<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 4, 1999
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 August 10, 1999, 22,386,992 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 "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. Certain amounts in the prior year have been reclassified to conform
to the current presentation. 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 July 4, 1999
are not necessarily indicative of the results for the entire fiscal year ending
January 2, 2000.
Page 2 of 16
<PAGE> 3
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED
JULY 4, 1999 AND JUNE 28, 1998
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
----------------------------------- -----------------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues.......................................... $ 106,049 $ 74,617 $ 203,480 $ 145,886
Operating expenses (including amounts related
to Parent of $2,392, $2,018, $4,719 and $4,007) 93,578 63,879 179,701 125,331
Depreciation and amortization..................... 1,175 1,214 2,478 2,251
---------------- ---------------- ---------------- ----------------
Contribution from operations.................. 11,296 9,524 21,301 18,304
G&A expense (including amounts related to
Parent of $803, $570, $1,655 and $1,111)...... 4,507 3,155 7,969 6,943
---------------- ---------------- ---------------- ----------------
Operating income.............................. 6,789 6,369 13,332 11,361
Interest income (including interest income
related to Parent of $200, $37, $379, and $72) 654 564 1,061 809
---------------- ---------------- ---------------- ----------------
Income before income taxes, equity in earnings
of affiliates, and cumulative effect of change
in accounting for start-up costs.............. 7,443 6,933 14,393 12,170
Provision for income taxes........................ 2,984 2,816 5,771 4,954
---------------- ---------------- ---------------- ----------------
Income before equity in earnings of affiliates and
cumulative effect of change in accounting
for start-up costs............................ 4,459 4,117 8,622 7,216
Equity in earnings of affiliates, net of income
tax provision of $601, $348, $1,054 and $520.. 898 535 1,574 799
---------------- ---------------- ---------------- ----------------
Income before cumulative effect of change in
accounting for start-up costs................. 5,357 4,652 10,196 8,015
Cumulative effect of change in accounting for
start-up costs, net of tax.................... -- -- -- (11,528)
================ ================ ================ ================
Net income (loss)................................. $ 5,357 $ 4,652 $ 10,196 $ (3,513)
================ ================ ================ ================
Basic earnings (loss) per share:
Income before cumulative effect of change
in accounting for start-up costs......... $ 0.25 $ 0.21 $ 0.47 $ 0.36
Cumulative effect of change in accounting for
start-up costs, net of tax............... -- -- -- (0.52)
================ ================ ================ ================
Net income (loss)............................. $ 0.25 $ 0.21 $ 0.47 $ (0.16)
================ ================ ================ ================
Diluted earnings (loss) per share:
Income before cumulative effect of change
in accounting for start-up costs......... $ 0.24 $ 0.20 $ 0.46 $ 0.36
Cumulative effect of change in accounting
for start-up costs, net of tax........... -- -- -- (0.51)
---------------- ---------------- ---------------- ----------------
Net income (loss)............................. $ 0.24 $ 0.20 $ 0.46 $ (0.15)
================ ================ ================ ================
Basic weighted average shares outstanding......... 21,654 22,233 21,752 22,209
================ ================ ================ ================
Diluted weighted average shares outstanding....... 22,034 22,810 22,157 22,813
================ ================ ================ ================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Page 3 of 16
<PAGE> 4
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
JULY 4, 1999 AND JANUARY 3, 1999
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
July 4, 1999 January 3, 1999
----------------------- -----------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 43,547 $ 20,240
Accounts receivable, net.............................. 63,181 61,188
Current portion of deferred income tax asset, net..... 2,073 1,769
Other................................................. 8,843 11,267
----------------------- -----------------------
Total current assets..................... 117,644 94,464
Property and equipment, net........................... 23,183 33,005
Investments in and advances to affiliates............. 19,612 15,447
Goodwill.............................................. 1,953 2,011
Deferred income tax asset, net........................ -- 1,277
Other................................................. 3,396 1,804
----------------------- -----------------------
$ 165,788 $ 148,008
======================= =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 7,889 $ 5,944
Accrued payroll and related taxes..................... 14,416 9,955
Accrued expenses...................................... 14,721 9,850
Current portion of deferred revenue................... 2,606 2,383
Current portion of long-term debt..................... -- 13
----------------------- -----------------------
Total current liabilities................ 39,632 28,145
----------------------- -----------------------
Deferred income tax liability, net......................... 1,156 --
Long-term debt............................................. -- 200
Deferred revenue........................................... 15,856 16,723
Shareholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized...................... -- --
Common stock, $.01 par value,
60,000,000 shares authorized,
22,392,422 and 22,347,922 shares
issued and outstanding............................ 224 223
Additional paid-in capital............................ 83,684 83,164
Retained earnings..................................... 41,719 31,523
Accumulated other comprehensive loss.................. (1,518) (3,117)
Less: common stock in treasury at cost--
753,000 and 453,500 shares........................ (14,965) (8,853)
----------------------- -----------------------
Total shareholders' equity............... 109,144 102,940
----------------------- -----------------------
$ 165,788 $ 148,008
======================= =======================
</TABLE>
The accompanying notes to 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 TWENTY-SIX WEEKS ENDED
JULY 4, 1999 AND JUNE 28, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
-----------------------------------------------
July 4, 1999 June 28, 1998
------------------------ ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................. $ 10,196 $ (3,513)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization expense.................... 2,478 2,251
Equity in earnings of affiliates......................... (2,628) (1,319)
Cumulative effect of change in accounting for
start-up costs, net.................................. -- 11,528
Changes in assets and liabilities --
