ITEM 1. BUSINESS
The Wackenhut Corporation was incorporated in Florida in 1958 as a successor corporation to a partnership founded in 1954 by George R. Wackenhut and three associates. The Wackenhut Corporation, together with its consolidated subsidiaries (the corporation), engages in the business of providing security and other support services to business, industrial and government clients. The corporation's business is conducted from more than 275 domestic and foreign offices and site locations.
A subsidiary of the corporation, Wackenhut Corrections Corporation (WCC) provides facility management and construction services to detention and correctional facilities. WCC operates in a different industry segment than other divisions of the corporation.
The corporation had record revenues of $747.7 million for fiscal 1994, or an increase of $83.5 million (13%). The increase in revenues over fiscal 1993 was due principally to the Security Services Division, which reported an increase in revenues of $37.6 million over fiscal 1993 and to Wackenhut Corrections Corporation whose 1994 revenues exceeded 1993 revenues by $42.7 million. Operating income was also at a record $15.3 million in 1994. Net income, however, was $1.4 million, primarily due to a charge against earnings of $8.7 million ($5.4 million after income taxes) in the fourth quarter of 1994 to write-down the carrying value of the corporation's headquarters building and an extraordinary charge of $1.4 million ($887,000 after income taxes) for the early retirement of senior debt.
SERVICES
The corporation is engaged in a variety of services, with security guard services as the largest contributor to the corporation's revenues. Other services provided by the corporation include, correctional food service, integrated security programs, job corps facilities management, nuclear power plant security and consulting services and investigative services. WCC provides correctional and detention facilities management and construction services to detention and correctional facilities.
SECURITY GUARD SERVICES
The corporation furnishes security officers (armed and unarmed)to protect its clients' property against fire, theft, intrusion, vandalism, and other physical harm. Specialized physical security services offered by the corporation include executive protection, crash-fire-rescue services and fire protection services at airports and governmental installations, pre-departure screening of passengers and luggage at airport terminals and emergency and security services during natural disasters and labor-management disputes. The corporation also provides security consulting services to survey, analyze and minimize client security problems and trains security officers and fire and crash-fire-rescue personnel employed by its clients.The contracts of the corporation with private industry for security guard services usually are for a term of one year with automatic renewal from year to year unless terminated by either party. Most of these contracts are subject to termination by either party on thirty days prior notice. Billing rates are based on a specified rate per hour and generally are subject to renegotiation or escalation if related costs increase because of changes in mini-
mum wage laws or other events beyond the control of the corporation. Higher hourly rates apply to guard services requested by the client and emergency security services during labor-management disputes.
Security guard services are provided to governmental agencies under contracts awarded pursuant to competitive bidding. Service fees are based on one of several accepted methods: fixed price; specified rate per guard hour; or the corporation's cost plus either a fixed fee, an award fee or an incentive fee. All federal government contracts are subject to termination at the convenience of the government.
CORRECTIONAL FOOD SERVICE
The corporation's food service division provides over 21 million meals annually to over 46 jail and prison facilities in 14 states throughout the United States. Food for regular, therapeutic and religious diets are prepared on-site using conventional or cook-chill methods. Dietary support is provided to facility medical departments by registered dietitians, in addition to safety, training and quality assurance programs. Services are provided on a cost per meal basis. Complete food service management, commissary, laundry and janitorial chemical programs are also available to clients.
INTEGRATED SECURITY PROGRAMS
The corporation designs, engineers, and installs integrated security programs utilizing both security officers and electronic equipment. These services include planning a master security program for a particular facility, custom designing the security system, procuring the requisite electronic equipment, contract and construction management, installing the system, training the security personnel, and post-installation review and evaluation of the security program. Contracts for these integrated security services generally provide for a fixed fee and are awarded pursuant to competitive bidding.
JOB CORPS FACILITIES MANAGEMENT
The corporation manages job corps facilities for the U. S. Department of Labor through its subsidiary Wackenhut Educational Services, Inc., (WESI). These services include facility support and management services, administration, medical and food services, instructional programs, counseling, and vocational training and job placement. Services are billed on a cost plus fixed fee basis. WESI will discontinue operations of the McKinney Job Corps Center in the first quarter of 1995 as a result of a mutual agreement with the Department of Labor. WESI continues to operate two Job Corp Centers at Guthrie, Oklahoma and Gainesville, Florida.
NUCLEAR POWER PLANTS
The corporation provides specialized security and management consulting services for nuclear power generating facilities. These services include highly trained and qualified security personnel, emergency planning, electronic detection equipment and integrated security systems. The services are provided pursuant to a variety of fee arrangements, depending on the particular service performed. A major portion of these services are furnished to the private sector.
INVESTIGATIVE SERVICES The corporation complements physical security services provided to its clients with investigative services. These services include, but are not limited to, employee background screening and insurance fraud investigations. The corporation maintains a National Research Center with the latest information technology for public record searches and a "fraud-waste- criminal" hot line for client employees to report work place abuses. Clients ordinarily are charged an hourly rate for investigative services and a flat rate for background records searches.
WACKENHUT CORRECTIONS CORPORATION
In July and September 1994, WCC, a formerly wholly-owned subsidiary of the corporation, completed an initial public offering (IPO) in which it sold 2,185,000 shares of common stock at an offering price of $9 per share. Following the completion of the IPO, the corporation owns approximately 73.3% of the issued and outstanding shares of common stock of WCC.
WCC is a leading developer and manager of privatized correctional and detention facilities in six different states, the United Kingdom and Australia. 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. WCC also provides 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. As of year end, WCC had contracts to manage 22 correctional and detention facilities with an aggregate design capacity of 13,732 beds, including the joint-venture in England. The services are provided pursuant to a variety of fee arrangements, depending on the particular type of facility and services performed.
WCC operates in a different industry segment than other divisions of the corporation. For additional information concerning WCC reference is made to information set forth in Note 2 to Consolidated Financial Statements on page 31 of the corporation's Annual Report to Shareholders, which is incorporated herein by reference.
MARKETING
The corporation provides physical security and investigative services throughout the United States and in numerous foreign countries under the trade name "Wackenhut". During 1994, the corporation provided services to more than 14,000 clients. The largest client of the corporation was the U.S. Department of Energy, which accounted for about 20% of the corporation's consolidated revenue. The contracts at the Savannah River site (9%) and the Rocky Flats Plant (5%) are the largest of the contracts with the U. S. Department of Energy.
COMPETITION
The corporation believes it is the third largest labor-intensive security and protective service organization in the United States. Borg-Warner Security Corporation, principally through three of its subsidiaries (Wells Fargo, Burns International and Globe Security) combine to make the largest organization. Pinkerton's, Inc. is the second largest. The corporation competes domestically with these two organizations and numerous local and regional companies. The corporation believes that its foreign operations are more extensive than those of its principal domestic competitors, although there may be certain foreign competitors that have more extensive foreign operations than does the corporation.
Domestic competition in the security business is intense and is based primarily on price in relation to quality of service, the scope of services performed, and the extent of security officer training and supervision. The corporation believes that it enjoys a favorable competitive position because of its emphasis on professionalism and quality of service. The corporation's principal business is labor intensive, and is affected substantially by the availability of qualified personnel and the cost of labor. The corporation has not experienced any material difficulty in employing sufficient numbers of suitable security officers.
