<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NUMBER 1-14260
WACKENHUT CORRECTIONS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0043078
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 Wackenhut Drive #100, Palm Beach Gardens, Florida 33410-4243
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(561) 622-5656
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At August 11, 1998, 22,237,497 shares of the registrant's Common Stock were
issued and outstanding.
Page 1 of 18
<PAGE> 2
WACKENHUT CORRECTIONS CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of Wackenhut Corrections
Corporation, a Florida corporation (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the twenty-six weeks ended June 28, 1998 are not necessarily
indicative of the results for the entire fiscal year ending January 3, 1999.
Page 2 of 18
<PAGE> 3
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
JUNE 28, 1998 AND JUNE 29, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
<S> <C> <C>
Revenues .............................................. $74,617 $51,509
Operating expenses (including amounts related
to Parent of $2,018 and $1,496) .............. 63,187 43,166
Depreciation and amortization ......................... 2,947 1,510
------- -------
Contribution from operations ................. 8,483 6,833
G&A expense (including amounts related to
Parent of $570 and $387) ..................... 3,155 3,044
------- -------
Operating income ............................. 5,328 3,789
Interest income (including amounts
related to Parent of $37 and ($42)) .......... 564 286
------- -------
Income before income taxes and equity
income of affiliate .......................... 5,892 4,075
Provision for income taxes ............................ 2,393 1,603
------- -------
Income before equity income of affiliate .............. 3,499 2,472
Equity income of affiliates, net of related income
taxes of $348 and $157 ....................... 535 251
------- -------
Net income ................................... $ 4,034 $ 2,723
======= =======
Earnings per share:
Basic ........................................ $ .18 $ 0.12
======= =======
Diluted ...................................... $ .18 $ 0.12
======= =======
Weighted average common shares outstanding:
Basic ........................................ 22,233 21,957
======= =======
Diluted ...................................... 22,810 22,606
======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 3 of 18
<PAGE> 4
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWENTY-SIX WEEKS ENDED
JUNE 28, 1998 AND JUNE 29, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------------
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
<S> <C> <C>
Revenues .............................................. $145,886 $ 92,736
Operating expenses (including amounts related
to Parent of $4,007 and $2,727) .............. 122,445 77,566
Depreciation and amortization ......................... 5,614 2,658
-------- --------
Contribution from operations ................. 17,827 12,512
G&A expense (including amounts
related to Parent of $1,111 and $775) ........ 6,943 5,451
-------- --------
Operating income ............................. 10,884 7,061
Interest income (including amounts
related to Parent of $72 and ($108)) ......... 809 818
-------- --------
Income before income taxes and equity
income of affiliate .......................... 11,693 7,879
Provision for income taxes ............................ 4,761 3,072
-------- --------
Income before equity income of affiliate .............. 6,932 4,807
Equity income of affiliates, net of related income
taxes of $520 and $312 ....................... 799 497
-------- --------
Net income ................................... $ 7,731 $ 5,304
======== ========
Earnings per share:
Basic ........................................ $ 0.35 $ 0.24
======== ========
Diluted ...................................... $ 0.34 $ 0.23
======== ========
Weighted average common shares outstanding:
Basic ........................................ 22,209 21,951
======== ========
Diluted ...................................... 22,813 22,603
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 4 of 18
<PAGE> 5
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 28, 1998 AND DECEMBER 28, 1997
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 28, 1998 DECEMBER 28, 1997
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash ......................................... $ 70,184 $ 28,960
Accounts receivable, net ..................... 45,011 36,755
Other ........................................ 14,374 9,457
--------- ---------
Total current assets ................ 129,569 75,172
Property and equipment, net .................. 14,386 38,754
Investments in and advances to affiliates .... 9,358 7,325
Deferred charges, net ........................ 11,736 14,218
Unamortized cost in excess of net assets
of acquired companies, net ............ 2,077 2,359
Other ........................................ 2,477 1,375
--------- ---------
$ 169,603 $ 139,203
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................. $ 3,525 $ 6,160
Accrued payroll and related taxes ............ 9,662 8,316
Accrued expenses ............................. 16,628 11,717
Income taxes payable ......................... 9,222 --
Current portion of long-term debt ............ 12 12
