the fiscal
year ended December 28, 1997)
4.3 Amended and Restated Credit Agreement, dated December 18, 1997, by
and among Wackenhut Corrections Corporation, Nations Bank, National
Association, Scotia Banc Inc. and the Lenders Party thereto from time
to time (incorporated by reference to Wackenhut Corrections
Corporation's Form 10-K Annual Report for the fiscal year ended
December 28, 1997)
4.4 Amended and Restated Participation Agreement, dated June 19, 1997
among Wackenhut Corrections Corporation, First Security Bank,
National Association, the Various Bank and other Lending Institutions
which are partners thereto from time to time, Scotia Banc Inc., and
Nations Bank, National Association (incorporated by reference to
Wackenhut Corrections Corporation's Form 10-K Annual Report for the
fiscal year ended December 28, 1997)
4.5 Amended and Restated Lease Agreement, dated as of June 19, 1997,
between First Security Bank, National Association and Wackenhut
Corrections Corporation (incorporated by reference to Wackenhut
Corrections Corporation's Form 10-K Annual Report for the fiscal year
ended December 28, 1997)
4.6 Guaranty and Suretyship Agreement, dated December 18, 1997, among the
Guarantors parties thereto and Nations Bank, National Association
(incorporated by reference to Wackenhut Corrections Corporation's
Form 10-K Annual Report for the fiscal year ended December 28, 1997)
4.7 Third Amended and Restated Trust Agreement, dated as of June 19,
1997, among Nations Bank, National Association and other financial
institutions parties thereto and First Security Bank, National
Association. (incorporated by reference to Wackenhut Corrections
Corporation's Form 10-K Annual Report for the fiscal year ended
December 28, 1997)
4.8 LC account agreement, dated as of December 30, 1997, and made between
The Wackenhut Corporation, a Florida Corporation and Nations Bank,
National Association, a national banking association, as a Lender
(incorporated by reference to the Registrant's Form 10-K Annual
Report for the fiscal year ended December 28, 1997)
4.9 Amended and Restated Guaranty and Suretyship agreement, dated as of
December 30, 1997 (incorporated by reference to the Registrant's Form
10-K Annual Report for the fiscal year ended December 28, 1997)
4.10 Amendment Agreement No. 1 to Amended and Restated Credit Agreement,
dated March 12, 1998, by and among Wackenhut Corporation (herein
called the "Borrower"), NationsBank National Association (the
"Agent"), as Agent for the lenders (the "Lenders") party to the
Amended and Restated Revolving Credit and Reimbursement Agreement
dated December 30, 1997, among such Lenders, Borrower and the Agent
(the "Agreement") and the Lenders whose name are subscribed hereto.
4.11 Amendment Agreement No. 2 to Amended and Restated Credit Agreement,
dated August 7, 1998, by and among Wackenhut Corporation (herein
called the "Borrower"), NationsBank National Association (the
"Agent"), as Agent for the lenders (the "Lenders") party to the
Amended and Restated Revolving Credit and Reimbursement Agreement
dated December 30, 1997, as amended by Amendment Agreement No. 1
dated as of March 12, 1998, among such Lenders, Borrower and the
Agent (the "Agreement") and the Lenders whose name are subscribed
hereto.
16
<PAGE> 17
4.12 Amendment Agreement No. 3 to Amended and Restated Credit Agreement,
dated February 10, 1999, by and among Wackenhut Corporation (herein
called the "Borrower"), NationsBank National Association (the
"Agent"), as Agent for the lenders (the "Lenders") party to the
Amended and Restated Revolving Credit and Reimbursement Agreement
dated December 30, 1997, as amended by Amendment Agreement No. 1
dated as of March 12, 1998, and as further amended by Amendment
Agreement No. 2 dated August 7, 1998, among such Lenders, Borrower
and the Agent (the "Agreement") and the Lenders whose name are
subscribed hereto.
4.13 Amendment Agreement No. 4 to Amended and Restated Credit Agreement,
dated February 25, 1999, by and among Wackenhut Corporation (herein
called the "Borrower"), NationsBank National Association (the
"Agent"), as Agent for the lenders (the "Lenders") party to the
Amended and Restated Revolving Credit and Reimbursement Agreement
dated December 30, 1997, as amended by Amendment Agreement No. 1
dated as of March 12, 1998, Amendment Agreement No. 2 dated August 7,
1998, and Amendment Agreement No. 3 dated as of February 10, 1999,
among such Lenders, Borrower and the Agent (the "Agreement") and the
Lenders whose name are subscribed hereto.
4.14 First Amendment to transfer and administration agreement (this
"Amendment"), dated as of March 12, 1999 is among Wackenhut Funding
Corporation, a Delaware corporation (the "Transferor"), The Wackenhut
corporation, a Florida corporation, individually and as Servicer
("Wackenhut" or the "Servicer"), ENTERPRISE FUNDING CORPORATION, a
Delaware corporation ("Enterprise" or the "Purchaser") and as its
successors assigns, and NATIONSBANK, N.A., a national banking
assocation ("NationsBank"), as Agent for Enterprise and the Bank
Investors (in such capacity, the "Agent") and as a Bank Investor (in
such capacity, the "Agent") and as a Bank Investor.
4.15 Second Amendment to transfer and administration agreement (this
"Amendment"), dated as of December 23, 1998 is among Wackenhut
Funding Corporation, a Delaware corporation (the "Transferor"), The
Wackenhut corporation, a Florida corporation, individually and as
Servicer ("Wackenhut" or the "Servicer"), ENTERPRISE FUNDING
CORPORATION, a Delaware corporation ("Enterprise" or the "Purchaser")
and its successors assigns, and NATIONSBANK, N.A., a national banking
assocation ("NationsBank"), as Agent for Enterprise and the Bank
Investors (in such capacity, the "Agent") and as a Bank Investor (in
such capacity, the "Agent").
4.16 Third Amendment to transfer and administration agreement (this
"AMENDMENT"), dated as of January 29, 1999, among Wackenhut Funding
Corporation, a Delaware corporation (the "TRANSFEROR") and its
successors and assigns, THE WACKENHUT CORPORATION, a Florida
corporation, individually and as servicer ("WACKENHUT" or the
"SERVICER"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation
("ENTERPRISE" or the "PURCHASER") and its successors assigns, and
NATIONSBANK, N.A., a national banking association ("NATIONSBANK"), as
agent for Enterprise and the Bank Investors (in such capacity, the
"AGENT") and as a Bank Investor, amending that certain Transfer and
Administration Agreement dated as of December 30, 1997 among the
Transferor, the Servicer, the Purchaser, the Agent and NationsBank
(collectively, the "PARTIES"), as amended to the date hereof by the
First Amendment to Transfer and Administration Agreement dated as of
March 24, 1998, among the Parties and the Second Amendment to
Transfer and Administration Agreement dated December 23, 1998, among
the Parties (collectively, the "ORIGINAL AGREEMENT," and said
agreement as amended by this Amendment, the "AGREEMENT").
10.1 Form of Deferred Compensation Agreement for Executive Officers (the
"Senior Plan"): Alan B. Bernstein, Fernando Carrizosa, Robert C.
Kneip, and Richard R. Wackenhut (incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended
December 28, 1997)
10.2 Amendments to the Deferred Compensation Agreements for Executive
Officers (the "Senior Plan"): Alan B. Bernstein, Fernando Carrizosa,
Robert C. Kneip, and Richard R. Wackenhut (incorporated by reference
to the Registrant's Form 10-K Annual Report for the fiscal year ended
December 28, 1997)
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)
17
<PAGE> 18
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 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)
10.8 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 (incorporated by reference
to the Registrant's Form 10-K Annual Report for the fiscal year ended
December 29, 1996)
10.9 Amended Non-employee Director Stock Option Plan dated October 29,
1996 (incorporated by reference to the Registrant's Form 10-K Annual
Report for the fiscal year ended December 29, 1996)
10.10 Third Amendment dated December 10, 1997 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 28, 1997)
10.11 Summary description of the amendment to the Key Employee Long-Term
Incentive Stock Plan effective as of January 28, 1997 (incorporated
by reference to the Registrant's Form 10-K Annual Report for the
fiscal year ended December 28, 1997)
10.12 Senior Officer Retirement Agreement for James P. Rowan
10.13 Senior Officer Retirement Agreement for Sandra L. Nusbaum
13.0 Annual Report to Shareholders for the year ended January 3, 1999,
beginning with page 21 (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)
(b). Reports on Form 8-K.
None
18
<PAGE> 19
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/ Philip L. Maslowe Date: March 31, 1999
--------------------------
Philip L. Maslowe
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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 3, 1999
----------------------------------- Officer (principal executive officer)
George R. Wackenhut
/s/ Philip L. Maslowe Senior Vice President and Chief Financial Officer March 31, 1999
-----------------------------------
Philip L. Maslowe
/s/ Juan D. Miyar Vice President and Corporate Controller March 31, 1999
----------------------------------- (principal accounting officer)
Juan D. Miyar
/s/ Alan B. Bernstein* Director March 2, 1999
-----------------------------------
Alan B. Bernstein
/s/ Julius W. Becton, Jr.* Director March 6, 1999
-----------------------------------
Julius W. Becton, Jr.
/s/ Carroll A. Campbell* Director March 11, 1999
-----------------------------------
Carroll A. Campbell
/s/ Benjamin R. Civiletti* Director March 10, 1999
-----------------------------------
Benjamin R. Civiletti
/s/ Anne N. Foreman* Director March 10, 1999
-----------------------------------
Anne N. Foreman
/s/ Edward L. Hennessy, Jr.* Director March 10, 1999
-----------------------------------
Edward L. Hennessy, Jr.
/s/ Paul X. Kelley* Director March 6, 1999
-----------------------------------
Paul X. Kelley
/s/ Nancy Clark Reynolds* Director March 8, 1999
-----------------------------------
Nancy Clark Reynolds
/s/ John F. Ruffle* Director March 6, 1999
-----------------------------------
John F. Ruffle
/s/ Thomas P. Stafford* Director March 7, 1999
-----------------------------------
Thomas P. Stafford
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ George R. Wackenhut* Director March 3, 1999
-----------------------------------
George R. Wackenhut
/s/ Richard R. Wackenhut* Director March 1, 1999
-----------------------------------
Richard R. Wackenhut
* By: /s/ James P. Rowan Senior Vice President, General Counsel and March 31, 1999
----------------------------------- Assistant Secretary
James P. Rowan
Attorney-in-fact
</TABLE>
20
<PAGE> 21
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 1998
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 19, 1999. 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 January 3, 1999 is the responsibility of the
Company's management and 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 19, 1999.
21
<PAGE> 22
SCHEDULE II
THE WACKENHUT CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED JANUARY 3, 1999, DECEMBER 28, 1997
AND DECEMBER 29, 1996
(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 JANUARY 3, 1999:
Allowance for doubtful accounts.................. $ 2,713 3,079 515 (1,608) $ 4,699
YEAR ENDED DECEMBER 28, 1997:
Allowance for doubtful accounts.................. $ 1,997 905 38 (227) $ 2,713
YEAR ENDED DECEMBER 29, 1996:
Allowance for doubtful accounts.................. $ 1,268 1,362 -- (633) $ 1,997
</TABLE>
22
<PAGE> 1
EXHIBIT 4.10
AMENDMENT AGREEMENT NO. 1
TO AMENDED AND RESTATED
REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into as of this 12th day
of March, 1998, by and among THE WACKENHUT CORPORATION, a Florida corporation
(herein called the "Borrower"), NATIONSBANK NATIONAL ASSOCIATION (the "Agent"),
as Agent for the lenders (the "Lenders") party to the Amended and Restated
Revolving Credit and Reimbursement Agreement dated December 30, 1997 among such
Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose names
are subscribed hereto.
W I T N E S S E T H:
---------------------
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Agreement pursuant to which the Lenders have agreed to make revolving loans to
the Borrower in the aggregate principal amount of up to $40,000,000 as evidenced
by the Notes (as defined in the Agreement) and to issue Letters of Credit for
the benefit of the Borrower; and
WHEREAS, as a condition to the making of the loans pursuant to the
Agreement the Lenders have required that all wholly-owned Subsidiaries of the
Borrower guarantee payment of all Obligations of the Borrower arising under the
Agreement; and
WHEREAS, the Borrower has requested that the Agreement be amended and
the Agent and the Lenders, subject to the terms and conditions hereof, are
willing to make such amendment, as provided herein;
NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby agree
as follows:
1. DEFINITIONS. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereinafter
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. AMENDMENT. Subject to the conditions set forth herein, the Agreement
is hereby amended, effective December 31, 1997, as follows:
(a) The definition of "Consolidated Net Income Available for
Fixed Charge" in SECTION 1.01 is amended by (x) deleting the word "and"
immediately preceding clause (iii), (y) deleting the period at the end
of clause (iii) and adding in lieu thereof a comma and the word "and",
and (z) adding a new clause (iv) reading as follows:
"(iv) the tax adjusted non-recurring charges of up to
$11,250,000 taken by Borrower in the fiscal quarter ending
Dedcember 31, 1997"
<PAGE> 2
(b) Clause (i) of SECTION 7.06 is amended in its entirety so
that as amended it shall read as follows:
"(i) $129,000,000 at December 31, 1997 and"
3. SUBSIDIARY CONSENTS. Each Subsidiary of the Borrower that has
delivered a Guaranty to the Agent has joined in the execution of this Amendment
Agreement for the purpose of (i) agreeing to the amendment to the Agreement and
(ii) confirming its guarantee of payment of all the Obligations.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants that:
(a) The representations and warranties made by Borrower in
Article V of the Agreement are true on and as of the date hereof;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its Subsidiaries
since the date of the most recent financial reports of the Borrower
received by each Lender under Section 6.1 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 Borrower and its
Subsidiaries are not and 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 Borrower under the
Agreement, the Notes or any other Loan Document either immediately or
with the lapse of time or the giving of notice, or both.
5. CONDITIONS. This Amendment Agreement shall become effective upon the
Borrower delivering to the Agent four (4) counterparts of this Amendment
Agreement duly executed by the Borrower and consented to by each of the
Subsidiaries.
6. ENTIRE AGREEMENT. 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
2
<PAGE> 3
the parties hereto, specifying such change, modification, waiver or cancellation
of such terms or conditions, or of any proceeding or succeeding breach thereof.
7. FULL FORCE AND EFFECT OF AGREEMENT. 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.
[Remainder of page intentionally left blank.]
3
<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.
BORROWER:
WITNESS: THE WACKENHUT CORPORATION
/s/ CAROL L. GLOVER By: /s/ PHILIP L. MASLOWE
------------------------- ----------------------
Name: Philip L. Maslowe
/s/ LINDA A. PARRISH Title: SVP/CFO
-------------------------
By: /s/ TERRY MAYOTTE
----------------------
Name: Terry Mayotte
Title: Treasurer
<PAGE> 5
GUARANTORS:
AMERICAN GUARD AND ALERT, INCORPORATED
DIVERSIFIED CORRECTIONAL SERVICES,
INCORPORATED
TITANIA ADVERTISING, INCORPORATED
TITANIA INSURANCE COMPANY OF AMERICA
TUHNEKCAW, INC.
WACKENHUT AIRLINE SERVICES, INC.
WACKENHUT EDUCATIONAL SERVICES, INC.
WACKENHUT EDUCATIONAL SERVICES, INC.
WACKENHUT FINANCIAL, INC.
WACKENHUT INTERNATIONAL, INCORPORATED
WACKENHUT OF NEVADA, INC.
WACKENHUT PUERTO RICO, INC.
WACKENHUT SERVICES, INCORPORATED
WACKENHUT SERVICES LIMITED LIABILITY
COMPANY
WACKENHUT SPORTS SECURITY, INC.
WACKENHUT RESOURCES, INCORPORATED
KING STAFFING, INC.
SOUTHEASTERN RESOURCES, INC.
WORKFORCE ALTERNATIVE, INC.
KING TEMPORARY STAFFING, INC.
WRI II, INC.
PROFESSIONAL EMPLOYEE MANAGEMENT, INC.
WITNESS:
/s/ CAROL L. GLOVER
------------------------
By: /s/ PHILIP L. MASLOWE
----------------------
/s/ LINDA A. PARRISH Name: Philip L. Maslowe
------------------------ Title: SVP/CFO
By: /s/ TERRY MAYOTTE
----------------------
Name: Terry Mayotte
Title: Treasurer
5
<PAGE> 6
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent for the Lenders
By: /s/ ANDREW M. AIRHEART
----------------------
Name: Andrew M. Airheart
Title: Senior Vice President
NATIONSBANK, NATIONAL ASSOCIATION,
as Lender
By: /S/ ANDREW M. AIRHEART
----------------------
Name: Andrew M. Airheart
Title: Senior Vice President
6
<PAGE> 7
SCOTIABANC INC.
By: /s/ WILLIAM E. ZARRETT
----------------------
Name: William E. Zarrett
Title: Senior Relationship Manager
7
<PAGE> 8
SUNTRUST BANK, SOUTH FLORIDA, N.A.
By: /s/ JEFFREY S. WOLFE
------------------------------
Name: Jeffrey S. Wolfe
Title: Vice President
8
<PAGE> 1
EXHIBIT 4.11
AMENDMENT AGREEMENT NO. 2
TO AMENDED AND RESTATED
REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into as of this 7th day of
August, 1998, by and among THE WACKENHUT CORPORATION, a Florida corporation
(herein called the "Borrower"), NATIONSBANK NATIONAL ASSOCIATION (the AAgent@),
as Agent for the lenders (the "Lenders") party to the Amended and Restated
Revolving Credit and Reimbursement Agreement dated December 30, 1997, as amended
by Amendment Agreement No. 1 dated as of March 12, 1998, among such Lenders,
Borrower and the Agent (the "Agreement") and the Lenders whose names are
subscribed hereto.
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Agreement pursuant to which the Lenders have agreed to make revolving loans to
the Borrower in the aggregate principal amount of up to $40,000,000 as evidenced
by the Notes (as defined in the Agreement) and to issue Letters of Credit for
the benefit of the Borrower; and
WHEREAS, as a condition to the making of the loans pursuant to the
Agreement the Lenders have required that all wholly-owned Subsidiaries of the
Borrower guarantee payment of all Obligations of the Borrower arising under the
Agreement; and
WHEREAS, the Borrower has requested that the Agreement be amended and
the Agent and the Lenders, subject to the terms and conditions hereof, are
willing to make such amendment, as provided herein;
NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby agree
as follows:
1. DEFINITIONS. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereinafter
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. AMENDMENT. Subject to the conditions set forth herein, clause (ii)
of SECTION 7.11(A) of the Agreement is hereby amended in its entirety, effective
as of the date hereof, so that as amended it shall read as follows:
"(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 Borrower from the substantially concurrent issue
or sale of other shares of capital stock of the Borrower or warrants,
rights or options to purchase or acquire any shares of its capital
stock, (y) purchase or acquisitions of
<PAGE> 2
shares of Voting Stock of the Borrower 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
Borrower, and (z) purchases or acquisitions of shares of Voting Stock
and non-voting stock of the Borrower after December 30, 1997 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 Borrower by the Wackenhut Family Group);"
3. SUBSIDIARY CONSENTS. Each Subsidiary of the Borrower that has
delivered a Guaranty to the Agent has joined in the execution of this Amendment
Agreement for the purpose of (i) agreeing to the amendment to the Agreement and
(ii) confirming its guarantee of payment of all the Obligations.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants that:
(a) The representations and warranties made by Borrower in
Article V of the Agreement are true on and as of the date hereof;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its
Subsidiaries since the date of the most recent financial reports of
the Borrower received by each Lender under Section 6.1 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 Borrower and its
Subsidiaries are not and 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 Borrower under the
Agreement, the Notes or any other Loan Document either immediately or
with the lapse of time or the giving of notice, or both.
5. CONDITIONS. This Amendment Agreement shall become effective upon the
Borrower delivering to the Agent four (4) counterparts of this Amendment
Agreement duly executed by the Borrower and consented to by each of the
Subsidiaries.
6. ENTIRE AGREEMENT. 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.
2
<PAGE> 3
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 proceeding or succeeding
breach thereof.
7. FULL FORCE AND EFFECT OF AGREEMENT. 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.
[Remainder of page intentionally left blank.]
3
<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.
BORROWER:
THE WACKENHUT CORPORATION
WITNESS:
/s/ WANDA HOLLOWAY By: /s/ TERRY MAYOTTE
- ------------------------ ----------------------
Name: Terry Mayotte
/s/ DANIEL REID Title: Treasurer
- ------------------------
4
<PAGE> 5
GUARANTORS:
AMERICAN GUARD AND ALERT, INCORPORATED
DIVERSIFIED CORRECTIONAL SERVICES,
INCORPORATED
TITANIA ADVERTISING, INCORPORATED
TITANIA INSURANCE COMPANY OF AMERICA
TUHNEKCAW, INC.
WACKENHUT AIRLINE SERVICES, INC.
WACKENHUT EDUCATIONAL SERVICES, INC.
WACKENHUT EDUCATIONAL SERVICES, INC.
WACKENHUT FINANCIAL, INC.
WACKENHUT INTERNATIONAL, INCORPORATED
WACKENHUT OF NEVADA, INC.
WACKENHUT PUERTO RICO, INC.
WACKENHUT SERVICES, INCORPORATED
WACKENHUT SERVICES LIMITED LIABILITY
COMPANY
WACKENHUT SPORTS SECURITY, INC.
WACKENHUT RESOURCES, INCORPORATED
KING STAFFING, INC.
SOUTHEASTERN RESOURCES, INC.
WORKFORCE ALTERNATIVE, INC.
KING TEMPORARY STAFFING, INC.
WRI II, INC.
PROFESSIONAL EMPLOYEE MANAGEMENT, INC.
WITNESS:
/s/ WANDA HOLLOWAY
- ----------------------------
By: /s/ TERRY MAYOTTE
----------------------------
/s/ DANIEL REID Name: Terry Mayotte
- ---------------------------- Title: Treasurer
5
<PAGE> 6
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent for the Lenders
By: /s/ ANDREW M. AIRHEART
--------------------------------
Name: Andrew M. Airheart
Title: Senior Vice President
NATIONSBANK, NATIONAL ASSOCIATION,
as Lender
By: /s/ ANDREW M. AIRHEART
--------------------------------
Name: Andrew M. Airheart
Title: Senior Vice President
6
<PAGE> 7
SCOTIABANC INC.
By: /s/ FRANK F. SANDLER
--------------------------------
Name: Frank F. Sandler
Title: Relationship Manager
7
<PAGE> 8
SUNTRUST BANK, SOUTH FLORIDA, N.A.
By: /s/ JEFFREY S. WOLFE
--------------------------------
Name: Jeffrey S. Wolfe
Title: Vice President
8
<PAGE> 1
EXHIBIT 4.12
AMENDMENT AGREEMENT NO. 3
TO AMENDED AND RESTATED
REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Amendment Agreement") is made and
entered into as of this 10th day of February, 1999, by and among THE WACKENHUT
CORPORATION, a Florida corporation (herein called the "Borrower"), NATIONSBANK
NATIONAL ASSOCIATION (the "Agent"), as Agent for the lenders (the "Lenders")
party to the Amended and Restated Revolving Credit and Reimbursement Agreement
dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of
March 12, 1998, and as further amended by Amendment Agreement No. 2 dated as of
August 7, 1998, among such Lenders, Borrower and the Agent (the "Agreement") and
the Lenders whose names are subscribed hereto.
