-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ctWucRVPVlMnQJAa5OYOpcP7VUiXe6eIMCOy9A0bHZSxM6UijNQ33u3QmI2ST80Q a34roYS+mGsg/HqM8KhQJw== 0000950144-95-002029.txt : 19950721 0000950144-95-002029.hdr.sgml : 19950721 ACCESSION NUMBER: 0000950144-95-002029 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950101 FILED AS OF DATE: 19950720 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACKENHUT CORP CENTRAL INDEX KEY: 0000104030 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DETECTIVE, GUARD & ARMORED CAR SERVICES [7381] IRS NUMBER: 590857245 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05450 FILM NUMBER: 95555075 BUSINESS ADDRESS: STREET 1: 1500 SAN REMO AVE CITY: CORAL GABLES STATE: FL ZIP: 33146 BUSINESS PHONE: 3056665656 MAIL ADDRESS: STREET 1: 1500 SAN REMO AVENUE CITY: CORAL GABLES STATE: FL ZIP: 33146 10-K/A 1 WACKENHUT CORPORATION FORM 10-K/A 1-1-95 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 1995 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 1-05450 ------- THE WACKENHUT CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 59-0857245 - -------------------------------------------------------------------------------- (State of incorporation or organization) (I.R.S. Employer Identification No.) 1500 San Remo Avenue, Coral Gables, FL 33146 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (305) 666-5656 -------------- Securities registered pursuant to Section 12(b)of the Act: Title of each class Name of each exchange on which registered Common Stock, Series A, $.10 par value New York Stock Exchange - -------------------------------------- ----------------------- Common Stock, Series B, $.10 par value New York Stock Exchange - -------------------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At February 15, 1995, the aggregate market value of the 3,858,885 shares of Common Stock, Series A, the registrant's sole class of voting stock, held by non-affiliates of the registrant was $25,040,782. At February 15, 1995, 3,858,885 shares of Series A and 5,794,539 shares of Series B of the registrant's Common Stock were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts of the registrant's Annual Report to Shareholders for the fiscal year ended January 1, 1995 are incorporated by reference into Parts II and IV of this report. Parts of the registrant's Proxy Statement for its 1995 Annual Meeting of Shareholders are incorporated by reference in Part III of this Annual Report. EXHIBIT INDEX IS ON PAGE 17 Page 1 of 403 2 PART I ITEM 1. BUSINESS The Wackenhut Corporation was incorporated in Florida in 1958 as a successor corporation to a partnership founded in 1954 by George R. Wackenhut and three associates. The Wackenhut Corporation, together with its consolidated subsidiaries (the corporation), engages in the business of providing security and other support services to business, industrial and government clients. The corporation's business is conducted from more than 275 domestic and foreign offices and site locations. A subsidiary of the corporation, Wackenhut Corrections Corporation (WCC) provides facility management and construction services to detention and correctional facilities. WCC operates in a different industry segment than other divisions of the corporation. The corporation had record revenues of $747.7 million for fiscal 1994, or an increase of $83.5 million (13%). The increase in revenues over fiscal 1993 was due principally to the Security Services Division, which reported an increase in revenues of $37.6 million over fiscal 1993 and to Wackenhut Corrections Corporation whose 1994 revenues exceeded 1993 revenues by $42.7 million . Operating income was $6.6 million in 1994, and net income was $1.4 million, primarily due to a charge against earnings of $8.7 million ($5.4 million after income taxes) in the fourth quarter of 1994 to write-down the carrying value of the corporation's headquarters building and an extraordinary charge of $1.4 million ($887,000 after income taxes) for the early retirement of senior debt. SERVICES The corporation is engaged in a variety of services, with security guard services as the largest contributor to the corporation's revenues. Other services provided by the corporation include, correctional food service, integrated security programs, job corps facilities management, nuclear power plant security and consulting services and investigative services. WCC provides correctional and detention facilities management and construction services to detention and correctional facilities. SECURITY GUARD SERVICES The corporation furnishes security officers (armed and unarmed) to protect its clients' property against