<PAGE> 1
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
[NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 29, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-14260
WACKENHUT CORRECTIONS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0043078
- --------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
4200 Wackenhut Drive #100, Palm Beach Gardens, Florida 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:
Common Stock $0.01 Par Value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
</TABLE>
Indicate by a 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 March 14, 1997, the aggregate market value of the 9,951,292 shares of Common
Stock held by non-affiliates of the registrant was $174,147,610. At March 14,
1997, there were outstanding 21,951,292 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Proxy Statement for its 1997 Annual Meeting of
Shareholders are incorporated by reference in Part III of this Annual Report.
Parts of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 29, 1996 are incorporated by reference into Parts II and IV of
this Report.
EXHIBIT INDEX IS LOCATED ON PAGE 21
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PART I
ITEM 1. BUSINESS
THE COMPANY
Wackenhut Corrections Corporation is a leading developer and manager of
privatized correctional and detention facilities in the United States, Puerto
Rico, Canada, the United Kingdom and Australia. The Company was founded in
1984 as a division of The Wackenhut Corporation ("Parent"), a leading provider
of professional security services. In 1986, the Company received its first
contract, from the United States Immigration and Naturalization Service (the
"INS"), to design, construct and manage a detention facility with a design
capacity of 150 beds.
The Company 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 such facilities. In
addition to providing the fundamental residential services relating to the
security of facilities and the detention and care of inmates, the Company has
built a reputation as an effective provider of a wide array of in-facility
rehabilitative and educational programs. These programs include chemical
dependency counseling and treatment, basic education, and job and life skills
training. Additionally, the Company continuously seeks to expand into
complementary services such as work release programs, youth detention services
and prisoner transport services (known as court escort services in the United
Kingdom). The Company believes that its experience in delivering governmental
agencies high quality cost-effective correctional and detention facility
management services provides such agencies strong incentive to select the
Company when renewing and awarding contracts.
As of March 14, 1997 the Company has 35 correctional and detention facilities
either under contract or award with an aggregate design capacity of 24,708
beds. Of these 35 facilities, 21 are currently in operation, 12 are being
developed by the Company and two are being developed by a third party. Of the
facilities being developed seven are scheduled to commence operations during
1997 (two in the first quarter, one in the second quarter and four in the
fourth quarter)*. In addition, at March 14, 1997, the Company had outstanding
written responses to Requests for Proposal ("RFPs") for 4 projects with an
aggregate design capacity of 3,528 beds.
The Company has obtained and is pursuing construction and management contracts
for correctional and detention facilities outside the United States and
presently operates facilities in the United Kingdom and Australia. Through its
wholly-owned subsidiary, Wackenhut Corrections Corporation Australia Pty
Limited ("WCCA"), the Company entered into two joint ventures to develop
business opportunities in Australia. In June 1991, one of these joint
ventures, Australasian Correctional Services Pty Limited ("ACS"), was selected
by the New South Wales (Australia) Department of Corrective Services to design,
build and manage the Junee Correctional Centre, a 600 inmate facility in Junee,
New South Wales, Australia. ACS subcontracted the management of the Junee
facility to another joint venture involving the Company, Australasian
Correctional Management Pty Limited ("ACM"). ACM commenced management of the
Junee Correctional Centre in April 1993. In April 1992, the Queensland
Corrective Services Commission awarded ACM a contract to manage the Arthur
Gorrie Correctional Centre, a 578 inmate facility near Brisbane, Queensland,
Australia. ACM commenced management of that facility in July 1992. In May
1995, ACS was nominated as the successful tenderer for a contract by the
Department of Justice of Victoria, Australia to design, build, finance, and
manage a 600 inmate facility at Victoria, Australia. The Company subsequently
incorporated a wholly owned subsidiary, Australasian Correctional Investment
Limited ("ACI") to operate this facility under a 20 year concession agreement.
Management of the facility has been contracted to ACM under a five year
management arrangement and ACM has also been awarded the contract for
maintenance of the facility which opens April 7, 1997*. In January 1994, WCCA
purchased
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additional stock in both ACS and ACM from one of the other joint venture
partners for a net cost of $2.5 million. As a result of this transaction, the
Company now owns 100% of ACM and 50% of ACS.
In the United Kingdom, the Company formed two joint ventures to pursue
construction and management contracts for privatized correctional and detention
facilities. In July 1992, the Company formed Premier Prison Services, Ltd.
("PPS"), a corporation organized under the laws of Great Britain, as a joint
venture with Serco Limited, for the management of detention facilities and
prisons. PPS bid for and received the contract to manage H.M. Prison
Doncaster, a 1,011 inmate correctional facility, which opened in June 1994. In
February 1994, through Wackenhut Corrections (UK) Limited, the Company formed
Premier Custodial Development ("PCD"), as a joint venture with a wholly-owned
subsidiary of Trafalgar House Limited, for the design, construction and
financing of new detention facilities and prisons. The Company expects that
PCD will bid with PPS for the design, development and management of new
correctional and detention facilities in the United Kingdom. In December 1995,
PPS entered into two contracts to provide court escort services in the United
Kingdom and intends to bid on additional contracts to perform such services
elsewhere. Under court escort contracts, a private company, on behalf of a
governmental agency, transports prisoners between police stations, prisons and
courts and is responsible for the custody of such prisoners during
transportation and court appearances. In November 1996, PPS finalized a
contract to manage H.M. Prison Lowdham Grange, a 500 inmate correctional
facility in Nottinghamshire, England that is scheduled to open in 1998*.
Generally, the Company manages facilities owned or leased by a governmental
agency. The agency may finance the construction of such facilities through
various methods including, but not limited to, the following: (i) a one time
general revenue appropriation by the governmental agency for the cost of the
new facility; (ii) general obligation bonds that are secured by either a
limited or unlimited tax levy by the issuing entity; or (iii) lease revenue
bonds or certificates of participation secured by an annual lease payment that
is subject to annual or bi-annual legislative appropriations. In some
instances, the Company may be required to own and/or finance the facility. The
construction of these facilities will be financed through various methods
including, but not limited to the following: (i) funds from equity offerings of
the Company's stock; (ii) borrowing from banks or other institutions; or (iii)
lease arrangements with third parties.
The Company was incorporated in Florida in April 1988. The Company's principal
executives offices are located at 4200 Wackenhut Drive #100, Palm Beach
Gardens, Florida 33410-4243, and its telephone number is (561) 622-5656.
See the Company's Consolidated Financial Statements on 22 through 24 and Note 4
of Notes to Consolidated Financial Statements, which are included in the
Company's Annual Report to Shareholders for the fiscal year ended December 29,
1996 and incorporated herein by reference, for financial information regarding
domestic and international operations.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995. Except for historical
matters, the matters discussed in this Form 10-K contain forward-looking
statements that are based on current expectations and are subject to a number
of risks and uncertainties. Actual results could differ materially from
current expectations due to a number of factors, including but not limited to:
general economic conditions; competitive factors and pricing pressures; shifts
in market demand; the performance and needs of clients served by the Company;
actual future costs of operating expenses; self-insurance claims and employee
wages and benefits; possible changes in ownership positions of the Company's
subsidiaries; and such other risks which may be described from time to time in
the Company's SEC filings. These statements are marked with an " * ".
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FACILITIES
The following table summarizes certain information with respect to facilities
currently under management contract or award for management by the Company (or
a subsidiary or joint venture of the Company) at March 14, 1997.
<TABLE>
<CAPTION>
FACILITY NAME COMPANY DESIGN FACILITY SECURITY COMMENCEMENT RENEWAL
LOCATION ROLE CAPACITY TYPE LEVEL OF CONTRACT TERM OPTION
- ------------------------ --------------- --------- ------------------- -------------- ------------------- ----------- -----------
FEDERAL GOVERNMENT
CONTRACTS
<S> <C> <C> <C> <C> <C> <C>
Aurora INS Processing Construction/ 300 INS Detention Minimum/ October 1991 1 year Four,
Center Management Facility Medium One-year
Aurora, Colorado
Queens Private Construction/ 200 INS Detention Minimum/ 1st Quarter 1997* 5 years Four,
Correctional Facility Management Facility Medium (Estimated) One-year
Queens, New York
STATE GOVERNMENT
CONTRACTS
Arkansas Women's Design/ 600 State Prison All levels 1998* 2 years Unlimited,
Correctional Facility Construction/ (Estimated) Two-year
Newport, Arkansas Management
Arkansas Young Adult Design/ 600 State Prison Minimum/ 1998* 2 years Unlimited,
Male Correctional Construction/ Medium (Estimated) Two-year
Facility Management
Newport, Arkansas
Allen Correctional Management 1,474 State Prison Medium/ December 1993 3 years One,
Center Maximum Two-year
Kinder, Louisiana
Bayamon Regional Design/ 500 State Prison Medium 1st Quarter 1997* 5 years One,
Detention Center Construction/ (Estimated) Five-year
Bayamon, Puerto Rico Consultation/
Management
Bridgeport Pre-Release Construction/ 520 Pre-Release Center Minimum September 1995 5 years None
Center Management (1)
Bridgeport, Texas
Central Texas Parole Renovation/ 623 Parole Violator All levels September 1993 Varies (2) Varies (2)
Violator Facility Management Facility/U.S.
San Antonio, Texas Marshal Detention
Facility/
Juvenile Offender
Facility/Out of
State Prison
Inmates
Central Valley Design/ 550 State Prison Medium 4th Quarter 1997* 10 years None
Community Correctional Construction/ (Estimated)
Facility Management
McFarland, California
Charlotte County Management 1,000 State Prison Minimum 1998* (3) (3)
Correctional Facility (Estimated)
Charlotte County, Virginia
Coke County Juvenile Design/ 96 Juvenile Offender Medium October 1994 2 years Automatic,
Justice Facility Construction/ Facility Unlimited,
Coke County, Texas Management Two-year
</TABLE>
PAGE 4 OF 44
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<TABLE>
<CAPTION>
FACILITY NAME COMPANY DESIGN FACILITY SECURITY COMMENCEMENT RENEWAL
LOCATION ROLE CAPACITY TYPE LEVEL OF CONTRACT TERM OPTION
- ------------------------ --------------- --------- ------------------- -------------- ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Desert View Community Design/ 550 State Prison Medium 4th Quarter 1997* 10 years None
Correctional Facility Construction/
Adelanto, California Management
Golden State Community Design/ 550 State Prison Medium 4th Quarter 1997* 10 years None
Correctional Facility Construction/ (Estimated)
McFarland, California Management
Guadalupe County Management 1,200 State Prison All levels 1998* (3) (3)
Correctional Facility (Estimated)
Santa Rosa, New Mexico
Kyle New Vision Construction/ 520 State Prison/ Minimum September 1995 5 years None
Chemical Dependency Management/ In-Prison (1)
Treatment Center (4) Chemical Chemical
Kyle, Texas Dependency Dependency
Treatment Treatment Center
Lea County Management 2,200 State Prison All levels 1998* (3) (3)
Correctional Facility (Estimated)
Hobbs, New Mexico
Lockhart Renaissance Design/ 500 State Prison Minimum/ August 1994 3 years One,
Facility Construction/ Medium Two-year
Lockhart, Texas Management
Lockhart Work Program Construction/ 500 Work Program Minimum September 1995 2 years One,
Facility Management Facility Two-year
Lockhart, Texas
Marshall County Design/ 1,000 State Prison Medium May 1996 5 years Unlimited,
Correctional Facility Construction/ Two-year
Marshall County, Management
Mississippi
McFarland Community Construction/ 224 Pre-Release Center Minimum/ February 1994 4 years None
Correctional Facility Management Medium
McFarland, California
Moore Haven Design/ 750 State Prison Medium July 1995 3 years Unlimited,
Correctional Facility Construction/ Two-year
Moore Haven, Florida Management
North Texas Renovation/ 400 Intermediate Minimum September 1993 2 years Unlimited,
Intermediate Sanction Management Sanction Facility Two-year
Facility
Fort Worth, Texas
John R. Lindsey Unit Design/ 1,000 Texas State Jail Medium September 1995 3 years One,
Jack County, Texas Consultation/ Facility Two-year
Management
South Bay Correctional Design/ 1,318 State Prison Medium/ February 1997 3 years Unlimited,
Facility Construction/ Close Custody Two-year
South Bay, Florida Management
Travis County Design/ 1,000 Texas State Jail Medium March 1997 2 - 1/3 Automatic,
Community Justice Consultation/ Facility years Unlimited,
Center Management (5) Two-year
Travis County, Texas
Willacy County Unit Design/ 1,000 Texas State Jail Medium January 1996 2 - 1/2 One,
Willacy County, Texas Consultation/ Facility years Two-year
Management (5)
</TABLE>
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<TABLE>
<CAPTION>
FACILITY NAME COMPANY DESIGN FACILITY SECURITY COMMENCEMENT RENEWAL
LOCATION ROLE CAPACITY TYPE LEVEL OF CONTRACT TERM OPTION
- ------------------------ --------------- --------- ------------------- -------------- ------------------- ----------- ----------
LOCAL GOVERNMENT
CONTRACTS
<S> <C> <C> <C> <C> <C> <C> <C>
Broward County Work Design/ 300 Community Work None 4th Quarter 1997 * 5 year Unlimited,
Release Center Construction/ Release Center (Estimated) Two-year
Broward County, Management
Florida
Jena Juvenile Justice Design/ 276 City Jail All levels 1998* 25 years None
Center Construction/ (Estimated)
Jena, Louisiana Management
San Diego City Jail Construction/ 200 City Jail Facility Minimum May 1992 5 years One,
San Diego, California Management Five-year;
Successive
One-year
terms
Delaware County Prison Design/ 1,200 County Jail All levels 1998* 3 years Unlimited,
(6) Construction/ Facility (Estimated) Two-year
Delaware County, Management
Pennsylvania
INTERNATIONAL CONTRACTS
Arthur Gorrie Management 578 Remand and All levels June 1992 7 years None
Correctional Centre Reception Center
Wacol,
Australia
Court Escort Management NA Court Custody/ All levels May 1996 7 years One,
West Midlands Area Transport-Escort Four-year
England
Court Escort Management NA Court Custody/ All levels May 1996 7 years One,
South East Area Transport-Escort Four-year
England
H.M. Prison Doncaster Management 1,011 National Prison All levels June 1994 5 years Three,
Doncaster, England Three-year
Fulham Correctional Design/ 600 State Prison Minimum/ 2nd Quarter 1997* 25 years Five,
Centre Consultation/ Medium (Estimated) Three-year
Victoria, Australia Management
H.M. Prison Lowdham Management 500 National Prison All levels 1998* 25 years None
Grange (Estimated)
Nottinghamshire,
England
Junee Correctional Construction/ 600 National Prison Medium April 1993 5 years One,
Centre Management Three-year
Junee, Australia
New Brunswick Youth Design/ 112 Province Juvenile All levels Fall 1997* 25 years None
Centre Consultation/ Facility (Estimated)
New Brunswick, Maintenance
Canada
</TABLE>
(1) Subject to termination option on August 31, 1998.
