-----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, E7o9+5kK/sVIeFO0KuH4yrpJPCezNRrYMVBRiSXWpgwNRPwpugxvJcWUMWiP4oRj Mx/jrZWsT2EzAkz+y714WA== 0000950144-96-007945.txt : 19961115 0000950144-96-007945.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950144-96-007945 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961113 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05450 FILM NUMBER: 96660248 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: P O BOX 109603 CITY: PALM BEACH GARDEN STATE: FL ZIP: 33410 10-Q 1 WACKENHUT CORPORATION FORM 10-Q 09/29/96 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----- FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 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 Drive #100, Palm Beach Gardens, FL 33410-4243 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (561) 622-5656 -------------- - ------------------------------------------------------------------------------- FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] At November 1, 1996, 3,858,885 shares of Series A and 10,902,199 shares of Series B of the registrant's Common Stock were issued and outstanding. Page 1 of 20 2 THE WACKENHUT CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following consolidated financial statements of the Corporation have been prepared in accordance with the instructions to Form 10-Q and therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information for the interim periods reported have been made. Results of operations for the thirty-nine weeks ended September 29, 1996 are not necessarily indicative of the results for the entire fiscal year ending December 29, 1996. Page 2 of 20 3 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 29, 1996 and OCTOBER 1, 1995 (In thousands except per share data) (UNAUDITED)
1996 1995 ---------------------------- REVENUES $ 236,869 $ 203,637 ---------------------------- OPERATING EXPENSES: Payroll and related taxes 171,915 145,571 Other operating expenses 59,730 53,672 ---------------------------- 231,645 199,243 ---------------------------- OPERATING INCOME 5,224 4,394 ---------------------------- OTHER INCOME (EXPENSE): Interest expense (425) (772) Interest and investment income 1,015 271 ---------------------------- 590 (501) ---------------------------- INCOME BEFORE INCOME TAXES 5,814 3,893 PROVISION FOR INCOME TAXES 2,010 1,325 MINORITY INTEREST, NET OF INCOME TAXES 1,335 703 Equity income of foreign affiliates, net of income taxes (569) (91) ---------------------------- NET INCOME $ 3,038 $ 1,956 ============================ EARNINGS PER SHARE $ 0.21 $ 0.16 ============================
See notes to Consolidated Financial Statements. Page 3 of 20 4 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 29,1996 AND OCTOBER 1, 1995 (In thousands except per share data) (UNAUDITED)
1996 1995 ---------------------------- REVENUES $ 672,247 $ 586,800 OPERATING EXPENSES: Payroll and related taxes 488,599 427,843 Other operating expenses 171,890 147,541 Provision for relocation costs 750 - ---------------------------- 661,239 575,384 ---------------------------- OPERATING INCOME 11,008 11,416 ---------------------------- OTHER INCOME (EXPENSE): Interest expense (2,288) (2,267) Interest and investment income 3,180 926 ---------------------------- 892 (1,341) ---------------------------- INCOME BEFORE INCOME TAXES 11,900 10,075 Provision for income taxes 4,201 3,523 Minority interest, net of income taxes 3,085 1,741 Equity income of foreign affiliates, net of income taxes (1,276) (470) ---------------------------- NET INCOME $ 5,890 $ 5,281 ============================ EARNINGS PER SHARE $ 0.44 $ 0.44 ============================
See notes to Consolidated Financial Statements. Page 4 of 20 5 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 29, 1996 AND DECEMBER 31, 1995 (In thousands except share data)