WCC competes with a number of companies domestically and internationally, including, but not limited to, Corrections Corporation of America, United States Corrections Corp., Group 4 International Corrections Service, Securicor Group and others. Some of the international competitors are larger and have greater resources than WCC. WCC also competes on a localized basis in some markets with small companies and in other markets, with governmental agencies that are responsible for correctional facilities.
NON-U.S. OPERATIONS
Although most of the operations of the corporation are within the United States, its international operations make a significant contribution to income. Non-U.S. operations of the corporation provide physical security and private investigative services in Canada, Central America, South America, the Caribbean, Asia, Europe and Africa, and correctional and detention facilities management in Australia. The table below (in thousands) summarizes the consolidated revenue, profit (before allocation of general and administrative expenses of the home office of the corporation and before income taxes) and assets for the last three fiscal years attributable to the corporation's foreign operations. The effect of 100% ownership of Australasian Correctional Management PTY., Ltd. (ACM), a formerly 50% owned joint venture of WCC, has been reflected beginning in 1994.
The corporation has affiliates (50% or less owned) that operate security service businesses in Europe, the Far East and Central and South America. In addition, the corporation owns 50% of a joint venture for the management of a correctional facility in the United Kingdom. The following table (in thousands) summarizes certain financial information pertaining to these unconsolidated foreign affiliates, on a combined basis, for the last three fiscal years.
EMPLOYEES
As of January 1, 1995, the corporation had more than 39,000 full-time employees (excluding those of the affiliate companies noted above), most of whom were security officers and other personnel providing physical security services. A small percentage of the employees of the corporation are covered by collective bargaining agreements. Relations with employees have been generally satisfactory and the corporation has not experienced any significant work stoppages attributable to labor disputes. Security officers and other personnel supplied to its clients are employees of the corporation, even though stationed regularly at a client's premises.
BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS
The corporation is subject to a myriad of city, county, and state firearm and occupational licensing laws that apply to security officers and private investigators. In addition, many states have laws requiring training and registration of security officers, regulating the use of badges and uniforms, prescribing the use of identification cards or badges, and imposing minimum bond, surety, or insurance standards. Many foreign countries have laws that restrict the corporation's ability to render certain services, including laws prohibiting security guard services or limiting foreign investment. Under the law of negligence, the corporation can be vicariously liable for acts or omissions of its agents or employees performed in the course of their employment. In addition, some states have statutes that expressly impose on the corporation legal responsibility for the conduct of its employees. The nature of the services provided by the corporation (such as armed security officers and fire rescue and protection) ostensibly expose it to greater risks of liability for employee acts or omissions than are posed to other non-security service businesses. The corporation maintains public liability insurance to mitigate against this potential risk 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.

ITEM 2. PROPERTIES
The corporation's executive offices are located in a 164,000 square foot office building at 1500 San Remo Avenue, Coral Gables, Florida. The building is owned by the corporation. The corporation utilizes approximately 54% of the building and the majority of the remainder is leased to various non-affiliated parties.
On January 30, 1995, the corporation announced that it would take a special, one-time charge in the fourth quarter of fiscal 1994, to provide for a loss resulting from the write-down in the carrying value of its headquarters building in Coral Gables, Florida. The charge is approximately $8.7 million ($5.4 million or 56 cents per share after taxes). The write-down in the carrying value of the headquarters building was due to management's decision to sell the corporation's headquarters building in Coral Gables, Florida. It is anticipated that the sale will generate approximately $15 million in cash and tax benefits.
The corporation owns a 66,000 square foot building in Aurora, Colorado, which is operated as a detention center under a contract with the U.S. Government and a 15,000 square foot warehouse building in Miami, Florida. In addition, the corporation owns three office buildings in Chile, two in Ecuador and one each in the Dominican Republic, Costa Rica and Puerto Rico that are used for the operations of its foreign subsidiaries in those countries. All other offices of the corporation are in leased space. The aggregate annual rent for all
noncancelable operating leases of office space, automobiles, data processing and other equipment is approximately $4,993,000. The corporation owns substantially all uniforms, firearms, and accessories used by its security officers.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
During the first quarter of 1994, the corporation and its insurance carriers settled a $6,000,000 judgment for $4,500,000. The corporation's insurance carriers contributed funds for that settlement, but these carriers dispute their legal obligation for the amounts paid. In the opinion of management, after consultation with outside counsel, it is more likely than not that the judgment will be covered by the corporation's insurance carriers ("International Surplus Lines Insurance Company, Century Indemnity Company, Insurance Company of North America and United National Insurance Company vs The Wackenhut Corporation and Home Indemnity Company," Civil Action No. 93-10022K - United States District Court, District of Massachusetts). In a second case, a former employee has obtained a $1.8 million judgment against the corporation which includes $1.7 million in punitive damages. The corporation is cautiously optimistic that its appeal will at least result in the diminution of the punitive damages awarded ("Cindy Boyle vs The Wackenhut Corporation," Appeal from Cause No 92-S-0334-C - 130th Judicial District Court, Matagorda County, Texas). Finally, in a case alleging tortious interference with contract and other related torts, plaintiff claims multi-million dollar damages, which the insurance carrier for the corporation has denied coverage ("Essex Corporation vs Wackenhut Services, Inc.," Case No. 94-908 JC/DJS United States District Court for the District of New Mexico). The corporation denies these claims and intends to vigorously defend the action. While there can be no absolute assurance that the reserves provided by the corporation are adequate, management has made its best estimate of the potential exposure in these matters.
The nature of the corporation's business results in claims or litigation alleging that the corporation is liable for damages arising from the conduct of its employees or others. In the opinion of management, there are no other pending legal proceedings that would have a material effect on the consolidated financial statements of the corporation.
ITEM 4.

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 corporation. He was President of the Corporation from the time it was founded until April 26, 1986. He formerly was a Special Agent of the Federal Bureau of Investigation. He is a member of the Board of Directors of SSJ Medical Development, Inc., Miami, Florida, and 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. He 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 Corporation. His son, Richard R. Wackenhut, is President and Chief Operating Officer of the corporation and also a director. (Age 75)
RICHARD R. WACKENHUT has been President and Chief Operating Officer of the corporation and a member of the Board of Directors since April 26, 1986, and was formerly Senior Vice President of Operations from 1983-86. He was Manager of Physical Security from 1973-74. He also served as Manager, Development at the corporation's Headquarters from 1974-76; Area Manager, Columbia, South Carolina, from 1976-77; District Manager, Columbia, South Carolina from 1977-79; Director, Physical Security Division at Corporate Headquarters from 1979-80; Vice President, Operations from 1981-1982; and Senior Vice President, Domestic Operations from 1982-1983. Mr. Wackenhut is Director of Wackenhut del Ecuador, S.A.; Wackenhut UK Limited; Wackenhut Dominicana, S.A.; and a Director of several domestic subsidiaries of the corporation. He is a member of the St. Thomas University Advisory Board and a Director of the Florida Chamber of Commerce Crime and Drugs Task Force. 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 corporation, and Ruth J. Wackenhut, Secretary of the Corporation. (Age 47).