(2) This facility is occupied by inmates under several contracts with
varying terms and renewal options. The terms of these contracts range
from two weeks to an indefinite period and the renewal option features
range from no option to unlimited renewals.
(3) Contract terms have yet to be negotiated.
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(4) The Company operates a chemical dependency treatment center located in
this facility under a separate contract. This contract is for a two-year
term expiring September 30, 1997.
(5) Expires August 31, 1998.
(6) The Company has a contract to manage and operate an existing 1,000 bed
facility in Delaware County, Pennsylvania. This contract will terminate
upon the completion of a new 1,200 bed facility currently being
constructed by the Company. The Company will manage and operate such
facility upon its completion.
The Company offers services that go beyond simply housing inmates. The
Company's wide array of in-facility rehabilitative and educational programs
differentiates it from many competitors who lack the experience or resources to
provide such programs. Inmates at most facilities managed by the Company can
also receive basic education through academic programs designed to improve
inmates' literacy levels and to offer the opportunity to acquire General
Education Development ("GED") certificates. Most Company-managed facilities
also offer vocational training for in-demand occupations to inmates who lack
marketable job skills. In addition, most Company-managed facilities offer life
skills/transition planning programs that provide inmates job search training
and employment skills, anger management skills, health education, financial
responsibility training, parenting skills and other skills associated with
becoming productive citizens. For example, at the Lockhart Work Program
Facility, Lockhart, Texas, the Company, as part of its job training program,
recruited firms from private industry to employ inmates at the facility.
Inmates who participate in such programs receive job skills training and are
paid at least the minimum wage. The inmates' earnings are used to compensate
victims, defray the inmates' housing costs and support their dependents. The
Company also offers counseling, education and/or treatment to inmates with
alcohol and drug abuse problems at fifteen of the facilities it manages. The
Company believes that its program at the Kyle New Vision Chemical Dependency
Treatment Center is the largest privately managed in-prison program of this
nature in the United States.
The Company operates each facility in accordance with the Company-wide policies
and procedures and with the standards and guidelines required under the
relevant contract. For many facilities, the standards and guidelines include
those established by the American Correctional Association ("ACA"). The ACA,
an independent organization of corrections professionals, establishes
correctional facility standards and guidelines that are generally acknowledged
as a benchmark by governmental agencies responsible for correctional
facilities. Many of the Company's contracts for facilities in the United
States require the Company to seek accreditation of the facility. The Company
has sought and received ACA accreditation for eight of the facilities it
manages and has always received ACA accreditation when sought.
Contracts to design and construct or to redesign and renovate facilities may be
financed in a variety of ways. See "Business -- Facility Design, Construction
and Finance." If the project is financed using direct governmental
appropriations, using proceeds of the sale of bonds or other obligations issued
prior to the award of the project or by the Company directly, then financing is
in place when the contract relating to the construction or renovation project
is executed. If the project is financed using project-specific tax-exempt
bonds or other obligations, the construction contract is generally subject to
the sale of such bonds or obligations. Generally, substantial expenditures for
construction will not be made on such a project until the tax-exempt bonds or
other obligations are sold; and, if such bonds or obligations are not sold,
construction and, therefore, management of the facility may either be delayed
until alternative financing is procured or development of the project will be
entirely suspended. If the project is self-financed by the Company, then
financing is in place prior to the commencement of construction. When the
Company is awarded a facility management contract, appropriations for the first
annual or bi-annual period of the contract's term have generally already been
approved, and the contract is subject to governmental appropriations for
subsequent annual or bi-annual periods.
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<PAGE> 8
FACILITY MANAGEMENT CONTRACTS
The Company's customers consist of governmental agencies having
responsibilities for local, state and federal correctional and detention
facilities. During Fiscal 1996, 1995 and 1994, the various agencies of the
State of Texas accounted for 39%, 37%, and 41%, respectively, of the Company's
consolidated revenues. During Fiscal 1996, 1995 and 1994, contracts with the
Louisiana Department of Public Safety and Corrections accounted for 9%, 11% and
13%, respectively, of the Company's revenues. Contracts with the New South
Wales Department of Corrective Services accounted for 10%, 13% and 15% of the
Company's revenues in Fiscal 1996, 1995 and 1994, respectively. Contracts with
the Queensland Corrective Services Commission accounted for 11%, 13% and 13% of
the Company's revenues in Fiscal 1996, 1995 and 1994. No other single customer
accounted for 10% or more of the Company's total revenues for Fiscal 1996,
1995, and 1994.
Except for its contract for the San Diego City Jail facility and the facilities
in the United Kingdom and Australia, all of which provide for fixed monthly
rates, the Company's facility management contracts provide that the Company
will be compensated at an inmate per diem rate based upon actual or guaranteed
occupancy levels. Such compensation is invoiced in accordance with applicable
law and is paid on a monthly basis. All of the Company's contracts are subject
to either annual or bi-annual legislative appropriations. A failure by a
governmental agency to receive appropriations could result in termination of
the contract by such agency or a reduction of the management fee payable to the
Company. To date, the Company has not encountered a situation where
appropriations have not been made to a governmental agency with regard to the
Company's contracts, although no assurance can be given that the governmental
agencies will continue to receive appropriations in all cases.
The Company's facility management contracts typically have original terms
ranging from one to five years and give the governmental agency at least one
renewal option, generally for a term ranging from one to five years. Some of
the Company's management contracts fall within the definition of "qualified
management contracts" under the rules of the Internal Revenue Service.
Therefore, such contracts are for one five-year term with the power to
terminate for convenience at the end of three years. The Company has: (i)
eight contracts expiring in 1997 (one with unlimited six-month renewal options,
one with unlimited two-year renewal options, one with a single five-year
renewal period, three with a single two-year renewal period, and two with no
renewal option); (ii) eight contracts expiring in 1998 (two automatic
unlimited two-year extensions, three with a single two-year renewal option, one
with unlimited two-year renewal options, one with a single three-year renewal
option, and one with no renewal option); (iii) one contract expiring in 1999
(three three-year renewal options); (iv) four expiring in 2000 (two with no
renewal option and two with unlimited two-year renewal options); and (v) one
expiring in 2001 (a single five-year renewal option). Except as described
below, to date, all renewal options under the Company's management contracts
have been exercised. However, in connection with the exercise of the renewal
option, the contracting government agency or the Company typically has
requested changes or adjustments to the contract terms. The Company's
management contract for the New York INS facility expired effective March 31,
1995, and was not renewed by the INS due to the closure of the facility. The
INS subsequently awarded the Company a contract to construct and manage a New
York facility called the Queens Privatized Correctional Facility. This
facility will open in 1997*.
The Company's contracts typically allow a contracting governmental agency to
terminate a contract for cause by giving the Company written notice ranging
from 30 to 180 days. No contracts have been terminated prior to the end of the
contract term. To date, the only Company contract that did not extend for the
full term was for the management of the Monroe County, Florida jail. By mutual
agreement of the Company and the Monroe County Board of Commissioners the
contract was discontinued in 1990 on an amicable basis.
PAGE 8 OF 44
<PAGE> 9
In addition, in connection with the Company's management of such facilities,
the Company is required to comply with all applicable local, state and federal
laws and related rules and regulations. The Company's contracts typically
require it to maintain certain levels of insurance coverage for general
liability, workers' compensation, vehicle liability, and property loss or
damage. If the Company does not maintain the required categories and levels of
coverage, the contracting governmental agency may be permitted to terminate the
contract. Presently, the Company, through Parent, has general liability
insurance coverage of $35 million per occurrence and in the aggregate. See
"Business -- Insurance." In addition, the Company is required under its
contracts to indemnify the contracting governmental agency for all claims and
costs arising out of the Company's management of facilities and in some
instances require the Company to maintain performance bonds.
FACILITY DESIGN, CONSTRUCTION AND FINANCE
The Company provides governmental agencies consultation and management services
relating to the design and construction of new correctional and detention
facilities and the redesign and renovation of older facilities. Through March
14, 1997, the Company has provided service for the design and construction of
thirteen facilities and for the redesign and renovation of three facilities and
has contracts to design and construct eleven new facilities. It has been the
Company's experience that it typically takes 9 to 24 months to construct a
facility after the contract is executed and financing approved. In addition,
the Company has provided consulting services in connection with the
construction of three new facilities in Texas.
The Company has consulted on and/or managed the design and construction of the
following facilities: (i) Aurora INS Processing Center; (ii) McFarland
Community Correctional Facility; (iii) Bridgeport Pre-Release Center; (iv) Kyle
New Vision Chemical Dependency Treatment Center; (v) Junee Correctional Centre;
(vi) San Diego City Jail; (vii) Lockhart Work Program Facility; (viii) Lockhart
Renaissance Facility; (ix) Moore Haven Correctional Facility; (x) Coke County
Juvenile Justice Facility; (xi) South Bay Correctional Facility; (xii) Marshall
County; and (xiii) the Bayamon Regional Detention Center. The Company is
currently consulting on and/or managing the design and construction of the
following facilities: (i) Arkansas Women's Correctional Facility, (ii) Arkansas
Young Adult Correctional Facility (iii) Broward County Work Release Center (iv)
Fulham Correctional Centre, (v) Queens Private Correctional Facility, (vi)
Central Valley Community Correctional Facility; (vii) Desert View Community
Correctional Facility, (viii) Golden State Community Correctional Facility,
(ix) H.M. Prison Lowdham Grange, (x) the new Delaware County Prison, (xi)
Charlotte County and (xii) Jena Juvenile Justice Center. Both the Guadalupe
County Correctional Facility and the Lea County (Hobbs) Correctional Facility
will be constructed by a third party. The Company also has provided
consultation and management services in connection with the redesign and
renovation of the following facilities: (i) North Texas Intermediate Sanction
Facility; (ii) New York INS Processing Center; and (iii) Central Texas Parole
Violator Facility. Currently, the Company manages all of the facilities it has
designed and constructed or redesigned and renovated with the exception of the
New York INS Processing Center, which has closed. The INS subsequently awarded
the Company a contract to construct and manage a New York facility called the
Queens Private Correctional Facility (scheduled to open in 1997*). The Company
is willing to perform consultation and management services for the design and
construction or redesign and renovation of a facility regardless of whether it
has been awarded the contract for the management of such facility.
