<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 2, 2000
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
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 65-0043078
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4200 Wackenhut Drive #100, Palm Beach Gardens, Florida 33410-4243
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(Address of principal executive offices) (Zip code)
</TABLE>
(561) 622-5656
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(Registrant's telephone number, including area code)
Not Applicable
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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 May 10, 2000, 22,386,992 shares of the registrant's Common Stock were issued
and outstanding.
<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 thirteen weeks ended April 2, 2000 are not necessarily
indicative of the results for the entire fiscal year ending December 31, 2000.
2
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WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
APRIL 2, 2000 AND APRIL 4, 1999
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------------------
APRIL 2, 2000 APRIL 4, 1999
---------------- ----------------
<S> <C> <C>
Revenues............................................................. $ 130,508 $ 97,431
Operating expenses (including amounts related
to Parent of $2,597 and $2,327).................................. 116,705 86,123
Depreciation and amortization........................................ 2,082 1,303
---------------- ----------------
Contribution from operations..................................... 11,721 10,005
G&A expense (including amounts related to
Parent of $926 and $893)......................................... 6,152 3,462
---------------- ----------------
Operating income................................................. 5,569 6,543
Interest income (including interest (expense)/income
related to Parent of $(20), and $179)............................ 539 407
---------------- ----------------
Income before income taxes and equity in earnings
of affiliates ................................................... 6,108 6,950
Provision for income taxes........................................... 2,449 2,787
---------------- ----------------
Income before equity in earnings of affiliates ...................... 3,659 4,163
Equity in earnings of affiliates, net of income tax
provision of $756 and $453....................................... 1,130 676
---------------- ----------------
Net income........................................................... $ 4,789 $ 4,839
================ ================
Basic earnings per share:
Net income....................................................... $ 0.22 $ 0.22
================ ================
Basic weighted average shares outstanding........................ 21,402 21,851
================ ================
Diluted earnings per share:
Net income....................................................... $ 0.22 $ 0.22
================ ================
Diluted weighted average shares outstanding...................... 21,577 22,280
================ ================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
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WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
APRIL 2, 2000 AND JANUARY 2, 2000
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 2, 2000 JANUARY 2, 2000
----------------------- -----------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 27,172 $ 41,029
Accounts receivable, less allowance for doubtful
accounts of $1,090 and $1,499...................... 86,358 77,779
Current deferred income tax asset, net................ 3,392 3,069
Other................................................. 13,496 13,016
----------------------- -----------------------
Total current assets..................... 130,418 134,893
Property and equipment, net................................ 51,355 43,360
Investments in and advances to affiliates.................. 22,584 20,686
Goodwill................................................... 1,678 1,776
Deferred income tax asset, net............................. 977 1,066
Other...................................................... 6,179 2,644
----------------------- -----------------------
$ 213,191 $ 204,425
======================= =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 14,305 $ 12,631
Accrued payroll and related taxes..................... 12,502 11,305
Accrued expenses...................................... 30,106 28,553
Current portion of deferred revenue................... 2,894 3,027
----------------------- -----------------------
Total current liabilities................ 59,807 55,516
----------------------- -----------------------
Long-term debt............................................. 21,000 15,000
Deferred revenue........................................... 14,765 15,225
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized...................... -- --
Common stock, $.01 par value,
60,000,000 shares authorized,
22,386,992 shares issued and
outstanding for both periods...................... 224 224
Additional paid-in capital............................ 83,699 83,699
Retained earnings..................................... 58,252 53,463
Accumulated other comprehensive loss.................. (3,511) (1,902)
Less: common stock in treasury at cost--
1,302,800 and 878,000 shares...................... (21,045) (16,800)
