-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WmLg5fWApOQwlWFYUEpekd3Dw7vhiSzOycwbS1BNPAX9YpIca7/h1w/HJy2KnJKf 5m1mwOcb8tUMidrrjvnT3Q== 0000950144-97-002737.txt : 19970325 0000950144-97-002737.hdr.sgml : 19970325 ACCESSION NUMBER: 0000950144-97-002737 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970324 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05450 FILM NUMBER: 97561432 BUSINESS ADDRESS: STREET 1: 4200 WACKENHUT DRIVE STREET 2: #100 CITY: PALM BEACH GARDEN STATE: FL ZIP: 33410 BUSINESS PHONE: 4026916429 MAIL ADDRESS: STREET 1: 4200 WACKENHUT DR STREET 2: #100 CITY: PALM BEACH GARDEN STATE: FL ZIP: 33410 10-K405 1 THE WACKENHUT CORP. FORM 10-K405 12/29/96 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 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 1-5450 THE WACKENHUT CORPORATION (Exact name of registrant as specified in its charter) FLORIDA 59-0857245 (State of incorporation or organization) (I.R.S. Employer Identification No.) 4200 WACKENHUT DR. #100, PALM BEACH GARDENS, FL 33410-4243 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code:(561) 622-5656 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, Series A, $.10 par value New York Stock Exchange Common Stock, Series B, $.10 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] At February 28, 1997, the aggregate market value of the 3,856,450 shares of Common Stock, Series A, the registrant's sole class of voting stock, held by non-affiliates of the registrant was $67,487,875. At February 28, 1997, 3,856,450 shares of Series A and 10,897,715 shares of Series B of the registrant's Common Stock were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts of the registrant's Annual Report to Shareholders for the fiscal year ended December 29, 1996 are incorporated by reference into Parts II and IV of this Report. Parts of the registrant's Proxy Statement for its 1997 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report. =============================================================================== 2 PART I ITEM 1. BUSINESS GENERAL The Wackenhut Corporation (the "Company") is a leading international provider of security-related and other support services and a leading developer and manager of privatized correctional and detention facilities. The Company provides security services, food services and other related services to commercial and governmental customers through its services business (the "Services Business"). Through its correctional business (the "Correctional Business"), the Company also provides correctional and detention facility design, development and management services to governmental agencies. The Company has approximately 51,000 full and part-time employees serving over 16,000 commercial and governmental customers through an extensive network of offices and operations in 48 states and 50 countries. The Company was incorporated in 1958 to continue the businesses that were originally established in 1954 by its Chairman and Chief Executive Officer, George R. Wackenhut, to provide security-related services to commercial and governmental customers. Since its founding, the Company has grown by: (i) enhancing its position in its core security-related services business through the development of specialized and upgraded services; (ii) targeting specific segments of the security services industry; and (iii) expanding into a range of other support services in response to a growing trend toward privatization of governmental services and outsourcing by commercial customers. The Company is the third largest security services organization in the United States and is the leading United States-based provider of security services abroad. In addition to its core security-related services, which include guard and investigative services, the Company is a leader in the development of specialized niche services. For example, in response to a growing demand in the marketplace for security professionals with greater skill and responsibility levels, the Company has developed its Custom Protection Officer(R) ("CPO") program to provide highly specialized and trained security professionals to a broad range of customers such as national retailers, banks and other financial institutions and gated communities. CPOs are also used as supplemental law enforcement forces by public transportation authorities and other governmental entities. Custom Protection Officer is a Registered Service Mark of The Wackenhut Corporation. Moreover, in seeking to respond to the specialized needs of its larger clients, the Company developed its national accounts ("National Accounts") program to provide customized security services on a national or regional level to large customers with multiple locations. The National Accounts program provides customers with a high level of service by providing a dedicated contact person with the Company who is responsible for coordinating their accounts on a nationwide basis. The Company believes that the National Accounts program may also enable it to expand the scope of services offered worldwide to its National Account customers. Management believes that the high quality and consistent service of its CPO and National Accounts programs provide the Company with an opportunity to enhance long-term relationships with its clients. As part of its strategy to respond to the growing trend toward privatization of governmental services, in 1984 the Company entered into the development and management of privatized correctional and detention facilities, a business which is now operated exclusively through its 55% owned Wackenhut Corrections Corporation subsidiary ("WCC"). WCC presently has contracts to manage 34 correctional and detention facilities, with a rated capacity of 24,371 beds. From December 29, 1991 to December 29, 1996, WCC's revenues increased from $37.9 million to $137.8 million and operating income increased from $1.7 million to $9.7 million, representing compound annual growth rates of 29.5% and 41.7%, respectively. As of February 28, 1997, WCC's total equity market capitalization was approximately $378.5 million. In addition to its expansion into the Correctional Business through WCC, the Company has leveraged its management skills to expand into other support services. In 1992, the Company entered into the foodservice business for correctional institutions and, in January 1996, expanded its presence in this market through the acquisition of contracts and certain assets of the Correctional Food Services Division of Service America 2 3 Corporation. In 1996, the Company's Food Services Division had revenues of $70.6 million. Presently, only 14% of the correctional foodservice market has been privatized. Consequently, the Company believes that as privatization of correctional food services continues to gain acceptance at state and local levels, the Food Services Division will have opportunities for expansion*. In the third quarter of 1996, the Company entered into the professional employer organization ("PEO") business by establishing Oasis Outsourcing, Inc., a majority owned subsidiary. By the end of 1996, Oasis had opened one office in South Florida and one in Denver and has approximately 100 employees under contract. In addition to the services which the Company has specifically targeted for expansion, the Company continues to explore and selectively invest in other service businesses, including temporary services, commercial and governmental support services, supplemental police services, crash-fire-rescue services, fire protection services, and airport services. BUSINESS STRATEGY The Company's business strategy is focused on two primary objectives: (i) enhancing its position as a leading international provider of security and security-related services by distinguishing the type and quality of security services it provides; and (ii) using its security service expertise and contacts to offer other support services to its clients. Key elements of the Company's business strategy are described below: - ENHANCE LEADERSHIP POSITION OF CORE SECURITY-RELATED SERVICE BUSINESS. The Company strives to enhance its market position by attempting to provide the most reliable and consistent service in the industry. The Company believes its security professionals provide quality service because of: (i) strictly enforced screening and hiring procedures; (ii) intensive training; and (iii) well-organized supervisory and feedback procedures. - DEVELOP SPECIALIZED SECURITY SERVICES. The Company has identified and targeted National Accounts and CPOs as its primary growth areas in the security services business and seeks to expand its market position. Management believes that the high quality and consistent service of its National Accounts and CPO programs provide the Company with an opportunity to establish and enhance long-term relationships with its clients. - DEVELOP COMPLEMENTARY SUPPORT SERVICES. The Company will seek to expand the scope of complementary support services it offers. The Company's successful identification and development of the correctional business and the foodservice business has provided it with the experience it believes will allow it to develop other specialized programs and support services such as professional employer organization, temporary services, building maintenance, supplemental police services, crash-fire-rescue services, fire protection services, and airport services. - GEOGRAPHIC EXPANSION. The Company seeks to increase revenues and enhance earnings stability by continuing to expand its international presence. Historical revenue growth has been centered in Central and South America and, more recently, Western Europe. The Company has also been expanding into Central and Eastern Europe, the former Soviet Union, the People's Republic of China and other countries in the Far East in an attempt to capitalize on recent economic developments and political reforms in these areas. The Company believes this geographic diversity helps to protect its revenues and earnings from adverse regional economic and business cycles. In addition, the Company believes that its far reaching geographic presence, which includes 50 countries worldwide, provides it with an advantage when pursuing contracts with multi-national corporations. - CORRECTIONAL BUSINESS. WCC's objective is to enhance its position as one of the leading providers of privatized correctional and detention services. Key elements of WCC's business strategy include: (i) effective management of projects; (ii) selective development of new business opportunities; (iii) selective - ------------------------- * Refer to Forward Looking Statements included as Exhibit 13.0 - page 23 to this Form 10-K. 3 4 pursuit of acquisitions; (iv) expansion of its scope of services; (v) expansion into international markets by establishing alliances with strategic local partners; and (vi) limiting capital risk. - PROFESSIONAL EMPLOYER ORGANIZATIONS. The Company has identified and targeted PEO services as a key market that is in line with our complementary support services strategy. PEO services is an emerging outsourcing business, with industry growth continuing at about a thirty percent annual rate, with penetration still under three percent of the potential market. The Company seeks to enter the PEO business by internal growth of Oasis Outsourcing, Inc. (a majority owned PEO) and through selective acquisitions. - PURSUE SELECTED ACQUISITIONS. In addition to internal growth in the security-related services business, the Company's growth strategy includes the selected acquisition of other support service businesses. For example, through its January 1996 acquisition of the Correctional Food Services Division of Service America Corporation, the Company has established a leading position in the growing correctional foodservice industry. MARKETS Services Business. The private security-related services industry includes guard and investigative services, alarm monitoring services, security consulting services, armored car transport and other security services. The largest and most visible component of the industry is the guard and investigative services component which also accounts for the largest portion of the Company's revenues. Guard and investigative services are often characterized within the industry as either "proprietary" or "contract," depending on the service provider. Under proprietary arrangements, end users of the services employ, schedule and manage their own security officers and detectives. In contrast, contract services are provided to end users pursuant to contracts with independent security-related service firms such as the Company. The Company believes that the advantages to clients of using contract security service providers rather than providing services internally on a proprietary basis are three-fold: (i) the client may realize cost and administrative savings; (ii) the client is freed to concentrate on its core competencies; and (iii) the client may be able to reduce labor management concerns with security-related employees, who are employed by the Company. In addition to its presence in guard and investigative services, the Company has identified opportunities in related services markets, such as correctional food services. Only 14% of prisons and jails in the United States have privatized their food services, of which the Company's market share is approximately one-third. The Company believes that trends in privatization will result in growth opportunities in this market component. Correctional Business. The trend in the United States and other countries toward privatization of government services and functions has increased as governments have faced continuing pressure to control costs and improve the quality of services. Governmental agencies responsible for correctional and detention facilities have privatized facilities in an attempt to address these pressures. During the period from 1984 to 1995, the worldwide number of beds under management at privatized correctional and detention facilities increased from 885 to 63,595 with the majority of this growth occurring since 1989. During 1995, the worldwide number of beds under management or construction at privatized correctional and detention facilities increased 29.4% to 63,595 from 49,154 in 1994. WCC markets its services in the United States to federal, state and local governmental agencies. According to reports on privatization from the Private Corrections Project Center for Studies in Criminology and Law, University of Florida (the "Privatization Reports"), 19 states and Puerto Rico had awarded management contracts to private companies at December 31, 1995. At December 31, 1995, there were a total of 104 facilities with a rated capacity of 63,595 beds privatized in the United States, of which the Company was awarded 22 facilities with a rated capacity of 15,657 beds. Federal agencies have privatized Immigration and Naturalization Service detention facilities and United States Marshal detention facilities. State agencies have privatized state prisons, community corrections facilities, chemical dependency treatment centers, intermediate sanction facilities, juvenile offender 4 5 facilities, pre-release centers, work program facilities and state jail facilities. Local agencies have privatized city jail facilities and transfer facilities. In the United Kingdom, the Home Office, the chief British governmental body responsible for law enforcement, awarded its first contract for a privately-managed prison in 1991. At December 31, 1995, there were a total of six facilities with a rated capacity of 3,584 beds privatized in the United Kingdom, including one managed by a WCC joint venture, with a rated capacity of 850 beds. The Home Office has stated that new correctional and detention facilities in England and Wales will be privatized. Therefore, WCC believes that significant growth opportunities exist in the United Kingdom*. The Home Office is also privatizing court escort services. In Australia, Queensland privatized its first facility in 1989. At December 31, 1995, there were a total of six privatized facilities with a rated capacity of 2,402 beds privatized in Australia, of which WCC currently manages three facilities with a rated capacity of 1,778 beds. COMPANY ORGANIZATION The Company's business can be divided into the Services Business and Correctional Business. The Services Business encompasses all commercial and governmental business of the North American Operations Group (including Wackenhut of Canada Limited) and the International Operations Group. The Services Business provides security-related and other support services. The Correctional Business, which consists exclusively of the business conducted through WCC, provides correctional and detention facility design, development and management services to government agencies. Provided below is financial information for each business segment for Fiscal 1996, Fiscal 1995 and Fiscal 1994. The following table sets forth the contribution to consolidated revenues and operating income by each of the Company's business segments. See Note 14 of Notes to Consolidated Financial Statements (which also includes a summary of domestic and international operations) included in Exhibit 13.0 to this Form 10-K.
FISCAL 1996 FISCAL 1995 FISCAL 1994 ------------- ------------- ------------- BUSINESS SEGMENT AMOUNT % AMOUNT % AMOUNT % - ---------------- ------ ---- --------- ---- ------ ---- (IN THOUSANDS) Revenues: Services............................................ $ 768,272 85% $ 697,301 88% $ 642,727 88% Correctional........................................ 137,784 15 99,431 12 84,026 12 --------- --- ---------- --- ---------- --- Total Revenues................................ $ 906,056 100% $ 796,732 100% $ 726,753 100% ========= === ========== === ========== === Operating Income: Services............................................ $ 7,339 43% $ 8,545 54% $ 10,846 71% Correctional........................................ 9,731 57 7,229 46 4,446 29 --------- --- ---------- --- ---------- --- Operating Income before provision for relocation costs and write down of headquarters building..... 17,070 100% 15,774 100% 15,292 100% === === === Provision for relocation costs...................... (750) - - Write-down of headquarters building................. - - (8,700) --------- ----------- --------- Total Operating Income........................ $ 16,320 $ 15,774 $ 6,592 ========= =========== =========
- ------------------------- * Refer to Forward Looking Statements included as Exhibit 13.0 - page 23 to this Form 10-K. 5 6 SERVICES BUSINESS The Services Business is conducted through two separate operating groups: the North American Operations Group and the International Operations Group. The following table sets forth the contribution of each operating group to the total revenues and total operating income of the Services Business during Fiscal 1996, Fiscal 1995 and Fiscal 1994.
