<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 September 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
COMMISSION FILE NUMBER 1-14260
WACKENHUT CORRECTIONS CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0043078
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 November 9, 1998, 21,856,197 shares of the registrant's Common Stock were
issued and outstanding.
Page 1 of 16
<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 "Corporation") have been prepared in
accordance with the instructions to Form 10-Q and, therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the thirty-nine weeks ended September 27, 1998 are not
necessarily indicative of the results for the entire fiscal year ending January
3, 1999.
Page 2 of 16
<PAGE> 3
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 78,177 $ 55,104 $ 224,063 $ 147,840
Operating expenses (including amounts
related to Parent of $1,846, $803,
$5,854 and $3,531) 65,713 45,594 188,158 123,160
Depreciation and amortization 2,409 1,947 8,023 4,605
------------ ------------ ------------ ------------
Contribution from operations 10,055 7,563 27,882 20,075
G&A expense (including amounts related to
Parent of $542, $396, $1,653 and $1,167) 3,732 2,762 10,675 8,213
------------ ------------ ------------ ------------
Operating income 6,323 4,801 17,207 11,862
Interest income (including amounts related to
Parent of $0, $58, $72 and ($50)) 586 128 1,395 946
------------ ------------ ------------ ------------
Income before income taxes and equity
income of affiliate 6,909 4,929 18,602 12,808
Provision for income taxes 2,914 1,923 7,675 4,995
------------ ------------ ------------ ------------
Income before equity income of affiliate 3,995 3,006 10,927 7,813
Equity income of affiliate, net of income tax
provision of $305, $123, $825 and $434 470 182 1,269 679
------------ ------------ ------------ ------------
Net income $ 4,465 $ 3,188 $ 12,196 $ 8,492
============ ============ ============ ============
Earnings per share
Basic $ 0.20 $ 0.14 $ 0.55 $ 0.39
============ ============ ========== ============
Diluted $ 0.20 $ 0.14 $ 0.54 $ 0.37
============ ============ ============ ============
Weighted average shares outstanding
Basic 22,145 22,002 22,188 21,968
============ ============ ============ ============
Diluted 22,681 22,770 22,769 22,655
============ ============ ============ ============
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these statements.
Page 3 of 16
<PAGE> 4
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27, 1998 AND DECEMBER 28, 1997
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 27, 1998 DECEMBER 28, 1997
----------------------- -----------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 46,734 $ 28,960
Accounts receivable, net 47,474 36,755
Other 15,983 9,457
----------------------- -----------------------
Total current assets 110,191 75,172
Property and equipment, net 21,953 38,754
Investments in and advances to affiliates 11,559 7,325
Deferred charges, net 12,808 14,218
Unamortized cost in excess of net assets of acquired
companies, net 1,894 2,359
Other 2,775 1,375
----------------------- -----------------------
$ 161,180 $ 139,203
======================= =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,927 $ 6,160
Accrued payroll and related taxes 7,321 8,316
Accrued expenses 17,391 11,717
Current portion of long-term debt 12 12
Deferred income tax liability, net 1,020 391
----------------------- -----------------------
Total current liabilities 30,671 26,596
----------------------- -----------------------
Deferred income tax liability, net 2,814 10,099
Long-term debt 204 213
Deferred revenue from sale to CVP REIT 15,189 ---
Shareholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized --- ---
Common stock, $.01 par value,
60,000,000 shares authorized,
22,019,797 and 22,168,542 shares issued
and outstanding 220 222
Additional paid-in capital 81,338 78,006
Retained earnings 38,419 26,223
Cumulative translation adjustment (3,820) (2,156)
Treasury stock (3,855) ---
----------------------- -----------------------
Total shareholders' equity 112,302 102,295
======================= =======================
$ 161,180 $ 139,203
======================= =======================
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these balance sheets.
