25 th ACI FY 2012 Annual Report Table of Contents CEO/General Manager’s Letter........................................3 Mission Statement, 2015 Goal, Core Values....................4 About Us, 25 Year History.................................................5 Organization Chart............................................................9 Management Team...........................................................10 Year in Review Benefit to the State...........................................................11 Inmate Contributions.........................................................12 Source of Business/New Products....................................13 Innovations/Recognition Awards.......................................14 Financial Performance Summary......................................15 ACI Business Operations..................................................16 Owned and Operated Labor Contracts Financial Report ACI Financial Statements.................................................19 Special Thanks.................................................................23 Annual Report FY2012 Annual Report FY2012 2 Mission Statement 2015 Goal To create opportunities for offenders to develop marketable skills and good work habits through enterprises that produce quality products and services for our customers while achieving our revenue, profit and inmate work increase objectives. $50m in Revenue $4m Net Income 3,000 Inmate Jobs Core Values Who We Are Are: We are a unique self-funded business within the Arizona Department of Corrections. We are honest, hardworking, and dependable. We have the highest Ethical Standards and we always seek to do the right thing. We enjoy our work and celebrate our achievements. What We Do: We employ inmates so they can learn and be productive. We provide a safe and secure environment for all of our workers. We strive to constantly improve. We are accountable for our actions. We make a difference EVERY DAY. How We Do It: We provide a positive learning experience for all of our workers. We balance our home and business life. We continually strive to improve our quality focusing on Lean Continuous improvement. We are passionately involved in making the customer happy. Annual Report FY2012 4 Historical Highlights The State Legislature established Arizona Correctional Enterprises (ARCOR) in 1981 for the purpose of employing inmates. After its first five years of operation, a comprehensive review of all aspects of the business was completed; the results initiated a complete overhaul and restructuring of the business and operating guidelines. Subsequently, in 1987 the State Legislature replaced ARCOR with Arizona Correctional Industries (ACI) under the authority of the Director of the Department of Corrections. This new enterprise, although part of a State Agency, was expected to run like a private business with revolving cash funds generated through the sales of goods and services. In order to reach this goal, the Legislature provided $2.1 million for Arizona Correctional Industries with the stipulation that it become self-supporting by July 1,1989. This date was eventually extended to July 1,1991. 1988 1990 Douglas Sewing Opened 1989 Hog Farm, Slaughter House and Dairy Closed 1991 ACI moves to 1918 W. Van Buren Annual Report FY 2012 5 ACI becomes Self-Sufficient 1996 1995 Started Private Sector Partnership with Greater Auto Auction and ADOT MVD call center Started Private Sector Partnership with Hickman’s Egg Ranch and Televerde 1997 Inmates Employed 1,197 1998 Started Private Sector Partnership with Eurofresh Arts & Trade Outlet Opens in Florence 2000 1994 $500,000 Net Profit 940 InmatesEmployed Started Private Sector Partnership with Dixon Farms Garment Factory moves to Perryville from Tucson 2001 ACI moves to 3701 W. Cambridge Change-out from Men to Women at Print shop Started Private Sector Partnership with Eagle Milling 2002 Started Private Sector Partnership with Safety Services Commodity Products Industry Opens in Florence 2003 1993 AZ Office of Tourism uses Inmates on phones Started Private Sector Partnership with Common Market Equipment 1992 Inmate Workforce Increases to 765 from 497 Annual Report FY 2012 6 2006 2004 2007 ACI Holds First Annual Meeting Started Private Sector Partnership with Fiesta Canning Started Private Sector Partnership with H & H Trailer ACI Began manufacturing new Digital License Plates Started Private Sector Partnership with American Curb & Vent Started Private Sector Partnership with AZ Cotton Research Protection Council 2008 Started Private Sector Partnership with Arizona Structural Laminators 2005 2009 ACI Begins Partnership with Bonded Logic State Quality Showcase In Excellence Award 2010 ACI Participates in the Intel-AQA Mentoring Project Started Private Sector Partnership with Sunfresh Farms 2011 ACI Runner-up for the Pioneer Institute, Better Government Competition Started Private Sector Partnership with Morrison Management Specialists 2012 Arizona Wins America’s Best License Plate Award For Arizona Centennial Plate ACI employed an average of 1900 inmates per month during FY 2012 Annual Report FY 2012 7 ACI Today There are many aspects of ACI and its business arenas that contribute to its success in the areas of growth, profitability, and increased inmate employment. The most important aspect remains our dedicated-staff who continually go above and beyond to improve products, processes, quality, safety, and service. Many associates were involved in winning new business for ACI, including our sales team that greatly improved their performance. In addition, significant new acquisitions were won by our regional managers in the bakery, recycling, and solar