----------------------- -----------------------
Total shareholders' equity............... 117,619 118,684
----------------------- -----------------------
$ 213,191 $ 204,425
======================= =======================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
4
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WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED
APRIL 2, 2000 AND APRIL 4, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------------------
April 2, 2000 April 4, 1999
------------------------ ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 4,789 $ 4,839
Adjustments to reconcile net income to net cash
(used in) provided by operating activities--
Depreciation and amortization expense.................... 2,082 1,303
Deferred tax (benefit) provision......................... (79) 1,093
Provision for bad debt expense........................... 382 123
Equity in earnings of affiliates......................... (1,130) (676)
Changes in assets and liabilities -
(Increase) decrease in assets:
Accounts receivable...................................... (10,085) 2,737
Deferred income tax asset................................ (1,023) 1,082
Other current assets .................................... (818) (319)
Other assets............................................. (3,777) (1,584)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses.................... 4,304 385
Accrued payroll and related taxes........................ 1,358 2,068
Deferred revenue ........................................ (593) 132
------------------------ ----------------------
Net cash (used in) provided by operating activities........... (4,590) 11,183
------------------------ ----------------------
Cash flows from investing activities:
Investments in affiliates..................................... (169) (845)
Repayments of investments in affiliates....................... 157 --
Capital expenditures.......................................... (10,304) (6,361)
Proceeds from sale of capital assets to CPV................... -- 22,281
------------------------ ----------------------
Net cash (used in) provided by investing activities........... (10,316) 15,075
------------------------- ----------------------
Cash flows from financing activities:
Proceeds from exercise of stock options....................... -- 194
Payments on debt.............................................. -- (3)
Proceeds from issuance of debt................................ 6,000 --
Advances from The Wackenhut Corporation....................... 1,011 29,670
Repayments to The Wackenhut Corporation....................... (1,011) (29,670)
Repurchase of common stock.................................... (4,245) (4,297)
------------------------- ----------------------
Net cash provided by (used in) financing activities........... 1,755 (4,106)
------------------------- ----------------------
Effect of exchange rate changes on cash................................ (706) 370
Net (decrease) increase in cash........................................ (13,857) 22,522
Cash, beginning of period.............................................. 41,029 20,240
------------------------- ----------------------
Cash, end of period.................................................... $ 27,172 $ 42,762
========================= ======================
Supplemental disclosures:
Cash paid for income taxes.................................... $ 2,153 $ 240
========================= ======================
Cash paid for interest........................................ $ 28 $ --
========================= ======================
Impact on equity from tax benefit related to the
exercise of options issued under the company's non-
qualified stock option plan............................... $ -- $ 304
========================= ======================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
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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 the Notes to Consolidated Financial Statements
included in the Company's Form 10-K filed with the Securities and Exchange
Commission on March 31, 2000 for the fiscal year ended January 2, 2000. 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>
THIRTEEN WEEKS ENDED
----------------------------------------------------
APRIL 2, 2000 APRIL 4, 1999
------------------------ ------------------------
<S> <C> <C>
REVENUES
Domestic operations........................ $ 102,197 $ 84,964
International operations................... 28,311 12,467
------------------------ ------------------------
Total revenues............................ $ 130,508 $ 97,431
======================== ========================
OPERATING INCOME
Domestic operations......................... $ 1,651 $ 5,523
International operations.................... 3,918 1,020
------------------------ ------------------------
Total operating income................... $ 5,569 $ 6,543
======================== ========================
AS OF
----------------------------------------------------
LONG-LIVED ASSETS APRIL 2, 2000 JANUARY 2, 2000
------------------------ ------------------------
Domestic operations......................... $ 45,876 $ 39,005
International operations.................... 5,479 4,355
------------------------ ------------------------
Total long-lived assets.................. $ 51,355 $ 43,360
======================== ========================
</TABLE>
Long-lived assets consist of property, plant and equipment.