fire, theft, intrusion, vandalism, and other physical harm. Specialized physical security services offered by the corporation include executive protection, crash-fire-rescue services and fire protection services at airports and governmental installations, pre-departure screening of passengers and luggage at airport terminals and emergency and security services during natural disasters and labor-management disputes. The corporation also provides security consulting services to survey, analyze and minimize client security problems and trains security officers and fire and crash-fire-rescue personnel employed by its clients. The contracts of the corporation with private industry for security guard services usually are for a term of one year with automatic renewal from year to year unless terminated by either party. Most of these contracts are subject to termination by either party on thirty days prior notice. Billing rates are based on a specified rate per hour and generally are subject to renegotiation or escalation if related costs increase because of changes in mini- Page 2 of 403 3 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III The information required by Items 10, 11, 12 and 13 of Form 10-K (except such information as is furnished in a separate caption "Executive Officers of the Registrant" and 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 corporation's 1995 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 Accountants --- Page 15 The following consolidated financial statements of the corporation, included in the Registrant's Annual Report to its Shareholders for the fiscal year ended January 1, 1995 are incorporated by reference in Item 8: Consolidated Balance Sheets - January 1, 1995 and January 2, 1994 Consolidated Statements of Income - Fiscal years ended January 1, 1995, January 2, 1994 and January 3, 1993. Consolidated Statements of Cash Flows - Fiscal years ended January 1, 1995, January 2, 1994 and January 3, 1993. Consolidated Statements of Shareholders' Interest - Fiscal years ended January 1, 1995, January 2, 1994 and January 3, 1993. Notes to Consolidated Financial Statements With the exception of the information incorporated by reference from the 1994 Annual Report to Shareholders in Items 5, 6, 7, 8, and 14 of Parts II and IV of this Form 10-K, the Registrant's 1994 Annual Report to shareholders is not to be deemed filed as a part of the Report. 2. Financial Statement Schedules Schedule VIII - Valuation and Qualifying Accounts --- Page 16 Page 10 of 403 4 All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required. Individual financial statements of The Wackenhut Corporation have been omitted because it is primarily an operating company and all significant subsidiaries included in the consolidated financial statements filed with this Annual Report are majority-owned. 3. Exhibits The following exhibits are filed as part of this Annual Report: Exhibit 3(a) - Amended and Restated Articles of Incorporation (incorporated by reference to the corporation's Form 10-K Annual Report for the year ended January 3, 1993). Exhibit 3(b) - Bylaws currently in effect, as amended through October 27, 1990 (incorporated by reference to the corporation's Form 10-K Annual Report for the year ended December 30, 1990). Exhibit 4(a) - Revolving Credit and Reimbursement Agreement by and among The Wackenhut Corporation, the company - NationsBank of Florida, N. A., and Bank of America Illinois, as Lenders - and NationsBank of Florida, N.A., as Agent dated January 5, 1995. Exhibit 4(b) - Receivables Purchase Agreement dated as of January 5, 1995 Among The Wackenhut Corporation, as Seller, and Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser and Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A., each as a Managing Agent and Bank of America National Trust and Savings Association as the Administrative Agent. Exhibit 4(c) - $15,000,000 Credit Agreement dated as of December 12, 1994 between Wackenhut Corrections Corporation as Borrower and Barnett Bank of South Florida, N.A. as Lender. Exhibit 10(a) - Amendments to the Deferred Compensation Agreements for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando Carrizosa, Timothy P. Cole, Robert C. Kneip (incorporated by reference to the Corporation's Form 10-K Annual Report for the year ended December 29, 1991). Exhibit 10(b) - Deferred Compensation Agreement (the "Senior Plan") for Richard C. DeCook (incorporated by reference to the Corporation's Form 10-K Annual Report for the year ended January 2, 1994). Exhibit 10(c) - Executive Retirement Plan adopted during fiscal year 1989 by the Board of Directors (incorporated by