(Increase) decrease in assets:
Accounts receivable...................................... (1,569) (8,191)
Deferred income tax asset................................ 973 --
Other current assets .................................... 2,476 (2,773)
Other assets............................................. (1,213) (1,393)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses.................... 5,923 9,238
Accrued payroll and related taxes........................ 4,311 1,483
Deferred income tax liability, net ...................... 1,156 (5,523)
------------------------ ----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................ 22,103 1,788
------------------------ ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates..................................... (1,537) (1,190)
Capital expenditures.......................................... (14,506) (1,799)
Proceeds from sale of capital assets to CPV................... 22,281 42,211
------------------------ ----------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES................ 6,238 39,222
------------------------ ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options....................... 209 1,189
Payments on debt.............................................. (213) (6)
Advances to The Wackenhut Corporation......................... (17,444) (48,706)
Repayments from The Wackenhut Corporation..................... 17,444 48,706
Repurchase of common stock.................................... (6,112) --
------------------------- ----------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES...... (6,116) 1,183
------------------------- ----------------------
Effect of exchange rate changes on cash................................ 1,082 (969)
Net increase in cash................................................... 23,307 41,224
Cash, beginning of period.............................................. 20,240 28,960
------------------------- ----------------------
CASH, END OF PERIOD.................................................... $ 43,547 $ 70,184
========================= ======================
SUPPLEMENTAL DISCLOSURES:
Impact on equity from tax benefit related to the
exercise of options issued under the company's non-
qualified stock option plan.................................. $ 311 $ 2,048
========================= ======================
Income taxes paid............................................. $ 15,775 $ 850
========================= ======================
</TABLE>
The accompanying notes to 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. 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 April 2, 1999 for the fiscal years ended January 3,
1999, December 28, 1997, and December 29, 1996. 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>
Twenty-six Weeks Ended
----------------------------------------------------
July 4, 1999 June 28, 1998
------------------------ ------------------------
<S> <C> <C>
REVENUES
Domestic operations........................ $ 175,304 $ 121,348
International operations................... 28,176 24,538
------------------------ ------------------------
Total revenues............................ $ 203,480 $ 145,886
======================== ========================
OPERATING INCOME
Domestic operations......................... $ 10,814 $ 9,692
International operations.................... 2,518 1,669
------------------------ ------------------------
Total operating income................... $ 13,332 $ 11,361
======================== ========================
</TABLE>
<TABLE>
<CAPTION>
As of
----------------------------------------------------
July 4, 1999 January 3, 1999
------------------------ ------------------------
<S> <C> <C>
LONG-LIVED ASSETS
Domestic operations......................... $ 18,586 $ 28,944
International operations.................... 4,597 4,061
------------------------ ------------------------
Total long-lived assets.................. $ 23,183 $ 33,005
======================== ========================
</TABLE>
Long-lived assets consist of property, plant and equipment.
3. DEFERRED CHARGES
Effective December 29, 1997, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 98-5 ("SOP 98-5") on
Accounting for Costs of Start-up Activities. Under this policy, the Company is
required to expense all start-up and project development costs as incurred. In
fiscal 1998, the Company wrote-off existing unamortized start-up costs and
project development costs of $19.5 million (or $11.5 million after-tax) to
record the cumulative effect of the change in accounting principle. The
adoption of SOP 98-5 required a restatement of the previously issued financial
statements for the thirteen weeks and twenty-six weeks ended June 28, 1998.
Page 6 of 16
<PAGE> 7
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income," 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
------------------------------------------------
July 4, 1999 June 28, 1998
---------------------- ----------------------
<S> <C> <C>
Net income (loss) $ 10,196 $ (3,513)
Foreign currency translation adjustments, net of income tax
expense of $1,070 and $875, respectively. 1,599 (1,274)
---------------------- ----------------------
Comprehensive income (loss) $ 11,795 $ (4,787)
====================== ======================
</TABLE>
5. EARNINGS PER SHARE
The following table shows the amounts used in computing earnings (loss) 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 per share data).
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------------------------- -------------------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net Income..................... $ 5,357 $ 4,652 $ 10,196 $ (3,513)
Basic earnings (loss) per share:
Weighted average shares
outstanding.................. 21,654 22,233 21,752 22,209
----------------- ----------------- ---------------- ----------------
Per share amount............... $ 0.25 $ 0.21 $ 0.47 $ (0.16)
----------------- ----------------- ---------------- ----------------
Diluted earnings (loss) per share:
Weighted average shares
outstanding.................. 21,654 22,233 21,752 22,209
Effect of dilutive securities:
Employee and director stock
options...................... 380 577 405 604
----------------- ----------------- ---------------- ----------------
Weighted average shares
assuming dilution............ 22,034 22,810 22,157 22,813
----------------- ----------------- ---------------- ----------------
Per share amount............... $ 0.24 $ 0.20 $ 0.46 $ (0.15)
================= ================= ================ ================
</TABLE>
Options to purchase 368,500 shares of the Company's common stock, with exercise
prices ranging from $20.25 to $29.56 per share and expiration dates between
2006 and 2009, were outstanding at July 4, 1999, but were not included in the
computation of diluted EPS because their effect would be anti-dilutive if
exercised. At June 28, 1999, outstanding options to purchase 168,000 shares of
the Company's common stock, with exercise prices ranging from $25.06 to $29.56
and expiration dates between 2006 and 2008, were also excluded from the
computation of diluted EPS because their effect would be anti-dilutive if
exercised.