3. 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>
THIRTEEN WEEKS ENDED
------------------------------------------------
APRIL 2, 2000 APRIL 4, 1999
---------------------- ----------------------
<S> <C> <C>
Net income.................................................... $ 4,789 $ 4,839
Foreign currency translation adjustments, net of income tax
expense of $1,077 and $399, respectively. ............... 1,609 595
---------------------- ----------------------
Comprehensive income ......................................... $ 6,398 $ 5,434
====================== ======================
</TABLE>
6
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WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. EARNINGS PER SHARE
The following table shows the amounts used in computing earnings per share (EPS)
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 2, 2000 APRIL 4, 1999
----------------- -----------------
<S> <C> <C>
Net Income....................................... $ 4,789 $ 4,839
Basic earnings per share:
Weighted average shares
outstanding.................................... 21,402 21,851
================= =================
Per share amount................................. $ 0.22 $ 0.22
================= =================
Diluted earnings per share:
Weighted average shares
outstanding.................................... 21,402 21,851
Effect of dilutive securities:
Employee and director stock
options........................................ 175 429
----------------- -----------------
Weighted average shares
assuming dilution.............................. 21,577 22,280
================= =================
Per share amount................................. $ 0.22 $ 0.22
================= =================
</TABLE>
Options to purchase 766,200 shares of the Company's common stock, with exercise
prices ranging from $11.88 to $26.88 per share and expiration dates between 2005
and 2009, were outstanding at April 2, 2000, but were not included in the
computation of diluted EPS because their effect would be anti-dilutive if
exercised. At April 4, 1999, outstanding options to purchase 186,500 shares of
the Company's common stock, with exercise prices ranging from $23.75 to $29.56
and expiration dates between 2008 and 2009, were also excluded from the
computation of diluted EPS because their effect would be anti-dilutive if
exercised.
5. SALE OF FACILITIES TO CORRECTIONAL PROPERTIES TRUST
On January 7, 2000, the Company sold its right to acquire the 276-bed Jena
Juvenile Justice Center to Correctional Properties Trust ("CPV") for a total of
approximately $15.3 million. As the facility was sold at cost, the Company did
not realize a gain or loss on the sale. Simultaneous with this purchase, the
Company entered into a ten-year operating lease with CPV for this facility.
7
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WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
APRIL 2, 2000 JANUARY 2, 2000
------------------------ ------------------------
<S> <C> <C>
Revolving credit facility.................. $ 21,000 $ 15,000
Less - Current portion..................... -- --
======================== ========================
$ 21,000 $ 15,000
======================== ========================
</TABLE>
In December 1997, the Company entered into a $30.0 million multi-currency
revolving credit facility with a syndicate of banks, the proceeds of which may
be used for working capital, acquisitions and general corporate purposes.
Indebtedness under this facility bears interest at the alternate base rate
(defined as the higher of prime rate or federal funds plus 0.5%) or LIBOR plus
150 to 250 basis points, depending upon fixed charge coverage ratios. At April
2, 2000, the interest rate for this facility was 7.6%. The facility requires the
Company to, among other things, maintain a maximum leverage ratio; minimum fixed
charge coverage ratio; and a minimum tangible net worth. The facility also
limits certain payments and distributions. At April 2, 2000, $21 million was
outstanding under this facility.
7. TREASURY STOCK
On February 18, 2000, the Company's Board of Directors authorized the repurchase
of up to an additional 500,000 shares of its common stock. During the thirteen
weeks ended April 2, 2000, the Company repurchased 424,800 shares at an average
price of $9.99. As of April 2, 2000, the Company had repurchased a total of
1,302,800 of the 1,500,000 common shares authorized for repurchase at an average
price per share of $16.15. Subsequent to April 2, 2000, the Company repurchased
an additional 75,200 shares at an average price of $9.13. The repurchased shares
have been recorded by the Company as treasury stock resulting in a reduction of
shareholders' equity.
8. COMMITMENTS AND CONTINGENCIES
On August 31, 1999, the Company announced the mutual decision between the
Company, the Texas Department of Criminal Justice State Jail Division ("TDCJ")
and Travis County, Texas to discontinue the Company's contract for the operation
of the Travis County Community Justice Center. The contract was discontinued
effective November 8, 1999. The Company is involved in discussions with TDCJ
regarding close-out of all contract claims. The Company cannot predict the
outcome of these discussions at this time.