Under its construction and design management contracts, the Company agrees to
be responsible for overall project development and completion. The Company
makes use of an in-house staff of architects and operational experts from
various corrections disciplines (e.g., security, medical service, food service,
inmate programs and facility maintenance) as part of the decision team that
participates from conceptual design through final construction of the project.
When designing a facility, the Company's architects seek to utilize, with
appropriate modifications, prototype designs the Company has used in developing
prior
PAGE 9 OF 44
<PAGE> 10
projects. The Company believes that the use of such proven designs allows it
to reduce cost overruns and construction delays and to reduce the number of
guards required to staff a facility, thus controlling costs both to construct
and to manage the facility. Security is maintained because the Company's
facility designs increase the area of vision under surveillance by guards and
make use of additional electronic surveillance.
The Company typically acts as the primary developer on construction contracts
for facilities and subcontracts with local general contractors. Where
possible, the Company subcontracts with construction companies with which it
has previously worked. The Company has an in-house team of design,
construction and prison security experts that coordinate all aspects of the
development with subcontractors and provide site-specific services.
The Company may also propose to contracting governmental agencies various
financing structures for construction finance. The governmental agency may
finance the construction of such facilities through various methods including,
but not limited to, the following: (i) a one time general revenue
appropriation by the government agency for the cost of the new facility, (ii)
general obligation bonds that are secured by either a limited or unlimited tax
levy by the issuing governmental entity, or (iii) lease revenue bonds or
certificates of participation secured by an annual lease payment that is
subject to annual or bi-annual legislative appropriations. The Company may
also act as a source of financing or as a broker in any regard with respect to
any financing. In these cases, the construction of such facilities may be
financed through various methods including, but not limited to, the following:
(i) funds from equity offerings of the Company's stock; (ii) borrowing from
banks or other institutions; or (iii) lease arrangements with third parties. Of
the 35 facilities managed or contracted to be managed by the Company, 30 are
funded using one of the above-described financing vehicles, three are directly
leased and two are owned. However, alternative financing arrangements may be
required for certain facilities. A growing trend in the correctional and
detention industry requires private operators to make capital investments in
new facilities and enter into direct financing arrangements in connection with
the development of such facilities. By participating in such projects, private
operators achieve economic benefits and tax advantages that are not typically
available in connection with more traditional arrangements. While the Company
generally will seek to make such direct financing arrangements on a
non-recourse basis, the Company may be required to enter into certain types of
recourse financing arrangements.
In connection with the award of one project, the Company has agreed to make an
approximately $4.0 million equity investment in the project and to assist in
the financing of the project by guaranteeing 50.1% (approximately $20.0
million) of the permanent pass-through financing. The governmental entity that
has contracted for the project is the ultimate pass-through source of payments
and the recourse obligations of the Company and the subsidiary through which it
will hold its investment in the project are substantially limited in type and
likelihood. The Company and its subsidiary have made application to
restructure the pass-through financing to a non-recourse basis. The Company
has structured the transaction so that the financing for the project will be
repaid from funds generated by the project. In addition, to the extent that
the Company elects to receive dividends from its subsidiary, it will be
required to arrange for a letter of credit in favor of the subsidiary to
provide security for the payment of certain possible future tax obligations of
the subsidiary. The letter of credit will not be issued any earlier than the
second half of 1997 and, consequently, any financing arrangements with respect
to such letter of credit have not been determined. The Company does not
believe that the issuance of the letter of credit will have a material impact
on its liquidity or capital resources.
MARKETING
The Company views governmental agencies responsible for state correctional
facilities in the United States and governmental agencies responsible for
correctional facilities in the United Kingdom and Australia as
PAGE 10 OF 44
<PAGE> 11
its primary potential customers. The Company's secondary customers include the
INS, other federal and local agencies in the United States and other foreign
governmental agencies.
Governmental agencies responsible for correctional and detention facilities
generally procure goods and services through RFPs. A typical RFP requires
bidders to provide detailed information, including, but not limited to,
descriptions of the following: the services to be provided by the bidder, its
experience and qualifications, and the price at which the bidder is willing to
provide the services (which services may include the renovation; improvement or
expansion of an existing facility; or the planning, design and construction of a
new facility). As part of the Company's process of responding to RFPs,
management meets with appropriate personnel from the requesting agency to best
determine the prospective client's distinct needs.
If the project fits within the Company's strategy, the Company then will submit
a written response to the RFP. The Company estimates that it typically spends
between $10,000 and $75,000 when responding to an RFP. The Company has engaged
and intends in the future to engage independent consultants. Activities of the
independent consultants include assisting the Company in developing
privatization opportunities and in responding to RFPs, monitoring the
legislative and business climate and maintaining relationships with existing
clients.
There are several critical events in the marketing process. These include
issuance of an RFP by a governmental agency, submission of a response to the
RFP by the Company, the award of a contract by a governmental agency and the
commencement of construction or management of a facility. The Company's
experience has been that a period of approximately five to ten weeks is
generally required from the issuance of an RFP to the submission of the
Company's response to the RFP; that between one and four months elapse between
the submission of the Company's response and the agency's award for a contract;
and that between one and four months elapse between the award of a contract and
the commencement of construction or management of the facility. If the
facility for which an award has been made must be constructed, the Company's
experience is that construction usually takes between 9 and 24 months;
therefore, management of a newly constructed facility typically commences
between 10 and 28 months after the governmental agency's award.
BUSINESS PROPOSALS
The Company pursues both domestic and international projects. At March 14,
1997, the Company had outstanding written responses to RFPs for 4 projects with
a total of 3,528 beds. The Company also is pursuing prospects for other
projects for which it has not yet submitted, and may not submit, a response to
an RFP. No assurance can be given that the Company will be successful in its
efforts to receive additional awards with respect to any proposals submitted.
INSURANCE
Presently, the Company is named insured under a liability insurance program
maintained by Parent (the "Insurance Program"). The Insurance Program includes
general comprehensive liability, automobile liability and workers' compensation
coverage for Parent and all of its domestic subsidiaries. The Insurance
Program consists of primary and excess insurance coverage. The primary
coverage consists of up to $5 million of coverage per occurrence with no
aggregate coverage limit. The excess coverage consists of up to $30 million of
coverage per occurrence and in the aggregate. The Company believes such limits
are adequate to insure against the various liability risks of its business.
The premium to be paid by the Company to Parent for coverage under the
Insurance Program in 1996 was approximately $3,306,000, representing premiums
paid to a captive reinsurance company that is wholly owned by Parent. The
Company believes that the premiums it is charged under the Insurance Program
are less than those that
PAGE 11 OF 44
<PAGE> 12
would be charged by a third party insurer. The facility management contracts and
various state statutes require the Company to maintain such insurance and the
management contracts provide that the contracting agency may terminate the
contract if the Company fails to maintain the required insurance coverages.
Under the Insurance Program, the first $2 million of costs, expenses and losses
per occurrence are reinsured by a captive reinsurance company that is wholly
owned by Parent.
EMPLOYEES AND EMPLOYEE TRAINING
At March 14, 1997, the Company had 4,182 full-time employees and 207 part-time
employees. Of such full-time employees, 43 were employed at the Company's
headquarters and 4,139 were employed at facilities. The Company employs
management, administrative and clerical, security, educational services, health
services and general maintenance personnel. The Company's correctional officer
employees at Junee Correctional Centre, Arthur Gorrie Correctional Centre, and
Fulham Correctional Centre in Australia are members of unions. The Company has
entered into a contract with the union for the correctional officers at the
Junee facility, however, the Company has not entered into a contract with the
other two unions. Other than the contracts described above, the Company has no
union contracts or collective bargaining agreements. The Company believes its
relations with its employees are good.
Under the laws applicable to most of the Company's operations, and internal
Company policy, the Company's corrections officers are required to complete a
minimum amount of training prior to employment. At least 160 hours of training
by the Company is required under most state laws before an employee is allowed
to work in a position that will bring him or her in contact with inmates.
Florida law requires that the corrections officers receive 520 hours of
training. The Company's training programs meet or exceed all applicable
requirements.
The Company's training begins with approximately 40 hours of instruction
regarding Company policies, operational procedures and management philosophy.
Training continues with an additional 120 hours of instruction covering legal
issues, rights of inmates, techniques of communication and supervision,
interpersonal skills and job training relating to the particular position to be
held. Each Company employee who has contact with inmates receives a minimum of
40 hours of additional training each year, and each manager receives at least
24 hours of training each year.
At least 222 hours of training is required for United Kingdom employees and 240
hours of training is required for Australian employees before such employees
are allowed to work in positions that will bring them into contact with
inmates. Company employees in the United Kingdom and Australia receive a
minimum of 40 hours of additional training each year.
COMPETITION
The Company competes primarily on the basis of the quality and range of
services offered, its experience (both domestically and internationally) in the
design, construction and management of privatized correctional and detention
facilities, and its reputation. The Company competes with a number of
companies, including, but not limited to, Corrections Corporation of America,
Correctional Services Corporation, Group 4 International Corrections Service,
Securicor Group, U.K. Detention Services, Ltd. and United States Corrections
Corporation. Some of the Company's competitors are larger and have greater
resources than the Company. The Company also competes in some markets with
small local companies that may have a better knowledge of the local conditions
and may be better able to gain political and public acceptance. Potential
competitors can enter the Company's business without substantial capital
investment or experience in management of correctional or detention facility
experience. In addition, in some markets, the Company may compete with
governmental agencies that are responsible for correctional facilities.
PAGE 12 OF 44
<PAGE> 13
NON-U.S. OPERATIONS
Although most of the operations of the Company are within the United States,
its international operations make a significant contribution to income.
International operations of the Company provide correctional and detention
facilities management in Australia and the United Kingdom.
As a result of the Company's purchase, effective January 3, 1994, of the
remaining 50% of ACM, 1994 was the first year in which ACM was consolidated.
A summary of domestic and international operations is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------------ -------------
<S> <C> <C> <C>
REVENUES
Domestic operations $108,245 $ 72,852 $ 60,922
International operations 29,539 26,579 23,104
Total revenues 137,784 99,431 84,026
======== ============ =============
OPERATING INCOME
Domestic operations 7,087 4,501 2,120
International operations 2,644 2,728 2,326
-------- ------------ -------------
Total operating income 9,731 7,229 4,446
======== ============ =============
ASSETS
Domestic operations 96,872 30,641 24,020
International operations 9,939 8,199 6,313
-------- ------------ -------------
Total assets $106,811 $ 38,840 $ 30,333
======== ============ =============
</TABLE>
The Company has affiliates (50% or less owned) that provide correctional and
detention facilities management in the United Kingdom. The following table (in
thousands) summarizes certain financial information pertaining to these
unconsolidated foreign affiliates, on a combined basis, for the last three
fiscal years.
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Revenues $28,953 $17,705 $11,518
Net income (loss) after adjustment for U.S.
income taxes 1,208 (226) (662)
Company's share of net income (loss) 604 (113) (331)
Assets $13,682 $ 2,132 $ 3,420
</TABLE>
BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS
The industry in which the Company operates is subject to national, federal,
state, and local regulations in the United States, United Kingdom, Australia
and Puerto Rico which are administered by a variety of regulatory authorities.
Generally, prospective providers of corrections 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.
The Company's contracts frequently include extensive
PAGE 13 OF 44
<PAGE> 14
reporting requirements and require supervision and on-site monitoring by
representatives of contracting governmental agencies. The Company's Kyle New
Vision Chemical Dependency Treatment Center is licensed by the Texas Commission
on Alcohol and Drug Abuse to provide substance abuse treatment. Certain states,
such as Florida and Texas, deem correctional officers to be peace officers and
require Company personnel to be licensed and subject to background
investigation. State law also typically requires corrections officers to meet
certain training standards.
In addition, many state and local governments are required to enter into a
competitive bidding procedure before awarding contracts for products or
services. The laws of certain jurisdictions may also require the Company to
award subcontracts on a competitive basis or to subcontract with businesses
owned by women or members of minority groups.
The failure to comply with any 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.
ITEM 2. PROPERTIES
The Company leases its corporate headquarters office space in Palm Beach
Gardens, Florida, from Parent. In addition, the Company leases office space
for its regional offices in Austin, Texas and Baton Rouge, Louisiana, and for a
local office in Fort Lauderdale, Florida.
The Company also leases the space for the following facilities it manages: (i)
North Texas Intermediate Sanction Facility; (ii) Central Texas Parole Violator
Facility; (iii) San Diego City Jail.