reference to the Corporation's Form 10-K Annual Report for the year ended December 31, 1989). Exhibit 10(d) - Amended, Split Dollar arrangement with George R. and Ruth J. Wackenhut adopted by the Board of Directors in October of 1989 (incorporated by reference to the corporation's Form 10-K Annual Report for the year ended December 31, 1989). Page 11 of 403 5 Exhibit 10(e) - Amended and Restated Revolving Credit and Reimbursement Agreement between The Wackenhut Corporation and NationsBank of Florida, National Association dated July 1, 1993 (incorporated by reference to the Corporation's Form 10-K Annual Report for the year ended January 2, 1994). Exhibit 10(f) - Amendment dated March 7, 1995 to the Amended and Restated Revolving Credit and Reimbursement Agreement between The Wackenhut Corporation and NationsBank of Florida, N.A., dated July 1, 1993. Exhibit 13 - Annual Report to Shareholders for the year ended January 1, 1995, beginning with page 21 (to be deemed filed only to the extent required by the instructions to exhibits for reports on Form 10-K). Exhibit 13(a) - Amended pages to Annual Report to Shareholders for the year ended January 1, 1995, beginning with page 22 (to be deemed filed only to the extent required by the instructions to exhibits for reports on Form 10-K). Exhibit 21 - Subsidiaries of the Corporation. Exhibit 23 - Power of Attorneys for Directors Julius W. Becton, Richard G. Capen, Anne N. Foreman, Edward L. Hennessy, Jr., P.X. Kelley, Robert Q. Marston, Jorge Mas Canosa, Nancy Clark Reynolds, Thomas P. Stafford, George R. Wackenhut and Richard R. Wackenhut. (b). Reports on Form 8-K. On August 12, 1994, the corporation filed a current report on Form 8-K to report the initial public offering of Wackenhut Corrections Corporation, a subsidiary of the corporation. After the completion of the sale, the corporation owns 73.3% of the issued and outstanding shares of common stock of the subsidiary. Financial statements and pro forma financial information were not required since the transaction did not meet materiality requirements. On January 30, 1995, the corporation filed a current report on Form 8-K to report that it will take a special, one-time charge in the fourth quarter of fiscal 1994 to provide for a loss resulting from the write-down in the carrying value of its headquarters building in Coral Gables, Florida. The loss resulting from the write-down of the headquarters building carrying value of $8.7 million is due to management's decision to sell the Corporation's headquarters building. Page 12 of 403 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE WACKENHUT CORPORATION Date: July 20, 1995 By:/s/ Richard C. DeCook ----------------------------------------------- Richard C. DeCook, Senior Vice President - Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: July 20,1995 /s/ George R. Wackenhut ----------------------------------------------------------- George R. Wackenhut, Chairman of the Board and Chief Executive Officer (principal executive officer) Date: July 20,1995 /s/ Richard C. DeCook -------------------------------------------------- Richard C. DeCook, Senior Vice President - Finance and Chief Financial Officer Date: July 20, 1995 /s/ Juan D. Miyar --------------------------------------------------------- Juan D. Miyar, Vice President - Accounting Services and Corporate Controller (principal accounting officer) /s/ Julius W. Becton, Jr.* ------------------------- JULIUS W. BECTON, JR. Director /s/ Richard G. Capen, Jr.* ------------------------- RICHARD G. CAPEN, JR. Director /s/ Anne N. Foreman* ------------------- ANNE N. FOREMAN Director /s/ Edward L. Hennessy, Jr. * --------------------------- EDWARD L. HENNESSY, JR. Director /s/ P. X. Kelley * -------------------- PAUL X. KELLEY Director
Page 13 of 403 7 /s/ Robert Q. Marston * --------------------- ROBERT Q. MARSTON Director /s/ Jorge L. Mas Canosa * ------------------------- JORGE L. MAS CANOSA Director /s/ Nancy Clark Reynolds* ------------------------ NANCY CLARK REYNOLDS Director /s/ Thomas P. Stafford * ---------------------- THOMAS P. STAFFORD Director /s/ George R. Wackenhut * ----------------------- GEORGE R. WACKENHUT Director /s/ Richard R. Wackenhut* ------------------------ RICHARD R. WACKENHUT Director Dated: July 20, 1995 *By /s/ James P. Rowan ------------------------ JAMES P. ROWAN, Attorney-in-fact
Page 14 of 403 EX-13.A 2 ANNUAL REPORT FOR YEAR ENDED 1-1-95 1 EXHIBIT 13(a) 2 SELECTED FINANCIAL DATA (In thousands except per share data) The selected consolidated financial data should be read in conjunction with the corporation's consolidated financial statements and the notes thereto.