REVENUES ----------------------------------------------------------- FISCAL 1996 FISCAL 1995 FISCAL 1994 ------------- ------------- -------------- OPERATING GROUP AMOUNT % AMOUNT % AMOUNT % - --------------- -------- - -------- - -------- ----- (IN THOUSANDS) North American Operations Group........................ $ 660,457 86% $ 579,882 83% $ 547,016 85% International Operations Group......................... 103,587 13 109,967 16 79,350 12 Other.................................................. 5,071 1 14,275 2 23,310 4 Inter-Group Revenues................................... (843) - (6,823) (1) (6,949) (1) ---------- --- ----------- --- ----------- --- Total Services Business Revenues.................... $ 768,272 100% $ 697,301 100% $ 642,727 100% ========== === =========== === =========== ===
OPERATING INCOME ----------------------------------------------------------- FISCAL 1996 FISCAL 1995 FISCAL 1994 ------------- ------------- ------------- OPERATING GROUP AMOUNT % AMOUNT % AMOUNT % - --------------- -------- - -------- - -------- - (IN THOUSANDS) North American Operations Group........................ $ 19,993 107% $ 17,622 86% $ 17,125 86% International Operations Group......................... (1,257) (7) 2,878 14 2,730 14 ---------- --- -------- -- ----------- -- Operating Income Before Corporate Expenses and Underwriting Losses.................. 18,736 100% 20,500 100% 19,855 100% === === === Corporate Expenses and Underwriting Losses............. (11,397) (11,955) (9,009) ---------- -------- ----------- Total Services Business Operating Income............ $ 7,339 $ 8,545 $ 10,846 ========== ======== ===========
NORTH AMERICAN OPERATIONS GROUP. The North American Operations Group has historically provided the majority of the Company's consolidated revenues. This group provides security-related and other support services throughout the United States and Canada. The North American Operations Group is subdivided into the following divisions: the Security Services Division, the Nuclear Division, Wackenhut Services, Inc., and the Food Services Division. In conducting its Services Business, the Company has adopted a quality management approach. General management responsibilities for each operating group are vested in a small group of managers located at Company headquarters. Day-to-day management responsibility for each group is vested in field managers who have primary responsibility for client contact and satisfaction. Field managers are selected through an intensive screening process and receive what the Company believes is state-of-the-art training. Supervisory personnel from Company headquarters periodically visit sites and carefully monitor operating results. Security Services Division. Through its Security Services Division, the Company furnishes security officers (armed and unarmed) to protect its clients' property against fire, theft, intrusion, vandalism and other physical harm. Specialized security services offered by the Company include executive protection, crash-fire-rescue services, fire protection services and airport services. The Company also provides security consulting services including security assessment and program development, specialized training programs for security guards, fire-crash-rescue personnel, and investigative services for attorneys, financial institutions and retail and industrial businesses. The Company will attempt to further enhance its market position in the security-related services industry through internal growth by continuing to: (i) pursue domestic and international National Accounts; (ii) differentiate its security-related services within the industry by emphasizing its CPO program; and (iii) market the Company's services to specialized market niches such as gated residential communities and hospitals. 6 7 The Company intends to emphasize attracting and retaining National Accounts that require security-related services on a national or regional level at multiple locations. Such clients include retail chains, banks, manufacturers and restaurant chains. Management believes that such clients value the flexibility and service provided by a dedicated single point of contact with the Company through the National Accounts program. For its CPO program, the Company recruits law enforcement academy graduates, former military police, members of elite military units and college graduates with criminology-related degrees. These recruits are prepared for critical security assignments after completing a Company training program that surpasses any state or local requirements for security officer licensing. CPOs perform such functions as prisoner transportation in Maryland and Colorado, neighborhood and downtown security in Florida, transit security in Wisconsin and California, rest-stop security in Florida and other supplemental law enforcement-related services. Management believes that services provided by CPOs distinguish the Company's services from those of the competition by providing highly specialized and trained security personnel capable of undertaking and accepting responsibilities that are beyond the capabilities of traditional security guards. The contracts of the Security Services Division with private industry usually are for a one year term. Most of these contracts are subject to termination by either party on 30 days prior notice. Billing rates are based on a specified rate per hour and generally are subject to renegotiation or escalation if related costs increase because of changes in minimum wage laws or certain other events beyond the control of the Company. The Company designs and engineers integrated security programs using both security officers and electronic equipment. These services include planning master security programs for particular facilities, custom designing security systems, procuring requisite electronic equipment, managing contracts and construction, training security personnel, and reviewing and evaluating security programs. Contracts for these integrated security-related services generally provide for a fixed fee and are awarded by competitive bidding. The Company complements security services provided to its clients with investigative services, such as employee background screening and insurance fraud investigations. The Company maintains a national research center with the latest information-gathering technology for public records and a "fraud-waste- criminal" hotline for employees of clients to report workplace abuses. Clients ordinarily are charged an hourly rate for investigative services and a flat rate for background record searches. Nuclear Division. The Company provides specialized security-related services for nuclear power generating facilities owned by public and private utility companies. The Company provides highly trained and qualified security personnel, emergency planning, electronic detection equipment and integrated security systems to these utility companies. The terms of contracts entered into by the Nuclear Division generally are multi-year and include a variety of fee arrangements. The Company's experience with requirements and standards of the Nuclear Regulatory Commission ("NRC") enable it to assist customers in ensuring NRC compliance. Wackenhut Services, Inc. Wackenhut Services, Inc. ("WSI") generates approximately 16% of the Company's consolidated revenues. WSI provides security services primarily to United States federal government entities. Services provided by WSI range from basic security and administrative support to specialized emergency response teams. These response teams are staffed with highly trained personnel, many with prior military experience. These response teams are equipped with sophisticated weaponry and engage in such specialized activities as aerial assault and rappelling operations. In the United States, WSI provides security-related services at 10 sensitive government installations. For example, the Company has held the operations and maintenance contract for the Savannah River Site in South Carolina since 1983, the single largest government contract for security-related services. Since 1990, the Company has managed the Rocky Flats Environmental Technology Site near Denver and since 1964, has managed the Nevada Test Site near Las Vegas. Since 1984, WSI has overseen training and resource development for the United States Department of Energy at the Central Training Academy in Albuquerque, New Mexico. 7 8 The Company's service contracts with governmental agencies are typically cost-reimbursable contracts providing the Company the ability to earn award fees based upon the achievement of performance goals. The Company's service contracts with governmental agencies are subject to annual governmental appropriations. Through WSI the Company also operates its accelerated access authorization program. This program provides background investigation and research services in support of individual clearances required for employment at United States Department of Energy sites. Food Services Division. The Company's correctional foodservice business, the second largest in the industry, provides over 56 million meals annually to over 100 jail and prison facilities in 27 states throughout the United States. Food for regular, therapeutic and religious diets is prepared using conventional or cook-chill methods. The Company provides a quality assurance program that encompasses all aspects of the foodservice business. Specifically, the Company provides product testing and menu development through its staff of nutritional experts, which includes professional dietitians. Also, to ensure high quality of service and product, facility audits are conducted on an on-going basis. The Company bids for foodservice contracts and provides food services on a cost per meal basis. Complete foodservice management, commissary, laundry and janitorial programs are available to correctional clients. On January 5, 1996, the Company acquired the contracts and certain assets of the Correctional Food Services Division of Service America Corporation. The Company paid a cash purchase price of approximately $12.4 million. Only 14% of the correctional foodservice business was privatized as of December 29, 1996. Consequently, the Company sees substantial opportunity to expand its operations in the Food Services Division, especially in light of the recent trend toward privatization of certain governmental services. Additionally, the correctional foodservice business has high barriers to entry, including the need for substantial expertise to comply with strict governmental dietary requirements and the capital resources necessary to finance start-up costs and maintain inventory levels. The Company believes that its in-house staff of highly-trained professional dietitians and managers provides it with a competitive advantage. The Company intends to concentrate on expanding its Food Services Division through internally-generated growth and selected acquisitions. INTERNATIONAL OPERATIONS GROUP. The International Operations Group accounts for approximately 11% of the Company's consolidated revenues. The International Operations Group's business is conducted primarily through Wackenhut International, Inc. ("WII"). Since its organization in 1967, WII has grown to include a network of subsidiaries, partnerships and affiliates in 50 countries. Management believes the Company's international presence, through the operations of WII, is larger than any of its domestic competitors. The Company believes that its risk exposure in international operations conducted through WII is reduced substantially by the fact that the vast majority of its international operations are structured through joint ventures with parties who operate in the given market. These parties often provide valuable insight into local markets, in addition to sharing financial responsibility for the venture. WII also provides a greater variety of services than the Company offers domestically. These services include, among other things, central station monitoring, armored cars and janitorial services. The Company believes that this experience will be valuable in assisting the Company's domestic expansion into new support service areas. The Company's goal is to increase its international presence by further developing existing markets and by expanding into new markets. Most recently, WII has expanded into Central and Eastern Europe, the former Soviet Union, the People's Republic of China and other countries in the Far East in an attempt to capitalize on recent economic developments and political reforms in these areas. In addition to providing traditional security services to commercial customers at overseas locations, WII provides security for the U.S. Department of State at embassies and missions in 19 locations. WII also provides protective services at NASA space shuttle support sites in Africa. Major competitors of WII include large United States-based companies with operations overseas, sizable foreign concerns such as Group 4 and Securitas, and local and regional companies. 8 9 NEW VENTURES. In the third quarter of 1996, the Company created Oasis Outsourcing, Inc., a professional employer organization, founded to take advantage of the trend of small businesses to lease employees in order to provide clients with more and better employee benefits at a reduced cost. By the end of 1996, Oasis had opened one office in South Florida and one in Denver, and has approximately 100 employees under contract. CORRECTIONAL BUSINESS The Company's Correctional Business is conducted through the operations of WCC. WCC is a leading developer and manager of privatized correctional and detention facilities in the United States, the United Kingdom and Australia. WCC was founded in 1984 as a division of the Company to capitalize on emerging opportunities in the private correctional services market. WCC presently has contracts to manage 34 correctional and detention facilities with an aggregate rated capacity of 24,371 beds, 19 are currently in operation, 13 are under development by WCC and 2 are being developed by a third party. WCC offers governmental agencies a comprehensive range of prison management services from individual consulting projects to the integrated design, construction and management of correctional and detention facilities. In addition to providing the fundamental services relating to the security of facilities and the detention and care of inmates, WCC has built a reputation as an effective provider of a wide array of in-facility rehabilitative and educational programs, such as chemical dependency counseling and treatment, basic education, and job and life skills training. The Company believes that WCC's experience in delivering a full range of quality privatization services on a cost-effective basis to governmental agencies provides such agencies strong incentives to choose WCC when awarding new contracts or renewing existing contracts. In the United States, there is a growing trend toward privatization of correctional and detention services as governments have faced continuing pressure to control costs and improve the quality of services. According to the Privatization Reports, the rated capacity of privately-managed correctional and detention facilities in the United States has increased significantly over the last ten years. The majority of this growth has occurred since 1989, as the number of correctional and detention facilities under contract for private management increased from 26 facilities with a rated capacity of 10,973 beds in 1989 to 104 facilities with a rated capacity of 63,595 beds in 1995. Even after such growth, according to the Privatization Reports, only 3.0% of inmates in United States correctional and detention facilities were housed in privately-managed facilities at December 31, 1994. The Company believes that many factors have contributed to industry growth, the most important of which are increasing inmate populations and the demonstrated ability of private entities to design, construct and manage facilities on a cost-effective basis. International recognition of the benefits of private sector management of correctional and detention facilities also continues. WCC has contracts to manage four of the twelve facilities that have been privatized in the United Kingdom and Australia. In particular, WCC believes that significant growth opportunities exist in the United Kingdom since the Home Office, the chief British governmental body responsible for law enforcement, adopted a policy in 1993 to privatize all new prisons in England and Wales, as well as some existing prisons and court escort services. In December 1995, WCC entered into two contracts to provide court escort services in the West Midlands and Southeast Areas of England. Under court escort contracts, a private company on behalf of a governmental agency, transports prisoners between prisons, police stations and courts and is responsible for the custody of such prisoners during transportation and court appearances. WCC's objective is to enhance its position as one of the leading developers and managers of privatized correctional and detention facilities. Key elements of WCC's business strategy include: (i) effective management of projects; (ii) selective development of new business opportunities; (iii) aggressive pursuit of acquisitions; (iv) expanded scope of services; (v) expansion into international markets by establishing alliances with strategic local partners; and (vi) limiting capital risk. In September 1994, WCC completed an initial public offering ("IPO") in which it sold 4,370,000 shares of common stock at an offering price of $4.50 per share. Following the completion of the IPO, the Company owned approximately 73.3% of the issued and outstanding shares of common stock of WCC. In January 1996, WCC completed a subsequent public offering of 4,600,000 shares of common stock at an offering price of $12.00 per 9 10 share, which resulted in the Company owning approximately 55% of the issued and outstanding shares of common stock of WCC. CUSTOMERS During Fiscal 1996, the Company provided services to more than 16,000 customers. The Company's largest customer was the United States Department of Energy, which accounted for approximately 15% of the Company's consolidated revenue in Fiscal 1996. The service contracts at the Savannah River site (6%) and the Rocky Flats Plant (5%) are the largest of the Company's contracts with the United States Department of Energy. Contracts with governmental agencies of the State of Texas accounted for 39% and 37% of WCC's revenues in Fiscal 1996 and Fiscal 1995, respectively. Contracts with the New South Wales Department of Corrective Services accounted for 10% of WCC's revenues in Fiscal 1996. Contracts with the Queensland Corrective Services Commission accounted for 11% of WCC's revenues in Fiscal 1996. Contracts with the Louisiana Department of Public Safety and Corrections accounted for 9% and 11% of WCC's revenues in Fiscal 1996 and Fiscal 1995, respectively. COMPETITION The Company is the third largest security and protective services organization in the United States and a leading provider of such services worldwide. The Company competes domestically and internationally with Borg-Warner Security Company and Pinkerton's, Inc. The Company also competes with numerous local and regional security services companies. The top five providers of services similar to those provided by the Company account for less than 25% of the security-services market in the United States. Competition in the security-related and other support services business is intense and is based primarily on price in relation to quality of service, the scope of services performed, and the extent of employee training and supervision. However, potential competitors can enter the security-related and other support services business without substantial capital investment or expense. WCC competes primarily on the basis of the quality and range of services offered, and its experience and reputation, both domestically and internationally, in the design and management of facilities. WCC competes with a number of companies domestically and internationally, such as Corrections Corporation of America, Esmor Correctional Services, Inc., Group 4 International Corrections Service, Securicor Group, U.K. Detention Services, Ltd., and United States Corrections Corp. Some of the competitors are larger and have greater resources than WCC. WCC also competes on a localized basis in some markets with small companies that may have better knowledge of the local conditions and may be better able to gain political and public acceptance. Potential competitors can enter the correctional business without substantial capital investment or experience. In addition, in most markets WCC competes with governmental agencies that are responsible for the development and management of correctional facilities. EMPLOYEES The Company's principal business is labor intensive, and is affected substantially by the availability of qualified personnel and the cost of labor. As of March 11, 1997, the Company had over 51,000 full and part-time employees, most of whom are security officers and other personnel providing physical security services. The Company has not experienced any material difficulty in employing sufficient numbers of suitable security officers. Security officers and other personnel supplied by the Company to its clients are employees of the Company, even though stationed regularly at a client's premises. A small percentage of the employees of the Company are covered by collective bargaining agreements. Relations with employees have been generally satisfactory. At March 4, 1997, WCC had 3,993 full-time employees and 235 part-time employees. Employees at three of WCC's facilities are unionized. BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS The Company is subject to numerous city, county, and state firearm and occupational licensing laws that apply to security officers and private investigators. Many states have laws requiring training and registration of security officers, regulating the use of badges and uniforms, and imposing minimum bond, surety, or insurance standards. 10 11 Many foreign countries have laws that restrict the Company's ability to render certain services, including laws prohibiting security-related services or limiting foreign investment. The industry in which WCC operates is subject to national, federal, state and local regulations in the United States, United Kingdom and Australia which are administered by a variety of regulatory authorities. Generally, prospective providers of correctional services must be able to detail their readiness to, and must, comply with a variety of applicable state and local regulations, including education, health care and safety regulations. WCC's contracts frequently include extensive reporting requirements and require supervision and on-site monitoring by representatives of contracting governmental agencies. WCC's Kyle New Vision Chemical Dependency Treatment Center is licensed by the Texas Department of Criminal Justice to provide substance abuse treatment. Certain states, such as Florida and Texas, deem prison guards to be peace officers and require WCC personnel to be licensed and may make them subject to background investigation. State law also typically requires corrections officers to meet certain training standards. In addition, many state and local governments are required to enter into a competitive bidding procedure before awarding contracts for products or services. The laws of certain jurisdictions may also require the Company to award subcontracts on a competitive basis or to subcontract with businesses owned by women or members of minority groups. The failure to comply with applicable laws, rules or regulations or the loss of any required license could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, the current and future operations of the Company may be subject to additional regulations as a result of, among other factors, new statutes and regulations and changes in the manner in which existing statutes and regulations are or may be interpreted or applied. Any such additional regulations could have a material adverse effect on the Company's business, financial condition and results of operations. The Company may, under certain circumstances, be responsible for the actions of its employees and agents. Under the common law of negligence in many states, the Company can be held vicariously liable for wrongful acts or omissions of its agents or employees performed in the course and within the scope of their agency or employment. In addition, some states have statutes that expressly impose on the Company legal responsibility for the conduct of its agents or employees. The nature of the security-related services provided by the Company (such as armed security officers and fire rescue) may expose it to greater risks of liability for employee acts or omissions than are posed to other businesses. The Company maintains public liability insurance to mitigate against this exposure, although the laws of many states limit or prohibit insurance coverage of liability for punitive damages arising from willful, wanton or grossly negligent conduct. ITEM 2. PROPERTIES The Company relocated its executive offices to The Wackenhut Center, a newly constructed building located at 4200 Wackenhut Drive #100, Palm Beach Gardens, Florida, in March 1996. The Wackenhut Center contains approximately 93,250 square feet and is leased from P.G.A. Professional Center, Ltd., for an initial term of 15 years, with consecutive options to extend the term of the lease for three additional five year periods. This lease requires annual rental payments in the amount of $1,789,300 with no escalation during the initial 15 year term. WCC owns a 66,000 square foot building in Aurora, Colorado, which is operated by WCC as a detention center under a contract with the United States Government and a 35,000 square foot building operated by WCC as a correctional facility under contract with the State of California in McFarland, California. The Company owns a 15,000 square foot warehouse building in Miami, Florida. In addition, the Company owns two buildings in Ecuador and one each in the Dominican Republic, Costa Rica, Puerto Rico and Uruguay that are used for the operations of its foreign subsidiaries in those countries. All other offices of the Company are leased. The aggregate annual rent for all non-cancelable operating leases of office space, automobiles, data processing and other equipment is approximately $9,625,000. The Company owns substantially all uniforms, firearms, and accessories used by its security officers. 