The Company owns the land and a 66,000 square foot building for the Aurora INS
Processing Center that the Company manages under a contract with the U.S.
Government. The Company also owns the land and a 35,000 square foot building
for the McFarland Community Correctional Facility that the Company manages
under a contract with the State of California.
ITEM 3. LEGAL PROCEEDINGS
On August 31, 1995, the Company was joined as an indispensable party in an
action filed by the Delaware County Prison Employees Independent Union (the
"Union") in the Court of Common Pleas of Delaware County, Pennsylvania. The
action questions the Delaware County Board of Prison Inspectors' (the "Board")
authority under a contract between the Union and the Board to award the
contract to manage the existing Delaware County Prison to the Company. An
adverse determination in this action could result in the loss of the Company's
contract to manage the existing facility, although the Company does not believe
that such a loss would have a material adverse effect on the Company. The
Company does not expect that this action would have an adverse impact on the
Company's new Delaware County Prison constructed by the Company. The Company
has not commenced operations at the new facility.
Except for the litigation set forth above and routine litigation incidental to
the business of the Company, there are no pending material legal proceedings to
which the Company or any of its subsidiaries is a party or to which any of
their property is subject. The Company believes that the outcome of the
proceedings to which it is currently a party will not have a material adverse
effect upon its operations or financial condition. The nature of the Company's
business results in claims or litigation against the Company for damages
arising from the conduct of its employee or others.
PAGE 14 OF 44
<PAGE> 15
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 COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George R. Wackenhut 77 Chairman of the Board and Director
George C. Zoley 46 Vice Chairman of the Board, Chief
Executive Officer, and Director
Wayne H. Calabrese 46 President and Chief Operating Officer
John G. O'Rourke 46 Senior Vice President, Chief Financial
Officer, and Treasurer
Charles R. Jones 48 Senior Vice President, Business Development
Carol M. Brown 42 Senior Vice President, Health Services
Robert W. Mianowski 46 Senior Vice President, Operations
Patricia McNair Persante 47 Senior Vice President, Contract Compliance
David N.T. Watson 31 Controller, Chief Accounting Officer, and
Assistant Treasurer
</TABLE>
GEORGE C. ZOLEY was newly promoted as Vice Chairman of the Board in
January, 1997, and has served as President and a Director of the Company since
it was incorporated in 1988, and Chief Executive Officer since April, 1994.
Dr. Zoley established the correctional division for Parent in 1984 and was, and
continues to be, a major factor in the company's development of its privatized
correctional and detention facility business. Dr. Zoley is also a director of
each of the entities through which the Company conducts its international
operations. From 1981 through 1988, as manager, director, and then Vice
President of Government Services of WSI, Dr. Zoley was responsible for the
development of opportunities in the privatization of government services by
WSI. Currently Dr. Zoley serves as a Senior Vice President of The Wackenhut
Corporation. Prior to joining WSI, Dr. Zoley held various administrative and
management positions for city and county governments in South Florida.
WAYNE H. CALABRESE has served as President since January 1997, Chief
Operating Officer since January 1996 and as Executive Vice President of the
Company from 1994 to 1996. Mr. Calabrese is also a director of each of the
entities through which the Company conducts its international operations. Mr.
Calabrese served as Chief Executive Officer of Australasian Correctional
Management, Pty Ltd., a subsidiary of the Company, from 1991 until he returned
to the United States in 1994. Mr. Calabrese joined the Company as Vice
President, Business Development in 1989, became Executive Vice President in
1994 and became Chief Operating Officer in 1996. Mr. Calabrese's prior
experience in the public sector includes positions as Assistant City Law
Director in Akron, Ohio; and Assistant County Prosecutor, and later, Chief of
the County Bureau of Support for Summit County, Ohio. Mr. Calabrese was also
Legal Counsel and Director of Development for the Akron Metropolitan Housing
Authority. Prior to joining the Company, Mr. Calabrese was engaged in the
private practice of law as a partner in the Akron law firm of Calabrese,
Dobbins and Kepple.
PAGE 15 OF 44
<PAGE> 16
JOHN G. O'ROURKE has served as Chief Financial Officer and Treasurer of
the Company since April, 1994, and has been the Senior Vice President, Finance
of the Company since June, 1991. Prior to joining the Company Mr. O'Rourke
spent twenty years as an officer in the United States Air Force where his most
recent position was as the Strategic Division Chief in the Office of the
Secretary of the Air Force, responsible for acquisitions and procurement
matters for strategic bomber aircraft.
CHARLES R. JONES was promoted to Senior Vice President, Business
Development in January 1997 after serving as Vice President, Business
Development since joining the Company in June 1996. Previously, Mr. Jones was
a senior investment banker specializing in structured finance and privatization
consulting for the corrections industry with Rauscher, Pierce, Refsnes, Inc. in
Dallas Texas, where he was Chairman of the firm's Banking Advisory Counsel.
From 1973 to 1980 Mr. Jones, a CPA, practiced with Peat, Marwick, Mitchell &
Co. specializing in the taxation of commercial real estate and financial
institutions.
CAROL M. BROWN has served as Senior Vice President, Health Services of the
Company since August, 1990. Ms. Brown is a certified specialist in
correctional health care management. From 1988 until joining the Company Ms.
Brown was a Consultant for medical case management and workers' compensation in
South Florida for Health and Rehabilitation Management, Inc. From 1987 to
1988, Ms. Brown was Medical Manager for Metlife Healthcare of South Florida.
Ms. Brown was an Administrator for health care services for Medical Personnel
Pool, Inc. from 1985 to 1987 and for Upjohn Healthcare from 1981 to 1985.
ROBERT W. MIANOWSKI has served as the Senior Vice President, Operations of
the Company since May, 1990. From May, 1988, until joining the Company, Mr.
Mianowski was Criminal Prosecuting Attorney for the City of Cuyahoga Falls,
Ohio, Department of Law, and was in private law practice for the prior two
years. Mr. Mianowski's career as practicing attorney was preceded by fourteen
(14) years in the field of law enforcement, having served as a law enforcement
officer in several Ohio municipalities, and as Chief of Police of Boston
Heights, Ohio, from 1984 to 1986.
PATRICIA MCNAIR PERSANTE has served as Senior Vice President, Contract
Compliance of the Company since February, 1995 and was Vice President, Contract
Compliance of the Company from 1990 to February 1995. From 1988 until joining
the Company, Ms. Persante was engaged in private law practice with the San
Antonio law firm of Smith, Barshop, Stoffer & Millsap. From 1983 to 1988, Ms.
Persante was Assistant Criminal District Attorney for Bexar County, Texas.
DAVID N.T. WATSON has served as Controller and Assistant Treasurer of the
Company since November, 1994. He now also serves as the Company's Chief
Accounting Officer. From 1989 until joining the Company, Mr. Watson was with
the Miami office of Arthur Andersen LLP where his most recent position was
Manager, in the Audit and Business Advisory Services Group. Mr. Watson is
licensed as a certified public accountant in Florida and is a member of the
American Institute of Certified Public Accountants and the Florida Institute of
Certified Public Accountants.
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 18
of the Company's 1996 Annual Report to Shareholders.
PAGE 16 OF 44
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to Page 18
of the Company's 1996 Annual Report to Shareholders.
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 19
through 21 of the Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to Pages 22
through 31 of the Company's 1996 Annual Report to Shareholders.
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
Company" and included in Part I, hereto) will be contained in, and is
incorporated by reference from, the proxy statement (with the exception of the
Board Compensation Committee Report and the Performance Graph) for the
Company's 1997 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days
after the end of the fiscal year covered by this Annual Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Report of Independent Certified Public Accounts. - This item is
incorporated by reference to Page 32 of the Company's 1996 Annual Report
to Shareholders.
The following consolidated financial statements of the Company, included
in the Company's Annual Report to its Shareholders for the fiscal year
ended December 29, 1996, are incorporated by reference in Item 8:
Consolidated Balance Sheets - December 29, 1996 and December 31, 1995
Consolidated Statements of Income - Fiscal years ended December 29, 1996,
December 31, 1995, and January 1, 1995.
Consolidated Statements of Cash Flows - Fiscal years ended December 29,
1996, December 31, 1995, and January 1, 1995.
PAGE 17 OF 44
<PAGE> 18
Consolidated Statements of Shareholders' Equity - Fiscal years ended
December 29, 1996, December 31, 1995, and January 1, 1995.
Notes to Consolidated Financial Statements
With the exception of the information incorporated by reference from the
1996 Annual Report to Shareholders in Items 5, 6, 7, 8, and 14 of Parts
II and IV of this Form 10-K, the Company's 1996 Annual Reports to
Shareholders is not to be deemed filed as a part of this Report.
2. Financial Statement Schedules.
All schedules specified in the accounting regulations of the Securities
and Exchange Commission have been omitted because they are either
inapplicable or not required.
3. Exhibits. The following exhibits are filed as part of this Annual
Report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1** Amended and Restated Articles of Incorporation of the Company dated May 16, 1994.
3.2** Bylaws of the Company.
10.1** Wackenhut Corrections Corporation Stock Option Plan.
10.2** Wackenhut Corrections Corporation 1994 Stock Option Plan.
10.3** Form of Indemnification Agreement between the Company and its Officers and Directors.
10.4*** Wackenhut Corrections Corporation Senior Officer Retirement Plan.
10.5*** Wackenhut Corrections Corporation Director Deferral Plan.
10.6*** Wackenhut Corrections Corporation Senior Officer Incentive Plan.
10.7 Services Agreement dated as of January 3, 1994 between the Company and Parent
(incorporated by reference to Exhibit 10.4 of the Company's Registration Statement
on Form S-1, as amended, Registration Number 33-79264).
10.8*** Services Agreement effective as of January 1, 1996 between the Company and Parent.
10.9 Lease Agreement effective as of January 3, 1994 between the Company and Parent
(incorporated by reference to Exhibit 10.5 of the Company's Registration Statement
on Form S-1, as amended, Registration Number 33-79264)
10.10 Revolving Credit Facility Agreement dated December 12, 1994 between the Company and
Barnett Bank of South Florida, N.A. (incorporated by reference to Exhibit 10.106 of
the Company's Annual Report on Form 10-K for the Fiscal Year ended January 1,
1995).
13.1* Annual Report to Shareholders for the year ended December 29, 1996, pages 18-32 (to
be deemed filed only to the extent required by instructions to Exhibits for reports
on Form 10-K).
21.1*** Subsidiaries of the Company.
24.1* Powers of Attorney.
</TABLE>
==================
* Filed herewith.
** Incorporated herein by reference to exhibit of the same number filed in the
Company's Registration Statement, as amended, on Form S-1 (Registration
Number 33-79264)
***Incorporated herein by reference to exhibit of the same number filed in the
Company's Registration Statement, as amended, on Form S-1 (Registration
Number 33-80785)
+ Management contract or compensatory plan, contract or agreement as defined
in Item 402(a) (3) of Regulation S-K.
(b). Reports on Form 8-K. The Company did not file a current report on Form 8-K
during the fourth quarter of fiscal year 1996.
___________________________________
PAGE 18 OF 44
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
WACKENHUT CORRECTIONS CORPORATION
Date: March 28, 1997 /s/ John G. O'Rourke
------------------------------------------------
JOHN G. O'ROURKE
Senior Vice President - Finance, Treasurer
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 Company
and in the capacities and on the dates indicated.
Date: March 28, 1997 /s/ George C. Zoley
-------------------------------------------------
GEORGE C. ZOLEY
Vice Chairman of the Board and Chief
Executive Officer
(principal executive officer)
Date: March 28, 1997 /s/ John G. O'Rourke
-------------------------------------------------
JOHN G. O'ROURKE
Senior Vice President - Finance, Treasurer and
Chief Financial Officer
(principal financial officer)
Date: March 28, 1997 /s/ David N.T. Watson
-------------------------------------------------
DAVID N.T. WATSON
Controller, Chief Accounting Officer, and
Assistant Treasurer
(principal accounting officer)
/s/George R. Wackenhut
-------------------------------------------------
GEORGE R. WACKENHUT
Director
/s/ Richard R. Wackenhut
-------------------------------------------------
RICHARD R. WACKENHUT
Director
PAGE 19 OF 44
<PAGE> 20
/s/Norman A. Carlson *
---------------------------------------
NORMAN A. CARLSON
Director
/s/Benjamin R. Civiletti *
---------------------------------------
BENJAMIN R. CIVILETTI
Director
/s/Manuel J. Justiz *
---------------------------------------
MANUEL J. JUSTIZ
Director
/s/Dr. Floretta D. McKenzie *
---------------------------------------
DR. FLORETTA D. McKENZIE
Director
/s/John F. Ruffle *
---------------------------------------
JOHN F. RUFFLE
Director
/s/Anthony P. Travisono *
---------------------------------------
ANTHONY P. TRAVISONO
Director
Dated: March 28, 1997 *By /s/John G. O'Rourke
---------------------------------
JOHN G. O'ROURKE, Attorney-in-fact
PAGE 20 OF 44
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ------------------------------------------------------------- ------
<S> <C> <C>
13.1 Pages 18-32 of the Annual Report to Shareholders for the year 22
end December 29, 1996 (to be deemed filed only to the extent
required by instructions to exhibits for reports on this form
10-K).