Page 7 of 16
<PAGE> 8
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. SALE OF FACILITIES TO CORRECTIONAL PROPERTIES TRUST
On January 15, 1999, the Company sold its right to acquire a 1,500-bed
correctional facility located in Lawton, Oklahoma and sold the 600-bed
expansion of the Lea County Correctional Facility to Correctional Properties
Trust ("CPV") for a total of approximately $66.1 million. Net proceeds to the
Company from the sale were approximately $22.3 million. Simultaneous with these
purchases, the Company entered into ten-year operating leases with CPV for
these facilities. These properties require initial annual lease payments of
$6.3 million and include annual increases for changes in the consumer price
index with minimum increases of 3% for each of the following two years.
7. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 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. In June 1999, FASB amended the effective date of SFAS 133 to fiscal years
beginning after June 15, 2000. In management's opinion, the impact of adopting
this statement 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. As of January 3, 1999, the Company had
repurchased 453,500 shares of common stock. In February 1999, the Company's
Board of Directors authorized the repurchase of up to an additional 500,000
shares of the Company's common stock. As of July 4, 1999, the Company had
repurchased a total of 753,000 of the one million common shares authorized for
repurchase at an average price per share of $19.87. For fiscal year 1999, the
Company had repurchased 299,500 shares at an average price of $20.47. The
repurchased shares had been recorded by the Company as treasury stock resulting
in a reduction of shareholders' equity.
Page 8 of 16
<PAGE> 9
WACKENHUT CORRECTIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Reference is made to Part II, Item 7 of the Company's Annual Report on Form
10-K for the fiscal year ended January 3, 1999, filed with the Securities and
Exchange Commission on April 2, 1999, for further discussion and analysis of
information pertaining to the Company's results of operations, liquidity and
capital resources.
FORWARD-LOOKING STATEMENTS: The management's discussion and analysis of
financial condition and results of operations and the August 5, 1999 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", 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 risks 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.
LIQUIDITY AND CAPITAL RESOURCES
On January 15, 1999 the Company sold its right to acquire a 1,500-bed
correctional facility located in Lawton, Oklahoma and sold the 600-bed
expansion of the Lea County Correctional Facility located in Hobbs, New Mexico
to CPV for approximately $66.1 million. Net proceeds to the Company from the
sale were approximately $22.3 million. Both facilities are being leased back to
the Company under an operating lease.
Cash and cash equivalents at July 4, 1999 of $43.5 million increased $23.3
million from January 3, 1999. Cash provided by operating activities amounted to
$22.1 million in the twenty-six weeks ended July 4, 1999 ("First Half 1999")
versus cash provided by operating activities of $1.8 million in twenty-six
weeks ended June 28, 1998 ("First Half 1998") primarily reflecting lower trade
accounts receivable, other current assets and deferred income tax balances.
Cash provided by investing activities amounted to $6.2 million in the First
Half 1999, including capital expenditures of $14.5 million representing the
investment in facilities and purchase of equipment offset by proceeds from the
sale of the Lea County Correctional Facility to CPV. Cash used in financing
activities in First Half 1999 amounted to $6.1 million, reflecting primarily
purchases of treasury stock of the Company.
Page 9 of 16
<PAGE> 10
WACKENHUT CORRECTIONS CORPORATION
Working capital increased from $66.3 at January 3, 1999 to $78.0 at the end of
the Second Quarter of 1999 primarily due to the sale of the Lea County
Correctional Facility offset by increases in payables and accrued expenses.
As of July 4, 1999, approximately $74.0 million of the Company's $220 million
operating lease facility, established to acquire and develop new correctional
facilities, was outstanding for properties under development.
YEAR 2000 READINESS DISCLOSURE
Management continued its review of the installation of new information 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.
The year 2000 issue is the result of shortcomings in many electronic data
processing systems and other equipment that make operations beyond the year
1999 troublesome. The internal clocks in computers and other equipment will
roll over from "12/31/99" to "01/01/00" and programs and hardware, if not
corrected, will be unable to distinguish between the year 2000 and the year
1900. This may result in processing data inaccurately or in stopping data
processing altogether.
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. Based on current information, 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 systems followed
by implementation.
Implementation of the Company's year 2000 compliant financial operating systems
has begun and is scheduled for complete implementation in third quarter 1999.
Implementation of all other major year 2000 compliant systems is scheduled for
completion in the third quarter of 1999.
The Company has incurred and will continue to incur expenses related to year
2000 compliance. These costs include time and effort of internal staff and
consultants for renovation, validation and implementation, and computer and
embedded technology systems enhancements and/or replacements. The total costs,
funded from working capital and not considered material, for achieving year
2000 compliance, are estimated at approximately $0.5 million. Of the total
estimated amount, $0.3 million will be capitalized and amortized and $0.2
million will be expensed.
These total estimated costs exclude payroll costs of internal staff related to
year 2000 compliance as the Company does not separately track such costs. In
addition, the total estimated amount to achieve year 2000 compliance excludes
the Company's total costs estimated to be incurred in previously planned new
systems. Implementation of these new systems has not been accelerated due to
the year 2000 problem. Deferral of other projects that would have a material
effect on operations has not been required, nor anticipated, as a result of the
Company's year 2000 efforts.
The state of year 2000 readiness for third parties with whom the Company shares
material relations, such as banks and vendors used by the Company, is being
reviewed by management. The Company had sent written inquiries to these third
parties. At this time, the Company is unaware of any third party year 2000
issues that would materially effect these relationships.