Page 4 of 16
<PAGE> 5
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
----------------------- -----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 12,196 $ 8,492
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization expense 8,023 4,605
Equity income of affiliates (2,094) (1,113)
Changes in assets and liabilities --
Increase in assets:
Accounts receivable (11,207) (8,208)
Other current assets (4,417) (1,496)
Other assets (1,796) (927)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 2,244 3,345
Accrued payroll and related taxes (820) 96
Deferred income tax liability, net (4,554) 5,234
----------------------- -----------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (2,425) $ 10,028
----------------------- -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (2,155) (2,844)
Capital expenditures (10,307) (18,278)
Proceeds from sale of facilities to CPV 41,768 ---
Deferred charge expenditures (5,557) (9,599)
----------------------- -----------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 23,749 $ (30,721)
----------------------- -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options $ 1,227 $ 1,073
Payment of debt (9) (21)
Proceeds from debt --- 201
Advances from Parent 112,650 62,614
Repayments to Parent (112,650) (62,308)
Repurchases of common stock (3,855) ---
----------------------- -----------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $ (2,637) $ 1,559
----------------------- -----------------------
Effect of exchange rate changes on cash (913) (345)
Net increase (decrease) in cash 17,774 (19,479)
Cash, beginning of period 28,960 44,368
----------------------- -----------------------
CASH, END OF PERIOD $ 46,734 $ 24,889
======================= =======================
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these statements.
Page 5 of 16
<PAGE> 6
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The consolidated financial statements of the Company are unaudited and, in the
opinion of management, include all adjustments necessary to fairly present the
Company's financial condition, results of operations and cash flows for the
interim period. The results for the thirty-nine weeks ended September 27, 1998
are not necessarily indicative of the results of operations to be expected for
the full year. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 28, 1997.
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 Corporation'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 (dollars
in thousands):
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
----------------------- -----------------------
<S> <C> <C>
REVENUES
Domestic operations $ 187,990 $ 120,291
International operations 36,073 27,549
----------------------- -----------------------
Total revenues $ 224,063 $ 147,840
======================= =======================
OPERATING INCOME
Domestic operations $ 14,286 $ 8,847
International operations 2,921 3,015
----------------------- -----------------------
Total operating income $ 17,207 $ 11,862
======================= =======================
SEPTEMBER 27, 1998 DECEMBER 28, 1997
----------------------- -----------------------
IDENTIFIABLE ASSETS
Domestic operations $ 138,738 $ 120,538
International operations 22,442 18,665
----------------------- -----------------------
Total identifiable assets $ 161,180 $ 139,203
======================= =======================
</TABLE>
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
Page 6 of 16
<PAGE> 7
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 $19 million (or $11.5 million after-tax) to
record the cumulative effect of the change in accounting principle.
Also, upon adoption, the Company will reverse start-up amortization expense
recorded during the year and expense start-up costs previously deferred during
the year. Pre-tax income will be negatively impacted to the extent start-up
costs exceed reversed amortization expenses. If adopted in 1998, the Company
expects an impact, over and above the one-time write-off of approximately $19
million, of approximately ($800,000) depending upon the results of start-up
activities during the fourth quarter.
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>
THIRTY-NINE WEEKS ENDED
------------------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
---------------------- ----------------------
<S> <C> <C>
Net Income $ 12,196 $ 8,492
Foreign currency translation adjustments, net of income tax
expense $1,170 and $394, respectively. (1,664) (616)
---------------------- ----------------------
Comprehensive income $ 10,532 $ 7,876
====================== ======================
</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
is being 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.