24.1 Power of Attorney for members of the Board of Directors. 38
</TABLE>
PAGE 21 OF 44
<PAGE> 1
EXHIBIT 13.1
PAGE 22 OF 44
<PAGE> 2
WACKENHUT CORRECTIONS CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
In March 1996, the Company changed its listing from WCCX on the Nasdaq
Stock Market's National Market to WHC on the New York Stock Exchange.
The ensuing table shows the high and low prices for the Company's common
stock, as reported on the Nasdaq Stock Market's National Market and New York
Stock Exchange, for each of the four quarters of fiscal 1996 and 1995. All price
data have been restated for the 100% stock dividend (treated as a stock split)
paid on June 4, 1996. The approximate number of shareholders of record, as of
January 31, 1997, was 259.
1996 1995
----------------------------------------------
High Low High Low
========================================================================
First Quarter $20-7/8 $12-3/16 $14-5/8 $8-1/4
Second Quarter 44-3/4 19-7/8 14-1/4 9-5/8
Third Quarter 35-3/4 19-3/4 11-15/16 9-1/2
Fourth Quarter 24-3/8 16 13-5/8 9-1/2
========================================================================
The Company in tends to retain its earnings to finance the growth and
development of its business and does not anticipate paying cash dividends on its
capital stock in the foreseeable future. Future dividends, if any, will depend,
among other things, on the future earnings, capital requirements and financial
condition of the Company, and on such other factors as the Company's Board of
Directors may consider relevant.
SELECTED FINANCIAL DATA
(IN THOUSANDS, 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) 1996 1995 1994 1993 1992
===================================================================================================================
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues $137,784 $ 99,431 $ 84,026 $ 58,784 $ 47,235
Operating expenses 115,848 82,285 70,670 50,573 40,062
Depreciation and amortization 3,532 2,303 2,287 2,101 1,392
---------------------------------------------------------
Contribution from operations 18,404 14,843 11,069 6,110 5,781
General and administrative expenses 8,673 7,614 6,623 4,664 4,168
---------------------------------------------------------
Operating Income 9,731 7,229 4,446 1,446 1,613
Interest income (expense) 2,195 186 (261) (544) (475)
---------------------------------------------------------
Income before income taxes
and equity income (loss) of affiliates 11,926 7,415 4,185 902 1,138
Provision for income taxes 4,269 2,862 1,661 368 441
---------------------------------------------------------
Income before equity income (loss) of affiliates 7,657 4,553 2,524 534 697
Equity income (loss) of affiliates,
net of income taxes 604 (113) (331) 261 29
---------------------------------------------------------
Net Income $ 8,261 $ 4,440 $ 2,193 $ 795 $ 726
Earnings per share $ 0.37 $ 0.25 $ 0.15 $ 0.06 $ 0.05
FINANCIAL CONDITION:
Working capital $ 62,130 $ 13,455 $ 10,194 $ 5,032 $ 2,537
Total assets 106,811 38,840 30,333 19,148 19,898
Long-term debt 225 980 1,412 -- --
Total debt 237 991 1,422 -- 647
Shareholders' equity 87,969 25,229 19,727 4,212 3,417
===================================================================================================================
</TABLE>
(A) The Company's fiscal year ends on the Sunday closest to the calendar year
end. Fiscal 1994, 1995 and 1996 each included 52 weeks.
18
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities amounted to $9,128,000 in 1996 versus
$1,345,000 in 1995. The Company's primary capital requirements are for working
capital; furniture, fixtures, equipment, and supply purchases; investments in
joint ventures; and investments in facilities. Some of the Company's management
contracts require the Company to make substantial initial expenditures of cash
in connection with opening or renovating a facility. The initial expenditures
subsequently are fully or partially recoverable as pass-through costs or are
billable to the contracting agency over the original term of the contract. The
cash required for these needs will be derived from internally generated funds,
the proceeds from public stock offerings, and additional borrowings, if
necessary.*
The Company anticipates making cash investments in connection with future
acquisitions. In addition, in line with a developing industry trend toward
requiring private operators to make capital investments in facilities and to
enter into direct financing arrangements in connection with the development of
such facilities, the Company anticipates utilizing cash to finance start-up
costs, leasehold improvements and equity investments in facilities, if
appropriate, in connection with undertaking new contracts.*
Prior to the initial public offering (IPO) in July 1994, the Company
financed its operations through borrowings from The Wackenhut Corporation (TWC
or Parent). Interest on intercompany indebtedness was computed at rates which
reflected TWC's average interest costs on long-term debt, exclusive of mortgage
financing. Subsequent to the IPO and through Fiscal 1995, financing was obtained
from internally generated funds or third-party borrowings.
In January 1996, the Company sold 4,600,000 shares of its common stock in
connection with a second offering at a price of $12.00 per share, before
deducting underwriting discounts and commissions and estimated offering
expenses. Net proceeds from the offering were approximately $51,581,000. In
1996, the Company used $5.7 million of the proceeds to acquire one of its
existing facilities.
Management is unaware of any other evident trends that are likely to result
in material increases or decreases in the liquidity of the Company other than
those factors mentioned above.* Management is constantly reviewing matters that
could require significant outlays of cash with respect to corporate growth
strategies; however, these matters are always reviewed in the light of
appropriateness and availability of financing.
The ratio of total debt to total capitalization was 0.3% at the end of
Fiscal 1996 and 3.8% at the end of Fiscal 1995.
In December 1994, the Company entered into a $15.0 million revolving credit
facility with a U.S. bank to provide working capital. The revolving credit
facility matures November 30, 1997, at which time the outstanding principal
balance under the facility may be converted to a term loan which will mature
September 30, 2002. Indebtedness under this facility bears interest at the prime
rate or Eurodollar rate, plus 0.75%. There are no prepayment penalties
associated with the credit facility. The facility imposes upon the Company,
among other things, a maximum leverage ratio, minimum debt service coverage,
working capital and interest charge coverage ratios, and a minimum tangible net
worth requirement. The facility also limits certain payments and distributions.
No amounts were outstanding under this facility as of December 29, 1996.
However, at December 29, 1996, the Company had outstanding two standby letters
of credit supported by this revolving credit facility in an aggregate amount of
approximately $100,000.
There are no other known material trends, favorable or unfavorable, in the
capital resources of the Company, except for possible changes in interest
rates.* In the event that the Company would have any significant requirement
beyond the matters discussed above, capital resources are available under its
revolving line of credit with a bank, and management believes that additional
resources may be available to the Company through a variety of other methods of
financing.*
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
*See note on page 1 regarding forward-looking statements
19
<PAGE> 4
The following table sets forth certain Statements of Income data expressed
as percentages of total revenues for the following fiscal years:
<TABLE>
<CAPTION>
1996 1995 1994
=====================================================================
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Operating expenses 84.1 82.8 84.1
Depreciation and amortization 2.5 2.3 2.7
------------------------
Contribution from operations 13.4 14.9 13.2
General and administrative
expenses 6.3 7.7 7.9
------------------------
Operating income 7.1 7.3 5.3
Interest income (expense) 1.6 0.2 (0.3)
------------------------
Income before income taxes
and equity income (loss) of
affiliates 8.7 7.5 5.0
Provision for income taxes 3.1 2.9 2.0
Equity income (loss) of affiliates,
net of income taxes 0.4 (0.1) (0.4)
------------------------
Net income 6.0% 4.5% 2.6%
=====================================================================
</TABLE>
FISCAL 1996 COMPARED WITH FISCAL 1995
Revenues increased by 38.6% to $137.8 million in 1996 from $99.4 million in
1995. The increase in revenues in 1996 compared with 1995 is primarily
attributable to increased compensated resident days resulting from the
increasing occupancy of two facilities that opened in the second half of 1995
(Moore Haven Correctional Facility, Moore Haven, Florida in July 1995 and John
R. Lindsey Unit, Jack County, Texas in September 1995), the opening of two
facilities in the first half of 1996 (Willacy County Unit, Willacy County, Texas
in January 1996 and Marshall County Correctional Facility, Marshall County,
Mississippi in June 1996), the assumption of operational responsibility for an
existing facility (Delaware County Prison, Delaware County, Pennsylvania in
April 1996) the expansion of one facility (Allen Correctional Center, Kinder,
Louisiana) and the temporary double up at another facility (Arthur Gorrie
Correctional Centre, Wacol, Australia).
The following table sets forth the number of facilities under contract or
award at the end of the following fiscal years:
<TABLE>
<CAPTION>
1996 1995 1994
===========================================================================
<S> <C> <C> <C>
Contracts(1) 34 24 22
Facilities in operation 19 16 15
Design capacity of contracts 24,371 16,054 13,732
Design capacity of facilities
in operation 12,235 9,135 7,164
Compensated resident
days(2) 3,585,100 2,350,843 2,090,625
===========================================================================
</TABLE>
(1) Comprised of facilities in operation, facilities under development and
facilities for which awards have been obtained.
(2) Compensated resident days are calculated as follows, (a) per diem rate
facilities - the number of beds occupied by residents on a daily basis
during the fiscal year and, (b) fixed rate facilities - the design capacity
of the facility multiplied by the number of days the facility was in
operation during the fiscal year. Amounts exclude compensated resident days
for H.M. Prison Doncaster, England.
The number of compensated resident days in domestic and Australian
facilities increased to 3.6 million in 1996 from 2.4 million in 1995. As a
result of the increase in compensated resident days, average facility occupancy
in domestic and Australian facilities increased to 96.8% of capacity in 1996
compared to 94.8% in 1995.
Operating expenses increased by 40.8% to $115.8 million in 1996 from $82.3
million in 1995. As a percentage of revenues, operating expenses increased to
84.1% from 82.8%. This increase is primarily attributable to higher operating
expenses at the Company's Australian facilities.
Depreciation and amortization increased by 53.4% to $3.5 million in 1996
from $2.3 million in 1995. This increase is due to the increase in capital and
deferred charge expenditures resulting from the opening of the new facilities,
the assumption of correctional services, the purchase of one facility and the
expansions discussed above.
Contribution from operations increased 24.0% to $18.4 million in 1996 from
$14.8 million in 1995. As a percentage of revenues, contribution from operations
decreased to 13.4% from 14.9%. As discussed above, this decrease is due
primarily to the Company's Australian operations. General and administrative
expenses increased by 13.9% to $8.7 million in 1996 from $7.6 million in 1995.
This reflects increased business development activities in response to
additional interest in the Company's services and increased infrastructure
related to current and future corporate growth.
General and administrative expenses decreased to 6.3% of total revenues in
1996 from 7.7% in 1995.
Operating income increased by 34.6% to $9.7 million in 1996 from $7.2
million in 1995 as a result of the factors described above. As a percentage of
revenue, operating income decreased to 7.1% from 7.3%.
Interest income was $2.2 million in 1996 compared to interest income of
$186,000 in 1995. The increase is attributable to interest earned on the
proceeds of the January 1996 stock offering.
Income before income taxes and equity (loss) income of affiliates increased
to $11.9 million in 1996 from $7.4 million in 1995 due to the factors described
above.
Provision for income taxes increased to $4.3 million in 1996 from $2.9
million in 1995 due to higher taxable income.
Equity income (loss) of affiliates increased to $604,000 in 1996 from
($113,000) in 1995. Current and prior year performance reflects the
20
<PAGE> 5
activities of Premier Prison Services, a U.K. joint venture. The increase in
current year income results from three expansions at the H.M. Prison Doncaster
(Doncaster, England) in November 1995, June 1996 and November 1996,
respectively, and income earned from two court escort contracts that were
awarded in December 1995 and commenced operations in May 1996.
Net income increased by 86.0% to $8.3 million in 1996 from $4.4 million in
1995 as a result of the factors described above.