ALAN B. BERNSTEIN has been Executive Vice President and President, Domestic Operations Group since April 27, 1991. Prior to that, Mr. Bernstein was Senior Vice President, Domestic Operations. He has been employed by the corporation 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 corporation 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; Manager of Wackenhut Electronic Systems Corporation (Miami) from 1976 to 1981. He received his B.S.E.E. degree from the University of Rochester, and an M.B.A. degree from Cornell University. (Age 47)
FERNANDO CARRIZOSA has been Senior Vice President, International Operations since January 28, 1989. Mr. Carrizosa was Vice President of International Operations from January 31, 1988 to January 28, 1989. He joined Wackenhut de Colombia in 1968 as Manager of Investigations. He was promoted to Manager of Human Resources, and then to Assistant to the President in 1974. He moved to Headquarters as a trainee in 1974, and was promoted to Manager of Latin American Operations, 1976 to 1979; Director of Latin American Operations, 1979 to 1980; Vice President of Latin American Operations, 1980 to 1983; 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 corporation. He received a B.B.A from Universidad Javeriana in Colombia, and an M.B.A. with honors from Florida International University in 1976. (Age 51)
TIMOTHY P. COLE has been Executive Vice President and President, Government Services Group since April 27, 1991. Mr. Cole was Senior Vice President Government Services from 1989 to 1991. He joined the Corporation as President of Wackenhut Services, Incorporated in 1988. Mr. Cole was associated with the Martin Marietta Corporation from 1982 to 1988 and served in various capacities, including Program Director, Director of Sub-contracts and Material, and Director of Sub-contracts. He received his B.B.A degree from the University of Oklahoma and his M.B.A. from Pepperdine University. Mr. Cole completed the Advanced Management Program of the Harvard University School of Business Administration in 1987. (Age 51)
RICHARD C. DeCOOK, Senior Vice President and Chief Financial Officer, joined the corporation in July, 1993. Mr. DeCook had spent fifteen years with Trinova Corporation, most recently as Vice President - Financial Planning and Control, and as Vice President - Treasurer. Prior to joining Trinova, he was with Ernst & Young for twelve years. He is a graduate of the University of Michigan and a Certified Public Accountant (CPA). (Age 52)
ROBERT C. KNEIP, Senior Vice President, Corporate Planning and Development, joined the corporation in 1982. Mr. Kneip has held various positions in the corporation including Director, Power Generating Services; Director, Contracts Management; Vice President, Contracts Management; and Vice President, Planning and Development. Prior to joining the corporation, Mr. Kneip was with 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. (Age 47)
JAMES P. ROWAN is Vice President and General Counsel, and Assistant Secretary of the corporation. He joined the corporation 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 the degrees of B.S.C. (Accounting) and J.D. (Law) from the University of Iowa, and a CPA from the University of Illinois. (Age 61)
RUTH J. WACKENHUT has been Secretary of the corporation since 1958. She is married to George R. Wackenhut, Chairman of the Board and Chief Executive Officer of the corporation and her son, Richard R. Wackenhut, is President and Chief Operating Officer of the corporation and also a director. (Age 72)
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to Exhibit 13, the Registrant's 1994 Annual Report to Shareholders.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to Exhibit 13, the Registrant's 1994 Annual Report to Shareholders.
ITEM 7.

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 Exhibit 13, the Registrant's 1994 Annual Report to Shareholders.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to Exhibit 13, the Registrant's 1994 Annual Report to Shareholders, except for the Financial Statement Schedules listed in Item 14 (a) (2).
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
The information required by Items 10, 11, 12 and 13 of Form 10-K (except such information as is furnished in a separate caption "Executive Officers of the Registrant" and included in Part I, hereto) will be contained in, and is incorporated by reference from, the proxy statement (with the exception of the Board Compensation Committee Report and the Performance Graph) for the corporation's 1995 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The following consolidated financial statements of the corporation, included in the Registrant's Annual Report to its Shareholders for the fiscal year ended January 1, 1995 are incorporated by reference in Item 8:
Consolidated Balance Sheets - January 1, 1995 and January 2, 1994
Consolidated Statements of Income -Fiscal years ended January 1, 1995, January 2, 1994 and January 3, 1993.
Consolidated Statements of Cash Flows - Fiscal years ended January 1, 1995, January 2, 1994 and January 3, 1993.
Consolidated Statements of Shareholders' Interest -Fiscal years ended January 1, 1995, January 2, 1994 and January 3, 1993.
Notes to Consolidated Financial Statements
With the exception of the information incorporated by reference from the 1994 Annual Report to Shareholders in Items 5, 6, 7, 8, and 14 of Parts II and IV of this Form 10-K, the Registrant's 1994 Annual Report to shareholders is not to be deemed filed as a part of this Report.
2. FINANCIAL STATEMENT SCHEDULES
Schedule VIII - Valuation and Qualifying Accounts,
All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required. Individual financial statements of The Wackenhut Corporation have been omitted because it is primarily an operating company and all significant subsidiaries included in the consolidated financial statements filed with this Annual Report are majority-owned.
3. EXHIBITS
The following exhibits are filed as part of this Annual Report:
EXHIBIT 3(a) - Amended and Restated Articles of Incorporation (incorporated by reference to the corporation's Form 10-K Annual Report for the year ended January 3, 1993).
EXHIBIT 3(b) - Bylaws currently in effect, as amended through October 27, 1990 (incorporated by reference to the corporation's Form 10-K Annual Report for the year ended December 30, 1990).
EXHIBIT 4(a) - Revolving Credit and Reimbursement Agreement by and among The Wackenhut Corporation, the company - NationsBank of Florida, N. A., and Bank of America Illinois, as Lenders - and NationsBank of Florida, N.A., as Agent dated January 5, 1995
EXHIBIT 4(b) - Receivables Purchase Agreement dated as of January 5, 1995 Among The Wackenhut Corporation, as Seller, and Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser and Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A., each as a Managing Agent and Bank of America National Trust and Savings Association as the Administrative Agent
EXHIBIT 4(c) - $15,000,000 Credit Agreement dated as of December 12, 1994 between Wackenhut Corrections Corporation as Borrower and Barnett Bank of South Florida, N.A. as Lender.
EXHIBIT 10(a) - Amendments to the Deferred Compensation Agreements for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Richard R. Wackenhut, Fernando Carrizosa, Timothy P. Cole, Robert C. Kneip (incorporated by reference to the Corporation's Form 10-K Annual Report for the year ended December 29, 1991).
EXHIBIT 10(b) - Deferred Compensation Agreement (the "Senior Plan") for Richard C. DeCook (incorporated by reference to the Corporation's Form 10-K Annual Report for the year ended January 2, 1994).
EXHIBIT 10(c) - Executive Retirement Plan adopted during fiscal year 1989 by the Board of Directors (incorporated by reference to the Corporation's Form 10-K Annual Report for the year ended December 31, 1989).
EXHIBIT 10(d) - Amended, Split Dollar arrangement with George R. and Ruth J. Wackenhut adopted by the Board of Directors in October of 1989 (incorporated by reference to the corporation's Form 10-K Annual Report for the year ended December 31, 1989).
EXHIBIT 10(e) - Amended and Restated Revolving Credit and Reimbursement Agreement between The Wackenhut Corporation and NationsBank of Florida, National Association dated July 1, 1993 (incorporated by reference to the Corporation's Form 10-K Annual Report for the year ended January 2, 1994).
EXHIBIT 10(f) - Amendment dated March 7, 1995 to the Amended and Restated Revolving Credit and Reimbursement Agreement between The Wackenhut Corporation and NationsBank of Florida, N.A., dated July 1, 1993.
EXHIBIT 13 - Annual Report to Shareholders for the year ended January 1, 1995, beginning with page 21 to the Annual Report (to be deemed filed only to the extent required by the instructions to exhibits for reports on Form 10-K).