On October 30, 1998, CPV acquired the Lea County Correctional Facility in Hobbs,
New Mexico. Simultaneous with the purchase, the Company entered into a ten-year
lease of the facility from CPV. The future minimum lease commitments under the
leases for these nine facilities are as follows (in thousands):
Fiscal Year Annual Rental
----------- -------------
1999 $ 13,483
2000 13,888
2001 14,058
2002 14,058
2003 14,058
Thereafter 62,091
-------------
$131,636
=============
Page 7 of 16
<PAGE> 8
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
--------------------------------------------------------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
------------------------------------------- ------------------------------------------
PER PER
SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 4,465 $ 3,188
=========== ===========
Basic EPS:
Income available to common
shareholders $ 4,465 22,145 $ 0.20 $ 3,188 22,002 $ 0.14
Effect of Dilutive Securities: 536 $ 0.00 768 $ 0.00
Diluted EPS:
Income available to common
shareholders $ 4,465 22,681 $ 0.20 $ 3,188 22,770 $ 0.14
=========== =========== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
--------------------------------------------------------------------------------------
SEPTEMBER 27, 1998 SEPTEMBER 28, 1997
------------------------------------------- ------------------------------------------
PER PER
SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 12,196 $ 8,492
========= =========
Basic EPS:
Income available to
common shareholders $ 12,196 22,188 $ 0.55 $ 8,492 21,968 $ 0.39
Effect of Dilutive Securities: 581 $ (0.01) 687 $ (0.02)
Diluted EPS:
Income available to common
shareholders $ 12,196 22,769 $ 0.54 $ 8,492 22,655 $ 0.37
=========== =========== =========== =========== ============ ============
</TABLE>
Options to purchase 356,000 shares of the Company's common stock at prices
ranging from $20.25 to $29.56 per share were outstanding during the first three
quarters of 1998 but were not included in the computation of diluted EPS
because their effect would be anti-dilutive. The options, which expire between
the years 2006 and 2008, were still outstanding at September 27, 1998. There
were no options outstanding during the first three quarters of 1997 that were
anti-dilutive.
Page 8 of 16
<PAGE> 9
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.
8. TREASURY STOCK
On August 7, 1998, the Board of Directors of the Company authorized the
repurchase, at the discretion of the senior management, of up to 500,000 shares
of the Company's common stock. The Company's repurchases of shares of common
stock are recorded as treasury stock and result in a reduction of stockholders'
equity.
Page 9 of 16
<PAGE> 10
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.
Forward-Looking Statements
The management's discussion and analysis of financial condition and results of
operations and the October 22, 1998 press release contain forward-looking
statements that are based on current expectations, estimates and projections
about the segments in which the Company operates. 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
YEAR 2000
During the third 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. This review
also encompasses other systems including embedded technology, such as security
systems.
Page 10 of 16
<PAGE> 11
There are five phases that describe the Company's process in becoming Year 2000
compliant. The awareness phase encompasses developing a budget and project plan.
The assessment phase identifies mission-critical systems to check for
compliance. Both of these phases have been completed. The Company is at various
stages in the three remaining phases: renovation, validation and implementation.
Renovation is the design of the systems to be Year 2000 compliant. Validation is
testing the system followed by implementation.
Implementation of the Company's Year 2000 compliant financial operating system
has begun and is scheduled for complete implementation in early 1999.
Implementation of all other major Year 2000 compliant systems is scheduled for
completion in 1999. 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.
The state of Year 2000 readiness for third parties with who the Company shares a
material relationship, such as banks and vendors used by the company, is being
reviewed by management. At this time, the Company is unaware of any third party
Year 2000 issues that would materially affect these relationships.
The Company expects to be Year 2000 compliant in 1999 for all major systems. If
the most reasonably likely worst case Year 2000 scenario were to occur, the
company is assessing its risks and full impact on operations. In conjunction
with this, the Company is developing contingency plans and expects to complete
the development of the plans in 1999.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Corporation's consolidated financial statements and the notes thereto.
COMPARISON OF THIRTEEN WEEKS ENDED SEPTEMBER 27, 1998 AND THIRTEEN WEEKS ENDED
SEPTEMBER 28, 1997:
Revenues increased by 41.8% to $78.2 million in the thirteen weeks ended
September 27, 1998 ("Third Quarter 1998") from $55.1 million in the thirteen
weeks ended September 28, 1997 ("Third Quarter 1997"). Approximately $21.5
million of the increase in revenues in Third Quarter 1998 compared to Third
Quarter 1997 is primarily attributable to increased compensated resident days
resulting from the opening of eight facilities in 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 Facility, Adelanto, California in December 1997; and
Golden State Community Correctional Facility, McFarland, California in December
1997), and six 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; Lea County Correctional Facility, Lea County, New
Mexico in May 1998; and Lawton, Oklahoma in July 1998). The balance of the
increase in revenues was attributable to facilities open during all of both
periods.