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Agreement pursuant to which the Lenders have agreed to make revolving loans to
the Borrower in the aggregate principal amount of up to $40,000,000 as evidenced
by the Notes (as defined in the Agreement) and to issue Letters of Credit for
the benefit of the Borrower; and
WHEREAS, as a condition to the making of the loans pursuant to the
Agreement the Lenders have required that all wholly-owned Subsidiaries of the
Borrower guarantee payment of all Obligations of the Borrower arising under the
Agreement; and
WHEREAS, the Borrower has requested that the Agreement be amended by
increasing the Total Revolving Credit Commitment to $65,000,000 and the Agent
and the Lenders have agreed, subject to the terms and conditions hereof, to make
such amendment, as provided herein;
NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby agree
as follows:
1. DEFINITIONS. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereinafter
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. AMENDMENT. Subject to the conditions set forth herein, the Agreement
is hereby amended, effective as of the date hereof, as follows:
(a) The definition of "Applicable Margin" is hereby amended by
deleting the table in such definition and inserting in lieu thereof the
following table:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
----------- ---------------------------------------------- ------------------------ ------------------------------
Tier Fixed Charges Coverage Ratio Applicable Margin Applicable Unused Fee
=========== ============================================== ======================== ==============================
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C> <C>
----------- ---------------------------------------------- ------------------------ ------------------------------
I Greater than 2.00 to 1.00 0.625% 0.200%
=========== ============================================== ======================== ==============================
II Greater than 1.75 to 1.00 0.875% 0.250%
and equal to or less than 2.00 to 1.00
=========== ============================================== ======================== ==============================
III Equal to or Greater than 1.50 to 1.00 1.250% 0.300%
and equal to or less than 1.75 to 1.00
----------- ---------------------------------------------- ------------------------ ------------------------------
</TABLE>
(b) The definition of "Joint Venture Investment" is hereby
amended in its entirety so that as amended it reads as follows:
"Joint Venture Investment" means any Investment in an amount
not to exceed $10,000,000 in any Fiscal Year by the Borrower with any
other Person or Persons which Investment is made in order to permit the
Borrower to make bids with respect to contracts for the providing of
services by the Borrower of the type provided by the Borrower and its
Subsidiaries as of the Closing Date."
(c) The definition of "Net Income Available for Fixed Charges"
is hereby amended by adding the following phrase to the end of such definition:
"; PROVIDED, HOWEVER, that with respect to an acquisition of a
Subsidiary that is accounted for as a "purchase", for the four
Four-Quarter Periods ending next following the date of such
acquisition, all components of Net Income Available for Fixed Charges
shall include the results of operations of the Person or assets so
acquired, which amounts shall be determined on an historical pro forma
basis as if such acquisition had been consummated as a "pooling of
interests"."
(d) The definition of "Restricted Investment" is hereby
amended by inserting a new paragraph (g) that reads "(g) Joint Venture
Investments" and thereby causing existing paragraph (g) to be paragraph (h).
(e) The definition of "Total Revolving Credit Commitment" is
hereby amended in its entirety so that as amended it reads as follows:
"Total Revolving Credit Commitment" means an amount equal to
(i) $50,000,000 or (ii) at such time as EXHIBIT A hereto is amended by
the entering into of an Amendment Agreement pursuant to SECTION 2.18
hereof, an amount equal to $65,000,000, as such amounts are reduced
from time to time in accordance with SECTION 2.10."
(f) EXHIBIT A is hereby deleted in its entirety and the
EXHIBIT A attached hereto is inserted in lieu thereof;
(g) EXHIBIT J attached hereto is hereby added to the Agreement
as EXHIBIT J;
(h) A new SECTION 2.18 is hereby added to read as follows:
2
<PAGE> 3
"2.18 AMENDMENT AGREEMENT. The Borrower, the Agent and an additional lender or
lenders may enter into an Amendment Agreement without further approval of the
Lenders substantially in the form of EXHIBIT J attached hereto and incorporated
herein by reference pursuant to which the additional lender or lenders agree to
provide the Borrower with Revolving Loans of up to $15,000,000 thereby
increasing the Total Revolving Credit Commitment to $65,000,000."
(i) SECTION 7.07(b) is hereby amended by deleting the number
"$15,000,000" at the end of such subsection and inserting in lieu thereof the
number "$30,000,000".
(j) SECTION 7.11(a)(v) is hereby amended by deleting the phrase
"other than any Joint Venture Investments".
(k) SECTION 7.11(b) is hereby amended in its entirety so that
as amended it shall read as follows:
"(b) The Borrower will not make any Joint Venture Investment in
any Fiscal Year if after giving effect thereto the aggregate value of all Joint
Venture Investments of the Borrower and its Subsidiaries would exceed
$10,000,000 in such Fiscal Year."
(l) SECTIONS 7.17(a)(1), 7.17(a)(2) and 7.17(a)(3) are hereby
amended by inserting the words "and consolidating" following the word
"consolidated" appearing in subsection (i) of each of the foregoing sections
thereof.
3. SUBSIDIARY CONSENTS. Each Subsidiary of the Borrower that has
delivered a Guaranty to the Agent has joined in the execution of this Amendment
Agreement for the purpose of (i) agreeing to the amendment to the Agreement and
(ii) confirming its guarantee of payment of all the Obligations.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants that:
(a) The representations and warranties made by Borrower in
Article VI of the Agreement are true on and as of the date hereof;
(b) There has been no material adverse change in the condition,
financial or otherwise, of the Borrower and its Subsidiaries since the
date of the most recent financial reports of the Borrower 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 Borrower and its
Subsidiaries are not and have not been adversely affected in any
substantial way as the result of any
3
<PAGE> 4
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 Borrower under the
Agreement, the Notes or any other Loan Document either immediately or
with the lapse of time or the giving of notice, or both.
5. CONDITIONS. This Amendment Agreement shall become effective
upon the Borrower delivering to the Agent of the following:
(a) Five (5) counterparts of this Amendment Agreement duly
executed by the Borrower and consented to by each of the Subsidiaries
and receipt by the Agent of all fees and expenses due in connection
with this Amendment Agreement.
(b) Notes executed in favor of each Lender in the amount of its
Revolving Credit Commitment.
(c) An opinion of counsel for the Borrower in form and content
acceptable to the Agent.
(d) Copies of resolution of the Board of Directors of each of
the Borrower and its Subsidiaries authorizing the transaction
contemplated by this Amendment Agreement; and
(e) Such other documents and instruments as the Agent may
reasonably require.
6. ENTIRE AGREEMENT. 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, in
the manner provided in the Agreement, specifying such change, modification,
waiver or cancellation of such terms or conditions, or of any proceeding or
succeeding breach thereof.
4
<PAGE> 5
7. FULL FORCE AND EFFECT OF AGREEMENT. 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.
[Remainder of page intentionally left blank.]
5
<PAGE> 6
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.
BORROWER:
THE WACKENHUT CORPORATION
WITNESS:
/s/ MYFANWY BONILLA
- ---------------------------
By: /s/ MILDRED F. SMITH
-----------------------
Name: Mildred F. Smith
Title: Vice President
6
<PAGE> 7
GUARANTORS:
AMERICAN GUARD AND ALERT, INCORPORATED
TITANIA ADVERTISING, INCORPORATED
TITANIA INSURANCE COMPANY OF AMERICA
TUHNEKCAW, INC.
WACKENHUT AIRLINE SERVICES, INC.
WACKENHUT EDUCATIONAL SERVICES, INC.
WACKENHUT FINANCIAL, INC.
WACKENHUT INTERNATIONAL, INCORPORATED
WACKENHUT OF NEVADA, INC.
WACKENHUT PUERTO RICO, INC.
WACKENHUT SERVICES, INCORPORATED
WACKENHUT SERVICES LIMITED LIABILITY
COMPANY
WACKENHUT RESOURCES, INCORPORATED
KING STAFFING, INC.
SOUTHEASTERN RESOURCES, INC.
WORKFORCE ALTERNATIVE, INC.
KING TEMPORARY STAFFING, INC.
WRI II, INC.
PROFESSIONAL EMPLOYEE MANAGEMENT, INC.
WITNESS:
/s/ MYFANWY BONILLA By: /s/ MILDRED F. SMITH
- --------------------------- --------------------------------
Name: Mildred F. Smith
Title: Vice President
7
<PAGE> 8
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent for the Lenders
By: /s/ JOHN E. WILLIAMS
--------------------------------
Name: John E. Williams
Title: Senior Vice President
NATIONSBANK, NATIONAL ASSOCIATION,
as lender
By: /s/ JOHN E. WILLIAMS
--------------------------------
Name: John E. Williams
Title: Senior Vice President
<PAGE> 9
SCOTIABANC INC.
By: /s/ FRANK F. SANDLER
--------------------------------
Name: Frank F. Sandler
Title: Relationship Manager
9
<PAGE> 10
SUNTRUST BANK, SOUTH FLORIDA, N.A.
By: /s/ WILLIAM H. CRAWFORD
--------------------------------
Name: William H. Crawford
Title: Assistant Vice President
10
<PAGE> 11
EXHIBIT A
Applicable Commitment Percentages
APPLICABLE
REVOLVING CREDIT COMMITMENT
LENDER COMMITMENT PERCENTAGE
- ------ ---------------- ----------
NationsBank, N.A. $20,000,000
Scotiabanc Inc. $15,000,000
SunTrust Bank, South Florida, N.A. $15,000,000
-----------
Total $50,000,000
11
<PAGE> 12
EXHIBIT J
Form of Amendment Agreement
AMENDMENT AGREEMENT NO. ____
TO AMENDED AND RESTATED
REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Amendment Agreement") is made and
entered into as of this ____ day of __________, ______, by and among THE
WACKENHUT CORPORATION, a Florida corporation (herein called the "Borrower"),
NATIONSBANK NATIONAL ASSOCIATION (the "Agent"), as Agent for the lenders (the
"Lenders") party to the Amended and Restated Revolving Credit and Reimbursement
Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated
as of March 12, 1998, Amendment Agreement No. 2 dated as of August 7, 1998, and
Amendment Agreement No. 3 dated as of February 10, 1999, among such Lenders,
Borrower and the Agent (the "Agreement") and the Lender party to this Amendment
Agreement.
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower, the Agent, NationsBank, N.A., Scotiabanc Inc. and
SunTrust Bank, South Florida, N.A. (the "Existing Lenders") have entered into
the Agreement pursuant to which the Existing Lenders have agreed to make
revolving loans to the Borrower in the aggregate principal amount of up to
$50,000,000 as evidenced by the Notes (as defined in the Agreement) and to issue
Letters of Credit for the benefit of the Borrower; and
WHEREAS, ________________ (the "New Lender") has agreed to provide the
Borrower Revolving Loans up to $15,000,000 thereby increasing the Total
Revolving Credit Commitment to $65,000,000 and the parties hereto desire to
amend the Agreement in the manner herein set forth effective as of the date
hereof;
NOW, THEREFORE, the Borrower, the Agent and the New Lender do hereby
agree as follows:
1. DEFINITIONS. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) 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. AMENDMENTS. Subject to the conditions hereof, the Agreement is hereby
amended, effective as of the date hereof, by deleting EXHIBIT A and inserting in
lieu thereof EXHIBIT A attached hereto, and the New Lender agrees by the
execution of this Amendment Agreement that it shall be a party to the Agreement
and shall provide to the Borrower its Revolving Credit Commitment.
12
<PAGE> 13
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants that:
(a) The representations and warranties made by Borrower in Article VI
of the Agreement are true on and as of the date hereof;
(b) There has been no material adverse change in the condition,
financial or otherwise, of the Borrower and its Subsidiaries since the
date of the most recent financial reports of the Borrower 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 Borrower and its Subsidiaries
are not and 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 Borrower under the
Agreement, the Notes or any other Loan Document either immediately or
with the lapse of time or the giving of notice, or both.
4. CONDITIONS. As a condition to the effectiveness of this Amendment
Agreement, the Borrower shall deliver, or cause to be delivered to the Agent,
the following:
(a) Five (5) executed counterparts of this Amendment Agreement duly;
and
(b) A fully-executed Note payable to the New Lender in the amount of
the New Lender=s Revolving Credit Commitment.
5. OTHER DOCUMENTS. All instruments and documents incident to the
consummation of the transactions contemplated hereby shall be satisfactory in
form and substance to the Agent and its counsel; the Agent shall have received
copies of all additional agreements, instruments and documents which it may
reasonably request in connection therewith, including evidence of the authority
of the Borrower to enter into the transactions contemplated by this Amendment
Agreement, in each case such documents, when appropriate, to be certified by
appropriate corporate or governmental authorities; and all proceedings of the
Borrower relating to the matters provided for herein shall be satisfactory to
the Agent and its counsel.
6. ENTIRE AGREEMENT. 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
13
<PAGE> 14
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, in the manner provided in the Agreement,
specifying such change, modification, waiver or cancellation of such terms or
conditions, or of any proceeding or succeeding breach thereof.
7. FULL FORCE AND EFFECT OF AGREEMENT. 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.
[Remainder of page intentionally left blank.]
14
<PAGE> 15
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 written above.
BORROWER:
THE WACKENHUT CORPORATION
WITNESS:
By:
- -------------------------- -----------------------------------
Name:
Title:
15
<PAGE> 16
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent for the Lenders
By:
-----------------------------------
Name:
Title:
16
<PAGE> 17
[INSERT NAME OF NEW LENDER]
By:
----------------------------
Name:
Title:
Lending Office:
--------------------------
--------------------------
--------------------------
Wire Transfer Instructions:
---------------------------
---------------------------
ABA #
----------------------
Attention:
-----------------
Reference:
-----------------
17
<PAGE> 18
EXHIBIT A
Applicable Commitment Percentages
Applicable
LENDER Revolving Credit Commitment
- ------
NationsBank, N.A. $20,000,000
Scotiabanc Inc. $15,000,000
SunTrust Bank, South Florida, N.A . $15,000,000
[--------------------] $15,000,000
-----------
Total $65,000,000
18
<PAGE> 1
EXHIBIT 4.13
AMENDMENT AGREEMENT NO. 4
TO AMENDED AND RESTATED
REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Amendment Agreement") is made and
entered into as of this 25th day of February, 1999, by and among THE WACKENHUT
CORPORATION, a Florida corporation (herein called the "Borrower"), NATIONSBANK
NATIONAL ASSOCIATION (the "Agent"), as Agent for the lenders (the "Lenders")
party to the Amended and Restated Revolving Credit and Reimbursement Agreement
dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of
March 12, 1998, Amendment Agreement No. 2 dated as of August 7, 1998, and
Amendment Agreement No. 3 dated as of February 10, 1999, among such Lenders,
Borrower and the Agent (the "Agreement") and the Lender party to this Amendment
Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Agent, NationsBank, N.A., Scotiabanc Inc.
and SunTrust Bank, South Florida, N.A. (the "Existing Lenders") have entered
into the Agreement pursuant to which the Existing Lenders have agreed to make
revolving loans to the Borrower in the aggregate principal amount of up to
$50,000,000 as evidenced by the Notes (as defined in the Agreement) and to issue
Letters of Credit for the benefit of the Borrower; and
WHEREAS, First Union National Bank (the "New Lender") has agreed to
provide the Borrower Revolving Loans up to $15,000,000 thereby increasing the
Total Revolving Credit Commitment to $65,000,000 and the parties hereto desire
to amend the Agreement in the manner herein set forth effective as of the date
hereof;
NOW, THEREFORE, the Borrower, the Agent and the New Lender do hereby
agree as follows:
1. DEFINITIONS. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) 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. AMENDMENTS. Subject to the conditions hereof, the Agreement is
hereby amended, effective as of the date hereof, by deleting EXHIBIT A and
inserting in lieu thereof EXHIBIT A attached hereto, and the New Lender agrees
by the execution of this Amendment Agreement that it shall be a party to the
Agreement and shall provide to the Borrower its Revolving Credit Commitment.
<PAGE> 2
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants that:
(a) The representations and warranties made by Borrower in Article
VI of the Agreement are true on and as of the date hereof;
(b) There has been no material adverse change in the condition,
financial or otherwise, of the Borrower and its Subsidiaries since the
date of the most recent financial reports of the Borrower 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 Borrower and its Subsidiaries
are not and 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 Borrower under the
Agreement, the Notes or any other Loan Document either immediately or
with the lapse of time or the giving of notice, or both.
4. CONDITIONS. As a condition to the effectiveness of this Amendment
Agreement, the Borrower shall deliver, or cause to be delivered to the Agent,
the following:
(a) Five (5) executed counterparts of this Amendment Agreement duly;
and
(b) A fully-executed Note payable to the New Lender in the amount of
the New Lender's Revolving Credit Commitment.
5. OTHER DOCUMENTS. All instruments and documents incident to the
consummation of the transactions contemplated hereby shall be satisfactory in
form and substance to the Agent and its counsel; the Agent shall have received
copies of all additional agreements, instruments and documents which it may
reasonably request in connection therewith, including evidence of the authority
of the Borrower to enter into the transactions contemplated by this Amendment
Agreement, in each case such documents, when appropriate, to be certified by
appropriate corporate or governmental authorities; and all proceedings of the
Borrower relating to the matters provided for herein shall be satisfactory to
the Agent and its counsel.
6. ENTIRE AGREEMENT. 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.
2
<PAGE> 3
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, in the
manner provided in the Agreement, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any proceeding or succeeding
breach thereof.
7. FULL FORCE AND EFFECT OF AGREEMENT. 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.
[Remainder of page intentionally left blank.]
3
<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 written above.
BORROWER:
THE WACKENHUT CORPORATION
WITNESS:
/s/ KIMBERLY W. ARMBRUSTER By: /s/ MILDRED F. SMITH
- --------------------------- -------------------------
Name: Mildred F. Smith
-------------------------- Title: Vice President
4
<PAGE> 5
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent for the Lenders
By: /s/ JOHN E. WILLIAMS
-------------------------------
Name: John E. Williams
Title: Senior Vice President
5
<PAGE> 6
FIRST UNION NATIONAL BANK
By: /s/ M. WALKER DUVALL
--------------------------
Name: M. Walker Duvall
---------------------
Title: Senior Vice President
Lending Office:
77 Camino Real, 2nd Floor
Boca Raton, Florida 33432
Wire Transfer Instruction
First Union National Bank
-------------------------
ABA #
-------------------
Attention:
---------------
Reference: The Wackenhut Corporation
6
<PAGE> 7
EXHIBIT A
Applicable Commitment Percentages
Applicable
Revolving Credit Commitment
Lender Commitment Percentage
- ------ ---------------- -------------
NationsBank, N.A. $20,000,000 30.769230769%
Scotiabanc Inc. $15,000,000 23.076923077%
SunTrust Bank, South Florida, N.A. $15,000,000 23.076923077%
First Union National Bank $15,000,000 23.076923077%
---------- ------------
Total $65,000,000 100%
7
<PAGE> 1
EXHIBIT 4.14
FIRST AMENDMENT TO TRANSFER AND ADMINISTRATION AGREEMENT
This FIRST AMENDMENT TO TRANSFER AND ADMINISTRATION AGREEMENT (this
"Amendment"), dated as of March 13, 1999 is among WACKENHUT FUNDING CORPORATION,
a Delaware corporation (the "Transferor"), THE WACKENHUT CORPORATION, a Florida
corporation, individually and as Servicer ("Wackenhut" or the "Servicer"),
ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("Enterprise" or the
"Purchaser") and as its successors assigns, and NATIONSBANK, N.A., a national
banking assocation ("NationsBank"), as Agent for Enterprise and the Bank
Investors (in such capacity, the "Agent") and as a Bank Investor (in such
capacity, the "Agent") and as a Bank Investor.
PRELIMINARY STATEMENTS:
1. The Purchaser, the Transferor, the Bank Investors, and the Agent
have entered into a Transfer and Administration Agreement dated as
of December 30, 1997 (the "Agreement"), (capitalized terms used and
not otherwise defined herein have the meanings assigned to such
terms in the Agreement).
2. The Transferor has requested certain amendments to the Transfer and
Administration Agreement.
3. The Purchaser is, on the terms and conditions stated below, willing
to grant such requests of the Transferor.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. AMENDMENTS TO THE AGREEMENT. Effective as of the date hereof and
subject to the satisfaction of the conditions precedent set forth in Section 2
hereof, the Agreement is hereby amended as follows:
(a) The definition of "Net Income Available for Fixed Charge" in Appendix
C of the Agreement is amended by (x) deleting the word "and"
immediately preceding clause (iii), (y) deleting the period at the end
of clause (iii) and adding in lieu thereof a comma and the word "and",
and (z) adding a new clause (iv) reading as follows:
"(iv) the tax adjusted non-recurring charges of up to $11,250,000
taken by Wackenhut in the fiscal quarter ending December 31, 1997."
(b) Clause (i) of Section VIII.7(A) is amended in its entirety so that as
amended it shall read as follows:
"(i) $129,000,000 at December 31, 1997 and"
(c) There is hereby added to Appendix A of the TAA the defined term
"Conduit Assignee" in the appropriate alphabetical order to read as
follows:
<PAGE> 2
"Conduit Assignee" shall mean any commercial paper conduit administered
by NationsBank and designated by NationsBank from time to time to accept an
assignment from the Purchaser of all or a portion of the Purchaser's
Investment."
(d) Article XIV.6(a) shall be amended such that immediately after the
phrase "; and" the following phrase is hereby added:
"without limiting the foregoing, the Purchaser may, from time
to time, with prior or concurrent notice to Transferor and Collection Agent, in
one transaction or a series of transactions, assign all or a portion of the
Purchaser's Investment and its rights and obligations under this Agreement and
any other Agreement Documents to which it is a party to a Conduit Assignee. Upon
and to the extent of such assignment by the Purchaser to a Conduit Assignee, (i)
such Conduit Assignee shall be the owner of the assigned portion of the
Purchaser's Investment, (ii) the related administrative and or managing agent
for such Purchaser will act as the Administrative Agent for such Conduit
Assignee, with all corresponding rights and powers, express or implied, granted
to the Administrative Agent hereunder or under the other Agreement Documents,
(iii) such Conduit Assignee and its liquidity support provider(s) and credit
support provider(s) and other related parties shall have the benefit of all the
rights and protections provided to the Purchaser and its Enterprise Liquidity
Support Provider(s) and Enterprise Credit Support Provider(s), respectively,
herein and in the other Agreement Documents (including, without limitation, any
limitation on recourse against such Purchaser or related parties, any agreement
not to file or join in the filing of a petition to commence an insolvency
proceeding against such Purchaser, and the right to assign to another Conduit
Assignee as provided in this paragraph), (iv) such Conduit Assignee shall assume
all (or the assigned or assumed portion) of the Purchaser's obligations, if any,
hereunder and any other Agreement Document, and the Purchaser shall be released
from such obligations, in each case to the extent of such assignment, and the
obligations of the Purchaser and such Conduit Assignee shall be several and not
joint, (v) all distributions in respect of the Purchaser's Investment shall be
made to the applicable agent or administrative agent, as applicable, on behalf
of the Purchaser and such Conduit Assignee on a pro rata basis according to
their respective interests, (vi) the definition of the term "Commercial Paper
Rate" with respect to the portion of the Purchaser's Investment funded with
commercial paper issued by the Purchaser from time to time shall be determined
in the manner set forth in the definition of "Commercial Paper Rate" applicable
to the Purchaser on the basis of the interest rate or discount applicable to
commercial paper issued by such Conduit Assignee (rather than the Purchaser),
(vii) the defined terms and other terms and provisions of this Agreement and the
other Agreement Documents shall be interpreted in accordance with the foregoing,
and (viii) if requested by the Agent or administrative agent with respect to the
Conduit Assignee, the parties will execute and deliver such further agreements
and documents and take such other actions as the Agent or administrative agent
may reasonably request to evidence and give effect to the foregoing. No
assignment by the Purchaser to a Conduit Assignee of all or any portion of the
Purchaser's Investment shall in any way diminish the related Bank Investors'
obligation under Section 13.5 to fund any Reinvestment not funded by the
Purchaser or such Conduit Assignee or to acquire from the Purchaser or such
Conduit Assignee all or any portion of the Purchaser's Investment; and"
2
<PAGE> 3
Section 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective
when NationsBank has executed this Amendment and has received counterparts of
this Amendment executed by the Purchaser, the Transferor and the Bank Investors.
Section 3. REPRESENTATIONS AND WARRANTIES. The Transferor and the Servicer
hereby represent and warrant to the Purchaser, the Agent and each Bank Investor
that:
(a) AUTHORITY. Each of the Transferor and the Servicer has the
requisite corporate power and authority to execute and deliver this Amendment
and to perform its obligations hereunder and under the Agreement (as modified
hereby). The execution, delivery and performance by the Transferor of this
Amendment and the performance of the Agreement (as modified hereby) have been
duly approved by all necessary corporate action and no other corporate
proceedings are necessary to consummate such transactions.