Deferred income tax liability, net ........... 897 391
--------- ---------
Total current liabilities ........... 39,946 26,596
--------- ---------
Deferred income taxes, net ............................ 1,828 10,099
Long-term debt ........................................ 207 213
Deferred gain on sale to CPV .......................... 15,631 --
Shareholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized ........ -- --
Common stock, $.01 par value,
60,000,000 shares authorized,
22,237,497 and 22,168,542 shares
issued and outstanding .............. 222 222
Additional paid-in capital ................... 81,246 78,006
Retained earnings ............................ 33,953 26,223
Cumulative translation adjustment ............ (3,430) (2,156)
--------- ---------
Total shareholders' equity .......... 111,991 102,295
--------- ---------
$ 169,603 $ 139,203
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
Page 5 of 18
<PAGE> 6
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED
JUNE 28, 1998 AND JUNE 29, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
--------------------------------
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 7,731 $ 5,304
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization expense ........... 5,614 2,658
Equity income of affiliates ..................... (1,319) (809)
Changes in assets and liabilities
(Increase) decrease in assets:
Accounts receivable ............................. (8,191) (8,245)
Other current assets ............................ (3,128) (1,112)
Other assets .................................... (1,393) 399
Increase (decrease) in liabilities: -- --
Accounts payable and accrued expenses ........... 9,238 1,052
Accrued payroll and related taxes ............... 1,483 1,153
Deferred income taxes, net ...................... (5,716) 3,349
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .............. $ 4,319 $ 3,749
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates ................................ (1,190) (2,193)
Capital expenditures ..................................... (1,799) (11,764)
Proceeds from sale of facilities to CPV .................. 42,211 --
Deferred charge expenditures ............................. (2,531) (8,789)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .... $ 36,691 $(22,746)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options .................. $ 1,189 $ 350
Payment of debt........................................... (6) (6)
Proceeds from debt ....................................... -- 147
Advances from Parent ..................................... 48,706 22,777
Repayments to Parent ..................................... (48,706) (22,777)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES .............. $ 1,183 $ 491
-------- --------
Effect of exchange rate changes on cash ........................... (969) (250)
Net increase (decrease) in cash ................................... 41,224 (18,756)
Cash, beginning of period ......................................... 28,960 44,368
-------- --------
CASH, END OF PERIOD ............................................... $ 70,184 $ 25,612
======== ========
SUPPLEMENTAL DISCLOSURES:
Impact on equity from tax benefit related to the
exercise of options issued under the company's non-
qualified stock option plan ............................ $ 2,048 $ --
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 6 of 18
<PAGE> 7
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed for the quarterly financial reporting are the
same as those disclosed in Note 2 of the Notes To Consolidated Financial
Statements included in the Company's Form 10-K filed with the Securities and
Exchange Commission on February 20, 1998 for the fiscal years ended December 28,
1997, December 29, 1996 and December 31, 1995. Certain prior year amounts have
been reclassified to conform with current year financial statement presentation.
2. DOMESTIC AND INTERNATIONAL OPERATIONS
A summary of domestic and international operations is presented below:
TWENTY-SIX WEEKS ENDED
-------------------------------
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
(in thousands)
REVENUES
Domestic operations ........... $121,348 $ 74,781
International operations ...... 24,538 17,955
-------- --------
Total revenues ............ $145,886 $ 92,736
======== ========
OPERATING INCOME
Domestic operations ........... $ 8,875 $ 5,014
International operations ...... 2,009 2,047
-------- --------
Total operating income .... $ 10,884 $ 7,061
======== ========
JUNE 28, 1998 DECEMBER 28, 1997
------------- -----------------
(in thousands)
IDENTIFIABLE ASSETS
Domestic operations ........... $147,464 $120,538
International operations ...... 22,139 18,665
-------- --------
Total identifiable assets. $169,603 $139,203
======== ========
3. DEFERRED CHARGES
Through December 28, 1997, the Company capitalized and amortized facility
start-up costs, consisting of costs of initial employee training, travel and
other direct expenses incurred in connection with the opening of new facilities,
on a straight-line basis over the lesser of the original contract term plus
renewals or five years. Effective December 29, 1997, the Company modified this
policy to amortize facility start-up costs over the lesser of the initial
contract term or five years. Had this policy been followed in prior periods, the
impact would have been immaterial.