Page 11 of 16
<PAGE> 12
The number of compensated resident days in domestic facilities increased to
1,674,768 in Third Quarter 1998 from 1,156,912 in Third Quarter 1997 and average
facility occupancy in domestic facilities decreased to 96.0% of capacity in
Third Quarter 1998 compared to 97.0% in the same period in 1997. In addition,
compensated resident days in Australian facilities increased to 189,881 from
162,158 for the comparable periods.
Operating expenses increased by 44.1% to $65.7 million in Third Quarter 1998
compared to $45.6 million in Third Quarter 1997. The increase primarily
reflected the fourteen facilities that opened in 1997 and 1998, as described
above.
Depreciation and amortization increased by 23.7% to $2.4 million in Third
Quarter 1998 from $1.9 million in Third Quarter 1997. This increase is primarily
attributable to an increase in deferred charge amortization for the fourteen
facilities opened in 1997 and 1998.
Contribution from operations increased 33.0% to $10.1 million in Third Quarter
1998 from $7.6 million in Third Quarter 1997. As discussed above, this increase
is primarily attributable to fourteen new facilities that opened in 1997 and
1998. As a percentage of revenue, contribution from operations decreased to
12.9% in Third Quarter 1998 from 13.7% in Third Quarter 1997. This decrease is
primarily due to the increase in deferred charge amortization and 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 35.1% to $3.7 million in Third
Quarter 1998 from $2.8 million in Third 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 4.8% in the Third Quarter 1998 from 5.0% in
the Third Quarter 1997.
Operating income increased by 31.7% to $6.3 million in Third Quarter 1998 from
$4.8 million in Third Quarter 1997. As a percentage of revenue operating income
decreased slightly to 8.1% in Third Quarter 1998 from 8.7% in Third 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 358.6% to $587,000 in Third Quarter 1998 from $128,000
in Third 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 increased by 40.2% to $6.9 million in
Third Quarter 1998 from $4.9 million in Third Quarter 1997 due to the factors
described above.
Provision for income taxes increased to $2.9 million in Third Quarter 1998 from
$1.9 million in Third Quarter 1997 due to higher taxable income, and an
estimated increase in the Company's effective tax rate.
Equity income of affiliates increased 158.2% to $470,000 in Third Quarter 1998
from $182,000 in Third Quarter 1997. Current and prior year performance reflects
the activities of the Company's United Kingdom joint ventures, and results from
the opening of H.M. Prison Lowdham Grange (Nottinghamshire, England) in February
1998 and improved performance of existing prison and prisoner transport
operations.
Page 12 of 16
<PAGE> 13
Net income increased by 40.1% to $4.5 million in Third Quarter 1998 from $3.2
million in Third Quarter 1997 as a result of the factors described above.
COMPARISON OF THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1998 AND THIRTY-NINE WEEKS
ENDED SEPTEMBER 28, 1997.
Revenues increased by 51.6% to $224.1 million in the thirty-nine weeks ended
September 27, 1998 ("Nine Months 1998") from $147.8 million in the thirty-nine
weeks ended September 28, 1997 ("Nine Months 1997"). Approximately $65.8 million
of the increase in revenues in Nine Months 1998 compared to Nine Months 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 six facilities opened in
the Nine Months 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; Lea
County Correctional Facility, Lea County, New Mexico in May 1998; and Lawton
Correctional Facility, Lawton, Oklahoma in July 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
4,853,591 in Nine Months 1998 from 3,262,307 in Nine Months 1997 and average
facility occupancy decreased to 96.1% of capacity in Nine Months of 1998
compared to 96.9% in 1997. In addition, compensated resident days in Australian
facilities increased to 602,099 from 412,196 for the comparable periods.
Operating expenses increased by 52.8% to $188.2 million in Nine Months 1998
compared to $123.2 million in Nine Months 1997. The increase primarily reflected
the nineteen facilities that opened in 1997 and 1998, as described above.
