<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JANUARY 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)
FLORIDA 65-0043078
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4200 WACKENHUT DRIVE #100, PALM BEACH GARDENS, FLORIDA 33410-4243
- ------------------------------------------------------ ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER (INCLUDING AREA CODE): (561) 622-5656
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
----------------------------- -----------------------------------------
Common Stock, $0.01 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
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Indicate by a 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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 7, 2000, the aggregate market value of the 10,386,222 shares of Common
Stock held by non-affiliates of the registrant was $104,519,107. At March 7,
2000, there were outstanding 22,386,992 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Proxy Statement for its 1999 Annual Meeting of
Shareholders are incorporated by reference in Part III of this report.
Parts of the Registrant's Annual Report to Shareholders for the fiscal year
ended January 2, 2000 are incorporated by reference into Parts II and IV of this
report.
EXHIBIT INDEX IS LOCATED ON PAGE 28
PAGE 1 of 27
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PART I
ITEM 1. BUSINESS
THE COMPANY
Wackenhut Corrections Corporation ("the Company"), a 56% owned subsidiary of The
Wackenhut Corporation ("TWC"), is an industry leader in the privatization of
correctional facilities throughout the world. The Company was founded in 1984 as
a division of TWC, a leading provider of professional security services. In
1986, the Company received its first contract, from the United States
Immigration and Naturalization Service (the "INS"), to design, construct and
manage a detention facility with a design capacity of 150 beds. As of January 2,
2000, the Company had 56 correctional, detention and healthcare facilities
either under contract or award with an aggregate design capacity of 39,930 beds.
Of these 56 facilities, 50 are currently in operation, and six are being
developed by the Company. Of the facilities being developed, three are expected
to commence operations during 2000 (two in the second quarter and one in the
third quarter).* In addition, at January 2, 2000, the Company had outstanding
written responses to Requests for Proposal ("RFPs") for three projects with an
aggregate design capacity of 4,100 beds.
The Company offers governmental agencies a comprehensive range of correctional
and related institutional services to federal, state, local and overseas
government agencies. Correctional services include the management of a broad
spectrum of facilities, including male and female adult facilities; juvenile
facilities; community corrections; work programs; prison industries; substance
abuse treatment facilities; and mental health, geriatric and other special
purpose institutions. Other management contracts include psychiatric health
care, electronic home monitoring, prisoner transportation, correctional health
services, and facility maintenance. The Company has an in-house capability for
the design and construction of new facilities, and offers a full privatization
package to government agencies, to include financing. The Company believes that
its experience in delivering governmental agencies high quality, cost-effective
correctional and related institutional services provides such agencies strong
incentive to select the Company when renewing and awarding contracts.
On November 1, 1998, the Company began management of the 350-bed South Florida
State Psychiatric Hospital, representing a historic milestone for public sector
mental health services and a significant diversification of the Company's
service offerings.
The Company has obtained and is pursuing construction and management contracts
for correctional and detention facilities outside the United States and
presently operates facilities in the United Kingdom and Australia. Through its
wholly-owned subsidiary in Australia, Wackenhut Corrections Corporation
Australia Pty Limited ("WCCA"), the Company manages four correctional
facilities, six immigration detention centers, one correctional Health Care
Services entity and one court escort contract. In the United Kingdom, the
Company formed two joint ventures to pursue construction and management
contracts for privatized correctional and detention facilities. Premier
Custodial Group Limited ("PCG") a joint venture with Serco Limited, currently
manages four correctional facilities, two court escort contracts and two
electric monitoring services contracts and will commence management of one
additional correctional facility. Under court escort contracts, a private
company, on behalf of a governmental agency, transports prisoners between police
stations, prisons and courts and is responsible for the custody of such
prisoners during transportation and court appearances. Electronic monitoring
services involve the electronic tagging of offenders sentenced to home
incarceration. In February 1994, through Wackenhut Corrections (UK) Limited, the
Company formed Premier Custodial Development ("PCD"), as a joint venture with a
wholly-owned subsidiary of Kvaerner Construction Limited, for the design and
construction of new detention facilities and prisons. The Company expects that
PCD will bid
* See note on page three regarding forward-looking statements.
PAGE 2 of 27
<PAGE> 3
with PCG for the design, construction management and finance of new correctional
and detention facilities in the United Kingdom.
In the majority of contracts, the Company manages facilities owned or leased by
a governmental agency. The agency may finance the construction of such
facilities through various methods including, but not limited to, the following:
(i) a one time general revenue appropriation by the governmental agency for the
cost of the new facility; (ii) general obligation bonds that are secured by
either a limited or unlimited tax levy by the issuing entity; or (iii) lease
revenue bonds or certificates of participation secured by an annual lease
payment that is subject to annual or bi-annual legislative appropriations. In
some instances, the Company may be required to own and/or finance the facility.
The construction of these facilities will be financed through various methods
including, but not limited to the following: (i) funds from equity offerings of
the Company's stock; (ii) borrowings from banks or other institutions; or (iii)
lease arrangements with third parties.
The Company was incorporated in Florida in April, 1988. The Company's principal
executive offices are located at 4200 Wackenhut Drive #100, Palm Beach Gardens,
Florida 33410-4243, and its telephone number is (561) 622-5656.
See the Company's Consolidated Financial Statements on pages 28 through 31 and
Note 8 of Notes to Consolidated Financial Statements on pages 35 and 36 of the
Company's 1999 Annual Report to Shareholders for financial information regarding
domestic and international operations.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical matters, the
matters discussed in this Form 10-K contain forward-looking statements that are
based on current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from current expectations
due to a number of factors, including but not limited to: general economic
conditions; competitive factors and pricing pressures; shifts in market demand;
the performance and needs of clients served by the Company; actual future costs
of operating expenses; self-insurance claims and employee wages and benefits;
possible changes in ownership positions of the Company's subsidiaries; and such
other risks which may be described from time to time in the Company's SEC
filings. These statements are marked with an " * ".
PAGE 3 of 27
<PAGE> 4
FACILITIES
The following table summarizes certain information with respect to facilities
currently under management contract or award for management by the Company (or a
subsidiary or joint venture of the Company) at January 2, 2000.
<TABLE>
<CAPTION>
Commencement
Facility Name Company Design Facility Security of Current Renewal
Location Role Capacity Type Level Contract Term Option
------------- -------- -------- -------- -------- ------------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
CORRECTIONAL FACILITIES
FEDERAL GOVERNMENT
CONTRACTS:
Aurora INS Processing Construction/ 300 INS Detention Minimum/ May 1999 1 year Three
Center, Aurora, Management Facility Medium One-year
Colorado (6)
Queens Private Construction/ 200 INS Detention Minimum/ June 1999 1 year One,
Correctional Facility, Management Facility Medium One-year
Queens, New York (6)
Taft Correctional Management 2,048 Federal Low/ August 1997 3 years Seven,
Institution Prison Minimum One-year
Taft, California
STATE GOVERNMENT
CONTRACTS:
Allen Correctional Management 1,538 State Prison Medium/ December 1998 2 years None
Center Maximum
Kinder, Louisiana
Bayamon Correctional Design/ 500 State Prison Medium March 1997 5 years One,
Facility Construction/ Five-year
Bayamon, Puerto Rico Consultation/
Management
Bridgeport Correctional Construction/ 520 Pre-Release Center Minimum September 1995 5 years None
Center Management
Bridgeport, Texas
Central Texas Parole Renovation/ 623 Parole Violator All levels September 1999 Varies Varies
Violator Facility Management Facility/U.S. (1) (1)
San Antonio, Texas Marshal and INS
Detention Facility
Central Valley Design/ 550 State Community Medium December 1997 10 years None
Community Correctional Construction/ Correctional
Facility Management Facility
McFarland, California
(6)
Charlotte County Design/ 1,000 State Prison Medium 3rd Quarter 2002* (2) (2)
Correctional Facility Construction/ (Estimated)
Charlotte County, Management
Virginia
Cleveland Correctional Management 520 State Prison Minimum January 1999 1 2/3 Two
Center years One-year
Cleveland, Texas
</TABLE>
PAGE 4 of 27
<PAGE> 5
<TABLE>
<CAPTION>
Commencement
Facility Name Company Design Facility Security of Current Renewal
Location Role Capacity Type Level Contract Term Option
------------- -------- -------- -------- -------- ------------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Coke County Juvenile Design/ 200 Juvenile Offender Medium/ March 1999 2 years Unlimited,
Justice Facility Construction/ Facility Maximum Two-year
Coke County, Texas Management
Desert View Community Design/ 568 State Community Medium December 1997 10 years None
Correctional Facility Construction/ Correctional
Adelanto, California (6) Management Facility
East Mississippi Design/ 500 Mental Health All levels April 1999 5 years One,
Correctional Facility Construction/ Correctional Two-year
Meridian , Mississippi Management Facility
Golden State Community Design/ 550 State Community Medium December 1997 10 years None
Correctional Facility Construction/ Correctional
McFarland, California Management Facility
(6)
Guadalupe County Design/ 600 State Prison All levels January 1999 3 years Annual
Correctional Facility Construction/
Santa Rosa, Management
New Mexico (6)
John R. Lindsey Design/ 1,031 State Jail Minimum/ September 1998 3 years Two
Correctional Facility Consultation/ Facility Medium One-year
Jack County, Texas Management
Karnes County Management 579 State Prison/ Minimum/ September 1999 Varies Varies
Correctional Center U.S. Marshal and Medium (1) (1)
Karnes City, Texas (6) INS Detention
Facility
Kyle Correctional Construction/ 520 State Prison/ Minimum September 1995 5 years None
Facility Management/ In-Prison
(New Vision) Chemical Chemical
Kyle, Texas (3) Dependency Dependency
Treatment Treatment Center
Lawton Correctional Design/ 1,800 State Prison All levels July 1999 1 year Three
Facility Construction/ One-Year
Lawton, Oklahoma (6) Management
Lea County Correctional Design/ 1,200 State Prison All levels May 1998 3 years Annual
Facility Construction/
Hobbs, New Mexico (6) Management
Lockhart Renaissance Design/ 500 Work Program Minimum January 1999 1 year Four
Facility Construction/ Facility One-year
Lockhart, Texas Management
Lockhart Secure Work Design/ 500 Work Program Minimum January 1999 1 year Four
Program Facility Construction/ Facility One-year
Lockhart, Texas Management
Marshall County Design/ 1,000 State Prison Medium June 1996 5 years Unlimited,
Correctional Facility Construction/ Two-year
Holly Springs, Management
Mississippi
McFarland Community Construction/ 224 State Community Minimum February 1999 2 1/2 years None
Correctional Facility Management Correctional
McFarland, California Facility
(6)
Michigan Youth Design/ 480 Juvenile Maximum July 1999 4 years Two,
Correctional Facility Construction/ Four-year
Baldwin, Michigan Management
</TABLE>
PAGE 5 of 27
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<TABLE>
<CAPTION>
Commencement
Facility Name Company Design Facility Security of Current Renewal
Location Role Capacity Type Level Contract Term Option
------------- -------- -------- -------- -------- ------------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Moore Haven Design/ 750 State Prison Medium July 1998 2 years Unlimited,
Correctional Facility Construction/ Two-year
Moore Haven, Florida Management
North Texas Renovation/ 400 Intermediate Minimum September 1999 1 year None
Intermediate Sanction Management Sanction Facility
Facility
Fort Worth, Texas
Ronald McPherson Design/ 600 State Prison All levels July 1999 2 years Unlimited,
Correctional Facility Construction/ Two-year
Newport, Arkansas Management
Scott Grimes Design/ 600 State Prison All levels July 1999 2 years Unlimited,
Correctional Facility Construction/ Two-year
Newport, Arkansas Management
South Bay Correctional Design/ 1,436 State Prison Medium/ February 1997 3 years Unlimited,
Facility Construction/ (9) Close Custody Two-year
South Bay, Florida Management
Willacy County Unit Design/ 1,000 State Jail Minimum September 1998 3 years Two
Raymondville, Texas Consultation/ Facility One-year
Management
Val Verde Correctional Design/ 784 Local Detention All levels 3rd Quarter 2000* (2) None
Facility Construction/ Facility/County (Estimated)
Del Rio, Texas Management Jail
LOCAL GOVERNMENT
CONTRACTS:
Broward County Work Design/ 300 Community Work Non-secure February 1998 5 years Unlimited,
Release Center Construction/ Release Center Two-year
Broward County, Management
Florida (6)
George W. Hill Design/ 1,562 County Jail All levels July 1998 5 years None
Correctional Facility Construction/ Facility
Thornton, Management
Pennsylvania
Jena Juvenile Justice Design/ 276 Juvenile Center All levels December 1998 25 years None
Center Construction/
Jena, Louisiana Management
San Diego Detention Renovation/ 876 Local Detention Maximum 2nd Quarter 2000* 15 years None
Facility Management Facility (Estimated)
San Diego, California
INTERNATIONAL CONTRACTS:
Arthur Gorrie Management 945 Reception and All levels July 1992 10 years None
Correctional Centre Remand Centre
Wacol, Australia
H.M Prison Ashfield Management 400 Youth Prison Medium/ November 1999 25 years None
Pucklechurch, UK Maximum
Auckland Central Remand Management 384 National Prison Medium/ 2nd Quarter 2000* 5 years None
Prison Maximum (Estimated)
Auckland, New Zealand
</TABLE>
* See note on page three regarding Forward-looking statements.
