ACI Annual Report 2013 TABLE OF CONTENTS CEO/General Manager’s Letter 4 Mission Statement, Core Values Insight 2013 5 6 New Programs 7 Wild Horse and Fish Farm Programs Organizational Chart Management Team 8 12 13 Financial and Inmate Employment 14 Marketing 22 Featured Private Sector Partner Financial Statement 26 29 ACI Events 32 ACI Annual Report FY2013 Quality Products Productive Lives 3 Dear Director Ryan: Fiscal Year 2013 proved to be another very strong year for ACI as the State of Arizona continued to climb out of recession. Sales increased 5% to $40.4 million with a net income of $3.0 million. Inmate hours increased by nearly 300,000 to a record 4.1 million total inmate hours worked. Our net income would have been even better had Eurofresh, our largest customer, not declared bankruptcy. Fortunately, NatureSweet USA,LLC., the new owner, is still employing our inmates and we are making every effort to ensure that this important partnership continues to grow in the coming years. In last year’s report, we reflected on ACI’s history and the great accomplishments made over the last 25 years. We talked about the unique challenges we faced and the solid foundation we built for future growth. Among the highlights were proposed programs in wild horse and burro care and training and fish farming. We are excited to report that these programs were successfully launched this year, promising strong growth opportunities. In our efforts to significantly expand the business and inmate employment, we recognized the need for a comprehensive marketing strategy. To address this need, we hired an experienced marketing professional to take responsibility for our website, branding, advertising, communications, new product generation and private industry partnership development. This position has never existed at ACI and will prove to be very beneficial. The 2014 marketing plans are detailed later in this report. To support our new programs and initiatives, ACI staff continued to grow this year. We now have more than 140 associates and 2,001 inmates dedicated to the success of ACI shops, private industry partnerships and inmate work programs. Our commitment to quality improvement continues throughout all our operations. A Six Sigma Black Belt certification program is underway to improve our sign shop order entry process. Better organization and security in our shops remains an integral part of our improved quality efforts. New procedures will enhance our tool and key control, safety training, audit performance, visual surveillance, AIMS input and overall security of our operations. We are proud, once again, to share the findings of the Arizona State University WP Carey School of Business, Seidman Research Institute study. The study estimates the economic impact from ACI to the State of Arizona, including the creation of private sector jobs. As we conclude our 26th year, mindful of the unique challenges and responsibilities of this business, we sincerely thank you for your leadership. Our continued success depends on support from you, the ADC executive staff, the ACI Advisory Board, associates, business partners, customers and suppliers throughout the year. Together we do great things. Siincer nccer erel e yy,, el Sincerely, Brian Radecki CEO/General Manager Aerial view of Florence Fish Farm May, 2013 4 Quality Products Productive Lives ACI Annual Report FY2013 Mission Statement 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. WHO WE ARE A unique self-funded business within the Arizona Department of Corrections A team that enjoys celebrating personal and company achievements in ili z e ak M Fo ac nt e Be Ut e riv St Co in id ov Pr Quality Products Pr Individuals who enjoy our work and are honest, hardworking and dependable t en e t dg nm le ro s en vi er m ow en ork ve kn ve o i e DO t r b r w pr jo uc E cu ur ou m in od ti W se o or f n e d for ga pr T e s ta o e s nc an bl n re AY HA es t d b ta tio on fe ffe D sa un ac rc W at an di Y a m fo co a ER EV oy pl Em ACI Annual Report FY2013 ov id ua e bu ll cu e a y L s si s HO po e on a n im n ee s f e o di c ss k pr C W r a itiv lig u an ov on e o s l W l o le en to pp d e tin ev ur ar qu u E ce m o rtu a ni w al ou DO an er s l or ng ni ua ity s d er t k t ie e fo vi er ex in Imp IT s ne llo ce s pe al ro w rie la v w w re em th ith nc as e ro p e n ug as tt h si o on , A staff that possesses the highest ethical