11 12 ITEM 3. LEGAL PROCEEDINGS The Company is presently, and is from time to time, subject to claims arising in the ordinary course of its business. In certain of such actions, plaintiffs request punitive or other damages that may not be covered by insurance. In the opinion of management, the various asserted claims and litigation in which the Company is currently involved will not materially affect its financial position or future operating results, although no assurance can be given with respect to the ultimate outcome for any such claim or litigation. The foregoing opinion is based in part upon the fact that the Company believes it has established adequate reserves for litigation contingencies in its financial statements in accordance with generally accepted accounting principles. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT GEORGE R. WACKENHUT is Chairman of the Board and Chief Executive Officer of the Company and has been since its inception. He was President of the Company from the time it was founded until April 26, 1986. He formerly was a Special Agent of the Federal Bureau of Investigation. Mr. Wackenhut is also a director of WCC. Mr. Wackenhut is on the Dean's Advisory Board of the University of Miami School of Business. He is on the National Council of Trustees, Freedoms Foundation at Valley Forge, and the President's Advisory Council for the Small Business Administration, Region IV. He is a past participant in the Florida Governor's War on Crime and a past member of the Law Enforcement Council, National Council on Crime and Delinquency, and the Board of Visitors of the U.S. Army Military Police School and the Board of Directors of SSJ Medical Development, Inc., Miami, Florida. Mr. Wackenhut is also a member of the American Society for Industrial Security. He was a recipient in 1990 of the Labor Order of Merit, First Class, from the government of Venezuela. Mr. Wackenhut received his B.S. degree from the University of Hawaii and his M.Ed. degree from Johns Hopkins University. Mr. Wackenhut is married to Ruth J. Wackenhut, Secretary of the Company. His son, Richard R. Wackenhut, is President and Chief Operating Officer of the Company and also a Director. RICHARD R. WACKENHUT is President and Chief Operating Officer of the Company and a member of the Board of Directors and has been since April 26, 1986. Prior to that, Mr. Wackenhut was Senior Vice President of Operations from 1983 to 1986. He was Manager of Physical Security from 1973 to 1974. He also served as Manager, Development at the Company's Headquarters from 1974 to 1976; Area Manager, Columbia, South Carolina, from 1976 to 1977; District Manager, Columbia, South Carolina from 1977 to 1979; Director, Physical Security Division at Corporate Headquarters from 1979 to 1980; Vice President, Operations from 1981 to 1982; and Senior Vice President, Domestic Operations from 1982 to 1983. Mr. Wackenhut is Director of Wackenhut del Ecuador, S.A.; Wackenhut UK Limited; Wackenhut Dominicana, S.A.; and several domestic subsidiaries of the Company, including WCC. He is a member of the St. Thomas University Advisory Board. He is also a member of the American Society for Industrial Security, the International Association of Chiefs of Police and the International Security Management Association. He received his B.A. degree from The Citadel in 1969 and completed the Advanced Management Program of the Harvard University School of Business Administration in 1987. Mr. Wackenhut is the son of George R. Wackenhut, Chairman of the Board and Chief Executive Officer of the Company, and Ruth J. Wackenhut, Secretary of the Company. ALAN B. BERNSTEIN is Executive Vice President of the Company and President, North American Operations Group and has been since April 27, 1991. Prior to that, Mr. Bernstein was Senior Vice President, Domestic Operations from 1986 to 1991. He has been employed by the Company since 1976, except for a brief absence during 1982 when he was a partner in a family-owned security alarm business in New York State. Mr. Bernstein has served in the following positions with the Company or its subsidiaries: Vice President of Domestic Operations, 1985; Vice President, Corporate Business Development, 1984; Acting President, Wackenhut Systems Corporation, 1983; Director of Integrated Guard Security, 1981; and Manager of Wackenhut Electronic Systems 12 13 Corporation (Miami) from 1976 to 1981. He received his B.S.E.E. degree from the University of Rochester, and an M.B.A. degree from Cornell University. FERNANDO CARRIZOSA is Senior Vice President and President, International Operations Group and has been since January 28, 1989. Mr. Carrizosa was Vice President of International Operations Group from January 31, 1988 to January 28, 1989. He joined Wackenhut de Colombia in 1968 as Manager of Investigations. He was promoted to Manager of Human Resources, and then to Assistant to the President in 1974. He moved to Headquarters as a trainee in 1974, and was promoted to Manager of Latin American Operations in 1980, a capacity in which he served until 1983. Mr. Carrizosa also served as Executive Vice President of Wackenhut International, 1983 to 1984 and President of Wackenhut International, 1984 to 1988. He is a Director of several subsidiaries and affiliates of the Company. He received a B.B.A. from Universidad Javeriana in Colombia, and an M.B.A. with honors from Florida International University in 1976. ROBERT C. KNEIP is Senior Vice President, Corporate Planning and Development of the Company and has been since 1988. He joined the Company in 1982. Mr. Kneip has held various positions in the Company including Director, Power Generating Services; Director, Contracts Management; Vice President, Contracts Management; and Vice President, Planning and Development. Prior to joining the Company, Mr. Kneip was employed by the Atomic Energy Commission, the Nuclear Regulatory Commission and Dravo Utility Constructors, Inc. He received a B.A. (Honors) from the University of Iowa, and an M.A. and Ph.D. from Tulane University. GEORGE C. ZOLEY is Senior Vice President of the Company and Vice Chairman and Chief Executive Officer of the Wackenhut Corrections Corporation. He has served as President and a Director of the Wackenhut Corrections Corporation since it was incorporated in 1988, and Chief Executive Officer since April 1994. Dr. Zoley established Wackenhut Corrections Corporation as a division of The Wackenhut Corporation in 1984, and continues to be a major factor in the Company's development of privatized correctional and detention facilities business. Dr. Zoley has also served as a manager, director and then Vice President of Government Services for Wackenhut Services, Inc. from 1981 through 1988. Prior to joining Wackenhut Services, Inc., Dr. Zoley held various administrative and management positions for city and county governments in South Florida. Dr. Zoley has a Masters and Doctorate Degree in Public Administration. JAMES P. ROWAN is Vice President and General Counsel, and Assistant Secretary of the Company. He joined the Company in 1979 as Assistant General Counsel, became Associate General Counsel in 1982 and a Vice President in 1986. He is an attorney admitted to the Bar of the States of Indiana, Iowa and Michigan. He holds degrees of B.S.C. (Accounting) and J.D. (Law) from the University of Iowa, and a C.P.A. from the University of Illinois. RUTH J. WACKENHUT is Secretary of the Company and has been since 1958. She is married to George R. Wackenhut, Chairman of the Board and Chief Executive Officer of the Company and her son, Richard R. Wackenhut, is President and Chief Operating Officer of the Company and also a director. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is incorporated by reference to page 15 of the Registrant's 1996 Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference to pages 16 through 17 of the Registrant's 1996 Annual Report to Shareholders, Exhibit 13.0. 13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference to pages 18 through 23 of the Registrant's 1996 Annual Report to Shareholders, Exhibit 13.0. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to pages 24 through 36 of the Registrant's 1996 Annual Report to Shareholders, Exhibit 13.0, except for the Financial Statement Schedule listed in Item 14 (a) (2) of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III The information required by Items 10, 11, 12 and 13 of Form 10-K (except such information as is furnished in a separate caption "Executive Officers of the Registrant" and is included in Part I, hereto) is contained in, and is incorporated by reference from, the proxy statement (with the exception of the Board Compensation Committee Report and the Performance Graph) for the Company's 1997 Annual Meeting of Shareholders, which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following consolidated financial statements of the Company, included in the Registrant's Annual Report to Shareholders for the fiscal year ended December 29, 1996 are incorporated by reference in Part II, Item 8: Consolidated Balance Sheets - December 29, 1996 and December 31, 1995 Consolidated Statements of Income - Fiscal years ended December 29, 1996, December 31, 1995 and January 1, 1995 Consolidated Statements of Cash Flows - Fiscal years ended December 29, 1996, December 31, 1995 and January 1, 1995 Consolidated Statements of Shareholders' Equity - Fiscal years ended December 29, 1996, December 31, 1995 and January 1, 1995 Notes to Consolidated Financial Statements With the exception of the information incorporated by reference from the 1996 Annual Report to Shareholders in Part II, Items 5,6,7,8, and Parts IV of the Form 10-K, the Registrant's 1996 Annual Report to Shareholders is not to be deemed filed as part of this Report. 2. Financial Statement Schedule 14 15 Schedule II - Valuation and Qualifying Accounts - Page 20 All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required. Individual financial statements of the Company have been omitted because it is primarily an operating company and all significant subsidiaries included in the consolidated financial statements filed with this Annual Report are majority-owned. 3. Exhibits The following exhibits are filed as part of this Annual Report:
EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 Articles of Incorporation as amended (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 3.2 Bylaws currently in effect (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 4.1 Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A. and Bank of America Illinois, as Lenders, and NationsBank of Florida, N.A., as Agent (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 4.2 Letter dated June 8, 1995 concerning the Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A., and Bank of America Illinois, as Lenders, and NationsBank of Florida, N.A., as Agent (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 4.3 Letter dated August 24, 1995 concerning the Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A., as Agent (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 4.4 Receivables Purchase Agreement dated as of January 5, 1995 among The Wackenhut Corporation, as Seller, Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser, Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A., each as a Managing Agent, and Bank of America National Trust and Savings Association, as the Administrative Agent (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995) 4.5 First Amendment dated December 15, 1995 to the Receivables Purchase Agreement dated as of January 5, 1995 among The Wackenhut Corporation, as Seller, Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser, Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A., each as a Managing Agent, and Bank of America National Trust and Savings Association, as the Administrative Agent (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 4.6 $15 Million Credit Agreement dated as of December 12, 1994 between Wackenhut Corrections Corporation, as Borrower, and Barnett Bank of South Florida, N.A., as Lender (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 1, 1995)
15 16 4.7 Amendment Agreement Number One dated March 7, 1995 to the Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A. and Bank of America Illinois, as Lenders, and NationsBank of Florida, N.A. as Agent. 4.8 Letter dated September 12, 1996 concerning the Receivables Purchase Agreement dated as of January 5, 1995 among The Wackenhut Corporation, as Seller, Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser, Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A. each as a Managing Agent, and Bank of America National Trust and Savings Association, as the Administrative Agent 4.9 Amendment Agreement Number Two dated October 28, 1996 to the Revolving Credit and Reimbursement Agreement dated January 5, 1995 by and among The Wackenhut Corporation, NationsBank of Florida, N.A. and Bank of America Illinois, as Lenders, and NationsBank of Florida, N.A., as Agent 10.1 Form of Deferred Compensation Agreement for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando Carrizosa and Robert C. Kneip (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended January 2, 1994) 10.2 Amendments to the Deferred Compensation Agreements for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando Carrizosa and Robert C. Kneip (incorporated by reference to the Registrant's Form 10-K Annual and Report for the fiscal year ended December 29, 1991) 10.3 Executive Officer Retirement Plan (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.4 Amended and Restated Split Dollar arrangement with George R. and Ruth J. Wackenhut (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.5 Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.6 First Amendment dated November 3, 1995 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.7 $9 Million Promissory Note dated December 21, 1995 between The Wackenhut Corporation and ACP-Atrium CG, L.P., a Florida limited partnership (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.8 Purchase Money Real Estate Mortgage, Assignment and Security Agreement dated December 31, 1995 between The Wackenhut Corporation and ACP-Atrium CG, L.P., a Florida limited partnership (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.9 Key Employee Long-Term Incentive Stock Plan dated July 1991(incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.10 Second Amendment dated August 1, 1996 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 10.11 Amended Nonemployee Director Stock Option Plan dated October 29, 1996
16 17 13.0 Annual Report to Shareholders for the year ended December 29, 1996, beginning with page 15 (to be deemed filed only to the extent required by the instructions to exhibits for reports on this Form 10-K) 21.1 Subsidiaries of The Wackenhut Corporation 23.1 Consent of Arthur Andersen LLP 24.1 Powers of Attorney 27.1 Financial Data Schedule (for SEC use only)
(b). Reports on Form 8-K. None 17 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE WACKENHUT CORPORATION By: /s/ Juan D. Miyar Date: March 21, 1997 ----------------- Juan D. Miyar Vice President Corporate Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ George R. Wackenhut Chairman of the Board and Chief Executive March 21, 1997 - ----------------------------------------- Officer (principal executive officer) George R. Wackenhut /s/ Juan D. Miyar Vice President and Corporate Controller March 21, 1997 - ----------------------------------------- (principal accounting officer) Juan D. Miyar /s/ Julius W. Becton, Jr. * Director March 12, 1997 - ----------------------------------------- Julius W. Becton, Jr. Director - ----------------------------------------- Richard G. Capen, Jr. /s/ Anne N. Foreman * Director March 12, 1997 - ----------------------------------------- Anne N. Foreman /s/ Edward L. Hennessy, Jr. * Director March 12, 1997 - ----------------------------------------- Edward L. Hennessy, Jr. /s/ Paul X. Kelley * Director March 14, 1997 - ----------------------------------------- Paul X. Kelley /s/ Nancy Clark Reynolds * Director March 14, 1997 - ----------------------------------------- Nancy Clark Reynolds Director - ----------------------------------------- George R. Wackenhut /s/ Richard R. Wackenhut * Director March 12, 1997 - ----------------------------------------- Richard R. Wackenhut *By: /s/ James P. Rowan Vice President, General Counsel and March 21, 1997 - ----------------------------------------- Assistant Secretary James P. Rowan Attorney-in-fact
18 19 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in The Wackenhut Corporation's 1996 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 10, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed above in Item 14(a)(2) of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 29, 1996 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP West Palm Beach, Florida, February 10, 1997. 19 20 SCHEDULE II THE WACKENHUT CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 AND JANUARY 1, 1995 (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED DEDUCTIONS, BALANCE AT BEGINNING COST AND TO OTHER ACTUAL END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS CHARGE-OFFS PERIOD - ----------- ---------- ---------- ---------- ----------- ---------- YEAR ENDED DECEMBER 29, 1996: Allowance for doubtful accounts.................. $ 1,268 $ 1,362 - $ (633) $ 1,997 Valuation allowance - deferred tax asset......... $ 162 - - $ (20) $ 142 YEAR ENDED DECEMBER 31, 1995: Allowance for doubtful accounts.................. $ 1,056 $ 863 $ (162) $ (489) $ 1,268 Valuation allowance - deferred tax asset......... $ 150 $ 12 - - $ 162 YEAR ENDED JANUARY 1, 1995: Allowance for doubtful accounts.................. $ 687 $ 508 - $ (139) $ 1,056 Valuation allowance - deferred tax asset......... $ 2,632 - - $(2,482) $ 150
20 EX-4.7 2 AMENDMENT NO.1 TO REVOLVING CREDIT AGREEMENT 1 EXHIBIT 4.7 AMENDMENT AGREEMENT NO. 1 TO REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT AGREEMENT made and entered into as of the 28th day of March, 1996, by and among WACKENHUT CORPORATION, a Florida corporation (herein called the "Company"), the financial institutions who are signatories hereto (herein individually called the "Lender" and collectively the "Lenders"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (successor by merger of NationsBank of Florida, National Association), as Agent for the Lenders (herein called the "Agent"). W I T N E S S E T H: WHEREAS, the Company, the Agent and the Lenders have entered into a Revolving Credit and Reimbursement Agreement dated January 5, 1995 (the "Agreement") whereby the Lenders party thereto have agreed to make loans to the Company and to provide Letters of Credit; and WHEREAS, the Subsidiaries of the Company have guaranteed payment of the Obligations pursuant to Guaranty Agreements dated January 5, 1995, all as described in the Agreement and other Loan Documents; and WHEREAS, the Company has requested that the Agreement be amended as hereinafter provided; NOW, THEREFORE, the Company, the Lenders and the Agent do hereby agree as follows: 1. The term "Agreement" as used herein and in Loan Documents shall mean the Agreement as hereby amended and modified. Unless the context otherwise requires, all terms used herein without definition shall have the definition provided therefor in the Agreement. 2. Subject to the conditions hereof, the Agreement is hereby amended, effective June 30, 1995, as follows: (a) Section 1.01 is hereby amended by adding the following two new definitions immediately following the definition of "Advance": "'Adjusted Consolidated Net Worth' means at any time as of which the amount thereof is to be determined, the sum of Consolidated Net Worth plus $5,351,000 (representing the after tax loss associated with the sale of the headquarters building located at 1500 San Remo Avenue, Coral Gables, Florida); 'Adjusted Total Capitalization' means the sum of (i) Consolidated Funded Debt plus (ii) Adjusted Consolidated Net Worth;" (b) The definition of "Applicable Interest Addition" in Section 1.01 is hereby amended by deleting the phrase "Total Capitalization" appearing therein and inserting in lieu thereof the phrase "Adjusted Total Capitalization". (c) Section 7.09 is amended in its entirety so that as amended it shall read as follows: "7.09 Trading Asset Ratio. The Company will at all times keep and maintain a ratio of (a) the sum of (1) unencumbered cash, net accounts receivable and net inventory of the Company and its Subsidiaries (other than WCC) all as determined in accordance with GAAP, plus, through June 30, 1996 but not thereafter, (2) the unpaid principal of the note in the original principal amount of $9,000,000 payable by ACP-Atrium CG, Ltd. Partnership held by the Company, provided such note is 2 at all times secured by the headquarters building located at 1500 San Remo Avenue, Coral Gables, Florida, to (b) the sum of (1) Consolidated Funded Debt, excluding the Funded Debt of WCC, (2) the stated amount of outstanding unsecured Letters of Credit and (3) accounts payable of the Company and its Subsidiaries (other than WCC) all determined as of the last day of each fiscal quarter, of not less than 1.15 to 1.00." 3. In order to induce the Lenders to enter into this Amendment Agreement, the Company represents and warrants to the Lenders as follows: (a) The representations and warranties made by Company in Article VI of the Agreement are true on and as of the date hereto except that the financial statements referred to in Section 6.03(a) shall be those most recently furnished to each Lender pursuant to Section 7.17; (b) There has been no material change in the condition, financial or otherwise, of the Company and its Subsidiaries since the date of the most recent financial reports of the Company received by each Lender under Section 7.17 thereof, other than changes in the ordinary course of business, none of which has been a material adverse change; (c) The business and properties of the Company and its Subsidiaries are not, and since the date of the most recent financial report of the Company and its Subsidiaries received by each Lender under Section 7.17 thereof have not been adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of armed forces, war or acts of God or the public enemy, or cancellation or loss of any major contracts; and (d) No event has occurred and no condition exists which, upon the consummation of the transaction contemplated hereby, constitutes a Default or an Event of Default on the part of the Company under the Agreement or the Notes either immediately or with the lapse of time or the giving of notice, or both. 4. Each of the Subsidiaries of the Company have joined in the execution of this Agreement for the purpose of consenting hereto and hereby reaffirm their respective guaranty of payment of the Obligations. 5. All instruments and documents incident to the consummation of the transactions contemplated hereby shall be satisfactory in form and substance to the Agent, the Lenders and their counsel; the Agent shall have received copies of all additional agreements, instruments and documents which they may reasonably request in connection therewith, including copies of resolutions of the Company authorizing the transactions contemplated by this Amendment Agreement, such documents, when appropriate, to be certified by appropriate corporate or governmental authorities; and all proceedings of the Company relating to the matters provided for herein shall be satisfactory to the Agent, the Lenders and their counsel. 6. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, conditions, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and no one of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any other party to the other. None of the terms or conditions of this Amendment Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing, signed by all the parties hereto, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any preceding or succeeding breach thereof. Except as hereby specifically amended, modified or supplemented, the Agreement and all of the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. COMPANY: WITNESS: WACKENHUT CORPORATION By: - ------------------------- -------------------------------- Name: Terry P. Mayotte Title: Assistant Treasurer - ------------------------- GUARANTORS: WITNESS: WACKENHUT SERVICES, INCORPORATED By: - ------------------------- -------------------------------- Name: Terry P. Mayotte Title: Assistant Treasurer - ------------------------- WITNESS: WACKENHUT INTERNATIONAL, INCORPORATED By: - -------------------------- -------------------------------- Name: Terry P. Mayotte Title: Assistant Treasurer - ------------------------- WITNESS: AMERICAN GUARD AND ALERT, INCORPORATED By: - ------------------------- -------------------------------- Name: Terry P. Mayotte Title: Assistant Treasurer - ------------------------- WITNESS: WACKENHUT AIRLINE SERVICES, INC. By: - ------------------------- -------------------------------- Name: Terry P. Mayotte Title: Assistant Treasurer - ------------------------- WITNESS: WACKENHUT EDUCATION SERVICES, INC. By: - ------------------------- -------------------------------- Name: Terry P. Mayotte Title: Assistant Treasurer - ------------------------- WITNESS: TITANIA INSURANCE COMPANY OF AMERICA By: Name: Terry P. Mayotte - ------------------------- ----------------------------------- Title: Assistant Treasurer - ------------------------- WITNESS: TUHNEKCAW, INC. By: - ------------------------- -------------------------------- Name: Terry P. Mayotte 4 Title: Assistant Treasurer - ------------------------- NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) in its capacity as Agent By: -------------------------------- Name: ------------------------------ Title: ----------------------------- NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) as Lender By: -------------------------------- Name: ------------------------------ Title: ----------------------------- BANK OF AMERICA ILLINOIS By: -------------------------------- Name: ------------------------------ Title: ----------------------------- EX-4.8 3 LETTER; 9/12/96 RE: RECEIVABLES PURCHASE AGREEMENT 1 EXHIBIT 4.8 September 12, 1996 Mr. Erle Archer Vice President Bank of America National Trust and Savings Association 231 South LaSalle Street Chicago, IL 60697 Dear Erle: Pursuant to the Section 1.07 of the Receivables Purchase Agreement, dated January 5, 1995, this letter serves to notify you that effective September 20, 1996 the Maximum Purchase Limit must be reduced from $50,000,000 to $35,000,000. Please let me know if you need any additional information to process this change. Sincerely, /s/ Terry P. Mayotte - -------------------- Terry P. Mayotte Treasurer c.c.: John Miller, NationsBank EX-4.9 4 AMEND. NO. 2 TO REVOLVING CREDIT AGREEMENT 1 EXHIBIT 4.9 AMENDMENT AGREEMENT NO. 2 TO REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT AGREEMENT made and entered into as of the 28th day of October, 1996, by and among WACKENHUT CORPORATION, a Florida corporation (herein called the "Company"), the financial institutions who are signatories hereto (herein individually called the "Lender" and collectively the "Lenders"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (successor by merger of NationsBank of Florida, National Association), as Agent for the Lenders (herein called the "Agent"). W I T N E S S E T H: WHEREAS, the Company, the Agent and the Lenders have entered into a Revolving Credit and Reimbursement Agreement dated January 5, 1995, as amended by Amendment Agreement No. 1 (the "Agreement") whereby the Lenders party thereto have agreed to make loans to the Company and to provide Letters of Credit; and WHEREAS, the Subsidiaries of the Company have guaranteed payment of the Obligations pursuant to Guaranty Agreements dated January 5, 1995, all as described in the Agreement and other Loan Documents; and WHEREAS, the Company has requested that the Agreement be amended as hereinafter provided; NOW, THEREFORE, the Company, the Lenders and the Agent do hereby agree as follows: 1. The term "Agreement" as used herein and in Loan Documents shall mean the Agreement as hereby amended and modified. Unless the context otherwise requires, all terms used herein without definition shall have the definition provided therefor in the Agreement. 2. Subject to the conditions hereof, clause (ii) of Section 7.11(a) is amended in its entirety, effective October 1, 1996, so that as amended it shall read as follows: "7.11 Restricted Payments: Joint Venture Investments. (a) *** (ii) Directly or indirectly, or through any Subsidiary, purchase, redeem or retire any shares of its capital stock of any class or any warrants, rights or options to purchase or acquire any shares of its capital stock (other than (x) in exchange for or out of the net cash proceeds to the 2 Company from the substantially concurrent issue or sale of other shares of capital stock of the Company or warrants, rights or options to purchase or acquire any shares of its capital stock, (y) purchases or acquisitions of shares of Voting Stock of the Company which were issued pursuant to an employee stock plan, provided that the aggregate amount expended therefor does not exceed $250,000 in any one fiscal year of the Company, and (z) purchases or acquisitions of shares of Voting Stock of the Company after October 1, 1996 in the open market for an aggregate purchase of not to exceed $5,000,000, provided further, that such amounts expended shall not exceed that amount necessary in order to maintain beneficial ownership or control, directly or indirectly, of 50.1% (by number of votes) of the Voting Stock of the Company by the Wackenhut Family Group);" 3. In order to induce the Lenders to enter into this Amendment Agreement, the Company represents and warrants to the Lenders as follows: (a) The representations and warranties made by Company in Article VI of the Agreement are true on and as of the date hereto except that the financial statements referred to in Section 6.03(a) shall be those most recently furnished to each Lender pursuant to Section 7.17; (b) There has been no material change in the condition, financial or otherwise, of the Company and its Subsidiaries since the date of the most recent financial reports of the Company received by each Lender under Section 7.17 thereof, other than changes in the ordinary course of business, none of which has been a material adverse change; (c) The business and properties of the Company and its Subsidiaries are not, and since the date of the most recent financial report of the Company and its Subsidiaries received by each Lender under Section 7.17 thereof have not been adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of armed forces, war or acts of God or the public enemy, or cancellation or loss of any major contracts; and (d) No event has occurred and no condition exists which, upon the consummation of the transaction contemplated hereby, constitutes a Default or an Event of Default on the part of the Company under the Agreement or the Notes either immediately or with the lapse of time or the giving of notice, or both. 4. Each of the Subsidiaries of the Company have joined in the execution of this Agreement for the purpose of consenting hereto and hereby reaffirm their respective guaranty of payment of the Obligations. 5. All instruments and documents incident to the consummation of the transactions contemplated hereby shall be satisfactory in form and substance to the Agent, the Lenders and 3 their counsel; the Agent shall have received copies of all additional agreements, instruments and documents which they may reasonably request in connection therewith, including copies of resolutions of the Company authorizing the transactions contemplated by this Amendment Agreement, such documents, when appropriate, to be certified by appropriate corporate or governmental authorities; and all proceedings of the Company relating to the matters provided for herein shall be satisfactory to the Agent, the Lenders and their counsel. 6. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, conditions, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and no one of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any other party to the other. None of the terms or conditions of this Amendment Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing, signed by all the parties hereto, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any preceding or succeeding breach thereof. Except as hereby specifically amended, modified or supplemented, the Agreement and all of the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. COMPANY: WITNESS: WACKENHUT CORPORATION By: - ------------------------- -------------------------------- Name: Terry P. Mayotte Title: Treasurer - ------------------------- GUARANTORS: WITNESS: WACKENHUT SERVICES, INCORPORATED WACKENHUT INTERNATIONAL, INCORPORATED - ------------------------- AMERICAN GUARD AND ALERT, INCORPORATED WACKENHUT AIRLINE SERVICES, INC. - ------------------------- WACKENHUT EDUCATION SERVICES, INC. TITANIA INSURANCE COMPANY OF AMERICA TUHNEKCAW, INC. By: - ------------------------- -------------------------------- Name: Terry P. Mayotte Title: Treasurer - ------------------------- 5 NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) in its capacity as Agent By: -------------------------------- Name: ------------------------------ Title: ----------------------------- NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) as Lender By: -------------------------------- Name: ------------------------------ Title: ----------------------------- BANK OF AMERICA ILLINOIS By: -------------------------------- Name: ------------------------------ Title: ----------------------------- EX-10.10 5 AMEND NO. 2 TO OFFICE LEASE 1 EXHIBIT 10.10 SECOND AMENDMENT TO OFFICE LEASE This Second Amendment is entered into this 1 day of August 1996, by and between PGA PROFESSIONAL CENTER, LTD. ("Landlord") and THE WACKENHUT CORPORATION ( "Tenant"). BACKGROUND A. Landlord and Tenant have entered into that certain office Lease dated April 18, 1995, (the "Lease") and that certain First Amendment to Lease dated November 3, 1995 ("First Addendum"). B. Pursuant to paragraph 1.B. of the Lease, Landlord and Tenant agreed to execute a revision to the Lease upon completion of the Demised Premises setting forth the actual square footage of the Demised Premises, the actual Rent to be paid and the amount of the actual Tenant Improvement Allowance. NOW THEREFORE, in consideration of the sum of Ten and 00/100 ($10.00) Dollars and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows: 1. The Referenced Data attached to the Lease is modified as follows: A. The Demised Premises are made up of 93,259 square feet (1,500 square feet of which Tenant is not obligated to pay Rent on). B. The Annual Rental to be paid under the Lease is $1,789,300.50. C. Tenant's proportionate share shall be 97.03%. 2. Paragraph 1.B. is modified to provide that the Demised Premises shall contain the 93,259 consisting of all of the second through fourth floors and a portion of the first floor of the Building. The area of the remaining space in the Building is 2,859 square feet. Accordingly, there shall be no sharing of the Rent for the lobby of the Building. 3. Paragraph 2.A. of the Lease is modified to provide that the Rental Commencement Date is February 15, 1996. 4. Paragraph 4.A. of the Lease is modified to provide that the minimum Rent for the Demised Premises shall be $1,789,300.50. The monthly installments of Rent shall be in the amount of $149,108.37 plus Sales Tax. 5. Exhibit "B" of the Lease is modified and replaced with Exhibit "B" attached hereto. 6. The actual Tenant Improvement Allowance is $3,264,782.37. 7. Except as modified hereby, the Lease remains in full force and effect and unmodified. WITNESSES: LANDLORD: PGA PROFESSIONAL CENTER, LTD BY: PGA PROFESSIONAL CENTER, INC. its general partner - ---------------------- - ---------------------- BY: ---------------------------------- Daniel S. Catalfumo, President 2 TENANT: THE WACKENHUT CORPORATION - ---------------------- - ---------------------- BY: ----------------------------------- Robert C. Kneip Senior Vice-President EX-10.11 6 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN 1 EXHIBIT 10.11 THE WACKENHUT CORPORATION NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (Amended and restated as of October 29, 1996) 2 THE WACKENHUT CORPORATION NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (Amended and restated as of October 29, 1996) CONTENTS
SECTION PAGE ARTICLE I. THE PLAN 1.1 Establishment of the Plan 1 1.2 Purpose of the Plan 1 1.3 Duration of the Plan 1 ARTICLE II. DEFINITIONS 2.1 Award Agreement 2 2.2 Board 2 2.3 Code 2 2.4 Company 2 2.5 Disability 2 2.6 Exchange Act 2 2.7 Fair Market Value 2 2.8 Nonemployee Director 2 2.9 Option 3 2.10 Participant 3 2.11 Plan Administrator 3 2.12 Shares 3 ARTICLE III. ADMINISTRATION 3.1 The Plan Administrator 4 3.2 Authority of the Plan Administrator 4 3.3 Decisions Binding 4 ARTICLE IV. SHARES SUBJECT TO THE PLAN 4.1 Number of Shares 5 4.2 Lapsed Option Grants 5 4.3 Adjustments in Authorized Shares 5
3 THE WACKENHUT CORPORATION NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (Amended and restated as of October 29, 1996) CONTENTS
SECTION PAGE ARTICLE V. ELIGIBILITY AND PARTICIPATION 5.1 Eligibility 6 5.2 Actual Participation 6 ARTICLE VI. NONQUALIFIED STOCK OPTIONS 6.1 Grants of Options 7 6.2 Limitation on Grant of Options 7 6.3 Award Agreement 7 6.4 Option Price 7 6.5 Duration of Options 7 6.6 Vesting of Shares Subject to Option 7 6.7 Payment 8 6.8 Termination of Service on Board Due to Death 8 6.9 Termination of Service on Board Due to Disability 8 6.10 Termination of Service on Board for Other Reasons 8 6.11 Nontransferability of Options 9 6.12 Restrictions on Share Transferability 9 ARTICLE VII. AMENDMENT, MODIFICATION, AND TERMINATION 7.1 Amendment, Modification, and Termination 10 7.2 Options Previously Granted 10 ARTICLE VIII. MISCELLANEOUS 8.1 Indemnification 11 8.2 Beneficiary Designation 11 8.3 Successors 11 8.4 Severability 11 8.5 Requirements of Law 11 8.6 Governing Law 12
4 ARTICLE I. THE PLAN 1.1 ESTABLISHMENT OF THE PLAN The Wackenhut Corporation, (the "Company"), hereby establishes an incentive compensation plan providing for the grant of nonqualified stock options to Nonemployee Directors, subject to the terms and provisions set forth herein. This plan shall be known as The Wackenhut Corporation Nonemployee Director Stock Option Plan (the "Plan"). This Plan was initially approved by an affirmative vote of a majority of Shares present and entitled to vote at the 1996 Annual Meeting, with an original effective date of April 28, 1995. The Plan is hereby amended and restated as of October 29, 1996. 1.2 PURPOSE OF THE PLAN The purpose of the Plan is to promote the achievement of long-term objectives of the Company by linking the personal interests of Nonemployee Directors to those of Company shareholders, and to attract and retain Nonemployee Directors of outstanding competence. 1.3 DURATION OF THE PLAN The Plan shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to section 7.1, until all Shares subject to the Plan have been purchased or acquired according to the Plan's provisions. However, in no event may an Option be granted under the Plan on or after April 27, 2005. 5 ARTICLE II. DEFINITIONS Whenever used in the Plan, the following terms shall have the meanings set forth below unless otherwise expressly provided. When the defined meaning is intended, the term is capitalized. The definition of any term in the singular shall also include the plural. 2.1 AWARD AGREEMENT Award Agreement means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Options granted under this Plan. 2.2 BOARD Board means the Board of Directors of The Wackenhut Corporation. 2.3 CODE Code means the Internal Revenue Code of 1986, as amended from time to time. 2.4 COMPANY Company means The Wackenhut Corporation and any successor organization as provided in section 8.3. 2.5 DISABILITY Disability means any disabling condition which entitles the Participant to disability benefits under the federal Social Security Act. 2.6 EXCHANGE ACT Exchange Act means the Securities Exchange Act of 1934, as amended from time to time. 2.7 FAIR MARKET VALUE Fair Market Value means the last closing sale price of a Share on or prior to the relevant date that is reported by the principal securities exchange on which the Shares are publicly traded. 2.8 NONEMPLOYEE DIRECTOR Nonemployee Director means any individual who is a member of the Board, but who has never otherwise been an employee of the Company. 2.9 OPTION Option means an option to purchase Shares granted under Article VI. Such Options are not intended to meet the requirements of Code section 422. 6 2.10 PARTICIPANT Participant means a Nonemployee Director of the Company who has one or more outstanding Options under the Plan. 2.11 PLAN ADMINISTRATOR Plan Administrator means the Compensation Committee of the Company's Board. 2.12 SHARES Shares mean the series B common stock of the Company. 7 ARTICLE III. ADMINISTRATION 3.1 THE PLAN ADMINISTRATOR The Plan shall be administered by the Plan Administrator subject to the restrictions set forth in this Plan. The Plan Administrator may delegate to one or more individuals or a committee any of its powers and duties as Plan Administrator that it deems desirable. In this case, every reference in the Plan to the Plan Administrator shall be deemed to include these individuals or the committee as to matters within their jurisdiction. 3.2 AUTHORITY OF THE PLAN ADMINISTRATOR The Plan Administrator shall have the full power, discretion, and authority to administer this Plan in a manner which is consistent with its provisions. Except as provided below, the Plan Administrator shall have the exclusive right to interpret the terms and provisions of the Plan and to determine any and all questions arising under the Plan or in connection with the administration thereof, including, without limitation, the right to remedy or resolve possible ambiguities, inconsistencies, or omissions, by general rule or particular decision. However, in no event shall the Plan Administrator have the power to determine Plan eligibility, or to determine the number, the purchase price, the vesting period, or the frequency and timing of Options to be granted under the Plan to any Participant. All such determinations are automatic pursuant to the provisions of this Plan. 3.3 DECISIONS BINDING All determinations and decisions made by the Plan Administrator pursuant to the provisions of the Plan shall be final, conclusive, and binding on all persons, including the Company, its stockholders, employees, Participants, and their estates and beneficiaries. 8 ARTICLE IV. SHARES SUBJECT TO THE PLAN 4.1 NUMBER OF SHARES Subject to adjustment as provided in section 4.3, no more than 100,000 Shares shall be eligible for purchase by Participants pursuant to Options granted under this Plan. 4.2 LAPSED OPTION GRANTS If any Option granted under this Plan terminates, expires, or lapses for any reason, any Shares subject to purchase pursuant to such Option shall again be available for the grant of an Option under the Plan. 4.3 ADJUSTMENTS IN AUTHORIZED SHARES In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number and class of and/or price of Shares subject to outstanding Options granted under this Plan, as may be determined to be appropriate and equitable by the Board, in its sole discretion, to prevent dilution or enlargement of rights. 9 ARTICLE V. ELIGIBILITY AND PARTICIPATION 5.1 ELIGIBILITY Nonemployee Directors shall be eligible to become Participants in accordance with section 5.2. 5.2 ACTUAL PARTICIPATION Subject to the provisions of Article VI, all Nonemployee Directors shall become Participants by receiving grants of Options upon election and/or reelection to serve on the Board. 10 ARTICLE VI. NONQUALIFIED STOCK OPTIONS 6.1 GRANTS OF OPTIONS Subject to the limitation on the number of Shares subject to this Plan, each Nonemployee Director shall be granted an Option to purchase 2,000 shares upon his or her election and/or reelection to serve on the Board. 6.2 LIMITATION ON GRANT OF OPTIONS Other than those grants of Options set forth in section 6.1, no additional Options shall be granted under this Plan. 6.3 AWARD AGREEMENT Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price (as defined in section 6.4), the duration of the Option, and the number of Shares available for purchase under the Option as set forth in this Plan. 6.4 OPTION PRICE The purchase price per Share available for purchase under an Option shall be equal to the Fair Market Value of such Share on the date the Option is granted. 6.5 DURATION OF OPTIONS Each Option shall expire on the tenth (10th) anniversary date of its grant. 6.6 VESTING OF SHARES SUBJECT TO OPTION Options granted under the Plan shall be 100 percent vested at all times. Participants shall be entitled to exercise Options at any time and from time to time, within the time period beginning on the date on which the Option is granted, and ending ten (10) years after grant of the Option. 11 6.7 PAYMENT Options shall be exercised by the delivery of a written notice of exercise to the Secretary of the Company, setting forth the number of Shares with respect to which the Option is to be exercised. The Option Price (as defined in section 6.4) of any Option shall be payable to the Company in full in cash or its equivalent upon exercise. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Shares purchased pursuant to the exercise of the Option. 6.8 TERMINATION OF SERVICE ON BOARD DUE TO DEATH If a Participant dies while he or she is actively serving as a Nonemployee Director, any outstanding Options may be exercised by the Participant's legal representative or beneficiary any time before the earlier of: (a) the expiration date of such Options; or (b) the second anniversary of the Participant's death. 6.9 TERMINATION OF SERVICE ON BOARD DUE TO DISABILITY If a Participant incurs a Disability while he or she is actively serving as a Nonemployee Director, the Participant may exercise any Options that are outstanding at the time of such Disability before the earlier of: (a) the expiration date of such Options; or (b) the second anniversary of the date of Disability. (If the Participant dies after incurring a Disability, but before the expiration of the exercise period described above, the Participant's legal representative or beneficiary may exercise any outstanding Options before the expiration of such period.) 6.10 TERMINATION OF SERVICE ON BOARD FOR OTHER REASONS If the service of the Participant on the Board shall terminate for any reason other than for death or Disability, any outstanding Options held by the Participant shall remain exercisable at any time prior to their expiration date, or for ten years from the date of the grant of the Options, whichever is shorter. 12 6.11 NONTRANSFERABILITY OF OPTIONS No Option granted under this Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under this Plan shall be exercisable during his or her lifetime only by such Participant. 6.12 RESTRICTIONS ON SHARE TRANSFERABILITY The Board may impose such restrictions on any Shares acquired pursuant to the exercise of an Option under this Plan, as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any Stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. 13 ARTICLE VII. AMENDMENT, MODIFICATION, AND TERMINATION 7.1 AMENDMENT, MODIFICATION, AND TERMINATION The Board may at any time alter, amend, suspend, or terminate the Plan in whole or in part. However, no amendment which fails to comply with the exemptions available under Rule 16b-3 of the Exchange Act, including any successor to the Rule, shall be effective. 7.2 OPTIONS PREVIOUSLY GRANTED Unless required by law, no termination, amendment, or modification of this Plan shall in any manner adversely affect any Option previously granted under this Plan, without the written consent of the Participant holding the Option. 14 ARTICLE VIII. MISCELLANEOUS 8.1 INDEMNIFICATION The Company shall indemnify each person against any and all claims, losses, damages, and expenses (including counsel fees) incurred by such individual for the exercise of any duties as Plan Administrator, whether singly or as a member of committee, and against any liability, including any amounts paid in settlement with the Company's approval, arising from the individual's action or failure to act, except when the same is judicially determined to be attributable to the gross negligence or willful misconduct of the individual. 8.2 BENEFICIARY DESIGNATION Each Participant under this Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to exercise the rights described in sections 6.8 and 6.9. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Plan Administrator and will be effective only when filed by the Participant in writing with the Plan Administrator during his or her lifetime. In the absence of any such designation, such rights may be exercised by the executor of the Participant's estate. 8.3 SUCCESSORS All obligations of the Company under this Plan, with respect to Options granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 8.4 SEVERABILITY If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of the Plan. The Plan shall be construed and enforced as if the illegal or invalid provision had not been included herein. 8.5 REQUIREMENTS OF LAW The granting of Options under this Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 15 8.6 GOVERNING LAW To the extent not preempted by Federal law, this Plan, and all Award Agreements hereunder, shall be construed in accordance with the laws of the State of Florida. IN WITNESS WHEREOF, the authorized officers of the Company have signed this amended document and have affixed the corporate seal on ________________, 1997, but effective as of October 29, 1996. THE WACKENHUT CORPORATION ATTEST: By George R. Wackenhut Its --------------------------------- By Its (Corporate Seal) ------------------------- EX-13.0 7 ANNUAL REPORT/MD&A 1 EXHIBIT 13.0 FINANCIAL REVIEW MARKET FOR THE CORPORATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS During the second quarter of 1996, the corporation sold 2,500,000 shares of its series B common stock in connection with a public offering at a price of $23.50 per share, before deducting underwriting discounts and commissions and estimated offering expenses. Net proceeds of $54,020,000 from the offering were used to repay the outstanding balance on the revolving loan, to repurchase a portion of the receivables sold under the accounts receivable securitization facility and for general corporate purposes. Regular quarterly dividends of $.065 per share and $.06 per share (adjusted for the 25% stock dividend) on both its outstanding series A and B common stock were declared and paid for each of the four quarters of fiscal 1996 and 1995, respectively. The corporation intends to declare future quarterly dividends on series A and B common stock, depending on its earnings, financial condition, capital requirements and other relevant factors. On October 31, 1995, the corporation declared a 25% stock dividend, effected in the form of a stock split (the 25% stock dividend), paid on January 9, 1996 to stockholders of record at the close of business on December 22, 1995. The 25% stock dividend was paid in series B common stock to holders of the corporation's series A and B shares. The accompanying consolidated financial statements have been retroactively restated to reflect the 25% stock dividend. The ensuing table shows the high and low prices for the corporation's series A and B common stock, as reported on the New York Stock Exchange, for each quarterly period during fiscal 1996 and 1995. The prices shown in the table have been rounded to the nearest 1/8th and reflect the 25% stock dividend. The approximate number of record holders of series A and B common stock, as of February 14, 1997, was 778 and 830, respectively.