PAGE 6 of 27
<PAGE> 7
<TABLE>
<CAPTION>
Commencement
Facility Name Company Design Facility Security of Current Renewal
Location Role Capacity Type Level Contract Term Option
------------- -------- -------- -------- -------- ------------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Court Escort & Custody Management NA Court Custody/ All levels June 1996 6 1/2 years None
Service Transport-Escort
West Midlands, England
Court Escort & Custody Management NA Court Custody/ All levels May 1996 6 1/2 years None
Service Transport-Escort
South East Area,
England
Curtin Immigration Management 1000 Immigration All levels October 1999 3 years Two
Reception & Processing Detention (7) Three-year
Centre
Derby, Western Australia
Hassockfield Secure Design/ 40 Youth Training Medium September 1999 15 years None
Training Centre Construction/ Centre
Medomsley, England Management
H.M. Prison and Youth Management 1,111 National Prison All levels October 1999 10 years None
Offender Institution
Doncaster
Doncaster, England
Fulham Correctional Design/ 660 State Prison Minimum/ March 1997 5 years Five
Centre Consultation/ Medium Three-year
Victoria, Australia Management
Junee Correctional Construction/ 600 State Prison Minimum/ April 1999 2 years None
Centre Management Medium
Junee, Australia
H.M. Prison Kilmarnock Management 500 National Prison All levels March 1999 25 years None
Kilmarnock, Scotland
H.M. Prison Lowdham Management 524 National Prison Medium February 1998 25 years None
Grange
Nottinghamshire, England
Louis Trichardt Maximum Design/ 3,024 National Prison Maximum 1st Quarter 2002* (2) None
Security Prison Construction/ (Estimated)
Northern Province, Management
Republic of South Africa
Maribyrnong Management 80 Immigration All levels December 1997 3 years Two
Immigration Detention Detention Three-year
Centre
Melbourne, Australia
Melbourne Custody Management 80 Court Security/ N/A September 1998 3 years None
Centre, Melbourne, Custody Centre
Australia
H. M. Prison Moreton Design/ 800 National Prison Medium 3rd Quarter 2001* 25 years None
Lane Construction/ and Therapeutic (Estimated)
Marchington, England Management Community
New Brunswick Youth Design/ N/A Province Juvenile All levels October 1997 25 years None
Centre (4) Consultation/ Facility
New Brunswick, Canada Maintenance
Pacific Shores Management N/A Health Care N/A January 1998 3 years Two
Healthcare Services One-year
Victoria, Australia (8)
Perth Immigration Management 40 Immigration All levels December 1997 3 years Two
Detention Centre Detention Three-year
Perth, Australia
Port Hedland Management 700 Immigration All levels December 1997 3 years Two
Immigration Reception & Detention Three-year
Processing Centre
Port Hedland, Australia
</TABLE>
* See note on page three regarding Forward-looking statements.
PAGE 7 of 27
<PAGE> 8
<TABLE>
<CAPTION>
Commencement
Facility Name Company Design Facility Security of Current Renewal
Location Role Capacity Type Level Contract Term Option
------------- -------- -------- -------- -------- ------------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Premier Monitoring Management N/A Home Detention Non-secure January 1999 5 years None
Services Limited Services
Norfolk, England
Villawood Immigration Management 300 Immigration All levels November 1997 3 Years Two
Detention Centre Detention Three- year
Sydney, Australia
Woomera Immigration Management 1000 Immigration All levels November 1999 3 years Two
Reception & Processing Detention (7) Three-year
Centre
Woomera, South Australia
OTHER FACILITIES
South Florida State Design/ 350 State Psychiatric N/A November 1998 5 years Three
Hospital Construction/ Hospital Five-year
Pembroke Pines, Florida Management
Atlantic Shores Hospital Management 72 Psychiatric N/A (5) (5) (5)
Fort Lauderdale, Florida Hospital
</TABLE>
(1) This facility is occupied by inmates under several contracts with
varying terms and renewal options. The terms of these contracts range
from two weeks to an indefinite period and the renewal option features
range from no option to unlimited renewals.
(2) Contract terms have yet to be negotiated.
(3) The Company operates a chemical dependency treatment center located in
this facility under a separate contract. This contract is for a
one-year term expiring August 31, 2000.
(4) The Company holds a contract for maintenance only of this facility.
(5) The Company purchased this facility and provides services on an
individual patient basis, therefore, there are no contracts with
government agencies subject to terms and/or renewals.
(6) The Company leases these facilities from Correctional Properties
Trust.
(7) This facility represents additional services under the current
detention services contractual agreement with the Department of
Immigration and Multicultural Affairs (DIMA), and is subject to a
six-week termination clause depending on client needs.
(8) The Company provides comprehensive healthcare services to 9
government-operated prisons under this contract.
(9) The Company provides detention services to 152 detainees being held
under the provisions of Florida's "Jimmy Ryce Act" at the South Bay
Facility in South Bay, Florida.
In April 1998 the Company sold three facilities owned by it and the rights to
acquire four other facilities to Correctional Properties Trust ("CPV"), a
Maryland real estate investment trust. CPV purchased an eighth facility directly
from a government entity. In October, 1998 the Company sold the completed
portion of a ninth facility to CPV. During Fiscal 1999, CPV acquired a 600-bed
expansion of the ninth facility and the right to acquire a tenth facility.
Subsequent to January 2, 2000, CPV purchased an eleventh facility that the
Company had the right to acquire. The facilities were then leased to the Company
under operating leases.
See Item 2 - "Properties."
PAGE 8 of 27
<PAGE> 9
The Company offers services that go beyond simply housing inmates. The Company's
wide array of in-facility rehabilitative and educational programs differentiates
it from many competitors who lack the experience or resources to provide such
programs. Inmates at most facilities managed by the Company can also receive
basic education through academic programs designed to improve inmates' literacy
levels and to offer the opportunity to acquire General Education Development
("GED") certificates. Most Company-managed facilities also offer vocational
training for in-demand occupations to inmates who lack marketable job skills. In
addition, most Company-managed facilities offer life skills/transition planning
programs that provide inmates job search training and employment skills, anger
management skills, health education, financial responsibility training,
parenting skills and other skills associated with becoming productive citizens.
For example, at the Lockhart Work Program Facility, Lockhart, Texas, the
Company, as part of its job training program, recruited firms from private
industry to employ inmates at the facility. Inmates who participate in such
programs receive job skills training and are paid at least the minimum wage. The
inmates' earnings are used to compensate victims, defray the inmates' housing
costs and support their dependents. This program is being expanded to the
Company's correctional facilities in South Bay and Moore Haven, Florida. The
Company also offers counseling, education and/or treatment to inmates with
alcohol and drug abuse problems at thirty-three of the facilities it manages.
The Company believes that its program at the Kyle New Vision Chemical Dependency
Treatment Center is the largest privately managed in-prison program of this
nature in the United States.
The Company operates each facility in accordance with the Company-wide policies
and procedures and with the standards and guidelines required under the relevant
contract. For many facilities, the standards and guidelines include those
established by the American Correctional Association ("ACA"). The ACA, an
independent organization of corrections professionals, establishes correctional
facility standards and guidelines that are generally acknowledged as a benchmark
by governmental agencies responsible for correctional facilities. Many of the
Company's contracts for facilities in the United States require the Company to
seek accreditation of the facility. The Company has sought and received ACA
accreditation for eighteen of the facilities it manages.
Contracts to design and construct or to redesign and renovate facilities may be
financed in a variety of ways. See also "Business -Facility Design, Construction
and Finance." If the project is financed using direct governmental
appropriations, using proceeds of the sale of bonds or other obligations issued
prior to the award of the project or by the Company directly, then financing is
in place when the contract relating to the construction or renovation project is
executed. If the project is financed using project-specific tax-exempt bonds or
other obligations, the construction contract is generally subject to the sale of
such bonds or obligations. Generally, substantial expenditures for construction
will not be made on such a project until the tax-exempt bonds or other
obligations are sold; and, if such bonds or obligations are not sold,
construction and, therefore, management of the facility may either be delayed
until alternative financing is procured or development of the project will be
entirely suspended. If the project is self-financed by the Company, then
financing is in place prior to the commencement of construction.
When the Company is awarded a facility management contract, appropriations for
the first annual or bi-annual period of the contract's term have generally
already been approved, and the contract is subject to governmental
appropriations for subsequent annual or bi-annual periods.
PAGE 9 of 27
<PAGE> 10
FACILITY MANAGEMENT CONTRACTS
Other than listed in the following table, no other single customer accounted for
10% or more of the Company's total revenues for Fiscal 1999, 1998, and 1997.