(Unaudited) 1996 1995 ASSETS --------------------- CURRENT ASSETS: Cash and cash equivalents $ 59,977 $ 20,185 Accounts receivable, less allowance for doubtful accounts of $2,114 in 1996 and $1,268 in 1995 121,542 77,121 Inventories 9,337 7,527 Other 21,271 17,329 -------------------------- 212,127 122,162 -------------------------- NOTES RECEIVABLE 10,313 10,540 -------------------------- MARKETABLE SECURITIES AND CERTIFICATES OF DEPOSIT of casualty reinsurance subsidiary 13,338 5,774 -------------------------- PROPERTY AND EQUIPMENT, at cost 41,573 29,132 Accumulated depreciation (11,197) (9,851) -------------------------- 30,376 19,281 -------------------------- DEFERRED TAX ASSET, net 659 6,170 -------------------------- OTHER ASSETS: Investment in and advances to foreign affiliates, at cost, including equity in undistributed earnings of $5,622 in 1996 and $4,098 in 1995 12,917 10,984 Other 36,283 23,016 -------------------------- 49,200 34,000 -------------------------- $ 316,013 $ 197,927 ==========================
See notes to Consolidated Financial Statements. Page 5 of 20 6 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 29, 1996 AND DECEMBER 31, 1995 (In thousands except share data) (Unaudited)
1996 1995 ---------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ - $ 1,115 Accounts payable 19,209 19,404 Accrued payroll and related taxes 34,924 30,330 Accrued expenses 17,039 19,331 Deferred tax liability, net - 117 ---------------------------- 71,172 70,297 ---------------------------- RESERVES FOR LOSSES of casualty reinsurance subsidiary 43,096 40,118 ---------------------------- LONG-TERM DEBT 4,925 5,387 ---------------------------- OTHER 10,657 10,243 ---------------------------- MINORITY INTEREST 39,487 8,978 ---------------------------- SHAREHOLDERS' EQUITY: Preferred stock, 10,000,000 shares authorized - - Common stock, $.10 par value, 50,000,000 shares authorized: Series A common stock, 3,858,885 issued and outstanding in 1996 and 1995 386 386 Series B common stock, 10,902,199 issued and outstanding in 1996 and 8,272,887 in 1995 1,090 827 Additional paid-in capital 119,846 39,644 Retained earnings 29,133 25,790 Cumulative translation adjustment (3,645) (3,702) Unrealized loss on marketable securities (134) (41) ---------------------------- 146,676 62,904 ---------------------------- $ 316,013 $ 197,927 ============================
See notes to Consolidated Financial Statements. Page 6 of 20 7 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995 (In thousands) (UNAUDITED)
1996 1995 ------------------------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net Income $ 5,890 $ 5,281 Adjustments - Depreciation expense 3,112 3,304 Amortization expense 6,943 6,058 Provision for bad debts 966 840 Equity income, net of dividends (1,676) (611) Minority interests in net income 4,674 2,638 Other 201 (57) Changes in assets and liabilities, net of acquisitions and divestitures - (Increase) decrease in assets: Accounts receivable (18,427) (12,898) Inventories (5,316) (5,553) Other current assets (3,692) (1,202) Marketable securities and certificates of deposit (190) (300) Deferred tax asset, net 5,511 2,342 Other assets 1,259 (8,585) Increase (decrease) in liabilities: Accounts payable and accrued expenses (3,428) 965 Accrued payroll and related taxes 4,594 3,059 Deferred tax liability, net (117) (596) Reserve for losses of casualty reinsurance subsidiary 2,978 2,495 Other 414 930 -------------------------- Net Cash Provided by (Used In) Operating Activities 3,696 (1,890) --------------------------
(Continued) Page 7 of 20 8 THE WACKENHUT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995 (In thousands) (UNAUDITED) (Continued)
1996 1995 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: ---------------------------- Net proceeds from public offering of subsidiary's common stock 51,593 - Proceeds from exercise of stock options of subsidiary 719 975 Payments on notes receivable - 232 Payments for acquisitions (13,703) - Investment in and advances to foreign affiliates (261) (2,455) Capital expenditures (14,128) (3,527) Proceeds from sales (payments for purchases) of marketable securities of casualty reinsurance subsidiary, net (7,752) 1,256 Deferred charge expenditures (4,339) (2,566) ----------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 12,129 (6,085) ----------------------------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Net proceeds from public offering of the company's common stock 54,029 - Proceeds from exercise of stock options 1,100 270 