<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 April 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 April 28, 1999, 22,383,722 shares of the registrant's Common Stock were
issued and outstanding.
Page 1 of 14
<PAGE> 2
WACKENHUT CORRECTIONS CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of Wackenhut Corrections
Corporation, a Florida corporation (the "Company"), have been prepared in
accordance with the instructions to Form 10-Q and therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the thirteen weeks ended April 4, 1999 are not necessarily
indicative of the results for the entire fiscal year ending January 2, 2000.
Page 2 of 14
<PAGE> 3
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
APRIL 4, 1999 AND MARCH 29, 1998
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------
APRIL 4, 1999 MARCH 29, 1998
--------------- -------------------
<S> <C> <C>
Revenues ............................................ $ 97,431 $ 71,269
Operating expenses (including amounts related
to Parent of $2,327 and $1,989) ................ 86,123 61,452
Depreciation and amortization ....................... 1,303 1,037
-------- --------
Contribution from operations ................... 10,005 8,780
G&A expense (including amounts related to
Parent of $852 and $542) .......................... 3,462 3,788
-------- --------
Operating income ............................... 6,543 4,992
Interest income (including interest income related to
Parent of $179 and $35)............................ 407 245
-------- --------
Income before income taxes, equity in earnings
of affiliates, and cumulative effect of change in
accounting for start-up costs ..................... 6,950 5,237
Provision for income taxes .......................... 2,787 2,138
-------- --------
Income before equity in earnings of affiliates and
cumulative effect of change in accounting
for start-up costs ................................ 4,163 3,099
Equity in earnings of affiliates, net of income tax
provision of $453 and $172 ........................ 676 264
-------- --------
Income before cumulative effect of change
in accounting for start-up costs .................. 4,839 3,363
Cumulative effect of change in accounting for
start-up costs, net of tax ........................ -- (11,528)
-------- --------
Net income (loss) ................................... $ 4,839 $ (8,165)
======== ========
Basic earnings per share:
Income before cumulative effect of change in
accounting for start-up costs ................ $ 0.22 $ 0.15
Cumulative effect of change in accounting for
start-up costs, net of tax ................... -- (0.52)
-------- --------
Net income (loss) .............................. $ 0.22 $ (0.37)
======== ========
Diluted earnings per share:
Income before cumulative effect of change in
accounting for start-up costs ................ $ 0.22 $ 0.15
Cumulative effect of change in accounting for
start-up costs, net of tax ................... -- (0.51)
-------- --------
Net income (loss) .............................. $ 0.22 $ (0.36)
======== ========
Basic weighted average shares outstanding ........... 21,851 22,185
======== ========
Diluted weighted average shares outstanding ......... 22,280 22,816
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 3 of 14
<PAGE> 4
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
APRIL 4, 1999 AND JANUARY 3, 1999
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 4, 1999 JANUARY 3, 1999
------------------ ---------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current Assets:
Cash and cash equivalents .......................... $ 42,762 $ 20,240
Accounts receivable, net ........................... 58,506 61,188
Current portion of deferred income tax asset, net .. 1,964 1,769
Other .............................................. 11,434 11,267
--------- ---------
Total current assets .................. 114,666 94,464
Property and equipment, net ........................ 19,513 36,279
Investments in and advances to affiliates .......... 17,421 15,447
Goodwill ........................................... 1,975 2,011
Deferred income tax asset, net ..................... -- 1,277
Other .............................................. 3,428 1,804
--------- ---------
$ 157,003 $ 151,282
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................... $ 8,085 $ 9,218
Accrued payroll and related taxes .................. 12,078 9,955
Accrued expenses ................................... 12,817 9,850
Current portion of deferred revenue ................ 2,710 2,383
Current portion of long-term debt .................. 13 13
--------- ---------
Total current liabilities ............. 35,703 31,419
--------- ---------
Long-term debt .......................................... 197 200
Deferred revenue ........................................ 16,527 16,723
Shareholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized ................... -- --
Common stock, $.01 par value,
60,000,000 shares authorized,
22,383,722 and 22,347,922 shares