FISCAL 1996 FISCAL 1995 ================================================================================================= SERIES A SERIES B SERIES A SERIES B - ------------------------------------------------------------------------------------------------- QUARTER HIGH LOW HIGH LOW HIGH LOW HIGH LOW - ------------------------------------------------------------------------------------------------- First $20-3/8 $14-1/4 $17-1/8 $12-3/8 $14 $ 8-3/8 $12-3/4 $ 8-1/2 Second 31-1/8 18-3/4 27-7/8 14-3/4 15-1/4 10-7/8 12-3/8 9 Third 24-5/8 16-3/4 18-1/2 13-3/8 12-3/4 11-1/8 11-1/4 9-7/8 Fourth 20-5/8 14-5/8 17-1/4 11-7/8 14-1/2 12 12-3/4 10-3/8
15 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) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ RESULTS OF OPERATIONS: Revenues $ 906,056 $ 796,732 Operating income 16,320 15,774 Income before income taxes 17,875 13,733 Income before extraordinary charge and cumulative effect of accounting change 9,057 7,260 Extraordinary charge - early extinguishment of debt, net of income taxes -- -- Cumulative effect of accounting change for income taxes -- -- -------------------------------- Net income $ 9,057 $ 7,260 - ------------------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE: (b) Income before extraordinary charge and cumulative effect of accounting change $ .66 $ .60 Extraordinary charge-early extinguishment of debt, net of income taxes -- -- Cumulative effect of accounting change for income taxes -- -- -------------------------------- Net income $ .66 $ .60 - ------------------------------------------------------------------------------------------------------------------------ CASH DIVIDENDS PER SHARE OF COMMON STOCK: (b) Regular quarterly dividends $ .26 $ .24 Special dividend -- -- Total dividends $ .26 $ .24 - ------------------------------------------------------------------------------------------------------------------------ FINANCIAL CONDITION: Working capital $ 148,076 $ 51,865 Total assets 323,918 197,927 Current portion of long-term debt -- -- Long-term debt 5,890 5,387 Total debt (c) 5,890 6,502 Shareholders' equity 148,229 62,904 ========================================================================================================================
(a) Fiscal years 1992 and 1987 included 53 weeks. (b) Restated to reflect a 25% stock dividend declared during fiscal 1995 and 1994 and to reflect a 100% stock dividend, effected in the form of a stock split, declared during fiscal 1992. (c) Includes current portion of long-term debt, notes payable and long-term debt. 16 3
1994 1993 1992 1991 1990 1989 1988 1987 1986 ====================================================================================================== $ 726,753 $ 659,256 $ 615,378 $ 570,411 $ 521,191 $ 462,181 $ 400,996 $ 381,972 $ 328,795 6,592 4,496 3,367 13,859 12,097 10,225 5,334 6,032 1,680 3,002 3,371 1,588 11,867 10,664 8,524 7,382 7,915 3,247 2,272 3,609 1,137 7,721 6,963 5,874 5,195 5,660 2,418 (887) (1,444) -- -- -- -- -- -- -- -- -- 7,370 -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------- $ 1,385 $ 2,165 $ 8,507 $ 7,721 $ 6,963 $ 5,874 $ 5,195 $ 5,660 $ 2,418 - ----------------------------------------------------------------------------------------------------- $ .19 $ .30 $ .09 $ .64 $ .58 $ .49 $ .43 $ .46 $ .20 (.08) (.12) -- -- -- -- -- -- -- -- -- .61 -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------- .11 $ .18 $ .70 $ .64 $ .58 $ .49 $ .43 $ .46 $ .20 - ----------------------------------------------------------------------------------------------------- $ .23 $ .23 $ .20 $ .19 $ .19 $ .19 $ .19 $ .19 $ .19 -- -- -- -- -- -- .96 -- -- .23 $ .23 $ .20 $ .19 $ .19 $ .19 $ 1.15 $ .19 $ .19 - ----------------------------------------------------------------------------------------------------- $ 75,589 $ 56,163 $ 56,932 $ 48,599 $ 42,413 $ 40,635 $ 38,461 $ 35,588 $ 31,572 212,757 211,297 192,236 172,093 164,085 157,681 150,318 130,439 115,930 -- 10,456 730 730 -- 2,825 1,500 -- -- 38,991 57,484 63,260 46,920 46,850 48,500 45,558 10,600 8,400 42,756 67,940 63,990 47,650 46,850 51,325 47,058 10,600 18,400 57,459 47,362 47,587 42,847 37,865 33,616 30,528 39,653 36,191 ======================================================================================================
17 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND RESULTS OF OPERATIONS (Tabular information in thousands) OVERVIEW Since its inception in 1954, the company has become a leading international provider of security-related and other support services and a leading developer and manager of privatized correctional and detention facilities. The company provides security-related and other support services through the Services Business and correctional services through the Correctional Business. Through the Services Business, the company provides physical security services, food services and other related services to commercial and governmental customers. Through the Correctional Business, the company provides correctional and detention facility design, development and management services to government agencies. In 1996, the company reorganized its business into three major groups: the North American Operations Group (including Wackenhut of Canada, Ltd.), Wackenhut Corrections Corporation and the International Operations Group. The Services Business is operated through the North American and International groups, while the Correctional Business is operated exclusively by the company's 55%-owned Wackenhut Corrections subsidiary. From a well established base in its core security-related services business, the company has expanded into a range of other support services in response to a trend toward privatization of governmental services and outsourcing by commercial customers of non-core support functions. For example, in 1984 the company expanded into the Correctional Business which in 1996 increased its revenues by 38.6% and operating income by 34.6% from 1995. Moreover, in 1992 the company entered the foodservice business for correctional institutions, which in 1996 generated $70.6 million in revenues. The company continues to expand its market presence in these areas and, consistent with that strategy, acquired the contracts and certain assets of the Correctional Food Service Division of Service America Corporation in early 1996. The company continues to explore and may selectively invest in other service businesses such as temporary services, building maintenance, supplemental police services, crash-fire-rescue services, fire protection services, and airport services.* For example, in 1996 the company entered the employee leasing business with the creation of Oasis Outsourcing, Inc., a professional employer organization. Consolidated revenues increased 14% to $906.1 million in 1996 over 1995, and consolidated net income reached a record high $9.1 million, or a 25% increase over net income of $7.3 million last year. The North American Operations Group led the growth in revenues of the Services Business with an increase of 13.9% to $660.5 million in 1996 from $579.9 million in 1995, which was attributable primarily to the performance of the Security Services and Food Services Divisions. The continued strong performance of the Security Services Division was attributable mainly to the Division's success in growing its national account and its Custom Protection Officer(R) (CPO) businesses. The Food Services Division doubled revenue to $70.6 Million in 1996 with the acquisition of the correctional food service operation of Service America Corporation. The North American Operations Group also provides sophisticated security services to the Department of Energy through Wackenhut Services, Inc. (WSI). WSI revenues decreased 3.1% to $142.2 million in 1996 from $146.7 million in 1995, primarily as a result of reductions in government funding for security at United States Department of Energy facilities. Contracts with the Department of Energy are typically cost reimbursable contracts for which the company can earn award fees based on performance factors. Although award fee pools available to the company have not been reduced significantly, further reductions in revenues could impact profit contribution from these contracts.* Revenues of the International Operations Group declined $6.4 million to $103.6 million due principally to the deconsolidation of the company's Chilean operations. Although most of the operations of the International Operations Group were profitable, the group reported an operating loss due to the significant investment it made in Wackenhut of Australia. The company believes that Australia offers substantial market opportunities in both commercial outsourcing and government privatization.* During 1996, Wackenhut Corrections continued to generate significant growth. Between 1992 and 1996, Wackenhut Corrections generated compound annual revenue growth of 24%. In 1996, revenues increased 39% to $137.8 million, and operating income increased 35% to $9.7 million. Total compensated resident days increased to 3.6 million at year-end 1996 from 2.4 million at year-end 1995 with the total of revenue producing beds increasing to 12,000 from 8,000 during the same period. In December 1995, the company sold its headquarters building in Coral Gables, Florida, and subsequently relocated to a newly constructed, leased building in Palm Beach Gardens, Florida. A one-time charge for $750,000 was made in the first quarter of 1996 for the cost of the move. RESULTS OF OPERATIONS The table on page 19 summarizes results of operations for the company's two business segments by organizational group. - -------------------- * Refer to Forward-Looking Statements on page 23. 18 5
REVENUES (In thousands) ------------------------------------------------------------------- % Change % Change 1996 vs. 1995 1995 vs. 1994 1994 ------------------------------------------------------------------- SERVICES BUSINESS North American Operations Group $ 660,457 13.9 $ 579,882 6.0 $ 547,016 International Operations Group 103,587 (5.8) 109,967 38.6 79,350 Other 5,071 (64.5) 14,275 (38.8) 23,310 Inter-Group Revenues (843) (87.6) (6,823) (1.8) (6,949) ------------------------------------------------------------------- 768,272 10.2 697,301 8.5 642,727 CORRECTIONAL BUSINESS Wackenhut Corrections 137,784 38.6 99,431 18.3 84,026 ------------------------------------------------------------------- Consolidated Revenues $ 906,056 13.7 $ 796,732 9.6 $ 726,753 ------------------------------------------------------------------- OPERATING INCOME ------------------------------------------------------------------- % Change % Change 1996 vs. 1995 1995 vs. 1994 1994 ------------------------------------------------------------------- SERVICES BUSINESS North American Operations Group $ 19,993 13.5 $ 17,622 2.9 $ 17,125 International Operations Group (1,257) (143.7) 2,878 5.4 2,730 Corporate Expenses and Underwriting Losses (11,397) (4.7) (11,955) 32.7 (9,009) ------------------------------------------------------------------- 7,339 (14.1) 8,545 (21.2) 10,846 CORRECTIONAL BUSINESS Wackenhut Corrections 9,731 34.6 7,229 62.6 4,446 Write-down of Headquarters Building -- -- -- -- (8,700) Provision for Relocation Costs (750) -- -- -- -- ------------------------------------------------------------------- Consolidated Operating Income $ 16,320 3.5 $ 15,774 139.3 $ 6,592 ===================================================================
COMPARISON OF FISCAL YEAR 1996 TO FISCAL YEAR 1995 REVENUES Consolidated revenues increased 13.7% to $906.1 million in 1996 from $796.7 million in 1995. SERVICES BUSINESS Services Business revenues increased 10.2% to $768.3 million in 1996 from $697.3 million in 1995. North American Operations Group North American Operations Group revenues increased 13.9% to $660.5 million in 1996 from $579.9 million in 1995. Within the North American Operations Group, revenues from the Security Services Division increased 13.1% to $380.1 million in 1996 from $336.2 million in 1995 primarily as a result of increased billable hours on the regular guard service, including an increase of 25% in revenues derived from the provision of services to national accounts. In addition, Custom Protection Officer(R) revenues increased 15.1% to $74.7 million in 1996 from $64.9 million in 1995. The Food Services Division increased its revenues 103.3% to $70.6 million in 1996 from $34.7 million in 1995, reflecting the acquisition of the contracts of the Correctional Food Services Division of Service America Corporation and new business development. Revenues of the Nuclear Division increased slightly to $54.7 million in 1996 from $52.8 million in 1995. However, revenues of Wackenhut Services, Inc. decreased 3.1% to $142.2 million in 1996 from $146.7 million in 1995, principally due to reductions in government funding at U.S. Department of Energy facilities and the loss of the Strategic Petroleum Reserve contract with DynMcDermott. Management believes this reduction in funding will continue to affect Wackenhut Services, Inc.'s revenues and operating income.* International Operations Group International Operations Group revenues decreased 5.8% to $103.6 million in 1996 from $110.0 million in 1995 due principally to the deconsolidation of the former subsidiary in Chile which is now a minority-owned affiliate. Revenues of the Chilean operations for the first nine months of 1995 amounted to $14.2 million. Excluding the effects of the Chilean operation, revenues of the International Operations Group were actually $7.8 million higher than in 1995 due to the increased revenues in Europe and Australia. - -------------------- * Refer to Forward-Looking Statements on page 23. 19 6 CORRECTIONAL BUSINESS Correctional Business revenues increased 38.6% to $137.8 million in 1996 from $99.4 million in 1995. Of the increase in 1996 revenues, $35.4 million was generated by domestic operations and $3.0 million was generated by operations in Australia. The increase in domestic revenues in 1996 was primarily attributable to an increase in compensated resident days of 1.2 million resulting from the opening of new facilities and increased services to existing facilities. Compensated resident days of the Australian subsidiary of Wackenhut Corrections increased to 440,000 in 1996 from 420,000 in 1995. OPERATING INCOME Consolidated operating income increased to $16.3 million in 1996, after deducting $750,000 for relocation costs, from $15.8 million in 1995. Excluding the provision for relocation costs, consolidated operating income increased 8.2% in 1996 versus 1995. SERVICES BUSINESS Operating income from the Services Business decreased 14.1% to $7.3 million in 1996 from $8.5 million in 1995. Excluding the operating losses of Wackenhut of Australia Pty., Ltd., as discussed below, the operating income from the Services Business increased 9.1% to $9.8 million in 1996 from $9.0 million in 1995. North American Operations Group The operating income of the North American Operations Group increased 13.5% to $20.0 million in 1996 from $17.6 million in 1995. There was a significant increase in the profit contribution of the core security-related business resulting from consistent profit margins and higher revenues. The Food Services Division also realized a significant increase of $821,000 in operating profits principally due to doubling its revenues as a result of the acquisition of Service America's foodservice unit. International Operations Group The International Operations Group had an operating loss of $1.3 million in 1996 compared to operating income of $2.9 million in 1995. The operating loss in 1996 was primarily due to: (i) the operating losses of $2.5 million from the new security services subsidiary in Australia, Wackenhut of Australia Pty., Ltd.; (ii) the decrease in operating income which resulted from the deconsolidation of the former subsidiary in Chile; and (iii) operating losses in the Czech Republic and other subsidiaries principally in Africa. CORPORATE EXPENSES AND UNDERWRITING LOSSES Corporate expenses and underwriting losses decreased 4.7% to $11.4 million in 1996 from $12.0 million in 1995 as a result principally of cost reduction measures implemented this year. CORRECTIONAL BUSINESS Wackenhut Corrections operating income increased 34.6% to $9.7 million in 1996 from $7.2 million in 1995. Of this increase, domestic operating income increased 57.5% to $7.1 million in 1996 from $4.5 million in 1995, reflecting the increase in compensated resident days. These increases in operating income were partially offset by higher overhead expenses of WCC. Wackenhut Corrections international operating income decreased 3.1% to $2.6 million in 1996 from $2.7 million in 1995, attributable to higher operating expenses at Wackenhut Corrections' Australian facilities. OTHER INCOME/EXPENSE Other income was $1.6 million in 1996 compared to other expense of $2.0 million in 1995. The increase in interest and investment income of $3.0 million in 1996 included interest income of approximately $2.1 million from the investment of the net proceeds of Wackenhut Corrections' public offering. Interest expense decreased by $590,000 in 1996 compared to 1995, primarily due to a decline in costs associated with the accounts receivable securitization facility which was repaid with the proceeds from the company's public offering. INCOME BEFORE INCOME TAXES Income before income taxes, which included a $750,000 provision for relocation costs in 1996, increased 30.2% to $17.9 million in 1996 from $13.7 million in 1995. The combined federal and state effective income tax rate was 35.3% for 1996 and 34.5% for 1995, respectively. The increase in the effective rate in 1996 was due to: (i) the statutory elimination of targeted job tax credits; (ii) a decrease in capital loss carryforward utilization; and (iii) a decrease in tax exempt income of the captive reinsurance subsidiary. MINORITY INTEREST EXPENSE Minority interest expense (net of income taxes) increased 75.3% to $4.1 million in 1996 from $2.4 million in 1995, reflecting principally the increase in earnings of and the public ownership in Wackenhut Corrections. EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) increased 158.8% to $1.6 million in 1996 from $631,000 in 1995, primarily resulting from the increased earnings of security services affiliates in South America, the joint venture of Wackenhut Corrections in the United Kingdom and the inclusion of the corporation's equity income of the Chilean operations. NET INCOME Net income increased to $9.1 million in 1996, or $0.66 per share, after the $750,000 provision for relocation costs 20 7 ($461,000 net of income taxes), compared to $7.3 million or $0.60 per share in 1995. COMPARISON OF FISCAL YEAR 1995 TO FISCAL YEAR 1994 REVENUES Consolidated revenues increased 9.6% to $796.7 million in 1995 from $726.8 million in 1994. SERVICES BUSINESS Services Business revenues increased 8.5% to $697.3 million in 1995 from $642.7 million in 1994. North American Operations Group North American Operations Group revenues increased 6.0% to $579.9 million in 1995 from $547.0 million in 1994. Within the North American Operations Group, revenues from the Security Services Division increased 11.2% to $336.2 million in 1995 from $302.4 million in 1994 as a result of: (i) a significant increase in revenues derived from the provision of security-related services to national accounts; and (ii) an increase in its Custom Protection Officer(R) business reflecting the growing demand for the specialized services offered in this area. Revenues from the Foods Services Division increased 39.6% to $34.7 million in 1995 from $24.9 million in 1994, reflecting the company's increased presence in the growing correctional foodservice market. Revenues from the Nuclear Division remained relatively unchanged from 1994 to 1995, reflecting the maturation of the nuclear power industry and limited opportunities for growth in this market. Revenues of Wackenhut Services, Inc. decreased 5.6% to $146.7 million in 1995 from $155.5 million in 1994, principally due to reductions in government funding for security at United States Department of Energy facilities. Management believes this reduction in funding will continue to affect Wackenhut Services, Inc.'s revenues and operating income.* International Operations Group International Operations Group revenues increased 38.6% to $110.0 million in 1995 from $79.4 million in 1994, as this group continued to experience steady geographical expansion. The increase was principally attributable to: (i) increased revenues from Central and South American operations, where revenues increased 27.0% to $74.0 million in 1995 from $58.3 million in 1994; (ii) revenues of $6.2 million generated by the Wackenhut of Australia subsidiary, which was acquired in 1995; and (iii) increased revenues from European operations, which increased 40.0% to $15.0 million in 1995 from $10.7 million in 1994. The increase in international revenues reflects returns on past investment in new markets as well as continuing increased demand for physical security services in those geographic regions serviced by the company.* CORRECTIONAL BUSINESS Correctional Business revenues increased 18.3% to $99.4 million in 1995 from $84.0 million in 1994. Of the increase in 1995 revenues, $11.9 million was generated by domestic operations and $3.5 million was generated by operations in Australia. The increase in domestic revenues of Wackenhut Corrections in 1995 was primarily attributable to an increase in compensated resident days to 1.9 million in 1995 from 1.7 million in 1994, reflecting: (i) increased occupancy at two facilities opened in late 1994; (ii) the opening of two facilities in the second half of 1995; and (iii) the expansion of one facility in 1995. The increase in domestic revenues also reflected management fees generated from the development of four facilities. The increase in international revenues of Wackenhut Corrections in 1995 was primarily attributable to an increase in compensated resident days to 420,000 in 1995 from 371,000 in 1994, reflecting the expansion of one facility in Australia and an increase in management fees generated from the development of another facility in Australia. OPERATING INCOME Consolidated operating income increased to $15.8 million in 1995 from $6.6 million in 1994, which included an $8.7 million write-down of the headquarters building. SERVICES BUSINESS Operating income from the Services Business decreased 21.2% to $8.5 million in 1995 from $10.8 million in 1994. North American Operations Group North American Operations Group operating income increased 2.9% to $17.6 million from $17.1 million in 1994. The growth in operating income within the North American Operations Group was a result of: (i) continued strong performance in the core security-related services business, particularly in national accounts; (ii) increased demand for Custom Protection Officer(R) business; and (iii) continued development of the foodservice business. International Operations Group International Operations Group operating income increased 5.4% to $2.9 million in 1995 from $2.7 million in 1994. The principal contribution to operating income of the International Operations Group was made by subsidiaries in Central and South America, and Europe. However, development costs in the Far East and Africa substantially offset gains in Central and South America. Wackenhut of Australia Pty., Ltd., which was acquired in July of 1995, had operating losses of approximately $466,000 in 1995. CORPORATE EXPENSES AND UNDERWRITING LOSSES Corporate expenses and underwriting losses increased 32.7% to $12.0 million in 1995 from $9.0 million in 1994. - ------------------- * Refer to Forward-Looking Statements on page 23. 