Page 7 of 18
<PAGE> 8
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In April 1998, the Financial Accounting Standards Board issued Statement of
Position 98-5 ("SOP 98-5") on Accounting for Costs of Start-up Activities. SOP
98-5 requires the expensing of start-up costs, defined as pre-opening,
pre-operating and pre-contract type costs, as incurred and is effective for
fiscal years beginning after December 15, 1998. If adopted by the Company in
fiscal 1998, the Company anticipates a pre-tax write-off of existing unamortized
start-up costs of approximately $18.2 million (or $10.9 million after-tax) to
record the cumulative effect of the change in accounting principle.
4. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income," effective December 29, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in financial statements. The components of the Company's
comprehensive income are as follows (dollars in thousands):
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
JUNE 28, 1998 JUNE 29, 1997
------------- -------------
<S> <C> <C>
Net Income ..................................................... $ 7,731 $ 5,304
Foreign currency translation adjustments, net of income tax
expense $875 and $403, respectively ....................... (1,274) (630)
------- -------
Comprehensive income ........................................... $ 6,457 $ 4,674
======= =======
</TABLE>
5. SALE OF FACILITIES TO CORRECTIONAL PROPERTIES TRUST
On April 28, 1998, Correctional Properties Trust ("CPV"), a Maryland real estate
investment trust, sold 6.2 million shares of common stock at $20.00 per share in
an initial public offering. Approximately $113.0 million of the net proceeds of
the offering were used to acquire eight correctional and detention facilities
operated by the Company. The Company received approximately $42 million for the
three facilities owned by it and for its right to acquire four of the other five
facilities and realized a profit on the sale of approximately $18 million which
will be amortized over the ten-year lease term. The eighth facility was
purchased directly from the government entity. Subsequent to the purchase, CPV
is leasing these eight facilities to the Company. CPV was also granted the
option to acquire three additional correctional facilities currently under
development by the Company and the fifteen-year right to acquire and lease back
future correctional and detention facilities developed or acquired by the
Company.
Page 8 of 18
<PAGE> 9
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. EARNINGS PER SHARE
The following table shows the amounts used in computing earnings per share in
accordance with Statement of Financial Accounting Standards No. 128 and the
effects on income and the weighted average number of shares of potential
dilutive common stock (in thousands, except share data).
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
JUNE 28, 1998 JUNE 29, 1997
------------------------- ----------------------------
INCOME SHARES INCOME SHARES
--------- ------ ------------ ------
<S> <C> <C> <C> <C>
Net Income ........................ $ 4,034 $ 2,723
Basic EPS:
Income available to common
shareholders................. $ 4,034 22,233 $ 2,723 21,957
Per share amount .................. $ 0.18 $ 0.12
========= ============
Effect of Dilutive Securities: $ 0.00 577 $ 0.00 649
Diluted EPS:
Income available to common
shareholders................. $ 4,034 22,810 $ 2,723 22,606
Per share amount .................. $ 0.18 $ 0.12
========= ============
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
JUNE 28, 1998 JUNE 29, 1997
--------------------------- -------------------------
INCOME SHARES INCOME SHARES
----------- ------ ---------- ------
<S> <C> <C> <C> <C>
Net Income ........................ $ 7,731 $ 5,304
Basic EPS:
Income available to common
shareholders ................ $ 7,731 22,209 $ 5,304 21,951
Per share amount .................. $ 0.35 $ 0.24
=========== ==========
Effect of Dilutive Securities: .... $ 0.01 604 $ 0.01 652
Diluted EPS:
Income available to common
shareholders................. $ 7,731 22,813 $ 5,304 22,603
Per share amount .................. $ 0.34 $ 0.23
=========== ==========
</TABLE>
Page 9 of 18
<PAGE> 10
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. In management's
opinion, the impact of adopting this statement in 2000 will not have a material
impact upon the Company's results of operations or financial position.
Page 10 of 18
<PAGE> 11
WACKENHUT CORRECTIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
================================================================================
FINANCIAL CONDITION
Reference is made to Item 7, Part II of the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1997, filed with the Securities and
Exchange Commission on February 20, 1998, for further discussion and analysis of
information pertaining to the Company's results of operations, liquidity and
capital resources.
On April 28, 1998, the Company sold three correctional and detention facilities,
and its right to acquire four additional facilities, to Correctional Properties
Trust ("CPV") for approximately $42 million. The resulting net profit of
approximately $18 million will be amortized over the ten-year lease term entered
into by the Company and CPV.