FISCAL 1995 COMPARED WITH FISCAL 1994
Revenues increased by 18.3% to $99.4 million in 1995 from $84.0 million in
1994. The increase in revenues in 1995 compared with 1994 is primarily
attributable to increased compensated resident days resulting from the
increasing occupancy of two facilities opened in late 1994 and two facilities
that opened in the second half of 1995 (Lockhart Renaissance Facility, Lockhart,
Texas in August 1994; Coke County Juvenile Justice Center, Coke County, Texas in
October 1994; Moore Haven Correctional Facility, Moore Haven, Florida in July
1995 and John R. Lindsey Unit, Jack County, Texas in September 1995) and the
expansion of two facilities (Arthur Gorrie Correctional Centre, Wacol, Australia
and Allen Correctional Center, Kinder, Louisiana). Management fees associated
with the development of five facilities (Delaware County, Pennsylvania; South
Bay Correctional Facility, South Bay, Florida; Bayamon Regional Detention
Center, Bayamon, Puerto Rico; Marshall County Prison, Marshall County,
Mississippi; and Fulham Correctional Centre, Victoria, Australia) also
contributed to the increase in revenues.
The number of compensated resident days in domestic and Australian
facilities increased to 2.4 million in 1995 from 2.1 million in 1994. Despite
the increase in compensated resident days, average facility occupancy in
domestic and Australian facilities decreased to 94.8% of capacity in 1995
compared to 97.1% in 1994 primarily due to a decrease in occupancy levels at two
Texas facilities (Central Texas Parole Violator Facility, San Antonio, Texas and
North Texas Intermediate Sanctions Facility, Fort Worth, Texas) and the
expiration of the New York INS (New York INS Processing Center, Queens, New
York) contract at the end of March 1995.
Operating expenses increased by 16.4% to $82.3 million in 1995 from $70.7
million in 1994. As a percentage of revenues, operating expenses decreased to
82.8% from 84.1%. This decrease is primarily attributable to a greater mix of
design revenue and the expansion of two facilities.
Depreciation and amortization was $2.3 million in both 1995 and 1994.
Contribution from operations increased 34.1% to $14.8 million in 1995 from
$11.1 million in 1994. As a percentage of revenues, contribution from operations
increased to 14.9% from 13.2%. This increase is attributable to expansions at
two facilities, the opening of two facilities in 1995, a full year of operations
at two facilities that opened in the second half of 1994 and management fees
associated with the development of five facilities.
General and administrative expenses increased by 15% to $7.6 million in
1995 from $6.6 million in 1994. General and administrative expenses decreased to
7.7% of the total revenues in 1995 from 7.9% in 1994.
Operating income increased by 62.6% to $7.2 million in 1995 from $4.4
million in 1994 as a result of the factors described above. As a percentage of
revenue, operating income increased to 7.3% from 5.3%.
Interest income was $186,000 in 1995 compared to interest expense of
$261,000 in 1994. The decrease in interest expense was principally due to the
repayment of intercompany indebtedness in late 1994 and an increase in the
Company's cash balance as a result of the application of the IPO proceeds.
Income before income taxes and equity (loss) income of affiliates increased
to $7.4 million in 1995 from $4.2 million in 1994 due to the factors described
above.
Provision for income taxes increased to $2.9 million in 1995 from $1.7
million in 1994 due to higher taxable income.
Equity loss of affiliates decreased to $113,000 in 1995 from $331,000 in
1994. These losses reflect the activities of Premier Prison Services Ltd. (PPS).
Losses were greater in 1994 due to higher than anticipated initial operating
costs for the Doncaster, England facility.
Net income increased by 102.5% to $4.4 million in 1995 from $2.2 million in
1994 as a result of the factors described above.
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 in the facilities it
manages, 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 rates received by the
Company for its management services.*
*See note on page 1 regarding forward-looking statements
21
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND JANUARY 1, 1995
<TABLE>
<CAPTION>
1996 1995 1994
===================================================================================================
<S> <C> <C> <C>
REVENUES $137,784 $ 99,431 $ 84,026
-----------------------------------------------------------------------------------------
OPERATING EXPENSES
Operating expenses (including
amounts related to Parent of $3,693,
$6,008 and $5,537) 115,848 82,285 70,670
Depreciation and amortization 3,532 2,303 2,287
Contribution from operations 18,404 14,843 11,069
General and administrative expenses -------------------------------
(including amounts related to Parent of
$1,432, $1,264 and $1,423) 8,673 7,614 6,623
-----------------------------------------------------------------------------------------
OPERATING INCOME 9,731 7,229 4,446
Interest income (expense) (including interest
related to Parent of ($40), $172 and ($166)) 2,195 186 (261)
-------------------------------
INCOME BEFORE INCOME TAXES
AND EQUITY INCOME (LOSS) OF AFFILIATES 11,926 7,415 4,185
PROVISION FOR INCOME TAXES 4,269 2,862 1,661
-------------------------------
INCOME BEFORE EQUITY INCOME (LOSS) OF AFFILIATES 7,657 4,553 2,524
EQUITY INCOME (LOSS) OF AFFILIATES, NET OF INCOME
TAXES (BENEFIT) OF $378, ($70) and ($207) 604 (113) (331)
-------------------------------
NET INCOME $ 8,261 $ 4,440 $ 2,193
-----------------------------------------------------------------------------------------
EARNINGS PER SHARE $ 0.37 $ 0.25 $ 0.15
-----------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 22,186 17,707 14,692
===================================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND JANUARY 1, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
NUMBER PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT EQUITY
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 2, 1994 12,000,000 $ 120 $ 2,342 $ 1,750 $ -- $ 4,212
INITIAL PUBLIC OFFERING 4,370,000 44 17,582 -- -- 17,626
SPECIAL DIVIDEND TO PARENT -- -- (2,204) (2,296) -- (4,500)
TRANSLATION ADJUSTMENT -- -- -- -- 196 196
NET INCOME -- -- -- 2,193 -- 2,193
BALANCE, JANUARY 1, 1995 16,370,000 164 17,720 1,647 196 19,727
----------------------------------------------------------------------------------
TRANSLATION ADJUSTMENT -- -- -- -- (85) (85)
PROCEEDS FROM STOCK
OPTION EXERCISES 709,394 7 970 -- -- 977
TAX BENEFIT RELATED TO
EMPLOYEE STOCK OPTIONS -- -- 170 -- -- 170
NET INCOME -- -- -- 4,440 -- 4,440
----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 17,079,394 171 18,860 6,087 111 25,229
TRANSLATION ADJUSTMENT -- -- -- -- 305 305
PROCEEDS FROM STOCK
OFFERING 4,600,000 46 51,535 -- -- 51,581
PROCEEDS FROM STOCK
OPTION EXERCISES 258,598 2 764 -- -- 766
TAX BENEFIT RELATED TO
EMPLOYEE STOCK OPTIONS -- -- 1,827 -- -- 1,827
NET INCOME -- -- -- 8,261 -- 8,261
----------------------------------------------------------------------------------
BALANCE DECEMBER 29, 1996 21,937,992 $ 219 $ 72,986 $ 14,348 $ 416 $ 87,969
=========================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 29, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
==================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 44,368 $ 909
Accounts receivable 24,879 17,826
Deferred income taxes, net -- 51
Other 6,066 3,567
-------------------
Total current assets 75,313 22,353
--------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 18,975 8,211
INVESTMENT IN AND ADVANCES TO AFFILIATES 1,810 400
DEFERRED CHARGES, NET 7,522 4,587
UNAMORTIZED COST IN EXCESS OF NET ASSETS
OF ACQUIRED COMPANIES, NET 2,224 2,408
OTHER 967 881
-------------------
$106,811 $ 38,840
=================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,020 $ 1,852
Accrued payroll and related taxes 4,558 3,330
Accrued expenses 3,717 3,705
Deferred tax liability, net 876 --
Current portion of long-term debt 12 11
-------------------
Total current liabilities 13,183 8,898
--------------------------------------------------------------
DEFERRED INCOME TAXES, NET 5,434 3,733
LONG-TERM DEBT 225 980
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY Preferred stock, $.01 par value,
10,000,000 shares authorized -- --
Common stock, $.01 par value, 60,000,000
shares authorized, and 21,937,992,
and 17,079,394 shares issued and
outstanding in 1996 and 1995,
respectively 219 171
Additional paid-in capital 72,986 18,860
Retained earnings 14,348 6,087
Cumulative translation adjustment 416 111
-------------------
Total shareholders' equity 87,969 25,229
-------------------
$106,811 $ 38,840
==================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
23
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND JANUARY 1, 1995
<TABLE>
<CAPTION>
1996 1995 1994
=============================================================================================================
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN):
OPERATING
ACTIVITIES Net Income $ 8,261 $ 4,440 $ 2,193
Adjustments to reconcile net
income to cash provided by
operating activities --
Depreciation and amortization
expense 3,532 2,303 2,287
Equity (income) loss of affiliates (982) 183 538
Changes in assets and liabilities, net of
effect of acquisitions --
(Increase) decrease in assets:
Accounts receivable (6,943) (7,355) (970)
Deferred income taxes, net 51 20 (11)
Other current assets (2,384) (1,966) (755)
Other assets 34 (76) (407)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,003 (238) (224)
Accrued payroll and related taxes 1,152 1,293 397
Deferred income taxes, net 4,404 2,741 932
-------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,128 1,345 3,980
------------------------------------------------------------------------------------------
INVESTING
ACTIVITIES Payment for acquisition, net of cash acquired -- -- (1,281)
Investment in affiliates (428) (372) (175)
Advances to affiliates, net -- -- (169)
Capital expenditures (12,476) (2,720) (262)
Deferred charges expenditures (4,505) (3,693) (989)
-------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (17,409) (6,785) (2,876)
------------------------------------------------------------------------------------------
FINANCING
ACTIVITIES Net proceeds from issuance of common stock 51,581 -- 17,626
Proceeds from exercise of stock options 766 977 --
Proceeds from issuance of debt -- -- 6,509
Retirement of debt (792) (381) (5,349)
Advances from Parent 102,431 66,502 78,042
Repayments to Parent (102,431) (66,629) (87,498)
Dividends paid to Parent -- -- (4,500)
-------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 51,555 469 4,830
- -------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 185 (101) --
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 43,459 (5,072) 5,934
CASH, BEGINNING OF YEAR 909 5,981 47
CASH, END OF YEAR $ 44,368 $ 909 $ 5,981
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Income taxes $ -- $ -- $ 600
Interest $ -- $ 20 $ 261
Non-cash activities:
Note receivable from affiliate received
in exchange for the Company's accounts
receivable $ -- $ -- $ (4,000)
Note payable in connection with purchase
of land $ -- $ -- $ 262
Impact on equity from tax benefit related
to the exercise of stock options issued
under the Company's non-qualified stock
option plan $ 1,827 $ 170 $ --
=============================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
24
<PAGE> 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR INFORMATION: IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FOR THE FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995, AND JANUARY 1,
1995
(1) GENERAL
Wackenhut Corrections Corporation, a Florida corporation, and subsidiaries
(Company), a majority owned subsidiary of The Wackenhut Corporation (TWC or
Parent), is a leading developer and manager of privatized correctional and
detention facilities located in the United States, the United Kingdom and
Australia.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to the calendar year
end. Fiscal 1996, 1995 and 1994 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 between the Company and its subsidiaries have been
eliminated in consolidation. Certain prior year amounts have been reclassified
to conform with current year presentation.
USE OF ESTIMATES
The preparation of 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
UNAMORTIZED COST IN EXCESS OF
NET ASSETS OF ACQUIRED COMPANIES
The unamortized cost in excess of net assets acquired arose in connection with
the purchase of 100% ownership of the former Australian joint ventures as
discussed in Note 4 and is being amortized over 10 years. Accumulated
amortization totaled approximately $969,000 and $599,000 at December 29, 1996
and December 31, 1995, respectively.
DEFERRED CHARGES
Facility start-up costs, which consist of costs of initial employee
training, travel and other direct expenses incurred in connection with the
opening of new facilities, are capitalized and amortized on a straight-line
basis over the lesser of the initial term of the contract plus renewals or five
years. The Company provided approximately $1,685,000 for the renovation of a
building for use as a correctional facility by a county authority. The completed
correctional facility is managed by the Company and the related costs are being
amortized over the contract term plus renewals. In addition, the Company has
capitalized $562,000 in costs incurred to refinance bonds issued by an
independent governmental authority for the construction of two correctional
facilities. These costs are being amortized over 10 years. Accumulated
amortization totaled $4,440,000 and $2,869,000 in Fiscal 1996 and 1995,
respectively.
Project development costs consisting of direct and incremental costs paid
to unrelated third parties that can be directly associated with a specific
anticipated contract are deferred until the anticipated contract has been
awarded. At the time the contract is awarded to the Company, the deferred
project development costs are either capitalized as part of property and
equipment or are amortized over five years as project development costs.