EXHIBIT 21 - Subsidiaries of the Corporation.
(b). REPORTS ON FORM 8-K.
On August 12, 1994, the corporation filed a current report on Form 8-K to report the initial public offering of Wackenhut Corrections Corporation, a subsidiary of the corporation. After the completion of the sale, the corporation owns 73.3% of the issued and outstanding shares of common stock of the subsidiary. Financial statements and pro forma financial information were not required since the transaction did not meet materiality requirements.
On January 30, 1995, the corporation filed a current report on Form 8-K to report that it will take a special, one-time charge in the fourth quarter of fiscal 1994 to provide for a loss resulting from the write-down in the carrying value of its headquarters building in Coral Gables, Florida. The loss resulting from the write-down of the headquarters building carrying value of $8.7 million is due to management's decision to sell the Corporation's headquarters building.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE WACKENHUT CORPORATION
Date: March 20, 1995 By:/s/ Richard C. DeCook ---------------------- Richard C. DeCook, Senior Vice President - Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: March 20,1995 /s/ George R. Wackenhut ----------------------- GEORGE R. WACKENHUT, Chairman of the Board and Chief Executive Officer (principal executive officer)
Date: March 20,1995 /s/ Richard C. DeCook --------------------- Richard C. DeCook, Senior Vice President - Finance and Chief Financial Officer
Date: March 20, 1995 /s/ Juan D. Miyar ----------------- Juan D. Miyar, Vice President - Accounting Services and Corporate Controller (principal accounting officer)
/s/ Julius W. Becton, Jr.* ------------------------- JULIUS W. BECTON, JR. Director
/s/ Richard G. Capen, Jr.* ------------------------- RICHARD G. CAPEN, JR. Director
/s/ Anne N. Foreman * ------------------- ANNE N. FOREMAN Director
/s/ Edward L. Hennessy, Jr. * --------------------------- EDWARD L. HENNESSY, JR. Director
/s/ P. X. Kelley * -------------------- PAUL X. KELLEY Director
/s/ Robert Q. Marston * --------------------- ROBERT Q. MARSTON Director
/s/ Jorge L. Mas Canosa * ----------------------- JORGE L. MAS CANOSA Director
/s/ Nancy Clark Reynolds * ------------------------ NANCY CLARK REYNOLDS Director
/s/ Thomas P. Stafford * ---------------------- THOMAS P. STAFFORD Director
/s/ George R. Wackenhut * ----------------------- GEORGE R. WACKENHUT Director
/s/ Richard R. Wackenhut * ------------------------ RICHARD R. WACKENHUT Director
Dated: March 20, 1995 * By /s/ James P. Rowan ------------------------ JAMES P. ROWAN, Attorney-in-fact
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of The Wackenhut Corporation:
We have audited the accompanying consolidated balance sheets of The Wackenhut Corporation (a Florida corporation) and subsidiaries as of January 1, 1995 and January 2, 1994, and the related consolidated statements of income, cash flows and shareholders' equity for each of the three fiscal years in the period ended January 1, 1995. These financial statements and the schedule referred to below are the responsibility of the Corporation's management. Our responsibility is to express and opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Wackenhut Corporation and subsidiaries as of January 1, 1995 and January 2, 1994, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 1, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purposes of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic 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 financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida, February 17, 1995.
SCHEDULE VIII
THE WACKENHUT CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
(In thousands)
EXHIBIT INDEX
Exhibit No.
4(a) Revolving Credit and Reimbursement Agreement by and among The Wackenhut Corporation, the Company - NationsBank of Florida, N. A., and Bank of America Illinois, as Lenders - and NationsBank of Florida, N.A., as Agent dated January 5,1995
4(b) Receivables Purchase Agreement dated as of January 5, 1995 Among The Wackenhut Corporation, as Seller and Receivables Capital Corporation and Enterprise Funding Corporation, each as a Purchaser and Bank of America National Trust and Savings Association and NationsBank of North Carolina, N.A., each as a Managing Agent and Bank of America National Trust and Savings Association as the Administrative Agent
4(c) $15,000,000 Credit Agreement dated as of December 12, 1994 between Wackenhut Corrections Corporation as Borrower and Barnett Bank of South Florida, N.A., as lender
10(f) Amendment dated March 7, 1995 to the Amended and Restated Revolving Credit and Reimbursement Agreement between The Wackenhut Corporation and NationsBank of Florida, N.A., dated July 1, 1993
13 Annual Report to shareholders for the year ended January 1, 1995, (to be deemed filed only to the extent required by the instructions to exhibits for reports on Form 10-K).
21 Subsidiaries of the Corporation
See Item 14(a)(3) for a complete listing of exhibits, including those exhibits not attached to this Form 10-K Annual Report but incorporated by reference to prior Form 10-K Annual Reports.


ITEM 1. BUSINESS
Sterling Drilling Fund 1983-1, L.P., formerly Sterling-Fuel Resources Drilling Fund 1983-1 (the "Registrant" or the "Partnership") is a limited partnership formed under the laws of the State of New York on March 18, 1983. The sole business of the Partnership was the drilling of formation extension wells principally for natural gas in various locations in the State of West Virginia. No exploratory drilling was undertaken.
The principal place of business of the Partnership is at One Landmark Square, Stamford, Connecticut 06901, telephone (203) 358-5700. The Managing General Partner of the Partnership is PrimeEnergy Management Corporation, a New York corporation which is a wholly-owned subsidiary of PrimeEnergy Corporation, a publicly held Delaware corporation. Messrs. Charles E. Drimal, Jr., Oliver J. Sterling and Samuel R. Campbell also are General Partners. Mr. Drimal is a Director, President and Chief Executive Officer of PrimeEnergy Management Corporation and PrimeEnergy Corporation, and Mr. Campbell is a Director of PrimeEnergy Corporation.
The aggregate contributions to the Partnership were $11,077,000, all of which, net of the organization expenses of the Partnership, was expended in the drilling of such formation extension wells. Such properties are located in Clay, Roane, Calhoun, Gilmer, Wirt, Kanawha, Lincoln and Putnam Counties, West Virginia. The Partnership does not operate any of the properties in which it has an interest, but generally such properties are operated and serviced by Prime Operating Company, a Texas corporation, and Eastern Oil Well Service Company, a West Virginia corporation, both wholly-owned subsidiaries of PrimeEnergy Corporation.
During 1995, the Partnership did not engage in any development drilling activities or the acquisition of any significant additional properties, but engaged in the production of oil and gas from its producing properties in the usual and customary course. Since January 1, 1996, and to the date of this Report, the Partnership has not engaged in any drilling activities nor participated in the acquisition of any material producing oil and gas properties.
COMPETITION AND MARKETS
Competitors of the Partnership in the marketing of its oil and gas production include oil and gas companies, independent concerns, and individual producers and operators, many of which have financial resources, staffs and facilities substantially greater than those available to the Partnership. Furthermore, domestic producers of oil and gas must not only compete with each other in marketing their output, but must also compete with producers of imported oil and gas and alternative energy sources such as coal, nuclear power and hydroelectric power.
The availability of a ready market for any oil and gas produced by the Partnership at acceptable prices per unit of production will depend upon numerous factors beyond the control of the Partnership, including the extent of domestic production and importation of oil and gas, the proximity of the Partnership's producing properties to gas pipelines and the availability and capacity of such pipelines, the marketing of other competitive fuels, fluctuation in demand, governmental regulation of production, refining, transportation and sales, general national and worldwide economic conditions, and pricing, use and allocation of oil and gas and their substitute fuels.