standards Productive Lives 5 Insight FY 2013 There are many aspects of ACI and its business areas that contribute to its success in growth, profitability, and increased inmate employment. The most important aspect remains our dedicated employees that continually go above and beyond to improve ACI’s products, processes, quality, security, safety and service. A variety of staff were involved in winning new business for ACI, including our sales team who continued to demonstrate excellent performance. In addition, significant new business was won by our regional managers in the bakery, recycling and metal fabrication areas. ACI staff continually evaluates new business opportunities created by voids in free market labor, or as an alternative to outsourcing labor to foreign countries. During FY 2013, ACI managed fifteen Owned and Operated shops including, but not limited to, a wild horse and burro program, fish farm, bakery, metal and wood fabrication, recycling, printing, signs, and license plate manufacturing in addition to twenty-two 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. 6 Quality Products Productive Lives ACI Annual Report FY2013 New Programs ACI works with Closed Loop Refining and Recovery to process old Cathode Ray Tubes where lead is extracted from funnel glass through a proprietary technology. Due to their high lead content, CRTs pose a serious risk for the environment. Closed Loop’s new technology will ensure that CRT glass can be managed economically and safely in North America. ACI partners with Earth Friendly Block (EF Block) in transforming recycled polystyrene into durable, fire-resistant, insulative blocks that are easily stacked and shaped into almost every possible construction design. The finished blocks are seven times as strong as wood-frame construction and take various types of coatings and finishes. These blocks will soon be manufactured at our Kingman facility. ACI Annual Report FY2013 Quality Products Productive Lives 7 Wild Horse & Burro Program In February 2013, the Federal Bureau of Land Management (BLM) finalized an agreement with Arizona Correctional Industries and the Arizona Department of Corrections where ACI staff and ADC inmates would train and provide housing and care for wild horses and burros. These magnificent animals, considered a national treasure, were taken off Federal lands by the BLM due to inadequate food and water. ACI will have a model facility, focused on care and training with a goal to have a large number of animals adopted by ranchers, police forces, border patrol and private citizens. 8 Quality Products Productive Lives ACI Annual Report FY2013 Construction of corrals and training facilities at our Florence complex has been ongoing since February. Currently, we have 321 horses and burros with the plan to have over 2,000 under our care by the end of 2015. The ACI farm in Florence benefits from this new endeavor as most of the alfalfa grown at our farm will be used to feed the animals throughout the year. ACI has received positive recognition concerning this program, we are proud to say that we have already successfully trained and adopted horses into the local community. ACI Annual Report FY2013 Quality Products Productive Lives 9 Fish Farming Expanding ACI’s Owned and Operated businesses takes time, capital and significant research. These efforts are for the prospect of creating jobs for inmates to learn skills and receive training that can be used upon their release. After touring a successful fish farming operation run by the Colorado Department of Corrections in Canon City, Colorado, ACI began its own feasibility study. With approval from leadership, fish farming has now come to the Arizona desert. After careful analysis as to where to locate its initial operation, ACI chose land outside the prison at Florence, Arizona. Once the site of the ACI Hog Farm, this land had two functioning wells and an abundance of effluent water. This combination of abundant water, land, existing building infrastructure and current crops that could be irrigated with the flow water, was determined to be the best initial site for the project. Once established, ACI has future plans to build a second farm in Yuma, Arizona. The Florence farm will be responsible for the breeding and raising of tilapia from babies to fingerlings (small young, baby fish). The fingerlings will be sold to a fish farm company for further raising