Customer 1999 1998 1997
-------- ---- ---- ----
Various agencies of the State of Texas... 19% 25% 32%
State of Florida Correctional
Privatization Committee ................. 19% 11% 13%
Except for its contract for the Taft Correctional Institution, South Florida
State Hospital, and the facilities in the United Kingdom and Australia, all of
which provide for fixed monthly rates, the Company's facility management
contracts provide that the Company is compensated at an inmate or patient per
diem rate based upon actual or guaranteed occupancy levels. Such compensation is
invoiced in accordance with applicable law and is paid on a monthly basis. All
of the Company's contracts are subject to either annual or bi-annual legislative
appropriations. A failure by a governmental agency to receive appropriations
could result in termination of the contract by such agency or a reduction of the
management fee payable to the Company. To date, the Company has not encountered
a situation where appropriations have not been made to a governmental agency
with regard to the Company's contracts, although no assurance can be given that
the governmental agencies will continue to receive appropriations in all cases.
The Company's facility management contracts typically have original terms
ranging from one to ten years and give the governmental agency at least one
renewal option, generally for a term ranging from one to five years. The
following table summarizes the number of the Company's contracts expiring each
year:
EXPIRATION NUMBER OF CONTRACTS
---------- -------------------
2000 17
2001 10
2002 7
2003 4
2004 1
Thereafter 14
--
53
Refer to "Business-Facilities" table for detail of the renewal options for these
contracts. The remainder of the Company's contracts are either in negotiation
currently or have varied renewal options that are dependent upon the agency
contracted with, the type of inmate, and other factors. Except as described
below, to date, all renewal options under the Company's management contracts
have been exercised. However, in connection with the exercise of the renewal
option, the contracting government agency or the Company typically has requested
changes or adjustments to the contract terms.
The Company's contracts typically allow a contracting governmental agency to
terminate a contract for cause by giving the Company written notice ranging from
30 to 180 days. No contracts have been terminated prior to the end of the
contract term, except for the Company's contract for the operation of the Travis
County Community Justice Center. This contract was discontinued in 1999 based on
PAGE 10 of 27
<PAGE> 11
the mutual decision between the Company, the Texas Department of Criminal
Justice State Jail Division and Travis County, Texas. The Company also had a
contract that did not extend for the full term, which was for the management of
the Monroe County, Florida jail. By mutual agreement of the Company and the
Monroe County Board of Commissioners, the contract was discontinued in 1990 on
an amicable basis.
In addition, in connection with the Company's management of such facilities, the
Company is required to comply with all applicable local, state and federal laws
and related rules and regulations. The Company's contracts typically require it
to maintain certain levels of insurance coverage for general liability, workers'
compensation, vehicle liability, and property loss or damage. If the Company
does not maintain the required categories and levels of coverage, the
contracting governmental agency may be permitted to terminate the contract.
Presently, the Company, through TWC, has general liability insurance coverage of
$55 million per occurrence and in the aggregate. See "Business -- Insurance." In
addition, the Company is required under its contracts to indemnify the
contracting governmental agency for all claims and costs arising out of the
Company's management of facilities and in some instances the Company is required
to maintain performance bonds.
FACILITY DESIGN, CONSTRUCTION AND FINANCE
The Company provides governmental agencies consultation and management services
relating to the design and construction of new correctional and detention
facilities and the redesign and renovation of older facilities. As of January 2,
2000, the Company has provided service for the design and construction of
twenty-eight facilities and for the redesign and renovation of two facilities
and has contracts to design and construct four new facilities and renovate one
new facility. The Company is willing to perform consultation and management
services for the design and construction or redesign and renovation of a
facility regardless of whether it has been awarded the contract for the
management of such facility. See table in "Business - Facilities."
Under its construction and design management contracts, the Company agrees to be
responsible for overall project development and completion. The Company makes
use of an in-house staff of architects and operational experts from various
corrections disciplines (e.g., security, medical service, food service, inmate
programs and facility maintenance) as part of the decision team that
participates from conceptual design through final construction of the project.
When designing a facility, the Company's architects seek to utilize, with
appropriate modifications, prototype designs the Company has used in developing
prior projects. The Company believes that the use of such proven designs allows
it to reduce cost overruns and construction delays and to reduce the number of
guards required to staff a facility, thus controlling costs both to construct
and to manage the facility. Security is maintained because the Company's
facility designs increase the area of vision under surveillance by guards and
make use of additional electronic surveillance.
The Company typically acts as the primary developer on construction contracts
for facilities and subcontracts with local general contractors. Where possible,
the Company subcontracts with construction companies with which it has
previously worked. The Company has an in-house team of design, construction and
prison security experts that coordinate all aspects of the development with
subcontractors and provide site-specific services. It has been the Company's
experience that it typically takes 9 to 24 months to construct a facility after
the contract is executed and financing approved.
The Company may also propose to contracting governmental agencies various
financing structures for construction finance. The governmental agency may
finance the construction of such facilities through various methods including,
but not limited to, the following: (i) a one time general revenue appropriation
by the government agency for the cost of the new facility, (ii) general
obligation bonds that are secured
PAGE 11 of 27
<PAGE> 12
by either a limited or unlimited tax levy by the issuing governmental entity, or
(iii) lease revenue bonds or certificates of participation secured by an annual
lease payment that is subject to annual or bi-annual legislative appropriations.
The Company may also act as a source of financing or as a broker in any regard
with respect to any financing. In these cases, the construction of such
facilities may be financed through various methods including, but not limited
to, the following: (i) funds from equity offerings of the Company's stock; (ii)
borrowing from banks or other institutions; or (iii) lease arrangements with
third parties. Of the 56 facilities managed or contracted to be managed by the
Company, 38 are funded using one of the above-described financing vehicles, and
18 are or will be directly leased. However, alternative financing arrangements
may be required for certain facilities. A growing trend in the correctional and
detention industry requires private operators to make capital investments in new
facilities and enter into direct financing arrangements in connection with the
development of such facilities. By participating in such projects, private
operators achieve economic benefits and tax advantages that are not typically
available in connection with more traditional arrangements.
MARKETING
The Company views governmental agencies responsible for state correctional
facilities in the United States and governmental agencies responsible for
correctional facilities in the United Kingdom and Australia as its primary
potential customers. The Company's secondary customers include the INS, other
federal and local agencies in the United States and other foreign governmental
agencies.
Governmental agencies responsible for correctional and detention facilities
generally procure goods and services through RFPs. A typical RFP requires
bidders to provide detailed information, including, but not limited to,
descriptions of the following: the services to be provided by the bidder, its
experience and qualifications, and the price at which the bidder is willing to
provide the services (which services may include the renovation; improvement or
expansion of an existing facility; or the planning, design and construction of a
new facility). As part of the Company's process of responding to RFPs,
management meets with appropriate personnel from the requesting agency to best
determine the prospective client's distinct needs.
If the project fits within the Company's strategy, the Company then will submit
a written response to the RFP. The Company estimates that it typically spends
between $50,000 and $150,000 when responding to an RFP. The Company has engaged
and intends in the future to engage independent consultants. Activities of the
independent consultants include assisting the Company in developing
privatization opportunities and in responding to RFPs, monitoring the
legislative and business climate and maintaining relationships with existing
clients.
There are several critical events in the marketing process. These include
issuance of an RFP by a governmental agency, submission of a response to the RFP
by the Company, the award of a contract by a governmental agency and the
commencement of construction or management of a facility. The Company's
experience has been that a period of approximately five to ten weeks is
generally required from the issuance of an RFP to the submission of the
Company's response to the RFP; that between one and four months elapse between
the submission of the Company's response and the agency's award for a contract;
and that between one and four months elapse between the award of a contract and
the commencement of construction or management of the facility. If the facility
for which an award has been made must be constructed, the Company's experience
is that construction usually takes between 9 and 24 months; therefore,
management of a newly constructed facility typically commences between 10 and 28
months after the governmental agency's award.
PAGE 12 of 27
<PAGE> 13
BUSINESS PROPOSALS
The Company pursues both domestic and international projects. At January 2,
2000, the Company had outstanding written responses to RFPs for 3 projects with
a total of 4,100 beds. The Company also is pursuing prospects for other projects
for which it has not yet submitted, and may not submit, a response to an RFP. No
assurance can be given that the Company will be successful in its efforts to
receive additional awards with respect to any proposals submitted.
INSURANCE
Presently, the Company is named insured under a liability insurance program (the
"Insurance Program") maintained by TWC. The Insurance Program includes general
comprehensive liability, automobile liability and workers' compensation coverage
for TWC and all of its domestic subsidiaries. The Insurance Program consists of
primary and excess insurance coverage. The primary coverage consists of up to $5
million of coverage per occurrence with no aggregate coverage limit. The excess
coverage consists of up to $50 million of coverage per occurrence and in the
aggregate. The Company believes such limits are adequate to insure against the
various liability risks of its business. The premium paid by the Company to TWC
for coverage under the Insurance Program in 1999 was approximately $9.4 million,
representing premiums paid to a captive reinsurance company that is wholly owned
by TWC. The Company believes that the premiums it is charged under the Insurance
Program are comparable to those that would be charged by a third party insurer.
The facility management contracts and various state statutes require the Company
to maintain such insurance and the management contracts provide that the
contracting agency may terminate the contract if the Company fails to maintain
the required insurance coverages. Under the Insurance Program, the first $1
million of expenses and losses per occurrence were reinsured by TWC's
wholly-owned captive reinsurance company during Fiscal 1999.
EMPLOYEES AND EMPLOYEE TRAINING
At January 2, 2000, the Company had 8,922 full-time employees. Of such full-time
employees, 87 were employed at the Company's headquarters and 8,835 were
employed at facilities. The Company employs management, administrative and
clerical, security, educational services, health services and general
maintenance personnel. The Company's correctional officer employees at George W.
Hill Correctional Facility (Pennsylvania), Queens Private Correctional Facility
(New York), and Junee Correctional Centre, Arthur Gorrie Correctional Centre,
Fulham Correctional Centre and Immigration Detention Services (Australia) are
members of unions. The Company has entered into a contract with the union for
the correctional officers at the Queens Private Correctional Facility and Junee
Correctional Centre, however, the Company has not entered into a contract with
the other two unions. Other than the contracts described above, the Company has
no union contracts or collective bargaining agreements. The Company believes its
relations with its employees are good.
Under the laws applicable to most of the Company's operations, and internal
Company policy, the Company's corrections officers are required to complete a
minimum amount of training prior to employment. At least 160 hours of training
by the Company is required under most state laws before an employee is allowed
to work in a position that will bring him or her in contact with inmates.
Florida law requires that the correction officers receive 520 hours of training.
The Company's training programs meet or exceed all applicable requirements.
PAGE 13 of 27
<PAGE> 14
The Company's training begins with approximately 40 hours of instruction
regarding Company policies, operational procedures and management philosophy.
Training continues with an additional 120 hours of instruction covering legal
issues, rights of inmates, techniques of communication and supervision,
interpersonal skills and job training relating to the particular position to be
held. Each Company employee who has contact with inmates receives a minimum of
40 hours of additional training each year, and each manager receives at least 24
hours of training each year.
At least 222 hours of training is required for United Kingdom employees and 240
hours of training is required for Australian employees before such employees are
allowed to work in positions that will bring them into contact with inmates.
Company employees in the United Kingdom and Australia receive a minimum of 40
hours of additional training each year.
COMPETITION
The Company competes primarily on the basis of the quality and range of services
offered, its experience (both domestically and internationally) in the design,
construction and management of privatized correctional and detention facilities,
and its reputation. The Company competes with a number of companies, including,
but not limited to, Corrections Corporation of America, Correctional Services
Corporation, Group 4 International Corrections Service, U.K. Detention Services,
Ltd., Cornell Corrections Corporation, Securicor Group and Prison Realty Trust.