(b) ENFORCEABILITY. This Amendment has been duly executed and delivered
by the Transferor and the Servicer. The Agreement (as modified hereby) is the
legal, valid and binding obligation of the Transferor and the Servicer
enforceable against the Transferor and the Servicer in accordance with its
terms, and is in full force and effect.
(c) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Transferor and the Servicer contained in the Agreement (other than any
such representations or warranties that, by their terms, are specifically made
as of a date other than the date hereof) are correct on and as of the date
hereof as though made on and as of the date hereof.
(d) NO TERMINATION EVENT. No event has occurred and is continuing that
constitutes a Termination Event or an Unmatured Termination Event.
Section 4. REFERENCE TO AND EFFECT ON THE AGREEMENT.
(a) Except as specifically amended and modified above, the Agreement is
and shall continue to be in full force and effect and is hereby in all respects
ratified and confirmed.
(b) The execution, delivery and effectiveness of this Amendment shall
not operate as waiver of any right, power or remedy of the Purchaser, the Agent
or the Bank Investor(s) under the Agreement, nor constitute a waiver of any
provision of the Agreement.
Section 5. EXECUTION IN COUNTERPARTS. This amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Section 6. SUCCESSORS AND ASSIGNS.
This Amendment shall bind, and the benefits hereof shall inure to the parties
hereof and their respective successors and permitted assigns; PROVIDED, HOWEVER,
the Transferor may not assign any of its rights or delegate any of its duties
under this Amendment without the prior written consent of the Purchaser.
3
<PAGE> 4
Section 7. GOVERNING LAW.
THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. THE TRANSFEROR HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AMENDMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 8. SEVERABILITY.
Any provisions of this Amendment which are prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
ENTERPRISE FUNDING CORPORATION,
as Purchaser
By:
--------------------------------
Name:
Title:
WACKENHUT FUNDING CORPORATION,
as Transferor
By:
--------------------------------
Name:
Title:
4
<PAGE> 5
THE WACKENHUT CORPORATION,
as Servicer
By:
--------------------------------
Name:
Title:
NATIONSBANK, N.A.,
as Agent and Bank Investor
By:
--------------------------------
Name: Michelle M. Heath
Title: Senior Vice President
5
<PAGE> 1
EXHIBIT 4.15
SECOND AMENDMENT TO TRANSFER AND ADMINISTRATION AGREEMENT
This SECOND AMENDMENT TO TRANSFER AND ADMINISTRATION AGREEMENT (this
"Amendment"), dated as of December 23, 1998 is among WACKENHUT FUNDING
CORPORATION, a Delaware corporation (the "Transferor"), THE WACKENHUT
CORPORATION, a Florida corporation, individually and as Servicer ("Wackenhut" or
the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation
("Enterprise" or the "Purchaser") and its successors assigns, and NATIONSBANK,
N.A., a national banking assocation ("NationsBank"), as Agent for Enterprise and
the Bank Investors (in such capacity, the "Agent") and as a Bank Investor (in
such capacity, the "Agent").
PRELIMINARY STATEMENTS:
1. The Purchaser, the Transferor, the Bank Investors, and the Agent
have entered into a Transfer and Administration Agreement dated as
of December 30, 1997 (the "Agreement"), (capitalized terms used and
not otherwise defined herein have the meanings assigned to such
terms in the Agreement).
2. The Transferor has requested certain amendments to the Transfer and
Administration Agreement.
3. The Purchaser and the Bank Investors are, on the terms and
conditions stated below, willing to grant such requests of the
Transferor.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. AMENDMENTS TO THE AGREEMENT. Effective as of the date hereof and
subject to the satisfaction of the conditions precedent set forth in Section 2
hereof, the Agreement is hereby amended as follows:
Section 1.5(a) shall be amended by deleting the date "December 29, 1998"
in the text thereof and replacing it with the date "January 29, 1999."
Section 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective
when NationsBank has executed this Amendment and has received counterparts of
this Amendment and the Fee Supplement executed by the Purchaser, the Transferor
and the Bank Investors.
Section 3. REPRESENTATIONS AND WARRANTIES. The Transferor and Wackenhut hereby
represent and warrant to the Purchaser, the Agent and each Bank Investor that:
(a) AUTHORITY. Each of the Transferor and Wackenhut has the requisite
corporate power and authority to execute and deliver this Amendment and to
perform its obligations hereunder and under the Agreement (as modified hereby).
The execution, delivery and performance by the Transferor of this Amendment and
the performance of the Agreement (as modified hereby) have been duly approved by
all necessary corporate action and no other corporate proceedings are necessary
to consummate such transactions.
<PAGE> 2
(b) ENFORCEABILITY. This Amendment has been duly executed and delivered
by the Transferor and Wackenhut. The Agreement (as modified hereby) is the
legal, valid and binding obligation of the Transferor and Wackenhut enforceable
against the Transferor and Wackenhut in accordance with its terms, and is in
full force and effect.
(c) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Transferor and Wackenhut contained in the Agreement (other than any such
representations or warranties that, by their terms, are specifically made as of
a date other than the date hereof) are correct on and as of the date hereof as
though made on and as of the date hereof.
(d) NO TERMINATION EVENT. No event has occurred and is continuing that
constitutes a Termination Event or an Unmatured Termination Event.
Section 4. REFERENCE TO AND EFFECT ON THE AGREEMENT.
(a) Except as specifically amended and modified above, the Agreement is
and shall continue to be in full force and effect and is hereby in all respects
ratified and confirmed.
(b) The execution, delivery and effectiveness of this Amendment shall
not operate as waiver of any right, power or remedy of the Purchaser, the Agent
or the Bank Investor(s) under the Agreement, nor constitute a waiver of any
provision of the Agreement.
Section 5. EXECUTION IN COUNTERPARTS. This amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Section 6. SUCCESSORS AND ASSIGNS.
This Amendment shall bind, and the benefits hereof shall inure to the parties
hereof and their respective successors and permitted assigns; PROVIDED, HOWEVER,
the Transferor may not assign any of its rights or delegate any of its duties
under this Amendment without the prior written consent of the Purchaser.
Section 7. GOVERNING LAW.
THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. THE TRANSFEROR HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AMENDMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY.
2
<PAGE> 3
Section 8. SEVERABILITY.
Any provisions of this Amendment which are prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
ENTERPRISE FUNDING CORPORATION,
as Purchaser
By:
--------------------------------
Name:
Title:
WACKENHUT FUNDING CORPORATION,
as Transferor
By:
--------------------------------
Name:
Title:
THE WACKENHUT CORPORATION,
Individually and as Servicer
By:
--------------------------------
Name:
Title:
NATIONSBANK, N.A.,
as Agent and Bank Investor
By:
--------------------------------
Name:
Title:
3
<PAGE> 1
EXHIBIT 4.16
AMENDMENT NUMBER 3 TO
TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT NUMBER 3 TO TRANSFER AND ADMINISTRATION AGREEMENT
(this "AMENDMENT"), dated as of January 29, 1999, among WACKENHUT FUNDING
CORPORATION, a Delaware corporation (the "TRANSFEROR") and its successors and
assigns, THE WACKENHUT CORPORATION, a Florida corporation, individually and as
servicer ("Wackenhut" or the "SERVICER"), ENTERPRISE FUNDING CORPORATION, a
Delaware corporation ("ENTERPRISE" or the "PURCHASER") and its successors
assigns, and NATIONSBANK, N.A., a national banking association ("NATIONSBANK"),
as agent for Enterprise and the Bank Investors (in such capacity, the "AGENT")
and as a Bank Investor, amending that certain Transfer and Administration
Agreement dated as of December 30, 1997 among the Transferor, the Servicer, the
Purchaser, the Agent and NationsBank (collectively, the "PARTIES"), as amended
to the date hereof by the First Amendment to Transfer and Administration
Agreement dated as of March 24, 1998, among the Parties and the Second Amendment
to Transfer and Administration Agreement dated December 23, 1998, among the
Parties (collectively, the "ORIGINAL AGREEMENT," and said agreement as amended
by this Amendment, the "AGREEMENT").
WHEREAS, the Transferor has requested that the Purchaser and
the Agent agree to: (a) increase the amount of the Facility Limit and the
Purchase Limit under the Original Agreement, (b) extend the Commitment
Termination Date of the Original Agreement, and (c) make certain other
amendments to the Original Agreement;
WHEREAS, the Original Agreement requires that the consent of
the Transferor, the Servicer, the Purchaser and each Bank Investor be obtained
in order to effect certain of the amendments contemplated herein;
WHEREAS, on the terms and conditions set forth herein, the
parties hereto consent to such amendments;
WHEREAS, capitalized terms used herein shall have the meanings
assigned to such terms in the Original Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO DEFINITIONS.
(a) The definition of "ASSIGNMENT AMOUNT" is hereby
amended to read in its entirety as follows (solely for convenience, changed text
is italicized):
"ASSIGNMENT AMOUNT" with respect to a Bank Investor
shall mean at any time an amount equal to the lesser of (i) such Bank Investor's
PRO RATA portion of the Aggregate Purchaser's Investment at such time, (II) SUCH
BANK INVESTOR'S PRO RATA PORTION OF THE AGGREGATE UNPAID BALANCE OF THE ELIGIBLE
RECEIVABLES IN THE RECEIVABLES POOL and (III) such Bank Investor's unused
Commitment."
<PAGE> 2
(b) The definition of "CONDUIT ASSIGNEE" is hereby
amended to read in its entirety as follows (solely for convenience, changed text
is italicized):
"CONDUIT ASSIGNEe" shall mean any commercial paper
conduit administered by NationsBank OR BANK OF AMERICA
NATIONAL TRUST & SAVINGS ASSOCIATION and designated by
NationsBank from time to time to accept an assignment from the
Purchaser of all or a portion of the Purchaser Investment.
(c) The definition of "FACILITY LIMIT" is hereby
amended by deleting the amount "$61,200,000" in the text thereof and replacing
it with the amount of "$76,500,000."
(d) The definition of "NET ASSET TEST" should be
deleted in its entirety.
(e) The definition of "BANK RATE" set forth in
"APPENDIX B" to the Agreement, is hereby amended to read in its entirety as
follows (solely for convenience, changed text is italicized):
"BANK RATE" for any Yield Period for the related
Undivided Interest of any Purchaser or Bank Investor, as the
case may be, means an interest rate PER ANNUM equal to the sum
of (a) 1.25% PER ANNUM, PLUS (B) the Eurodollar Rate (Reserve
Adjusted) of such Purchaser for such Yield Period; PROVIDED,
HOWEVER, that if (i) it shall become unlawful for the Agent,
any Enterprise Liquidity Provider or Enterprise Credit Support
Provider to obtain funds in the London interbank eurodollar
market in order to fund any Purchase or to maintain any
Undivided Interest, or if such funds shall not be reasonably
available to the Agent, Enterprise Liquidity Provider or
Enterprise Credit Support Provider or (ii) there shall not be
time prior to the commencement of an applicable Yield Period
to determine a Eurodollar Rate in accordance with its terms,
then the 'BANK RATE' for any Yield Period for such Undivided
Interest shall be equal to a rate of (x) 1.25% PER ANNUM, PLUS
(Y) the Domestic CD Rate (Adjusted) for such Yield Period.
(f) The definition of "COMMERCIAL PAPER" set forth in
"APPENDIX B" to the Agreement, is hereby amended to read in its entirety as
follows (solely for convenience, changed text is italicized):
"COMMERCIAL PAPER RATE" for any Yield Period for the
related Undivided Interest means a rate PER ANNUM equal to the
sum of (i) the rate or, if more than one rate, the weighted
average of the rates, determined by converting to an
interest-bearing equivalent rate PER ANNUM the discount
2
<PAGE> 3
rate (or rates) at which Commercial Paper Notes having a term
equal to such Yield Period and to be issued to fund the
Purchase of or to maintain such Undivided Interest by the
Purchaser purchasing such Undivided Interest including,
without limitation, Purchaser's Investment and accrued and
unpaid Earned Discount) may be sold by any placement agent or
commercial paper dealer selected by the Agent, as agreed
between each such dealer and the Agent, PLUS (ii) the greater
of (A) the commissions and charges charged by such placement
agent or commercial paper dealer with respect to such
Commercial Paper Notes and (B)) THE DEALER FEE.
(g) The definition of "LOSS RESERVE" set forth in
"APPENDIX B" to the Agreement is hereby amended to read in its entirety as
follows (solely for convenience, changed text is italicized):
A. LOSS RESERVE. The LOSS RESERVE of any Undivided
Interest on any day means the greater of (x) $3,750,000 and
(y) an amount determined as follows:
LR = RP x (PI + DF)
WHERE:
LR = the Loss Reserve of such Undivided Interest
on such day;
RP = the Reserve Percentage at the close of
business of Purchaser on such day, as
determined pursuant to PART II.B;
PI = the related Purchaser's Investment of such
Undivided Interest at the opening of business
of Purchaser on such day, as determined
pursuant to SECTION 1.3; and
DF = the Discount Factor of such Undivided
Interest at the close of business of
Purchaser on such day, as determined
pursuant to PART I.A.
SECTION 2. AMENDMENT TO SECTION 1.2(A). Section 1.2(a) of the
Original Agreement is hereby amend to read in its entirety as follows (solely
for convenience, changed text is italicized):
"(a) PURCHASE LIMIT. The Aggregate Purchaser
Investments would exceed an amount (the "PURCHASE LIMIT")
equal to the lesser of (x) $75,000,000 as such amount may be
reduced pursuant to SECTION 1.7 (the "MAXIMUM PURCHASE
LIMIT"), and (y) the then Net Pool Balance; or"
3
<PAGE> 4
SECTION 3. AMENDMENT TO SECTION 1.5(A). Section 1.5(a) of the
Original Agreement is hereby amended to read in its entirety as follows (solely
for convenience, changed text is italicized):
"(a) The 'COMMITMENT TERMINATION DATE' shall be the
earlier to occur of (i) JANUARY 28, 2000 (herein, as the same
may be extended, called the"SCHEDULED COMMITMENT TERMINATION
Date"), and (ii) the date of Termination of the Commitment
pursuant to SECTION 1.7 or 11.2."
SECTION 4. Amendment to Section 4.1.
(a) Section 4.1(a) of the Original Agreement is hereby amended
to read in its entirety as follows (solely for convenience, changed text is
italicized):
"(a) AGENT'S FEES. Fees payable to the PURCHASER OR
TO THE Agent for services performed in its capacity as Agent
or as Agent for the benefit of the Purchaser or the Bank
Investors, as the case may be, shall be due and payable on
such dates and in such amounts as set forth in the LETTER
dated JANUARY 29, 1999 from the Transferor AND THE WACKENHUT
CORPORATION TO THE AGENT AND THE PURCHASER (the "FEE
LETTER")."
(b) Section 4.1(c) of the Original Agreement is hereby amended
to read in its entirety as follows (solely for convenience, changed text is
italicized):
"(c) DEALER FEE. The dealer fee is set forth in
THE FEE LETTER."
SECTION 5. AMENDMENT TO SECTION 6.1. Section 6.1 of the
Original Agreement is hereby amended by adding the following sub-section
immediately following sub-section (y) thereof:
"(z) YEAR 2000 COMPLIANCE. (A) The Transferor has (i)
initiated a review and assessment of all areas within its and
each of its subsidiaries' business and operations (including
those affected by suppliers, vendors and customers) that could
be adversely affected by the 'Year 2000 Problem' (that is, the
risk that computer applications used by the Transferor or any
of its subsidiaries (or suppliers, vendors and customers) may
be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after
December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii)
to date, implemented that plan in accordance with that
timetable. Based on the foregoing, the Transferor believes
that all computer applications (including those of its
suppliers, vendors and customers) that are material to its or
any of its subsidiaries' business and operations are
reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and
after January 1, 2000 (that is, be 'Year 2000 Compliant'),
except to the extent that a failure to do so could not
reasonably be expected (a) to have a Material Adverse Effect
on the Transferor or on the transaction documented under this
Agreement, or (b) to result in a Termination Event.
4
<PAGE> 5
(B) The Transferor (i) has completed a review and
assessment of all computer applications (including, but not
limited to those of its suppliers, vendors, customers and any
third party servicers), which are related to or involved in
the origination, collection, management or servicing of the
Receivables (the 'RECEIVABLE SYSTEMS') and (ii) has determined
that such Receivable Systems are Year 2000 Compliant or will
be Year 2000 Compliant on or before January 1, 1999 and
thereafter.
(C) The costs of all assessment, remediation, testing
and integration related to the Transferor's plan for becoming
Year 2000 Compliant will not have a material adverse effect on
the financial condition or operations of the Transferor."
SECTION 6. AMENDMENT TO SECTION 6.2 Section 6.2 of the
Original Agreement is hereby amended by adding the following sub-section
immediately following sub-section (q) thereof:
"(r) YEAR 2000 COMPLIANCE. (A) The Servicer has (i)
initiated a review and assessment of all areas within its and
each of its subsidiaries' business and operations (including
those affected by suppliers, vendors and customers) that could
be adversely affected by the 'Year 2000 Problem' (that is, the
risk that computer applications used by the Servicer or any of
its subsidiaries (or suppliers, vendors and customers) may be
unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after
December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii)
to date, implemented that plan in accordance with that
timetable. Based on the foregoing, the Servicer believes that
all computer applications (including those of its suppliers,
vendors and customers) that are material to its or any of its
subsidiaries' business and operations are reasonably expected
on a timely basis to be able to perform properly
date-sensitive functions for all dates before and after
January 1, 2000 (that is, be 'Year 2000 Compliant'), except to
the extent that a failure to do so could not reasonably be
expected (a) to have a Material Adverse Effect on the Servicer
or on the transaction documented under this Agreement, or (b)
to result in a Termination Event.
(B) The Servicer (i) has completed a review and
assessment of all computer applications (including, but not
limited to those of its suppliers, vendors, customers and any
third party servicers), which are related to or involved in
the origination, collection, management or servicing of the
Receivables (the 'Receivable Systems') and (ii) has determined
that such Receivable Systems are Year 2000 Compliant or will
be Year 2000 Compliant on or before January 1, 1999 and
thereafter.
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<PAGE> 6
(C) The costs of all assessment, remediation, testing
and integration related to the Servicer's plan for becoming
Year 2000 Compliant will not have a material adverse effect on
the financial condition or operations of the Servicer."
SECTION 7. AMENDMENT TO SECTION 7.2 Section 7.2 of the
Original Agreement is hereby amended by adding the following sub-section
immediately following sub-section immediately following sub-section (f) thereof:
"(g) YEAR 2000 COMPLIANCE. The Transferor will
promptly notify the Agent in the event the Transferor
discovers or determines that any computer application
(including those of its suppliers, vendors and customers) (i)
that is necessary for the origination, collection, management,
or servicing of the Receivables will not be Year 2000
compliant on or before January 1, 1999 and thereafter, or (ii)
that is otherwise material to its or any of its subsidiaries'
business and operations will not be Year 2000 compliant on a
timely basis, except to the extent that, in the case of (ii)
above, such failure could not reasonably be expected (a) to
have a Material Adverse Effect on the Transferor or on the
transaction documented under this Agreement, or (b) to result
in a Termination Event.
Further, the Transferor will deliver simultaneously
with any quarterly or annual financial statements or reports
to be delivered under the Agreement, a certificate signed by
the chief financial officer or treasurer of the Transferor
that no material event, problems or conditions have occurred
which in the opinion of management would (i) prevent or
materially delay the Transferor's plan to become Year 2000
compliant or (ii) cause or be likely to cause the Transferor's
representations and warranties with respect to being or
becoming Year 2000 compliant to no longer be true."
SECTION 8. AMENDMENT TO SECTION 7.4 Section 7.4 of the
Original Agreement is hereby amended by adding the following subsection
immediately following sub-section (i) thereof:
"(j) YEAR 2000 COMPLIANCE. The Servicer will promptly
notify the Agent in the event the Servicer discovers or
determines that any computer application (including those of
its suppliers, vendors and customers) (i) that is necessary
for the origination, collection, management, or servicing of
the Receivables will not be Year 2000 compliant on or before
January 1, 1999 and thereafter, or (ii) that is otherwise
material to its or any of its subsidiaries' business and
operations will not be Year 2000 compliant on a timely basis,
except to the extent that, in the case of (ii) above, such
failure could not reasonably be expected (a) to have a
Material Adverse Effect on the Servicer or on the transaction
documented under this Agreement, or (b) to result in a
Termination Event.
6
<PAGE> 7
Further, the Servicer will deliver simultaneously
with any quarterly or annual financial statements or reports
to be delivered under the Agreement, a certificate or
statement signed by the chief financial officer or treasurer
of the Servicer that no material event, problems or conditions
have occurred which in the opinion of management would (i)
prevent or materially delay the Servicer's plan to become Year
2000 compliant or (ii) cause or be likely to cause the
Servicer's representations and warranties with respect to
being or becoming Year 2000 compliant to no longer be true."
SECTION 9. AMENDMENT TO SECTION 7.5 Section 7.5 of the
Original Agreement is hereby amended by adding the following sub-section
immediately following sub-section (f) thereof:
"(g) AGREED UPON PROCEDURES. On or before 120 days after the
end of each fiscal year of the Servicer, beginning with the
fiscal year ending December 30, 1998, the Servicer shall cause
a firm of independent public accountants (who may also render
other services to the Servicer or the Transferor) to furnish a
report to the Agent to the effect that they have (i) confirmed
the Net Pool Balance as of the end of each Yield Period during
such fiscal year, and (ii) confirmed that the Receivables
treated by the Servicer as Eligible Receivables in fact
satisfied the requirements of the definition thereof contained
herein, except, in each case for (a) such exceptions as such
firm shall believe to be immaterial (which exceptions need not
be enumerated) and (b) such other exceptions as shall be set
forth in such statement."
Sub-section 7.5 (g) entitled "OTHER" is hereby re-lettered as
sub-section "(h)".
SECTION 10. AMENDMENT TO SECTION 11.2 Section 11.2 of the
Original Agreement is hereby amended by adding the following sub-section
immediately following subsection (b) thereof:
"(c) TERMINATION EVENTS. The Agent shall not be
deemed to have knowledge or notice of the occurrence of an
Unmatured Termination Event or a Termination Event unless the
Agent has received written notice from the Transferor
specifying such Unmatured Termination Event or Termination
Event and stating that such notice is a 'Notice of Termination
Event'. In the event that the Agent receives such a notice of
the occurrence of an Unmatured Termination Event or
Termination Event, the Agent shall give prompt notice thereof
to the Purchaser. The Agent shall (subject to SECTION 12.2
hereof) take such action with respect to such Unmatured
Termination Event or Termination Event as shall reasonably be
directed by the Purchaser, provided that, unless and until the
Agent shall have received such directions, the Agent may (but
shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Unmatured Termination
Event or Termination Event as it shall deem advisable in the
best interest of the Purchaser and the Bank Investors.
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<PAGE> 8
Subsection 11.2(c) entitled "ADDITIONAL REMEDIES" is
hereby re-lettered as sub-section "(d)."