The Partnership does not currently own or lease any bulk storage facilities or pipelines, other than adjacent to and used in connection with producing wells. The Partnership deals with a number of major and independent companies for the purchase of its oil and gas production, in the areas of production. In 1995, approximately $220,000, or 92%, of the Partnership's gas production was sold to one unaffiliated purchaser, Phoenix Energy Sales Company. Sales are made under short-term contractual arrangements. The Partnership believes that its current purchasers will continue to purchase oil and gas products and, if not, could be replaced by other purchasers.
ENVIRONMENTAL MATTERS
The petroleum industry is subject to numerous federal and state environmental statutes, regulations and other pollution controls. In general, the Partnership is, and will be subject to, present and future environmental statutes and regulations, and in the future the cost of its activities may materially increase as a result thereof. The Partnership's expenses relating to preserving the environment during 1995 as they relate to its oil and gas operations were not significant in relation to operating costs and the Partnership expects no material change in the near future. The Partnership believes that environmental regulations should not, in the future, result in a curtailment of production or otherwise have a materially adverse effect on the Partnership's operations or financial condition.
REGULATION
The Partnership's oil and gas operations are subject to a wide variety of federal, state and local regulations. Administrative agencies in such jurisdictions may promulgate and enforce rules and regulations relating to, among other things, drilling and spacing of oil and gas wells, production rates, prevention of waste, conservation of natural gas and oil, pollution control, and various other matters, all of which may affect the Partnership's future operations and production of oil and gas. The Partnership's natural gas production and prices received for natural gas are regulated by the Federal Energy Regulatory Commission ("FERC") and the Natural Gas Policy Act of 1978 and various state regulations. The Partnership was subject to the Crude Oil Windfall Profit Tax Act of 1980, which imposed an excise tax on producers of crude oil at various rates for prices received in excess of certain historical base prices. That Act was repealed in August, 1988. The Partnership is also subject to state drilling and proration regulations affecting its drilling operations and production rates.
The FERC continues to regulate interstate natural gas pipeline transportation rates and service conditions pursuant to the NGA and NGPA. Federal regulation of interstate
transporters affects the marketing of natural gas produced by the Partnership as well as the revenues received by the Partnership for sales of such natural gas. Since the latter part of 1985, through its Order Nos. 436, 500 and 636 rulemakings, the FERC has endeavored to make natural gas transportation accessible to gas buyers and sellers on an open and non-discriminatory basis. The FERC's efforts have significantly altered the marketing and pricing of natural gas. No prediction can be made as to what additional legislation may be proposed, if any, affecting the competitive status of a gas producer, restricting the prices at which a producer may sell its gas, or the market demand for gas, nor can it be predicted which proposals, including those presently under consideration, if enacted, might be effective.
A number of legislative proposals have been introduced in Congress and the state legislatures of various states, that, if enacted, would significantly affect the petroleum industry. Such proposals involve, among other things, the imposition of land and use controls and certain measures designed to prevent petroleum companies from acquiring assets in other energy areas. In addition, there is always the possibility that if market conditions change dramatically in favor of oil and gas producers that some new form of "windfall profit" or severance tax may be proposed for and imposed upon either oil or gas. At the present time it is impossible to predict which proposals, if any, will actually be enacted by Congress or the various state legislatures. The Partnership believes that it will comply with all orders and regulations applicable to its operations. However, in view of the many uncertainties with respect to the current controls, including their duration and possible modification together with any new proposals that may be enacted, the Partnership cannot predict the overall effect, if any, of such controls on its operations.
TAXATION
The Partnership received an opinion of its counsel that the Partnership would be classified as a partnership and the holders of Partnership Units would be treated as limited partners for federal income tax purposes. The Partnership itself, to the extent that it is treated for federal income tax purposes as a partnership, is not subject to any federal income taxation, but it is required to file annual partnership returns. Each holder of Partnership Units will be allocated his distributive shares of the Partnership's income, gain, profit, loss, deductions, credits, tax preference items and distributions for any taxable year of the Partnership ending within or with his taxable year without regard as to whether such holder has received or will receive any cash distributions from the Partnership.
ITEM 2.

ITEM 2. PROPERTIES
The Partnership has no interest in any properties other than its oil and gas properties. The information set forth below summarizes the Partnership's oil and gas wells, production and reserves, for the periods indicated.
PRODUCING WELLS AND OPERATING INFORMATION
The Partnership, following its formation, and in November, 1983, contracted for the drilling of 38 development wells, which resulted in 37 producing wells and one dry hole.
As of December 31, 1995, the Partnership had ownership interests in the following gross and net producing oil and gas wells and gross and net producing acres(1). The Partnership has no material undeveloped leasehold, mineral or royalty acreage.
Producing wells:
- ---------------
(1) A gross well is a well in which an interest is owned; a net well is the sum of the interests owned in gross wells. Wells are classified by their primary product. Some wells produce both oil and gas.
The following table sets forth the Partnership's oil and gas production, average sales prices and average production costs as of and for the periods indicated:
OIL AND GAS RESERVES
The Partnership's interests in proved developed oil and gas properties have been evaluated by Ryder Scott Company for the periods indicated below. All of the Partnership's reserves are located in the continental United States. The following table summarizes the Partnership's oil and gas reserves at the dates shown (figures rounded):
The estimated future net revenue (using current prices and costs as of the dates indicated, exclusive of income taxes (at a 10% discount for estimated timing of cash flow) for the Partnership's proved developed oil and gas reserves for the periods indicated are summarized as follows (figures rounded):
Since January 1, 1995, the Partnership has not filed any estimates of its oil and gas reserves with, nor were any such estimates included in any reports, to any federal authority or agency, other than the Securities and Exchange Commission.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a party to, nor is any of its property the subject of, any legal proceedings actual or threatened, which would have a material adverse effect on the business and affairs of the Partnership.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during 1995 for vote by the holders of Partnership Units.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no market for the Limited Partnership Units (the "Units") of the Partnership. As of March 15, 1996, there were 828 holders of record of the Units.
The Units are not regarded as stock and payments or distributions to holders of Units are not made in the form of dividends. Cash distributions to the holders of Units for 1995 aggregated $27,693. Aggregate cash distributions to the holders of the Units as of December 31, 1995, is $2,215,400.
The Managing General Partner may purchase Units directly from the unit holders if presented to the Managing General Partner, subject to conditions, including limitations on numbers of Units, and at a price to be fixed by the Managing General Partner in accordance with certain procedures, all as provided for in the Limited Partnership Agreement of the Partnership.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data to highlight significant trends in the Registrant's financial condition and results of operations for the periods indicated. The selected financial data should be read in conjunction with the financial statements and related notes included elsewhere in this report.
ITEM 7.

ITEM 7. MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
1. Liquidity: The oil and gas industry is intensely competitive in all its phases. There is also competition between this industry and other industries in supplying energy and fuel requirements of industrial and residential consumers. It is not possible for the Partnership to calculate its position in the industry as the Partnership competes with many other companies having substantially greater financial and other resources. In accordance with the terms of the Agreement of Limited Partnership of the Partnership, the General Partners of the Partnership will make cash distributions of as much of the Partnership cash credited to the capital accounts of the partners as the General Partners have determined is not necessary or desirable for the payment of any contingent debts, liabilities or expenses for the conduct of the Partnership business. As of December 31, 1995, the General Partners have distributed to the Limited Partners $2,215,400 or 20.00% of the total Limited Partner capital contributions to the Limited Partnership.