Some of the Company's competitors are larger and have greater resources than the
Company. The Company also competes in some markets with small local companies
that may have a better knowledge of the local conditions and may be better able
to gain political and public acceptance. Potential competitors can enter the
Company's business without a substantial capital investment or experience in
management of correctional or detention facilities. In addition, in some
markets, the Company may compete with governmental agencies that are responsible
for correctional facilities.
NON-U.S. OPERATIONS
Although most of the operations of the Company are within the United States, its
international operations make a significant contribution to income.
International operations of the Company provide correctional and detention
facilities management in Australia and the United Kingdom.
A summary of domestic and international operations is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Domestic operations ..................................................... $371,333 $264,642 $167,223
International operations ................................................ 67,151 48,117 39,707
======== ======== ========
Total revenues ....................................................... $438,484 $312,759 $206,930
======== ======== ========
OPERATING INCOME
Domestic operations ..................................................... $ 18,939 $ 18,649 $ 12,388
International operations ................................................ 7,102 3,852 4,157
-------- -------- --------
Total operating income ............................................... $ 26,041 $ 22,501 $ 16,545
======== ======== ========
LONG-LIVED ASSETS
Domestic operations ..................................................... $ 39,005 $ 28,944 $ 34,061
International operations ................................................ 4,355 4,061 4,693
-------- -------- --------
Total long-lived assets .............................................. $ 43,360 $ 33,005 $ 38,754
======== ======== ========
</TABLE>
PAGE 14 of 27
<PAGE> 15
The Company has affiliates (50% or less owned) that provide correctional and
detention facilities management in the United Kingdom. The following table
summarizes certain financial information pertaining to these unconsolidated
foreign affiliates, on a combined basis, for the last three fiscal years.
<TABLE>
<CAPTION>
(000'S) 1999 1998 1997
- ------- -------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues ........................................ $147,274 $ 91,071 $ 51,009
Operating income ................................ 11,048 7,032 3,884
Net income ...................................... 6,618 4,163 2,209
BALANCE SHEET DATA
Current Assets .................................. $ 44,213 $ 25,274 $ 14,595
Noncurrent Assets ............................... 230,581 145,433 517
Current liabilities ............................. 26,774 17,769 8,115
Noncurrent liabilities .......................... 232,961 141,165 4,029
Stockholders' equity ............................ 15,059 11,773 2,968
</TABLE>
BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS
The industry in which the Company operates is subject to national, federal,
state, and local regulations in the United States, United Kingdom, Australia and
Puerto Rico which are administered by a variety of regulatory authorities.
Generally, prospective providers of corrections services must be able to detail
their readiness to, and must comply with, a variety of applicable state and
local regulations, including education, health care and safety regulations. The
Company's contracts frequently include extensive reporting requirements and
require supervision and on-site monitoring by representatives of contracting
governmental agencies. The Company's Kyle New Vision Chemical Dependency
Treatment Center is licensed by the Texas Commission on Alcohol and Drug Abuse
to provide substance abuse treatment. Certain states, such as Florida and Texas,
deem correctional officers to be peace officers and require Company personnel to
be licensed and subject to background investigation. State law also typically
requires corrections officers to meet certain training standards.
In addition, many state and local governments are required to enter into a
competitive bidding procedure before awarding contracts for products or
services. The laws of certain jurisdictions may also require the Company to
award subcontracts on a competitive basis or to subcontract with businesses
owned by women or members of minority groups.
The failure to comply with any applicable laws, rules or regulations or the loss
of any required license could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, the
current and future operations of the Company may be subject to additional
regulations as a result of, among other factors, new statutes and regulations
and changes in the manner in which existing statutes and regulations are or may
be interpreted or applied. Any such additional regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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
PAGE 15 of 27
<PAGE> 16
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 the 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 implemented by the Company.
At this time no agreement has been reached regarding these contract
modifications.
ITEM 2. PROPERTIES
The Company leases its corporate headquarters office space in Palm Beach
Gardens, Florida, from TWC. In addition, the Company leases office space for its
regional offices in Austin, Texas; Irvine, California; Lake Charles, Louisiana;
and Sydney, Australia.
The Company also leases the space for the following facilities it manages under
operating leases: (i) Aurora INS Processing Center; (ii) Broward County Work
Release Center; (iii) Central Texas Parole Violator Facility; (iv) Central
Valley Community Correctional Facility; (v) Coke County Juvenile Justice
Facility; (vi) Desert View Community Correctional Facility; (vii) Golden State
Community Correctional Facility; (viii) Guadalupe County Correctional Facility;
(ix) Jena Juvenile Justice Center; (x) Karnes County Correctional Center; (xi)
Lawton Correctional Facility; (xii) Lea County Correctional Facility; (xiii)
McFarland Community Correctional Facility; (xiv) Michigan Youth Correctional
Facility; (xv) North Texas Intermediate Sanction Facility; (xvi) Queens Private
Correctional Facility.
The Company owns a 72-bed psychiatric hospital in Fort Lauderdale, Florida which
it purchased and renovated in 1997.
In December 1997, the Company entered into a $220 million operating lease
facility that was established to acquire and develop new correctional
institutions used in its business. As a condition of this facility, the Company
unconditionally agreed to guarantee certain obligations of First Security Bank,
N.A., a party to the aforementioned operating lease facility. As of January 2,
2000, approximately $88.7 million of this operating lease facility was utilized
for properties under development.
ITEM 3. LEGAL PROCEEDINGS
In Caldwell County, Texas a grand jury was convened to investigate allegations
of sexual misconduct and document tampering by individuals employed or formerly
employed by the Company at the Lockhart facilities. This grand jury has been
dismissed and issued no indictments.
In Travis County, Texas, a grand jury took testimony regarding sexual misconduct
by individuals employed or formerly employed by the Company at the Travis County
Community Justice Center. This grand jury indicted twelve of the Company's
former facility employees for various types of sexual misconduct. Management
believes these indictments are not expected to have any material financial
impact on the Company. 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.
PAGE 16 of 27
<PAGE> 17
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 nature of the Company's business results in claims or litigation against the
Company for damages arising from the conduct of its employee or others. Except
for the 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. The Company believes that if the outcome of the proceedings
to which it is currently a party is unfavorable, the Company could have a
material adverse effect upon its operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from Page 19
of the Registrant's 1999 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from Pages 20
and 21 of the Registrant's 1999 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by these items is incorporated by reference from Pages
22 through 27 of the Registrant's 1999 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from Pages 28
through 39 of the Registrant's 1999 Annual Report to Shareholders except for the
Financial Statement and Schedule listed in Item 14 (a)(2) of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PAGE 17 of 27
<PAGE> 18
PART III
The information required by Items 11, 12, and 13 of Form 10-K (except such
information as is furnished in a separate caption "Executive Officers of the
Company" and included in Part III, below) will be contained in, and is
incorporated by reference from, the proxy statement (with the exception of the
Board Compensation Committee Report and the Performance Graph) for the Company's
2000 Annual Meeting of Shareholders, which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Annual Report.
ITEM 10.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George R. Wackenhut 80 Chairman of the Board and Director
George C. Zoley 50 Vice Chairman of the Board, Chief Executive Officer, and Director
Wayne H. Calabrese 49 President and Chief Operating Officer
John G. O'Rourke 49 Senior Vice President, Chief Financial Officer, and Treasurer
Carol M. Brown 45 Senior Vice President, Health Services
John J. Bulfin 46 Senior Vice President and General Counsel
John M. Hurley 52 Senior Vice President, Operations
Donald H. Keens 56 Senior Vice President, International Services
David N.T. Watson, CPA 34 Vice President - Finance, Controller, Chief Accounting Officer, and
Assistant Treasurer
</TABLE>
GEORGE R. WACKENHUT is the Chairman of the Board. He was the Chief
Executive Officer of The Wackenhut Corporation ("TWC") from the time it was
founded until February 18, 2000. He was President of TWC from the time it was
founded until April 26, 1986. He formerly was a Special Agent of the Federal
Bureau of Investigation. He is a former member of the Board of Directors of SSJ
Medical Development, Inc., Miami, Florida, a member of the Board of Trustees of
Correctional Properties Trust ("CPV"), and is on the Dean's Advisory Board of
the University of Miami School of Business. He is on the National Council of
Trustees, Freedoms Foundation at Valley Forge and the President's Advisory
Council for the Small Business Administration, Region IV. He is a past
participant in the Florida Governor's War on Crime and a past member of the Law
Enforcement Council, National Council on Crime and Delinquency, and the Board of
Visitors of the U.S. Army Military Police School. He is also a member of the
American Society for Industrial Security. He was a recipient in 1990 of the
Labor Order of Merit, First Class, from the government of Venezuela and in 1999
was awarded the distinguished Ellis Island Medal of Honor by the National Ethnic
Coalition of Organizations. Also in 1999, he was inducted into the West Chester
University Hall of Fame and the Athlete's Hall of Fame in Delaware County,
Pennsylvania. Mr. Wackenhut received his B.S. degree from the University of
Hawaii and his M.Ed. degree from John Hopkins University.
GEORGE C. ZOLEY has served as Vice Chairman of the Board since January
1997. Previously he had served as President and Director of the Company since it
was incorporated in 1988, and Chief Executive Officer since April, 1994. Dr.
Zoley established the correctional division for TWC in 1984 and was, and
continues to be, a major factor in the company's development of its privatized
correctional and detention facility business. Dr. Zoley is also a director of
each of the entities through which the Company conducts its international
operations and a Trustee of CPV. From 1981 through 1988, as manager, director,
and then Vice President of Government Services of Wackenhut Services, Inc.
PAGE 18 of 27
<PAGE> 19
("WSI"), Dr. Zoley was responsible for the development of opportunities in the
privatization of government services by WSI. Currently Dr. Zoley serves as a
Senior Vice President of The Wackenhut Corporation. Prior to joining WSI, Dr.
Zoley held various administrative and management positions for city and county
governments in South Florida. Dr. Zoley holds Masters and Doctorate degrees in
Public Administration.
WAYNE H. CALABRESE has served as President since January 1997, Chief
Operating Officer since January 1996, a director of the Company since April,
1998, and as Executive Vice President of the Company from 1994 to 1996. Mr.
Calabrese is also a director of each of the entities through which the Company
conducts its international operations. Mr. Calabrese served as Chief Executive
Officer of Australasian Correctional Management, Pty Ltd., a subsidiary of the
Company, from 1991 until he returned to the United States in 1994. Mr. Calabrese
joined the Company as Vice President, Business Development in 1989, became
Executive Vice President in 1994 and became Chief Operating Officer in 1996. Mr.
Calabrese's prior experience in the public sector includes positions as
Assistant City Law Director in Akron, Ohio; and Assistant County Prosecutor, and
later, Chief of the County Bureau of Support for Summit County, Ohio. Mr.
Calabrese was also Legal Counsel and Director of Development for the Akron
Metropolitan Housing Authority. Prior to joining the Company, Mr. Calabrese was
engaged in the private practice of law as a partner in the Akron law firm of
Calabrese, Dobbins and Kepple.