SECTION 11. AMENDMENT TO SECTION 12.1. Section 12.1 of the
Original Agreement is hereby amended to read in its entirety as follows (solely
for the convenience, changed text is italicized):
"SECTION 12.1 AUTHORIZATION AND ACTION. The Purchaser
and each Bank Investor hereby appoints and authorizes the
Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to
such Agent by the terms hereof, together with such powers as
are reasonably incidental thereto. The provisions of this
ARTICLE XII are solely for the benefit of the Agent, the
Purchaser and the Bank Investors, and the Transferor shall not
have any rights as a third-party beneficiary or otherwise
under any of the provisions hereof. In performing its
functions and duties hereunder, the Agent shall act solely as
the agent for the Purchaser and the Bank Investors, as the
case may be, and does not assume nor shall be deemed to have
assumed any obligation or relationship of trust or agency with
or for the Transferor or any Originator or any of their
respective successors and assigns. THE AGENT (WHICH TERM AS
USED IN THIS SENTENCE SHALL INCLUDE ITS AFFILIATES AND ITS OWN
AND ITS AFFILIATES' OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS): (A) SHALL NOT HAVE ANY DUTIES OR RESPONSIBILITIES
EXCEPT THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT AND SHALL
NOT BE A TRUSTEE OR FIDUCIARY FOR THE PURCHASER OR ANY OTHER
BANK INVESTOR; (B) SHALL NOT BE RESPONSIBLE TO THE PURCHASER
OR ANY BANK INVESTOR FOR ANY RECITAL, STATEMENT,
REPRESENTATION, OR WARRANTY (WHETHER WRITTEN OR ORAL) MADE IN
OR IN CONNECTION WITH ANY AGREEMENT DOCUMENTS OR ANY
CERTIFICATE OR OTHER DOCUMENT REFERRED TO OR PROVIDED FOR IN,
OR RECEIVED BY ANY OF THEM UNDER ANY AGREEMENT DOCUMENT, OR
FOR THE VALUE, VALIDITY, EFFECTIVENESS, GENUINENESS,
ENFORCEABILITY, OR SUFFICIENCY OF ANY AGREEMENT DOCUMENT, OR
ANY OTHER DOCUMENT REFERRED TO OR PROVIDED FOR HEREIN OR FOR
ANY FAILURE BY ANY OF THE TRANSFEROR, OR ANY OTHER PERSON TO
PERFORM ANY OF ITS OBLIGATIONS THEREUNDER; (C) SHALL NOT BE
RESPONSIBLE FOR OR HAVE ANY DUTY TO ASCERTAIN, INQUIRE INTO,
OR VERIFY THE PERFORMANCE OR OBSERVANCE OF ANY COVENANTS OR
AGREEMENTS BY THE TRANSFEROR OR THE SATISFACTION OF ANY
CONDITION OR TO INSPECT THE PROPERTY (INCLUDING THE BOOKS AND
RECORDS) OF THE TRANSFEROR OR ANY OF ITS SUBSIDIARIES OR
AFFILIATES; (D) SHALL NOT BE REQUIRED TO INITIATE OR CONDUCT
ANY LITIGATION OR COLLECTION PROCEEDINGS UNDER ANY AGREEMENT
DOCUMENT; AND (E) SHALL NOT BE RESPONSIBLE FOR ANY ACTION
TAKEN OR OMITTED TO BE TAKEN BY IT UNDER OR IN CONNECTION WITH
ANY AGREEMENT DOCUMENT, EXCEPT FOR ITS OWN GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT. THE AGENT MAY EMPLOY AGENTS AND
ATTORNEYS-IN-FACT AND SHALL NOT BE RESPONSIBLE FOR THE
NEGLIGENCE OR MISCONDUCT OF ANY SUCH AGENTS OR
ATTORNEYS-IN-FACT SELECTED BY IT WITH REASONABLE CARE."
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<PAGE> 9
SECTION 12. AMENDMENT TO SECTION 12.2. Section 12.2 of the
Original Agreement is hereby amended to read in its entirety as follows (solely
for convenience, changed text is italicized):
"SECTION 12.2. AGENTS' RELIANCE, ETC. THE AGENT SHALL
BE ENTITLED TO RELY UPON ANY CERTIFICATION, NOTICE,
INSTRUMENT, WRITING, OR OTHER COMMUNICATION (including,
without limitation, ANY THEREOF BY TELEPHONE OR TELECOPY)
BELIEVED BY IT TO BE GENUINE AND CORRECT AND TO HAVE BEEN
SIGNED, SENT OR MADE BY OR ON BEHALF OF THE PROPER PERSON OR
PERSONS, AND UPON ADVICE AND STATEMENTS OF legal counsel
(including counsel for any of the Transferor or the Servicer),
independent accountants, and other experts selected by THE
AGENT. AS TO ANY MATTERS NOT EXPRESSLY PROVIDED FOR BY THIS
AGREEMENT, THE AGENT shall not be REQUIRED TO EXERCISE ANY
DISCRETION OR TAKE ANY ACTION, BUT SHALL BE REQUIRED TO ACT OR
TO REFRAIN FROM ACTING (AND SHALL BE FULLY PROTECTED IN SO
ACTING OR REFRAINING FROM ACTING) UPON THE INSTRUCTIONS OF THE
PURCHASER, AND SUCH INSTRUCTIONS SHALL BE BINDING ON the
Purchaser AND ALL OF THE BANK INVESTORS; PROVIDED, HOWEVER,
THAT THE AGENT shall not be REQUIRED TO TAKE ANY ACTION THAT
EXPOSES THE AGENT TO PERSONAL LIABILITY OR THAT IS CONTRARY TO
any Agreement Document OR APPLICABLE LAW OR UNLESS IT SHALL
FIRST BE INDEMNIFIED TO ITS SATISFACTION BY THE BANK INVESTORS
AGAINST ANY AND ALL LIABILITY AND EXPENSE which may be
INCURRED BY IT BY REASON OF TAKING ANY SUCH ACTION."
SECTION 13. AMENDMENT TO ARTICLE 12. Article 12 of the
Original Agreement is hereby further amended to include the following section
immediately following Section 12.3 thereof:
"SECTION 12.4. RESIGNATION OF AGENT. THE AGENT MAY
RESIGN AT ANY TIME BY GIVING NOTICE THEREOF TO THE PURCHASER,
THE BANK INVESTORS AND THE TRANSFEROR. UPON ANY SUCH
RESIGNATION, THE MAJORITY INVESTORS SHALL HAVE THE RIGHT TO
APPOINT A SUCCESSOR AGENT. IF NO SUCCESSOR AGENT SHALL HAVE
BEEN SO APPOINTED BY THE MAJORITY INVESTORS AND SHALL HAVE
ACCEPTED SUCH APPOINTMENT WITHIN THIRTY (30) DAYS AFTER THE
RETIRING AGENT'S GIVING OF NOTICE OF RESIGNATION, THEN THE
RETIRING AGENT MAY, ON BEHALF OF THE PURCHASER AND THE BANK
INVESTORS, APPOINT A SUCCESSOR AGENT WHICH SHALL BE A
COMMERCIAL BANK ORGANIZED UNDER THE LAWS OF THE UNITED STATES
OF AMERICA HAVING COMBINED CAPITAL AND SURPLUS OF AT LEAST
$100,000,000. UPON THE ACCEPTANCE OF ANY APPOINTMENT AS AGENT
HEREUNDER BY A SUCCESSOR, SUCH SUCCESSOR SHALL THEREUPON
SUCCEED TO AND BECOME VESTED WITH ALL THE RIGHTS, POWERS,
DISCRETION, PRIVILEGES, AND DUTIES OF THE RETIRING AGENT, AND
THE RETIRING AGENT SHALL BE DISCHARGED FROM ITS DUTIES AND
OBLIGATIONS HEREUNDER. AFTER ANY RETIRING AGENT'S RESIGNATION
HEREUNDER AS AGENT, THE PROVISIONS OF THIS ARTICLE XII SHALL
CONTINUE IN EFFECT FOR ITS BENEFIT IN RESPECT OF ANY ACTIONS
TAKEN OR OMITTED TO BE TAKEN BY IT WHILE IT WAS ACTING AS
AGENT."
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<PAGE> 10
SECTION 14. AMENDMENT TO SECTION 13.2. Section 13.2 is hereby
amended to read in its entirety as follows (solely for convenience, changed text
is italicized):
"SECTION 13.2. INDEMNIFICATION OF THE AGENT. The Bank
Investors agree to indemnify the Agent (to the extent not
reimbursed by the Transferor), ratably in accordance with
their PRO RATA portions of the Undivided Interests, from and
against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses
(including attorneys' fees), or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent (including by the Purchaser or any
Bank Investor) in any way relating to or arising out of this
Agreement or any other AGREEMENT DOCUMENT OR ANY OF the
transactions contemplated HEREBY OR thereby or any action
taken or omitted by the Agent under this Agreement or any
other Agreement Document, PROVIDED that no Bank Investors
shall be liable for any of the foregoing to the extent they
arise from the gross negligence or willful misconduct of the
Person indemnified. Without limitation of the foregoing, the
Bank Investors agree to reimburse the Agent, ratably in
accordance with their PRO RATA portions of the Undivided
Interests promptly upon demand for any out-of-pocket expenses
(including attorneys' fees) incurred by the Agent in
connection with the administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings
or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and the other Agreement
Documents, to the extent that such expenses are incurred in
the interests of or otherwise in respect of the Bank Investors
hereunder and/or thereunder and to the extent that the Agent
is not reimbursed for such expenses by the Transferor. The
agreements contained in this SECTION 13.2 shall survive
payment in full of the Undivided Interests and all other
amounts payable under this Agreement."
SECTION 15. AMENDMENT TO SECTION 13.5(A). Section13.5(a) is
hereby amended to read in its entirety as follows (solely for convenience,
changed text is italicized):
10
<PAGE> 11
"(a) BANK COMMITMENT. At any time on or prior to the
Commitment Termination Date, in the event that the Purchaser
does not effect a Purchase as requested under SECTION 2.1 then
at any time, the Transferor shall have the right to require
the Purchaser to assign its interest in the Aggregate
Purchaser's Investment in whole to the Bank Investors pursuant
to this SECTION 13.5. In addition, at any time on or prior to
the Commitment Termination Date (i) upon the occurrence of a
Termination Event that results in the Commitment Termination
Date or (ii) the Purchaser elects to give notice to the
Transferor of a Reinvestment Termination Date, the Transferor
hereby requests and directs that the Purchaser assign its
interest in the Aggregate Purchaser's Investment in whole to
the Bank Investors pursuant to this SECTION 13.5 and the
Transferor hereby agrees to pay the amounts described in
SECTION 13.6(D) BELOW. UPON any such election by the Purchaser
or any such request by the Transferor, the Purchaser shall
make such assignment TO the Bank Investors AND THE BANK
INVESTORS SHALL THEREUPON BE DEEMED TO HAVE ACCEPTED such
assignment and shall assume all of the Purchaser's obligations
hereunder. In connection with any assignment from the
Purchaser to the Bank Investors pursuant to this SECTION 13.5,
each Bank Investor shall, BY THE CLOSE OF BUSINESS (NEW YORK
TIME) on the date of such NOTICE OF assignment, pay to the
Purchaser (IN IMMEDIATELY AVAILABLE FUNDS) an amount equal to
its Assignment Amount (IT BEING UNDERSTOOD THAT
NOTWITHSTANDING THE FOREGOING ASSIGNMENT OF THE AGGREGATE
PURCHASERS INVESTMENT, THE BANK INVESTORS, AS ASSIGNEES,
CONTINUE TO BE OBLIGATED TO FUND ADVANCES UNDER SECTION 1.3 IN
ACCORDANCE WITH THE TERMS THEREOF AND SHALL NOT HAVE THE RIGHT
TO ELECT THE COMMENCEMENT OF THE AMORTIZATION OF THE
PURCHASERS INVESTMENT PURSUANT TO THE DEFINITION OF
"REINVESTMENT TERMINATION DATE" NOTWITHSTANDING THAT THE
PURCHASER HAD SUCH RIGHT). Upon any assignment by the
Purchaser to the Bank Investors contemplated hereunder, the
Purchaser shall cease to make any additional Purchases
hereunder."
SECTION 16. AMENDMENT TO SECTION 13.5(B). Section 13.5(b) is
hereby amended to read in its entirety as follows (solely for convenience,
changed language is italicized):
"(b) ASSIGNMENT. No Bank Investor may assign all or a
portion of its interest in the Purchaser's Investment, the
Receivables, and Collections, Related Security and Proceeds
with respect thereto and its rights and obligations hereunder
to any Person unless approved in writing by the Transferor,
the Purchaser and the Agent. In the case of an assignment BY A
Bank Investor to another Person, the assignor shall deliver to
the assignee(s) an Assignment and Assumption Agreement in
11
<PAGE> 12
substantially the form of Schedule 13.5(b) attached hereto,
duly executed, assigning to the assignee a pro rata interest
in the Purchaser's Investment, the Receivables, and
Collections, Related Security and Proceeds with respect
thereto and the assignor's rights and obligations hereunder
and the assignor shall promptly execute and deliver all
further instruments and documents, and take all further
action, that the assignee may reasonably request, in order to
protect, or more fully evidence the assignee's right, title
and interest in and to such interest and to enable the Agent,
on behalf of such assignee, to exercise or enforce any rights
hereunder and under the other Agreement Documents to which
such assignor is or, immediately prior to such assignment, was
a party. Upon any such assignment, (i) the assignee shall have
all of the rights and obligations of the assignor hereunder
and under the other Agreement Documents to which such assignor
is or, immediately prior to such assignment, was a party with
respect to such interest for all purposes of this Agreement
and under the other Agreement Documents to which such assignor
is or, immediately prior to such assignment, was a party (it
being understood that the Bank Investors, as assignees, shall
(x) be obligated to fund Purchases under Section 1.3(c) in
accordance with the terms thereof, notwithstanding that the
Purchaser was not so obligated and (y) not have the right to
elect the commencement of the amortization of the Purchaser's
Investment pursuant to the definition of 'Reinvestment
Termination Date', notwithstanding that the Purchaser had such
right) and (ii) the assignor shall relinquish its rights with
respect to such interest for all purposes of this Agreement
and under the other Agreement Documents to which such assignor
is or, immediately prior to such assignment, was a party. No
such assignment shall be effective unless a fully executed
copy of the related Assignment and Assumption Agreement shall
be delivered to the Agent and the Transferor. All costs and
expenses of the Agent and the assignor and assignee incurred
in connection with any assignment hereunder shall be borne by
the Transferor and not by the assignor or any such assignee.
No Bank Investor shall assign any portion of its Commitment
hereunder without also simultaneously assigning an equal
portion of its interest in the Liquidity Provider Agreement."
SECTION 17. AMENDMENT TO SECTION 13.5(f). Section
13.5(f) is hereby amended to read in its entirety as follows (solely for
convenience, changed language is italicized)
"(f) ADMINISTRATION OF AGREEMENT AFTER ASSIGNMENT.
After any assignment by the Purchaser to the Bank Investors
pursuant to this SECTION 13.5 (and the payment of all amounts
owing to the Purchaser in connection therewith), all rights of
the Agent set forth herein shall be deemed to be afforded to
the Agent on behalf of the Bank Investors instead of the
Purchaser. IN THE EVENT THAT THE AGGREGATE OF THE ASSIGNMENT
AMOUNTS PAID BY THE BANK INVESTORS PURSUANT TO SECTION 13.5(A)
IS LESS THAN THE AGGREGATE PURCHASER'S INVESTMENTS ON THE DATE
OF SUCH ASSIGNMENT, THEN TO THE EXTENT PAYMENTS MADE HEREUNDER
IN RESPECT OF THE AGGREGATE PURCHASER'S INVESTMENTS EXCEED THE
AGGREGATE OF THE ASSIGNMENT AMOUNTS, SUCH EXCESS SHALL BE
REMITTED BY THE AGENT TO NATIONSBANK, OR SUCH OTHER PERSON
ACTING AS COLLATERAL AGENT IN RESPECT OF THE PURCHASER'S
COMMERCIAL PAPER NOTE PROGRAM."
12
<PAGE> 13
SECTION 18. CONDITION PRECEDENT. This Amendment shall not
become effective until the Agent shall have executed this Amendment and shall
have received counterparts of this Amendment executed by the Purchaser, the
Transferor, the Servicer and each Bank Investor.
SECTION 19. CONDITION SUBSEQUENT. Counsel to Transferor and
The Wackenhut Corporation will deliver to the Purchaser and the Agent, within
ten (10) Business Days after the date hereof, an opinion of counsel to
Transferor and The Wackenhut Corporation, individually and as Servicer, with
respect to certain corporate matters and the enforceability of the Original
Agreement as amended to the date hereof (including by this Amendment). Failure
to deliver such opinion in form and substance satisfactory to the Agent, the
Purchaser and their counsel shall result in a Termination Event under the
Original Agreement.
SECTION 20. REPRESENTATIONS AND WARRANTIES. Each of the
Transferor and the Servicer hereby makes to the Purchaser, the Agent and each
Bank Investor on and as of the date hereof, the following representations and
warranties:
(a) AUTHORITY. Each of the Transferor and the
Servicer has the requisite corporate power and authority to
execute and deliver this Amendment and to perform its
obligations hereunder and under the Original Agreement (as
modified hereby). The execution, delivery and performance by
the Transferor and the Servicer of this Amendment and the
performance of the Original Agreement (as modified hereby)
have been duly approved by all necessary corporate action and
no other corporate proceedings are necessary to consummate
such transactions;
(b) ENFORCEABILITY. This Amendment has been duly
executed and delivered by each of the Transferor and the
Servicer. The Original Agreement (as modified hereby) is the
legal, valid and binding obligation of the Transferor and the
Servicer enforceable against the Transferor and the Servicer
in accordance with its terms, and is in full force and effect;
and
(c) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Transferor and the
Servicer contained in the Original Agreement (other than any
such representations or warranties that, by their terms, are
specifically made as of a date other than the date hereof) are
correct on and as of the date hereof as though made on and as
of the date hereof.
SECTION 21. REFERENCE TO AND EFFECT ON THE ORIGINAL AGREEMENT.
13
<PAGE> 14
Except as specifically amended and modified above,
the Original Agreement is and shall continue to be in full force and effect and
is hereby in all respects ratified and confirmed.
The execution, delivery and effectiveness of this
Amendment shall not operate as waiver of any right, power or remedy of the
Purchaser, the Agent or the Bank Investor(s) under the Agreement, nor constitute
a waiver of any provision of the Original Agreement.
SECTION 22. NO TERMINATION EVENT. No event has occurred and is
continuing that constitutes a Termination Event or an Unmatured Termination
Event.
SECTION 23. AMENDMENT AND WAIVER. No provision hereof may be
amended, waived, supplemented, restated, discharged or terminated without the
written consent of the Transferor, the Purchaser, the Agent and the Majority
Investors.
SECTION 24. SUCCESSORS AND ASSIGNS. This Amendment shall bind,
and the benefits hereof shall inure to the parties hereof and their respective
successors and permitted assigns; PROVIDED, HOWEVER, the Transferor may not
assign any of its rights or delegate any of its duties under this Amendment
without the prior written consent of the Purchaser.
SECTION 25. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE
TRANSFEROR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE
COURT SITTING IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 26. SEVERABILITY; COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
instrument. Any provisions of this Amendment which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 27. CAPTIONS. The captions in this Amendment are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
14
<PAGE> 15
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Purchaser
By:
--------------------------------
Name:
Title:
WACKENHUT FUNDING CORPORATION
as Transferor
By:
--------------------------------
Name:
Title:
THE WACKENHUT CORPORATION,
as Servicer
By:
--------------------------------
Name:
Title:
NATIONSBANK, N.A.,
as Agent and Bank Investor
By:
--------------------------------
Name:
Title:
16
<PAGE> 1
EXHIBIT 10.12
SENIOR OFFICER RETIREMENT AGREEMENT
THE WACKENHUT CORPORATION, a Florida corporation (Company) and James P.
Rowan (Executive) hereby agree as follows:
1. EMPLOYMENT.
Company will employ Executive as Senior Vice President or in such other
positions as may be determined from time to time by the Board of
Directors of Company and at such rate of compensation as may be so
determined. Executive will devote his full energy, skill and best
efforts to the affairs of Company on a full-time basis. It is
contemplated that such employment will continue until April 30, 1999,
but nevertheless either Company or Executive may terminate Executive's
employment at any time and for any reason upon sixty (60) days written
notice to the other.
2. RETIREMENT.
In the event of Executive's retirement, at any time after the execution
of this Agreement, and commencing with the first month after Executive
actually retires, Company will pay Executive $8,333.00 monthly for two
hundred forty (240) months.
3. TERMINATION OF EMPLOYMENT
If Executive terminates his employment with Company, or if Company
terminates Executive's employment at any time after the execution of
this Agreement, Company will pay Executive monthly, commencing with the
first month after Executive's termination is effective and continuing
for two hundred forty (240) months, the amount specified in Section 2
above.
4. DEATH.
If Executive dies before termination of his employment with Company,
Company shall pay Executive's named Beneficiary the payments which
would have been made to Executive under Section 2. above.
<PAGE> 2
5. SMALL AMOUNTS.
In the event the amount of any monthly payments provided herein shall
be less than Twenty ($20) Dollars, The Company in its sole discretion
may in lieu thereof pay the commuted value of such payments (calculated
on the basis of the interest rate and mortality assumptions being used
by The Northwestern Mutual Life Insurance Company of Milwaukee,
Wisconsin, to calculate immediate annuity rates on the date of this
Agreement) to the person entitled to such payments.
6. BENEFICIARY.
The Beneficiary (or Beneficiaries) of any payments to be made after
Executive's death, shall be as designated by Executive and shown on
attached Exhibit A or such other person or persons as Executive shall
designate in writing to Company. If no effective designation of
Beneficiaries has been made by Executive, any such payments shall be
made to Executive's estate.
7. RESTRICTIONS.
Executive shall not at any time, either directly or indirectly, accept
employment with, render service, assistance or advice to, or allow his
name to be used by any competitor of the Company unless approved by the
Board of Directors of the Company. Determination by the Board of
Directors of the Company that Executive has engaged in any such
activity shall be binding and conclusive on all parties, and in
addition to all other rights and remedies which Company shall have,
neither Executive not Beneficiary shall be entitled to any payments
hereunder.
8. INSURANCE.
If Company shall elect to purchase a life insurance contract to provide
Company with funds to make payments hereunder, Company shall at all
times be the sole and complete Owner and beneficiary of such contract,
and shall have the unrestricted right to use all amounts and exercise
all options and privileges thereunder without knowledge or consent of
Executive or Beneficiary or any other person, it being expressly agreed
that neither Executive nor Beneficiary nor any other person shall have
any right, title or interest whatsoever in or to any such contract.
9. SOURCE OF PAYMENTS.
Executive, Beneficiary and any other person or persons having or
claiming a right to payments hereunder or to any interest in this
Agreement shall rely solely on the unsecured promise of Company set
forth herein, and nothing in this Agreement shall be construed to give
Executive, Beneficiary or any other person or persons
2
<PAGE> 3
any right, title, interest or claim in or to any specific asset, fund,
reserve, account or property of any kind whatsoever owned by Company or
in which it may have any right, title or interest now or in the future,
but Executive shall have the right to enforce his claim against Company
in the same manner as any unsecured creditor.
10. AMENDMENT.
This Agreement may be amended at any time or from time to time by
written agreement of the parities.
11. ASSIGNMENT.
Neither Executive, nor Beneficiary, nor any other person entitled to
payments hereunder shall have power to transfer, assign, anticipate,
mortgage or otherwise encumber in advance any of such payments, nor
shall such payments be subject to seizure for the payment of public or
private debts, judgments, alimony or separate maintenance, or be
transferable by operation of law in event of bankruptcy, insolvency or
otherwise.
12. BINDING EFFECT.
This Agreement shall be binding upon the parties hereto, their heirs,
executors, administrators, successors and assigns. The Company agrees
it will not be a party to any merger, consolidation or reorganization,
unless and until its obligations hereunder shall be expressly assumed
by its successor or successors.
IN WITNESS WHEREOF the parties have executed this Agreement effective the 17th
day of March, 1998.
(Executive) (Company)
THE WACKENHUT CORPORATION
/s/ JAMES P. ROWAN By: /s/ R. R. WACKENHUT
- --------------------------------- ---------------------------------------
James P. Rowan President and Chief Operating Officer
Attest: /s/ K. M. STEPHENS
----------------------------------
(CORPORATE SEAL)
3
<PAGE> 1
EXHIBIT 10.13
SENIOR OFFICER RETIREMENT AGREEMENT
THE WACKENHUT CORPORATION, a Florida corporation (Company) and Sandra
L. Nusbaum (Executive) hereby agree as follows:
1. EMPLOYMENT.
Company will employ Executive as Senior Vice President or in such other
positions as may be determined from time to time by the Board of
Directors of Company and at such rate of compensation as may be so
determined. Executive will devote her full energy, skill and best
efforts to the affairs of Company on a full-time basis. It is
contemplated that such employment will continue until May 26, 2011,
(Executive's Retirement Date), but nevertheless either Company or
Executive may terminate Executive's employment at any time and for any
reason upon sixty (60) days written notice to the other.