YEAR 2000
During the second quarter of 1998, management continued its review of the
installation of new systems hardware and software and determined that the
installation is on schedule for completion before the year 2000. In addition,
management has continued to assess the company-wide effects of the Year 2000
issue. Although the Company has not completely determined the effect of
expenditures related to the Year 2000 issue, they are not expected to be
significant and will be expensed as incurred.
RECENT DEVELOPMENTS
On August 7, 1998, the Company announced that it is considering the repurchase
of up to 500,000 shares of its common stock on the open market under a stock
repurchase program authorized by the Board of Directors.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto.
COMPARISON OF THIRTEEN WEEKS ENDED JUNE 28, 1998 AND THIRTEEN WEEKS ENDED
JUNE 29, 1997:
Revenues increased by 44.9% to $74.6 million in the thirteen weeks ended June
28, 1998 ("Second Quarter 1998") from $51.5 million in the thirteen weeks ended
June 29, 1997 ("Second Quarter 1997"). Approximately $19.6 million of the
increase in revenues in Second Quarter 1998 compared to Second Quarter 1997 is
attributable to increased compensated resident days resulting from the opening
of nine facilities in 1997 (Fulham Correctional Center, Victoria, Australia in
April, 1997; Villawood Detention Center, Sydney, Australia in October 1997; Taft
Correctional Institution, Taft, California in December 1997; Maribyrnong
Detention Center, Melbourne, Australia in December 1997; Perth Detention Centre,
Perth, Australia in December 1997; and Port Hedland Detention Centre, Port
Hedland, Australia in December 1997; Central Valley Community Correctional
Facility, McFarland, California in December 1997; Desert View Community
Correctional Facility, Adelanto, California in December 1997; and Golden State
Community Correctional Facility, McFarland, California in December 1997), and
four facilities opened in 1998: (Ronald McPherson Correctional Facility,
Newport, Arkansas in January 1998; Scott Grimes Correctional Facility, Newport,
Arkansas in January 1998; Karnes County Correctional Center, Karnes City, Texas,
in January 1998; Broward Work Release Center, Broward County, Florida in
February 1998). The balance of the increase in revenues was attributable to
facilities open during all of both periods.
Page 11 of 18
<PAGE> 12
WACKENHUT CORRECTIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
================================================================================
The number of compensated resident days in domestic facilities increased to
1,638,251 in Second Quarter 1998 from 1,141,607 in Second Quarter 1997. In
addition, compensated resident days in the Company's Australian facilities
increased to 205,934 from 142,840 for the comparable periods. Average facility
occupancy in domestic facilities remained stable increasing slightly to 96.5% of
capacity in Second Quarter 1998 compared to 96.4% in the same period in Second
Quarter 1997.
Operating expenses increased by 46.4% to $63.2 million in Second Quarter 1998
compared to $43.2 million in Second Quarter 1997. The increase primarily
reflected the eighteen facilities that opened in 1997 and 1998, as described
above.
Depreciation and amortization increased by 95.2% to $2.9 million in Second
Quarter 1998 from $1.5 million in Second Quarter 1997. This increase is
primarily attributable to an increase in deferred charge amortization for the
eighteen facilities opened in 1997 and 1998.
Contribution from operations increased 24.1% to $8.5 million in Second Quarter
1998 from $6.8 million in Second Quarter 1997. As discussed above, this increase
is primarily attributable to eighteen new facilities that opened in 1997 and
1998. As a percentage of revenue, contribution from operations decreased to
11.4% in Second Quarter 1998 from 13.3% in Second Quarter 1997. This decrease is
primarily due to the increase in deferred charge amortization and the initiation
of lease payments to CPV partially offset by recognition of deferred gain on
sale related to the sale of seven facilities to CPV as discussed above.
General and administrative expenses increased 3.6% to $3.2 million in Second
Quarter 1998 from $3.0 million in Second Quarter 1997. This increase reflects
costs related to additional infrastructure and continued growth in the Company's
business development efforts. As a percentage of revenue, general and
administrative expenses decreased to 4.2% in the Second Quarter 1998 from 5.9%
in the Second Quarter 1997.
Operating income increased by 40.6% to $5.3 million in Second Quarter 1998 from
$3.8 million in Second Quarter 1997. As a percentage of revenue operating income
decreased slightly to 7.1% in Second Quarter 1998 from 7.4% in Second Quarter
1997 due to the increase in deferred charge amortization and lease payments to
CPV as discussed above, offset by the continued leveraging of overheads.