JOHN G. O'ROURKE has served as Chief Financial Officer and Treasurer of
the Company since April, 1994, and has been the Senior Vice President, Finance
of the Company since June, 1991. Prior to joining the Company Mr. O'Rourke spent
twenty years as an officer in the United States Air Force where his most recent
position was as the Strategic Division Chief in the Office of the Secretary of
the Air Force, responsible for acquisitions and procurement matters for
strategic bomber aircraft.
CAROL M. BROWN has served as Senior Vice President, Health Services of
the Company since August, 1990, and as President of the Company's healthcare
subsidiary, Atlantic Shores Healthcare, Inc., since April 1997. Ms. Brown is a
certified specialist in correctional health care management. From 1988 until
joining the Company Ms. Brown was a Consultant for medical case management and
workers' compensation in South Florida for Health and Rehabilitation Management,
Inc. From 1987 to 1988, Ms. Brown was Medical Manager for Metlife Healthcare of
South Florida. Ms. Brown was an Administrator for health care services for
Medical Personnel Pool, Inc. from 1985 to 1987 and for Upjohn Healthcare from
1981 to 1985.
JOHN J. BULFIN was appointed Senior Vice President and General Counsel
on January 1, 2000. Prior to joining the Company, Mr. Bulfin was a founding
partner of the law firm Wiederhold, Moses, Bulfin & Rubin. Mr. Bulfin earned his
law degree from Loyola (Chicago) University and his bachelor's degree from Regis
College. Mr. Bulfin is a member of the American Bar Association, the Palm Beach
County Bar Association, the Association of Trial Lawyers of America, the
American Board of Trial Advocates, the Florida Defense Lawyers Association, and
is currently on the Personal Injury and Wrongful Death Committee of the Palm
Beach County Bar Association.
JOHN M. HURLEY was appointed Senior Vice President, Operations on
January 1, 2000, and has been with the Company since 1998 when he became the
Facility Administrator (warden) of the company's 1,318-bed correctional facility
in South Bay, Florida. Mr. Hurley completed 25 years of distinguished service in
the Federal Bureau of Prisons (BOP) prior to joining the Company. While with the
BOP, he served as the warden of several major correctional institutions,
including a maximum security penitentiary, and earlier, at the BOP's largest
correctional facility. His staff assignments in the
PAGE 19 of 27
<PAGE> 20
BOP included Director of the Staff Training Academy; Deputy Assistant Director,
Community Corrections and Detention Division; and Correctional Programs
Administrator of the Correctional Programs Division. He has a B.A. in Sociology
from the University of Iowa, and a Certificate in Public Administration from the
University of Southern California.
DONALD H. KEENS was appointed Senior Vice President, International
Services on January 1, 2000 and has been with the Company since 1994. Prior to
the appointment to his present position he served as the Managing Director of
Australasian Correctional Management, Pty Ltd., a subsidiary of the Company; and
from 1994 to 1997 as Managing Director of Premier Prison Services, Ltd., a
United Kingdom joint venture of the Company. Mr. Keens followed a law
enforcement career in Zimbabwe from 1962 to 1980, with the final rank of police
superintendent; and was Director and General Manager for a prison and court
services company in the United Kingdom from 1980 to 1993. He is a graduate of
Crosby College of Quality; and is qualified as a Professional Member SA of the
Institute of Management Services (PMS), and a Senior Member of the Institute of
Organization and Methods (SIOM).
DAVID N.T. WATSON, CPA has served as Vice President - Finance since
July, 1999 and as Controller, Assistant Treasurer, and Chief Accounting Officer
of the Company since November, 1994. From 1989 until joining the Company, Mr.
Watson was with the Miami office of Arthur Andersen LLP where his most recent
position was Manager, in the Audit and Business Advisory Services Group. Mr.
Watson has a B.A. in Economics from the University of Virginia and an M.B.A.
from Rutgers, the State University of New Jersey. Mr. Watson is a member of the
American Institute of Certified Public Accountants and the Florida Institute of
Certified Public Accountants.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Report of Independent Certified Public Accountants - This
item is incorporated by reference from Page 40 of the
Registrant's 1999 Annual Report to Shareholders.
The following consolidated financial statements of the
Company, included in the Registrant's 1999 Annual Report to
its Shareholders for the fiscal year ended January 2, 2000,
are incorporated by reference in Part II, Item 8:
Consolidated Balance Sheets - January 2, 2000 and January 3,
1999 - Page 29
Consolidated Statements of Income - Fiscal years ended January
2, 2000, January 3, 1999 and December 28, 1997 - Page 28
Consolidated Statements of Cash Flows - Fiscal years ended
January 2, 2000, January 3, 1999, and December 28, 1997 - Page
30
Consolidated Statements of Shareholders' Equity and
Comprehensive Income - Fiscal years ended January 2, 2000,
January 3, 1999, and December 28, 1997 - Page 31
Notes to Consolidated Financial Statements - Pages 32 through
39
PAGE 20 of 27
<PAGE> 21
2. FINANCIAL STATEMENT SCHEDULES.
Schedule II - Valuation and Qualifying Accounts - Page 26
All other schedules specified in the accounting regulations of
the Securities and Exchange Commission have been omitted
because they are either inapplicable or not required.
3. EXHIBITS. THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS
ANNUAL REPORT:
Exhibit
Number Description
------- -----------
3.1** Amended and Restated Articles of Incorporation of the Company
dated May 16, 1994.
3.2** Bylaws of the Company.
4.1 Amended and Restated Credit Agreement, dated December 18, 1997, by
and among Wackenhut Corrections Corporation, NationsBank, National
Association, Scotia Banc, Inc. and the Lenders Party thereto from
time to time.
4.2 Amended and Restated Participation Agreement, dated June 19, 1997,
among Wackenhut Corrections Corporation, First security Bank,
National Association, the Various Bank and other Lending
Institutions which are Partners thereto from time to time, Scotia
Banc Inc., and NationsBank, National Association.
4.3 Amended and Restated Lease Agreement, dated as of June 19, 1997,
between First Security Bank, National Association and Wackenhut
Correction Corporation.
4.4 Guaranty and Suretyship Agreement, dated December 18, 1997, by and
among the Guarantors parties thereto and NationsBank, National
Association.
4.5 Third Amended and Restated Trust Agreement, dated as of June 19,
1997, among, NationsBank, National Association, and other
financial institutions parties thereto and First security Bank,
National Association.
4.6* Amended and Restated Credit Agreement, dated December 3, 1999, by
and among Wackenhut Corrections Corporation, Bank of America,
N.A., ScotiaBanc, Inc. and the Lenders Party thereto from time to
time.
10.1+** Wackenhut Corrections Corporation Stock Option Plan.
10.2+** Wackenhut Corrections Corporation 1994 Stock Option Plan.
10.3+** Form of Indemnification Agreement between the Company and its
Officers and Directors.
10.4+*** Wackenhut Corrections Corporation Senior Officer Retirement Plan.
10.5+*** Wackenhut Corrections Corporation Director Deferral Plan.
10.6+*** Wackenhut Corrections Corporation Senior Officer Incentive Plan.
10.7 Services Agreement dated as of January 3, 1994 between the Company
and TWC (incorporated by reference to Exhibit 10.4 of the
Company's Registration Statement on Form S-1, as amended,
Registration Number 33-79264).
10.8*** Services Agreement effective as of January 1, 1996 between the
Company and TWC.
10.9 Lease Agreement effective as of January 3, 1994 between the
Company and TWC (incorporated by reference to Exhibit 10.5 of the
Company's Registration Statement on Form S-1, as amended,
Registration Number 33-79264)
10.10 Revolving Credit Facility Agreement dated December 12, 1994
between the Company and Barnett Bank of South Florida, N.A.
(incorporated by reference to Exhibit 10.106 of the Company's
Annual Report on Form 10-K for the Fiscal Year ended January 1,
1995).
10.11**** Form of Master Agreement to Lease between CPT Operating
Partnership L.P. and Wackenhut Corrections Corporation; Form of
Lease Agreement between CPT Operating Partnership L.P. and
Wackenhut Corrections Corporation; Form Right to Purchase
Agreement between Wackenhut Corrections Corporation and CPT
Operating Partnership L.P.; and, Form of Option agreement between
Wackenhut Corrections Corporation and CPT Operating Partnership
L.P.
10.12+* Wackenhut Corrections Corporation 1999 Stock Option Plan.
13.0* Annual Report to Shareholders for the year ended January 2, 2000,
beginning with page 19 (to be filed only to the extent required by
the instructions to exhibits for reports on this Form 10-K).
21.1* Subsidiaries of the Company.
23.1* Consent of Independent Certified Public Accountants.
24.1* Powers of Attorney (included as part of the signature page
hereto).
27.1* Financial Data Schedule (for SEC use only)
PAGE 21 of 27
<PAGE> 22
* Filed herewith.
** Incorporated herein by reference to exhibit of the same number filed in
the Company's Registration Statement, as amended, on Form S-1
(Registration Number 33-79264)
*** Incorporated herein by reference to exhibit of the same number filed in
the Company's Registration Statement, as amended, on Form S-1
(Registration Number 33-80785)
**** Incorporated by reference to Exhibits 10.2, 10.3, 10.4, and 10.5 of the
Company's Registration Statement on Form S-3 (Registration Number
333-46681).
+ Management contract or compensatory plan, contract or agreement as
defined in Item 402(a) (3) of Regulation S-K.
(b) Reports on Form 8-K. The Company did not file a current report
on Form 8-K during the fourth quarter of Fiscal year 1999.
- -----------------------------------
PAGE 22 of 27
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
WACKENHUT CORRECTIONS CORPORATION
Date: March 30, 2000 /s/ John G. O'Rourke
--------------------------------------------
JOHN G. O'ROURKE
Senior Vice President - Finance, Treasurer &
Chief Financial Officer
Each person whose signature appears below hereby constitutes and appoints John
G. O'Rourke, Senior Vice President -Finance, Treasurer and Chief Financial
Officer; David N.T. Watson, Vice President -Finance, Controller, Chief
Accounting Officer, and Assistant Treasurer; John J. Bulfin, General Counsel;
and Francis E. Finizia, Corporate Counsel and Assistant Secretary; and each of
them, the true and lawful attorneys-in-fact and agents of the undersigned, with
full power undersigned, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Date: March 30, 2000 /s/ George C. Zoley
-------------------------------------------
GEORGE C. ZOLEY
Vice Chairman of the Board and Chief
Executive Officer
(principal executive officer)
Date: March 30, 2000 /s/ John G. O'Rourke
-------------------------------------------
JOHN G. O'ROURKE
Senior Vice President - Finance, Treasurer
& Chief Financial Officer
(principal financial officer)
Date: March 30, 2000 /s/ David N.T. Watson
-------------------------------------------
DAVID N.T. WATSON
Vice President of Finance, Controller,
Chief Accounting Officer, & Assistant
Treasurer
(principal accounting officer)
PAGE 23 of 27
<PAGE> 24
Date: March 30, 2000 /s/ George R. Wackenhut
-------------------------------------------
GEORGE R. WACKENHUT
Director
Date: March 30, 2000 /s/ Richard R. Wackenhut
-------------------------------------------
RICHARD R. WACKENHUT
Director
Date: March 30, 2000 /S/ Wayne H. Calabrese
-------------------------------------------
WAYNE H. CALABRESE
Director
Date: March 30, 2000 /s/ Norman A. Carlson
-------------------------------------------
NORMAN A. CARLSON
Director
Date: March 30, 2000 /s/ Benjamin R. Civiletti
-------------------------------------------
BENJAMIN R. CIVILETTI
Director
Date: March 30, 2000 /s/ Manuel J. Justiz
-------------------------------------------
MANUEL J. JUSTIZ
Director
Date: March 30, 2000 /s/ John F. Ruffle
-------------------------------------------
JOHN F. RUFFLE
Director
Date: March 30, 2000 /s/ Richard H. Glanton
-------------------------------------------
RICHARD H. GLANTON
Director
PAGE 24 of 27
<PAGE> 25
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Wackenhut Corrections
Corporation's 1999 Annual Report to Shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 15, 2000. Our
audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed above in item 14(a)2
of the Corporation's Annual Report on Form 10-K for the fiscal year ended
January 2, 2000 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
February 15, 2000.