Internal costs associated with securing new contracts are expensed as incurred.
Project development costs are charged to general and administrative expenses
when the success of obtaining a new contract is considered doubtful.
REVENUES AND OPERATING PROFIT
Facility management revenues are recognized as services are provided based
on a net rate per day per inmate or on a fixed monthly rate. Project development
and design revenues are recognized as earned on a percentage of completion
basis. During Fiscal 1996, 1995, and 1994, the various agencies of the State of
Texas accounted for 39%, 37% and 41%, respectively, of the Company's revenues.
During Fiscal 1996, 1995 and 1994, contracts with the Louisiana Department of
Public Safety and Corrections accounted for 9%, 11% and
25
<PAGE> 10
13% respectively, of the Company's revenues. Contracts with the New South Wales
Department of Corrective Services accounted for 10%, 13% and 15% of the
Company's revenues in Fiscal 1996, 1995 and 1994, respectively. Contracts with
the Queensland Corrective Services Commission accounted for 11%, 13% and 13% of
the Company's revenues in Fiscal 1996, 1995 and 1994. Concentration of credit
risk related to accounts receivable is reflective of the related revenues.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (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.
EARNINGS PER SHARE
Earnings per share have been computed by dividing net income by the average
number of shares of common stock and common stock equivalents outstanding after
giving retroactive effect to the stock splits effected in Fiscal 1994 and 1996.
Common stock equivalents include all outstanding stock options after applying
the treasury stock method. Stock options issued by the Company have been
considered outstanding for all periods presented. Dilution of earnings per share
that could result from exercise of stock options using fair value as of the end
of each fiscal year after applying the treasury stock method is not material.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company classifies as cash equivalents all interest-bearing deposits or
investments with original maturities of three months or less.
FOREIGN CURRENCY TRANSLATION
The Company's foreign operations use the local currency as their functional
currency. Assets and liabilities of the operations are translated at the
exchange rates in effect on the balance sheet date. Income statement items are
translated at the average exchange rates for the year. The impact of currency
fluctuation is included in shareholders' equity as a translation adjustment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable, and
long-term debt approximates fair value.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 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.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at fiscal year end:
<TABLE>
<CAPTION>
Years 1996 1995
===============================================================================
<S> <C> <C> <C>
Land -- $ 1,698 $ 814
Building and improvements 20 - 40 16,430 6,665
Equipment 3 - 20 2,677 1,992
Furniture and fixtures 3 - 20 1,251 820
22,056 10,291
--------------------
Less -- accumulated
depreciation (3,081) (2,080)
--------------------
$ 18,975 $ 8,211
======================================================================
</TABLE>
(4)DOMESTIC AND INTERNATIONAL OPERATIONS
A summary of domestic and international operations is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
===============================================================================
<S> <C> <C> <C>
Revenues
Domestic operations $108,245 $ 72,852 $ 60,922
International operations 29,539 26,579 23,104
----------------------------------------
Total revenues 137,784 99,431 84,026
-----------------------------------------------------------------------------
Operating Income
Domestic operations 7,087 4,501 2,120
International operations 2,644 2,728 2,326
----------------------------------------
Total operating income 9,731 7,229 4,446
-----------------------------------------------------------------------------
Assets
Domestic operations 96,872 30,641 24,020
International operations 9,939 8,199 6,313
----------------------------------------
Total assets $106,811 $ 38,840 $ 30,333
===============================================================================
</TABLE>
26
<PAGE> 11
In January 1994, the Company increased its ownership in Australasian
Correctional Management Pty, Ltd. (ACM), one of the Australian joint ventures,
from 50% to 100% at a cost of approximately $2,464,000. The acquisition was
financed through borrowings of approximately $1,993,000, as discussed in Note 6,
and cash. The results of operations of ACM have been included in the
consolidated results of operations of the Company from January 3, 1994.
The Company's 50% owned United Kingdom joint venture (Premier Prison
Services, Ltd.), accounted for under the equity method, commenced management of
a correctional facility in Fiscal 1994 and two court escort and transport
contracts in Fiscal 1996. Equity in the undistributed income (loss) for fiscal
years 1996, 1995 and 1994 was $982,000, ($183,000) and ($538,000) respectively.
A summary of financial data for the Company's equity affiliates is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
==============================================================================
<S> <C> <C> <C>
Revenues $ 28,953 $17,705 $ 11,518
Operating income (loss) 1,764 (353) (1,096)
Net income (loss) after
adjustment for U.S.
income taxes 1,208 (226) (662)
Working capital 4,627 (522) (1,476)
Total assets 13,682 2,132 3,420
==============================================================================
</TABLE>
The Company provided management services to the U.K. affiliate in Fiscal
1996. The management fees for such services totaled $450,000.
(5) Income Taxes
The provision for income taxes in the consolidated statements of income
consists of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
================================================================================
<S> <C> <C> <C>
Federal Income Taxes:
Current $ -- $ -- $ 489
Deferred 3,588 2,497 950
---------------------------------
3,588 2,497 1,439
---------------------------------
State Income Taxes:
Current 30 30 96
Deferred 488 335 126
---------------------------------
518 365 222
Foreign Income Taxes 163 -- --
---------------------------------
Total $4,269 $2,862 $1,661
================================================================================
</TABLE>
Deferred income taxes result from temporary differences in the recognition of
revenue and expense for tax and financial reporting purposes. The principal
temporary differences and their tax effects are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
===============================================================================
<S> <C> <C> <C>
Amortization of deferred
charges $ 1,561 $ 1,605 $ 354
Income of foreign subsidiary 617 1,062 672
NSO benefit, booked to equity 1,827 170 --
Other, net 71 (5) 50
----------------------------
$ 4,076 $ 2,832 $ 1,076
===============================================================================
</TABLE>
A reconciliation of the statutory U.S. federal tax rate (34.0%) and the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
===============================================================================
Provision using statutory
federal income tax rate $ 4,054 $ 2,521 $ 1,423
State income tax 508 354 222
Effect of foreign operations, net
of foreign income tax provision (264) -- --
Other, net (29) (13) 16
-----------------------------
$ 4,269 $ 2,862 $ 1,661
===============================================================================
</TABLE>
The components of the net current deferred income tax liability/(asset) at
fiscal year end are as follows:
<TABLE>
<CAPTION>
1996 1995
===============================================================================
<S> <C> <C>
Uniforms $ 160 $ 114
Accrued vacation (123) (119)
Deferred charges 895 --
Other (56) (46)
----------------
$ 876 $ (51)
===============================================================================
</TABLE>
The components of the net non-current deferred income tax liability at
fiscal year end are as follows:
<TABLE>
<CAPTION>
1996 1995
===============================================================================
<S> <C> <C>
Depreciation $ (153) $ (192)
Deferred charges 2,724 2,057
Income of foreign subsidiaries
and affiliates 2,911 1,916
Other, net (48) (48)
------------------
$ 5,434 $ 3,733
===============================================================================
</TABLE>
As of December 29, 1996, the Company had federal and state net operating
loss carryforwards of approximately $9,533,894 and $9,238,521, respectively. The
federal net operating losses will expire between 2010 and 2011, while certain
state net operating losses will expire between 2000 and 2011. Utilization of net
operating losses in future years may be subject to annual limitations due to the
ownership change limitations provided by the Internal Revenue Code of 1986 and
similar state provisions. Such limitations, if any, are not expected
27
<PAGE> 12
to impact the ultimate utilization of the carryforwards.
The Company's loss carry forwards are attributable to compensation
deductions on its income tax return which were not recognized for financial
accounting purposes. The exercise of non-qualified stock options which have been
granted under the Company's stock option plans give 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 Accounting Principles Board Opinion 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. In the years ended December 29, 1996 and December 31, 1995,
such deductions resulted in significant federal and state deductions which may
be carried forward. Utilization of such deductions will increase additional
paid-in-capital.
At December 29, 1996, the Company's foreign subsidiaries have unremitted
earnings of approximately $1,300,000 on which the Company has not accrued a
provision for federal or state income taxes since the earnings are considered
permanently invested.
(6) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
============================================================
<S> <C> <C>
Australian credit facility $ -- $744
Note payable for property - 8% 237 247
--------------
237 991
Less - current portion 12 11
--------------
225 $980
============================================================
</TABLE>
In January 1994, the Company entered into an Australian $3,500,000 credit
facility with a bank. The credit facility bore interest at the bank bill rate
plus 0.4% and matured in January 1997. The credit facility was secured by an
irrevocable standby letter of credit guaranteed by TWC. Approximately $1,993,000
of the credit facility was utilized to purchase 100% ownership of the Australian
joint venture discussed in Note 4. On February 20, 1995, the Corporation repaid
$500,000 Australian (approximately $374,000 United States) of the credit
facility. In May 1996, the Company repaid the remaining $1,000,000 Australian
(approximately $773,400 United States) of the credit facility. The Company is
subject to foreign currency transaction gains and losses depending on changes in
exchange rates between U.S. and Australian currencies. Foreign currency
transactions gains or losses have not been material during the years presented.
The Company borrowed $4,500,000 to pay a special dividend to TWC in May
1994. The borrowings were repaid in August 1994 with IPO proceeds as discussed
in Note 9.
In June 1994, the Company signed an unsecured note payable in the amount of
$262,000 for the purchase of land for the construction of a correctional
facility. The note bears interest at 8.0% and matures in July 2009. The Company
makes monthly principal and interest payments of $2,504.
In December 1994, the Company entered into a $15,000,000 revolving credit
facility with a bank. The revolving credit facility matures November 30, 1997 at
which time the outstanding principal balance under the facility may be converted
to a term loan which will mature September 30, 2002. Indebtedness under this
facility will bear interest at the prime rate or Eurodollar rate, plus 0.75%.
There are no prepayment penalties associated with the credit facility. The
facility requires the Company to, among other things, maintain a maximum
leverage ratio; minimum debt service coverage, working capital and interest
charge coverage ratios; and a minimum tangible net worth. The facility also
limits certain payments and distributions. No amounts were outstanding at
December 29, 1996. However, at December 29, 1996, the Company had outstanding
two standby letters of credit under this revolving credit facility in an
aggregate amount of approximately $100,000.
Aggregate annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Year Annual Maturity
================================================================================
<C> <C>
1997 $ 12
1998 12
1999 13
2000 15
2001 16
Thereafter 169
--------
$ 237
================================================================================
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
The nature of the Company's business results in claims for damages arising
from the conduct of its employees or others. In the opinion of management, there
are no pending legal proceedings that would have a material effect on the
consolidated financial statements of the Company.
28
<PAGE> 13
The Company leases office space, data processing equipment and automobiles
under non-cancelable operating leases expiring between 1997 and 2001. The future
minimum commitments under these leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ANNUAL RENTAL
===============================================================================
<S> <C>
1997 $2,652
1998 2,090
1999 1,855
2000 983
2001 820
-------
$8,400
===============================================================================
</TABLE>
Rent expense was approximately $2,143,000 $1,512,000, and $926,000 for
Fiscal 1996, 1995, and 1994, respectively.
The Company contracted with third parties to provide meals for inmates at
two correctional facilities operated by the Company under agreements expiring in
1995 and 1996. Food service expense related to these agreements was $53,000,
$580,000 and $881,000 in Fiscal 1996, 1995, and 1994, respectively.
(8) COMMON AND PREFERRED STOCK
On April 25, 1996, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% common stock dividend paid on June 4,
1996. Except as otherwise noted, all share data relating to the Company's common
stock has been restated to reflect the two-for-one stock split.
In April 1994, the Company's Board of Directors authorized an increase in
common stock to 60,000,000 shares and reduced the par value from $.10 to $.01.
In addition, the Board of Directors declared a 6,000-to-1 stock split which has
been reflected retroactively for all years in the accompanying consolidated
financial statements. The Board of Directors also authorized 10,000,000 shares
of "blank check" preferred stock. The Board of Directors is authorized to
determine the rights and privileges of any future issuance of preferred stock
such as voting and dividend rights, liquidation privileges, redemption rights
and conversion privileges.
The Company follows the practice of recording amounts received upon the
exercise of stock options by crediting common stock and additional paid-in
capital. No charges are reflected in the consolidated statements of income as a
result of the grant of stock options, since all grants under the Company's stock
option plans (Note 11) have been made at not more than the fair value at the
date of grant. The Company realizes an income tax benefit from the exercise of
certain stock options of the Company's non-qualified stock options. Since no
compensation cost resulted from the grant of stock options in Fiscal 1995 and
1996, this benefit results in a decrease in current income taxes payable and an
increase in additional paid-in capital.