and ultimately sold to an end user. Tilapia are hardy, disease-resistant fish that can survive in water with low oxygen levels and a wide range of salinity and water temperature. Catfish will also be raised until maturity and sold at approximately nine months. In future phases, ACI will explore other varieties of fish such as striped bass to determine the best possible mix. 10 Quality Products Productive Lives ACI Annual Report FY2013 Construction of the earthen ponds began in March 2013. Pond 1 was finished and stocked with 32,000 catfish in May 2013. Pond 2 was completed and stocked with 32,000 additional catfish in June 2013. Construction of the raceways started in January 2013. The raceways are twenty feet wide and one hundred-eight feet long. In total there are twelve raceways and two earthen ponds making up this phase. In May 2013, the raceways were completed and the first test batch of one thousand catfish were placed into raceway 1 with another thousand tilapia placed into raceway 2. The initial one thousand tilapia are continuing to grow and breed very successfully. In September 2013, ACI is expecting the arrival of 50,000 more neon (baby) fish approximately one inch in size for raceways 9 through 12 with another 50,000 delivered by October 2013 to fill up raceways 5 through 8. ACI Annual Report FY2013 Quality Products Productive Lives 11 VICE PRESIDENTS (3) LABOR CONTRACTS CEO/GENERAL MANAGER SENIOR VICE PRESIDENT LABOR CONTRACT & SALES VICE PRESIDENT SALES CUSTOMER SERVICE CHIEF FINANCIAL OFFICER VICE PRESIDENT EASTERN REGION VICE PRESIDENT CENTRAL REGION VICE PRESIDENT WESTERN REGION FINANCE PROCUREMENT MATERIAL MANAGEMENT INFORMATION TECHNOLOGY BAKERY COMMODITY PRODUCTS SEWING – DOUGLAS SIGN SHOP RECYCLING PACKAGING UPHOLSTERY/ MATTRESS AGRICULTURE FLORENCE RETAIL OUTLET LICENSE PLATES LEAN CONTINUOUS IMPROVEMENT METAL FABRICATION TRANSPORTATION WILD HORSE/BURRO WOOD/METAL REFURBISHING FISH FARM GRAPHIC ARTS INSTALLATION SMALL BUSINESS CENTER SEWING - FLORENCE SEWING - PERRYVILLE MARKETING 12 Quality Products Productive Lives ACI Annual Report FY2013 Brian Radecki Management Team CEO/General Manager bradecki@azcorrections.gov Dale Beatty Glen Davis Sr. VP Labor Contracts & Marketing/Sales gdavis2@azcorrections.gov Chief Financial Officer dbeatty@azcorrections.gov William Foster Gregg Hillebrand VP Western Region ghillebr@azcorrections.gov VP Central Region bfoster@azcorrections.gov Vicki Fitzpatrick Alan Wesley VP Eastern Region awesley@azcorrections.gov Procurement Manager vfitzpat@azcorrections.gov Thomas Brown Clark DesSoye Marketing Manager cdessoye@azcorrections.gov ACI Annual Report FY2013 Customer Service Manager tbrown@azcorrections.gov Richard Selapack Eric Cole VP Labor Contracts rselapac@azcorrections.gov VP Labor Contracts ecole@azcorrections.gov Mario Diaz Rick Kahn VP Labor Contracts mdiaz1@azcorrections.gov VP Sales rkahn@azcorrections.gov Anil Shukla Malinda Strom Materials Manager ashukla@azcorrections.gov ESA/HR Liaison, Administration mstrom@azcorrections.gov Quality Products Productive Lives 13 TOP TEN ACCOUNTS NatureSweet/ Eurofresh Farms ACI’s top ten accounts represent our diverse mix of Owned & Operated and Labor Contract customers. $6,615,000 Arizona Department of Corrections Trinity Service Group Inc. $5,618,000 $5,170,000 Hickman’s Egg Ranch Arizona Department of Transportation Televerde $4,187,000 $3,521,000 $3,150,000 Common Market Equipment Safety Services Company Greater Arizona Auto Auction Department of Economic Security $2,465,000 $1,680,000 $595,000 $566,000 ACI continuously develops new products and new services while maintaining a 95 - 98% customer satisfaction rating for the past two years. $40,377,000 SALES Quality Products FY-11 FY-12 GROSS PROFIT $8,078,000 SALES $40,377,000 FY-10 Productive Lives SALES $38,450,000 GROSS PROFIT $6,694,000 SALES $34,137,000 FY-09 14 GROSS PROFIT $6,957,000 SALES $33,099,000 SALES $31,938,000 ACI sales in FY 2013 exceeded $40 million representing a 5.0% increase from FY 2012. GROSS PROFIT $6,493,000 GROSS PROFIT $7,302,000 FY-13 ACI Annual Report FY2013 The administrative offices of ACI consist of Finance and Accounting, Purchasing, Inmate Payroll, IT, Customer Service, Sales and Marketing, Business Development, Human Resources and two installation teams which install furniture and millwork. Sublimation, a division of the ACI Sign Shop and AquaChill, a water purification