Page 10 of 16
<PAGE> 11
WACKENHUT CORRECTIONS CORPORATION
The Company expects to be year 2000 compliant in 1999 for all major systems.
The Company is assessing its risk and full impact on operations should the most
reasonably likely worst case year 2000 scenario occur. In conjunction with this
assessment, the Company is developing contingency plans and expects completion
during the third quarter of 1999.
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 JULY 4, 1999 AND THIRTEEN WEEKS ENDED
JUNE 28, 1998
Revenues increased by 42.1% to $106.0 million in the thirteen weeks ended July
4, 1999 ("Second Quarter 1999") from $74.6 million in the thirteen weeks ended
June 28, 1998 ("Second Quarter 1998"). Approximately $27.8 million of the
increase in revenues in Second Quarter 1999 compared to Second Quarter 1998 is
attributable to increased compensated resident days resulting from the opening
of six facilities in 1998, (Lea County Correctional Facility, Hobbs, New Mexico
in May, 1998; Lawton Correctional Facility, Lawton, Oklahoma in July, 1998;
George W. Hill Correctional Facility, Thornton, Pennsylvania in July, 1998;
South Florida State Hospital, Pembroke Pines, Florida in November, 1998; Jena
Juvenile Justice Center, Jena, Louisiana in December, 1998; and Cleveland
Correctional Center, Cleveland, Texas in January, 1999) and with the opening of
three facilities in the Second Quarter 1999; (Guadalupe County Correctional
Facility, Santa Rosa, New Mexico in January, 1999; Melbourne Custody Detention
Centre, Melbourne, Australia in March 1999; and East Mississippi Correctional
Facility, Meridian, Mississippi in April, 1999). The 1,562-bed George W. Hill
Correctional Facility opened in 1998 replaced the existing 1,000-bed facility
managed by the Company. The balance of the increase in revenues was
attributable to facilities open during all of both periods and to development
activities.
The number of compensated resident days in domestic facilities increased to
2,135,658 in Second Quarter 1999 from 1,639,688 in Second Quarter 1998.
Compensated resident days in Australian facilities increased to 251,701 from
205,934 for the comparable periods primarily due to higher compensated resident
days at the immigration detention facilities as well as the opening of the
Melbourne Custody Detention Centre. The average facility occupancy in domestic
facilities was 97.4% of capacity in Second Quarter 1999 compared to 96.9% in
Second Quarter 1998.
Operating expenses increased by 46.5% to $93.6 million in Second Quarter 1999
compared to $63.9 million in Second Quarter 1998. This increase primarily
reflected the nine facilities that were opened in 1998 and 1999, as described
above. As a percentage of revenues, operating expenses increased to 88.2% from
85.6% due primarily to lease payments to CPV of $5.2 million offset by the
amortization of deferred revenue of $0.4 million from the sale of properties.
Depreciation and amortization remained constant in Second Quarter 1999 at $1.2
million as compared with Second Quarter 1998. As a percentage of revenues,
depreciation and amortization decreased to 1.1% from 1.6% in the Second Quarter
in 1998.
Contribution from operations increased 18.6% to $11.3 million in Second Quarter
1999 from $9.5 million in Second Quarter 1998. As discussed above, this
increase is primarily attributable to nine new facilities that opened in 1998
and 1999. As a percentage of revenue, contribution from operations decreased to
10.7% in Second Quarter 1999 from 12.8% in Second Quarter 1998. This decrease
is primarily due to the lease payments resulting from the sale of correctional
facilities to CPV in the Second Quarter of 1998 and from additional expenses
related to the start-up of new facilities.
Page 11 of 16
<PAGE> 12
WACKENHUT CORRECTIONS CORPORATION
General and administrative expenses increased by 42.9% to $4.5 million in
Second Quarter 1999 from $3.2 million in Second Quarter 1998. The 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 remained constant at 4.2% for both periods.
Operating income increased by 6.6% to $6.8 million in Second Quarter 1999 from
$6.4 million in Second Quarter 1998. As a percentage of revenue operating
income decreased to 6.4% in Second Quarter 1999 from 8.5% in Second Quarter
1998 due to the factors impacting contribution from operations.
Interest income was $654,000 during the Second Quarter 1999 compared to
$564,000 in Second Quarter 1998 resulting from an increase in the return on
investment in overseas projects.
Income before income taxes, equity in earnings of affiliates, and cumulative
effect of change in accounting for start-up costs increased to $7.4 million in
Second Quarter 1999 from $6.9 million in Second Quarter 1998 due to the factors
described above.
Provision for income taxes increased to $3.0 million in Second Quarter 1999
from $2.8 million in Second Quarter 1998 due to higher taxable income.
Equity in earnings of affiliates increased to $898,000 in Second Quarter 1999
from $535,000 in Second Quarter 1998 due to the commencement of home monitoring
contracts in January 1999 and the opening of H.M. Prison Kilmarnock in March,
1999.
Net income increased to $5.4 million in Second Quarter 1999 from $4.7 million
in Second Quarter 1998 as a result of the factors described above.