The net proved oil and gas reserves of the Partnership are considered to be a primary indicator of financial strength and future liquidity. The present value of unescalated future net revenue (S.E.C. case) associated with such reserves, discounted at 10% as of December 31, 1995, was approximately $893,700 as compared to the discounted reserves as of December 31, 1994, which were approximately $782,000. The increase in total estimated discounted future net revenue was due primarily to higher year end gas prices as of December 31, 1995, when
compared to the low gas price in effect as of December 31, 1994. It is the opinion of management, and the general consensus in the industry, that gas prices are unlikely to fall significantly below the December 31, 1995, price in the near future. However, there can be no assurances that such price declines will not occur, and will not pose a threat to the Partnership's continued viability.
2. Capital resources: The Partnership was formed for the sole intention of drilling oil and gas wells. The Partnership entered into a drilling contract with an independent drilling contractor in November, 1983, for $9,400,000. Pursuant to the terms of this contract, thirty-eight wells were drilled resulting in thirty-seven producing wells and one dry-hole.
3. Results of Operations:
1995 compared to 1994
Operating revenue declined from $345,484 in 1994 to $279,580 in 1995. The Partnership's oil production remained consistent with prior years, 1,521 barrels of oil in 1994, compared with 1,508 barrels of oil 1995, while the gas production increased slightly from 104,386 mcf in 1994 to 116,201 mcf in 1995. Oil revenue was up due to consistent production and higher average oil price from $12.89 in 1994 to $17.82 in 1995. Gas revenue was lower even with increased production due to the average gas price per mcf of $2.17 in 1995 as compared to the higher average mcf price of $3.12 for 1994.
The Partnership was paid spot prices throughout all of 1995 for its gas produced. Spot prices fluctuate and were low during off peak usage times of the year. The Partnership generally renews contracts as they come due for an additional twelve month period. The Partnership was under a fixed contract price for the first nine months of 1994. The price offered in 1994, at the renewal date for the 1994-1995 contracts, was lower than was deemed favorable. Therefore, the price remained at spot prices during 1994 and 1995. During the fourth quarter of 1995 the Partnership locked into a twelve month fixed price contract.
Columbia Gas Transmission Corp., a gas purchaser of the Partnership's gas, filed a Chapter 11 petition in the U.S. Bankruptcy Court in Wilmington, Delaware, on July 31, 1991. At that time, the Bankruptcy Court released Columbia from any active contracts. The Partnership filed a claim with the Bankruptcy Court to recover revenues suspended at the time the bankruptcy occurred. Such amounts were not recorded during the applicable period since the claim amount was undetermined and open-ended. The Court's settlement of the Columbia bankruptcy proceedings were finalized in November of 1995. The Partnership received $75,375, which was reported as other income for 1995.
Production expenses decreased from $181,570 in 1994 to $147,306 in 1995. The higher production costs experienced in 1994 can be attributed to higher general labor, repairs and location costs associated with the inclement weather conditions throughout 1994. The weather caused line damages, floods and other situations that increased normal maintenance costs. Most of the production expenses incurred in 1995 were to maintain the general upkeep of the wells and well sites. General and administrative costs declined from $181,739 in 1994 to $106,973 in 1995. Amounts in both years are substantially less then the $553,850 allocable to the
Partnership under the Partnership Agreement. The lower amounts reflect management's efforts to limit costs, both incurred and allocated to the Partnership.
The Partnership records additional depreciation, depletion and amortization to the extent that the net capitalized costs exceeds the undiscounted future net cash flows attributable to the Partnership. Additional depletion was needed of $450,000 in 1994 and no revision was needed in 1995. Depreciation, depletion and amortization rates were significantly higher in 1994 compared to 1995, resulting in a higher depletion expense, $148,120 for 1994, as compared to $86,358 for 1995.
1994 compared to 1993
Operating revenue declined from $388,480 in 1993 to $345,484 in 1994. This decline can be attributed to both a production decline as well as low prices during the last quarter of 1994. The Partnership generally renews contracts as they come due for an additional twelve month period. The price offered at the renewal date for the contracts was lower than was deemed favorable. The Partnership is currently selling, at spot prices, to its normal purchasers until the Partnership can lock into a twelve month contract with a favorable price. The contract price in effect for three months of 1993 and nine months of 1994 resulted in a slightly higher average mcf price of $3.12 for 1994, as compared with $2.61 for 1993. The price increase was offset by a decline in production from 135,378 mcf in 1993 to 104,386 mcf in 1994.
Production expenses increased from $158,495 in 1993 to $181,570 in 1994. This increase can be attributed to higher general labor, repairs and location costs associated with the inclement weather conditions in early 1994. The weather caused line damages, floods and other situations that increased normal maintenance costs. General and administrative costs declined slightly from $215,070 in 1993 to $181,739 in 1994. Amounts in both years are substantially less than the $553,850 allocable to the Partnership under the Partnership Agreement. The lower amounts reflect management's efforts to limit costs, both incurred and allocated to the Partnership.
The Partnership records additional depreciation, depletion and amortization to the extent that the net capitalized costs exceeds the undiscounted future net cash flows attributable to the Partnership. Additional depletion was needed of $450,000 in 1994 and no revision was needed in 1993. Depreciation, depletion and amortization rates were significantly higher in 1994 compared to 1993 resulting in a higher depletion expense, $148,120 for 1994 as compared to $126,579 in 1993. The higher rates are directly attributable to a downward revision in the oil and gas reserves due to lower year-end prices.
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Sterling Drilling Fund 1983-1, L.P.:
We have audited the accompanying balance sheets of Sterling Drilling Fund 1983-1, L.P. (a New York limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, changes in partners' equity, and cash flows for the years ended December 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Partnership'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 Sterling Drilling Fund 1983-1, L.P. as of December 31, 1995 and 1994, and the results of its operations and cash flows for the years ended December 31, 1995, 1994 and 1993 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to financial statements and schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the examination of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ PUSTORINO, PUGLISI & CO., LLP PUSTORINO, PUGLISI & CO., LLP New York, New York March 5, 1996
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
Assets ------
The Notes to Financial Statements are an integral part of these statements.
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Notes to Financial Statements are an integral part of these statements.
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Notes to Financial Statements are an integral part of these statements.
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Notes to Financial Statements are an integral part of these statements.
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) Organization and Capital Contributions:
Sterling Drilling Fund 1983-1, L.P., formerly Sterling-Fuel Resources Drilling Fund 1983-1, a New York limited partnership (the "Partnership"), was formed on March 18, 1983 for the primary purpose of acquiring, developing and producing oil and gas in the state of West Virginia. The general partners are: PrimeEnergy Management Corporation (PEMC), a wholly owned subsidiary of PrimeEnergy Corporation (PEC), Charles E. Drimal, Jr., Oliver J. Sterling and Samuel R. Campbell. Eleven thousand seventy-seven limited partnership units, (11,077), were sold at $1,000 per unit aggregating total limited partner contributions of $11,077,000. The general partners' contributions amounted to $902,847. Partnership operations commenced on November 10, 1983.