company, are also housed here. Thirty-eight office and clerical positions within ACI’s Central Office are staffed with female inmates from the Arizona State Prison at Perryville. These positions range from receptionist to customer service, accounts payable, purchasing, cost accounting, telemarketing, secretarial and the computer design work of Sublimation. ACI Annual Report FY2013 Quality Products Productive Lives 15 ACI’s Owned and Operated prison industries represent 51.2% of the total Sales and 38.4% of the Gross Profit for FY 2013. The inmate labor hours generated by the Owned and Operated industries were 1.4 million or 36.5% of the total inmate hours worked. OWNED AND OPERATED SUMMARY 16 Quality Products FY-11 Productive Lives SALES $20,691,000 FY-10 GROSS PROFIT $2,233,000 GROSS PROFIT $3,102,000 SALES $20,514,000 FY-09 SALES $18,560,000 SALES $17,707,000 $3,440,000 GROSS PROFIT $2,850,000 SALES $17,395,000 GROSS PROFIT GROSS PROFIT $3,637,000 FY-12 FY-13 ACI Annual Report FY2013 The Owned and Operated business of Arizona Correctional Industries consists of fifteen different business operations located throughout the state. OWNED AND OPERATED INDUSTRIES EXCEEDING $1 MILLION IN SALES BAKERY $ 5,191,000 LICENSE PLATES $ 3,238,000 METAL FABRICATION $ 2,566,000 MATTRESS UPHOLSTERY $ 2,165,000 SEWING DOUGLAS $ 1,581,000 PRINTING $ 1,483,000 ACI Annual Report FY2013 Quality Products Productive Lives 17 ACI’s Labor Contract partnerships represent 48.8% of total Sales and 61.6% of Gross Profit for FY 2013. Inmate labor hours generated by these partnerships were 2.6 million or 63.5% of total inmate hours worked. LABOR CONTRACT SUMMARY 18 FY-10 Quality Products Productive Lives FY-11 FY-12 SALES $19,703,000 FY-09 GROSS PROFIT $4,442,000 SALES $17,967,000 SALES $14,539,000 GROSS PROFIT $3,319,000 SALES $14,231,000 GROSS PROFIT $3,440,000 SALES $16,742,000 GROSS PROFIT $4,461,000 GROSS PROFIT $4,975,000 FY-13 ACI Annual Report FY2013 The ACI Labor Contract Division manages twenty 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 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. LABOR CONTRACTS EXCEEDING $1 MILLION IN SALES NATURESWEET/ EUROFRESH $ 6,615,000 HICKMAN’S EGG RANCH $ 4,187,000 TELEVERDE $ 3,175,000 SAFETY SERVICES $ 1,680,000 COMMON MARKET EQUIPMENT $2,465,000 ACI Annual Report FY2013 Quality Products Productive Lives 19 FY 2013 reflects the third consecutive fiscal year of increased inmate hours. ACI successfully increased the hours by 7.1% from FY 2012 to exceed over four million inmate hours worked during the year. FY-04 20 FY-05 FY-06 FY-07 FY-08 FY-09 Quality Products FY-10 FY-11 Productive Lives 3,824,895 3,505,603 3,196,606 3,340,971 3,213,076 3,012,213 3,151,003 2,849,418 2,550,936 INMATE HOURS BY FISCAL YEAR FY-12 4,098,806 ACI was able to increase the average number of inmates employed per month to 2,001 for the year even as the Arizona prison population has remained static. FY-13 ACI Annual Report FY2013 Financial Benefit to Arizona FY-10 $10,915,000 FY-09 $8,179,000 $5,000,000 $7,644,000 $7,000,000 $7,636,000 $9,000,000 $10,047,000 WAGES $11,000,000 $3,000,000 $1,000,000 FY-11 FY-12 FY-13 Deductions from inmate wages reduce the cost of room and board, which contributes to the general fund. Total inmate contributions for room and board for FY 2013 were $2,919,826 which is a 10.0% increase from FY 2012. The Arizona State University WP Carey School of Business Seidman Research Institute, 2013 fiscal year study reports that Arizona Correctional Industries (ACI) contributed $172,350,000 to Arizona’s economy. More notable was the creation of an estimated 1,980 jobs within the State of Arizona’s economy. FY-09 FY-10 $2,416,000 $1,500,000 $2,233,000 $2,000,000 $2,213,000 $2,500,000 $2,653,000 ROOM AND BOARD $2,919,000 $3,000,000 $1,000,000 $500,000 ACI Annual Report FY2013 FY-11 Quality Products FY-12 Productive Lives FY-13 21 Marketing FY 2014 As a business operating within a large public agency, ACI faces many challenges structurally, operationally and visually. Most of this report outlines the changes we’re making to our processes and operations to meet those challenges. The marketing department’s goal is to clearly define how we want ACI to be seen by all of our constituencies such as law makers, taxpayers, public and private organizations, inmates and vendors. Even after 40 years of operation, ARCOR (which is now ACI) is not widely