(9) PUBLIC OFFERING
In January 1996, the Company sold 4,600,000 shares of its common stock in
connection with its offering at a price of $12.00 per share, before deducting
underwriting discounts and commissions and estimated offering expenses. The net
proceeds from the offering of approximately $51,581,000 have been and will be
used for possible future acquisitions, capital investments in new facilities,
working capital requirements and general corporate purposes.
In July and September 1994, the Company sold 4,370,000 shares of its common
stock in connection with its IPO at an offering price of $4.50 per share, before
deducting underwriting discounts and commissions and estimated offering
expenses. The net proceeds from the IPO of $17,626,000 were used to retire
indebtedness to the Parent of $9,900,000, to repay bank debt incurred to fund a
special dividend to TWC of $4,500,000, and $3,226,000 for general corporate
purposes, including working capital.
(10) RELATED PARTY TRANSACTIONS
Related party transactions occur in the normal course of business between
the Company and TWC. Such transactions include the purchase of goods and
services and corporate costs for management support, office space, insurance and
interest expense.
The Company incurred the following expenses related to transactions with
TWC in the following years:
<TABLE>
<CAPTION>
DESCRIPTION 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Food services $ 450 $ 3,903 $ 4,191
General and administrative
expenses 1,100 1,093 1,269
Casualty insurance premiums 3,306 2,169 1,393
Interest (income) charges 40 (172) 166
Rent 269 106 106
-------------------------------------
$ 5,165 $ 7,099 $ 7,126
================================================================================
</TABLE>
29
<PAGE> 14
Food services represent charges for meals for inmates at certain
correctional facilities operated by the Company. In third quarter 1995, the
Company began to provide its own in-house food services at all but two of its
facilities. General and administrative expenses represent charges for management
and support services. Beginning in Fiscal 1994, TWC provided various general and
administrative services to the Company under a Services Agreement (1994
Agreement) dated January 3, 1994. The 1994 Agreement expired December 31, 1995
but was replaced by a new Services Agreement (1996 Agreement) effective January
1, 1996. The 1996 Agreement expires December 31, 1997 and provides for one year
renewal periods at the Company's option. Fiscal 1996 expenses under the 1996
Agreement were $1,100,000. Fiscal 1997 expenses under the 1996 Agreement will be
$1,200,000. Fiscal 1995 and Fiscal 1994 expenses under the 1994 Agreement were
$1,093,000 and $1,269,000, respectively. Casualty insurance premiums related to
workers' compensation, general liability and automobile insurance coverage are
provided through an insurance subsidiary of TWC. In addition, the Company is
charged or charges interest on intercompany indebtedness at rates which reflect
TWC's average interest costs on long-term debt, exclusive of mortgage financing.
For purposes of computing interest expense prior to the IPO, it had been assumed
that the Company debt was 50% of total capital. Subsequent to the IPO, interest
(income) expense is calculated based on the average intercompany indebtedness.
The Company's corporate offices are located in TWC's corporate office building
for which it is allocated rent based upon space occupied under the 1994 and 1996
Agreements.
Management believes that the difference between these expenses and those
that would have been incurred on a stand alone basis is not material.
(11) STOCK OPTIONS
The Company has three stock option plans, the Wackenhut Corrections
Corporation 1994 Stock Option Plan (First Plan), the Wackenhut Corrections
Corporation Stock Option Plan (Second Plan) and the 1995 Non-Employee Director
Stock Option Plan (Third Plan).
Under the First Plan, the Company may grant up to 897,600 shares of common
stock to key employees and consultants. Under the Second Plan, the Company may
grant options to key employees and consultants for up 1,500,000 shares of common
stock. Under the Third Plan, the Company may grant up to 60,000 shares of common
stock to non-employee directors of the Company. Options for all three plans are
granted at prices not less than fair value at date of grant. A summary of
additional grant terms follows:
<TABLE>
<CAPTION>
FIRST PLAN SECOND PLAN THIRD PLAN
---------- ------------------------------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
DATE OF GRANT 3/1/94 5/6/94 12/19/95 4/25/96 4/27/95 4/25/96
=========================================================================================================================
OPTIONS GRANTED 897,600 698,126 338,000 50,000 5,000 10,000
----------------------------------------------------------------------------------------
EXERCISE PRICE $ 1.20 $ 3.75 $ 11.88 $ 22.63 $ 13.75 $ 22.63
- -------------------------------------------------------------------------------------------------------------------------
VESTING PERIOD 100% after 100% after Rataby over Rataby over 100% 100%
6 months 6 months 5 years 5 years immediately immediately
----------------------------------------------------------------------------------------
MAXIMUM TERM 10 years 10 years 10 years 10 years 10 years 10 years
after date after date after date after date after date after date
of grant of grant of grant of grant of grant of grant
=========================================================================================================================
</TABLE>
A summary of the status of the Company's three stock option plans as of January
1, 1995, December 31, 1995 and December 29, 1996, and changes during the years
then ended is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ------------------------ ---------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,210,132 $ 5.58 1,595,726 $ 2.32 -- $ --
Granted 60,000 22.63 343,000 11.90 1,595,726 2.32
Exercised 258,598 2.96 709,394 1.38 -- --
Forfeited/Cancelled 24,000 12.77 19,200 2.32 -- --
--------- --------- ---------
Outstanding at end of year 987,534 7.13 1,210,132 5.58 1,595,726 2.32
========= ========= =========
Options exercisable at year end 744,734 -- 939,732 -- 1,595,726 --
========= ========= =========
============================================================================================================================
</TABLE>
30
<PAGE> 15
The following table summarizes information about the stock options
outstanding at December 29, 1996:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------------------- ------------------------
WTD. AVG. WTG. AVG. WTD. AVG.
RANGE OF SHARES REMAINING EXERCISE SHARES EXERCISE
EXERCISE PRICES AT 12/29/96 CONTRACTUAL LIFE PRICE AT 12/29/96 PRICE
=============================================================================================================
<S> <C> <C> <C> <C> <C>
$ 1.20 104,906 7.2 $ 1.20 104,906 $ 1.20
3.75 516,628 7.3 3.75 516,628 3.75
11.88 304,000 9.0 11.88 101,200 11.88
13.75 4,000 8.3 13.75 4,000 13.75
22.63 58,000 9.3 22.63 18,000 22.63
------- -------
987,534 744,734
=============================================================================================================
</TABLE>
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for these plans
been determined based on the fair value at date of grant in accordance with FASB
Statement No. 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts.
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
<TABLE>
<CAPTION>
PRO FORMA DISCLOSURES 1996 1995
================================================================================
<S> <C> <C>
Pro forma net earnings $ 7,750 $ 3,916
Pro forma net earnings per share 0.35 0.22
Pro forma weighted average fair
value of options granted $ 11.80 $ 6.28
Risk Free interest rates 6.25%-6.55% 6.20%-6.51%
Expected lives 4-8 years 4-8 years
Expected volatility 46% 46%
================================================================================
</TABLE>
(12)SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the Company and its subsidiaries for
the fiscal years ended December 29, 1996 and December 31, 1995 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
================================================================================
<S> <C> <C> <C> <C>
1996
REVENUES $29,433 $33,416 $36,785 $38,149
OPERATING INCOME 1,719 1,913 2,939 3,160
NET INCOME 1,468 1,814 2,411 2,568
EARNINGS PER SHARE 0.07 0.08 0.11 0.11
1995
REVENUES $23,474 $22,570 $25,757 $27,630
OPERATING INCOME 1,590 1,818 1,925 1,896
NET INCOME 928 1,072 1,195 1,245
EARNINGS PER SHARE 0.06 0.06 0.06 0.07
================================================================================
</TABLE>
31
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of Wackenhut Corrections Corporation:
We have audited the accompanying consolidated balance sheets of Wackenhut
Corrections Corporation (a Florida corporation) and subsidiaries as of December
29, 1996 and December 31, 1995, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three fiscal years
in the period ended December 29, 1996. 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 did not audit the
financial statements of the Company's 50% owned affiliate, Premier Prison
Services, Ltd. as of January 1, 1995. The Company's equity in the net loss in
1994 represents 15% of the Company's fiscal 1994 net income. Those statements
were audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to the amounts included for that entity, is based
solely on the report of the other auditors.
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, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Wackenhut Corrections Corporation and subsidiaries as
of December 29, 1996 and December 31, 1995, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
December 29, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
January 31, 1997.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Shareholders of Wackenhut Corrections Corporation:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. They include amounts based on
judgments and estimates.
Representations in the financial statements and the fairness and integrity
of such statements are the responsibility of management. In order to meet
management's responsibility, the 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 financial statements.
The financial statements have been audited by Arthur Andersen LLP,
independent public accountants, whose appointment was ratified by shareholders.
Their report expresses a professional opinion as to whether management's
financial statements considered in their entirety present fairly, in conformity
with generally accepted accounting principles, the 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 financial statements.
The Audit Committee of the Board of Directors meets periodically with
representatives of management, the independent public accountants and the
Company's internal audit or store view matters relating to financial reporting,
internal accounting controls and auditing. Both the internal auditors and the
independent public accountants have unrestricted access to the Audit Committee
to discuss the results of their reviews.
/s/ George R. Wackenhut /s/ Jerry O'Rourke
George R. Wackenhut Jerry O'Rourke
Chairman of the Board Senior Vice President,
Chief Financial Officer
and Treasurer
<PAGE> 1
EXHIBIT 24.1
PAGE 38 OF 44
<PAGE> 2
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF WACKENHUT CORRECTIONS
CORPORATION HEREBY CONSTITUTES AND APPOINTS JOHN G. O'ROURKE, DAVID N. T.
WATSON, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THERE-WITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ NORMAN CARLSON
- --------------------------------------------
NORMAN A. CARLSON - DIRECTOR DATE: MARCH 16, 1997
---------------------
PAGE 39 OF 44
<PAGE> 3
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF WACKENHUT CORRECTIONS
CORPORATION HEREBY CONSTITUTES AND APPOINTS JOHN G. O'ROURKE, DAVID N. T.
WATSON, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THERE-WITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ BENJAMIN R. CIVILETTI
- ---------------------------------------
BENJAMIN R. CIVILETTI - DIRECTOR DATE: MARCH 11, 1997
------------------------
PAGE 40 OF 44
<PAGE> 4
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF WACKENHUT CORRECTIONS
CORPORATION HEREBY CONSTITUTES AND APPOINTS JOHN G. O'ROURKE, DAVID N. T.
WATSON, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THERE-WITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ MANUEL J. JUSTIZ
- -----------------------------------
MANUEL J. JUSTIZ - DIRECTOR DATE: MARCH 9, 1997
----------------------
PAGE 41 OF 44
<PAGE> 5
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF WACKENHUT CORRECTIONS
CORPORATION HEREBY CONSTITUTES AND APPOINTS JOHN G. O'ROURKE, DAVID N. T.
WATSON, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THERE-WITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ DR. FLORETTA D. MCKENZIE
- ---------------------------------------
DR. FLORETTA D. MCKENZIE - DIRECTOR DATE: MARCH 10, 1997
----------------------
PAGE 42 OF 44
<PAGE> 6
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF WACKENHUT CORRECTIONS
CORPORATION HEREBY CONSTITUTES AND APPOINTS JOHN G. O'ROURKE, DAVID N. T.
WATSON, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THERE-WITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ JOHN F. RUFFLE
- ------------------------------------
JOHN F. RUFFLE - DIRECTOR DATE: MARCH 17, 1997
----------------------
PAGE 43 OF 44
<PAGE> 7
POWER OF ATTORNEY
THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF WACKENHUT CORRECTIONS
CORPORATION HEREBY CONSTITUTES AND APPOINTS JOHN G. O'ROURKE, DAVID N. T.
WATSON, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE
THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THERE-WITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
/S/ ANTHONY P. TRAVISONO
- ----------------------------------------------
ANTHONY P. TRAVISONO - DIRECTOR DATE: MARCH 7, 1997
--------------------
PAGE 44 OF 44
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 29, 1996 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 44,368
<SECURITIES> 0
<RECEIVABLES> 24,879
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 75,313
<PP&E> 22,056
<DEPRECIATION> 3,081
<TOTAL-ASSETS> 106,811
<CURRENT-LIABILITIES> 13,183
<BONDS> 237
0
0
<COMMON> 219
<OTHER-SE> 87,750
<TOTAL-LIABILITY-AND-EQUITY> 106,811
<SALES> 0
<TOTAL-REVENUES> 137,784
<CGS> 0
<TOTAL-COSTS> 119,380
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,926
<INCOME-TAX> 4,269
<INCOME-CONTINUING> 8,261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,261
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