industry areas. In FY 2012, ACI managed thirteen Owned and Operated shops including, but not limited to a bakery, metal and wood fabrication, recycling, printing, signs, and license plates, and twenty one private sector partnerships that provide labor for telemarketing and agricultural services. We continually seek new opportunities to expand our Owned and Operated businesses as well as our private sector partnerships, so that we can profitably grow our business with special focus on significantly increasing overall inmate employment. ACI staff continually evaluates new business opportunities created by voids in free market labor, or as an alternative to outsourcing labor to foreign countries. FY 2011, inmates worked 3,508,000 hours in ACI operations, and in FY 2012 we saw an increase in inmate work hours to 3,812,848. The chart below shows the total inmate hours worked over the past 10 years. Total inmate workforce numbers increased as well from a FY2011 total of 1,792 to a new high of 1,904. Inmate Hours 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Future Programs ACI continues to explore new endeavors to employ more inmates and grow our business. Projects currently under development include a Wild Horse Program in conjunction with the Federal Bureau of Land Management that would require a training facility and corrals in the Florence area. In addition, we are seriously considering a Fish Aquaculture program where ACI would breed, raise, and process Tilapia and Striped Bass. Much activity currently exists within ACI concerning both of these endeavors and we hope to have final decisions on these projects in the near future. New labor contract business also remains a focus within ACI and we are currently working on finalizing contracts that will help grow our telemarketing and service business. Annual Report FY2012 8 e Organizational CChart h a rt ACIThOrganization CEO/General Manager Chief Financial Officer VP, Eastern Region VP, Central Region VP, Western Region Accounting Douglas Sewing Agricultural Perryville Sewing Purchasing Bakery License Plates Florence Sewing Information Technology Sign Shop Transportation Small Business Center Material Management Mattress Wood/Metal Refurbishing Installation Commodity Products Metal Fabrication Graphic Arts Recycling, Packaging Florence Retail Annual Report FY2012 9 Lean Continous Improvement Manager Sr. VP Labor Contracts & Sales Vice Presidents, Labor Contract (3) Private Sector Labor Contracts Vice President Sales Sales Customer Service Executive Team Brian Radecki CEO/General Manager bradecki@azcorrections.gov Glen Davis Sr. VP Labor Contracts & Marketing/Sales gdavis2@azcorrections.gov Dale Beatty, CPA Chief Financial Officer dbeatty@azcorrections.gov Management Team Gregg Hillebrand VP Western Region ghillebr@azcorrections.gov William Foster VP Central Region bfoster@azcorrections.gov Alan Wesley VP Eastern Region awesley@azcorrections.gov Vicki Fitzpatrick Procurement Manager vfitzpat@azcorrections.gov Rick Brodeur Controller rbrodeur1@azcorrections.gov Thomas Brown Customer Service Manager tbrown@azcorrections.gov Richard Selepack VP Labor Contracts rselapac@azcorrections.gov Eric Cole VP Labor Contracts ecole@azcorrections.gov Mario Diaz Regional Manager mdiaz1@azcorrections.gov Rick Kahn VP Sales rkahn@azcorrections.gov Malinda Strom Anil Shukla ESA/HR Liaison, Administration Materials Manager ashukla@azcorrections.gov mstrom@azcorrections.gov Annual Report FY2012 10 Benefit To The State Arizona Correctional Industries supports the Mission and Vision of the Arizona Department of Corrections by creating work opportunities for inmates that have proven to reduce the State of Arizona recidivism rate. ACI programs differ from other work programs managed by the Department of Corrections as ACI positions tend to mirror more closely product manufacturing or service activities in the private sector and in some cases provide more marketable skills for eventual private sector employment. ACI achieves these goals by developing partnerships with the Department of Corrections, State Agencies, Municipalities, and School Districts, Private Sector business and other partners and alliances throughout the State of Arizona. These partnerships create demand for ACI products and services that create revenue growth and inmate employment at each of the ACI owned and operated shops and enterprise programs. The utilization of inmate time and labor has a direct and positive impact on the State of Arizona budget. The employment of state workers through ACI’s program, as well as the employment of inmates, contributes to our communities. Inmate wage deductions go to the State General Fund, victim and court restitution, and family support. As the State of Arizona faces budget challenges and high unemployment rates, ACI provides a steady source of funding and new job opportunities for Arizona businesses. These contributions come from two areas: raw materials and services that ACI purchases from Arizona businesses and consumer expenditures generated as a result of ACI related employment. The Arizona State University, WP Carey School of Business; Seidman Research Institute, 2012 fiscal year study reports that Arizona Correctional Industries (ACI) contributed $187,430,000 to Arizona’s economy. More notable was the creation of an estimated 2,080 jobs within the State of Arizona economy. ACI contributed to Arizona’s centennial this year when the Automobile License Plate Collectors Association, the world ’s oldest and largest nonprofit organization devoted to researching, collecting, and promoting license plates bestowed an award of which all Arizona can be proud. “Arizona Wins America’s Best