issued and outstanding ......................... 224 223
Additional paid-in capital ......................... 83,661 83,164
Retained earnings .................................. 36,362 31,523
Accumulated other comprehensive loss ............... (2,522) (3,117)
Less: common stock in treasury at cost--
653,000 and 453,500 shares ..................... (13,149) (8,853)
--------- ---------
Total shareholders' equity ............ 104,576 102,940
--------- ---------
$ 157,003 $ 151,282
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
Page 4 of 14
<PAGE> 5
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED
APRIL 4, 1999 AND MARCH 29, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------------
APRIL 4, 1999 MARCH 29, 1998
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ 4,839 $ (8,165)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization expense .............. 1,303 1,037
Equity in earnings of affiliates ................... (1,129) (436)
Cumulative effect of change in accounting for
start-up costs ................................. -- 11,528
Changes in assets and liabilities --
(Increase) decrease in assets:
Accounts receivable ................................ 2,860 (10,740)
Deferred income tax asset .......................... 1,082 --
Other current assets ............................... (319) (1,321)
Other assets ....................................... (1,584) (1,077)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses .............. 2,063 2,120
Accrued payroll and related taxes .................. 2,068 (1,100)
Deferred income taxes, net ......................... -- 2,134
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 11,183 (6,020)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates ............................... (845) (222)
Capital expenditures .................................... (6,361) (1,346)
Proceeds from sale of capital assets to CPV ............. 22,281 --
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 15,075 (1,568)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ................. 194 1,031
Payments on debt ........................................ (3) (3)
Advances from The Wackenhut Corporation ................. 29,670 14,425
Repayments to The Wackenhut Corporation ................. (29,670) (14,425)
Repurchase of common stock .............................. (4,297) --
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,106) 1,028
-------- --------
Effect of exchange rate changes on cash .......................... 370 143
Net increase (decrease) in cash .................................. 22,522 (6,417)
Cash, beginning of period ........................................ 20,240 28,960
-------- --------
CASH, END OF PERIOD .............................................. $ 42,762 $ 22,543
======== ========
SUPPLEMENTAL DISCLOSURES:
Impact on equity from tax benefit related to the
exercise of options issued under the company's non-
qualified stock option plan ............................. $ 304 $ 1,871
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
Page 5 of 14
<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):
THIRTEEN WEEKS ENDED
APRIL 4, 1999 MARCH 29, 1998
------------- --------------
REVENUES
Domestic operations ............ $84,964 $58,841
International operations ....... 12,467 12,428
------- -------
Total revenues ................ $97,431 $71,269
======= =======
OPERATING INCOME
Domestic operations ............ $ 5,080 $ 4,321
International operations ....... 1,463 671
------- -------
Total operating income ...... $ 6,543 $ 4,992
======= =======
AS OF
LONG-LIVED ASSETS APRIL 4, 1999 JANUARY 3, 1999
------------- ---------------
Domestic operations ............ $15,240 $32,218
International operations ....... 4,273 4,061
------- -------
Total long-lived assets ..... $19,513 $36,279
======= =======
Long-lived assets consist of property, plant and equipment.
3. DEFERRED CHARGES
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5") on Accounting for Costs of Start-up
Activities. Effective December 29, 1997, 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 ended March 29,
1998. Under this policy, the Company expenses all start-up and project
development costs as incurred.
4. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income," effective December 29, 1997.
SFAS 13 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):
THIRTEEN WEEKS ENDED
APRIL 4, 1999 MARCH 29, 1998
------------- --------------
Net income (loss) $ 4,839 $ (8,165)
Foreign currency translation adjustments,
net of income tax expense of $399 and
$719, respectively. 595 1,043
-------- --------
Comprehensive income (loss) $ 5,434 $ (7,122)
======== ========
5. 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
Page 6 of 14
<PAGE> 7
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
approximately $22.3 million. Simultaneous with these purchases, the Company
entered into ten-year operating leases of the facilities from CPV. 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.