In New Mexico, the Company has been in discussions with the State's Department
of Corrections and Legislative Finance Committee and has submitted proposed
contract modifications regarding additional compensation for physical plant
modification and increased staffing at Guadalupe County Correctional Facility
and Lea County Correctional Facility which have been or are in the process of
being implemented by the Company. At this time no agreement has been reached
regarding these contract modifications.
8
<PAGE> 9
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. 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, as amended by SFAS No. 137, is effective for 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.
10. SUBSEQUENT EVENT
On May 12, 2000, the Louisiana Department of Public Safety and Corrections
("LDPSC") notified the Company of its intention to remove all inmates from the
Jena Juvenile Justice Center in Jena, Louisiana on or before May 17, 2000 and to
terminate the cooperative agreement for such facility effective June 30, 2000.
The Company notified facility staff that their employment would be terminated
effective May 17, 2000. The LDPSC will continue to make lease payments to the
Company through June 30, 2000. The Company is continuing its efforts to find an
alternative use for the facility. However, during this period of transition, the
Company will continue to incur certain fixed costs. If the Company is unable to
find an alternative use for the facility, there could be an adverse impact on
the Company's financial position and future results of operations.
9
<PAGE> 10
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 2, 2000, filed with the Securities and
Exchange Commission on March 31, 2000, 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 4, 2000 press release
announcing earnings 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 7, 2000 the Company sold its right to acquire the 276-bed
correctional facility in Jena, Louisiana to CPV for approximately $15.3 million.
As the facility was sold at cost, the Company did not realize a gain or loss on
the sale. This facility is being leased back to the Company under a 10-year
operating lease.
Cash and cash equivalents at April 2, 2000 of $27.2 million decreased $13.9
million from January 2, 2000. Cash used in operating activities amounted to $4.6
million in the thirteen weeks ended April 2, 2000 ("First Quarter 2000") versus
cash provided by operating activities of $11.2 million in the thirteen weeks
ended April 4, 2000 ("First Quarter 1999") primarily reflecting higher balances
in accounts receivable and other assets.
10
<PAGE> 11
WACKENHUT CORRECTIONS CORPORATION
Cash used in investing activities increased by $25.4 million in the First
Quarter 2000 as compared to the same period in 1999. The Company received
proceeds of $22.3 million for the sale of Lea County Correctional Facility to
CPV and the right to acquire the Lawton Correctional Facility in the First
Quarter 1999. There were no proceeds from the sale of facilities in First
Quarter 2000. The Company also had higher capital expenditures of approximately
$3.9 million primarily due to the expenditures for the construction of the San
Diego facility.
Cash used in financing activities increased by $5.9 million in the First Quarter
2000 as compared to the same period in 1999 primarily due to the proceeds
received by the Company of $6.0 million from long-term debt.
Working capital decreased from $79.4 million at January 2, 2000 to $70.6 million
at April 2, 2000 primarily due to the decrease in cash and cash equivalents and
an increase in the balance of accounts payable and accrued expenses offset by
increases in accounts receivable.
As of April 2, 2000, approximately $81.1 million of the Company's $220 million
operating lease facility, established to acquire and develop new correctional
facilities, was outstanding for properties under development. The Company has
approximately $21 million outstanding of its $30 million multi-currency
revolving credit facility to also fund new project development.
The Company's access to capital and ability to compete for future capital
intensive projects is dependent upon, among other things, its ability to meet
certain financial covenants included in the $220 million operating lease
facility and the Company's $30 million revolving credit facility. A substantial
decline in the Company's financial performance as a result of an increase in
operational expenses relative to revenue could negatively impact the Company's
ability to meet these covenants, and could therefore, limit the Company's access
to capital.
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 APRIL 2, 2000 AND THIRTEEN WEEKS ENDED
APRIL 4, 1999
Revenues increased by 33.9% to $130.5 million in the thirteen weeks ended April
2, 2000 from $97.4 million in the thirteen weeks ended April 4, 1999.