21 8 CORRECTIONAL BUSINESS Wackenhut Corrections operating income increased 62.6% to $7.2 million in 1995 from $4.4 million in 1994. Wackenhut Corrections domestic operating income increased 112.3% to $4.5 million in 1995 from $2.1 million in 1994, reflecting: (i) increased occupancy at two facilities opened in late 1994; (ii) the opening of two facilities in the second half of 1995; and (iii) the expansion of one facility in 1995. The increase in domestic operating income also reflected management fees generated from the development of four facilities. Wackenhut Corrections international operating income increased 17.3% to $2.7 million in 1995 from $2.3 million in 1994. The increase in operating income reflects the expansion of one facility in Australia and management fees generated from the development of another facility in Australia. OTHER EXPENSE Other expense decreased 43.2% to $2.0 million in 1995 from $3.6 million in 1994, principally due to a decrease of $1.7 million in interest expense attributable to a reduction in funding requirements. In addition there was a decrease of $199,000 in interest and investment income principally due to a decrease in fixed income securities investment holdings of the company's captive reinsurance subsidiary. The proceeds from the company's sales of these securities were used primarily to reduce the company's debt. INCOME BEFORE INCOME TAXES Income before income taxes increased to $13.7 million in 1995 from $3.0 million in 1994, which included an $8.7 million write-down of the headquarters building in 1994. The combined federal and state effective income tax rate was 34.5% for 1995 and 0.6% for 1994, respectively. The lower effective rate in 1994 primarily reflected reductions in the statutory rate attributable to tax exempt interest income, targeted job credits, and the utilization of capital loss carryforwards which was significantly higher in 1994. MINORITY INTEREST EXPENSE Minority interest expense (net of income taxes) increased to $2.4 million in 1995 from $1.0 in 1994, reflecting the increase in earnings of Wackenhut Corrections and other majority-owned international subsidiaries of the company. EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) increased 120.6% to $631,000 in 1995 from $286,000 in 1994 primarily resulting from increased earnings of security services affiliates in South America and Europe, and decreased losses from Wackenhut Corrections' joint venture in the United Kingdom. EXTRAORDINARY CHARGE In 1994, the company prepaid a note to an insurance company and recognized an extraordinary charge of $887,000 (net of income taxes) for the early extinguishment of such debt. NET INCOME Net income increased to $7.3 million in 1995, or $0.60 per share, compared to $1.4 million, or $0.11 per share, in 1994 after the $887,000 extraordinary charge and the write-down of the headquarters building ($5.4 million net of income taxes). INFLATION Management believes that inflation has not had a material effect on the company's results of operations during the past three fiscal years. However, many of the company's service contracts provide for either fixed management fees or for fees that increase by only small amounts during the terms of the contracts. Since personnel costs represent the company's largest expense, inflation could have a substantial adverse effect on the company's results of operations in the future to the extent that wages and salaries increase at a faster rate than the per diem or fixed rate received by the company for its services.* LIQUIDITY AND CAPITAL RESOURCES The company's principal sources of liquidity have been borrowings under its credit facilities, from internally generated funds, and from net proceeds in connection with the public offering of the corporation's common stock. Cash and equivalents totaled $52.8 million at December 29, 1996, compared to $20.2 million at December 31, 1995. Of this cash and cash equivalents, $17.0 million serves as collateral for certain obligations of the company's captive reinsurance subsidiary. The company has additional sources of liquidity available in the form of a $50 million revolving line of credit and a $35 million accounts receivable securitization facility. Additionally, at December 29, 1996, the company's Wackenhut Corrections subsidiary had in place a $15 million revolving line of credit, and subsidiaries of the company and Wackenhut Corrections had in place credit agreements with banks providing Australian $7.5 million (approximately $6.1 million United States at December 29, 1996). At December 29, 1996, the company had $2.8 million outstanding under its $50 million revolving line of credit and $36.6 million outstanding in the form of letters of credit securing reserves of the captive reinsurance subsidiary and other corporate transactions. The unused portion of the revolving line of credit was $10.6 million at December 29, 1996. There were no balances outstanding under the accounts receivable securitization agreement at the end of 1996. Under the terms of the accounts receivable securitization facility, the company retains substantially - ------------------ * Refer to Forward-Looking Statements on page 23. 22 9 the same risk of credit loss as if receivables had not been sold under this facility. At December 29, 1996, no amounts were outstanding under Wackenhut Corrections' revolving credit facility, but approximately $100,000 were outstanding in the form of standby letters of credit. In addition, subsidiaries of the company and Wackenhut Corrections had $3.1 outstanding under their credit agreements. At December 29, 1996 and December 31, 1995, the ratio of total debt to total capitalization was 3.8% and 9.4%, respectively. See Note 6 to the Consolidated Financial Statements. During the second quarter of 1996, the company sold 2,500,000 shares of its series B common stock in connection with a public offering. Net proceeds of $54 million from the public offering were used to repay the outstanding balance on the revolving loan, to repurchase receivables sold under the accounts receivable securitization facility and for general corporate purposes. In January 1996, Wackenhut Corrections, a subsidiary of the company, sold 4,600,000 shares of its common stock in connection with a public offering. Net proceeds form the offering were approximately $52 million, which were partly used for the acquisition or renovation of correctional facilities or temporarily invested. The company and Wackenhut Corrections anticipate making cash investments in connection with future acquisitions.* In addition, Wackenhut Corrections plans to use part of the net proceeds from its public offering of shares of its common stock to finance start-up costs, leasehold improvements and equity investments in correctional facilities, if appropriate, in connection with undertaking new contracts.* Net cash generated by operating activities was $14.9 million in 1996 compared to $13.3 million in 1995. Cash provided by investing activities amounted to $1.7 million in 1996, including net proceeds of $51.6 million from the public offering of Wackenhut Corrections' common stock. Capital expenditures of $19.9 million reflect purchases of equipment related to the provision of security-related services and investments in facilities by Wackenhut Corrections. In the first quarter of 1996, the company acquired the correctional food service operation of Service America Corporation for $13.7 million. In addition, the net increase in marketable securities of the company's captive reinsurance subsidiary was $9.1 million. Deferred charge expenditures, which represent mainly start-up costs of new correctional facilities, amounted to $6.2 million. Cash provided by financing activities amounted to $16.0 million in 1996, including net proceeds of $54.0 million from the public offering of the company's series B common stock. Proceeds from this public offering were used principally to retire outstanding debt and to repurchase receivables sold under the securitization agreement. Cash dividends paid in 1996 amounted to $3.5 million. Current cash requirements consist of amounts needed for capital expenditures, increased working capital needs resulting from corporate growth and business expansion, payment of liabilities incurred in the operation of the company's business, the renovation or construction of correctional facilities by Wackenhut Corrections, possible acquisitions and the payment of dividends. The company continues to expand its domestic and international businesses and to pursue major contracts, some of which may require substantial initial cash outlays, which are partially or fully recoverable over the original term of the contract. As a result of the public stock offerings, both, the company and Wackenhut Corrections significantly increased their borrowing capacity. In addition, management believes that cash on hand, internally generated cash flows and available lines of credit will be adequate to support currently planned business expansion and various obligations incurred in the operation of the company's business, both on a near term and long term basis.* * Refer to Forward-Looking Statements on this page. - ------------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS: The Management's Discussion and Analysis of Financial Condition and Results of Operations, Corporate Profile, Letter to Shareholders, Corporate Diversity, and the February 12, 1997 press release contain forward-looking statements that are based on current expectations, estimates and projections about the segments in which the corporation operates. These sections of the annual report also include management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The corporation undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Future Factors include increasing price and product/service competition by foreign and domestic competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost effective basis; the mix of products/services; the achievement of lower costs and expenses; domestic and foreign governmental and public policy changes including environmental regulations; protection and validity of patent and other intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in increasing use of large, multi-year contracts; the outcome of pending and future litigation and governmental proceedings and continued availability of financing; financial instruments and financial resources in the amounts, at the times and on the terms required to support the corporation's future business. These are representative of the Future Factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general domestic and international economic conditions including interest rate and currency exchange rate fluctuations and other Future Factors. - ------------------------------------------------------------------------------- 23 10 CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 and JANUARY 1, 1995
1996 1995 1994 ========================================================================================================================== REVENUES $ 906,056 $ 796,732 $ 726,753 ----------------------------------------------------------------------------------------- OPERATING EXPENSES Payroll and related taxes 657,275 587,644 538,297 Other operating expenses 231,711 193,314 173,164 Write-down of headquarters building - - 8,700 Provision for relocation costs 750 - - ----------------------------------------------------- 889,736 780,958 720,161 ----------------------------------------------------------------------------------------- OPERATING INCOME 16,320 15,774 6,592 ----------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Interest expense (2,766) (3,356) (5,104) Interest and investment income 4,321 1,315 1,514 ----------------------------------------------------- 1,555 (2,041) (3,590) ----------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 17,875 13,733 3,002 PROVISION FOR INCOME TAXES 6,311 4,742 17 MINORITY INTEREST, NET OF INCOME TAXES 4,140 2,362 999 EQUITY INCOME OF FOREIGN AFFILIATES, NET OF INCOME TAXES (1,633) (631) (286) ----------------------------------------------------- INCOME BEFORE EXTRAORDINARY CHARGE 9,057 7,260 2,272 EXTRAORDINARY CHARGE - EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES - - (887) ----------------------------------------------------- NET INCOME $ 9,057 $ 7,260 $ 1,385 =========================================================================================================================== EARNINGS PER SHARE: Income before extraordinary charge $ 0.66 $ 0.60 $ 0.19 Extraordinary charge - early extinguishment of debt, net of income taxes - - (0.08) ----------------------------------------------------- Net income $ 0.66 $ 0.60 $ 0.11 ===========================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 24 11 CONSOLIDATED BALANCE SHEETS (In thousands except share data) DECEMBER 29, 1996 and DECEMBER 31, 1995
1996 1995 ============================================================================================================================== ASSETS CURRENT ASSETS Cash and cash equivalents $ 52,755 $ 20,185 Accounts receivable, less allowance for doubtful accounts of $1,997 in 1996 and $1,268 in 1995 131,325 77,121 Inventories 10,082 7,527 Other 26,412 17,329 --------------------- 220,574 122,162 --------------------------------------------------------------------------------------- NOTES RECEIVABLE 1,181 10,540 --------------------------------------------------------------------------------------- MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT - casualty reinsurance subsidiary 14,753 5,774 --------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT, at cost 46,726 29,132 Accumulated depreciation (12,184) (9,851) --------------------- 34,542 19,281 --------------------------------------------------------------------------------------- DEFERRED TAX ASSET, NET - 6,170 --------------------------------------------------------------------------------------- OTHER ASSETS Investment in and advances to foreign affiliates, at cost, including equity in undistributed earnings of $5,540 in 1996 and $4,098 in 1995 13,508 10,984 Other 39,360 23,016 ---------------------- 52,868 34,000 --------------------------------------------------------------------------------------- $323,918 $197,927 ============================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ - $ 1,115 Accounts payable 20,488 19,404 Accrued payroll and related taxes 35,715 30,330 Accrued expenses 16,295 19,331 Deferred tax liability, net - 117 ---------------------- 72,498 70,297 --------------------------------------------------------------------------------------- RESERVES FOR LOSSES - casualty reinsurance subsidiary 43,806 40,118 --------------------------------------------------------------------------------------- LONG-TERM DEBT 5,890 5,387 --------------------------------------------------------------------------------------- DEFERRED TAX LIABILITY, NET 1,165 - --------------------------------------------------------------------------------------- OTHER 11,372 10,243 --------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (notes 2,4,12 and 13) --------------------------------------------------------------------------------------- MINORITY INTEREST 40,958 8,978 --------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred stock, 10,000,000 shares authorized - - Common stock, $.10 par value, 50,000,000 and 20,000,000 shares authorized in 1996 and 1995 Series A, 3,858,885 issued and outstanding in 1996 and 1995 386 386 Series B, 10,902,199 issued and outstanding in 1996 and 8,272,887 in 1995 1,090 827 Additional paid-in capital 120,703 39,644 Retained earnings 31,347 25,790 Cumulative translation adjustment (4,128) (3,702) Unrealized loss on marketable securities (69) (41) Treasury stock at cost, 87,000 shares of Series B in 1996 (1,100) - ---------------------- 148,229 62,904 --------------------------------------------------------------------------------------- $323,918 $197,927 =============================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 25 12 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 and JANUARY 1, 1995
1996 1995 1994 ================================================================================================================================= CASH FLOWS PROVIDED BY (USED IN): OPERATING Net Income $ 9,057 $ 7,260 $ 1,385 Activities Adjustments - Depreciation expense 4,735 4,489 4,374 Amortization expense 8,668 7,682 7,544 Provision for bad debts 1,362 863 508 Equity income, net of dividends (2,130) (562) (202) Minority interests in net income 6,458 3,579 1,514 Write-down of headquarters building - - 8,700 Extraordinary loss on early extinguishment of debt - - 1,344 Other (59) (424) (495) Changes in assets and liabilities, net of acquisitions and divestitures- (Increase) Decrease in assets: Accounts receivable (20,566) (14,200) (5,745) Inventories (7,332) (5,460) (5,169) Other current assets 766 (5,244) (1,122) Marketable securities and certificates of deposit (35) 329 (1,352) Deferred tax asset, net 5,918 4,529 (4,647) Other assets (411) (2,233) (3,567) Increase (Decrease) in liabilities: Accounts payable and accrued expenses (2,736) 7,055 (2,288) Accrued payroll and related taxes 5,385 3,801 2,534 Reserves for losses of casualty reinsurance subsidiary 3,688 1,668 4,950 Deferred tax liability, net 1,048 (479) 596 Other 1,129 609 4,175 -------------------------------------- Net Cash Provided By Operating Activities 14,945 13,262 13,037 ================================================================================================================ INVESTING Net proceeds from public offerings of subsidiary's common stock 51,581 - 17,626 ACTIVITIES Net proceeds from exercise of stock options of subsidiary 766 1,147 - Purchase of treasury stock (1,100) - - Payments on notes receivable - - 438 Payments for acquisitions, net of cash acquired (13,703) (2,606) (935) Investment in and advances to foreign affiliates (690) (1,410) (732) Capital expenditures (19,917) (6,857) (5,091) Proceeds from sales (payments for purchases) of marketable securities of casualty reinsurance subsidiary, net (9,081) 6,227 14,000 Deferred charge expenditures (6,201) (7,430) (701) Sale of headquarters building - 1,675 - -------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,655 (9,254) 24,605 ================================================================================================================= FINANCING Net proceeds from public offering of the company's common stock 54,020 - - ACTIVITIES Proceeds from the exercise of stock options 1,100 404 - Proceeds from issuance of debt 11,142 314,365 196,411 Payments on debt (11,792) (344,491) (225,287) Dividends paid (3,500) (2,909) (2,779) Proceeds from sales (payments for repurchases) of accounts receivable (35,000) 35,000 - --------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 15,970 2,369 (31,655) ================================================================================================================================= NET INCREASE IN CASH AND CASH EQUIVALENTS 32,570 6,377 5,987 CASH AND CASH EQUIVALENTS, at beginning of year 20,185 13,808 7,821 --------------------------------------- CASH AND CASH EQUIVALENTS, at end of year $ 52,755 $ 20,185 $ 13,808 ================================================================================================================================= SUPPLEMENTAL DISCLOSURES: Cash paid during the year for: Interest $ 2,774 $ 3,366 $ 4,209 Income taxes $ 2,404 $ 1,531 $ 1,119 Non-cash financing and investing activities: Note received related to sale of headquarters building $ - $ 9,000 $ - Impact on equity from tax benefit related to the exercise of stock options issued under the corporation's non-qualified stock option plan $ 462 $ - $ - =================================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 26 13 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands except share data) FISCAL YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 and JANUARY 1, 1995