(2) Summary of Significant Accounting Policies:
Revenue Recognition:
The Partnership recognizes operating revenues, consisting of sales of oil and gas production, in the month of sale. Uncollected revenue is accrued based on known facts and trends of the relevant oil and gas properties on a monthly basis.
Basis of Accounting-
The accounts of the Partnership are maintained in accordance with accounting practices permitted for federal income tax reporting purposes. Under this method of accounting, (a) substantially all exploration and development costs except leasehold and equipment costs are expensed as paid, (b) costs of abandoned leases and equipment are expensed when abandoned, and (c) depreciation (for equipment placed in service) is provided on an accelerated basis. In order to present the accompanying financial statements in accordance with generally accepted accounting principles, memorandum adjustments have been made to account for oil and gas properties, as discussed below.
Oil and Gas Producing Activities-
The Partnership accounts for its oil and gas operations using the successful efforts method of accounting on a property by property basis. The Partnership only participates in developmental drilling. Accordingly, all costs of drilling and equipping these wells, together with leasehold acquisition costs, are capitalized. These capitalized costs are amortized on a property by property basis by the unit-of-
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(2) Summary of Significant Accounting Policies - (Cont'd):
production method based upon the ratio of production to proved oil and gas reserves. Additional depreciation, depletion and amortization is recorded to the extent that net capitalized costs exceed the undiscounted future net cash flows attributable to Partnership properties. (See Note 4)
Federal Income Taxes -
As federal income taxes are the liability of the individual partners, the accompanying financial statements do not include any provision for federal income taxes. (See Note 8)
Limited Partners' Loss Per Equity Unit:
The limited partners' loss per equity unit is computed on the 11,077 limited partner equity units.
Cash and Cash Equivalents -
For purposes of the statements of cash flows the Partnership considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards:
The Partnership has elected to implement the provisions of FAS Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The implementation of this standard has had no material effect on the financial statements.
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(3) Oil and Gas Properties:
The Partnership acquired leases or farmouts from PEMC at its cost. Cost is defined as any amount paid for delay rentals, lease bonuses, if any, surveys and other expenses including such portion of any of the general partners', or their affiliates' reasonable, necessary and actual expenses for geological, geophysical, seismic, land, engineering, drafting, accounting, legal and other services. The Partnership currently pays royalties of approximately 12.5% to 17.9% of the selling price of the oil and gas extracted.
The following table sets forth certain revenue and expense data concerning the Partnership's oil and gas activities for the years ended December 31, 1995, 1994 and 1993:
(4) Quantities of Oil and Gas Reserves:
The amount of proved developed reserves presented below have been estimated by an independent firm of petroleum engineers as of January 1, 1996. Petroleum engineers on the staff of PEC have reviewed the data presented below, as of December 31, 1995, for consistency with current year production and operating history. All of the Partnership's oil and gas reserves are located within the United States:
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(4) Quantities of Oil and Gas Reserves - (Cont'd):
Should current prices continue into the future, operation of certain wells would become uneconomic, on a pretax basis, as production levels decline with age. In accordance with the rules and regulations of the Securities and Exchange Commission, proved reserves exclude production which would be uneconomic. The partners are entitled to certain tax benefits and credits which, if available in the future, may result in production continuing beyond the level included in the above table.
Revisions arise from changes in current prices, as well as engineering and geological data which would alter the useful life and therefore the overall predicted production of each well. Future changes in these estimates are common and would impact the reserve quantities used to calculate depreciation, depletion and amortization.
As discussed in Note 2, the Partnership records additional depreciation, depletion and amortization to the extent that net capitalized costs exceed the undiscounted future net cash flows attributable to Partnership properties. No price declines affect estimated future net revenues both directly and as a consequence of their impact on estimates of future production. The Partnership has recorded no additional provision for 1995 or 1993, however, an additional provision of $450,000 was recorded in 1994. If the additional provision had been computed based on the limited partners' interest in capitalized costs and estimated future net revenues, rather than on the basis of total Partnership interests, the limited partners income for 1995 would not have been reduced, however, in 1994 and 1993 it would have been reduced by an additional $225,000 and $8,500, respectively.
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(5) Allocation of Partnership Revenues, Costs and Expenses:
Under the terms of the Limited Partnership Agreement, all Partnership revenues and expenses, including deductions attributable thereto, are to be allocated as follows:
(6) Transactions With Affiliates:
(a) The due to/from affiliates at December 1995 and 1994, represents general and administrative and certain other expenses incurred on behalf of the Partnership by PEC and its subsidiaries, and amounts due for production operator's fees (Note 6(b)), net of production revenues collected on behalf of the Partnership.
(b) As operator of the Partnership's properties, Prime Operating Company (POC), a subsidiary of PEC, receives, as compensation from the Partnership, a monthly production operator's fee of $379 for each producing gas well and $525 for each producing oil or combination gas and oil well, based on the Partnership's
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(6) Transactions With Affiliates - (Cont'd):
percentage of working interest in the well. Such fee is subject to annual adjustment by the percentage increase in the Cost of Living Index published by the U.S. Department of Labor over the year in which production began. During 1995, 1994 and 1993, $71,148, $100,509 and $93,704 of production operator's fees were incurred, respectively.
(c) In accordance with the terms of the Partnership Agreement, the general partners are required to pay 8.5% of drilling and completion costs, lease acquisition costs and certain other costs, of which 1% will be paid for by the general partners out of revenues received by them from the Partnership. At December 31, 1995, $22,880 was due from certain general partners for such costs.
(7) General and Administrative Expenses:
In accordance with the Management Agreement, the general partners are reimbursed for the portion of their in- house overhead, including salaries and related benefits, attributable to the affairs and operations of the Partnership.
This amount, combined with certain direct expenses for geology, engineering, legal, accounting, auditing, insurance and other items shall not exceed an annual amount equal to 5% of limited partner capital contributions. Excess expenses shall be borne by the general partners.
During 1995, 1994 and 1993, the Partnership accrued general and administrative expenses incurred on its behalf by a general partner of $85,000, $160,000 and $192,516, respectively.
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(8) Federal Income Taxes:
The following is a reconciliation between the net income (loss) as reported on the Partnership's federal income tax return and the net income (loss) reported in the accompanying financial statements:
The tax returns of the Partnership, the qualifications of the Partnership as such for tax purposes, and the amount of Partnership income or loss are subject to examination by federal and state taxing authorities. If such examinations result in changes with respect to Partnership's qualifications or in changes to its income or loss, the tax liability of the partners would be changed accordingly.
The Tax Reform Act of 1976 provides that no part of any depletion deduction with respect to oil and gas wells is to be determined by the Partnership but must be computed separately by the partners. Thus, cost or percentage depletion, as applicable, must be computed by each partner so that a specific depletion computation can be made when each partner files his U.S. income tax return. Information is furnished to the partners to compute the depletion deduction.
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(9) Major Customers:
A schedule of the major purchases of the Partnership's production is as follows:
The Partnership renewed its gas purchase contract in December, 1995 resulting in a fixed price for one year.
(10) Other Matters:
Effective October 1, 1988, Fuel Resources, Inc., a subsidiary of Brooklyn Union Gas Company and also a general partner sold for cash its interests in the revenues, costs and expenses, and profits and losses of the Partnership to PrimeEnergy Assets and Income Fund L.P. A-1 and PrimeEnergy Asset and Income Fund L.P. A-2 whose general partners are also general partners of this Partnership. Effective March 1, 1993, Fuel Resources, Inc. withdrew as a general partner.