COMPARISON OF TWENTY-SIX WEEKS ENDED JULY 4, 1999 AND TWENTY-SIX WEEKS ENDED
JUNE 28, 1998:
Revenues increased by 39.5% to $203.5 million in the twenty-six weeks ended
July 4, 1999 ("First Half 1999") from $145.9 million in the twenty-six weeks
ended June 28, 1998 ("First Half 1998"). Approximately $52.1 million of the
increase in revenues in First Half 1999 compared to First Half 1998 is
attributable to increased compensated resident days resulting from the opening
of ten facilities in 1998 (Scott Grimes Correctional Facility, Newport,
Arkansas in January, 1998; Ronald McPherson Correctional Facility, Newport,
Arkansas in January, 1998; Karnes County Correctional Center, Karnes City,
Texas in January, 1998; Broward County Work Release Center, Broward County,
Florida in February, 1998; Lea County Correctional Facility, Hobbs, New Mexico
in May, 1998; Lawton Correctional Facility, Lawton, Oklahoma in July, 1998;
George W. Hill Correctional Facility, Thornton, Pennsylvania in July, 1998;
South Florida State Hospital, Pembroke Pines, Florida in November, 1998; Jena
Juvenile Justice Center, Jena, Louisiana in December, 1998; and Cleveland
Correctional Center, Cleveland, Texas in January, 1999) and with the opening of
three facilities in the First Half 1999 (Guadalupe County Correctional
Facility, Santa Rosa, New Mexico in January, 1999; Melbourne Custody Detention
Centre, Melbourne, Australia in March 1999; and East Mississippi Correctional
Facility. Meridian, Mississippi in April, 1999). The 1,562-bed George W. Hill
Correctional Facility opened in 1998 replaced the existing 1,000-bed facility
managed by the Company. The balance of the increase in revenues was
attributable to facilities open during all of both periods and to development
activities.
The number of compensated resident days in domestic facilities increased to
4,165,528 in First Half 1999 from 3,185,025 in First Half 1998. Compensated
resident days in Australian facilities increased to 473,970 from 411,297 for
the comparable period primarily due to higher compensated resident days at the
Page 12 of 16
<PAGE> 13
WACKENHUT CORRECTIONS CORPORATION
immigration detention facilities and the opening of the Melbourne Custody
Detention Centre. The average facility occupancy in domestic facilities was
97.3% of capacity in First Half 1999 compared to 96.3% in First Half 1998.
Operating expenses increased by 43.4% to $179.7 million in First Half 1999
compared to $125.3 million in First Half 1998. The increase primarily reflected
the thirteen facilities that opened in 1998 and 1999, as described above.
Depreciation and amortization increased by 10.1% to $2.5 million in the First
Half 1999 from $2.3 million in the First Half 1998. As a percentage of revenue,
depreciation and amortization decreased to 1.2% from 1.5%.
Contributions from operations increased by 16.4% to $21.3 million in First Half
1999 from $18.3 million in First Half 1998. As discussed above, this increase
is primarily attributable to thirteen new facilities that opened in 1998 and
1999. As a percentage of revenue, contribution from operations decreased to
10.5% in First Half 1999 from 12.5% in First Half 1998. This decrease is
primarily due to the lease payments to CPV resulting from the sale of
correctional facilities in the Second Quarter of 1998 and First Quarter of
1999.
General and administrative expenses increased by 14.8% to $8.0 million in First
Half 1999 from $6.9 million in First Half 1998. 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 3.9% in the First Half 1999 from 4.8% in
the First Half 1998.
Operating income increased by 17.3% to $13.3 million in First Half 1999 from
$11.4 million in First Half 1998. As a percentage of revenue operating income
decreased to 6.6% in First Half 1999 from 7.8% in First Half 1998 due to the
factors impacting contribution from operations offset by leveraging of
overhead.
Interest income increased 31.1% to $1.1 million in First Half 1999 from
$809,000 in First Half 1998 resulting from an increase in the average invested
cash balance.
Income before income taxes, equity in earnings of affiliates, and the
cumulative effect of change in accounting for start-up costs increased by 18.3%
to $14.4 million in First Half 1999 from $12.2 million in First Half 1998 due
to the factors described above.
Provision for income taxes increased to $5.8 million in First Half 1999 from
$5.0 million in First Half 1998 due to higher taxable income.
Equity in earnings of affiliates increased 97.0% to $1.6 million for First Half
1999 from $799,000 in First Half 1998 due to the commencement of home
monitoring contracts in January 1999 and the opening of H.M. Prison Kilmarnock
in March 1999.
Income before cumulative effect of change in accounting for start-up costs
increased 27.2% to $10.2 million in First Half 1999 from $8.0 million in First
Half 1998 as a result of the factors discussed above.
Cumulative effect of change in accounting for start-up costs was $11.5 million
in First Quarter 1998 representing the Company's adoption of SOP 98-5. On a
diluted basis, the cumulative effect of the change in accounting principle was
($0.51) per share.
Net income increased to $10.2 million in First Half 1999 from a loss of $3.5
million in First Half 1998 as a result of the factors described above.
Page 13 of 16
<PAGE> 14
WACKENHUT CORRECTIONS CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Item 7A, Part II of the Company's Annual Report on Form
10-K for the fiscal year ended January 3, 1999, for discussion pertaining to
the Company's exposure to certain market risks. There have been no material
changes in the disclosure for the twenty-six weeks ended July 4, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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
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. 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 May 6, 1999 in
Manalapan, 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 21,237,542 183,186
Norman Carlson 21,236,742 183,986
Benjamin R. Civilette 21,236,597 184,131
Richard H. Glanton 21,237,397 183,331
Manuel J. Justiz 21,238,642 182,086
John Ruffle 21,260,792 159,936
George R. Wackenhut 21,235,570 185,158
Richard R. Wackenhut 21,236,975 183,753
George C. Zoley 21,237,942 182,786
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 1999. The tabulation of the votes on this matter was as follows:
For: 21,373,820 Against: 21,326 Abstain: 25,582
Page 14 of 16
<PAGE> 15
WACKENHUT CORRECTIONS CORPORATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - CONT.