2. RETIREMENT.
In the event of Executive's employment continues until her Retirement
Date, upon retirement, and commencing with the first month after
Executive actually retires, Company will pay Executive $8,333.00
monthly for two hundred forty (240) months.
3. TERMINATION OF EMPLOYMENT
If Executive terminates her employment with Company, or if Company
terminates Executive's employment prior to Executive's Retirement Date
but after January 28, 1998, Company shall pay Executive monthly,
commencing with the first month after executive's Retirement Date and
Continuing for two hundred forty (240) months, the amount specified in
Section 2 above. In the sole discretion of the board o Directors of
Company, periods of time during which Executive may be disabled may be
treated as time of employment for purposes of this computation.
4. DEATH.
If Executive dies before her Retirement Date and before termination of
her employment with Company, Company shall pay Executive's named
Beneficiary (designated as provided in Section 6 of this Agreement and
hereinafter referred to as Beneficiary) a monthly amount of $4,166.00
commencing with the first month following death and continuing for one
hundred twenty (120) months thereafter. In the case of death of
Executive after termination of employment with Company, but before her
Retirement Date, the Company shall pay to beneficiary $4,166.00
commencing with the first month following death and continuing for one
hundred twenty (120) months thereafter. If Executive dies within two
hundred forty (240) months following her Retirement Date and while
receiving payments hereunder, Company shall pay Beneficiary the
payments which would have been made to Executive had she lived for the
balance of said two hundred forty (240) month period.
5. SMALL AMOUNTS.
In the event the amount of any monthly payments provided herein shall
be less than Twenty ($20) Dollars, The Company in its sole discretion
may in lieu thereof pay the commuted value of such payments (calculated
on the basis of the interest rate and mortality assumptions being used
by The Northwestern Mutual Life Insurance Company of Milwaukee,
Wisconsin, to calculate immediate annuity rates on the date of this
Agreement) to the person entitled to such payments.
<PAGE> 2
6. BENEFICIARY.
The Beneficiary (or Beneficiaries) of any payments to be made after
Executive's death, shall be as designated by Executive and shown on
attached Exhibit A or such other person or persons as Executive shall
designate in writing to Company. If no effective designation of
Beneficiaries has been made by Executive, any such payments shall be
made to Executive's estate.
7. RESTRICTIONS.
Executive shall not at any time, either directly or indirectly, accept
employment with, render service, assistance or advice to, or allow her
name to be used by any competitor of the Company unless approved by the
Board of Directors of the Company. Determination by the Board of
Directors of the Company that Executive has engaged in any such
activity shall be binding and conclusive on all parties, and in
addition to all other rights and remedies which Company shall have,
neither Executive not Beneficiary shall be entitled to any payments
hereunder.
8. INSURANCE.
If Company shall elect to purchase a life insurance contract to provide
Company with funds to make payments hereunder, Company shall at all
times be the sole and complete Owner and beneficiary of such contract,
and shall have the unrestricted right to use all amounts and exercise
all options and privileges thereunder without knowledge or consent of
Executive or Beneficiary or any other person, it being expressly agreed
that neither Executive nor Beneficiary nor any other person shall have
any right, title or interest whatsoever in or to any such contract.
9. SOURCE OF PAYMENTS.
Executive, Beneficiary and any other person or persons having or
claiming a right to payments hereunder or to any interest in this
Agreement shall rely solely on the unsecured promise of Company set
forth herein, and nothing in this Agreement shall be construed to give
Executive, Beneficiary or any other person or persons any right, title,
interest or claim in or to any specific asset, fund, reserve, account
or property of any kind whatsoever owned by Company or in which it may
have any right, title or interest now or in the future, but Executive
shall have the right to enforce her claim against Company in the same
manner as any unsecured creditor.
10. AMENDMENT.
This Agreement may be amended at any time or from time to time by
written agreement of the parities.
2
<PAGE> 3
11. ASSIGNMENT.
Neither Executive, nor Beneficiary, nor any other person entitled to
payments hereunder shall have power to transfer, assign, anticipate,
mortgage or otherwise encumber in advance any of such payments, nor
shall such payments be subject to seizure for the payment of public or
private debts, judgments, alimony or separate maintenance, or be
transferable by operation of law in event of bankruptcy, insolvency or
otherwise.
12. BINDING EFFECT.
This Agreement shall be binding upon the parties hereto, their heirs,
executors, administrators, successors and assigns. The Company agrees
it will not be a party to any merger, consolidation or reorganization,
unless and until its obligations hereunder shall be expressly assumed
by its successor or successors.
IN WITNESS WHEREOF the parties have executed this Agreement effective the 17th
day of March, 1998.
(Executive) (Company)
THE WACKENHUT CORPORATION
/s/ SANDRA L. NUSBAUM By: /s/ RICHARD R. WACKENHUT
- --------------------------------- -------------------------------------
Sandra L. Nusbaum President and Chief Operating Officer
Attest: /s/ K. M. STEPHENS
--------------------------------
(CORPORATE SEAL)
3
<PAGE> 1
Exhibit 13.0
Financial Review
The Wackenhut Corporation and Subsidiaries
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Regular quarterly dividends of $.075 and $.065 per share on both its outstanding
series A and B common stock were declared and paid for each of the four quarters
of fiscal 1998 and 1997, respectively. The Company will consider declaring
future quarterly dividends on series A and B common stock, depending on its
earnings, financial condition, capital requirements and other relevant factors;
however, there is no assurance that the Company will continue to pay quarterly
dividends in the future.*
During the 1998 fiscal year, the Company purchased 109,400 shares of its series
B common stock at an average price of $17.75 per share, and WHC purchased
442,800 shares of its common stock at an average price of $19.35.
The ensuing table shows the high and low prices for the Company's series A
(NYSE: WAK) and B (NYSE: WAKB) common stock, as reported on the New York Stock
Exchange, for each quarterly period during fiscal 1998 and 1997. The prices
shown in the table have been rounded to the nearest 1/16th. The approximate
number of record holders of series A and B common stock, as of February 19,
1999, was 650 and 670, respectively.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
- -------------------------------------------------------------------------------------------------------------------------------
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 $ 24-3/8 $ 21-1/2 $ 22-1/8 $ 19 $ 19 $ 16-1/2 $ 15-3/4 $ 13-5/8
Second 25-1/16 21-1/2 22-11/16 20 19-3/8 15-3/8 20-7/8 13-3/4
Third 23-1/8 18 21-5/8 15-1/2 24-1/2 18-3/4 20-5/8 17-1/4
Fourth 26 19-5/8 21-15/16 14-13/16 24-11/16 19 22-7/8 16-7/8
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 19, 1999 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
domestic and foreign 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.
<PAGE> 2
The Wackenhut Corporation and Subsidiaries
SELECTED FINANCIAL DATA
(in millions except per share data)
The selected consolidated financial data should be read in conjunction with the
Company's consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED: (a) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RESULTS OF OPERATIONS:
Revenues $1,755.1 $1,126.8
Operating income (b) 32.4 3.3
Income before income taxes (b) 34.6 6.0
Income before extraordinary charge and cumulative effect of accounting change (b) 15.9 0.1
Cumulative effect of accounting change for write-off of deferred start-up costs (c) 6.6
Extraordinary charge - early extinguishment of debt, net of income taxes
Cumulative effect of accounting change for income taxes
------------------------
Net income $ 9.3 $ 0.1
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - BASIC: (d)
Income before extraordinary charge and cumulative effect of accounting change (b) $ 1.07 $ .01
Cumulative effect of accounting change for write-off of deferred start-up costs (.44)
Extraordinary charge - early extinguishment of debt, net of income taxes
Cumulative effect of accounting change for income taxes
------------------------
Net income - Basic $ .63 $ .01
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - ASSUMING DILUTION: (d)
Income (loss) before extraordinary charge and cumulative effect of accounting change (b) $ 1.03 $ (.01)
Cumulative effect of accounting change for write-off of deferred start-up costs (.44)
Extraordinary charge - early extinguishment of debt, net of income taxes
Cumulative effect of accounting change for income taxes
------------------------
Net income (loss) - Assuming Dilution $ .59 $ (.01)
- ------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER SHARE OF COMMON STOCK: (d)
Regular quarterly dividends $ .30 $ .26
Total dividends $ .30 $ .26
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION:
Working capital $ 87.0 $ 116.8
Total assets 453.0 404.4
Total debt (e) 4.7 15.8
Shareholders' equity 149.2 146.8
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Fiscal years 1998 and 1992 included 53 weeks.
(b) Fiscal year 1997 includes a one-time pre-tax charge of $18.3 million
before income taxes ($11.3 million after income taxes) or $0.76 per
share.
(c) See Note 2 to the consolidated financial statements.
(d) 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.
(e) Includes current portion of long-term debt, notes payable and long term
debt.
<PAGE> 3
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 906.0 $ 797.0 $ 727.0 $ 659.0 $ 615.0 $ 570.0 $ 521.0 $ 462.0
16.3 15.8 6.6 4.5 3.4 13.9 12.1 10.2
17.9 13.7 3.0 3.4 1.6 11.9 10.7 8.5
9.1 7.3 2.3 3.6 1.1 7.7 7.0 5.9
(0.9) (1.4)
7.4
- -----------------------------------------------------------------------------------------------------
$ 9.1 $ 7.3 $ 1.4 $ 2.2 $ 8.5 $ 7.7 $ 7.0 $ 5.9
- -----------------------------------------------------------------------------------------------------
$ .66 $ .60 $ .19 $ .30 $ .09 $ .64 $ .58 $ .49
(.08) (.12)
.61
- -----------------------------------------------------------------------------------------------------
$ .66 $ .60 $ .11 $ .18 $ .70 $ .64 $ .58 $ .49
- -----------------------------------------------------------------------------------------------------
$ .65 $ .60 $ .19 $ .30 $ .09 $ .64 $ .58 $ .49
(.08) (.12)
.61
- -----------------------------------------------------------------------------------------------------
$ .65 $ .60 $ .11 $ .18 $ .70 $ .64 $ .58 $ .49
- -----------------------------------------------------------------------------------------------------
$ .26 $ .24 $ .23 $ .23 $ .20 $ .19 $ .19 $ .19
$ .26 $ .24 $ .23 $ .23 $ .20 $ .19 $ .19 $ .19
- -----------------------------------------------------------------------------------------------------
$ 148.1 $ 51.9 $ 75.6 $ 56.2 $ 56.9 $ 48.6 $ 42.4 $ 40.6
323.9 197.9 212.8 211.3 192.2 172.1 164.1 157.7
5.9 6.5 42.8 67.9 64.0 47.7 46.9 51.3
148.2 62.9 57.5 47.4 47.6 42.8 37.9 33.6
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
The Wackenhut Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Tabular information in thousands)
OVERVIEW
The Wackenhut Corporation and its subsidiaries (the "Company") is a leading
outsourcer of diversified services to business and government. The Company
focuses strategically on three major businesses worldwide - security related and
other operational support services, development and management of privatized
correctional and detention facilities, and personnel employee leasing and
temporary services. The security-related services have expanded into a range of
support services to include security operations, facility management, fire and
emergency medical services and food service to private and publicly managed
correctional facilities. The Security Services business is organized into
North American Operations and International Operations. The Company, through its
55% owned public subsidiary, Wackenhut Corrections Corporation (NYSE:WHC)
designs, constructs, finances and manages correctional, detention and mental
health psychiatric facilities and performs separate correctional-related
services, including prisoner transportation, home detention monitoring and
correctional health care. During the past three years, the Company has
established a national presence in the flexible staffing business which
includes, personnel employee leasing, temporary services, recruiting, risk
management, payroll processing and human resource services.
During the fourth quarter of 1998,the Company adopted AICPA Statement of
Position 98-5 ("SOP 98-5"), "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. The adoption of SOP 98-5, which was
applied retroactively to the first quarter of 1998, resulted in a one-time
charge of $6.6 million, net of income taxes and after deducting the portion
applicable to minority shareholders of Wackenhut Corrections Corporation. On a
diluted basis, the cumulative effect of change in accounting principle was $0.44
per share.
During the fourth quarter of 1997, the Company recognized a one-time pretax
charge of $18.3 million ($11.3 million after income taxes, or $0.76 per common
share). The one-time charge included a loss of $6.0 million ($3.8 million after
income taxes) on the sale of the Company's Australian security business. Also,
as a result of its strategic review process and analysis, the Company determined
that deferred information systems costs and certain domestic and international
investments were identified as impaired, resulting in a write-off of $12.3
million ($7.4 million after income taxes). These assets were not functional as
part of the Company's upgraded information technology platform and were impaired
due to their inability to generate future cash flows.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are from operations and borrowings
under its credit facilities. Cash and equivalents totaled $43.5 million at
January 3, 1999, compared to $45.2 million at December 28, 1997. Of this $43.5
million, $11.6 million collateralizes certain obligations of the Company's
captive insurance subsidiary. In addition, cash and cash equivalents of WHC,
which totaled $20.2 million at January 3, 1999, is generally not available to
the Company.
The total amount available to the Company from its revolving credit and
securitization facility is $140.0 million, as amended. The Company had
additional sources of liquidity in the form of a $65.0 million line of credit
(as amended in February 1999), available for revolving loans or letters of
credit, under which up to $15.0 million may be borrowed to meet short term
liquidity needs, and a $75.0 million accounts receivable securitization facility
(as amended in February 1999). Additionally, at January 3, 1999, the Company's
Wackenhut Corrections subsidiary had a $30.0 million revolving credit facility,
which includes $5.0 million for the issuance of letters of credit, and a $220.0
million operating lease facility to acquire and develop new correctional
institutions used in its business. At January 3, 1999, $100.9 million of
properties were in development under this $220.0 million operating lease
facility guarantee.
At January 3, 1999, the Company had $1.8 million of borrowings and $24.2 million
outstanding letters of credit against its bank revolving facility. The unused
portion of the revolving line of credit (as amended in February 1999) was $39.0
million. Under the accounts receivable securitization agreement, $53.0 million
was outstanding at the end of fiscal 1998. Under the terms of the accounts
receivable securitization facility, the Company retains substantially the same
risk of credit loss as if receivables had not been sold under this facility. At
January 3, 1999, no amounts were outstanding under Wackenhut Corrections'
revolving credit facility, but four standby letters of credit were outstanding
in an aggregate amount of $2.6 million.
In April 1998, Correctional Properties Trust ("CPV"), a Maryland real estate
investment trust, sold 6.2 million shares of common stock at $20.00 per share in
an initial public offering. Approximately $113 million of the net proceeds of
the offering were used to acquire eight correctional and detention facilities
operated by Wackenhut Corrections. These properties were then leased back to
Wackenhut Corrections. Wackenhut Corrections received $42.0 million for the
three facilities owned by it and for its right to acquire four of the other five
facilities realizing a profit on the sale of $18.0 million, which will be
amortized over the ten-year lease term. The eighth facility was purchased
directly from the government entity. CPV was also granted the option to acquire
three additional correctional facilities then under development by the Company
and the fifteen-year right to acquire and lease back future correctional and
detention facilities developed or acquired by the Company. On October 30, 1998,
CPV acquired the completed portion of one option facility for $26.0 million,
which was leased back to the Company.
In November 1998, the Company purchased certain assets and assumed certain
liabilities of Sharp Services, Inc. and Advantage Temporary Services, Inc.
("Sharp") for an initial payment of $8.1 million in cash, with a contingent cash
payment, payable no later than May 2001, subject to certain performance
requirements. In no event will the total purchase price exceed $10.0 million.
The Company and Wackenhut Corrections anticipate making cash investments in
connection with future acquisitions. In addition, Wackenhut Corrections will
continue to use cash and its available sources of funds to finance start-up
costs, leasehold improvements and equity investments in correctional
facilities, if appropriate, in connection with undertaking new contracts.*
Cash at the end of fiscal 1998 decreased $1.7 million to $43.5 million, compared
to $45.2 million at the end of fiscal 1997. Net cash used in operating
activities was $.2 million in fiscal 1998 compared to net cash generated by
operating activities of $42.7 million in fiscal 1997. The increases in accounts
receivable of $50.6 million, inventories of $11.0 million and deferred taxes of
$15.6 million, were only partially offset by net income adjusted for non-cash
items of $44.0 million, increases in accounts payable and accrued expenses of
$23.1 million, accrued payroll and related taxes of $17.6 million and
<PAGE> 5
reserve for losses of the casualty reinsurance subsidiary of $5.0 million. Cash
used in other operating activities amounted to $12.7 million.
Cash used in investing activities amounted to $29.5 million in fiscal 1998,
including capital expenditures of $33.9 million, which reflects the investment
in facilities of Wackenhut Corrections and the purchases of equipment related to
security-related services. Payments for the acquisition of Sharp amounted to
$8.1 million (net of cash acquired). The net increase in marketable securities
of the Company's captive reinsurance subsidiary was $10.7 million. In addition,
the Company made additional investments and advances to affiliates and joint
ventures of $10.9 million and deferred $7.7 million of the cost of new
information systems. These outlays of cash were partially offset by the net
proceeds from the sale of prison facilities to CPV of $41.8 million.
Cash provided by financing activities in fiscal 1998 amounted to $29.3 million
including $53.0 million proceeds from sales of accounts receivable. Net payments
on short-term and long-term debt, including the revolving credit agreement, were
$11.2 million. Purchases of treasury stock of the Company and Wackenhut
Corrections were $10.8 million. Cash dividends paid in fiscal 1998 amounted to
$4.4 million. All other cash provided by investing activities amounted to $2.7
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, investment in information systems and the
payment of dividends. The payment of future quarterly dividends will depend on
earnings, financial condition, capital requirements and other relevant factors,
and there is no assurance that the Company will continue to pay quarterly
dividends in the future. 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 public stock offerings in 1996, both the Company and Wackenhut
Corrections repaid borrowings outstanding, kept credit lines available and
significantly increased their borrowing capacity. In addition, management
believes that cash on hand, cash provided by operating activities 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
through 1999. Management will continue to review its capital/financial planning
alternatives to ensure long-term financial capital access and availability.
YEAR 2000 READINESS DISCLOSURE
Management continued its review of the installation of new information systems
hardware and software and determined that the installation is on schedule for
completion before the Year 2000. Other systems, including embedded technology,
such as security systems are also being reviewed. The Year 2000 issue is the
result of shortcomings in many electronic data processing systems and other
equipment that make operations beyond the year 1999 troublesome. The internal
clocks in computers and other equipment will roll over from "12/31/99" to
"01/01/00" and programs and hardware, if not corrected, will be unable to
distinguish between the year 2000 and the year 1900. This may result in
processing data inaccurately or in stopping data processing altogether.
There are five phases that describe the Company's process in becoming Year 2000
compliant. The awareness phase encompasses developing a budget and project plan.
The assessment phase identifies mission-critical systems to check for
compliance. Based on current information, both of these phases have been
completed. The Company is at various stages in the three remaining
phases:renovation, validation and implementation. Renovation is the design of
the systems to be Year 2000 compliant. Validation is testing the systems
followed by implementation.
Implementation of the Company's Year 2000 compliant financial information
systems has begun and is scheduled for complete implementation in third quarter
1999. Implementation of all other major Year 2000 compliant information systems
is scheduled for completion in 1999.*
The Company has incurred and will continue to incur expenses related to Year
2000 compliance. These costs include time and effort of internal staff and
consultants for renovation, validation and implementation, and computer
enhancements and/or replacements. The total costs to be expensed for achieving
Year 2000 compliance is funded from working capital and monitored by each
business unit. Systems identified are not considered applicable to the corporate
core financial products. All information systems costs related to Year 2000
compliance were expensed in 1998 totalling $186,000. To complete Year 2000
information systems compliance, the Company estimates an additional $825,000
will be expensed.*
These costs for Year 2000 compliance exclude the Company's total costs estimated
to be incurred in previously planned new systems. Estimated costs of
implementing these new systems is $19.1 million.* Costs incurred through year
end total $12.4 million of which $9.1 million has been capitalized and will be
amortized and $3.3 million expensed. To complete these new systems, the Company
estimates $6.7 million will be incurred of which $4.2 million will be
capitalized and amortized and $2.5 million will be expensed.* Deferral of
other projects that would have a material effect on operations has not been
required, nor anticipated, as a result of the Company's Year 2000 efforts.*
Management is reviewing the state of Year 2000 readiness for third parties with
whom the Company shares a material relationship, such as banks and vendors used
by the Company. Inquiries have been and continue to be made to these third
parties requesting written verification as to their Year 2000 status. Vendors
who cannot indicate such compliance risk the possibility of being replaced. At
this time, the Company is unaware of any third party Year 2000 issues that would
materially affect these relationships.*
The Company is developing a contingency plan and expects completing it in 1999.
The components of this plan include providing paper updates to the contract
management, payroll and human resources systems. These updates could be sent to
corporate personnel for processing directly into the Company's new information
systems. These systems will be certified Year 2000 compliant and could be
updated either remotely by field sites or by corporate personnel.*
The Company expects to be Year 2000 compliant in 1999 for all major systems. In
the most likely worst case, remote Company site telecommunication providers
would not be able to provide frame relay services to allow access to the
Company's computers. In the event this were to occur, all payroll and billing
would be performed under normal conditions with the exception that field updates
would be performed by corporate personnel.*
The Company is also assessing the risks and full impact on operations should the
most reasonably likely worst case year 2000 scenario occur. In conjunction with
this assessment, the Company is developing contingency plans and expects to
complete them in 1999.
<PAGE> 6
INFLATION
Management believes that inflation has not had a material effect on the
Company's results of operations during the past three fiscal years. While some
of the Company's contracts include provisions for inflationary indexing, 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.*
MARKET RISK
The Company is exposed to market risks, including changes in interest rates and
currency exchange rates. These exposures primarily relate to outstanding
balances under the revolving line of credit and securitization facilities and
international investments. In addition, Wackenhut Corrections is exposed to
market risks arising from changes in interest rates with respect to a $220.0
million operating lease facility (Note 17). Based on the Company's interest rate
and foreign exchange rate exposure at January 3, 1999, a 10% change in the
current interest rate or historical currency rate movements would not have a
material effect on the Company's financial position or results of operations
over the next fiscal year.*
Management continues to monitor the operations of several international
subsidiaries and affiliates in countries affected by the current economic and
financial crises. The losses attributable to operations in those countries and
related foreign exchange fluctuations did not significantly affect the
consolidated results of operations for fiscal 1998. In addition, barring a
further deterioration of the international markets, management does not believe
that the consolidated results of operations will be significantly affected by
these events in fiscal 1999.*
EURO CONVERSION
Effective January 1, 1999, the European Economic and Monetary Union created a
single Eurocurrency (the Euro) for its member countries. From this date, the
exchange rates of participating countries is irreversibly fixed against the
Euro. Management believes the impact of the Euro will not have a material impact
upon the Company's results of operations or financial position since significant
European operations are not located in participating countries.*
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto. The table on page 27
summarizes results of operations for the Company's three business segments by
organizational group.
FISCAL 1998 COMPARED WITH FISCAL 1997
REVENUES
Fiscal 1998 consolidated revenues increased $628.3 million or 56% over fiscal
1997, due to increases in all business groups. The Company's expansion into
staff leasing/temporary services and the accelerated growth in the correctional
business were the largest contributors to the increase over fiscal 1998.
Security services also showed significant growth, including substantially higher
growth than industry averages.
SECURITY SERVICES BUSINESS
Fiscal 1998 security services North American and International Operations
revenues increased $118.2 million or 14% to $947.2 million from $829.0 million
in fiscal 1997.
NORTH AMERICAN OPERATIONS
Revenues from North American Operations increased $98.2 million, or 14%,to
$810.0 million in fiscal 1998 from $711.8 million in fiscal 1997. Within North
American Operations, revenues from commercial accounts represented approximately
60% of total revenues of the group in fiscal 1998 versus 59% in fiscal 1997, and
revenues from government/regulated industries represented the other portion.
Commercial account revenues increased 15% in fiscal 1998 over fiscal 1997,
primarily due to a combination of increases in billable hours and higher billing
rates, as the Company continued to expand its base of national accounts and
Custom Protection Officer(R)("CPO") clients. Revenues of government and
regulated industries increased 12% in fiscal 1998 over fiscal 1997.