known beyond our small core customer base of state agencies, schools, municipalities and private industry partners. The people we work with at these organizations see us as a: Consistent supplier of printed materials Indispensable source of garments, bedding and linens Dependable provider of trainable workforces Cost-effective office and institutional furnishings supplier Reliable manufacturer of custom signs, plaques and tags Flexible custom metal and wood fabricator Most of these loyal customers also understand and support our greater mission to create training and work environments for inmates across 22 Quality Products the state. But these views of ACI are focused on one or two areas. For instance, the organizations who use us regularly to print their forms don’t necessarily know about the furnishings we can provide for their new offices. Our goal is to broaden how everyone views ACI and the many diverse ways we can work together to meet their needs while providing an invaluable public service. Though we don’t anticipate we’ll ever be as recognizable as Coke or Nike, (instantly associated with their leadership in their product categories), our goal will be to make ACI into a recognized brand with a clearly defined value statement to potential customers and partners. To that end we’ve created a tagline that incorporates all the ways we’re currently seen into a broader definition of ACI as Quality Products – Productive Lives. The ACI Brand: Quality Products – Productive Lives Turning a 40-year-old institution into a public brand involves another set of unique challenges. But with a clear goal and an effective strategy, we believe we can accomplish it within a few years by implementing a series of targeted image campaigns. Both approaches will build our brand, associating ACI with Quality Products – Productive Lives, but the rest of the messaging will be targeted to clearly defined audiences: Productive Lives ACI Annual Report FY2013 Buyers: the front line people who initially recognize what they need and want to quickly and easily fill that need, will be given specific information about specific products and services that ACI can provide. They are interested in getting a good price and a simple purchasing process. We will remind them how ACI meets those requirements. Executives: the ultimate decision makers will be told more of the ACI story, about how we’re providing invaluable rehabilitative training to inmates, reducing recidivism, saving taxpayers money today and tomorrow and producing quality products. As the frontline administrators, purchasing or facility managers submit their ACI purchase orders, the GMs and CEOs will recognize these advantages to buying from ACI and quickly approve them. The Branding Strategy Direct Marketing Direct Marketing refers to regular email and/or regular mail campaigns to targeted lists of individuals. The first step in designing an effective direct marketing campaign is defining whom we’re attempting to reach. Though there could be many different people at different organizations who might make buying decisions, for these targeted efforts, we want to reach administrators, purchasing and facility managers throughout Arizona. To find these “decision makers” we need to discover where they go to meet with their peers and obtain information on the latest industry trends. Fortunately, there are many local and online organizations serving the needs of these markets in Arizona with thousands of members from facility managers and school administrator groups through purchasing professional associations. We will be reviewing many of them in the coming months by participating in some of their events and meeting with their members. We’re hoping that several of them will merit further involvement moving forward. Within ACI we need to ensure that all sales, customer service and product managers buy into this new brand concept. The message they relate to customers daily needs to reflect this new vision of the organization. Consistent reinforcement of the ACI brand is the first step toward our vision. Outreach to our wider market will involve a number of different short-term, longterm and ongoing efforts. ACI Annual Report FY2013 Quality Products Productive Lives 23 Website Enhancements To better illustrate the full extent of our offerings and make it easy for customers to shop online, we’ve already undergone a major renovation to