The final matter voted upon at the Annual Meeting was the approval of the
Wackenhut Corrections Corporation Stock Option Plan and the setting aside of
550,000 shares for future issuance under that plan. The tabulation of the votes
on this matter was as follows:
For: 20,073,537 Against: 1,274,979 Abstain: 72,212
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
10.1 Wackenhut Corrections Corporation 1999 Stock Option Plan
27.1 Financial Data Schedule (SEC use only)
(b) Reports on Form 8-K - The Company did not file a Form 8-K during the
second quarter of the fiscal year ending January 2, 2000.
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.
WACKENHUT CORRECTIONS CORPORATION
August 16, 1999 /s/ John G. O'Rourke
Date ------------------------------------------
John G. O'Rourke
Senior Vice President - Finance,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Page 16 of 16
<PAGE> 1
EXHIBIT 10.1
WACKENHUT CORRECTIONS CORPORATION
1999 STOCK OPTION PLAN
<PAGE> 2
CONTENTS
- ----------------------------------------------------------------------
Article 1. Establishment, Objectives, and Duration 1
Article 2. Definitions 1
Article 3. Administration 4
Article 4. Shares Subject to the Plan and Maximum Awards 5
Article 5. Eligibility and Participation 5
Article 6. Stock Options 5
Article 7. Beneficiary Designation 7
Article 8. Deferrals 7
Article 9. Rights of Key Employees 8
Article 10. Change in Control 8
Article 11. Amendment, Modification, and Termination 8
Article 12. Withholding 9
Article 13. Indemnification 9
Article 14. Successors 9
Article 15. Legal Construction 10
<PAGE> 3
WACKENHUT CORRECTIONS CORPORATION STOCK OPTION PLAN
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Wackenhut Corrections Corporation, a
Florida corporation (hereinafter referred to as the "Company"), hereby
establishes an incentive compensation plan to be known as the "Wackenhut
Corrections Corporation Stock Option Plan" (hereinafter referred to as the
"Plan"), as set forth in this document. The Plan permits the grant of
Nonqualified Stock Options and Incentive Stock Options.
Subject to approval by the Company's Board of Directors, the Plan shall
become effective as of February 18, 1999, (the "Effective Date") subject to
approval by the shareholders at the 1999 annual meeting, and shall remain in
effect as provided in Section 1.3 hereof.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of the Company through annual and long-term
incentives which are consistent with the Company's goals and which link the
personal interests of Participants to those of the Company's stockholders; to
provide Participants with an incentive for excellence in individual
performance; and to promote teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Committee to amend or terminate the Plan at any time pursuant to
Article 11 hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event may an Award
be granted under the Plan on or after February 17, 2009.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:
2.1 "AFFILIATE" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations of the Exchange Act.
2.2 "AWARD" means, individually or collectively, a grant under this
Plan of Nonqualified Stock Options or Incentive Stock Options.
2.3 "AWARD AGREEMENT" means an agreement entered into by the Company
and each Participant setting forth the terms and provisions
applicable to Awards granted under this Plan.
2.4 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules
and Regulations under the Exchange Act.
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<PAGE> 4
2.5 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of
the Company.
2.6 "CAUSE" means (i) willful and gross misconduct on the part of a
Participant that is materially and demonstrably detrimental to
the Company; or (ii) the commission by a Participant of one or
more acts which constitute an indictable crime under United
States federal, state, or local law. "Cause" under either (i) or
(ii) shall be determined in good faith by a written resolution
duly adopted by the affirmative vote of not less than two-thirds
(2/3) of all the Directors at a meeting duly called and held for
that purpose after reasonable notice to the Participant and
opportunity for the Participant and his or her legal counsel to
be heard.
2.7 "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(a) The stockholders of the Company approve: (i) a plan of
complete liquidation of the Company; or (ii) an agreement
for the sale or disposition of all or substantially all
the Company's assets; or (iii) a merger, consolidation, or
reorganization of the Company with or involving any other
corporation, other than a merger, consolidation, or
reorganization that would result in the voting securities
of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding
or by being converted into voting securities of the
surviving entity) at least sixty-five percent (65%) of the
combined voting power of the voting securities of the
Company (or such surviving entity) outstanding immediately
after such merger, consolidation, or reorganization; or
(b) Notwithstanding anything else contained herein to the
contrary, in no event shall a Change in Control be deemed
to occur solely by reason of (1) a distribution to the
Parent's shareholders, whether as dividend or otherwise,
of all or any portion of Shares or any other voting
securities of the Company held, directly or indirectly, by
the Parent; or (2) a sale of all or any portion of Shares
or any other voting securities of the Company held,
directly or indirectly, by the Parent in an underwritten
public offering.
However, in no event shall a "Change in Control" be deemed to
have occurred, with respect to a Participant, if the Participant
is part of a purchasing group which consummates the
Change-in-Control transaction. A Participant shall be deemed
"part of a purchasing group" for purposes of the preceding
sentence if the Participant is an equity participant in the
purchasing company or group except: (i) passive ownership of less
than three percent (3%) of the stock of the purchasing company;
or (ii) ownership of equity participant in the purchasing company
or group which is otherwise not significant, as determined prior
to the Change in Control by a majority of the nonemployee
continuing Director.
2.8 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.9 "COMMITTEE" means the Nomination and Compensation Committee of
the Company.