Proceeds from issuance of debt 10,171 121,267 Payments on debt (11,786) (153,021) Proceeds from sales (payments for repurchases) of accounts receivable (27,000) 32,929 Dividends paid (2,547) (2,182) ----------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 23,967 (737) ----------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39,792 (8,712) CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 20,185 13,808 ----------------------------- CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 59,977 $ 5,096 ============================= SUPPLEMENTAL DISCLOSURES CASH paid during the period for: Interest $ 2,356 $ 2,295 Income taxes $ 1,043 $ 2,166
See notes to Consolidated Financial Statements. Page 8 of 20 9 THE WACKENHUT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The accounting policies followed for the quarterly financial reporting are the same as those disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Certain prior year amounts have been reclassified to conform with current year financial statement presentation. 2. ACCOUNTS RECEIVABLE In January 1995, the Corporation entered into a three year agreement to sell on an on-going basis, an undivided interest in a defined pool of eligible receivables up to a maximum of $40,000,000. In December 1995, the accounts receivable securitization facility was increased to $50,000,000. 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 September 29, 1996, $8,000,000 of accounts receivable had been sold under this agreement. The defined pool of accounts receivable sold at September 29, 1996 approximates fair value. The Corporation retains substantially the same risk of credit loss as if the receivables had not been sold. 3. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
September 29, December 31, 1996 1995 --------------------------------- Revolving loans - 6.2% in 1996 and 1995 $ 2,150 $ 1,400 Other debt principally related to WCC and international 2,775 3,987 subsidiaries --------------------------------- $ 4,925 5,387 =================================
Page 9 of 20 10 4. 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. WCC provides facility management and construction services to detention and correctional facilities. Provided below is various financial information for each segment:
THIRTY-NINE WEEKS ENDED ----------------------- (THOUSANDS OF DOLLARS) SEPTEMBER 29, 1996 OCTOBER 1, 1995 ------------------ ----------------- REVENUES: Security-related and other support services $ 572,612 $ 514,999 Correctional services 99,635 71,801 ---------- ---------- Total revenues $ 672,247 $ 586,800 ---------- ---------- OPERATING INCOME: Security-related and other support services $ 5,187 $ 6,083 Correctional services 6,571 5,333 Provision for relocation costs (750) - ---------- ---------- Total operating income $ 11,008 $ 11,416 ---------- ---------- EQUITY INCOME (LOSS) OF AFFILIATES, NET OF TAXES: Security-related and other support services $ 814 $ 617 Correctional services 462 (147) ---------- ---------- Total equity income $ 1,276 $ 470 ---------- ---------- CAPITAL EXPENDITURES: Security-related and other support services $ 5,317 $ 2,191 Correctional services 8,811 1,336 ---------- ---------- Total capital expenditures $ 14,128 $ 3,527 ---------- ---------- DEPRECIATION AND AMORTIZATION EXPENSE: Security-related and other support services $ 7,501 $ 7,748 Correctional services 2,554 1,614 ---------- ---------- Total expenses $ 10,055 $ 9,362 ---------- ---------- IDENTIFIABLE ASSETS AT SEPTEMBER 29, 1996 AND DECEMBER 31, 1995: Security-related and other support services $ 216,705 $ 159,087 Correctional services 99,308 38,840 ---------- ---------- Total identifiable assets $ 316,013 $ 197,927 ---------- ----------
Page 10 of 20 11 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 investments in affiliates (20% to 50% owned) under the equity method. U.S. income taxes which would be payable upon remittance of affiliates' earnings to the Corporation are provided currently. Minority interest in consolidated foreign subsidiaries have been reflected net of applicable income taxes on the accompanying financial statements. A summary of domestic and international operations is shown below.