INTERNATIONAL OPERATIONS
International Operations' revenues increased $20.0 million, or 17%,to $137.2
million in fiscal 1998 from $117.2 million in fiscal 1997. These increases were
partially offset by the exit from the Australian security market. In December
1997,the Company sold its Australian security subsidiary, which had revenues of
$13.8 million in fiscal 1997. Excluding the 1997 revenues from the Australian
subsidiary, the increase in 1998 international operations revenue was $33.8
million, or 33%. Revenues in Latin America, principally in Puerto Rico and
Guatemala, and Europe, principally in the United Kingdom, continued to increase
mainly through expansion of the security related business, diversification of
services, and expansion of the client base of multi-national companies.
CORRECTIONAL BUSINESS
Fiscal 1998 correctional services revenues increased $105.9 million, or 51%,to
$312.8 million in fiscal 1998 from $206.9 million in fiscal 1997. In fiscal
1998, Wackenhut Corrections Corporation opened nine new facilities. At the end
of fiscal 1998, WHC operated 26,067 beds and had 9,576 beds under construction.
Occupancy increased to 97.9% of capacity in fiscal 1998 from 97.2% in fiscal
1997, and total compensated resident days increased to 7.8 million in fiscal
1998 from 5.2 million in fiscal 1997.
FLEXIBLE STAFFING SERVICES
The significant growth in Flexible Staffing Services has resulted from both
internal growth and acquisitions. Staffing Services revenues were $495.1 million
for fiscal 1998, compared to $90.9 million in fiscal 1997. The increase in
revenues in fiscal 1998 reflects the acquisitions of PEM in December 1997, a
professional employer organization, and Sharp, which was acquired in November
1998. When compared to the beginning of the year base business, leased employees
have grown approximately 47% from 16,900 employees to 24,800. Temporary
placement hours have grown approximately 50% from 1.5 million hours in 1997 to
2.2 million hours in 1998, which includes 300,000 hours from Sharp.
OPERATING INCOME
Fiscal 1998 consolidated operating income was $32.4 million versus $3.3 million
in fiscal 1997. Excluding the one-time charges in fiscal 1997 of $18.3
million, operating income in 1998 increased $10.8 million or 50% from $21.6
million in 1997. The operating margin for fiscal 1998 was essentially flat,
compared to fiscal 1997, excluding the one-time charges. Offsetting the increase
in operating profit from higher revenues were the following factors:[1] WHC's
lease payments to CPV,[2] the increase in information technology costs related
to the new enterprise-wide systems, and [3] the increase in payroll and other
direct costs of worksite employees of the staffing services. Direct costs of
worksite employees of the staffing services are pass-through costs, not subject
to the Company's control.
<PAGE> 7
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- ------------------
$ % $ % $ %
------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES (a)
SECURITY SERVICES
North American Operations $ 810.0 46.2 $ 711.8 63.2 $ 664.5 73.4
International Operations 137.2 7.8 117.2 10.4 103.5 11.4
------------------- ------------------- ------------------
947.2 54.0 829.0 73.6 768.0 84.8
CORRECTIONAL SERVICES 312.8 17.8 206.9 18.3 137.8 15.2
FLEXIBLE STAFFING SERVICES 495.1 28.2 90.9 8.1 0.2 0.0
------------------- ------------------- ------------------
CONSOLIDATED REVENUES $ 1,755.1 100.0 $ 1,126.8 100.0 $ 906.0 100.0
------------------- ------------------- ------------------
OPERATING INCOME (b)
SECURITY SERVICES
North American Operations $ 22.2 2.7 $ 20.1 2.8 $ 20.0 3.0
International Operations 2.0 1.5 0.2 0.2 (1.3) (1.2)
------------------- ------------------- ------------------
24.2 2.6 20.3 2.4 18.7 2.4
CORRECTIONAL SERVICES 22.5 7.2 16.5 8.0 9.7 7.1
FLEXIBLE STAFFING SERVICES 2.7 0.5 (0.3) (0.3) (0.4) (176.3)
UNALLOCATED CORPORATE EXPENSE (17.0) (1.0) (14.9) (1.3) (10.9) (1.2)
ONE-TIME CHARGE AND IMPAIRMENT OF ASSETS - (18.3) (1.6) (0.8) (0.1)
------------------- ------------------- ------------------
CONSOLIDATED OPERATING INCOME $ 32.4 1.8 $ 3.3 0.3 $ 16.3 1.8
------------------- ------------------- ------------------
</TABLE>
(a) Represents percent of total revenues.
(b) Represents percent of respective business related revenues.
SECURITY SERVICES BUSINESS
Fiscal 1998 security services business operating income of $24.2 million
increased $3.9 million, or 19%,from $20.3 million in fiscal 1997.
NORTH AMERICAN OPERATIONS
North American Operations operating income of $22.2 million increased $2.1
million, or 10%,from $20.1 million in fiscal 1997. This increase 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 offset by increases in administrative and
corporate costs. The increase in administrative and corporate expenses as
compared to fiscal 1997 was due to increases in information technology costs as
the Company rolls out new enterprise wide systems and payroll related costs
attributable to headquarters staff. Despite the higher costs associated with
information technology, the North American Operations operating income as a
percentage of revenues remained relatively stable in fiscal 1998 compared to
fiscal 1997.
INTERNATIONAL OPERATIONS
Excluding the Australian subsidiary's 1997 loss of $1.6 million, the 1998
operating income of the International Operations increased $0.2 million, or
11%,and remained essentially unchanged at about 1.5% of related revenues.
Otherwise, International Operations operating income increased $1.8 million to
$2.0 million in fiscal 1998 from $0.2 million in fiscal 1997. The operating
income of subsidiaries in Latin American and the Caribbean continued to show
significant improvements as a result of increases in the security business,
diversification into other security-related services and renegotiation of
billing rates. Operating results showed softness in Europe (principally the
United Kingdom, Russia and Czech Republic) and Asia.
CORRECTIONAL BUSINESS
Fiscal 1998 operating income from the correctional business increased $6.0
million, or 36%, to $22.5 million from $16.5 million in fiscal 1997. The
increase is due principally to the increased profits from the new facilities
opened in fiscal 1998. Operating margin was 7.2% as a percentage of revenues in
fiscal 1998, compared to 8.0% in fiscal 1997. The decrease in operating margin
was due partially to the lease payments to CPV, which began in April 1998,and
expensing of start-up costs due to the adoption of AICPA SOP 98-5,which were
partially offset by the related decrease in amortization expense. In fiscal
1998, these additional costs were substantially offset by increased interest
earnings.
FLEXIBLE STAFFING SERVICES
Flexible Staffing Services operating income was $2.7 million in fiscal 1998
compared to a loss of $0.3 million in fiscal 1997. This improvement is
attributable principally to the acquisitions of PEM in December 1997, Sharp in
November 1998 and an improvement in the profit contribution of internally
developed staffing services. The operating income of the Flexible Staffing
Services as a percentage of total Flexible Staffing revenues was 0.5% for fiscal
1998. However, salaries, wages, payroll taxes and other direct costs of
work-site employees are pass-through costs not subject to the Company's control.
The controllable revenues of the employee leasing services, the principal
components of the Flexible Staffing Services, was $23.1 million in fiscal 1998
and resulted in operating margin of $2.1 million or 9.1% of controllable
revenues. The combined controllable revenue, including both employee leasing and
temporary staffing revenues, was $58.4 million in fiscal 1998, and the combined
operating margin was $2.7 million or 4.6% of combined controllable revenues in
fiscal 1998.
CORPORATE EXPENSES AND INFORMATION SYSTEMS
Unallocated corporate general and administrative expenses increased 14% to $17.0
million from $14.9 in 1997. The increase was due principally to an increase in
information technology cost as the Company brings on-line 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% from 1.3% in 1997.
* Refer to notice regarding forward-looking statements on page 21.
<PAGE> 8
EBITDA
Fiscal 1998 EBITDA, defined as earnings before interest expense, income
taxes, depreciation and amortization, was $49.9 million versus $20.8 million in
fiscal 1997. Adjusted EBITDA, which excludes the one-time charges for 1997,
increased 28%, or $10.8 million, to $49.9 million from $39.1 million in fiscal
1997. As a percentage of revenues, Adjusted EBITDA was 2.8% for fiscal
1998,compared to 3.5% for fiscal 1997 and was lower in 1998 than in
1997, principally due to the increase in pass-through revenues of the Flexible
Staffing Services.
Excluding the pass-through revenues of the Flexible Staffing
Services, EBITDA as a percentage of revenues was 3.8% in fiscal 1998. Neither
EBITDA nor Adjusted EBITDA represents cash flow from operations as defined by
generally accepted accounting principles.
OTHER INCOME/(EXPENSE)
Interest and investment income increased $0.8 million (19%) in fiscal 1998 over
fiscal 1997 due to the investment of proceeds from the sale of properties by
Wackenhut Corrections to CPV, a real estate investment trust. This increase was
offset by an increase in interest expense of $1.3 million, due to increased fees
pertaining to the accounts receivable securitization agreement.
INCOME BEFORE INCOME TAXES
Fiscal 1998 income before income taxes was $34.6 million, compared to $6.0
million in fiscal 1997. Income before income taxes was $10.3 million higher in
fiscal 1998 than in fiscal 1997, before the one-time charge of $18.3 million,
for an increase of 42%.
INCOME TAXES
The combined Federal and state effective income tax rate was 39.7% for fiscal
1998 and 37.7% for fiscal 1997. The higher effective rate in fiscal 1998 was due
to decreases in the utilization of capital loss carryforwards from the prior
year and the increase in the Federal statutory rate to 35%.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $8.5 million in
fiscal 1998 from $5.7 million in 1997, reflecting principally the increase of
$2.6 million in minority interest expense pertaining to the increased earnings
of Wackenhut Corrections Corporation. Minority interest expense in international
subsidiaries increased $0.2 million in fiscal 1998 over fiscal 1997.
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased $1.4
million, or 67%, to $3.5 million in fiscal 1998 from $2.1 million in fiscal
1997, primarily due to improved operations of Wackenhut Corrections in the
United Kingdom and the operations of the International Operations in Greece,
Columbia and Chile.
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Income before cumulative effect of change in accounting principle was $15.9
million in fiscal 1998,compared to $0.1 million in fiscal 1997. Income before
cumulative effect of change in accounting principle was $4.5 million higher in
fiscal 1998 than in 1997, before the 1997 one-time charge of $18.3 million,
($11.3 million after income taxes) for an increase of 39%. Diluted earnings per
share before the cumulative effect of change in accounting principle was $1.03
in fiscal 1998, compared to a loss of $0.01 for fiscal 1997. Fiscal 1997 diluted
earnings per share, before the one-time charge, was $0.76.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In fiscal 1998,the Company adopted SOP 98-5. The adoption of SOP 98-5 resulted
in a one-time charge of $6.6 million, net of income taxes, and after deducting
the portion applicable to minority shareholders of Wackenhut Corrections
Corporation. On a diluted basis, the cumulative effect of the change in
accounting principle was $0.44 per share.
NET INCOME
Net income was $9.3 million for fiscal 1998, or $0.63 basic earnings per share,
as compared to $0.1 million, or $0.01 per share for fiscal 1997. Earnings per
share on a diluted basis was $0.59 in fiscal 1998 compared to a loss of $0.01
per share for fiscal 1997, as explained in more detail in Note 16 to the
Consolidated Financial Statements.
FISCAL 1997 COMPARED WITH FISCAL 1996
REVENUES
Fiscal 1997 consolidated revenues increased $220.8 million or 24% over fiscal
1996.
SECURITY SERVICES BUSINESS
Fiscal 1997 security services business revenues increased $61.0 million or 8% to
$829.0 million from $768.0 million in fiscal 1996.
NORTH AMERICAN OPERATIONS
Revenues of North American Operations increased $47.3 million, or 7%, to $711.8
million in fiscal 1997 from $664.5 million in fiscal 1996. Within North American
Operations, revenues from commercial accounts represented approximately 59% of
total revenues of the group in fiscal 1997 versus 57% in fiscal 1996. Revenues
from government/regulated industries represented the other portion of revenues.
Commercial account revenues increased 11% in fiscal 1997 over fiscal 1996,
primarily due to the continued success of the group in developing its client
base of national accounts, which increased 13% over the prior year, and
marketing its higher level of quality security services of the Custom Protection
Officer(R)(CPO), which increased 35% this year as compared to last year.
Revenues of government and regulated industries increased 2% in fiscal 1997 over
fiscal 1996.
INTERNATIONAL OPERATIONS
International Operations' revenues increased $13.7 million, or 13%, to $117.2
million in fiscal 1997 from $103.5 million in fiscal 1996. Revenues in Latin
America and Europe continued to increase principally through expansion of the
core businesses and diversification of services. In December 1997,the Company
sold its Australian security subsidiary, which had revenues of $13.8 million in
fiscal 1997 and $13.7 million in 1996.
CORRECTIONAL BUSINESS
Fiscal 1997 correctional business revenues increased $69.1 million, or 50%, to
$206.9 million in fiscal 1997 from $137.8 million in fiscal 1996. The increase,
which reflects the dramatic growth in the industry, was due principally to the
opening of seven domestic facilities and six foreign facilities. Design capacity
of facilities in operation increased by 8,485 beds, or 69%, to 20,720 beds at
year-end, up from 12,235 beds at the beginning of the year. Occupancy increased
to 97.2% of capacity in fiscal 1997 from 96.8% in fiscal 1996, and total
compensated resident days increased 45% to 5.2 million at the end of fiscal 1997
from 3.6 million for fiscal 1996.
<PAGE> 9
FLEXIBLE STAFFING SERVICES
Flexible Staffing Services was started in the third quarter of 1996,and in May
1997, the Company acquired the business and certain assets of the King
Companies. Staffing Services revenues were $90.9 million for fiscal 1997. In
December 1997, the Company acquired the business and substantially all of the
assets of PEM.
The operating results of the Company included the results of operations of the
King Companies since May 1997 and PEM since December 22, 1997. PEM had revenues
of approximately $200 million for its fiscal 1997. The Company intends to
continue developing the staffing services business through internal growth and
acquisitions.*
OPERATING INCOME
Fiscal 1997 consolidated operating income was $3.3 million versus $16.3 million
in fiscal 1996. Before the one-time charges, fiscal 1997 operating income of
$21.6 million was $4.5 million, or 26%, higher than fiscal 1996 operating income
of $17.1 million.
SECURITY SERVICES BUSINESS
Fiscal 1997 security services business operating income of $20.3 million
increased $1.6 million, or 8%, from $18.7 million in fiscal 1996.
NORTH AMERICAN OPERATIONS
North American operating income remained essentially flat. However, operating
results for the second half of 1996, benefited from a one-time reduction
("holiday") in health insurance costs and adjustments to insurance accruals of
approximately $0.8 million.
INTERNATIONAL OPERATIONS
As previously discussed, the Company sold its Australian security business and
certain related assets in January 1998. The operating loss of Wackenhut of
Australia was $1.6 million in fiscal 1997 and $2.5 million in fiscal 1996.
International Operations operating income increased $1.4 million to $0.2 million
in fiscal 1997 from a loss of $1.3 million in fiscal 1996. Excluding the loss of
Wackenhut of Australia, International Operations operating income was $0.5
million, or 44% higher in fiscal 1997 versus fiscal 1996. The operating income
of subsidiaries in Latin American and Europe continued to show significant
improvements as a result of increases in the core security business and
diversification into other security-related services.
CORRECTIONAL BUSINESS
Fiscal 1997 operating income from the correctional business increased $6.8
million, or 70%, to $16.5 million from $9.7 million in fiscal 1996. Operating
margin improved 0.9% as a percentage of revenues from 7.1% in fiscal 1996 to
8.0% in fiscal 1997. The improved results are attributable principally to
increased profit contribution from new facilities, increased utilization of
existing facilities and continued leveraging of overhead.
FLEXIBLE STAFFING SERVICES
Flexible Staffing Services operating loss was $0.3 million in fiscal 1997,its
first full year of operations, compared to a loss of $365,000 in fiscal 1996.
CORPORATE EXPENSES AND INFORMATION SYSTEMS
The increase in corporate expenses resulted principally from an increase in
information technology costs in fiscal 1997 compared to fiscal 1996,as the
Company redesigns its systems hardware and software architecture. In
addition, there was an increase in personnel related costs attributable to the
return to fully-staffed levels after the relocation of the headquarters
facility.
During the current year, management reviewed the information systems
requirements of the Company and determined that the investment in deferred
information systems costs was impaired. Consequently, the Company wrote off its
investment in deferred information systems costs in the fourth quarter of 1997.
In addition, management developed a plan to address its future information
systems needs and the Year 2000 issue.
EBITDA
Fiscal 1997 EBITDA, defined as earnings before interest expense, income
taxes, depreciation and amortization, was $20.8 million versus $30.1 million in
fiscal 1996. Adjusted EBITDA, which excludes the one-time charges for both
years, increased 26%,or $8.2 million, to $39.1 million from $30.9 million in
fiscal 1996. As a percentage of revenues, Adjusted EBITDA improved to 3.5% from
3.4%. Neither EBITDA nor Adjusted EBITDA represents cash flow from operations as
defined by generally accepted accounting principles.
OTHER INCOME/EXPENSE
Other income increased $1.1 million to $2.7 million in fiscal 1997 from $1.6
million in fiscal 1996, primarily due to the decrease in interest expense of
$1.2 million. Borrowings under the accounts receivable securitization and
revolving credit facilities were at a minimum during 1997, as cash from
operations and cash proceeds from the 1996 public offerings of the Company and
Wackenhut Corrections were used for acquisitions, start-up and construction of
new facilities.
INCOME BEFORE INCOME TAXES
Fiscal 1997 income before income taxes was $6.0 million, after deducting the
one-time charge of $18.3 million, compared to $17.9 million in fiscal 1996.
Before the one-time charge, income before income taxes was $24.3 million in
fiscal 1997, compared to $17.9 million in fiscal 1996 for an increase of $6.5
million, or 36%.
INCOME TAXES
The combined federal and state effective income tax rate was 37.7% for fiscal
1997 and 35.3% for fiscal 1996. The higher effective rate in fiscal 1997 was due
to decreases in the utilization of capital loss carryforwards and tax exempt
income of the reinsurance subsidiary.
MINORITY INTEREST EXPENSE
Minority interest expense (net of income taxes) increased to $5.7 million in
1997 from $4.1 million in 1996, reflecting principally the increase in earnings
of Wackenhut Corrections Corporation.
EQUITY INCOME OF FOREIGN AFFILIATES
Equity income of foreign affiliates (net of income taxes) increased $0.5
million, or 28%, to $2.1 million in fiscal 1997 from $1.6 million in fiscal
1996, primarily due to an increase in the income of the joint venture of
Wackenhut Corrections in the United Kingdom.
NET INCOME
Net Income was $0.1 million for fiscal 1997, or $0.01 per share, as compared to
$9.1 million, or $0.66 per share for fiscal 1996. Earnings per share on a
diluted basis was a loss of $0.01 in fiscal 1997 compared to earnings per share
of $0.65 for fiscal 1996. Net income for fiscal 1997 was reduced by the one-time
charge of $11.3 million after income taxes, or $0.76 per share.
* Refer to notice regarding forward-looking statements on page 21.