PAGE 25 of 27
<PAGE> 26
SCHEDULE II
WACKENHUT CORRECTIONS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED, JANUARY 2, 2000,
JANUARY 3, 1999, AND DECEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance At Charged to Charged Deductions, Balance At
Beginning Cost and to Other Actual End of
Description of Period Expenses Accounts Charge-offs Period
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 2, 2000:
Allowance for doubtful accounts $401 $1,474 $ -- $(376) $1,499
YEAR ENDED JANUARY 3, 1999:
Allowance for doubtful accounts $ -- $ 401 $ -- $ -- $ 401
YEAR ENDED DECEMBER 28, 1997:
Allowance for doubtful accounts $ -- $ -- $ -- $ -- $ --
</TABLE>
PAGE 26 of 27
<PAGE> 27
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company dated
May 16, 1994.
3.2 Bylaws of the Company.
4.1 Amended and Restated Credit Agreement, dated December 18, 1997, by and
among Wackenhut Corrections Corporation, NationsBank, National
Association, ScotiaBanc, Inc. and the Lenders Party thereto from time
to time.
4.2 Amended and Restated Participation Agreement, dated June 19, 1997,
among Wackenhut Corrections Corporation, First security Bank, National
Association, the Various Bank and other Lending Institutions which are
Partners thereto from time to time, ScotiaBanc Inc., and NationsBank,
National Association.
4.3 Amended and Restated Lease Agreement, dated as of June 19, 1997,
between First Security Bank, National Association and Wackenhut
Correction Corporation.
4.4 Guaranty and Suretyship Agreement, dated December 18, 1997, by and
among the Guarantors parties thereto and NationsBank, National
Association.
4.5 Third Amended and Restated Trust Agreement, dated as of June 19, 1997,
among, NationsBank, National Association, and other financial
institutions parties thereto and First Security Bank, National
Association.
4.6 Amended and Restated Credit Agreement, dated December 3, 1999, by and
among Wackenhut Corrections Corporation, Bank of America, N.A.,
ScotiaBanc, Inc. and the Lenders Party thereto from time to time.
10.1 Wackenhut Corrections Corporation Stock Option Plan.
10.2 Wackenhut Corrections Corporation 1994 Stock Option Plan.
10.3 Form of Indemnification Agreement between the Company and its Officers
and Directors.
10.4 Wackenhut Corrections Corporation Senior Officer Retirement Plan.
10.5 Wackenhut Corrections Corporation Director Deferral Plan.
10.6 Wackenhut Corrections Corporation Senior Officer Incentive Plan.
10.7 Services Agreement dated as of January 3, 1994 between the Company and
TWC (incorporated by reference to Exhibit 10.4 of the Company's
Registration Statement on Form S-1, as amended, Registration Number
33-79264).
10.8 Services Agreement effective as of January 1, 1996 between the Company
and TWC.
10.9 Lease Agreement effective as of January 3, 1994 between the Company
and TWC (incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-1, as amended, Registration Number
33-79264)
10.10 Revolving Credit Facility Agreement dated December 12, 1994 between
the Company and Barnett Bank of South Florida, N.A. (incorporated by
reference to Exhibit 10.106 of the Company's Annual Report on Form
10-K for the Fiscal Year ended January 1, 1995).
10.11 Form of Master Agreement to Lease between CPT Operating Partnership
L.P. and Wackenhut Corrections Corporation; Form of Lease Agreement
between CPT Operating Partnership L.P. and Wackenhut Corrections
Corporation; Form Right to Purchase Agreement between Wackenhut
Corrections Corporation and CPT Operating Partnership L.P.; and, Form
of Option agreement between Wackenhut Corrections Corporation and CPT
Operating Partnership L.P.
10.12 Wackenhut Corrections Corporation 1999 Stock Option Plan.
13.0 Annual Report to shareholders for the year ended January 3, 1999,
beginning with page 25 (to be deemed filed only to the extent required
by the instructions to exhibits for reports on this Form 10-K).
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accounts.
24.1 Powers of Attorney (included as part of the signature page hereto).
27.1 Financial Data Schedule (For SEC use only).
PAGE 27 of 27
<PAGE> 1
Exhibit 4.6
AMENDMENT AGREEMENT NO. 2
TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into as of this 3rd day of
December, 1999, by and among WACKENHUT CORRECTIONS CORPORATION, a Florida
corporation (herein called the "Borrower"), BANK OF AMERICA, N.A. (successor in
interest to NationsBank, N.A.) (the "Agent"), as Agent for the lenders (the
"Lenders") party to the Amended and Restated Credit Agreement dated December 18,
1997 among such Lenders, Borrower and the Agent (as amended prior to the date
hereof, the "Agreement") and the Lenders whose names are subscribed hereto.
WITNESSETH:
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Agreement pursuant to which the Lenders have agreed to make revolving loans to
the Borrower in the aggregate principal amount of up to $30,000,000 as evidenced
by the Notes (as defined in the Agreement); and
WHEREAS, as a condition to the making of the loans pursuant to the
Agreement the Lenders have required that all Material Subsidiaries that are
Domestic Subsidiaries of the Borrower guarantee payment of all Obligations of
the Borrower arising under the Agreement; and
WHEREAS, the Borrower has requested that the Agreement be further
amended and the Agent and the Lenders, subject to the terms and conditions
hereof, are willing to make such amendment, as provided herein;
WHEREAS, the Borrower's Subsidiary, Wackenhut Corrections (UK), Ltd.
has become a Material Subsidiary and the Borrower has failed to comply on a
timely basis with the requirements of Section 8.19 of the Agreement and,
subject to the receipt of the consent of the Required Lenders, the Borrower
intends to restructure its investments in the United Kingdom as described on
Appendix I attached hereto and by reference made a part hereof and in the
letter from the Borrower to the Agent dated November 30, 1999 (the "UK
Reorganization"); and
WHEREAS, the Borrower has requested that the Lenders waive the failure
to comply with Section 8.19 described above and to consent to the restructuring
of its United Kingdom investment;
NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby
agree as follows:
1. DEFINITIONS. The term "Agreement" as used herein and in
the Loan Documents (as defined in the Agreement) shall mean the
Agreement as hereinafter amended and modified. Unless the context
otherwise requires, all terms used herein without definition shall
have the definition provided therefor in the Agreement.
2. AMENDMENTS. Subject to the conditions set forth herein,
the Agreement is hereby amended as follows, effective as of the date
hereof:
1
<PAGE> 2
(a) The following definition of "Applicable TROL
Equity Advances" is added to Section 1.1 of the Agreement:
"'Applicable TROL Equity Advances' means,
with respect to any TROL Lease, those equity advances
(a) that are incurred by the TROL Lessor under the
operative agreements (including trust agreement)
relating to such TROL Lease, and (b) the proceeds of
which are used by the TROL Lessor to acquire or
improve any property that is subject of such lease,
or to pay transaction expenses in connection with
such lease."
(b) The following definition of "Applicable TROL
Loans" is added to Section 1.1 of the Agreement:
"'Applicable TROL Loans' means, with respect
to any TROL Lease, those loans (a) that are incurred
by the TROL Lessor under the operative agreements
(including credit agreement) relating to such TROL
Lease, and (b) the proceeds of which are used by the
TROL Lessor to acquire or improve any property that
is subject of such lease, or to pay transaction
expenses in connection with such lease.
(c) The following definition of "TROL Basic Rent" is
added to Section 1.1 of the Agreement:
"'TROL Basic Rent' means, with respect to
any TROL Lease, the portion of the rent under such
lease that (a) is determined by the amount of TROL
Interest and Equity Yield accrued on Applicable TROL
Loans and Applicable TROL Equity Advances, and (b) is
paid to the TROL Lessor to enable the TROL Lessor to
pay such TROL Interest Equity Yield."
(d) The definition of "Consolidated Interest Expense"
in Section 1.1 of the Agreement is amended in its entirety,
so that as amended it shall read as follows:
"'Consolidated Interest Expense' means,
with respect to any period of computation thereof,
the gross interest expense of the Borrower and its
Subsidiaries, including without limitation (i) the
current amortized portion of debt discounts to the
extent included in gross interest expense, (ii) the
current amortized portion of all fees (including
fees payable in respect of any Swap Agreement and
Letters of Credit) payable in connection with the
incurrence of Indebtedness to the extent included in
gross interest expense and (iii) the portion of any
payments made in connection with Capital Leases
allocable to interest expense, in each of the
foregoing cases determined on a consolidated basis in
accordance with GAAP applied on a Consistent Basis;
PROVIDED that Consolidated Interest Expense shall
not include payments with respect to the TROL
Leases, except that Consolidated Interest Expense
shall include payments of TROL Basic Rent."
2
<PAGE> 3
(e) The following definition of "TROL Interest and
Equity Yield" is added to Section 1.1 of the Agreement.
"'TROL Interest and Equity Yield' means,
with respect to any TROL Lease, collectively: (a) the
interest accrued on the Applicable TROL Loans (but
excluding any interest that is capitalized or paid by
the TROL Lessor using the proceeds of any Applicable
TROL Loan), and (b) the yield in the nature of
interest that is accrued on Applicable TROL Equity
Advances (but excluding any yield that is capitalized
or paid using the proceeds of any Applicable TROL
Equity Advance)."
(f) The definition of "TROL Leases" in Section 1.1
of the Agreement is amended in its entirety, so that as
amended it shall read as follows:
"'TROL Leases' means all tax retention
operating lease agreements between the Borrower or
any Subsidiary, as lessee, and the TROL Lessor, as
amended, supplemented or modified from time to time."
(g) The following definition of "TROL Lessor" is
added to Section 1.1 of the Agreement:
"'TROL Lessor' means, with respect to any
TROL Lease, First Security Bank, N.A., the owner
trustee, as lessor, and any successor."