the site. Adding interactive elements and a robust integrated database to automate pricing and content, this work in progress can become the main interface between customers and ACI as well as the various production facilities within ACI across the state. The new interactive features of the site will help keep new potential customers engaged and allow us to attract online enthusiasts from the social media sites they frequent to our pages. The site will provide users the ability to leave comments and testimonials lending credibility to our brand. Mass Media Communications Some mass media advertising has been tried in the past primarily using trade print publications. As with direct marketing, this type of advertising is most effective when we have a clear understanding of what we’re trying to accomplish and 24 Quality Products whom we’re trying to reach. Any mass media advertising we propose will be targeted to executive level managers in the public and private sectors relating how it just makes sound financial sense for their organization to work with ACI. The messaging in our other mass media communications efforts can be targeted to either buyers or executives. We will reach out to potential customers with newsletters, emails, blogs, articles and social media postings that provide valuable information on how to obtain specifications for their next purchase including, better detailed information for sign orders; the difference between hardwoods and veneers; how long they can expect a custom metal fabrication project to take; some easy tips for estimating what a reupholstering job will cost. In the marketing business this is called content marketing. It helps search engines find your site and, eventually, makes your organization the “go-to” source for useful information on the products and services you sell. Productive Lives ACI Annual Report FY2013 Branded Products Over the years working with a variety of customers, our shops have created some truly unique products. Though many of these bus shelters, board room furnishings and prototypes were designed for specific locations and purchasers, the skills acquired by the people working in the respective shops have made it possible for ACI to start creating its own branded products. Earlier this year we began actively selling our own line of bus shelters with options like logos and solar lighting to municipalities throughout Arizona. As new marketable ACI products are developed, we will continue to extend our brand. In the coming months, we will be introducing a beautiful line of outdoor dining furniture that can withstand the extreme Arizona heat. Trade Show Events ACI participates in trade shows throughout the year with numerous opportunities identified at these events. ACI Annual Report FY2013 Quality Products Productive Lives 25 Hickman Family Farms and ACI: An 18-Year Partnership Now in its third generation as a family run business, Hickman Farms management strongly believes in giving back to the communities it serves. Every year they donate thousands of eggs to local food banks and homeless shelters, sponsoring several “Breakfast-for-Dinner” Events as well as the Governor’s annual Easter Egg Roll. They work with schools and the Farm Bureau to help educate the next generation of farmers and employ inmate labor on their farms and in their production facilities. “We first partnered with ACI in 1995 when we learned about the program. It made sense, to us, that by teaching inmates employable skills we could help give them better choices once they were released,” said Billy Hickman, Vice President of Operations. “It started small, we transported a work crew of 8 – 10 men from the Lewis prison down the road from our farm. We set them to work repairing and assembling cages,” Billy continued. “It’s tedious work, but they did it well so we felt confident enough to expand the program, bringing more and more inmates in daily to help fill in the gaps in our labor force.” “We’ve taught and trained thousands of inmates over the years in all aspects of our business from maintaining and repairing the coops and equipment, driving forklifts, moving pallets, welding, vaccinating and raising birds, working the production lines to helping with new building projects.” The workers can earn certifications for some of the highly skilled positions they learn. “We regularly provide work references for Billy Hickman, former