Interest income increased 97.2% to $564,000 in Second Quarter 1998 from $286,000
in Second Quarter 1997. This increase corresponds directly to an increase in
average invested cash as a result of the sale of facilities to CPV in Second
Quarter 1998.
Income before taxes and equity income of affiliate increased by 44.6% to $5.9
million in Second Quarter 1998 from $4.1 million in Second Quarter 1997 due to
the factors described above.
Page 12 of 18
<PAGE> 13
WACKENHUT CORRECTIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
================================================================================
Provision for income taxes increased to $2.4 million in Second Quarter 1998 from
$1.6 million in Second Quarter 1997 due to higher taxable income, and an
estimated increase in the Company's effective tax rate.
Equity income of affiliates increased 113% to $535,000 in Second Quarter 1998
from $251,000 in Second Quarter 1997. Current and prior year performance
reflects the activities of the Company's United Kingdom joint ventures and
results from two expansions at the H.M. Prison Doncaster (Doncaster, England) in
1997, income earned from two court escort contracts that commenced operations in
May 1996 and the opening of H.M. Prison Lowdham Grange (Nottinghamshire,
England) in February 1998.
Net income increased by 48.1% to $4.0 million in Second Quarter 1998 from $2.7
million in Second Quarter 1997 as a result of the factors described above.
COMPARISON OF TWENTY-SIX WEEKS ENDED JUNE 28, 1998 AND TWENTY-SIX WEEKS ENDED
JUNE 29, 1997:
Revenues increased by 57.3% to $145.9 million in the twenty-six weeks ended June
28, 1998 ("First Half 1998") from $92.7 million in the twenty-six weeks ended
June 29, 1997 ("First Half 1997"). Approximately $49.8 million of the increase
in revenues in First Half 1998 compared to First Half 1997 is attributable to
increased compensated resident days resulting from the opening of thirteen
facilities in 1997 (South Bay Correctional Facility, South Bay, Florida in
February 1997; Travis County Community Justice Center, Travis County, Texas in
March 1997; Bayamon Regional Detention Center, Bayamon, Puerto Rico in March
1997; Queens Private Correctional Facility, Queens, New York in March 1997;
Fulham Correctional Center, Victoria, Australia in April, 1997; Villawood
Detention Center, Sydney, Australia in October 1997; Taft Correctional
Institution, Taft, California in December 1997; Maribyrnong Detention Center,
Melbourne, Australia in December 1997; Perth Detention Centre, Perth, Australia
in December 1997; and Port Hedland Detention Centre, Port Hedland, Australia in
December 1997; Central Valley Community Correctional Facility, McFarland,
California in December 1997; Desert View Community Correctional Facility,
Adelanto, California in December 1997; and Golden State Community Correctional
Facility, McFarland, California in December 1997), and four facilities opened in
the First Half 1998: (Ronald McPherson Correctional Facility, Newport, Arkansas
in January 1998; Scott Grimes Correctional Facility, Newport, Arkansas in
January 1998; Karnes County Correctional Center, Karnes City, Texas, in January
1998; Broward Work Release Center, Broward County, Florida in February 1998).
The balance of the increase in revenues was attributable to facilities open
during all of both periods.
The number of compensated resident days in domestic facilities increased to
3,178,823 in First Half 1998 from 2,105,663 in First Half 1997. Compensated
resident days in Australian facilities increased to 412,218 from 250,038 for the
comparable period. The average facility occupancy in domestic facilities was
95.7% of capacity in First Half 1998 compared to 96.9% in First Half 1997. This
slight decrease was due primarily to the ramp-up of five new facilities during
First Half 1998.
Operating expenses increased by 57.9% to $122.4 million in First Half 1998
compared to $77.6 million in First Half 1997. The increase primarily reflected
the eighteen facilities that opened in 1997 and 1998, as described above.
Page 13 of 18
<PAGE> 14
WACKENHUT CORRECTIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
================================================================================
Depreciation and amortization increased by 111% to $5.6 million in the First
Half 1998 from $2.7 million in the First Half 1997. This increase is primarily
attributable to an increase in deferred charge amortization for the eighteen
facilities opened in 1997 and 1998.