1996 1995 1994 =============================================================================================================================== COMMON STOCK Series A Balance, beginning and end of year $ 386 $ 386 $ 386 Number of shares, all years, beginning and end, 3,858,885 ----------------------------------------------- Series B Balance, beginning of year 827 579 386 Proceeds from stock offering 250 - - 25% stock dividends effected in the form of stock splits in 1995 and 1994 - 242 193 Proceeds from the exercise of stock options 13 6 - ----------------------------------------------- Balance, end of year 1,090 827 579 Number of shares, end of year, 10,902,199 in 1996, 8,272,887 in 1995 and 5,794,539 in 1994 ------------------------------------------------------------------------------------------------ ADDITIONAL PAID-IN Balance, beginning of year 39,644 38,919 26,234 Proceeds from stock offering 53,770 - - Increase due to public offerings of subsidiary's common stock and exercise of stock options 25,740 327 12,685 Proceeds from the exercise of stock options 1,087 398 - Tax benefit related to employee stock options 462 - - ----------------------------------------------- Balance, end of year 120,703 39,644 38,919 ------------------------------------------------------------------------------------------------ RETAINED EARNINGS Balance, beginning of year 25,790 21,681 23,268 Net income 9,057 7,260 1,385 Dividends (3,500) (2,909) (2,779) 25% stock dividend effected in the form of a stock split - (242) (193) ----------------------------------------------- Balance, end of year 31,347 25,790 21,681 ------------------------------------------------------------------------------------------------ CUMULATIVE Balance, beginning of year (3,702) (3,552) (3,058) ADJUSTMENT Translation adjustment (426) (150) (494) ----------------------------------------------- Balance, end of year (4,128) (3,702) (3,552) ------------------------------------------------------------------------------------------------ UNREALIZED (LOSS) GAIN Balance, beginning of year (41) (554) 146 Net unrealized gains (losses) for the year (28) 513 (700) ----------------------------------------------- Balance, end of year (69) (41) (554) ------------------------------------------------------------------------------------------------ TREASURY STOCK Balance, beginning of year - - - Purchase of treasury stock (1,100) - - ----------------------------------------------- Balance, end of year (1,100) - - ------------------------------------------------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY $ 148,229 $ 62,904 $ 57,459 ------------------------------------------------------------------------------------------------ DIVIDENDS PER SHARE Restated for the effects of the 25% stock dividends effected in the form of stock splits declared in 1995 and 1994 $ 0.26 $ 0.24 $ 0.23 ===============================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 27 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular information: in thousands except per share data) For the Fiscal Years Ended December 29, 1996, December 31, 1995, and January 1, 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR The corporation's fiscal year ends on the Sunday closest to the calendar year end. Fiscal years 1996, 1995 and 1994 each included 52 weeks. BASIS OF FINANCIAL STATEMENT PRESENTATION The consolidated financial statements include the accounts of the corporation and its subsidiaries, including its casualty reinsurance subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with current year presentation. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MINORITY INTEREST The minority interest expense represents principally the separate public ownership in Wackenhut Corrections Corporation (WCC) and the ownership by foreign investors in several subsidiaries of Wackenhut International, Incorporated. INCOME TAXES The corporation accounts for its income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. EARNINGS PER SHARE Earnings per share are computed using the average number of common shares outstanding, including common stock equivalents and reflects the declaration of the 25% stock dividends effected in the form of stock splits in 1995 and 1994. Prior years' earnings per share have been restated to give effect to the stock splits. The average number of shares and common stock equivalents outstanding was 13,635,943, 12,131,772 and 12,066,780 in 1996, 1995 and 1994, respectively. CASH AND CASH EQUIVALENTS The corporation considers highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The effect on cash flows of exchange rate changes in foreign currency has not been significant for any of the fiscal years presented. INVENTORIES Food, alarm systems and electronics inventories are carried at the lower of cost or market, on a first-in first-out basis. Uniform inventories are carried at amortized cost. REVENUES Revenue is recognized as services are provided. During fiscal years 1996, 1995 and 1994, the largest client of the corporation was the U.S. Department of Energy, accounting for approximately 15%, 17% and 20% respectively, of the corporation's consolidated revenues. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable, other receivables, notes receivable, notes payable and accounts payable approximates fair value. Marketable securities are classified as available-for-sale in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Marketable securities are recorded at fair value and unrealized holding gains and losses are excluded from earnings and reported as a net amount in a separate component of shareholders' equity. Realized gains and losses from the sale of securities are based on specific identification of the security. The fair value of marketable securities and certificates of deposit is presented under "wholly-owned casualty reinsurance subsidiary" in Note 4 of these financial statements. The carrying value of long-term debt approximates fair value. INTEREST RATE SWAPS The corporation has entered into two interest rate swap agreements in order to manage interest rate costs. Under the terms of the interest rate swaps, the corporation agrees with counterparties to exchange at specific intervals, the difference between fixed rate (5.20% and 6.87%) and floating rate (5.70% for both swaps) interest amounts calculated in reference to an agreed-upon notional principal 28 15 amount. Interest to be paid or received is accrued over the life of the agreement as an adjustment to interest expense. LONG-LIVED ASSETS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires that long-lived assets and certain identifiable intangibles to be held and used by an entity, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 121 also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. Subsequent to its acquisitions, the corporation continually evaluates factors, events and circumstances which include, but are not limited to, the historical and projected operating performance of acquired businesses, specific industry trends and general economic conditions to assess whether the remaining estimated useful life of intangible assets may warrant revision or that the remaining balance of intangible assets may not be recoverable. When such factors, events or circumstances indicate that intangible assets should be evaluated for possible impairment, the corporation uses an estimate of undiscounted cash flow over the remaining lives of the intangible assets in measuring their recoverability. The impact of adopting this statement in 1996 did not have a material impact upon the corporation's results of operations or financial position. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation plans using a fair value based method. The corporation has chosen to continue to account for stock-based compensation using the intrinsic value based method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the corporation's stock at the date of the grant over the amount an employee must pay to acquire the stock. NEWLY ISSUED ACCOUNTING STANDARD In June 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which requires adoption in fiscal 1997, with certain provisions deferred until fiscal 1998 under SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 125 provides, among other things, consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The impact of adopting this statement is not expected to have a material impact upon the corporation's results of operations or financial position. FOREIGN CURRENCY TRANSLATION Foreign currency transactions and financial statements (except for countries with highly inflationary economies) are translated into U.S. dollars at current exchange rates, except for revenues, costs and expenses which are translated at average exchange rates during each reporting period. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders' equity. The financial statements of subsidiaries located in highly inflationary economies are remeasured as if the functional currency were the U.S. dollar. The remeasurement of their local currencies into U.S. dollars creates translation adjustments which are included in the statements of income. (2) ACCOUNTS RECEIVABLE SECURITIZATION The corporation has entered into a three-year agreement expiring in December 1998 with two financial institutions to sell, on an on-going basis, an undivided interest in a defined pool of eligible receivables up to a maximum of $35,000,000. The costs associated with this program are based upon the purchasers' level of investment and cost of issuing commercial paper plus predetermined fees. Such costs are included in "Interest expense" in the consolidated statements of income. At December 29, 1996, there were no accounts receivable sold under this agreement. At December 31, 1995, $35,000,000 of accounts receivable had been sold under this agreement. The defined pool of accounts receivable sold at December 31, 1995 approximated fair value. The corporation retains substantially the same risk of credit loss as if the receivables had not been sold. (3) PROPERTY AND EQUIPMENT AND DEPRECIATION METHODS Property and equipment are stated at cost, less accumulated depreciation. The corporation uses principally the straight-line method of depreciation for property and equipment. The components of property and equipment and their estimated lives are as follows:
Years 1996 1995 ================================================================== Land - $ 2,234 $ 1,451 Buildings and improvements 20 to 33-1/3 22,386 10,121 Furniture and fixtures 5 to 20 5,090 3,910 Equipment 5 to 20 12,195 9,448 Automobiles 3 4,821 4,202 ---------------------------------- $ 46,726 $ 29,132 ==================================================================
In the fourth quarter of 1995, the corporation sold its headquarters building located in Coral Gables, Florida. In 1994, the building was written down by $8,700,000 to reflect the estimated realizable value based on a third party valuation. The corporation sold its headquarters building in 29 16 exchange for a $9,000,000 note (bearing interest at 6.5% and maturing in December 1997) and $1,675,000 in cash (after payment of related expenses) which resulted in no additional gain or loss on the transaction. (4) WHOLLY-OWNED CASUALTY REINSURANCE SUBSIDIARY The corporation has a wholly-owned casualty insurance subsidiary which reinsures a portion of the corporation's workers' compensation and general and automobile liability insurance. Incurred losses are recorded as reported. Provision is made to cover losses incurred but not reported. Loss reserves are computed based on actuarial studies and, in the opinion of management, are adequate. Future adjustments of the amounts recorded as of December 29, 1996, resulting from a continuous review process as well as differences between estimates and ultimate payments, will be reflected in the corporation's consolidated statements of income as such adjustments become determinable. A summary of operations for the last three fiscal years is as follows:
1996 1995 1994 ========================================================================================= Premiums recognized $ 18,624 $ 17,642 $ 17,900 Loss expense (19,101) (18,239) (18,499) --------------------------------------------- Underwriting loss (477) (597) (599) Investment income 2,667 2,245 1,486 --------------------------------------------- $ 2,190 $ 1,648 $ 887 =========================================================================================
Premiums paid by the corporation to the reinsurance subsidiary of $18,624,000, $17,642,000 and $17,900,000, for the fiscal years ended 1996, 1995 and 1994, respectively, have been eliminated in consolidation. Marketable securities and certificates of deposit, carried at fair value, consisted of the following at December 29, 1996 and December 31, 1995:
1996 1995 ========================================================================================== FAIR VALUE COST Fair Value Cost Municipal Bonds $ 2,061 $ 2,076 $ 1,556 $ 1,559 Government Bonds 6,228 6,243 844 847 Preferred Stock 3,964 4,040 1,980 2,040 Other 2,500 2,500 1,394 1,394 ---------------------------------------------- $ 14,753 $ 14,859 $ 5,774 $ 5,840 ==========================================================================================
The unrealized loss on marketable securities of $106,000 and $66,000 at December 29,1996 and December 31,1995, respectively, has been reflected in the accompanying consolidated balance sheets net of applicable income taxes. The corporation has placed in trust, in favor of certain insurance companies, its marketable securities and $2,289,000 in cash and cash equivalents, and has issued irrevocable standby letters of credit for $31,983,000. Municipal bonds mature from 2018 to 2023, government bonds mature in periods ranging from 3 to 25 years, and other marketable securities mature in 1997. As of December 29,1996, the corporation's reinsurance subsidiary has specific restrictions on future purchases of marketable securities, and on withdrawals from the trust. (5) OTHER ASSETS The components of other assets at December 29, 1996 and December 31, 1995 consists of the following:
1996 1995 ==================================================================== Intangibles, net of amortization $ 20,793 $ 10,009 Deferred information system costs 5,479 3,737 Other 13,088 9,270 ------------------------ $ 39,360 $ 23,016 ====================================================================
Intangibles include contract value and goodwill which arose primarily in connection with the purchase of the correctional foodservice operations of Service America Corporation in January 1996, the purchase of security services contracts by Wackenhut Australia Pty., Ltd in 1995, and the purchase of WCC's former Australian joint venture in January 1994. Intangibles are being amortized over 10-20 years. Accumulated amortization totaled approximately $3,775,000 and $2,003,000 at December 29, 1996 and December 31, 1995, respectively. The corporation is in the process of redesigning its information systems. The costs of these projects are being deferred until the projects are complete, at which time the costs will be amortized over 5 to 7 years. (6) NOTES PAYABLE AND LONG-TERM DEBT At December 31, 1995 the corporation had an outstanding note payable of $1,115,000 which represented short-term borrowings of an international subsidiary incurred for working capital, bearing interest at 8.0%. During 1996, this note payable was refinanced and is included in long-term debt. Long-term debt consists of the following:
1996 1995 ===================================================================== Revolving loan - 6.1% in 1996 and 6.2% in 1995 $ 2,800 $ 1,400 Other debt principally related to WCC and international subsidiaries 3,090 3,987 ------------------------- $ 5,890 $ 5,387 =====================================================================
At year end, the corporation had in place a revolving credit agreement with one bank under which the corporation may borrow up to $50,000,000. The unused portion of the revolving line of credit was $10,558,000 at December 29, 1996 after deducting $36,642,000 in outstanding letters of credit. The interest payable is, at the corporation's option, a function of the applicable LIBOR or certificate of deposit rates. The agreement requires, among other things, that 30 17 the corporation maintain a minimum consolidated net worth, as defined, and limits certain payments and distributions. In December 1994, WCC entered into a revolving credit agreement with a bank under which the subsidiary may borrow up to $15,000,000 until September 30, 2002. The corporation is not a guarantor of the revolving credit agreement which requires, among other things, that WCC maintain a minimum tangible net worth, as defined, and limits certain payments and distributions. No amounts were outstanding at December 29, 1996 or December 31, 1995 under the revolving credit agreement. At December 29, 1996, subsidiaries of the corporation and Wackenhut Corrections had in place $7.5 million Australian (approximately $6.1 million United States) credit facilities with banks. The credit facilities bore interest at the bank bill rate plus 0.4% and mature in January 1997 and June 1998. The credit facilities were secured by irrevocable standby letters of credit guaranteed by the corporation. The corporation's outstanding balances under the credit facilities were $3.5 million Australian (approximately $2.8 million United States) at December 29, 1996 and $5 million Australian (approximately $3.5 million United States) at December 31, 1995. Aggregate annual maturities of long-term debt are as follows:
Year Annual Maturity ================================================ 1997 $ 0 1998 5,677 1999 13 2000 15 2001 16 Thereafter 169 ------------ $5,890 ================================================
The corporation is a party to two offsetting interest rate swaps with Union Bank of Switzerland and Bank of America Illinois at year end. The notional principal amount under both agreements was $81,200,000 and the agreements expire in December 1998. Based on the interest rates in effect at December 29, 1996, the corporation was not exposed to a material loss in the event that either party failed completely to perform according to the terms of the contract. The extraordinary charge of $887,000 ($1,344,000 before tax) in 1994 resulted from the prepayment of certain long-term notes. (7) PREFERRED, COMMON AND TREASURY STOCK The board of directors has authorized 10,000,000 shares of preferred stock. In October 1995 and 1994, the board of directors declared 25% stock dividends, effected in the form of stock splits. Prior periods' per share data have been restated. The stock dividends were paid in series B common stock to holders of the corporation's series A and B shares. Series B common stock has all the rights and privileges of the series A common stock with the exception of voting privileges. In early 1996, the Board of Directors increased the authorized shares of the corporation's common stock from 20 million shares to 50 million shares, with 3,858,885 shares to be designated as series A common stock and 46,141,115 shares to be designated as series B common stock. During the second quarter of 1996, the corporation sold 2,500,000 shares of its series B common stock in connection with a public offering at a price of $23.50 per share, before deducting underwriting discounts and commissions and estimated offering expenses. Net proceeds of $54,020,000 from the offering were used to repay the outstanding balance on the revolving loan, to repurchase a portion of the receivables sold under the accounts receivable securitization facility and for general corporate purposes. The Board of Directors has authorized the buy back of up to 500,000 shares of series B common stock. At December 29, 1996 the corporation had bought back 87,000 shares of series B common stock at an average price of $12.64. (8) STOCK INCENTIVE AND STOCK OPTION PLANS Key employees of the corporation and its subsidiaries are eligible to participate in the Key Employee Long-Term Incentive Stock Plan (incentive stock plan). Under the incentive stock plan, options for the corporation's series B common stock are granted to participants as approved by the Nominating and Compensation Committee of the corporation's board of directors (committee). Under terms of the incentive stock plan, options are granted at prices not less than the fair market value at date of grant (or as otherwise determined by the committee), become exercisable after a minimum of six months, and expire no later than ten years after the date of grant. The committee may grant incentive stock options or non-qualified stock options. Options are subject to adjustment upon the occurrence of certain events, including stock splits and stock dividends. The incentive stock plan authorizes the corporation to award or grant, from time to time to key employees, restricted stock and performance stock. Nonemployee directors of the corporation are eligible to participate in The Wackenhut Corporation Nonemployee Director Stock Option Plan (directors' stock option plan) Under the directors' stock option plan, nonemployee directors are granted 2,000 stock options for series B common stock upon their election or reelection to the board of directors. Under terms of the directors' stock option plan, options are granted at the fair market value at date of grant, become exercisable at date of grant, and expire ten years after the date of grant. 31 18 At December 29, 1996, 862,248 shares of series B common stock were reserved for issuance, including 138,197 shares available for future grants or awards. Changes in outstanding non-qualified stock options for series B common stock, as adjusted for 25% stock dividends in 1995 and 1994, are as follows:
1996 1995 1994 ========================================================================================= Outstanding at beginning of year 557,818 391,568 -- Options granted 202,000 218,750 391,568 Options exercised (129,312) (52,500) -- Options forfeited (33,251) -- -- --------------------------------------------- Outstanding at end of year 597,255 557,818 391,568 --------------------------------------------- Exercisable at end of year 424,255 339,068 -- =========================================================================================
Weighted average option exercise price on information for the fiscal years 1996, 1995 and 1994 is as follows:
1996 1995 1994 ======================================================================================== Outstanding at beginning of year $ 7.98 $ 6.16 -- Granted during the year $ 14.00 $ 10.80 $ 6.16 Exercised during the year $ 8.50 $ 6.16 -- Forfeited during the year $ 10.69 -- -- ------------------------------------------- Outstanding at end of year $ 9.75 $ 7.98 $ 6.16 ------------------------------------------- Exercisable at end of year $ 8.02 $ 6.16 -- ========================================================================================
Significant option groups outstanding at December 29, 1996 and related weighted average price and life information are as follows:
Grant Options Options Exercise Remaining Date Outstanding Exercisable Price Life (Years) ========================================================================= 4/30/94 254,255 254,255 $ 6.16 7 1/28/95 170,000 170,000 $ 10.80 8 1/31/96 173,000 - $ 14.00 9 =========================================================================
The corporation applies APB Opinion 25 and related Interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation for the corporation's stock-based compensation plans been determined pursuant to FASB Statement No. 123, the corporation's net income and earnings per share would have decreased accordingly. Using the Black-Scholes option pricing model for all options granted after January 1, 1995, the corporation's pro forma net income, pro forma net income per share and pro forma weighted average fair value of options granted, with related assumptions, are as follows:
1996 1995 ===================================================================== Pro forma net income $ 8,425 $ 6,708 Pro forma earnings per share $ 0.62 $ 0.55 Pro forma weighted average fair value of options granted $ 4.81 $ 4.86 Expected life (years) 5 5 Risk-free interest rate 5.6% 7.4% Expected volatility 36.0% 36.0% Quarterly dividend $ 0.065 $ 0.075 =====================================================================
Because the FASB Statement No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. (9) RETIREMENT AND DEFERRED COMPENSATION PLANS The corporation has a noncontributory defined benefit pension plan covering certain of its executives. Retirement benefits are based on years of service, employees' average compensation for the last five years prior to retirement and social security benefits. The plan currently is not funded. The corporation purchases and is the beneficiary of life insurance policies for each participant enrolled in the plan. The assumptions for the discount rate and the average increase in compensation used in determining the pension expense and funded status information are 7.5% and 4.0%, respectively. Total pension expense for 1996, 1995, and 1994 was $422,000, $329,000, and $267,000, respectively. The present value of accumulated pension benefits at year end 1996, 1995 and 1994 was $2,444,000, $1,895,000 and $1,400,000, respectively and is included in "Other liabilities" in the accompanying consolidated balance sheets. The corporation has established non-qualified deferred compensation agreements with certain senior executives providing for fixed annual benefits ranging from $100,000 to $175,000 payable upon retirement at approximately age 60 for a period of 20 years. In the event of death before retirement, annual benefits are paid for a period of 10 years. Benefits are funded by life insurance contracts purchased by the corporation. The cost of these agreements is being charged to expense and accrued using a present value method over the expected terms of employment. The charge to expense for fiscal 1996, 1995 and 1994 was $532,000, $468,000 and $444,000, respectively. The liability for deferred compensation was $3,479,000 and $3,274,000 at year end 1996 and 1995, respectively and is included in "Other liabilities" in the accompanying consolidated balance sheets. 32 19 (10) INCOME TAXES The provision (credit) for income taxes consists of the following:
Fiscal year ended 1996 1995 1994 ========================================================================================= Federal income taxes: Current $ (3,356) $ 581 $ 3,014 Deferred 8,590 3,578 (3,112) -------------------------------------------- 5,234 4,159 (98) State income taxes: Current $ 319 $ 104 $ 527 Deferred 595 479 (412) -------------------------------------------- 914 583 115 -------------------------------------------- Foreign $ 163 $ -- $ -- -------------------------------------------- Total $ 6,311 $ 4,742 $ 17 =========================================================================================