inmates,” volunteered Billy. “We help them write their reVice President sumes and provide referrals. And we are very open to hiring them of Operations after they’re released. In fact, many of our managers are former inmates who participated in ACI programs here and elsewhere.” “For many of these inmates, coming here each day was their first experience in a real work environment. In addition to the skills they learn, they acquire good work habits,” added Bob Sheade, Inventory and Production Analyst. Bob supervises the inmate labor program at Hickman. He sees firsthand how, “they learn about taking responsibility for themselves and their vital roles on their work crews.” 26 Quality Products Productive Lives ACI Annual Report FY2013 “Until 2010, we exclusively used male inmates from Lewis, but that year began training female inmates from Perryville. Today we have 112 of them working directly with the birds, raising and caring for them.” “We still employ male inmates, about 68 daily here and more at our facilities across the state. And we’ll be starting up a building project in the fall so we’ll be looking to add some more men then.” The logistics in ACI labor contracts vary from partner to partner, but with Hickman Farms they transport the inmates each day in their vehicles. They are checked out of the prison gates in the morning at 6 am, report to work (just like the non-inmate laborers they work with) and get back on the bus at 4:30 pm to get dropped off at the prison. Bob Sheade, “One of the big myths of the program,” Billy explained, “is our huge Inventory and labor cost savings. We’ve done dozens of studies over the years and Production Analyst we’re not really seeing a significant financial benefit. But that’s OK with us. We believe in the program. We participate because we share ACI’s mission to contribute to the real rehabilitation of these men and women who somehow got onto the wrong path in life.” “Recently a business partner took exception to our participation in the program,” Billy confessed. “But we stood firmly with it and, in the end, she stuck with us. Right, Bob?” “Oh yes. We’re still working with them,” confirmed Bob. “We explained to her that inmate labor is not replacing ‘legitimate’ workers.” “You see, we’re hiring constantly through our new office next door to the unemployment office. There’s a steady stream of people filling out applications, coming in for interviews and starting one of our training programs. But, frankly, this kind of work is not for everyone. Turnover is very high, so we depend on the inmate labor to keep everything running.” Picking up the thread, Billy summed up Hickman’s commitment to the ACI labor program, “For us it all comes back to giving back to the community—the state, being good corporate citizens.” “Sure, we’re in business to make money and provide a comfortable life for our families. But we can do that while we also do our part to help our neighbors, those less fortunate than us, those who’ve made mistakes. Ultimately that brings comfort to all of us, because a neighbor who’s well-fed, employed and comfortably well off themselves, can also contribute positively to the community—and become a good customer!” ACI Annual Report FY2013 Quality Products Productive Lives 27 If everyone is moving forward together, then success takes care of itself. Henry Ford 28 Quality Products Productive Lives ACI Annual Report FY2013 DEPARTMENT OF CORRECTIONS ARIZONA CORRECTIONAL INDUSTRIES FINANCIAL STATEMENTS (unaudited) Year Ending June 30, 2013 ACI Annual Report FY2013 Quality Products Productive Lives 29 STATEMENT ON NET ASSETS - ENTERPRISE FUND 2013 Assets Current assets Cash and cash equivalents Accounts receivable, net Inventories Prepaid expenses $ Total current assets 7,904,870 3,708,236 3,861,565 145,059 $ 5,039,864 4,891,011 3,100,759 192,695 15,619,730 13,224,329 Long-term assets Land Capital Assets, net of deprecation 692,438 3,155,651 692,438 2,400,080 Total Long-term assets 3,848,089 3,092,518 19,467,819 16,316,847 1,173,744 1,114,873 22,550 654,518 - 348,997 842,244 18,426 676,082 18,588 2,965,685 1,904,337 3,848,089 12,654,045 3,073,930 11,338,580 Total assets Liabilities Current liabilities Accounts payable Accrued payroll and benefits Deferred revenue Other accrued liabilities Capital lease Total liabilities Net assets Invested in capital assets, net of related debt Unrestricted Total net assets 30 2012 $ Quality Products