License Plate Award.” This national contest has honored the top plate each year since 1970. The Automobile License Plate Collection Association has overwhelmingly voted that Arizona has the best plate in the United States. Bill Beckett MVD Distribution Manager states “ACI deserves as much credit as anyone else on this plate design award. You guys work hard for us and always strive to ensure we get the best possible plates. Congratulations to you and your team as well.” Annual Report FY2012 11 Inmate Contributions Deductions from inmate wages reduce the cost of room and board and contribute to the General Fund. Total inmate contributions for FY 2012 totaled $2,653,000. The chart below highlights a 9.8% increase in inmate contributions towards room and board in FY 2012. ACI inmate wages rose during FY 2012 to $10,047,000, a 23% growth over the prior fiscal year. Annual Report FY2012 12 New Products Source of Business ACI has two revenue sources: Labor Contracts and Owned and Operated business. Labor Contracts accounted for 47% of ACI’s total revenue; moreover the Labor Contracts resulted in 59.3% of the total inmate hours worked. The second source of revenue is ACI’s Owned and Operated businesses. Owned and Operated contributed 53% of total revenue, and hours worked for the Owned and Operated Business were 40.7% of the total inmate hours worked. With the unique capability of customizing a city’s colors, logos, or architectural details, ACI has been building custom bus shelters for cities throughout Arizona. During FY 2012, ACI produced new shelters for Benson, Sedona, and Lake Havasu. In addition, ACI recently completed a heavy-duty custom pallet project for Gestamp Solar Industries. City of Benson ACI tracks sales by type of customer. Below is a chart showing our top ten customers by sales during the past year. City of Sedona TOP TEN CUSTOMERS FY 2012 EUROFRESH CANTEEN HICKMAN EGG RANCH ARIZONA DEPARTMENT OF CORRECTIONS ARIZONA DEPARTMENT OF TRANSPORTATION COMMON MARKET EQUIPMENT TELEVERDE GESTAMP SOLAR STEEL SAFETY SERVICES KEEFE $ 6,240,508 4,848,002 3,680,308 3,543,057 3,288,195 2,948,940 2,704,536 1,103,765 931,728 636,057 TOTAL SALES OF TOP TEN CUSTOMERS $ 29,925,096 TOTAL SALES $ 38,450,425 PERCENTAGE 77.83% Annual Report FY2012 Lake Havasu City 13 Gestamp Solar Pallet Economic Innovation Smaller budgets were the norm in State Government during FY 2012. Staying responsive to customer needs spurred a spirit of innovation throughout ACI. For example, ACI supplied bus stop bench components to the Arizona Department of Transportation’s Motor Vehicle Division re-purposing the usage of an ACI product at a lower cost. It is this spirit of innovation that helped ACI grow in this challenging economy. Fiscal Year 2012 ACI Recognition Awards Arizona Correctional Industries ACI Employee of the Year Fiscal Year 2012 Joe Fabian ACI ACI Gold Award Fiscal Year 2012 Platinum Award ACI Bronze Award Fiscal Year 2012 Silver Award Fiscal Year 2012 Fiscal Year 2012 Metal Fab Wood Metal Print Shop Sign Shop Labor Contracts ACI Bakery Florence Tag Annual Report FY2012 Commodity Products Douglas Sewing Perryville Sewing Florence Sewing 14 Farm Small Business Center Financial Performance FY 2012 Sales and Gross Profit FY 2012 Owned and Operated Annual Report FY2012 15 Owned and Operated Success The Owned and Operated business of Arizona Correctional Industries consist of thirteen different business operations located throughout the state. ACI is responsible for all aspects of these operations including marketing, sales, design, manufacturing, and delivery. Four shops stood out as success stories during the past fiscal year with each making a contribution towards ACI’s growth. Wood/Metal increased sales by 222% Northern Arizona University Arizona Board of Respiratory Examiners Maricopa Community Colleges Metal Fabrication increased sales by 100% Swift Trucking Gestamp and Rio Glass Sign Shop increased sales by 9% University of Arizona Shop profitability rose for the first time in years thanks to management’s continuous improvement efforts Print Shop increased sales by 35% High order volume - DES and other state agencies . Annual Report FY2012 16 Labor Contract Success The ACI Labor Contract Division (LCD) manages twenty one Private Sector Contracts, one Prison Industry Enhancement Certification Program (PIECP) that permits interstate commerce, and one Inter-Government Agreement (IGA). The IGA program is with the Arizona Motor Vehicle Department (MVD) where ACI inmates staff “level one” call centers for MVD to assist with requests for general information. Other partnerships include semi-truck and trailer refurbishing, agricultural, business to business call centers, trailer manufacturing, modular building construction, auto detailing, and food processing. ACI and our Labor Contract partners expanded inmate work at Eurofresh, Hickmans, Safety Services, and MVD. In addition, we added JimGlo Trailer Production in Kingman. Annual Report FY2012 17 Annual Report FY2012 18 Annual Report FY2012 19 STATEMENT OF NET ASSETS - ENTERPRISE FUND STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS Annual Report FY2012 20 Annual Report FY2012 21 Annual Report FY2012 22 ACI Arizona Correctional Industries recognizes the leadership of the past twenty-five years for helping to guide and shape the prison industries program in Arizona. Marilyn Wilkens John Spearman Charles Flanagan Lynn McAuley William Branson Brian Radecki Annual Report FY2012 23 1987 1992 2004 2007 2008 2011 A I Original logo 25 2nd Generation logo th ACI ACI Current logo 3rd Generation logo Printed With Pride By The ACI Graphic Arts Division ASPC Perryville, Goodyear AZ www.aci.az.gov