Deferred income taxes resulted from timing differences in the recognition of revenues and expenses for tax and financial reporting purposes. The tax effects of the principal timing differences are as follows:
Fiscal year ended 1996 1995 1994 ======================================================================================== Senior note prepayment premium $ -- $ -- $ 904 Income of foreign subsidiaries and affiliates 534 1,336 1,186 Reserve for losses of reinsurance subsidiary 4,854 (1,222) (8) Reserve for claims of employee health trust 779 (412) (1,191) Building write-down 374 2,976 (3,350) Deferred compensation (765) (491) (398) Depreciation (8) (824) (486) Amortization of deferred charges 2,339 2,601 205 Non-deductible reserves (930) (40) (341) Non-qualified stock options 2,289 -- -- Other, net (281) 133 (45) -------------------------------------------- $ 9,185 $ 4,057 $ (3,524) ========================================================================================
The reconciliation of income tax computed at the federal statutory tax rate (34%) to income tax expense is as follows:
Fiscal year ended 1996 1995 1994 ======================================================================================== Provision using statutory federal tax rate $ 6,077 $ 4,670 $ 1,021 Foreign income, net of foreign provision for income taxes (264) -- -- Capital loss carryforward utilization (358) (330) (814) Targeted jobs tax credit -- (117) (235) Tax exempt interest (128) (167) (295) Other, net 457 138 404 -------------------------------------------- 5,784 4,194 81 State income taxes, net of federal benefit 527 548 (64) -------------------------------------------- $ 6,311 $ 4,742 $ 17 ========================================================================================
The components of the net non-current deferred tax asset (liability) at December 29, 1996 and December 31, 1995 are shown below:
Fiscal year ended 1996 1995 ================================================================================ Reserve for losses of reinsurance subsidiary $ 1,638 $ 6,492 Income of foreign subsidiaries and affiliates (7,484) (6,950) Reserve for claims of employee health trust 4,325 5,104 Reserves for legal and other expenses 211 430 Capital loss carryforward 142 162 Deferred compensation 3,915 3,133 Depreciation 447 439 Building write-down -- 373 Deferred charges (4,517) (3,238) Other, net 300 387 -------------------------- (1,023) 6,332 Valuation allowance (142) (162) -------------------------- Deferred tax asset (liability), net $ (1,165) $ 6,170 ================================================================================
The components of the net current deferred tax asset (liability) at December 29, 1996 and December 31, 1995 are shown below:
Fiscal year ended 1996 1995 ================================================================================= Amortization of uniforms and accessories $ (1,939) $ (1,774) Accrued vacation pay 1,374 1,242 Other reserves 817 415 ------------------------ Deferred tax asset (liability), net $ 252 $ (117) =================================================================================
At December 29, 1996, the corporation had available a capital loss carryforward of $368,000 of which $338,000 expires in 1998 and $30,000 expires in 2000. The deferred tax asset arising from the capital loss carryforward has been fully reserved due to the uncertainty of the corporation's ability to generate future capital gains. At December 29, 1996, WCC had federal and state net operating loss carryforwards of $9,533,894 and $9,238,521, respectively. The federal net operating losses will expire between 2010 and 2011, while certain state net operating losses will expire between 2000 and 2011. Utilization of net operating losses in future years may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. Such limitations, if any, are not expected to impact the ultimate utilization of the carryforwards. The corporation's loss carryforwards are solely attributable to WCC compensation deductions on its income tax return which were not recognized for financial accounting purposes. The exercise of stock options which have been granted under WCC's stock option plans give rise to compensation which is includable in the taxable income of the applicable employees and deducted by WCC for federal and state income tax purposes. In the years ended December 29, 1996 and December 31, 1995, such deductions resulted in 33 20 significant federal and state deductions which may be carried forward. Utilization of such deductions will increase additional paid-in-capital. At December 29, 1996, WCC's foreign subsidiaries have unremitted earnings of $1,300,000 on which the corporation has not accrued a provision for federal or state income taxes since the earnings are considered permanently invested. (11) WACKENHUT CORRECTIONS CORPORATION PUBLIC OFFERINGS WCC, formerly a wholly-owned subsidiary of the corporation, sold 2,185,000 shares of common stock at an offering price of $9.00 per share in connection with its initial public offering in 1994. Net proceeds of approximately $17,626,000 from the IPO were used to repay bank debt and indebtedness to the corporation. Following the offering, WCC had 8,185,000 shares outstanding of which the corporation owned approximately 73%. During 1995, the exercise of 354,697 non-qualified stock options of WCC reduced the corporation's ownership in WCC to approximately 70% at December 31, 1995. In January 1996, WCC sold 4,600,000 shares of common stock at an offering price of $12.00 per share. Net proceeds of approximately $51,581,000 from the offering have been and will be used for possible future acquisitions, capital investments in new facilities, working capital requirements and general corporate purposes. After the offering, the corporation's ownership in WCC was reduced to approximately 55%. During 1996, the exercise of 258,598 non-qualified stock options of WCC reduced the corporation's ownership in WCC to 54.7% at December 29, 1996. The board of directors of WCC has granted non-qualified stock options to purchase common stock which, if fully exercised, would reduce the corporation's ownership in WCC to approximately 52%. (12) WACKENHUT MONITORING SYSTEMS BUSINESS The corporation sold its Wackenhut Monitoring Systems subsidiary in 1993. In connection with this transaction, the corporation received a 6% note, which was refinanced in January 1997 for $1.4 million, and calls for quarterly payments of $115,000. The corporation has also guaranteed indebtedness related to certain operating leases which totaled approximately $2,363,000 at December 29, 1996 and expire from 1997 to 2000. (13) COMMITMENTS AND CONTINGENCIES The nature of the corporation's business results in claims for damages arising from the conduct of its employees or others. In the opinion of management, there are no pending legal proceedings that would have a material effect on the consolidated financial statements of the corporation. The corporation leases office space, data processing equipment and automobiles under non-cancelable operating leases expiring between 1997 and 2017. The corporation entered into a lease for its new corporate headquarters in Palm Beach Gardens, Florida, in 1996. The lease requires annual payments of $1,789,000 for an initial term of 15 years with 3 five-year options to extend the term of the lease. Rent expense for the fiscal years ended December 29, 1996, December 31, 1995 and January 1, 1995 was $9,625,000, $6,994,000 and $4,993,000, respectively. The minimum commitments under these leases and the 15 year lease for the new corporate headquarters, are as follows:
Minimum Year Commitment ======================================================== 1997 $ 8,223 1998 6,310 1999 4,828 2000 3,456 2001 3,047 Thereafter 17,926 -------- $ 43,790 ========================================================
(14) BUSINESS SEGMENTS SECURITY-RELATED AND OTHER SUPPORT SERVICES AND CORRECTIONAL SERVICES The corporation's principal business consists of security-related and other support services to commercial and governmental clients. A subsidiary of the corporation, Wackenhut Corrections Corporation, provides facility management and construction services to detention and correctional facilities. Provided below is various financial information for each segment:
Fiscal year 1996 1995 1994 ======================================================================================= REVENUES: Security-related and other support services $768,272 $697,301 $642,727 Correctional services 137,784 99,431 84,026 ------------------------------------------- Total revenues $906,056 $796,732 $726,753 - --------------------------------------------------------------------------------------- OPERATING INCOME: Security-related and other support services $ 7,339 $ 8,545 $ 10,846 Correctional services 9,731 7,229 4,446 Provision for relocation costs (750) -- -- Write-down of headquarters building -- -- (8,700) ------------------------------------------- Total operating income $ 16,320 $ 15,774 $ 6,592 =======================================================================================
34 21
Fiscal year 1996 1995 1994 ================================================================================= EQUITY INCOME (LOSS) OF FOREIGN AFFILIATES, NET OF TAXES: Security-related and other support services $ 1,029 $ 744 $ 617 Correctional services 604 (113) (331) ---------------------------------------- Total equity income $ 1,633 $ 631 $ 286 - -------------------------------------------------------------------------------- CAPITAL EXPENDITURES: Security-related and other support services $ 7,441 $ 4,137 $ 4,829 Correctional services 12,476 2,720 262 --------------------------------------- Total capital expenditures $ 19,917 $ 6,857 $ 5,091 - -------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION EXPENSE: Security-related and other support services $ 9,871 $ 9,868 $ 9,631 Correctional services 3,532 2,303 2,287 ---------------------------------------- Total expenses $ 13,403 $ 12,171 $ 11,918 - -------------------------------------------------------------------------------- IDENTIFIABLE ASSETS: Security-related and other support services $ 217,107 $159,087 $182,424 Correctional services 106,811 38,840 30,333 --------------------------------------- Total identifiable assets $ 323,918 $197,927 $212,757 ================================================================================
DOMESTIC AND INTERNATIONAL OPERATIONS Non-U.S. operations of the corporation and its subsidiaries are conducted primarily in South America and Australia. The corporation carries its investment in affiliates (20% to 50% owned) under the equity method. U.S. income taxes which would be payable upon remittance of affiliates' earnings to the corporation are provided currently, except for Australia, see note 10. Minority interest in consolidated foreign subsidiaries have been reflected net of applicable income taxes in the accompanying financial statements. A summary of domestic and international operations is shown below:
Fiscal year 1996 1995 1994 =================================================================================== REVENUES: Domestic operations $ 760,038 $ 652,723 $ 615,727 International operations 146,018 144,009 111,026 ------------------------------------------- Total revenues $ 906,056 $ 796,732 $ 726,753 - ---------------------------------------------------------------------------------- OPERATING INCOME: Domestic operations $ 15,675 $ 11,407 $ 10,630 International operations 1,395 4,367 4,662 Provision for relocation costs (750) - - Write-down of headquarters building - - (8,700) ------------------------------------------- Total operating income $ 16,320 $ 15,774 $ 6,592 - ---------------------------------------------------------------------------------- EQUITY INCOME OF FOREIGN AFFILIATES, NET OF TAXES: Domestic operations $ - $ - $ - International operations 1,633 613 286 ------------------------------------------- Total equity income $ 1,633 $ 613 $ 286 - ---------------------------------------------------------------------------------- CAPITAL EXPENDITURES: Domestic operations $ 16,569 $ 2,911 $ 1,498 International operations 3,348 3,946 3,593 ------------------------------------------- Total capital expenditures $ 19,917 $ 6,857 $ 5,091 - ---------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION EXPENSE: Domestic operations $ 9,241 $ 9,512 $ 9,751 International operations 4,162 2,659 2,167 ------------------------------------------- Total expenses $ 13,403 $ 12,171 $ 11,918 - ---------------------------------------------------------------------------------- IDENTIFIABLE ASSETS: Domestic operations $ 294,066 $ 141,431 $ 163,864 International operations 29,852 56,496 48,893 ------------------------------------------- Total identifiable assets $ 323,918 $ 197,927 $ 212,757 ===================================================================================
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the corporation and its subsidiaries for the fiscal years ended December 29, 1996 and December 31, 1995 is as follows:
First Second Third Fourth 1996 Quarter Quarter Quarter Quarter =========================================================================================================================== Revenues $ 212,474 $ 222,904 $ 236,869 $ 233,809 Income from operations $ 2,063 $ 3,721 $ 5,224 $ 5,312 Net income $ 945 $ 1,907 $ 3,038 $ 3,167 Earnings per share $ 0.08 $ 0.15 $ 0.21 $ 0.22 - --------------------------------------------------------------------------------------------------------------------------- 1995 - --------------------------------------------------------------------------------------------------------------------------- Revenues $ 189,792 $ 193,371 $ 203,637 $ 209,932 Income from operations $ 3,055 $ 3,967 $ 4,394 $ 4,358 Net income $ 1,599 $ 1,726 $ 1,956 $ 1,979 Earnings per share (1) $ 0.13 $ 0.15 $ 0.16 $ 0.16 ===========================================================================================================================
(1) Earnings per share have been restated to include the 25% stock dividend effected in the form of stock split, declared on October 31, 1995 and paid on January 9, 1996 (see Notes 1 and 7). 35 22 Report of Independent Certified Public Accountants To the Shareholders of The Wackenhut Corporation: We have audited the accompanying consolidated balance sheets of The Wackenhut Corporation (a Florida corporation) and subsidiaries as of December 29, 1996 and December 31, 1995, and the related consolidated statements of income, cash flows and shareholders' equity for each of the three fiscal years in the period ended December 29, 1996. These financial statements are the responsibility of the corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Wackenhut Corporation and subsidiaries as of December 29, 1996 and December 31, 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 29, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP West Palm Beach, Florida, February 10, 1997. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS To the Shareholders of The Wackenhut Corporation: The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. They include amounts based on judgments and estimates. Representations in the financial statements and the fairness and integrity of such statements are the responsibility of management. In order to meet management's responsibility, the corporation maintains a system of internal controls and procedures and a program of internal audits designed to provide reasonable assurance that the corporation's assets are controlled and safeguarded, that transactions are executed in accordance with management's authorization and properly recorded, and that accounting records may be relied upon in the preparation of financial statements. The financial statements have been audited by Arthur Andersen LLP, independent public accountants, whose appointment was ratified by shareholders. Their report expresses a professional opinion as to whether management's financial statements considered in their entirety present fairly, in conformity with generally accepted accounting principles, the corporation's financial position and results of operations. Their audit was conducted in accordance with generally accepted auditing standards. As part of this audit, Arthur Andersen LLP considered the corporation's system of internal controls to the degree they deemed necessary to determine the nature, timing and extent of their audit tests which support their opinion on the financial statements. The audit committee of the board of directors meets periodically with representatives of management, the independent public accountants and the corporation's internal auditors to review matters relating to financial reporting, internal accounting controls and auditing. Both the internal auditors and the independent public accountants have unrestricted access to the audit committee to discuss the results of their reviews. /s/ G. R. Wackenhut /s/ Juan D. Miyar - ------------------- ----------------- GEORGE R. WACKENHUT JUAN D. MIYAR Chairman of the Board Vice President and Chief Executive Officer Corporate Controller Palm Beach Gardens, Florida, February 10, 1997. 36 EX-21.1 8 SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES OF THE CORPORATION SUBSIDIARIES OF THE WACKENHUT CORPORATION American Guard and Alert, Inc. (Alaska) Elcoban S.A. (Uruguay) Oasis Outsourcing, Inc. (Florida) Titania Advertising, Inc. (Florida) Titania Insurance Company of America (Vermont) Tuhnekcaw, Inc. (Delaware) Wackenhut Airline Services, Inc. (Florida) Wackenhut Australia, Pty., Ltd. Wackenhut Corrections Corporation (Florida) Wackenhut Educational Services, Inc. (Florida) Wackenhut Financial, Inc. (Delaware) Wackenhut International, Incorporated (Florida) Wackenhut of Nevada, Inc. (Nevada) Wackenhut Services, Incorporated (Florida) Wackenhut Sports Security, Inc. (Florida) SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED Central African Republic Essiad Security Systems & Services Ltd. (Ghana) Instituto Wackenhut, S.A. (Ecuador) Peruana de Seguridad y Vigilancia, S.A. (PESEVISA) (Peru) Seguridad Movil del Ecuador, S.A. (Ecuador) Seguridad Wackenhut, S.A. de CV (Mexico) Servicios Estrategicos, S.A. (Peru) Wackenhut A/O (Russia) Wackenhut Belize Ltd. (Belize) Wackenhut Bolivia, S.A. (Bolivia) Wackenhut Cameroon, S.A. (Cameroon) Wackenhut Central Europe GMBH (Germany) Wackenhut Czech, SPOL, S.R.O. (Czech Republic) Wackenhut de El Salvador, S.A. (El Salvador) Wackenhut de Guatemala, S.A. (Guatemala) Wackenhut de Honduras, S.A. (Honduras) Wackenhut de Nicaragua, S.A. (Nicaragua) Wackenhut de Venezuela, S.A. (Venezuela) Wackenhut del Ecuador, S.A. (Ecuador) Wackenhut Dominicana, S.A. (Dominican Republic) Wackenhut France, S.A.R.L. (France) Wackenhut Gambia, Ltd. (Gambia) Wackenhut Ghana Limited (Ghana) Wackenhut Pakistan (PVT) Limited (Pakistan) Wackenhut Korea Corporation (Korea) Wackenhut of Canada Limited (Canada) Wackenhut Maghreb, S.A. (Morocco) Wackenhut Mozambique Lda (Mozambique) Wackenhut Paraguay, S.A. (Paraguay) Wackenhut Puerto Rico, Inc. (Puerto Rico) Wackenhut S.A. (Costa Rica) 2 SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED CONTINUED Wackenhut Seges (Ivory Coast) Wackenhut Sierra Leone (Sierra Leone) Wackenhut U.K. Limited (United Kingdom) Wackenhut Uruguay, S.A. (Uruguay) WII/Sound and Security Engineering Co. (Jordan) SUBSIDIARIES OF WACKENHUT U.K. LIMITED Advance Security Technology, Ltd. (United Kingdom) Wackenhut Appointments Limited (United Kingdom) Wackenhut Investigations Limited (United Kingdom) SUBSIDIARY OF AMERICAN GUARD AND ALERT Ahtna AGA Security, Inc. (Alaska) SUBSIDIARY OF WACKENHUT CORRECTIONS CORPORATION Wackenhut Corrections (U.K.), Limited (United Kingdom) Wackenhut Corrections Corporation Australia (Australia) WCC Financial, Inc. (Delaware) WCC RE Holdings, Inc. (Florida) SUBSIDIARY OF WACKENHUT CORRECTIONS CORPORATION AUSTRALIA Australasian Correctional Management PTY, Limited (Australia) SUBSIDIARY OF WACKENHUT SERVICES, INCORPORATED Wackenhut Services, LLC. (Colorado) SUBSIDIARIES OF OASIS OUTSOURCING, INC. Oasis Outsourcing of Florida, Incorporated (Florida) Oasis Outsourcing of Colorado, Incorporated (Florida) SUBSIDIARIES OF OASIS OUTSOURCING OF FLORIDA, INCORPORATED 00/FL/01, Inc. (Florida) 00/FL/02, Inc. (Florida) 00/FL/03, Inc. (Florida) SUBSIDIARIES OF OASIS OUTSOURCING OF COLORADO, INCORPORATED 00/COL/01, Inc. (Florida) 00/COL/02, Inc. (Florida) 00/COL/03, Inc. (Florida) EX-23.1 9 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements on Form S-8 File Nos. 33-59159, 33-67158, 333-11833 and 333-11837. ARTHUR ANDERSEN LLP West Palm Beach, Florida, March 17, 1997. EX-24.1 10 POWER OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. /S/ JULIUS W. BECTON, JR. DATE: MARCH 12, 1997 - ------------------------------------ JULIUS W. BECTON, JR. DIRECTOR 2 POWER OF ATTORNEY THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. /S/ ANNE N. FOREMAN DATE: MARCH 12, 1997 - ----------------------------------- -------------- ANNE N. FOREMAN DIRECTOR 3 POWER OF ATTORNEY THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. /S/ EDWARD L. HENNESSY DATE: MARCH 12, 1997 - ----------------------------------- ---------------------- EDWARD L. HENNESSY DIRECTOR 4 POWER OF ATTORNEY THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. /S/ PAUL X. KELLEY DATE: MARCH 14, 1997 - ------------------------------- -------------- PAUL X. KELLEY DIRECTOR 5 POWER OF ATTORNEY ----------------- THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. /S/ NANCY CLARK REYNOLDS DATE: MARCH 14, 1997 - ------------------------ ---------------- NANCY CLARK REYNOLDS DIRECTOR 6 POWER OF ATTORNEY THE UNDERSIGNED MEMBER OF THE BOARD OF DIRECTORS OF THE WACKENHUT CORPORATION HEREBY CONSTITUTES AND APPOINTS JUAN D. MIYAR, TERRY P. MAYOTTE, AND JAMES P. ROWAN AND EACH OF THEM SEVERALLY, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY AND ALL REPORTS OF FORM 10-K (ANNUAL REPORT PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934) AND ANY AMENDMENTS THERETO, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. /S/ RICHARD R. WACKENHUT DATE: MARCH 12, 1997 - --------------------------------- -------------- RICHARD R. WACKENHUT DIRECTOR EX-27.1 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996. 1,000 U.S. DOLLARS YEAR DEC-29-1996 JAN-01-1996 DEC-29-1996 1 52,755 14,753 131,325 1,997 10,082 220,574 46,726 12,184 323,916 72,498 5,890 0 0 1,476 146,753 323,918 0 906,056 0 889,736 0 508 2,766 17,875 6,311 0 0 0 0 9,057 0.66 0.00 MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT ARE CLASSIFIED AS NON-CURRENT ASSETS ON THE BALANCE BALANCE SHEET. THE CORPORATION HAS ENTERED INTO A THREE YEAR AGREEMENT EXPIRING IN DECEMBER 1998 WITH TWO FINANCIAL INSTITUTIONS TO SELL, ON AN ON GOING BASIS, AN UNDIVIDED INTEREST IN A DEFINED POOL OF ELIGIBLE RECEIVABLES UP TO A MAXIMUM OF $35 MILLION. AS OF DECEMBER 29, 1996 THERE WERE NO NO BALANCES OUTSTANDING UNDER THE ACCOUNT RECEIVABLES SECURITIZATION AGREEMENT. INCLUDES $26,412 OF OTHER CURRENT ASSETS. INCLUDES $43,806 RESERVE FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY, $40,958 MINORITY INTEREST, $1,165 DEFERRED TAX LIABILITY NET AND $11,372 OTHER LIABILITIES. INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES-NET OF INCOME TAXES OF $4,140 AND $(1,633) RESPECTIVELY.
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