6. 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
April 4, 1999 March 29, 1998
----------------------- -----------------------
Income Shares Income Shares
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net Income (loss)..................................... $ 4,839 $ (8,165)
========== =========
Basic earnings (loss) per share:
Weighted average shares outstanding.............. 21,851 22,185
========= =========
Per share amount................................. $ 0.22 $ (0.37)
========== ==========
Effect of Dilutive Securities:........................ $ (0.00) 429 $ 0.01 631
Diluted earnings (loss) per share:
Weighted average shares assuming dilution........ 22,280 22,816
========= =========
Per share amount................................. $ 0.22 $ (0.36)
========== ==========
</TABLE>
Options to purchase 186,500 shares of the Company's common stock, with exercise
prices ranging from $23.75 to $29.56 per share and expiration dates between 2007
and 2009, were outstanding during and at the end of the first quarter of 1999,
but were not included in the computation of diluted EPS because their effect
would be anti-dilutive.
Options to purchase 1,000 shares of the Company's common stock, with an exercise
price of $29.56 per share and expiring in 2007, were outstanding during and at
the end of the first quarter of 1998, but were not included in the computation
of diluted EPS because their effect would be anti-dilutive.
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. SFAS 133 is effective for fiscal years beginning after June 15, 1999. In
management's opinion, the impact of adopting this statement in 2000 will not
have a material impact upon the Company's results of operations or financial
position.
Page 7 of 14
<PAGE> 8
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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, which were recorded as treasury
stock and resulted in a reduction of shareholders' equity. 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 April 4, 1999, the Company
had repurchased a total of 653,000 of the 1 million common shares authorized for
repurchase and had recorded the repurchased shares as treasury stock resulting
in a reduction of shareholders' equity.
9. SUBSEQUENT EVENT
During April 1999, the Company repurchased an additional 100,000 shares of the
Company's common stock as authorized by the Board of Directors in February
1999, and recorded the transactions as treasury stock resulting in a reduction
of shareholders' equity.
Page 8 of 14
<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 May 6, 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 April 4, 1999 of $42.8 million increased $22.5
million from January 3, 1999. Cash provided by operating activities amounted to
$11.2 million in the First Quarter 1999 versus cash used in operating activities
of $6.0 million in First Quarter 1998 primarily reflecting a lower trade
accounts receivable balance. Cash provided by investing activities amounted to
$15.1 million in the First Quarter 1999, including capital expenditures of $6.4
million representing the investment in facilities and purchase of equipment
offset by proceeds from the sale of the Lea County Correctional
Page 9 of 14
<PAGE> 10
WACKENHUT CORRECTIONS CORPORATION
Facility to CPV. Cash used in financing activities in First Quarter 1999
amounted to $4.1 million, reflecting primarily purchases of treasury stock of
the Company totaling $4.3 million.
Working capital increased from $63.0 at January 3, 1999 to $79.0 at the end of
the first quarter of 1999 primarily due to the sale of the Lea County
Correctional Facility offset by increases in payables and accrued expenses.
As of April 4, 1999, approximately $66.9 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.
This total estimated costs excludes payroll costs of internal staff related to
year 2000 compliance as the Company does not separately track such costs. In
addition, this 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
a material relations, 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 effect these relationships.
Page 10 of 14
<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 to complete
them in 3rd 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.
FISCAL FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998:
Revenues increased by 36.7% to $97.4 million in the thirteen weeks ended April
4, 1999 ("First Quarter 1999") from $71.3 million in the thirteen weeks ended
March 29, 1998 ("First Quarter 1998"). Approximately $23.6 million of the
increase in revenues in First Quarter 1999 compared to First Quarter 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; Delaware
County Prison, Delaware County, 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 two facilities in the
First Quarter 1999; (Guadalupe County Correctional Facility, Santa Rosa, New
Mexico in January, 1999; and East Mississippi Correctional Facility, Meridian,
Mississippi in April, 1999). The 1,562-bed Delaware County Prison 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.
The number of compensated resident days in domestic facilities increased to
2,029,870 in First Quarter 1999 from 1,540,572 in First Quarter 1998.
Compensated resident days in Australian facilities decreased to 222,269 from
227,284 for the comparable periods. The average facility occupancy in domestic
facilities was 96.9% of capacity in First Quarter 1999 compared to 94.5% in
First Quarter 1998.
Operating expenses increased by 40.1% to $86.1 million in First Quarter 1999
compared to $61.5 million in First Quarter 1998. This increase primarily
reflected the twelve facilities that were opened in 1998 and 1999, as described
above. As a percentage of revenues, operating expenses increased to 88.4% from
86.2% due primarily to lease payments to CPV of $4.9 million offset by
amortization of deferred revenue of $0.4 million from the sale of properties.