Depreciation and amortization increased by 74.2% to $8.0 million in the Nine
Months 1998 from $4.6 million in the Nine Months 1997. This increase is
primarily attributable to an increase in deferred charge amortization for the
nineteen facilities opened in 1997 and 1998.
Contribution from operations increased by 38.9% to $27.9 million in Nine Months
1998 from $20.1 million in Nine Months 1997. As discussed above, this increase
is primarily attributable to nineteen new facilities that opened in 1997 and
1998. As a percentage of revenue, contribution from operations decreased to
12.4% in Nine Months 1998 from 13.6% in Nine Months 1997. This decrease is
primarily due to the increase in deferred charge amortization and lease
payments.
General and administrative expenses increased by 30.0% to $10.7 million in Nine
Months 1998 from $8.2 million in Nine Months 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
Page 13 of 16
<PAGE> 14
and administrative expenses decreased to 4.8% in the Nine Months 1998 from 5.6%
in the Nine Months 1997.
Operating income increased by 45.1% to $17.2 million in Nine Months 1998 from
$11.9 million in Nine Months 1997. As a percentage of revenue operating income
decreased slightly to 7.7% in Nine Months 1998 from 8.0% in Nine Months 1997 due
to the increase in deferred charge amortization and lease payments to CPV offset
by the continued leveraging of overheads.
Interest income increased 47.8% to $1,396,000 in Nine Months 1998 from $946,000
in Nine Months 1997. This increase corresponds 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 increased by 45.2% to $18.6 million in
Nine Months 1998 from $12.8 million in Nine Months 1997 due to the factors
described above.
Provision for income taxes increased to $7.7 million in Nine Months 1998 from
$5.0 million in Nine Months 1997 due to higher taxable income, and an estimated
increase in the Company's effective tax rate.
Equity income of affiliates increased 86.9% to $1,269,000 for Nine Months 1998
versus $679,000 in Nine Months 1997. Current and prior year performance reflects
the activities of the Company's United Kingdom joint ventures and results from
the opening of H.M. Prison Lowdham Grange (Nottinghamshire, England) in
February 1998 and improved performance of existing prison and prisoner transport
operations.
Net income increased by 43.6% to $12.2 million in Nine Months 1998 from $8.5
million in Nine Months 1997 as a result of the factors described above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Page 14 of 16
<PAGE> 15
WACKENHUT CORRECTIONS CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the Corporation's business results in claims or litigation against
the Corporation for damages arising from the conduct of its employees or others.
Except for routine litigation incidental to the business of the Corporation,
there are no pending material legal proceedings to which the Corporation or any
of its subsidiaries is a party or to which any of their property is subject. The
Corporation 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 SECURITYHOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
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 Corporation did not file a Form 8-K during the
third quarter of 1998.
Page 15 of 16
<PAGE> 16
WACKENHUT CORRECTIONS CORPORATION
SIGNATURES
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.
November 11, 1998 /s/ John G. O'Rourke
- ----------------------------------- -------------------------------------
John G. O'Rourke
Senior Vice President - Finance,
Chief Financial Officer and Treasurer
Page 16 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 27, 1998 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE FISCAL PERIOD ENDING SEPTEMBER 27, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> SEP-27-1998
<CASH> 46,734
<SECURITIES> 0
<RECEIVABLES> 47,578
<ALLOWANCES> 104
<INVENTORY> 0
<CURRENT-ASSETS> 110,191
<PP&E> 26,490
<DEPRECIATION> 4,537
<TOTAL-ASSETS> 161,180
<CURRENT-LIABILITIES> 30,671
<BONDS> 216
0
0
<COMMON> 222
<OTHER-SE> 112,080
<TOTAL-LIABILITY-AND-EQUITY> 161,180
<SALES> 0
<TOTAL-REVENUES> 224,063
<CGS> 0
<TOTAL-COSTS> 196,181
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 79,379
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,602
<INCOME-TAX> 7,675
<INCOME-CONTINUING> 12,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,196
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.54
</TABLE>