Approximately $26.9 million of the increase in revenues in First Quarter 2000
compared to First Quarter 1999 is attributable to increased compensated resident
days resulting from the opening of six facilities in 1999 (Guadalupe County
Correctional Facility, Santa Rosa, New Mexico in January, 1999; Melbourne
Custody Detention Centre, Melbourne, Australia in March, 1999; East Mississippi
Correctional Facility, Meridian, Mississippi in April, 1999; Michigan Youth
Correctional Facility, Baldwin, Michigan in July, 1999; Curtin Immigration
Reception and Processing Centre, Derby, Western Australia in September, 1999;
and Woomera Immigration and Processing Centre, Woomera, South Australia in
November, 1999). Approximately $7.4 million of the increase in revenue in the
First Quarter 2000 compared to First Quarter 1999 is attributable to the
construction of new facilities for South Florida State Hospital and for the
government of the Netherlands Antilles in Curacao. Revenues were reduced by
approximately $2.7 million in First Quarter 2000 as compared to the same period
in 1999 due to the loss of the contract for operation of the Travis County
Community Justice Center. The balance of the increase in revenues was
attributable to facilities open during all of both periods.
11
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WACKENHUT CORRECTIONS CORPORATION
The number of compensated resident days in domestic facilities increased to
2,165,872 in First Quarter 2000 from 2,029,870 in First Quarter 1999. The
average facility occupancy in domestic facilities was 97.3% of capacity in First
Quarter 2000 compared to 96.9% in First Quarter 1999. Compensated resident days
in Australian facilities increased to 486,346 from 222,269 for the comparable
periods primarily due to higher compensated resident days at the immigration
detention facilities.
Operating expenses increased by 35.5% to $116.7 million in First Quarter 2000
compared to $86.1 million in First Quarter 1999. As a percentage of revenue,
operating expenses increased to 89.4% in First Quarter 2000 from 88.4% in the
comparable period in 1999. This increase primarily reflects the six facilities
that were opened in 1999, as described above. Additionally, there are secondary
factors contributing to the increase which include the following: expenses
related to the construction of the new facilities for South Florida State
Hospital and the government of the Netherlands Antilles and additional expenses
related to operations at the East Mississippi Correctional Facility
(Mississippi), George W. Hill Correctional Facility (Pennsylvania), Jena
Juvenile Justice Center (Louisiana), Lea County Correctional Facility (New
Mexico), Guadalupe County Correctional Facility (New Mexico), and Michigan Youth
Correctional Facility (Michigan). The Company has developed strategies to
improve the operational performance of these facilities, however, there can be
no assurances that these strategies will be successful. During a period of
low unemployment, some facilities may experience difficulty in finding qualified
personnel. This could have an adverse impact on the Company's results of
operations in the event wages and salaries increase at a faster rate then the
per diem or fixed rate received by the Company for its services.
Effective April 1, 2000, the premium paid by the Company for general
comprehensive liability insurance under the liability insurance program
maintained by The Wackenhut Corporation ("TWC") was increased due to an adverse
trend in the development of claims experience. The Company is developing a
strategy to improve the management of future loss claims incurred by the Company
but can provide no assurances that this strategy will be successful. As a
result, the Company will incur additional operating expenses related to general
comprehensive liability insurance that could have an adverse impact on the
Company's future financial results of operations.
Depreciation and amortization increased by 59.8% to $2.1 million in First
Quarter 2000 from $1.3 million in First Quarter 1999. As a percentage of
revenue, depreciation and amortization slightly increased to 1.6% from 1.3% in
the First Quarter in 1999. This increase is primarily attributable to leasehold
improvements at the New Mexico and Oklahoma facilities and additional
operational assets.
Contribution from operations increased 17.2% to $11.7 million in First Quarter
2000 from $10.0 million in First Quarter 1999. As discussed above, this increase
is primarily attributable to six new facilities that opened in 1999. As a
percentage of revenue, contribution from operations decreased to 9.0% in First
Quarter 2000 from 10.3% in First Quarter 1999. This decrease is primarily due to
the factors impacting the increase in operating expenses and depreciation and
amortization expense as discussed above.