FISCAL YEARS ENDED: (a) 1994 1993 ============================================================================================================================= RESULTS OF OPERATIONS: Revenues $ 747,666 $ 664,160 Operating income 6,592 4,496 Income before income taxes 3,002 3,371 Income (loss) before extraordinary charge and cumulative effect of accounting change 2,272 3,609 Extraordinary charge - early extinguishment of debt, net of income taxes (887) (1,444) Cumulative effect of accounting change for income taxes - - Net income (loss) 1,385 2,165 - ----------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE: (b) Income (loss) before extraordinary charge and cumulative effect of accounting change $ .24 $ .37 Extraordinary charge - early extinguishment of debt, net of income taxes (.10) (.15) Cumulative effect of accounting change for income taxes - - ----------------------- Net income (loss) $ .14 $ .22 - ----------------------------------------------------------------------------------------------------------------------------- CASH DIVIDENDS PER SHARE OF COMMON STOCK: (b) Regular quarterly dividends $ .29 $ .29 Special dividend - - ----------------------- Total dividends $ .29 $ .29 - ----------------------------------------------------------------------------------------------------------------------------- FINANCIAL CONDITION: Working capital $ 72,075 $ 56,163 Total assets 212,757 211,297 Long-term debt 38,991 57,484 Total debt 42,756 67,940 Shareholders' equity 57,459 47,362 =============================================================================================================================
(a) Fiscal years 1992 and 1987 included 53 weeks. (b) Restated to reflect a 25% stock dividend declared during fiscal 1994 and to reflect a 100% stock dividend, effected in the form of a stock split, declared during fiscal 1992. 22 3
1992 1991 1990 1989 1988 1987 1986 1985 1984 ============================================================================================================================= $ 630,320 $ 572,527 $ 521,191 $ 462,181 $ 400,996 $ 381,972 $ 328,795 $ 308,219 $ 282,269 3,367 13,859 12,097 10,225 5,334 6,032 1,680 7,536 8,638 1,588 11,867 10,664 8,524 7,382 7,915 3,247 10,026 302 1,137 7,721 6,963 5,874 5,195 5,660 2,418 6,779 (1,804) - - - - - - - - - 7,370 - - - - - - - - 8,507 7,721 6,963 5,874 5,195 5,660 2,418 6,779 (1,804) - ----------------------------------------------------------------------------------------------------------------------------- $ .12 $ .80 $ .72 $ .61 $ .54 $ .58 $ .25 $ .70 $ (.18) - - - - - - - - - .76 - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------- $ .88 $ .80 $ .72 $ .61 $ .54 $ .58 $ .25 $ .70 $ (.18) - ----------------------------------------------------------------------------------------------------------------------------- $ .25 $ .24 $ .24 $ .24 $ .24 $ .24 $ .24 $ .24 $ .24 - - - - 1.20 - - - - - ----------------------------------------------------------------------------------------------------------------------------- $ .25 $ .24 $ .24 $ .24 $ 1.44 $ .24 $ .24 $ .24 $ .24 - ----------------------------------------------------------------------------------------------------------------------------- $ 56,932 $ 48,599 $ 42,413 $ 40,635 $ 38,461 $ 35,588 $ 31,572 $ 21,904 $ 8,007 192,236 172,093 164,085 157,681 150,318 130,439 115,930 111,314 103,734 63,260 46,920 46,850 48,500 45,558 10,600 8,400 14,150 9,500 63,990 47,650 46,850 51,325 47,058 10,600 18,400 24,150 19,500 47,587 42,847 37,865 33,616 30,528 39,653 36,191 36,129 31,682 =============================================================================================================================
23 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Tabular information in thousands) FINANCIAL CONDITION Capital resources and liquidity Cash and cash equivalents amounted to $13.8 million at January 1, 1995, or an increase of $6 million from the end of 1993. Net cash generated by operating activities was $13 million in 1994 and exceeded 1993 by $7.4 million. Generally, the corporation has generated sufficient cash from operations to finance normal growth. Cash provided by investing activities amounted to $24.6 million and included $14.0 million as a result of the reduction in marketable securities of the captive reinsurance subsidiary and the $17.6 million proceeds from the sale of a minority ownership (27%) in Wackenhut Corrections Corporation (WCC), a subsidiary of the corporation. Capital expenditures of $5.1 million partially offset these increases. Funds generated by operating and investing activities were used principally by the corporation to payoff the senior notes and to reduce bank borrowings. Cash dividends paid amounted to $2.8 million. Current cash requirements consist of amounts needed for capital assets, working capital related to increased revenue from corporate growth, the renovation or construction of correctional facilities, possible acquisitions and the payment of dividends. Cash requirements will be met from internally generated funds and additional borrowings as necessary. Management continues to pursue major contracts, to expand core business, and pursue major contracts to provide security to detention centers and construct detention facilities. These contracts may require substantial initial cash outlays, which are partially or fully recoverable over the original term of the contract. As described in more detail in the