THIRTY-NINE WEEKS ENDED ----------------------- (THOUSANDS OF DOLLARS) SEPTEMBER 29, 1996 OCTOBER 1, 1995 REVENUES: ------------------- --------------- Domestic operations $ 562,263 $ 486,858 International operations 109,984 99,942 ---------- ---------- Total revenues $ 672,247 $ 586,800 ---------- ---------- OPERATING INCOME: Domestic operations $ 10,475 $ 7,687 International operations 1,283 3,729 Provision for relocation costs (750) - ---------- ---------- Total operating income $ 11,008 $ 11,416 ---------- ---------- EQUITY INCOME OF AFFILIATES, NET OF TAXES: Domestic operations $ - $ - International operations 1,276 470 ---------- ---------- Total equity income $ 1,276 $ 470 ---------- ---------- CAPITAL EXPENDITURES: Domestic operations $ 12,169 $ 1,405 International operations 1,959 2,122 ---------- ---------- Total capital expenditures $ 14,128 $ 3,527 ---------- ---------- DEPRECIATION AND AMORTIZATION EXPENSE: Domestic operations $ 7,430 $ 7,508 International operations 2,625 1,854 ---------- ---------- Total expenses $ 10,055 $ 9,362 ---------- ---------- IDENTIFIABLE ASSETS AT SEPTEMBER 29, 1996 AND DECEMBER 31, 1995: Domestic operations $ 257,855 $ 141,431 International operations 58,158 56,496 ---------- ---------- Total identifiable assets $ 316,013 $ 197,927 ---------- ----------
Page 11 of 20 12 THE WACKENHUT CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation provides security-related and other support services through the Services Business and correctional services through the Correctional Business. Through the Services Business, the Corporation provides physical security services, food services and other related services to commercial and governmental customers. Through the Correctional Business, the Corporation provides correctional and detention facility design, development and management services to government agencies. The Services Business is managed through two operating groups: the North American Operations Group and the International Operations Group. The Correctional Business is operated through the Corporation's 55%-owned Wackenhut Corrections Corporation subsidiary ("WCC"). The Correctional Business includes the Australian subsidiary and United Kingdom affiliate of WCC. FINANCIAL CONDITION 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 approximately $54,029,000 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 will be used for possible acquisitions, for systems and technology upgrades and for general corporate purposes. In January 1996, WCC sold 2,300,000 shares of its common stock in connection with a public offering at a price of $24.00 per share, before deducting underwriting discounts and commissions and estimated offering expenses. Net proceeds of approximately $51,593,000 from WCC's offering will be used for possible future acquisitions, capital investments in new facilities, working capital requirements and general corporate purposes. Reference is made to Item 7, Part II of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 for further discussion and analysis of information pertaining to the Corporation's financial condition. RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Corporation's consolidated financial statements and the notes thereto. Page 12 of 20 13 COMPARISON OF THIRTEEN WEEKS ENDED SEPTEMBER 29, 1996 AND THIRTEEN WEEKS ENDED OCTOBER 1, 1995 REVENUES Consolidated revenues increased 16.3% to $236.9 million in the thirteen weeks ended September 29, 1996 (the "Third Quarter of 1996") from $203.6 million in the thirteen weeks ended October 1, 1995 (the "Third Quarter of 1995"). SERVICES BUSINESS Services Business revenues increased 12.5% to $200.1 million in the Third Quarter of 1996 from $177.9 million in the Third Quarter of 1995. North American Operations Group. North American Operations Group revenues increased 14.7% to $170.8 million in the Third Quarter of 1996 from $148.9 million in the Third Quarter of 1995. The North American Operations Group continued to increase its revenue base with an increase of approximately 853,000 billable hours over the same quarter last year. The CPO business revenues increased 14.2% to $18.9 million during the Third Quarter of 1996 compared to the Third Quarter of 1995. Revenues of the Food Division almost doubled during the Third Quarter of 1996 to $17.8 million, compared to revenues of $9.1 million for the Third Quarter of 1995, reflecting the acquisition of the contracts and certain assets of the Correctional Food Services Division of Service America Corporation and new business development. International Operations Group. International Operations Group revenues increased 0.6% to $29.0 million in the Third Quarter of 1996 from $28.9 million in the Third Quarter of 1995. During the fourth quarter of 1995 the former subsidiary in Chile was deconsolidated and is now a minority-owned affiliate. Revenues of the Chilean operation for the Third Quarter of 1995 amounted to $5.4 million. Excluding the effect of the Chilean operation, revenues of the International Operations Group increased approximately $5.5 million. Revenues of Wackenhut of Australia Pty., Ltd., which was acquired in July of last year, amounted to $3.8 million in the Third Quarter of 1996. CORRECTIONAL BUSINESS Correctional Business revenues increased 42.8% to $36.8 million in the Third Quarter of 1996 from $25.8 million in the Third Quarter of 1995. The increase in revenues in the Third Quarter of 1996 was primarily attributable to increased compensated resident days resulting from the opening of two facilities in the second half of 1995 (Moore Haven Correctional Facility in Florida, and John R. Lindsey Unit in Texas), two facilities that opened in the first half of 1996 (Willacy County Unit in Texas, and Marshall County Correctional Facility in Mississippi), one facility for which WCC assumed correctional services in the first half of 1996 (Delaware County Prison in Pennsylvania), and the expansion of two facilities in the second half of 1995 (Arthur Gorrie Correctional Centre in Australia, and Allen Correctional Center in Louisiana). Page 13 of 20 14 OPERATING INCOME Consolidated operating income increased 18.9% to $5.2 million in the Third Quarter of 1996. SERVICES BUSINESS Operating income from the Services Business decreased 7.5% to $2.3 million in the Third Quarter of 1996 from $2.5 million for the same period last year. North American Operations Group. North American Operations Group operating income increased 4.9% to $5.0 million in the Third Quarter of 1996 from $4.8 million in the Third Quarter of 1995. Increased profit contribution resulted from better profit margins on contracts with national accounts and lower group insurance costs. International Operations Group. International Operations Group had operating income of $58,000 in the Third Quarter of 1996 compared to operating income of $889,000 for the same period in 1995. The decline in operating income in the Third Quarter of 1996 was primarily due to the operating losses from the new security services subsidiary in Australia, Wackenhut of Australia Pty., Ltd., which recorded an operating loss of approximately $585,000 in the Third Quarter of 1996. A decrease in operating income in Russia, and the deconsolidation of operations in Chile offset increases in operating income in other countries. CORPORATE EXPENSES AND UNDERWRITING LOSSES Corporate expenses and underwriting losses decreased 12.8% to $2.8 million in the Third Quarter of 1996 from $3.2 million in the Third Quarter of 1995. CORRECTIONAL BUSINESS WCC's operating income increased by 52.7% to $2.9 million in the Third Quarter of 1996 from $1.9 million in the Third Quarter of 1995 due to additional income from the opening of four new facilities, assumption of correctional services at one facility, and two expansions, partially offset by higher general and administrative expenses. OTHER INCOME/EXPENSE Other income was $590,000 in the Third Quarter of 1996 compared to other expense of $501,000 for the comparable period in 1995. Interest and investment income increased $744,000 including interest income of approximately $333,000 from the investment of the net proceeds of WCC's public offering in January 1996. Interest expense in the Third Quarter of 1996 decreased by $347,000 compared to the Third Quarter of 1995 due principally to the decrease in the level of corporate bank borrowings and fees incurred under the accounts receivable securitization facility. Page 14 of 20 15 INCOME BEFORE INCOME TAXES Income before income taxes increased 49.3% to $5.8 million in the Third Quarter of 1996 from $3.9 million in the Third Quarter of 1995. The combined federal and state effective income tax rate was 36.0% for the Third Quarter of 1996 and 35.1% for the same period in 1995. The higher effective rate in the Third Quarter was due to: (i) the 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 to $1,335,000 in the Third Quarter of 1996 from $703,000 in the Third Quarter of 1995, reflecting principally the increase in earnings of and the public ownership in WCC. EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) increased to $569,000 in the Third Quarter of 1996 from $91,000 in the Third Quarter of 1995, primarily resulting from increased earnings of security services affiliates in South