2
<PAGE> 5
2.10 "COMPANY" means Wackenhut Corrections Corporation, a Florida
corporation, including any and all Subsidiaries and Affiliates,
and any successor thereto as provided in Article 14 herein.
2.11 "COVERED EMPLOYEE" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the
group of "covered employees," as defined in the regulations
promulgated under Code Section 162(m), or any successor statute.
2.12 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company or any Subsidiary or Affiliate.
2.13 "DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan, or if no such
plan exists, at the discretion of the Committee.
2.14 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.15 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2.16 "FAIR MARKET VALUE" shall mean:
(a) If the security is traded on a national securities
exchange, the closing sale price on the principal
securities exchange on which the Shares are traded on the
preceding day or, if there is no such sale on the relevant
date, then on the last previous day on which a sale was
reported; or
(b) If the security is not currently traded on a national
securities exchange, the fair market value of the security
as determined by the Committee after consideration of an
appraisal conducted by an outside valuation firm.
2.17 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase
Shares granted under Article 6 herein and which is designated as
an Incentive Stock Option and which is intended to meet the
requirements of Code Section 422.
2.18 "INSIDER" shall mean an individual who is, on the relevant date,
an executive officer, director or ten percent (10%) beneficial
owner of any class of the Company's equity securities that is
registered pursuant to Section 12 of the Exchange Act, all as
defined under Section 16 of the Exchange Act.
2.19 "KEY EMPLOYEE" means an employee or consultant of the Company,
including an employee who is an officer of the Company, who, in
the opinion of members of the Committee, can contribute
significantly to the growth and profitability of the Company.
"Key Employee" also may include those employees, identified by
the Committee, in situations concerning extraordinary
performance, promotion, retention, or recruitment. The granting
of an Award under this Plan shall be deemed a determination by
the Committee that such employee is a Key Employee.
3
<PAGE> 6
2.20 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended
to meet the requirements of Code Section 422.
2.21 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.22 "OPTION PRICE" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
2.23 "PARENT" shall mean The Wackenhut Corporation.
2.24 "PARTICIPANT" means a Key Employee who has been selected to
receive an Award or who has an outstanding Award granted under
the Plan.
2.25 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
2.26 "RETIREMENT" shall mean normal retirement at age 60 or early
retirement before that age.
2.27 "SHARES" means the shares of common stock of the Company, par
value $.01.
2.28 "SUBSIDIARY" means any corporation, partnership, joint venture,
or other entity in which the Company has a majority voting
interest.
ARTICLE 3. ADMINISTRATION
3.1 GENERAL. The Plan shall be administered by the Committee except where
expressly reserved by the Board. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the Board
of Directors. To the extent that the Board has not delegated to the Committee
any authority and responsibility under the Plan, all applicable references to
the Committee in the Plan shall be to the Board. The Committee shall have the
authority to delegate administrative duties to officers or Directors of the
Company.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein and ratification by the Board, the Committee shall have full
power to select Participants who shall participate in the Plan; determine the
sizes of Awards; determine the terms and conditions of Awards in a manner
consistent with the Plan; construe and interpret the Plan and any agreement or
instrument entered into under the Plan; establish, amend, or waive rules and
regulations for the Plan's administration; and (subject to the provisions of
Article 11 herein) amend the terms and conditions of any outstanding Award as
provided in the Plan. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of
the Plan. As permitted by law (and subject to Section 3.1 herein), the
Committee may delegate its authority as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee and the Board pursuant to the provisions of the Plan and all related
4
<PAGE> 7
orders and resolutions of the Committee and the Board shall be final,
conclusive and binding on all persons, including the Company, its stockholders,
Directors, Key Employees, Participants, and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be Five Hundred Fifty Thousand
(550,000).
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares which may be
delivered under the Plan, in the number and class of and/or price of Shares
subject to outstanding Awards granted under the Plan, and in the Award limits
set forth in Section 4.1, as may be determined to be appropriate and equitable
by the Committee, in its sole discretion, to prevent dilution or enlargement of
rights; provided, however, that the number of Shares subject to any Award shall
always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Key Employees are eligible to participate in this Plan.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Key Employees, those
to whom Awards shall be granted and shall determine the nature and amount of
each Award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Code Section 422, or an
NQSO whose grant is intended not to fall under the provisions of Code Section
422.
6.3 OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option granted to a Participant shall
expire at such time as the Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than the tenth
(10th) anniversary date of its grant.
5
<PAGE> 8
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Participant.
6.6 PAYMENT. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares and any applicable taxes.
The Option Price upon exercise of any Option, and any applicable taxes
shall be payable to the Company in full either: (a) in cash or its equivalent,
or (b) by tendering previously acquired Shares having an aggregate Fair Market
Value at the time of exercise equal to the total Option Price (provided that
the Shares which are tendered must have been held by the Participant for at
least six (6) months prior to their tender to satisfy the Option Price), or (c)
by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable
after receipt of a written notification of exercise and full payment, the
Company shall deliver to the Participant, in the Participant's name, Share
certificates in an appropriate amount based upon the number of Shares purchased
under the Option(s).
6.7 NONTRANSFERABILITY OF OPTIONS.
(A) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all
ISOs granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant.
(B) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, except
as otherwise provided in a Participant's Award Agreement, all NQSOs granted to
a Participant under this Article 6 shall be exercisable during his or her
lifetime only by such Participant.