<PAGE> 10
The Wackenhut Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in millions except per share data)
FISCAL YEARS ENDED JANUARY 3, 1999, DECEMBER 28, 1997, and DECEMBER 29, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ----------
<S> <C> <C> <C>
REVENUES $ 1,755.1 $ 1,126.8 $ 906.0
----------- ------------ ----------
OPERATING EXPENSES
Payroll and related taxes 1,359.5 835.7 657.3
Other operating expenses 345.7 252.0 217.8
Depreciation 7.0 6.4 4.7
Amortization 10.5 11.1 9.1
One-time charges and impairment of assets 18.3 0.8
----------- ------------ ----------
OPERATING INCOME 32.4 3.3 16.3
----------- ------------ ----------
OTHER INCOME (EXPENSE)
Interest expense (2.8) (1.5) (2.7)
Interest and investment income 5.0 4.2 4.3
----------- ------------ ----------
INCOME BEFORE INCOME TAXES 34.6 6.0 17.9
INCOME TAXES 13.7 2.3 6.3
MINORITY INTEREST, NET OF INCOME TAXES OF $5.5, $3.8, AND $2.3 8.5 5.7 4.1
EQUITY INCOME OF FOREIGN AFFILIATES, NET OF INCOME TAXES OF
$2.3, $1.4, AND $1.0 (3.5) (2.1) (1.6)
----------- ------------ ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 15.9 0.1 9.1
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (Note 2) 6.6 - -
----------- ------------ ----------
NET INCOME $ 9.3 $ 0.1 $ 9.1
=========== ============ ==========
EARNINGS (LOSS) PER SHARE:
Basic
Income before cumulative effect of change in accounting principle $ 1.07 $ 0.01 $ 0.66
Cumulative effect of change in accounting principle $ (0.44) $ - $ -
----------- ------------ ----------
Net income $ 0.63 $ 0.01 $ 0.66
Diluted
Net income before cumulative effect of change in
accounting principle $ 1.03 $ (0.01) $ 0.65
Cumulative effect of change in accounting principle $ (0.44) - -
----------- ------------ ----------
Net income $ 0.59 $ (0.01) $ 0.65
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 14.8 14.7 13.7
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 15.1 14.7 13.9
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 11
The Wackenhut Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in millions except share data)
JANUARY 3, 1999 and DECEMBER 28, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 43.5 $ 45.2
Accounts receivable, less allowance for doubtful accounts of $4.7 and $2.7 167.8 171.4
Inventories 14.5 10.2
Deferred taxes 7.4 3.5
Prepaid expenses 10.2 9.1
Other 12.3 12.5
--------- ---------
255.7 251.9
NOTES RECEIVABLE 0.6 0.7
--------- ---------
MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT 18.5 7.8
--------- ---------
PROPERTY AND EQUIPMENT, - at cost 79.5 72.2
- accumulated depreciation (19.6) (15.8)
--------- ---------
59.9 56.4
DEFERRED TAXES 12.2 0.4
--------- ---------
OTHER ASSETS
Intangibles 56.0 47.2
Investment in and advances to foreign affiliates, at cost 36.7 20.6
Deferred start-up costs -- 14.4
Other 13.4 5.0
--------- ---------
106.1 87.2
--------- ---------
$ 453.0 $ 404.4
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of lease obligation $ 1.4 $ 2.5
Accounts payable 40.2 38.7
Accrued payroll and related taxes 70.1 52.5
Accrued expenses 57.0 41.4
--------- ---------
168.7 135.1
--------- ---------
RESERVES FOR LOSSES - casualty reinsurance subsidiary 50.8 45.8
--------- ---------
LONG-TERM DEBT 3.3 13.3
--------- ---------
DEFERRED REVENUE 16.7 --
--------- ---------
OTHER 16.7 15.5
--------- ---------
COMMITMENTS AND CONTINGENCIES (note 17)
MINORITY INTEREST 47.6 47.9
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, 10 million shares authorized -- --
Common stock, $.10 par value, 50 million shares authorized
Series A, 3.9 million issued and outstanding 0.4 0.4
Series B, 11.1 million issued and outstanding 1.1 1.1
Additional paid-in capital 125.5 125.2
Retained earnings 32.5 27.6
Accumulated other comprehensive income (loss) (7.3) (6.4)
Treasury stock at cost, .2 and .1 million of Series B shares (3.0) (1.1)
--------- ---------
149.2 146.8
--------- ---------
$ 453.0 $ 404.4
--------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE> 12
The Wackenhut Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
FISCAL YEARS ENDED JANUARY 3, 1999, DECEMBER 28, 1997, and DECEMBER 29, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income $ 9.3 $ 0.1 $ 9.1
Adjustments -
Cumulative effect of accounting change 6.6 -- --
One-time charges and impairment of assets -- 18.3 --
Depreciation expense 7.0 6.4 4.7
Amortization expense 10.5 11.1 9.1
Provision for bad debts 3.0 0.9 1.4
Equity income, net of dividends (5.7) (3.3) (2.1)
Minority interests in net income 14.0 9.6 6.5
Other (0.7) (2.5) (0.5)
Changes in assets and liabilities, net of acquisitions and divestitures
(Increase) Decrease in assets:
Accounts receivable (50.6) (33.7) (20.6)
Inventories (11.0) (5.7) (7.3)
Prepaid expenses (1.1) 0.4 (5.4)
Other current assets (5.0) (4.5) 6.1
Deferred taxes (15.6) (3.7) 5.9
Other (7.8) (1.7) (0.4)
Increase (Decrease) in liabilities:
Accounts payable and accrued expenses 23.1 33.9 (2.7)
Accrued payroll and related taxes 17.6 12.8 5.4
Reserves for losses of casualty reinsurance subsidiary 5.0 2.0 3.7
Deferred taxes -- (1.2) 1.0
Other 1.2 3.5 0.9
-------- ------- -------
Net Cash (Used In) Provided By Operating Activities (0.2) 42.7 14.8
-------- ------- -------
INVESTING ACTIVITIES
Net proceeds from sale of prison facilities to CPV (note 10) 41.8 -- --
Net proceeds from public offerings of subsidiary's common stock -- -- 51.6
Net proceeds from exercise of stock options of subsidiary -- 1.6 0.8
Proceeds from notes receivable -- 9.5 --
Payments for acquisitions, net of cash acquired (8.1) (30.1) (13.7)
Investment in and advances to foreign affiliates and joint ventures (10.9) (3.3) (0.7)
Capital expenditures (33.9) (27.7) (19.9)
Sales of marketable securities 17.4 31.5 25.6
Purchases of marketable securities (28.1) (23.9) (34.7)
Deferred charges (7.7) (12.4) (6.2)
-------- ------- -------
Net Cash (Used In) Provided By Investing Activities (29.5) (54.8) 2.8
-------- ------- -------
FINANCING ACTIVITIES
Net proceeds from public offering of company's common stock -- -- 54.0
Net proceeds from exercise of stock options of subsidiary 1.8 -- --
Proceeds from the exercise of stock options 0.9 1.1 1.1
Proceeds from issuance of debt 294.5 51.7 11.1
Payments on debt (305.7) (43.3) (11.8)
Dividends paid (4.4) (3.8) (3.5)
Proceeds from sales (payments for repurchases) of accounts receivable 53.0 -- (35.0)
Purchase of treasury stock of subsidiary (8.9) -- --
Purchase of treasury stock (1.9) -- (1.1)
-------- ------- -------
Net Cash Provided By Financing Activities 29.3 5.7 14.8
-------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1.3) (1.2) 0.2
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1.7) (7.6) 32.6
CASH AND CASH EQUIVALENTS, at beginning of year 45.2 52.8 20.2
-------- ------- -------
CASH AND CASH EQUIVALENTS, at end of year $ 43.5 $ 45.2 $ 52.8
-------- ------- -------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for - interest $ 2.8 $ 1.5 $ 2.8
- income taxes 18.4 2.4 3.4
Non-cash financing and investing activities:
Common stock issued in acquisition -- 0.8 --
Impact on equity from tax benefit related to the exercise of options
issued under the Company's non-qualified stock option plan 0.3 0.5 0.5
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 13
The Wackenhut Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in millions)
FISCAL YEARS ENDED JANUARY 3, 1999, DECEMBER 28, 1997, and DECEMBER 29, 1996
<TABLE>
<CAPTION>
Common Stock
Par Value $.10 Additional Foreign Total
------------------- Paid-in Retained Treasury Currency Shareholders'
Series A Series B Capital Earnings Stock Translation Equity
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 0.4 $ 0.8 $ 39.6 $ 25.7 $ (3.7) $ 62.8
Proceeds from stock offering 0.3 53.8 54.1
Proceeds from the exercise of stock options 2.0 2.0
Increase due to public offerings of subsidiary's
common stock and exercise of stock options 24.8 24.8
Tax benefit related to employee stock options 0.5 0.5
Purchase of Treasury Stock $ (1.1) (1.1)
Dividends (3.5) (3.5)
Comprehensive income
Net Income 9.1
Change in foreign currency translation,
net of income tax benefits of $.2 million (0.5)
Total comprehensive income 8.6
---------------------------------------------------------------------------------
BALANCE, DECEMBER 29, 1996 0.4 1.1 120.7 31.3 (1.1) (4.2) 148.2
Proceeds from the exercise of stock options 1.1 1.1
Common stock issued in acquisition 0.8 0.8
Increase due to subsidiary's exercise of
stock options 2.1 2.1
Tax benefit related to employee stock options 0.5 0.5
Dividends (3.8) (3.8)
Comprehensive income
Net Income 0.1
Change in foreign currency translation,
net of income tax benefits of $1.4 million (2.2)
Total comprehensive income (loss) (2.1)
---------------------------------------------------------------------------------
BALANCE, DECEMBER 28, 1997 0.4 1.1 125.2 27.6 (1.1) (6.4) 146.8
Proceeds from the exercise of stock options 0.9 0.9
Increase due to subsidiary's exercise of
stock options 3.9 3.9
Decrease due to subsidiary's purchase of
treasury stock (4.8) (4.8)
Tax benefit related to employee stock options 0.3 0.3
Purchase of treasury stock (1.9) (1.9)
Dividends (4.4) (4.4)
Comprehensive income
Net Income 9.3
Change in foreign currency translation,
net of income tax benefits of $.6 million (0.9)
Total comprehensive income 8.4
---------------------------------------------------------------------------------
BALANCE, JANUARY 3, 1999 $ 0.4 $ 1.1 $ 125.5 $ 32.5 $ (3.0) $ (7.3) $ 149.2
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 14
The Wackenhut Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular information in millions except share and per share data)
For the Fiscal Years Ended January 3, 1999, December 28, 1997, and December 29,
1996
(1)GENERAL
The Wackenhut Corporation, a Florida corporation, and subsidiaries (the
"Company"), including Wackenhut Corrections Corporation ("WHC"), a 55% owned
subsidiary, is a major provider of business services which include
security-related and other support services to business and government, a
leading developer and manager of privatized correctional and detention
facilities, and a provider of employee leasing and temporary staffing. The
Company operates on a worldwide basis with domestic and international
operations.
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to the calendar year end.
Fiscal year 1998 included 53 weeks. Fiscal years 1997 and 1996 each included 52
weeks.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Investments in 20 percent to 50 percent owned affiliates are
accounted for under the equity method. All significant intercompany transactions
and balances have been eliminated in consolidation. For segment reporting, the
accounts of the Company's captive insurance company have been included in
unallocated corporate expenses.
Certain prior year amounts have been reclassified to conform with the current
year's 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable, other
receivables, notes receivable, notes payable, accounts payable and long-term
debt approximates fair value. Marketable securities are classified as available-
for-sale. Realized gains and losses from the sale of securities are based on
specific identification of the security.
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all interest-bearing deposits or
investments with original maturities of three months or less.
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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Maintenance and repairs are expensed as incurred. Depreciation is computed using
the straight-line method over the estimated useful lives of related assets.
Accelerated methods of depreciation are generally used for income tax purposes.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the useful life of the improvement or the term of the lease.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," requires that long-lived assets, including certain identifiable
intangibles, and the goodwill related to those assets, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset in question may not be recoverable. Management has
reviewed the Company's long-lived assets and has determined that there are no
events requiring impairment loss recognition, other than those disclosed.
INTANGIBLES AND DEFERRED START-UP COSTS
Intangibles include goodwill and the fair market value of contracts purchased in
acquisitions. Goodwill represents the cost of an acquired enterprise in excess
of the fair market value of the net tangible and identifiable intangible assets
acquired. Goodwill and contract values are amortized on a straight-line basis
over 10 to 30 years.
Through December 28, 1997, project development costs consisting of direct and
incremental costs paid to unrelated third parties that were directly associated
with a specific anticipated contract were deferred until the anticipated
contract had been awarded. At the time the contract was awarded to the Company,
the deferred project development costs were either capitalized as part of the
property and equipment or were amortized over five years as project development
costs. Internal costs associated with securing new contracts are expensed as
incurred. Project development costs were charged to general and administrative
expenses when the success of obtaining a new contract was considered doubtful.
Also through December 28, 1997, deferred start-up costs, which consist of costs
of initial employee training, travel and other direct expenses primarily
incurred in connection with the opening of new correctional facilities, were
previously capitalized and amortized on a straight-line basis over the lesser of
the initial term of the contract plus renewals or five years.
During the fourth quarter of 1998, the Company adopted AICPA Statement of
Position 98-5 ("SOP 98-5"), "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. The adoption of SOP 98-5, which was
applied retroactively to the first quarter of 1998, resulted in a one-time
charge of $6.6 million, net of income taxes and after deducting the portion
applicable to minority shareholders of Wackenhut Corrections Corporation. On a
diluted basis, the cumulative effect of change in accounting principle was $0.44
per share.
<PAGE> 15
DEFERRED SOFTWARE AND DEVELOPMENT COSTS
The Company capitalizes purchased software which is ready for service and
certain development costs related to the design and implementation of purchased
and internally developed information systems software with a useful life of more
than one year. Upon implementation of the software, deferred computer software
costs will be amortized using the straight line method over the expected useful
life of the product, not to exceed five years. The costs of computer software
upgrades and maintenance are expensed as incurred.
DEFERRED REVENUE
Deferred revenue represents the unamortized net profit of the sale of properties
by WHC to Correctional Properties Trust ("CPV"), a Maryland real estate
investment trust. These properties were then leased back by CPV to WHC. Deferred
revenue is being amortized over the lives of the leases and is recognized in
income as a reduction of rental expense.
FOREIGN CURRENCY TRANSLATION
The Company's foreign operations use the local currency as their functional
currency. Assets and liabilities of the operations (except for countries with
highly inflationary economies) are translated at the exchange rates in effect on
the balance sheet date. Income statement items (except for countries with highly
inflationary economies) are translated at the average exchange rates for the
reporting period. The impact of these currency fluctuations is included in
shareholders' equity as the component of accumulated other comprehensive income
(loss). 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 these local currencies into U.S. dollars creates translation
adjustments which are included in the statements of income.
REVENUES
Revenue is recognized as services are provided. During fiscal years 1998, 1997
and 1996, revenue from one customer, the U.S. Department of Energy, accounted
for approximately 7%, 11% and 15%, respectively, of the Company's consolidated
revenues.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes are
determined on the estimated future tax effects of differences between the
financial reporting and tax basis of assets and liabilities given the provisions
of enacted tax laws. Deferred income tax provisions and benefits are based on
changes to the asset or liability from year to year.
MINORITY INTEREST
The minority interest expense represents principally the separate public
ownership in WHC, as listed on the New York Stock Exchange, and the ownership by
foreign investors in several subsidiaries of Wackenhut International,
Incorporated.
EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings per Share." Basic earnings
per share is computed by dividing net income by the weighted-average number of
common shares outstanding. In the computation of diluted earnings per share, net
income is reduced by the dilutive effect of WHC's stock options and dividing the
result by the weighted-average number of common shares outstanding of all
potential dilutive common stock equivalents.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This 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.
(3)ACQUISITIONS
In November 1998, the Company purchased certain assets and assumed certain
liabilities of Sharp Services, Inc. and Advantage Temporary Services, Inc., for
an initial payment of $8.1 million in cash, with a contingent cash payment,
payable no later than May 2001, subject to adjustments based on actual workers'
compensation claims. In no event will the total purchase price exceed $10
million. The acquisitions were accounted for under the purchase method, and the
Company recorded approximately $5.4 million of goodwill which is being amortized
on a straight-line basis over 30 years.
In December 1997, the Company purchased certain assets and assumed certain
liabilities of Professional Employee Management, Inc., a professional employer
organization in Sarasota, Florida for an initial payment of $18.9 million in
cash, together with a series of contingent earn-out payments which will become
payable either in cash or shares of the Company's series B Common Stock (at the
option of the Company) based on performance. In 1998, the Company recorded an
additional $4.1 million liability under the contingent earn-out, which will be
paid out in cash subsequent to January 3, 1999. In no event will the total
purchase price exceed $50.7 million. The acquisition was accounted for under the
purchase method, and to date the Company has recorded $21.7 million of
goodwill, which is being amortized on a straight-line basis over 30 years.
In May 1997, the Company purchased the King Companies of Jacksonville, Florida,
a professional employer organization and temporary employment business, for
approximately $10.7 million in cash and $0.8 million of shares of Wackenhut
Series B (non-voting) common stock. The acquisition of the King Companies was
accounted for under the purchase method. The Company recorded approximately
$11.3 million of goodwill which is being amortized on a straight-line basis over
30 years.
The results of operations for Sharp, Advantage, PEM and the King Companies have
been included in the Company's consolidated financial statements from the date
of acquisition. The following unaudited pro forma information combines the
consolidated results of operations of the Company, Sharp, Advantage, PEM and the
King Companies as if the acquisitions had occurred at the beginning of the
periods presented.
<PAGE> 16
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Pro forma revenues $ 1,771.9 $ 1,366.1
Pro forma net income 9.8 1.4
Pro forma per share - basic 0.66 0.09
Pro forma per share - diluted 0.63 0.08
- --------------------------------------------------------------------------------
</TABLE>
The unaudited pro forma results have been prepared for comparative purposes
only, after the cumulative effect of change in accounting principle in 1998 and
one-time charges in 1997, and include adjustments for additional amortization
expense as a result of goodwill and the related income tax effects. The pro
forma results may not be indicative of results that would have occurred had the
combination been in effect for the periods presented, nor do they purport to be
indicative of the results that will be obtained in the future.
(4)PROPERTY AND EQUIPMENT
Property and equipment consist of the following at fiscal year end:
<TABLE>
<CAPTION>
Years 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 2.6 $ 5.1
Buildings and improvements 20 to 40 15.8 40.9
Equipment 3 to 20 26.9 15.2
Furniture and fixtures 3 to 20 6.6 6.4
Automobiles 3 6.3 4.6
Construction in progress 21.3
-------- -------
$ 79.5 $ 72.2
- --------------------------------------------------------------------------------
</TABLE>
(5)WHOLLY OWNED CASUALTY REINSURANCE SUBSIDIARY
The Company has a wholly owned casualty insurance subsidiary which reinsures a
portion of the Company'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. A summary of
operations for the last three fiscal years is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Intercompany premiums $ 27.2 $ 20.7 $ 18.6
Loss expense (26.0) (21.2) (19.1)
--------- --------- ---------
Underwriting gain (loss) 1.2 (0.5) (0.5)
Investment income 3.1 2.9 2.7
--------- --------- ---------
$ 4.3 $ 2.4 $ 2.2
- --------------------------------------------------------------------------------
</TABLE>
Marketable securities and certificates of deposit, carried at fair
value, consisted of the following at January 3, 1999 and December 28, 1997:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
Fair Value Cost Fair Value Cost
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds $ 6.8 $ 6.8 $ 3.2 $ 3.2
Government Bonds 2.5 2.5 3.5 3.5
Preferred Stock 9.2 9.2 1.1 1.1
------- ------- ------ ------
$ 18.5 $ 18.5 $ 7.8 $ 7.8
- --------------------------------------------------------------------------------
</TABLE>
The Company has placed in trust, in favor of certain insurance companies, its
marketable securities and $11.6 million in cash and cash equivalents, and has
issued irrevocable standby letters of credit for $21.4 million. Municipal bonds
mature from 2018 to 2026 and government bonds mature in periods ranging from 3
to 25 years. At January 3, 1999, the Company's reinsurance subsidiary has
specific restrictions on future purchases of marketable securities, and on
withdrawals from the trust.
(6)INVESTMENT IN AFFILIATES
Equity in undistributed earnings of foreign affiliates approximated $14.0
million and $8.8 million at January 3, 1999 and December 28, 1997, respectively,
and is included in "Investments in and advances to foreign affiliates." The
following is a summary of condensed unaudited information pertaining to foreign
affiliates:
<TABLE>
<S> <C>
- --------------------------------------------------------
Balance sheet items as of January 3, 1999
Current assets $ 57.4
Noncurrent assets 49.1
Current liabilities 48.5
Noncurrent liabilities 18.6
Minority interest liability 0.2
Income statement items for the fiscal year
ended January 3, 1999
Revenues $ 229.9
Operating income 16.3
Net income before taxes 15.2
- --------------------------------------------------------
</TABLE>
(7)INTANGIBLES AND DEFERRED START-UP COSTS
Intangibles and deferred start-up costs at January 3, 1999 and December 28, 1997
consist of the following and reflects the adoption of SOP 98-5:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------
<S> <C> <C>
Goodwill $ 45.2 $ 34.2
Contract value 15.6 15.6
Deferred start-up costs 21.6
Other 3.2 2.1
------- -------
64.0 73.5
Accumulated amortization:
Goodwill 3.5 1.6
Deferred start-up costs 7.2
Other 4.5 3.1
------- -------
Total 8.0 11.9
------- -------
$ 56.0 $ 61.6
- ----------------------------------------------------
</TABLE>
(8)ONE-TIME CHARGE
During the fourth quarter of 1997, the Company recognized a one-time pretax
charge of $18.3 million ($11.3 million after income taxes, or $0.76 per share).
The one-time charge included a loss of $6 million ($3.8 million after income
taxes) on the sale of the Company's Australian security subsidiary. In addition,
deferred information systems costs, related to the Company's former information
systems, and certain domestic and international investments were identified by
the Company as impaired as a result of the Company's strategic review process
and updated analysis, resulting in a write-off of $12.3 million ($7.4 million
after income taxes).
<PAGE> 17
(9)NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Revolving loan -
5.4% in 1998 and 6.9% in 1997 $ 1.8 $ 12.9
Lease obligation payable in installments
through 2004 at a weighted average
rate of 4.5% 1.8
Other debt principally related to Wackenhut
Corrections, North American operations,
and international subsidiaries 0.1 0.4
------ -------
Total 3.7 13.3
Less current portion of lease obligation 0.4
------ -------
Total $ 3.3 $ 13.3
- ------------------------------------------------------------------
</TABLE>
On December 30, 1997, the Company entered into a revolving credit agreement
under which the Company may borrow up to $40 million. As of January 3, 1999, the
unused portion of the revolving line of credit was $14 million, after deducting
$24.2 million in outstanding letters of credit. In February 1999, the Company
amended its revolving credit agreement under which up to $65 million may be
borrowed. The interest payable is, at the Company's option, a function of the
applicable LIBOR or certificate of deposit rates and at January 3, 1999, the
interest rate was 5.4%. The agreement requires, among other things, that the
Company maintain a minimum consolidated net worth, as defined, and limits
certain payments and distributions. As of January 3, 1999, the Company was in
compliance with the applicable loan covenants.
In December, 1997, the Company entered into a three-year agreement to sell, on
an on-going basis, an undivided interest in a defined pool of eligible
receivables up to a maximum of $60 million. In February 1999, the Company
amended the agreement to increase the eligible receivables to a maximum of $75
million. 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. There were $53 million accounts receivable sold under this
agreement at January 3, 1999 and none at December 28, 1997 and December 29,
1996.
The total amount available to the Company from its revolving credit and accounts
receivable securitization facility is $140 million, as amended.
The Company has a demand operating line of credit with a Canadian bank with a
maximum borrowing amount of $2.1 million. At January 3, 1999, the Company had
short-term borrowings under this line of credit of $1 million for working
capital purposes, bearing interest at the bank's prime lending rate of 6.8%. At
December 31, 1997, the Company had an outstanding note payable of $2.5 million,
bearing interest at an average rate of 7.2%, to meet working capital needs of an
international subsidiary, which was paid off in 1998.
In June, 1997, Wackenhut Corrections entered into a $30 million revolving credit
facility with a syndicate of banks, which includes a $5 million line of credit
for the issuance of letters of credit. The interest payable is a function of the
prime rate, federal funds rate or LIBOR, depending upon fixed charge coverage
ratios. The facility also limits certain payments and distributions. As of
January 3, 1999, no amounts were outstanding under this facility, but
outstanding letters of credit amounted to $2.6 million.
The long-term portion of the capital lease obligation maturing during each of
the four years after 1999 is $.4 million, $.4 million, $.5 million and $.1
million, respectively. All other long-term debt matures in 2000.
(10) 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 $20.00 per share in
an initial public offering. Approximately $113 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 other five facilities, and
realized a profit on the sale of approximately $18 million to WHC which is being
amortized over the ten-year lease term. The eighth facility was purchased
directly from the government entity. The deferred unamortized net profit at
January 3, 1999, is $15.8 million with $1.7 million short-term, included with
accrued expenses, and $14.1 million long-term excluding the long-term portion of
deferred development fee revenue. Subsequent to the purchase, CPV is leasing
these eight facilities to WHC. As the lease agreements are subject to
contractual lease increases, the Company records operating lease expense for
these leases on a straight-line basis over the term of the leases. 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. The
Company recorded net rental expense related to CPV in 1998 of $6.9 million.
On October 30, 1998, CPV acquired the completed portion of the ninth facility
for $26.0 million. Simultaneous with the purchase, the Company entered into a
ten-year lease of the facility from CPV. The future minimum lease commitments
under the leases for these nine facilities are as follows:
<TABLE>
<CAPTION>
Year Annual Rental
- ----------------------------------
<S> <C>
1999 $ 13.5
2000 13.9
2001 14.1
2002 14.1
2003 14.1
Thereafter 57.2
----
$ 126.9
- ----------------------------------
</TABLE>
(11) PREFERRED, COMMON AND TREASURY STOCK
The Board of Directors has authorized 10 million shares of preferred stock.
In early 1996, the Board of Directors increased the authorized shares of the
Company's common stock from 20 million shares to 50 million shares, with 3.9
million shares to be designated as series A common stock and 46.1 million shares
to be designated as series B common stock.
<PAGE> 18
During the second quarter of 1996, the Company sold 2.5 million 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.
During the second quarter of 1997, the Company issued 69.2 thousand shares of
its series B common stock in connection with the acquisition of the King
Companies at a price of $12.15 per share.
The Board of Directors of the Company and of Wackenhut Corrections authorized
the repurchase, at the discretion of each company's senior management, of up to
0.5 million shares of series B common stock and 0.5 million shares of Wackenhut
Corrections common stock, respectively. The Company's repurchases of shares of
common stock are recorded as treasury stock and result in a reduction of share-
holders' equity. Wackenhut Corrections' repurchases of shares of common stock
are recorded as a reduction to additional paid-in capital and minority interest.
As of January 3, 1999, the Company had bought back 196,400 shares of the
Company's Series B common stock at an average price of $15.48, and Wackenhut
Corrections purchased 453,500 shares of Wackenhut Corrections common stock at an
average price of $19.52 per share. In February 1999, the Board of Directors of
Wackenhut Corrections authorized, in addition to that previously authorized, the
repurchase of up to 0.5 million shares of its common stock.
(12) STOCK INCENTIVE AND STOCK OPTION PLANS
Key employees of the Company 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 Company's series B common stock are
granted to participants as approved by the Nominating and Compensation Committee
of the Company'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 Company to award or grant, from time to time, restricted stock
and performance stock to key employees.
Nonemployee directors of the Company 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
re-election 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.
At January 3, 1999, 1,320,184 shares of series B common stock were reserved for
issuance, including 369,614 shares available for future grants or awards.
A summary of the status of the Company's stock option plans, including their
weighted average option exercise price, as of January 3, 1999, December 28,
1997, and December 29, 1996 is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 668,693 $11.64 597,255 $ 9.75 557,818 $ 7.98
Options granted 255,000 19.75 213,000 15.77 202,000 14.00
Options exercised (76,063) 11.71 (119,687) 10.56 (129,312) 8.50
Options forfeited (21,875) 6.16 (33,251) 10.69
-------------------------------------------------------------------------------
Outstanding at end of year 847,630 14.06 668,693 11.64 597,255 9.75
-------------------------------------------------------------------------------
Exercisable at year end 847,630 14.06 638,693 11.30 597,255 9.75
-------------------------------------------------------------------------------
</TABLE>
Option groups outstanding at January 3, 1999 and related weighted average price
and life information are as follows:
<TABLE>
<CAPTION>
Grant Outstanding Exercise Remaining
Date & Exercisable Price Life (Years)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
04/30/94 178,130 $ 6.16 5
01/28/95 105,500 $10.80 6
01/31/96 133,000 $14.00 7
01/28/97 146,000 $15.25 8
08/09/97 30,000 $18.94 8
01/27/98 255,000 $19.75 9
- -----------------------------------------------------------------------------
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
cost has bee recognized for its stock option plans. Had compensation for the
Company's stock-based compensation plans been determined pursuant to SFAS No.