Contributions from operations increased by 42.5% to $17.8 million in First Half
1998 from $12.5 million in First Half 1997. As discussed above, this increase is
primarily attributable to eighteen new facilities that opened in 1997 and 1998.
As a percentage of revenue, contribution from operations decreased to 12.2% in
First Half 1998 from 13.5% in First Half 1997. This decrease is primarily due to
the increase in deferred charge amortization and the initiation of lease
payments to CPV partially offset by recognition of deferred gain on sale related
to the sale of seven facilities to CPV as discussed above.
General and administrative expenses increased by 27.4% to $6.9 million in First
Half 1998 from $5.5 million in First Half 1997. This increase reflects costs
related to additional infrastructure and continued growth in the Company's
business development efforts. As a percentage of revenue, general and
administrative expenses decreased to 4.8% in the First Half 1998 from 5.9% in
the First Half 1997.
Operating income increased by 54.1% to $10.9 million in First Half 1998 from
$7.1 million in First Half 1997. As a percentage of revenue operating income
decreased slightly to 7.5% in First Half 1998 from 7.6% in First Half 1997 due
to the increase in deferred charge amortization and lease payments to CPV as
discussed above, offset by the continued leveraging of overheads.
Interest income decreased 1.1% to $809,000 in First Half 1998 from $818,000 in
First Half 1997. Interest income remained relatively flat due to a relatively
nominal change in the average invested cash balance from First Half 1997 to
First Half 1998.
Income before taxes and equity loss increased by 48.4% to $11.7 million in First
Half 1998 from $7.9 million in First Half 1997 due to the factors described
above.
Provision for income taxes increased to $4.8 million in First Half 1998 from
$3.1 million in First Half 1997 due to higher taxable income, and an estimated
increase in the Company's effective tax rate.
Equity income of affiliates increased 60.8% to $799,000 for First Half 1998 from
$497,000 in First Half 1997. Current and prior year performance reflects the
activities of the Company's United Kingdom joint ventures and results from two
expansions at the H.M. Prison Doncaster (Doncaster, England) in 1997, income
earned from two court escort contracts that commenced operations in May 1996 and
the opening of H.M. Prison Lowdham Grange (Nottinghamshire, England) in February
1998.
Net income increased by 45.8% to $7.7 million in First Half 1998 from $5.3
million in First Half 1997 as a result of the factors described above.
FORWARD-LOOKING STATEMENTS
THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND THE JULY 23, 1998 PRESS RELEASE CONTAIN FORWARD-LOOKING
STATEMENTS THAT ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS
ABOUT THE SEGMENTS IN WHICH THE COMPANY OPERATES.
Page 14 of 18
<PAGE> 15
WACKENHUT CORRECTIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
================================================================================
THIS SECTION OF THE QUARTERLY REPORT ALSO INCLUDES MANAGEMENT'S BELIEFS AND
ASSUMPTIONS MADE BY MANAGEMENT. WORDS SUCH AS "EXPECTS," "ANTICIPATES,"
"INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," "POTENTIAL," AND
VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS ("FUTURE
FACTORS") WHICH ARE DIFFICULT TO PREDICT. THEREFORE, ACTUAL OUTCOMES AND RESULTS
MAY DIFFER MATERIALLY FROM WHAT IS EXPRESSED OR FORECASTED IN SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE
PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS OR OTHERWISE.