Notes to Financial Statements, the corporation and WCC entered into new credit agreements with banks that provide $75 million for borrowings and the issuance of letters of credit. In addition, subsequent to year end, the corporation entered into accounts receivable securitization agreements with two financial institutions to sell an undivided interest in a defined pool of trade accounts receivable up to a maximum of $40 million. In January 1995, the corporation prepaid the outstanding balance on the first mortgage note on the headquarters building with proceeds from the securitization of accounts receivable. As a result of the debt restructuring and the initial public offering of WCC, the corporation significantly increased its borrowing capacity and reduced the ratio of total debt to total capital to 42% as of year-end 1994. Management is unaware of any trends or events that are likely to result in material changes in the liquidity of the corporation other than those factors mentioned above. RESULTS OF OPERATIONS Significant trends During 1994, operating income increased $2.1 million, in spite of increased competitive pressures and reduced profit margins. In the fourth quarter of 1994, the carrying value of the headquarters building was written down to estimated realizable value, and a charge of $8.7 million was recognized as a result of management's decision to sell the facility and relocate its corporate headquarters. Strategic decisions made in previous years to diversify into the corrections business and to pursue national security service contracts were major contributing factors to the increase in operating income. In addition, the unprofitable businesses that were discontinued in 1993 contributed to this turnaround. The downsizing of defense business continued to impact revenue, but to date has not affected profit margins. The effort to diversify government business will continue in 1995. Competitive pressures on billing rates of security services and reductions in Department of Energy business are expected to continue. Increases in the cost of workers' compensation, liability and health insurance have continued. In addition, since the majority of the corporation's business is labor-intensive, increases in state and federal wage requirements could have an impact on the corporation's results of operations. WCC increased revenues to $105.5 million and operating profits to $4.4 million in 1994. The growth in the corrections business has been significant and should continue to be a major factor in the overall performance of the corporation in the future. In 1994, WCC won ten major contracts that will result in annual operating revenues of $105 million and one-time construction and consulting fees of $80 million in 1995 and 1996. The restructuring of the corporation's debt was started in 1994 and finalized early in 1995. This restructuring increased the corporation's debt capacity and is expected to reduce interest expense in 1995. Management's decision to sell the corporation's headquarters building in Coral Gables and move to a more efficient building in a less expensive location should result in reduced annual operating costs. Proceeds from the sale of the headquarters building will make it possible for the corporation to further reduce debt and interest expense. PERIOD-TO-PERIOD COMPARISONS (1994 VERSUS 1993)
Change Change 1994 (vs. 1993) 1993 (vs. 1992) ================================= REVENUES $ 747,666 13% $ 664,160 5% =================================
Consolidated revenues increased $83.5 million (13%) in 1994 over the prior year, compared with revenue growth of 5% in 1993. The revenue growth of the corporation for 1994 includes $42.7 million of WCC and $37.6 million of the Security Services Division. Revenues from contracts with the Department of Energy (DOE) decreased $11.0 million, while the International Group recorded an increase in revenues of $11.0 million over the previous year, due principally to growth in Central and South America. 24 5 The growth in 1994 revenues of WCC reflected the consolidation of Australasian Correctional Management Pty., Ltd., (ACM), with revenues of $23.1 million. WCC recorded a total increase in facility management revenues of $24.0 million, including ACM. In addition, construction and design revenues increased fourfold to $23.2 million during fiscal 1994 with revenues from the construction of three facilities. The increase in Security Services Division revenues, which represent the more traditional line of business of the corporation, was largely due to the success in obtaining national contracts with major corporations in the second half of 1993 and in 1994. In addition, the division was awarded a $34.7 million contract by the State of Hawaii to supply security at eight airports in August 1994. Revenues of Wackenhut Services were $8.1 million lower in 1994 than in 1993 as a result of reductions in manpower requirements by the Department of Energy. Contracts with the Department of Energy are typically cost reimbursable contracts for which the division can earn award fees, based on performance factors. Although award fees have not been reduced significantly, further reductions in revenues could impact profit contribution from these contracts. In order to compensate for the decreased DOE revenues, the division has expanded the scope of its services and is actively pursuing contracts from other governmental authorities and departments.