(h) Clause (f) of Section 9.7 of the Agreement is
amended in its entirety, so that as amended clause (f) shall
read as follows:
"(f) other investments, loans or advances
(including, without limitation, loans or advances
in or to Special Purpose Subsidiaries) not exceeding
in the aggregate at any time 12% of Consolidated
Total Assets;"
3. SUBSIDIARY CONSENTS. Each Subsidiary of the Borrower that
has delivered a Guaranty to the Agent has joined in the execution of
this Amendment Agreement for the purpose of (i) agreeing to the consent
and waiver and the amendments to the Agreement set forth herein and
(ii) confirming its guarantee of payment of all the Obligations.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants that:
(a) the representations and warranties made by
Borrower in Article VII of the Agreement are true on and as
of the date hereof;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its
Subsidiaries since the date of the most recent financial
reports of the Borrower received by each Lender under Section
8.1 thereof, other than changes in the ordinary course of
business, none of which has been a material adverse change;
3
<PAGE> 4
(c) The business and properties of the Borrower and
its Subsidiaries are not and have not been adversely affected
in any substantial way as the result of any fire, explosion,
earthquake, accident, strike, lockout, combination of workers,
flood, embargo, riot, activities of armed forces, war or acts
of God or the public enemy, or cancellation or loss of any
major contracts; and
(d) No event has occurred and no condition exists
which, upon the consummation of the transaction contemplated
hereby, constitutes a Default or an Event of Default on the
part of the Borrower under the Agreement, the Notes or any
other Loan Document either immediately or with the lapse of
time or the giving of notice, or both.
5. WAIVER AND CONSENT. Each of the Lenders party to this
Amendment Agreement hereby (1) waives the Event of Default, together
with any requirements that the Borrower be assessed the Default Rate,
by reason of the Borrower's failure to pledge to the Agent (pursuant
to Section 8.19 of the Agreement) 65% of the capital stock of
Wackenhut UK, Ltd. provided that (x) the UK Reorganization shall occur
within 60 days of the date of this Amendment Agreement and (y) the
Borrower shall pledge to the Agent 65% of the stock of Wackenhut
Corrections (UK), Ltd. and comply with the other requirements of
Section 8.19 within 60 days of the date of this Amendment Agreement,
and (ii) consents to the UK Reorganization.
6. CONDITIONS. This Amendment Agreement shall become
effective upon the Borrower delivering to the Agent eleven (11)
counterparts of this Amendment Agreement duly executed by the Borrower
and consented to by each of the Subsidiaries.
7. ENTIRE AGREEMENT. This Amendment Agreement sets forth the
entire understanding and agreement of the parties hereto in relation
to the subject matter hereof and supersedes any prior negotiations and
agreements among the parties relative to such subject matter. No
promise, conditions, representation or warranty, express or implied,
not herein set forth shall bind any party hereto, and no one of them
has relied on any such promise, condition, representation or warranty.
Each of the parties hereto acknowledges that, except as in this
Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any
other party to the other. None of the terms or conditions of this
Amendment Agreement may be changed, modified, waived or canceled
orally or otherwise, except by writing, signed by the parties required
by the terms of the Agreement, specifying such change, modification,
waiver or cancellation of such terms or conditions, or of any
proceeding or succeeding breach thereof.
8. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby
specifically amended, modified or supplemented, the Agreement and all
of the other Loan Documents are hereby confirmed and ratified in all
respects and shall remain in full force and effect according to their
respective terms.
[Remainder of page intentionally left blank.]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
BORROWER
WACKENHUT CORRECTIONS CORPORATION
WITNESS:
/s/ David N.T. Watson By: /s/ John G. O'Rourke
- ------------------------------ ------------------------------------
Name: John G. O'Rourke
- ------------------------------ Title: Senior Vice President, CFO &
Treasurer,
Wackenhut Corrections Corporation
5
<PAGE> 6
GUARANTORS:
WCC RE HOLDINGS, INC.
WITNESS:
/s/ David N.T. Watson
- ----------------------------------
By: /s/ John G. O'Rourke
------------------------------
/s/ Keungling Lee Name: John G. O'Rourke
- ---------------------------------- Title: Senior Vice President
WCC Re Holdings, Inc.
BANK OF AMERICA, N.A.
as Agent for the Lenders
By: /s/ John E. Williams
-------------------------------
Name: John E. Williams
Title: Managing Director
BANK OF AMERICA, N.A.,
as Lender
By: /s/ John E. Williams
-------------------------------
Name: John E. Williams
Title: Managing Director
SCOTIABANC, INC.
By: /s/ Frank F. Sandler
-------------------------------
Name: Frank F. Sandler
Title: Relationship Manager
SUNTRUST BANK, SOUTH FLORIDA, N.A.
By: /s/ William H. Crawford
-------------------------------
Name: William H. Crawford
Title: Assistant Vice President
6
<PAGE> 7
SOUTHTRUST BANK, NATIONAL
ASSOCIATION
By: /s/ D. Guy Guenthaer
-------------------------------
Name: D. Guy Guenthaer
Title: Group Vice President
SUMMIT BANK
By: /s/ Lisa Cohen
-------------------------------
Name: Lisa Cohen
Title: Vice President
AMSOUTH BANK
By: /s/
-------------------------------
Name:
Title:
PARIBAS
By: /s/ Duane Helkowski
-------------------------------
Name: Duane Helkowski
Title: Vice President
By: /s/ Scott C. Sergeant
-------------------------------
Name: Scott C. Sergeant
Title: Assistant Vice President
HIBERNIA NATIONAL BANK
By: /s/ Troy J. Villafarra
-------------------------------
Name: Troy J. Villafarra
Title: Senior Vice President
PNC BANK, N.A.
By: /s/
-------------------------------
Name:
Title:
7
<PAGE> 1
EXHIBIT 10.12
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.
1
<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
<PAGE> 1
Exhibit 13.0
Financial Review
Wackenhut Corrections Corporation
Market for the Company's Common Equity and Related Stockholder Matters
The ensuing table shows the high and low prices for Wackenhut Corrections
Corporation's ("the Company") common stock, as reported by the New York Stock
Exchange, for each of the four quarters of Fiscal 1999 and 1998. The prices
shown have been rounded to the nearest $1/16th. The approximate number of
shareholders of record as of February 18, 2000, was 244.
<TABLE>
<CAPTION>
1999 1998
--------------------------- -----------------------------
Quarter High Low High Low
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
First $ 28-1/16 $ 18-5/8 $ 30-7/8 $ 21-15/16
Second 21-3/16 15-7/8 28-13/16 23-5/16
Third 20-13/16 13-3/16 24-1/16 15
Fourth 14-3/16 9-11/16 29 18-1/8
</TABLE>
The Company intends to retain its earnings to finance the growth and development
of its business and does not anticipate paying cash dividends on its capital
stock in the foreseeable future. Future dividends, if any, will depend, among
other things, on the future earnings, capital requirements and financial
condition of the Company, and on such other factors as the Company's Board of
Directors may consider relevant.
The Company actively pursued its stock buy-back program in open market and block
purchases. During Fiscal 1999 and 1998, the Company purchased 424,500 and
453,500 shares, respectively, of its common stock at an average price of $18.72
and $19.52 per share, respectively, and accounted for the transactions using the
treasury stock method.
Forward-Looking Statements
The management's discussion and analysis of financial condition and results of
operations, corporate profile, letter to shareholders, and the February 17, 2000
press release contain forward-looking statements that are based on current
expectations, estimates and projections about the industry in which the Company
operates. This section of the annual report also includes 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 risk in increasing use of large, multi-year contracts; the
outcome of pending and future litigation and governmental proceedings and
continued availability of financing; financial instruments and financial
resources in the amounts, at the times and on the terms required to support the
Company's future business. These are representative of the Future Factors that
could affect the outcome of the forward-looking statements. In addition, such
statements could be affected by general industry and market conditions and
growth rates, general domestic and international economic conditions including
interest rate and currency exchange rate fluctuations and other future factors.
These statements are marked: *.
1
<PAGE> 2
Wackenhut Corrections Corporation
Selected Financial Data
(In thousands, except per share and operational data)
The selected consolidated financial data should be read in conjunction with the
Company's consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>
Fiscal Year Ended: [1] 1999 1998
- --------------- -------------------------- ------------------------
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues $ 438,484 100.0% $ 312,759 100.0%
Operating income 26,041 5.9% 22,501 7.2%
Income before cumulative effect of change in accounting
for start-up costs 21,940 5.0% 16,828 5.4%
Cumulative effect of change in accounting for start-up costs -- -- (11,528) (3.7%)
----------- ----- ----------- -----
Net income $ 21,940 5.0% $ 5,300 1.7%
----------- ----- ----------- -----
EARNINGS PER SHARE - BASIC:
Income before cumulative effect of change in accounting
for start-up cost $ 1.01 $ 0.76
Cumulative effect of change in accounting for start-up costs -- (0.52)
----------- ----- ----------- -----
Net income $ 1.01 $ 0.24
----------- ----- ----------- -----
EARNINGS PER SHARE - DILUTED:
Income before cumulative effect of change in accounting
for start-up cost $ 1.00 $ 0.74
Cumulative effect of change in accounting change for start-up costs -- (0.51)
----------- ----- ----------- -----
Net income $ 1.00 $ 0.23
----------- ----- ----------- -----
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 21,652 22,119
Diluted 22,015 22,683
----------- ----- ----------- -----
FINANCIAL CONDITION:
Current assets $ 134,893 $ 94,464
Current liabilities 55,516 28,145
Total assets 208,222 148,008
Total debt 15,000 213
Shareholders' equity 118,684 102,940
----------- ----- ----------- -----
OPERATIONS DATA:
Contracts/awards 56 52
Facilities in operation 52 40
Design capacity of contracts 39,930 35,707
Design capacity of facilities in operation 32,110 26,651
Compensated resident days (2) 9,636,099 7,678,858
----------- ----- ----------- -----
</TABLE>
(1) The Company's fiscal year ends on the Sunday closest to the calendar year
end. Fiscal 1998 included 53 weeks. Fiscal 1999, 1997, 1996, 1995 and 1994
each included 52 weeks.
(2) Compensated resident days are calculated as follows: (a) per diem rate
facilities - the number of beds occupied by residents on a daily basis
during the fiscal year and, (b) fixed rate facilities - the design capacity
of the facility multiplied by the number of days the facility was in
operation during the fiscal year. Amounts exclude compensated resident days
for United Kingdom facilities.
2
<PAGE> 3
<TABLE>
<CAPTION>
1997 1996 1995 1994
---------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$206,930 100.0% $ 137,784 100.0% $ 99,431 100.0% $ 84,026 100.0%
16,545 8.0% 9,731 7.1% 7,229 7.3% 4,446 5.3%
11,875 5.7% 8,261 6.0% 4,440 4.5% 2,193 2.6%
-- 0.0% -- 0.0% -- 0.0% -- 0.0%
-------- ------ --------- ----- --------- ----- --------- -----
$ 11,875 5.7% $ 8,261 6.0% $ 4,440 4.5% $ 2,193 2.6%
-------- ------ --------- ----- --------- ----- --------- -----
$ 0.54 $ 0.39 $ 0.26 $ 0.15
-- -- -- --
-------- ------ --------- ----- --------- ----- --------- -----
$ 0.54 $ 0.39 $ 0.26 $ 0.15
-------- ------ --------- ----- --------- ----- --------- -----
$ 0.52 $ 0.37 $ 0.25 $ 0.15
-- -- -- --
-------- ------ --------- ----- --------- ----- --------- -----
$ 0.52 $ 0.37 $ 0.25 $ 0.15
-------- ------ --------- ----- --------- ----- --------- -----
22,015 21,361 16,850 16,370
22,697 22,128 17,708 17,403
-------- ------ --------- ----- --------- ----- --------- -----
$ 75,172 $ 75,313 $ 22,353 $ 18,225
23,946 13,183 8,898 8,031
139,203 106,811 38,840 30,333
225 237 991 1,422
102,295 87,969 25,229 19,727
-------- ------ --------- ----- --------- ----- --------- -----
46 34 24 22
32 19 16 15
30,144 24,371 16,054 13,732
20,720 12,235 9,135 7,164
5,192,614 3,585,100 2,350,843 2,090,625
-------- ------ --------- ----- --------- ----- --------- -----
</TABLE>
3
<PAGE> 4
Wackenhut Corrections Corporation
Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Introduction
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto.