6.8 TERMINATION OF EMPLOYMENT.
(A) TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. In the event the employment of a Participant is terminated by
reason of death or Disability, any outstanding Options shall become immediately
exercisable at any time prior to the expiration date of the Options or within
one year after such date of termination of employment, whichever period is
shorter, by such person or persons as shall have acquired the Participant's
rights under the Option by will or by the laws of descent and distribution.
6
<PAGE> 9
In the event the employment of a Participant is terminated by
reason of Retirement, any outstanding Options shall become immediately
exercisable at any time prior to the expiration date of the options.
In its sole discretion, and prior to the termination of the
employment due to death, Disability, or Retirement, the Committee may extend
the period during which outstanding Options may be exercised.
In the case of ISOs, the tax treatment prescribed under Section
422A of the Code may not be available if the Options are not exercised within
the Section 422A prescribed time period after termination of employment.
(B) TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the
employment of the Participant shall terminate for any reason other than for
death, Disability, Retirement, or for Cause, the Participant shall have the
right to exercise Options that were vested in the Participant at the date of
termination within the 90 days after the date of termination, but in no event
beyond the expiration of the term of the Option and only to the extent that the
Participant was entitled to exercise the Option at the date of termination of
employment. The Committee, in its sole discretion, shall have the right to
extend the 90 days up to one (1) year after the date of such termination, but,
however, in no event beyond the expiration date of the Options.
If the employment of the Participant shall terminate for Cause,
all outstanding Options immediately shall be forfeited to the Company and no
additional exercise period shall be allowed, regardless of the vested status of
the Options.
6.9 RESTRICTIONS ON SHARE TRANSFERABILITY.
The Committee may impose such restrictions on any Shares acquired
pursuant to the exercise of an Option granted under this Article 6 as it may
deem advisable, including, without limitation, restrictions under applicable
federal securities laws, under the requirements of any stock exchange or market
upon which such Shares are then listed and/or traded, and under any blue sky or
state securities laws applicable to such Shares.
ARTICLE 7. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 8. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of delivery of Shares that would otherwise be due to such
7
<PAGE> 10
Participant by virtue of the exercise of an Option. If any such deferral
election is required or permitted, the Committee shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
ARTICLE 9. RIGHTS OF PARTICIPANTS
9.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of
the Company.
9.2 PARTICIPATION. No Key Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
ARTICLE 10. CHANGE IN CONTROL
10.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges, any and all Options granted hereunder shall become
immediately exercisable, and shall remain exercisable throughout their entire
term.
10.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan (but subject to
the limitations of Section 11.3 hereof) or any Award Agreement provision, the
provisions of this Article 10 may not be terminated, amended, or modified on or
after the date of a Change in Control to affect adversely any Award theretofore
granted under the Plan without the prior written consent of the Participant
with respect to said Participant's outstanding Awards; provided, however, the
Committee may terminate, amend, or modify this Article 10 at any time and from
time to time prior to the date of a Change in Control.
10.3 POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision
of the Plan to the contrary, in the event that the consummation of a Change in
Control is contingent on using pooling of interests accounting methodology, the
Committee may take any action necessary to preserve the use of pooling of
interests accounting.
ARTICLE 11. AMENDMENT, MODIFICATION, AND TERMINATION
11.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the terms of
the Plan, the Committee may at any time and from time to time, alter, amend,
suspend or terminate the Plan in whole or in part.
11.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual
or nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided that,
unless the Committee determines otherwise at the time such adjustment is
considered, no such adjustment shall be authorized to the extent that such
authority would be inconsistent with the Plan's meeting the requirements of
Section 162(m) of the Code, as from time to time amended.
8
<PAGE> 11
11.3 AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of
the Plan to the contrary (but subject to Section 10.3 hereof), no termination,
amendment, or modification of the Plan shall adversely affect in any material
way any Award previously granted under the Plan, without the written consent of
the Participant holding such Award.
11.4 COMPLIANCE WITH CODE SECTION 162(M). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that changes are
made to Code Section 162(m) to permit greater flexibility with respect to any
Award or Awards available under the Plan, the Committee may, subject to this
Article 11, make any adjustments it deems appropriate.
ARTICLE 12. WITHHOLDING
12.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
12.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options, Participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to the minimum statutory total tax which could be
imposed on the transaction. All such elections shall be irrevocable, made in
writing, signed by the Participant, and shall be subject to any restrictions or
limitations that the Committee, in its sole discretion, deems appropriate.
ARTICLE 13. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgement in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Articles of
Incorporation of Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
ARTICLE 14. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
9
<PAGE> 12
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Company.
ARTICLE 15. LEGAL CONSTRUCTION
15.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.
15.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
15.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
15.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
15.5 GOVERNING LAW. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Florida.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 4, 1999 AND CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL PERIOD ENDING JULY 4, 1999 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-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JUL-04-1999
<CASH> 43,547
<SECURITIES> 0
<RECEIVABLES> 65,658
<ALLOWANCES> 2,477
<INVENTORY> 0
<CURRENT-ASSETS> 117,644
<PP&E> 30,149
<DEPRECIATION> 6,966
<TOTAL-ASSETS> 165,788
<CURRENT-LIABILITIES> 39,632
<BONDS> 0
0
0
<COMMON> 224
<OTHER-SE> 108,920
<TOTAL-LIABILITY-AND-EQUITY> 165,788
<SALES> 0
<TOTAL-REVENUES> 203,480
<CGS> 0
<TOTAL-COSTS> 179,701
<OTHER-EXPENSES> 10,447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,393
<INCOME-TAX> 5,771
<INCOME-CONTINUING> 10,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,196
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.46
</TABLE>