Change Change 1994 (vs. 1993) 1993 (vs. 1992) =================================== PAYROLL AND RELATED TAXES $538,297 10% $491,408 5% ----------------------------------- % of Revenues 72% 74% ----------------------------------- OTHER OPERATING EXPENSES $194,077 17% $166,530 5% ----------------------------------- % of Revenues 26% 25% ----------------------------------- WRITE-DOWN OF HEADQUARTERS BUILDING $ 8,700 -- -- -- ----------------------------------- % of Revenues 1.2% ----------------------------------- NON-RECURRING CHARGES -- -- $ 1,726 -- ----------------------------------- % of Revenues -- .3% ===================================
The increase in labor costs of $46.9 million (10%) and other operating expenses of $27.6 million (17%) reflected the growth in business in Security Services and WCC facility management. Furthermore, pass-through construction costs of WCC increased $17.5 million in 1994 compared to 1993. The total increase in other operating expenses was partially offset by a decrease in underwriting losses of the casualty reinsurance subsidiary of $4.0 million.
Change Change 1994 (vs. 1993) 1993 (vs. 1992) ================================== OPERATING INCOME $6,592 147% $4,496 34% % of Revenues .9% .7% ==================================
Operating income was $6.6 million, or 0.9% of revenues in 1994, after deducting $8.7 million to write-down the carrying value of the headquarters building to estimated realizable value, compared to $4.5 million, or 0.7% of revenues in 1993. Several factors contributed to this increase. First, the increase in Security Services revenues made a major contribution to operating income, in spite of reduced profit margins. Second, excellent ratings at DOE facilities increased operating income due to higher award fees. The Wackenhut Monitoring Systems and Wackenhut Applied Technologies Center Divisions, which were sold or discontinued in 1993, had combined operating losses of approximately $2 million in that year, and underwriting losses of the casualty reinsurance subsidiary decreased $4 million in fiscal 1994. And in 1993, the corporation also recorded a $1.7 million non-recurring charge to operating income. In addition, in 1994 WCC reported operating income of $4.4 million, including the effect of the consolidation of ACM, which represented $2.3 million. These favorable factors were significantly offset by a charge of $8.7 million as a result of the write-down of the carrying value of the headquarters building to estimated realizable value. Total other expense (net) of $12.3 million in 1994 resulted mainly from three factors. First, interest expense amounted to $5.1 million and exceeded the previous year by $874,000. Second, the liquidation of investments of the captive reinsurance subsidiary resulted in lower interest and investment income ($1.6 million); however, the positive effect of this transaction on earnings was not fully realized in 1994, but should be a factor in 1995.
Change Change 1994 (vs. 1993) 1993 (vs. 1992) ================================== INCOME BEFORE INCOME TAXES $3,002 (11)% $3,371 112% ---------------------------------- % of Revenues .4% .5% ---------------------------------- NET INCOME $1,385 (36)% $2,165 (75)% ---------------------------------- % of Revenues .2% .3% ==================================
Income before income taxes and extraordinary charge was $3 million for fiscal 1994, compared with $3.4 million in 1993. The provision for income taxes was $17,000, due to partial utilization of capital loss carryforwards, targeted jobs tax credits and tax exempt interest income of the captive reinsurance subsidiary. The effective income tax rate was 14% in 1993 due to similar factors, and a favorable federal income tax adjustment of $637,000 that resulted from a revenue agent's examination for the years 1980 to 1986. Minority interest expense (net of income taxes) increased $637,000 reflecting the sale of a minority interest (27%) in WCC. Equity income of foreign affiliates (net of income taxes) decreased $799,000 mainly as a result of the consolidation of ACM in 1994. Income before extraordinary charge was $2.3 million in 1994 versus $3.6 million the year before. In 1994, the corporation prepaid the second senior note to an insurance company and recognized an extraordinary charge for the early extinguishment of debt in the amount of $887,000 (net of income taxes). The corporation also recognized a $1.4 million extraordinary charge (net of income taxes) for the early extinguishment of the first senior note in 1993. Net income was $1.4 million in 1994, compared with $2.2 million in 1993. 25 6 CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) FISCAL YEARS ENDED JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