America and Europe, the joint venture of WCC in the United Kingdom, and the inclusion of the Corporation's equity income of the Chilean operations. NET INCOME Net income increased to $3,038,000 in the Third Quarter of 1996, or $0.21 per share compared to $1,956,000 or $0.16 per share for the Third Quarter of 1995. Comparison of Thirty-nine Weeks Ended September 29, 1996 and Thirty-nine Weeks Ended October 1, 1995 REVENUES Consolidated revenues increased 14.6% to $672.2 million in the thirty-nine weeks ended September 29, 1996 (the "First Nine Months of 1996") from $586.8 million in the thirty-nine weeks ended October 1, 1995 (the "First Nine Months of 1995"). SERVICES BUSINESS Services Business revenues increased 11.2% to $572.6 million in the First Nine Months of 1996 from $515.0 million in the First Nine Months of 1995. North American Operations Group. North American Operations Group revenues increased 13.1% to $490.8 million in the First Nine Months of 1996 from $433.8 million in the First Nine Months of 1995. The North American Operations Group continued to increase its revenue base, primarily as a result of increased billable hours and obtaining contracts with major national accounts. The CPO business Page 15 of 20 16 revenues increased 12.6% to $53.8 million during the First Nine Months of 1996 compared to the First Nine Months of 1995. Revenues of the Food Division almost doubled during the First Nine Months of 1996 to $51.2 million, compared to revenues of $26.8 million for the First Nine Months of 1995, reflecting the acquisition of the contracts and certain assets of the Correctional Food Services Division of Service America Corporation and new business development. International Operations Group. International Operations Group revenues increased 5.8% to $79.4 million in the First Nine Months of 1996 from $75.1 million in the First Nine Months of 1995. During the fourth quarter of 1995 the former subsidiary in Chile was deconsolidated and is now a minority-owned affiliate. Revenues of the Chilean operation for the First Nine Months of 1995 amounted to $14.2 million. Excluding the effect of the Chilean operation, revenues of the International Operations Group increased approximately $18.6 million. Revenues of Wackenhut of Australia Pty., Ltd., which was acquired in July of last year, amounted to $9.9 million in the First Nine Months of 1996. CORRECTIONAL BUSINESS Correctional Business revenues increased 38.8% to $99.6 million in the First Nine Months of 1996 from $71.8 million in the First Nine Months of 1995. The increase in revenues in the First Nine Months of 1996 was primarily attributable to increased compensated resident days resulting from the opening of two facilities in the second half of 1995 (Moore Haven Correctional Facility in Florida, and John R. Lindsey Unit in Texas), two facilities that opened in the first half of 1996 (Willacy County Unit in Texas, and Marshall County Correctional Facility in Mississippi), one facility for which WCC assumed correctional services in the first half of 1996 (Delaware County Prison in Pennsylvania), and the expansion of two facilities in the second half of 1995 (Arthur Gorrie Correctional Centre in Australia, and Allen Correctional Center in Louisiana). OPERATING INCOME Consolidated operating income, which included a $750,000 provision for relocation costs in the First Nine Months of 1996, decreased 3.6% to $11.0 million. Excluding relocation costs, consolidated operating income increased 3.0%. SERVICES BUSINESS Operating income from the Services Business decreased 14.7% to $5.2 million in the First Nine Months of 1996 from $6.1 million for the same period last year. North American Operations Group. North American Operations Group operating income increased 8.8% to $14.3 million in the First Nine Months of 1996 from $13.1 million in the First Nine Months of 1995. Increases in the profit contribution of the core security-related and foodservice businesses were partially offset by higher group overhead costs and greater absorption of direct corporate general and administrative expenses which increased as a result of higher payroll related costs. International Operations Group. International Operations Group incurred an operating loss of $900,000 in the First Nine Months of 1996 compared to operating income of $1.9 million for the same Page 16 of 20 17 period in 1995. The operating loss in the First Nine Months of 1996 was primarily due to the operating losses from the new security services subsidiary in Australia, Wackenhut of Australia Pty., Ltd., which recorded an operating loss of approximately $1.8 million in the First Nine Months