(11) Other Revenue:
Other revenue represents settled claims against Columbia Gas Transmission Corp. (Columbia) arising from amounts due from Columbia when they declared bankruptcy. No significant additional claims are expected concerning this matter.
SCHEDULE V
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
PROPERTY AND EQUIPMENT - OIL AND GAS PROPERTIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
SCHEDULE VI
STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership)
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION - OIL AND GAS PROPERTIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
INDEX TO EXHIBITS


ITEM 1. BUSINESS. ---------
General - -------
Edac Technologies Corporation ("Edac") was formed in 1985 for the purpose of acquiring Gros-Ite Industries, Incorporated (which had three operating divisions: Time Engineering, Gros-Ite and Spectrum). In 1988 and 1989 Edac sold the assets of its other operations and now operates only the Gros-Ite division ("Gros-Ite").
Products - --------
Edac currently offers design and manufacturing services for the aerospace industry in areas such as special tooling, equipment and gauges, and components used in the manufacture, assembly and inspection of jet engines. Edac also offers design and manufacturing services for the medical instruments industry in such areas as components used in the manufacture of medical instruments and special tooling. Edac also designs and manufactures specialized machines for a variety of other applications.
Edac maintains manufacturing facilities with computerized numerically controlled machining centers, and grinding, welding, and sheet metal fabrication, painting and assembly capabilities. Items manufactured by Edac include precision rings, and other components for jet engines, components for medical instruments, as well as industrial spindles, environmental test chambers and specialized machinery designed by Edac or others and other assemblies requiring close tolerances.
Patents and Trademarks - ----------------------
Edac currently holds no patents or registered trademarks, tradenames or similiar intellectual property. The Company believes that the nature of its business presently does not require the development of patentable products or registered tradenames or trademarks to maintain market growth.
Marketing and Competition - -------------------------
Edac has numerous competitors both in design and manufacturing. Many of the independent design firms with which it competes are smaller than Edac and do not provide the variety of services that Edac provides. Edac also competes with its customers' in-house design and technical services capabilities. Edac believes that it is able to compete effectively with independent design firms and in-house design staffs because of its experience and the timeliness and competitive pricing of its services.
Many firms also compete with Edac's manufacturing operations. However, Edac believes that it will be able to compete effectively with these firms on price, ability to meet customer deadlines and the stringent quality control standards it employs. Edac also believes that its integration of design and manufacturing capabilities offers a competitive advantage.
Edac's manufactured products are sold primarily through individual purchase orders on a quotation or bid basis. Its sales personnel and management maintain contacts with purchasing sources to keep informed as to manufacturing projects available for quotation. Edac occasionally enters into annual manufacturing contracts on specific components.
For its fiscal year ended December 31, 1995, approximately 69% and 10% of Edac's net sales were derived from sales to United Technologies Corporation and Zapata Technologies Inc., respectively.
Approximately 70% of Edac's design business is done on a time and material basis based on hourly rates established annually. Most of Edac's manufacturing is done on a firm quotation basis. Less than 10% of Edac's net sales are attributed to government contracts subject to termination or renegotiation at the option of the U.S. Government. United Technologies Corporation annually negotiates hourly billing rates for design work and is free to audit costs actually charged.
Backlog - -------
Edac's backlog as of December 31, 1995, was approximately $24,677,000 compared to $24,487,000 as of December 31, 1994. Backlog consists of accepted purchase orders that are cancellable by the customer without penalty, except for payment of costs incurred, and may involve delivery times that extend over periods as long as two or three years. Edac presently expects to complete approximately $15,900,000 of its December 31, 1995 backlog within the next 12 months.
Employees - ---------
As of March 29, 1996 Edac had approximately 171 employees.
ITEM 2.

ITEM 2. PROPERTIES. -----------
(1) Property subject to mortgage securing certain corporate indebtedness.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS. ------------------
None
ITEM 4.

ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS. -----------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1995.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED ------------------------------------------------- STOCKHOLDERS MATTERS. ---------------------
Information in response to this item is incorporated herein by reference to "Market Information" on page 3 of the Registrant's 1995 Annual Report to Shareholders.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA. ------------------------
Information in response to this item is incorporated herein by reference to "Selected Financial Information" on page 3 of the Registrant's 1995 Annual Report to Shareholders.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS. --------------------------
Information in response to this item is incorporated herein by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 4 through 7 of the Registrant's 1995 Annual Report to Shareholders.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. --------------------------------------------
Information in response to this item is incorporated herein by reference to pages 8 through 20 of the Registrant's 1995 Annual Report to Shareholders.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ------------------------------------------------ ACCOUNTING AND FINANCIAL DISCLOSURE. ------------------------------------
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. ---------------------------------------------------
Information in response to this item is incorporated herein by reference to "Election of Directors" in the Registrant's definitive Information Statement for its 1996 Annual Meeting of Shareholders, which will be filed within 120 days after the end of the Registrant's fiscal year ended December 31, 1995.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION. -----------------------
Information in response to this item is incorporated herein by reference to "Executive Compensation" in the 1996 Information Statement.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ---------------------------------------------------------------
Information in response to this item is incorporated herein by reference to "Principal Security Holders and Security Holdings of Management" in the 1996 Information Statement.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. -----------------------------------------------
Information in response to this item is incorporated herein by reference to "Certain Transactions" in the 1996 Information Statement.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. ----------------------------------------------------------------
(a) Documents filed: ---------------
1. Financial Statements.
The financial statements required to be filed by Item 8 hereof have been incorporated by reference to the Registrant's 1995 Annual Report to Shareholders and consist of the following:
Report of Independent Public Acountants
Consolidated Statements of Operations--Years ended December 31, 1995, 1994 and 1993.
Consolidated Balance Sheets--December 31, 1995 and 1994.
Consolidated Statements of Cash Flows--Years ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Changes in Shareholders' Equity--Years ended December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
2. Financial statement schedule. -----------------------------
The following financial statement schedule of Edac is included in Item 14(d) hereof:
Report of Independent Public Accountants on Schedule
Schedule II: Valuation and qualifying accounts
All other schedules for which provisions are made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K -------------------
None.
(c) Exhibits: --------
See Exhibit Index included as the last part of this Report, which Index is incorporated herein by this reference.
(d) Financial Statements and Schedules ----------------------------------
Refer to Item 14a above for listing of financial statements and schedule.
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE ----------------------------------------------------
To the Shareholders and Board of Directors of
Edac Technologies Corporation:
We have audited in accordance with generally accepted auditing standards, the financial statements included in Edac Technologies Corporation's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated March 1, 1996, except with respect to certain matters as to which the date was April 10, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule presented on page 9 of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic 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 financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut March 1, 1996
---------------------------------------------------- SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS EDAC TECHNOLOGIES CORPORATION AND SUBSIDIARIES ----------------------------------------------------
(1) Represents write-off of specific accounts receivable.
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.
EDAC TECHNOLOGIES CORPORATION
BY /s/ Robert T. Whitty . ------------------------------- Robert T. Whitty, Chief Executive Officer
BY /s/ Glenn L. Purple . ------------------------------- Glenn L. Purple Vice President-Finance (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
(1) Exhibit incorporated by reference to the Company's registration statement on Form S-1 dated August 6, 1985, commission File No. 2-99491, as amended.
(2) Exhibit incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989.
(3) Exhibit incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.
(4) Exhibit incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
(5) Exhibit incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.