1994 1993 1992 =============================================================================================================== REVENUES $ 747,666 $ 664,160 $ 630,320 ----------------------------------------------------------------------------- OPERATING EXPENSES Payroll and related taxes 538,297 491,408 467,934 Other operating expenses 194,077 166,530 159,019 Write-down of headquarters building 8,700 - - Non-recurring charges - 1,726 - --------------------------------------- 741,074 659,664 626,953 ----------------------------------------------------------------------------- OPERATING INCOME 6,592 4,496 3,367 ----------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Interest expense (5,104) (4,230) (4,129) Interest and investment income 1,514 3,105 2,350 --------------------------------------- (3,590) (1,125) (1,779) ----------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 3,002 3,371 1,588 PROVISION FOR INCOME TAXES 17 485 834 MINORITY INTEREST, NET OF INCOME TAXES 999 362 - EQUITY INCOME OF FOREIGN AFFILIATES, NET OF INCOME TAXES (286) (1,085) (383) --------------------------------------- INCOME BEFORE EXTRAORDINARY CHARGE AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,272 3,609 1,137 EXTRAORDINARY CHARGE - EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES (887) (1,444) - CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INCOME TAXES - - 7,370 --------------------------------------- NET INCOME $ 1,385 $ 2,165 $ 8,507 =============================================================================================================== EARNINGS PER SHARE: Income before extraordinary charge and cumulative effect of accounting change $ 0.24 $ 0.37 $ 0.12 Extraordinary charge - early extinguishment of debt, net of income taxes (0.10) (0.15) - Cumulative effect of accounting change for income taxes - - 0.76 --------------------------------------- Net income $ 0.14 $ 0.22 $ 0.88 ===============================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 27 7 On April 30, 1994, the committee granted non-qualified stock options to purchase 323,750 shares of series B common stock at an exercise price of $7.70 per share, as adjusted for the 25% stock dividend. The options are exercisable after May 1, 1995 and expire on April 30, 2004. All options were outstanding at January 1, 1995. On January 27, 1995, the committee granted additional non-qualified stock options to purchase 175,000 shares of the corporation's series B common stock at $13.50 per share. (16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the corporation and its subsidiaries for the fiscal years ended January 1, 1995 and January 2, 1994, is as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter =================================================================================================================================== 1994 Revenues $ 174,537 $ 180,462 $ 196,031 $ 196,636 Income from operations (1) $ 3,203 $ 4,042 $ 3,863 $ (4,516) Income (loss) before extraordinary charge $ 1,820 $ 1,953 $ 1,982 $ (3,483) Extraordinary charge - early extinguishment of debt, net of income taxes (1) - - $ (887) - Net income (loss) (1) $ 1,820 $ 1,953 $ 1,095 $ (3,483) Earnings (loss) per share: (3) Before extraordinary charge $ 0.19 $ 0.20 $ 0.21 $ (0.36) Extraordinary charge - - $ (.10) - Net income (loss) $ 0.19 $ 0.20 $ 0.11 $ (0.36) =================================================================================================================================== 1993 Revenues $ 162,112 $ 162,051 $ 165,111 $ 174,886 Income (loss) from operations (2) $ 3,081 $ 1,727 $ 2,669 $ (2,981) Income (loss) before extraordinary charge $ 1,859 $ 1,348 $ 1,627 $ (1,225) Extraordinary charge - early extinguishment of debt, net of income taxes (2) - - - $ (1,444) Net income (loss) $ 1,859 $ 1,348 $ 1,627 $ (2,669) Earnings (loss) per share: (3) Before extraordinary charge $ 0.19 $ 0.14 $ 0.17 $ (0.13) Extraordinary charge - - - (0.15) Net income (loss) $ 0.19 $ 0.14 $ 0.17 $ (0.28) ===================================================================================================================================
(1) In the fourth quarter of 1994, the carrying value of the headquarters building was written down to its estimated realizable value and a charge of $8,700,000 was recognized (see Note 4). Additionally, an extraordinary charge of $887,000 (after tax), or $.10 per share, was recognized in the third quarter of 1994 for the early retirement of senior debt (see Note 7). (2) In the fourth quarter of 1993, the corporation recognized unusual charges to income from operations in the amount of $1,726,000, or $1,061,000 after tax (see Note 12) and an extraordinary charge of $1,444,000 (after tax), or $.15 per share, for the early retirement of senior debt (see Note 7). In addition, the insurance loss reserves were increased by $3,600,000. (3) Earnings per share have been restated to include the 25% stock dividend to be effected in the form of a stock split, declared on October 29, 1994 and paid on January 9, 1995 (see Notes 1 and 8). 35 -----END PRIVACY-ENHANCED MESSAGE-----