Depreciation and amortization increased by 25.6% to $1.3 million in First
Quarter 1999 from $1.0 million in First Quarter 1998. This increase represents
increased uniform amortization combined with higher depreciation of computer
hardware, furniture and fixtures, and leasehold improvements. As a percentage of
revenues, depreciation and amortization decreased to 1.3% from 1.5%.
Page 11 of 14
<PAGE> 12
WACKENHUT CORRECTIONS CORPORATION
Contribution from operations increased 14.0% to $10.0 million in First Quarter
1999 from $8.8 million in First Quarter 1998. As discussed above, this increase
is primarily attributable to twelve new facilities that opened in 1998 and 1999.
As a percentage of revenue, contribution from operations decreased to 10.3% in
First Quarter 1999 from 12.3% in First 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.
General and administrative expenses decreased by 8.6% to $3.5 million in First
Quarter 1999 from $3.8 million in First Quarter 1998. As a percentage of
revenue, general and administrative expenses decreased to 3.6% in the First
Quarter 1999 from 5.3% in the First Quarter 1998.
Operating income increased by 31.1% to $6.5 million in First Quarter 1999 from
$5.0 million in First Quarter 1998. As a percentage of revenue operating income
decreased slightly to 6.7% in First Quarter 1999 from 7.0% in First Quarter 1998
due to the factors impacting contribution from operations offset by leveraging
of overhead.
Interest income was $407,000 during the First Quarter 1999 compared to $245,000
in First Quarter 1998 resulting from an increase in the average invested cash
balance and to 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 $7.0 million in
First Quarter 1999 from $5.2 million in First Quarter 1998 due to the factors
described above.
Provision for income taxes increased to $2.8 million in First Quarter 1999 from
$2.1 million in First Quarter 1998 due to higher taxable income.
Equity in earnings of affiliates increased to $676,000 in First Quarter 1999
from $264,000 in First Quarter 1998 due to improved operational performance on
investments in overseas projects, the effects of a full quarter of operational
results for the H.M. Prison Lowdham Grange, and the opening of H.M. Prison
Kilmarnock in March, 1999.
Income before cumulative effect of change in accounting for start-up costs
increased 43.9% to $4.8 million in First Quarter 1999 from $3.4 million in First
Quarter 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 $4.8 million in First Quarter 1999 from a loss of $8.2
million in First Quarter 1998 as a result of the factors described above.
Page 12 of 14
<PAGE> 13
WACKENHUT CORRECTIONS CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
We are exposed to certain market risks which are inherent in our financial
instruments that arise from transactions entered into in the normal course of
business. We are subject to interest rate risk on our $220 million operating
lease facility and any future financing requirements. Monthly lease payments
under the operating lease facility are indexed to a variable interest rate.
While we cannot predict or manage the impact interest rate movements will have
on our existing facility, we continue to evaluate our financial position on an
ongoing basis.
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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - No exhibits are filed as part of this quarterly report.
(b) Reports on Form 8-K - The Company did not file a Form 8-K during the
first quarter of the fiscal year ending January 2, 2000.
Page 13 of 14
<PAGE> 14
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
May 19, 1999 /s/ John G. O'Rourke
- --------------- ---------------------------------
Date John G. O'Rourke
Senior Vice President - Finance, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Page 14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT APRIL 4, 1999 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE FISCAL PERIOD ENDING APRIL 4, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-2000
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<PERIOD-END> APR-04-1999
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<SECURITIES> 0
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<ALLOWANCES> 3,784
<INVENTORY> 0
<CURRENT-ASSETS> 114,666
<PP&E> 25,648
<DEPRECIATION> 6,135
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<BONDS> 197
0
0
<COMMON> 224
<OTHER-SE> 104,352
<TOTAL-LIABILITY-AND-EQUITY> 157,003
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<TOTAL-REVENUES> 97,431
<CGS> 0
<TOTAL-COSTS> 87,426
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<INTEREST-EXPENSE> 235
<INCOME-PRETAX> 6,950
<INCOME-TAX> 2,787
<INCOME-CONTINUING> 4,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 4,839
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