of 1996. Operating losses in Czechoslovakia and Venezuela, decreased operating income in Ecuador, and the deconsolidation of operations in Chile offset increases in operating income in other countries. CORPORATE EXPENSES AND UNDERWRITING LOSSES Corporate expenses and underwriting losses decreased 8.9% to $8.2 million in the First Nine Months of 1966 from $9.0 million in the First Nine Months of 1995. CORRECTIONAL BUSINESS WCC's operating income increased by 23.2% to $6.6 million in the First Nine Months of 1996 from $5.3 million in the First Nine Months of 1995 due to additional income from the opening of four new facilities, assumption of correctional services at one facility, and two expansions, partially offset by higher general and administrative expenses. OTHER INCOME/EXPENSE Other income was $892,000 in the First Nine Months of 1996 compared to other expense of $1,341,000 for the comparable period in 1995. The increase in interest and investment income of $2.3 million in the First Nine Months of 1996 included interest income of approximately $1.8 million from the investment of the net proceeds of WCC's public offering in January 1996. Interest on notes receivable increased approximately $243,000 in the First Nine Months of 1996 compared to the First Nine Months of 1995. INCOME BEFORE INCOME TAXES Income before income taxes, which included a $750,000 provision for relocation costs in the First Nine Months of 1996, increased 18.1% to $11.9 million from $10.1 million in the First Nine Months of 1995. The combined federal and state effective income tax rate was 36.0% for the First Nine Months of 1996 and 35.1% for the same period in 1995. The higher effective rate in the First Nine Months of 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 to $3.1 million in the First Nine Months of 1996 from $1.7 million in the First Nine Months of 1995, reflecting principally the increase in earnings of and the public ownership in WCC. Page 17 of 20 18 EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) increased 171.5% to $1,276,000 in the First Nine Months of 1996 from $470,000 in the First Nine Months of 1995, primarily resulting from increased earnings of security services affiliates in South America and Europe, the joint venture of WCC in the United Kingdom, and the inclusion of the Corporation's equity income of the Chilean operations. NET INCOME Net income increased to $5,890,000 in the First Nine Months of 1996, or $0.44 per share, after the $750,000 provision for relocation costs ($461,000 net of income taxes), compared to $5,281,000 or $0.44 per share for the First Nine Months of 1995. Page 18 of 20 19 THE WACKENHUT CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Corporation 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 Corporation is currently involved will not materially affect its financial position or future operating results, although no assurance can be given with respect to the ultimate outcome from any such claims or litigation. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a). Exhibits - Exhibit 27 - Financial Data Schedule (for SEC use only) (b). Reports on Form 8-K The Corporation did not file a Form 8-K during the third quarter of 1996 Page 19 of 20 20 THE WACKENHUT CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q for the thirty-nine weeks ended September 29, 1996 to be signed on its behalf by the undersigned hereunto duly authorized. THE WACKENHUT CORPORATION DATE: November 13, 1996 /s/ JUAN D. MIYAR -------------------------------------- Juan D. Miyar, Duly Authorized Officer and Chief Accounting Officer Page 20 of 20 EX-27 2 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-Q FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 29, 1996. 1,000 U.S. DOLLARS 9-MOS DEC-29-1996 JAN-01-1996 SEP-29-1996 1 59,977 13,338 121,542 2,114 9,337 212,127 41,573 3,112 316,013 71,172 4,925 0 0 1,476 145,200 316,013 0 672,247 0 661,239 0 966 2,288 11,900 4,201 0 0 0 0 5,890 0.44 0.00 IN JANUARY 1995, THE CORPORATION ENTERED INTO A THREE YEAR AGREEMENT TO SELL UNDIVIDED FRACTIONAL INTEREST IN A POOL OF ELIGIBLE RECEIVABLES UP TO A MAXIMUM OF $40,000,000 WHICH WAS INCREASED TO $50,000,000. AT SEPTEMBER 29, 1996 $8,000,000 HAD BEEN SOLD AND IS INCLUDED AS A REDUCTION IN ACCOUNTS RECEIVABLE ON THIS SCHEDULE. INCLUDES $21,271 OF OTHER CURRENT ASSETS. INCLUDES $43,096 RESERVES FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY, $39,487 MINORITY INTEREST AND $10,657 OTHER LIABILITIES. INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES, NET OF INCOME TAXES, OF $3,085 AND $(1,276) RESPECTIVELY.
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