123, "Accounting for Stock-Based Compensation," the Company'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
Company'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>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma basic net income $ 8.2 $ (0.6) $ 8.5
Pro forma basic earnings
per share $ 0.55 $ (0.04) $ 0.62
Pro forma diluted net income $ 7.7 $ (0.7) $ 8.4
Pro forma diluted earnings
per share $ 0.51 $ (0.05) $ 0.60
Pro forma weighted average
fair value of options granted $ 6.94 $ 5.65 $ 4.81
Risk-free interest rate 5.4% - 5.6% 5.9% - 6.3% 5.6%
Expected life (years) 5 5 5
Expected volatility 35.0% 36.0% 36.0%
Quarterly dividend $ 0.075 $ 0.065 $0.065
- --------------------------------------------------------------------------------
</TABLE>
(13) RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company 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. Currently, the plan is not funded. The Company purchases and
is the beneficiary of life insurance policies for each participant enrolled in
the plan.
<PAGE> 19
The assumptions for the discount rate and the average increase in compensation
used in determining the pension expense and funded status information are 6.0%
and 4.0%, respectively.
Total pension expense for 1998, 1997, and 1996 was $0.58 million, $0.45 million,
and $0.42 million, respectively. The present value of accumulated pension
benefits at year end 1998, 1997 and 1996 was $3.03 million, $2.97 million, and
$2.44 million, respectively and is included in "Other liabilities" in the
accompanying consolidated balance sheets.
The Company 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 to beneficiaries for a period of 10 years. Currently, the plan is not
funded. The Company purchases and is the beneficiary of life insurance policies
for each participant enrolled in the plan. 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 1998, 1997, and 1996 was
$1.54 million, $0.59 million, and $0.53 million, respectively. The liability for
deferred compensation was $5.68 million and $3.97 million at year end 1998 and
1997, respectively, and is included in "Other liabilities" in the accompanying
consolidated balance sheets.
(14) INCOME TAXES
The provision (credit) for income taxes in the consolidated statements of income
consists of the following:
<TABLE>
<CAPTION>
Fiscal year ended 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $ 15.8 $ 1.8 $ (3.4)
Deferred (4.9) (0.1) 8.6
---------------------------
10.9 1.7 5.2
State income taxes:
Current $ 3.5 $ 0.9 $ 0.3
Deferred (0.7) (0.3) 0.6
---------------------------
2.8 0.6 0.9
---------------------------
Foreign income taxes $ 0.2
---------------------------
Total $ 13.7 $ 2.3 $ 6.3
- ---------------------------------------------------------------------
</TABLE>
A reconciliation of the statutory U.S. federal tax rate (35% in 1998, 34% in
1997 and 1996) and the effective income tax rate is as follows:
<TABLE>
<CAPTION>
Fiscal year ended 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Provision using statutory
federal income tax rate $ 12.1 $ 2.1 $ 6.1
State income taxes, net of
federal benefit 1.6 0.3 0.5
Capital loss carryforward utilization (0.2) (0.4)
Tax exempt interest (0.2) (0.1) (0.1)
Other, net 0.2 0.2 0.2
---------------------------
$ 13.7 $ 2.3 $ 6.3
- ---------------------------------------------------------------------
</TABLE>
The components of the net current deferred income tax asset (liability) at
January 3, 1999 and December 28, 1997 are as follows:
<TABLE>
<CAPTION>
Fiscal year ended 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Amortization of uniforms and accessories $ (2.3) $ (2.0)
Amortization of deferred charges (1.6)
Accrued vacation pay 2.2 2.2
Other reserves 7.5 4.9
--------------------------
Deferred tax asset, net $ 7.4 $ 3.5
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
The components of the net non-current deferred income tax asset (liability) at
January 3, 1999 and December 28, 1997 are shown below:
<TABLE>
<CAPTION>
Fiscal year ended 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Income of foreign subsidiaries and affiliates $ (15.5) $ (9.7)
Gain on sale of properties to CPV 9.0
Deferred compensation 6.9 6.1
Reserve for losses of reinsurance subsidiary 5.7 2.2
Reserve for claims of employee health trust 4.3 5.0
Deferred charges 0.1 (5.0)
Other, net 1.7 1.8
------------------
$ 12.2 $ 0.4
- ---------------------------------------------------------------------
</TABLE>
The exercise of non-qualified stock options which have been granted under the
Company's stock option plans gives rise to compensation which is includable in
the taxable income of the applicable employees and deducted by the Company for
federal and state income tax purposes. Such compensation results from increases
in the fair market value of the Company's common stock subsequent to the date of
grant. In accordance with APB No. 25, such compensation is not recognized as an
expense for financial accounting purposes and related tax benefits are credited
directly to additional paid-in capital.
(15) WACKENHUT CORRECTIONS CORPORATION PUBLIC OFFERINGS
In January 1996, Wackenhut Corrections sold 4.6 million shares of common stock
at an offering price of $12.00 per share. Net proceeds of approximately $51.6
million 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 Company's
ownership in Wackenhut Corrections was reduced to approximately 55%.
During 1998, the exercise of 179,380 non-qualified stock options of Wackenhut
Corrections, net of treasury stock purchases, resulted in the Company's
ownership of Wackenhut Corrections equaling approximately 55% at January 3,
1999.
The Board of Directors of Wackenhut Corrections has granted non-qualified stock
options to purchase common stock which, if fully exercised, would reduce the
Company's ownership in Wackenhut Corrections to approximately 53%.
(16) EARNINGS PER SHARE
The table below shows the amounts used in computing earnings per share in
accordance with SFAS No. 128. Common stock equivalents, related to stock options
if exercised, are excluded from diluted earnings (loss) per share calculations
if their effect would be anti-dilutive. In 1998, 1997 and 1996 the total number
of stock options excluded because their effect would have been anti-dilutive
were 263,231, 266,997 and 14,000 respectively (share data in millions).
<PAGE> 20
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------
<S> <C> <C> <C>
Basic
Net income $ 9.3 $ 0.1 $ 9.1
Weighted average common
shares outstanding 14.8 14.7 13.7
---------------------
Basic earnings per share $ .63 $ .01 $ .66
---------------------
Diluted
Net income $ 9.3 $ 0.1 $ 9.1
Effect of Wackenhut Corrections
stock options (0.4) (0.2) (0.1)
---------------------
Net income (loss) $ 8.9 $(0.1) $ 9.0
---------------------
Weighted average common
shares outstanding 14.8 14.7 13.7
Assumed exercise of stock
options, net of common
shares assumed repurchased
with the proceeds 0.3 0.2
---------------------
Adjusted weighted average
common shares outstanding 15.1 14.7 13.9
---------------------
Diluted earnings (loss) per share $ .59 $(.01) $ .65
- --------------------------------------------------------
</TABLE>
(17) COMMITMENTS AND CONTINGENCIES
In February 1999, the Company's insurer filed Declaratory actions against the
Company asking for Declaratory judgments that the insurer does not have a duty
to defend or to indemnify the Company in two underlying complaints against the
Company. The underlying actions seek compensatory and punitive damages of
substantial amounts which could materially adversely affect the Company's
financial condition if there was an unfavorable outcome. The Company denies the
claims made in the underlying cases and believes they are without merit. The
Company is vigorously defending both actions. Although the ultimate outcome of
this litigation cannot be predicted with any certainty, in the opinion of
management, the Company has valid defenses to the claims made. In addition, the
Company intends to contest its insurer's denial of responsibility in the
underlying cases.
In addition, the Company is presently, and is from time to time, subject to
other 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, there are no other pending legal
proceedings that would have a material effect on the consolidated financial
statements of the Company.
The Company leases office space, data processing equipment and automobiles under
non-cancelable operating leases expiring between 1999 and 2017. Rent expense for
the fiscal years ended January 3, 1999, December 28, 1997, and December 29, 1996
was $15.8 million, $10.0 million, and $9.6 million, respectively.
In December 1997, Wackenhut Corrections entered into a $220 million operating
lease facility that was established to acquire and develop new correctional
institutions used in its business. As a condition of this facility, Wackenhut
Corrections unconditionally agreed to guarantee certain obligations of First
Security Bank, N.A., a party to the aforementioned operating lease facility.
As of January 3, 1999, approximately $100.9 million of properties were under
development under this facility. The minimum commitments under these leases and
the 15 year lease for the corporate headquarters, are as follows:
<TABLE>
<CAPTION>
Minimum
Year Commitment
- ---------------------------------------------------
<S> <C>
1999 $ 11.6
2000 9.9
2001 7.4
2002 6.3
2003 5.1
Thereafter 25.3
-------
$ 65.6
- ---------------------------------------------------
</TABLE>
(18)BUSINESS SEGMENTS
The Company's principal segments are grouped based on similarity of business
services provided and the type of customer for which these services are offered.
These services consists of security services, correctional services and flexible
staffing services.
The Company is a major provider of business services which include
security-related and other support services to business and government, a
leading developer and manager of privatized correctional and detention
facilities, and a provider of employee leasing and temporary staffing.
Intersegment transactions are accounted for on an arms-length basis and are
eliminated in consolidation. Direct general and administrative expenses are
allocated based on usage.
<TABLE>
<CAPTION>
Fiscal year 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Security services $ 947.2 $ 829.0 $ 768.0
Correctional services 312.8 206.9 137.8
Staffing services 495.1 90.9 0.2
---------- ---------- --------
Total revenues $ 1,755.1 $ 1,126.8 $ 906.0
- --------------------------------------------------------------------------------
OPERATING INCOME:
Security services $ 24.2 $ 20.3 $ 18.7
Correctional services 22.5 16.5 9.7
Staffing services 2.7 (0.3) (0.4)
Unallocated corporate
expenses (17.0) (14.9) (10.9)
One-time charges and
impairment of assets (18.3) (0.8)
---------- ---------- --------
Total operating income $ 32.4 $ 3.3 $ 16.3
- --------------------------------------------------------------------------------
EQUITY INCOME (LOSS) OF FOREIGN
AFFILIATES, NET OF TAXES:
Security services $ 1.4 $ 1.0 $ 1.0
Correctional services 2.1 1.1 0.6
---------- ---------- --------
Total equity income $ 3.5 $ 2.1 $ 1.6
- --------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Security services $ 4.6 $ 2.9 $ 3.9
Correctional services 25.0 23.9 12.4
Staffing services 0.9 0.3 0.1
Unallocated corporate
expenses 3.4 0.6 3.5
---------- ---------- --------
Total capital expenditures $ 33.9 $ 27.7 $ 19.9
- --------------------------------------------------------------------------------
DEPRECIATION AND
AMORTIZATION EXPENSE:
Security services $ 11.5 $ 10.1 $ 9.4
Correctional services 3.6 6.3 3.5
Staffing services 1.5 0.4
Unallocated corporate
expenses 0.9 0.7 0.9
---------- ---------- --------
Total expenses $ 17.5 $ 17.5 $ 13.8
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
<TABLE>
IDENTIFIABLE ASSETS:
<S> <C> <C> <C>
Security services $ 221.3 $ 171.3 $ 158.4
Correctional services 149.7 139.2 106.8
Staffing services 62.6 45.1 1.0
Unallocated corporate
expenses 19.4 48.8 57.7
-------- --------- --------
Total identifiable assets $ 453.0 $ 404.4 $ 323.9
</TABLE>
DOMESTIC AND INTERNATIONAL OPERATIONS
Non-U.S. operations of the Company and its subsidiaries are conducted primarily
in South America, the United Kingdom and Australia. No individual foreign
subsidiary of the Company represented over 10% of combined revenues in 1998.
Minority interest in consolidated foreign subsidiaries have been reflected, net
of applicable income taxes, in the accompanying financial statements. The
Company 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 Company are provided currently. Long-lived assets consist of
property, plant and equipment.
A summary of domestic and international operations is shown at the right.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Fiscal year 1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Domestic operations $ 1,548.7 $ 953.0 $ 760.0
International operations 206.4 173.8 146.0
---------- ---------- --------
Total revenues $ 1,755.1 $ 1,126.8 $ 906.0
- ---------------------------------------------------------------------------
OPERATING INCOME:
Domestic operations $ 26.2 $ 17.1 $ 15.7
International operations 6.2 4.5 1.4
One-time charges and
impairment of assets (18.3) (0.8)
---------- ---------- --------
Total operating income $ 32.4 $ 3.3 $ 16.3
- ---------------------------------------------------------------------------
EQUITY INCOME (LOSS) OF FOREIGN
AFFILIATES, NET OF TAXES:
Domestic operations
International operations $ 3.5 $ 2.1 $ 1.6
---------- ---------- --------
Total equity income $ 3.5 $ 2.1 $ 1.6
- ---------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Domestic operations $ 29.5 $ 19.6 $ 16.6
International operations 4.4 8.1 3.3
---------- ---------- --------
Total capital expenditures $ 33.9 $ 27.7 $ 19.9
- ---------------------------------------------------------------------------
DEPRECIATION AND
AMORTIZATION EXPENSE:
Domestic operations $ 12.8 $ 12.9 $ 9.6
International operations 4.7 4.6 4.2
---------- ---------- --------
Total expenses $ 17.5 $ 17.5 $ 13.8
- ---------------------------------------------------------------------------
LONG-LIVED ASSETS:
Domestic operations $ 50.2 $ 48.2 $ 26.6
International operations 9.7 8.2 7.9
---------- ---------- --------
Total long-lived assets $ 59.9 $ 56.4 $ 34.5
- ---------------------------------------------------------------------------
</TABLE>
(19)SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the Company and its subsidiaries for the
fiscal years ended January 3, 1999 and December 28, 1997 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 398.6 $ 416.7 $ 438.4 $ 501.4
Income (loss) from operations $ 5.9 $ 8.8 $ 8.7 $ 9.0
Cumulative effect of change in accounting principle (1) $ (6.6)
Net income (loss) $ (4.1) $ 4.0 $ 4.4 $ 5.0
Earnings per share - basic
Income before cumulative effect of change in accounting principle $ 0.17 $ 0.27 $ 0.30 $ 0.34
Cumulative effect of change in accounting principle $ (0.44) $ -- $ -- $ --
Net income $ (0.27) $ 0.27 $ 0.30 $ 0.34
Earnings per share - diluted
Net income before cumulative effect of change in accounting principle $ 0.16 $ 0.26 $ 0.29 $ 0.33
Cumulative effect of change in accounting principle $ (0.44) $ -- $ -- $ --
Net income $ (0.28) $ 0.26 $ 0.29 $ 0.33
- -----------------------------------------------------------------------------------------------------------------------------------
1997
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues $ 242.1 $ 273.6 $ 294.9 $ 316.2
Income (loss) from operations (2) $ 4.0 $ 4.9 $ 6.7 $ (12.3)
Net income $ 2.0 $ 2.5 $ 3.3 $ (7.7)
Earnings (loss) per share - basic $ 0.13 $ 0.17 $ 0.23 $ (0.52)
Earnings (loss) per share - diluted $ 0.13 $ 0.17 $ 0.22 $ (0.53)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Each quarter has 13 weeks, except for the fourth quarter of 1998 which has
14 weeks.
(1) In the fourth quarter the company adopted SOP 98-5 resulting in a debit
of $6.6 million after-tax and minority interest expense (described in
Note 2, hereto) and has been recognized retroactively to the first
quarter of 1998.
(2) The results of operations in the fourth quarter of 1997 were affected
by a one-time charge of $18.3 million (Note 8).
<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 January 3, 1999 and
December 28, 1997, and the related consolidated statements of income, cash flows
and shareholders' equity and comprehensive income for each of the three fiscal
years in the period ended January 3, 1999. These financial statements are the
responsibility of the Company'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 January 3, 1999 and December 28, 1997, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 3, 1999, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, effective
December 29, 1997, the Company changed its method of accounting for costs of
start-up activities.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
February 19, 1999.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Shareholders of
The Wackenhut Corporation:
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. They include amounts
based on judgments and estimates.
Representation in the consolidated financial statements and the fairness and
integrity of such statements are the responsibility of management. In order to
meet management's responsibility, the Company maintains a system of internal
controls and procedures and a program of internal audits designed to provide
reasonable assurance that the Company'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 consolidated financial statements.
The consolidated financial statements have been audited by Arthur Andersen LLP,
independent certified 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 Company'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 Company'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 consolidated financial
statements.
The audit committee of the board of directors meets periodically with
representatives of management, the independent certified public accountants and
the Company's internal auditors to review matters relating to financial
reporting, internal accounting controls and auditing. Both the internal auditors
and the independent certified public accountants have unrestricted access to the
audit committee to discuss the results of their reviews.
/s/George R. Wackenhut
- ---------------------------
George R. Wackenhut
Chairman of the Board
and Chief Executive Officer
/s/Philip L. Maslowe
- --------------------
Philip L. Maslowe
Senior Vice President and
Chief Financial Officer
Palm Beach Gardens, Florida,
February 19, 1999
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE CORPORATION
SUBSIDIARIES OF THE WACKENHUT CORPORATION
American Guard and Alert, Inc. (Alaska)
Titania Advertising, Incorporated (Florida)
Titania Insurance Company of America (Vermont)
Tuhnekcaw, Inc. (Delaware)
Wackenhut Airline Services, Inc. (Florida)
Wackenhut Australia, Pty., Ltd. (Australia)
Wackenhut of Canada, LTD. (Canada)
Wackenhut Corrections Corporation (Florida)
Wackenhut Educational Services, Inc. (Florida)
Wackenhut Financial, Inc. (Delaware)
Wackenhut Funding Corp. (Delaware)
Wackenhut International, Incorporated (Florida)
Wackenhut of Nevada, Inc. (Nevada)
Wackenhut Resources, Inc. (Florida)
Wackenhut Services, Incorporated (Florida)
SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED
Ecma, S.A. de C.V. (El Salvador)
Instituto Wackenhut, S.A. (Ecuador)
Peruana de Seguridad y Vigilancia, S.A. (PESEVISA) (Peru)
Seguridad Wackenhut, S.A. de CV (Mexico)
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 Valores, S.A. (Guatemala)
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 Jamaica, Ltd. (Jamaica)
Wakenhut Kuban (Russia)
Wackenhut Pakistan (PVT) Limited (Pakistan)
Wackenhut Maghreb, S.A. (Morocco)
Wackenhut Mozambique Lda (Mozambique)
Wackenhut Neva (Russia)
Wackenhut Paraguay, S.A. (Paraguay)
Wackenhut Peru, S.A. (Peru)
Wackenhut Puerto Rico, Inc. (Puerto Rico)
Wackenhut S.A. (Costa Rica)
<PAGE> 2
SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED (CONTINUED)
Wackenhut Sakhalin (Russia)
Wackenhut Santa Cruz, S.A. (Bolivia)
Wackenhut Seges (Ivory Coast)
Wackenhut Services S.A. de C.V. (El Salvador)
Wackenhut Sierra Leone (Sierra Leone)
Wackenhut Transportation de Valores, S.A. (Ecudaor)
Wackenhut U.K. Limited (United Kingdom)
Wackenhut Uruguay, S.A. (Uruguay)
WII/Sound and Security Engineering Co. (Jordan)
SUBSIDIARY OF AMERICAN GUARD AND ALERT
Ahtna AGA Security, Inc. (Alaska)
SUBSIDIARIES OF WACKENHUT CORRECTIONS CORPORATION
Atlantic Shores Healthcare, Inc.
Miramichi Youth Centre Management, Inc.
Wackenhut Corrections (U.K.), Limited (United Kingdom)
Wackenhut Corrections Corporation Australia Pty Ltd. (Australia)
Wackenhut Corrections of Canada, Ltd. (Canada)
Wackenhut Corrections Design Services, Inc.
Wackenhut Corrections Puerto Rico, Inc.
WCC Development, Inc. (Florida)
WCC/FL/01, Inc. (Florida)
WCC/FL/02, Inc. (Florida)
WCC Financial, Inc. (Delaware)
WCC RE Holdings, Inc. (Florida)
SUBSIDIARY OF WACKENHUT CORRECTIONS CORPORATION AUSTRALIA
Wackenhut Correctional Investments Pty Ltd. (Australia)
Australasian Correctional Management Pty Ltd. (Australia)
Wackenhut Correctional Services Pty Ltd. (Australia)
SUBSIDIARY OF WACKENHUT SERVICES, INCORPORATED
Wackenhut Services, LLC. (Colorado)
SUBSIDIARIES OF WACKENHUT RESOURCES, INC.
Oasis Outsourcing, Inc. (Florida)
King Staffing, Inc. (Florida)
Professional Employee Management, Inc. (Florida)
Souteastern Resources, Inc. (Florida)
Staffing, Inc. (Florida)
WRI Staffing, Inc. (Florida)
WRI II, 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, 333-11837 and 333-46399.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
March 31, 1999.
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ George R. Wackenhut Date: 3-3-99
- -------------------------------- ------
George R. Wackenhut, Director
<PAGE> 2
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Thomas P. Stafford Date: 3-7-99
- -------------------------------- ------
Thomas P. Stafford, Director
<PAGE> 3
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ John F. Ruffle Date: 3-6-99
- -------------------------------- ------
John F. Ruffle, Director
<PAGE> 4
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Paul X. Kelley Date: 3-6-99
- -------------------------------- ------
Paul X. Kelley, Director
<PAGE> 5
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Nancy Reynolds Date: 3-8-99
- -------------------------------- ------
Nancy Reynolds, Director
<PAGE> 6
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Edward L. Hennessy, Jr. Date: 3-10-99
- --------------------------------- -------
Edward L. Hennessy, Jr., Director
<PAGE> 7
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Anne N. Foreman Date: 3-10-99
- -------------------------------- -------
Anne N. Foreman, Director
<PAGE> 8
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Benjamin R. Civiletti Date: 3-10-99
- -------------------------------- -------
Benjamin R. Civiletti, Director
<PAGE> 9
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Carroll A. Campbell Date: 3-11-99
- -------------------------------- -------
Carroll A. Campbell, Director
<PAGE> 10
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Alan B. Bernstein Date: 3-2-99
- --------------------------------- ------
Alan B. Bernstein, Director
<PAGE> 11
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Julius W. Becton, Jr. Date: 3-6-99
- -------------------------------- ------
Julius W. Becton, Jr., Director
<PAGE> 12
POWER OF ATTORNEY
The undersigned member of the Board of Directors of The Wackenhut
Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar,
Timothy L. McCormick, James P. Rowan and Francis E. Finizia and each them
severally, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him/her and in his/her name, place and
stead, in any and all capacities to sign any and all reports on Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) and any
amendment thereto, and to file the same, will 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/she 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/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ Richard R. Wackenhut Date: 3-1-99
- -------------------------------- ------
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 YEAR ENDED JANUARY 3, 1999.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> JAN-03-1999
<CASH> 44
<SECURITIES> 19<F1>
<RECEIVABLES> 173
<ALLOWANCES> 5
<INVENTORY> 15
<CURRENT-ASSETS> 256<F2>
<PP&E> 80
<DEPRECIATION> 20
<TOTAL-ASSETS> 453
<CURRENT-LIABILITIES> 169
<BONDS> 3
0
0
<COMMON> 2
<OTHER-SE> 148
<TOTAL-LIABILITY-AND-EQUITY> 453<F3>
<SALES> 0
<TOTAL-REVENUES> 1,755
<CGS> 0
<TOTAL-COSTS> 1,723
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 35
<INCOME-TAX> 14
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 7
<NET-INCOME> 9<F4>
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.59
<FN>
<F1>MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT ARE CLASSIFIED AS NON-CURRENT
ASSETS ON THE BALANCE SHEET.
<F2>INCLUDES $12.3 MILLION OF OTHER CURRENT ASSETS.
<F3>INCLUDES $50.8 MILLION RESERVE FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY,
$47.6 MILLION MINORITY INTEREST, $16.7 MILLION DEFERRED REVENUE AND $16.7
MILLION OTHER LIABILITIES.
<F4>INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES - NET OF
INCOME TAXES OF $8.5 MILLION AND $(3.5) MILLION RESPECTIVELY.
</FN>
</TABLE>