Productive Lives 16,502,134 $ 14,412,510 ACI Annual Report FY2013 STATEMENT OF REVENUES, EXPENSES AND CHANGE IN FUND NET ASSETS 2013 Sales Cost of goods sold Gross profit Operating expenses Selling General and administrative Total operating expenses Operating income $ 40,377,111 32,299,401 8,077,710 2012 $ 871,172 4,223,347 5,094,519 2,983,191 Non-operating revenue (expenses) Investment income Net gain/(loss) on disposal of equipment Interest expense Net non-operating revenues (expenses) 1,055,118 3,084,898 4,140,016 3,174,666 36,486 17,463 (116) 53,833 Income before transfers 19,974 (519) (9,968) 9,487 3,037,024 Transfers to State of Arizona funds 38,452,326 31,137,644 7,314,682 3,184,153 (947,400) (1,407,600) Increase in net assets 2,089,624 1,776,553 Total net assets, July 1 14,412,510 12,635,957 Total net assets, June 30 $ 16,502,134 $ 14,412,510 STATEMENT OF CASH FLOWS 2013 2012 Net cash provide by operating activities Net cash used for noncapital financing activities Net cash used for capital and financing activities Net cash provided by investing activities Net increase in cash and cash equivalents Cash and cash equivalents, July 1 $ 5,062,006 (952,400) (1,284,216) 39,616 2,865,006 5,039,864 $ 3,032,817 (1,407,600) (524,644) 20,002 1,120,575 3,919,289 Cash and cash equivalents, June 30 $ 7,904,870 $ 5,039,864 ACI Annual Report FY2013 Quality Products Productive Lives 31 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED (USED) FOR OPERATING ACTIVITIES 2013 Operating Income $ Adjustment to reconcile operating income to net cash provided for operating activities Depreciation (Increase)/decrease in accounts receivable Increase/(decrease) in accounts payable Increase in inventories (Increase)/decrease in prepaid expenses Increase/(decrease) in accrued payroll & benefits Increase in deferred income Decrease in current portion of lease Increased/(decrease) in accrued liabilities Net cash provided by operating activities $ 2012 3,186,305 $ 543,795 1,243,548 824,748 (776,433) 63,237 73,632 4,124 (18,588) (82,362) 5,062,006 3,174,666 518,045 (463,070) (19,478) (117,122) (65,747) (211,396) 4,231 212,688 $ 3,032,817 SCHEDULE OF CAPITAL ASSETS AND ACCUMULATED DEPRECIATION 2013 Schedule of capital assets Cost of goods sold Land Improvements Building Building Improvements Equipment General and administrative Total capital assets $ 692,438 391,016 787,797 1,150,620 8,116,202 369,178 $ 692,438 240,438 782,799 1,141,634 7,486,027 - $ 11,507,251 $ 10,343,336 Schedule of accumulated deprecation Land improvements Building Building improvements Equipment Total accumulated depreciation Capital assets, net 32 Quality Products 2012 243,397 497,154 635,840 6,282,771 239,685 467,645 586,033 5,957,455 $ 7,659,162 $ 7,250,818 $ 3,848,089 $ 3,092,518 Productive Lives ACI Annual Report FY2013 Annual Company Meeting 2012 ACI celebrated its 25th anniversary at its annual meeting at the Windmill Event Center in Florence, Arizona on September 20th, 2012 recognizing the past 25 years and looking ahead to future programs and endeavors. 25 th ACI ACI Annual Report FY2013 Quality Products Productive Lives 33 Advisory Board Meeting On March 11, 2013 an ACI Advisory Board meeting and tour were held at ACI’s administrative offices. Members attending included Senator Al Melvin, Director Charles L. Ryan, Deputy Director Jeff Hood, Division Director Gail Rittenhouse, Division Director Michael Kearns, Bureau Administrator John Kinton, and Paul Winslow, Architect and Owner of Winslow & Partners Ideas for the Changing World. CORRECTIONS ADC 34 Quality Products Productive Lives ACI Annual Report FY2013 ACI Annual Report FY2013 Quality Products Productive Lives 35 ACI Owned and Operated Prison Industry Enterprises Central Administrative Office Installation Support Services Sublimation Arizona State Prison Complex - Florence Farm Mattress Central Warehousing Transportation Services Metal Fabrication Wood/Metal Refurbishing Retail Store Upholstery Fish Farm Wild Horse & Burro Sewing Arizona State Prison Complex - Perryville Sewing Data Fulfillment Center Graphic Arts Division Phoenix Goodyear Florence Arizona State Prison Complex - Eyman Bakery Division License Plate Commodity Products Tucson Douglas Arizona State Prison Complex - Tucson Sign Shop Arizona State Prison Complex - Douglas Sewing ACI Printed With Pride By The ACI Graphic Arts Division ASPC Perryville,Goodyear AZ www.aci-adc.com