FUTURE FACTORS INCLUDE INCREASING PRICE AND PRODUCT/SERVICE COMPETITION BY
FOREIGN AND DOMESTIC COMPETITORS, INCLUDING NEW ENTRANTS; RAPID TECHNOLOGICAL
DEVELOPMENTS AND CHANGES; THE ABILITY TO CONTINUE TO INTRODUCE COMPETITIVE NEW
PRODUCTS AND SERVICES ON A TIMELY, COST EFFECTIVE BASIS; THE MIX OF
PRODUCTS/SERVICES; THE ACHIEVEMENT OF LOWER COSTS AND EXPENSES; DOMESTIC AND
FOREIGN GOVERNMENTAL AND PUBLIC POLICY CHANGES INCLUDING ENVIRONMENTAL
REGULATIONS; PROTECTION AND VALIDITY OF PATENT AND OTHER INTELLECTUAL PROPERTY
RIGHTS; RELIANCE ON LARGE CUSTOMERS; TECHNOLOGICAL, IMPLEMENTATION AND
COST/FINANCIAL RISK IN INCREASING USE OF LARGE, MULTI-YEAR CONTRACTS; THE
OUTCOME OF PENDING AND FUTURE LITIGATION AND GOVERNMENTAL PROCEEDINGS AND
CONTINUED AVAILABILITY OF FINANCING; FINANCIAL INSTRUMENTS AND FINANCIAL
RESOURCES IN THE AMOUNTS, AT THE TIMES AND ON THE TERMS REQUIRED TO SUPPORT THE
COMPANY'S FUTURE BUSINESS. THESE ARE REPRESENTATIVE OF THE FUTURE FACTORS THAT
COULD AFFECT THE OUTCOME OF THE FORWARD-LOOKING STATEMENTS. IN ADDITION, SUCH
STATEMENTS COULD BE AFFECTED BY GENERAL INDUSTRY AND MARKET CONDITIONS AND
GROWTH RATES, GENERAL DOMESTIC AND INTERNATIONAL ECONOMIC CONDITIONS INCLUDING
INTEREST RATE AND CURRENCY RATE FLUCTUATIONS AND OTHER FUTURE FACTORS.
Page 15 of 18
<PAGE> 16
WACKENHUT CORRECTIONS CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the Company's business results in claims or litigation against the
Company for damages arising from the conduct of its employees or others.
Except for routine litigation incidental to the business of the Company, there
are no pending material legal proceedings to which the Company or any of its
subsidiaries is a party or to which any of their property is subject. The
Company believes that the outcome of the proceedings to which it is currently a
party will not have a material adverse effect upon its operations or financial
condition.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on April 23, 1998 in
Palm Beach Gardens, Florida. All directors nominated for election were elected
by a majority of the votes cast and the tabulation of the votes cast were as
follows:
VOTES FOR VOTES WITHHELD
--------- --------------
Wayne H. Calabrese 20,777,871 55,531
Norman A. Carlson 20,781,655 51,747
Benjamin R. Civiletti 20,599,139 234,263
Richard H. Glanton 20,776,929 56,473
Manuel J. Justiz 20,781,111 52,291
John Ruffle 20,779,486 53,916
George R. Wackenhut 20,776,746 56,656
Richard R. Wackenhut 20,778,839 54,563
George C. Zoley 20,777,536 55,866
The second matter voted upon at the Annual Meeting was the ratification of the
action of the Board of Directors appointing the firm of Arthur Andersen LLP to
be the independent certified public accountants of the Company for the fiscal
year 1998. The tabulation of the votes on this matter was as follows:
For: 20,795,833 Against: 13,306 Abstain: 24,263
Page 16 of 18
<PAGE> 17
WACKENHUT CORRECTIONS CORPORATION
ITEM 5. OTHER INFORMATION
The Company filed Amendments No. 4 to Form S-3, Registration Statement under the
Securities Act of 1933 on April 22, 1998 in connection with the public offering
of Correctional Properties Trust, a Maryland real estate investment trust. The
original Form S-3 filing and subsequent amendments are hereby incorporated by
reference into this Quarterly Report on Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K - The Company did not file a Form 8-K during the first
half of the fiscal year ending January 3, 1999.
Page 17 of 18
<PAGE> 18
WACKENHUT CORRECTIONS CORPORATION
SIGNATURE
Pursuant to the requirements 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.
August 11, 1998 /s/ John G. O'Rourke
-------------------------------------
John G. O'Rourke
Senior Vice President - Finance,
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Page 18 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 28, 1998 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE FISCAL PERIOD ENDING JUNE 28, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<CASH> 70,184
<SECURITIES> 0
<RECEIVABLES> 45,036
<ALLOWANCES> 25
<INVENTORY> 0
<CURRENT-ASSETS> 129,569
<PP&E> 19,260
<DEPRECIATION> 4,874
<TOTAL-ASSETS> 169,603
<CURRENT-LIABILITIES> 39,946
<BONDS> 219
0
0
<COMMON> 222
<OTHER-SE> 111,769
<TOTAL-LIABILITY-AND-EQUITY> 169,603
<SALES> 0
<TOTAL-REVENUES> 145,886
<CGS> 0
<TOTAL-COSTS> 128,059
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<INCOME-PRETAX> 11,693
<INCOME-TAX> 4,761
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