General and administrative expenses increased 77.7% to $6.2 million in First
Quarter 2000 from $3.5 million in First Quarter 1999. As a percentage of
revenue, general and administrative expenses increased to 4.7% in First Quarter
2000 from 3.6% in First Quarter 1999. The increase reflects costs related to
additional infrastructure and additional costs related to the Company's services
agreement with The Wackenhut Corporation ("Parent") as well as legal and
professional fees.
Operating income decreased by 14.9% to $5.6 million in First Quarter 2000 from
$6.5 million in First Quarter 1999. As a percentage of revenue, operating income
decreased to 4.3% in First Quarter 2000 from 6.7% in First Quarter 1999 due to
the factors impacting contribution from operations and general and
administrative expenses.
Interest income was $0.5 million during the First Quarter 2000 compared to $0.4
million in First Quarter 1999 resulting from an increase in the return on
investment in overseas projects.
Income before income taxes and equity in earnings of affiliates decreased to
$6.1 million in First Quarter 2000 from $7.0 million in First Quarter 1999 due
to the factors described above.
12
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WACKENHUT CORRECTIONS CORPORATION
Provision for income taxes decreased to $2.4 million in First Quarter 2000 from
$2.8 million in First Quarter 1999 due to lower taxable income.
Equity in earnings of affiliates, net of income tax provision, increased to $1.1
million in First Quarter 2000 from $0.7 million in First Quarter 1999 due to the
continued phase-in of H.M. Prison Kilmarnock which opened in March, 1999; the
Hassockfield Secure Training Centre in Medomsley, England which opened in
September, 1999; and H.M. Prison & Youth Offender Institution Ashfield in
Pucklechurch, England which opened in November, 1999.
Net income remained constant at $4.8 million in First Quarter 2000 as a result
of the factors described above.
13
<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 2, 2000, for discussion pertaining to the
Company's exposure to certain market risks. There have been no material changes
in the disclosure for the thirteen weeks ended April 2, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In Travis County, Texas, a grand jury indicted twelve of the Company's former
facility employees for various types of sexual misconduct at the Travis County
Community Justice Center. Eleven of the twelve indicted former employees already
resigned from or had been terminated by the Company as a result of
Company-initiated investigations over the course of the prior three years. The
Company is not providing counsel to assist in the defense of these twelve
individuals. Management believes these indictments are not expected to have any
material financial impact on the Company. The District Attorney in Travis County
continues to review Company documents for alleged document tampering at the
Travis County Facility. At this time the Company cannot predict the outcome of
this investigation. The Company believes that if the outcome of this
investigation is unfavorable, there could be an adverse effect upon the
Company's financial position and results of operations.
The nature of the Company's business results in claims or litigation against the
Company for damages arising from the conduct of its employees or others. Except
for litigation set forth above and 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.
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.
14
<PAGE> 15
WACKENHUT CORRECTIONS CORPORATION
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K - The Company did not file a Form 8-K during the
thirteen weeks ended April 2, 2000.
15
<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
May 17, 2000 /s/ JOHN G. O'ROURKE
- ------------------- -------------------------------------------
Date John G. O'Rourke
Senior Vice President - Finance, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT APRIL 2, 2000 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE FISCAL PERIOD ENDING APRIL 2, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-02-2000
<EXCHANGE-RATE> 1
<CASH> 27,172
<SECURITIES> 0
<RECEIVABLES> 87,448
<ALLOWANCES> 1,090
<INVENTORY> 0
<CURRENT-ASSETS> 130,418
<PP&E> 60,325
<DEPRECIATION> 8,970
<TOTAL-ASSETS> 213,191
<CURRENT-LIABILITIES> 59,807
<BONDS> 21,000
0
0
<COMMON> 224
<OTHER-SE> 117,395
<TOTAL-LIABILITY-AND-EQUITY> 213,191
<SALES> 0
<TOTAL-REVENUES> 130,508
<CGS> 0
<TOTAL-COSTS> 118,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 6,108
<INCOME-TAX> 2,449
<INCOME-CONTINUING> 4,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,789
<EPS-BASIC> .22
<EPS-DILUTED> .22
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