Overview
The Company, a 56% owned subsidiary of The Wackenhut Corporation ("TWC", NYSE:
WAK and WAKB), is a leader in offering government agencies a turnkey approach to
developing new correctional institutions that includes design, construction,
financing and operations. It provides a broad spectrum of correctional services,
which include adult corrections, juvenile facilities, community corrections and
special purpose institutions.
The Company has contracts/awards to manage 56 facilities in North America, the
United Kingdom, South Africa, and Australia with a total of 39,930 beds, and
additional contracts for prisoner transportation, correctional health care
services, and facility design and construction.
Financial Condition
Liquidity and Capital Resources
The Company's principal sources of liquidity are from operations, borrowings
under its credit facilities, and sale of its rights to acquire prison
facilities. Cash and equivalents totaled $41.0 million at January 2, 2000,
compared to $20.2 million at January 3, 1999.
One of the Company's sources of liquidity is a $30.0 million multi-currency
revolving credit facility, which includes $5.0 million for the issuance of
letters of credit. At January 2, 2000, six letters of credit were outstanding in
an aggregate amount of approximately $2.6 million in addition to eight letters
of guarantee amounting to approximately $3.5 million under a separate Australian
facility.
The Company also has a $220.0 million operating lease facility established to
acquire and develop new correctional institutions used in its business. As of
January 2, 2000, approximately $88.7 million of this operating lease facility
was utilized for properties in operation or under development.
Cash provided by operating activities amounted to $24.8 million in Fiscal 1999
versus cash used in operating activities of $14.0 million in 1998, primarily
reflecting an increase in accounts payable and accrued expenses offset by higher
balances in accounts receivable, other assets and deferred income taxes.
Cash used in investing activities increased by $24.4 million to $11.8 million in
Fiscal 1999 as compared to Fiscal 1998.
This change is primarily due to higher capital expenditures of approximately
$14.5 million representing the investment in facilities and purchases of
equipment and a decrease of $17.9 million in proceeds from the sale of assets to
Correctional Properties Trust ("CPV"). The Company received net proceeds of
$23.9 million for the sale of the 600-bed expansion of Lea County Correctional
Facility and the right to acquire the Lawton Correctional Facility to CPV in
Fiscal 1999 and had received $41.8 million for the sale of three facilities and
the right to acquire four other facilities in Fiscal 1998. The Company also
received $10.0 million in proceeds from the sale of approximately one-half of
the Company's loans to overseas affiliates in Fiscal 1999.
Cash used in financing activities increased by $14.0 million to $7.1 million in
Fiscal 1999 as compared to Fiscal 1998. This change is primarily due to the
proceeds received by the Company of $15.0 million from long term debt offset by
a decrease of $0.9 million in the purchase of treasury shares in Fiscal 1999
compared to Fiscal 1998.
Current cash requirements consist of amounts needed for working capital;
furniture, fixtures, equipment, and supply purchases; investments in joint
ventures; and investments in facilities. Some of the Company's management
contracts require the Company to make substantial initial expenditures of cash
in connection with opening or renovating a facility. The initial expenditures
subsequently are fully or partially recoverable as pass-through costs or are
billable as a component of the "per diem" rates or monthly fixed fee to the
contracting agency over the original term of the contract.
The accumulated other comprehensive loss component of shareholders' equity
increased from a deficit of $3.1 million at January 3, 1999 to a deficit of $1.9
million at January 2, 2000, primarily due to the increase in the value of the
Australian dollar relative to the United States dollar.
As a result of sales of correctional facilities to CPV in 1999 and 1998, the
Company significantly increased its borrowing capacity. In addition, management
believes that cash on hand, cash funds from operations and available lines of
credit will be adequate to support currently planned business expansion and
various obligations incurred in the operation of the Company's business, both on
a near and long-term basis.*
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 sub-stantial
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 convenants, and could therefore, limit the Company's
access to capital.*
Year 2000 Readiness Disclosure
Management completed the installation of new systems hardware and software
before the year 2000.
4
<PAGE> 5
There are five phases that describe the Company's process in becoming year 2000
compliant. The awareness phase encompassed developing a budget and project plan.
The assessment phase identified mission-critical systems to check for
compliance. Renovation was the design of the systems to be year 2000 compliant.
Validation was testing the systems followed by implementation. All phases were
completed prior to December 31, 1999.
The Company incurred expenses related to year 2000 compliance. These costs
included 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
for achieving year 2000 compliance, were approximately $0.5 million.
These costs exclude payroll costs of internal staff related to year 2000
compliance as the Company does not separately track such costs. In addition, the
costs incurred to achieve year 2000 compliance excluded the Company's total
costs incurred in previously planned new systems. Implementation of these new
systems had not been accelerated due to the year 2000 problem. Deferral of other
projects that would have a material effect on operations was not 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 relationship, such as banks and vendors used by the Company, was
reviewed by management. We are unaware of any third party issues related to year
2000 compliance that would materially affect our financial condition or results
of operations.
Subsequent to December 31, 1999, the Company has not encountered any material
issues associated with year 2000 compliance as a result of its efforts to
install year 2000 compliant systems.
Inflation
Management believes that inflation has not had a material effect on the
Company's results of operations during the past three fiscal years. While some
of the Company's contracts include provisions for inflationary indexing, since
personnel costs represent the Company's largest expense in the facilities it
manages, inflation could have a substantial adverse effect on the Company's
results of operations in the future to the extent that wages and salaries
increase at a faster rate than the per diem or fixed rates received by the
Company for its management services.*
Market Risk
The Company is exposed to market risks, including changes in interest rates and
currency exchange rates.
These exposures primarily relate to changes in interest rates with respect to a
$220 million operating lease facility (Note 6) and a $30 million revolving
credit facility (Note 4). Monthly payments under these facilities are indexed to
a variable interest rate. Based upon the Company's interest rate and foreign
currency exchange rate exposure at January 2, 2000, a 10% change in the current
interest rate or historical currency rate movements would not have a material
effect on the Company's financial position or results of operations over the
next Fiscal year.
Results of Operations
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
Fiscal 1999 compared with Fiscal 1998
Revenues increased $125.7 million, or 40.2% to $438.5 million in 1999 from
$312.8 million in 1998. Approximately $110.6 million of the increase in revenues
in 1999 compared with 1998 is attributable to increased compensated resident
days resulting from the opening of six new facilities in 1999 and increased
compensated resident days at ten facilities that opened in 1998 (see Table 1 on
page 25). Approximately $8.9 million of the increase in revenues represents
project revenue for the development of the South Florida State Hospital. 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 8.5
million in 1999 from 6.8 million in 1998. Average facility occupancy in domestic
facilities increased slightly to approximately 97.4% of capacity compared to
95.4% in 1998. Compensated resident days in Australian facilities increased to
1.1 million from 0.9 million in 1998 primarily due to higher compensated
resident days at the immigration detention facilities. Average facility
occupancy in Australian facilities decreased slightly to 96.6% in 1999 from
98.2% in 1998.
Operating expenses increased by 43.2% to $389.3 million in 1999 compared to
$271.8 million in 1998. As a percentage of revenues, operating expenses
increased to 88.8% in 1999 from 86.9% in 1998. This increase primarily reflects
the sixteen facilities that were opened in 1999 and 1998, as described above.
Additionally, there are a number of secondary factors contributing to the
increase which include the following: lease payments to CPV of $20.6 million
offset by $1.7 million in amortization of the deferred revenue from the sale of
properties to CPV; expenses related to the development of the South Florida
State Hospital; 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), Ronald McPherson Correctional Facility (Arkansas), and Taft
Correctional Facility (California). 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.
Depreciation and amortization increased by 50.1% to $5.4 million in 1999 from
$3.6 million in 1998 due to the increase in operational assets during 1999 as
compared to 1998. As a percentage of revenues, depreciation and amortization
slightly increased to 1.2% from 1.1% in 1998.
Contribution from operations increased 17.3% to $43.8 million in 1999 from $37.4
million in 1998. As discussed above, this increase is primarily attributable to
sixteen new facilities that opened in 1999 and 1998. As a percentage of revenue,
contribution from operations decreased to 10.0% in 1999 from 11.9% in 1998. This
decrease is primarily due to the factors impacting the increase in operating
expenses as discussed previously.
5
<PAGE> 6
General and administrative expenses increased 19.6% to $17.8 million in 1999
from $14.9 million in 1998. The increase reflects costs related to additional
personnel and infrastructure, continued growth in the Company's business
development efforts, as well as additional costs related to the Company's
service agreement with The Wackenhut Corporation. As a percentage of revenue,
general and administrative expenses decreased to 4.1% in 1999 from 4.7% in 1998.
Operating income increased by 15.7% to $26.0 million in 1999 from $22.5 million
in 1998. As a percentage of revenue, operating income decreased to 5.9% in 1999
from 7.2% in 1998 due to the factors impacting contribution from operations
offset by leveraging of general and administrative expenses.
Other income increased 110.0% to $5.1 million in 1999 from $2.4 million in 1998.
This increase is primarily due to a $2.6 million gain from the sale of
approximately one-half of the Company's loans to overseas affiliates. These
loans were previously included in "Investments in and advances to affiliates" in
the accompanying consolidated balance sheets.
Income before income taxes, equity in earnings of affiliates, and cumulative
effect of change in accounting for start-up costs increased to $31.1 million in
1999 from $24.9 million in 1998 due to the factors described previously.
Provision for income taxes increased to $12.5 million in 1999 from $10.2 million
in 1998 due to the increase in income before income taxes, offset by the
decrease in the effective rate to 40.1% in 1999 from 40.8% in 1998.
Equity in earnings of affiliates, net of income tax provision, increased 59.0%
to $3.3 million in 1999 from $2.1 million in 1998 due to the commencement of
home monitoring contracts in January 1999 and the opening of H.M. Prison
Kilmarnock in March 1999, the Hassockfield Secure Training Centre in Medomsley,
England in September 1999 and H.M. Prison Pucklechurch in Pucklechurch, England
in November 1999.
Cumulative effect of change in accounting for start-up costs, net of tax
decreased to zero in 1999 from $11.5 million in 1998 due to the implementation
of Statement of Position 98-5 in 1998.
Net income increased 314% to $21.9 million in 1999 from $5.3 million in 1998 as
a result of the factors described above.
Fiscal 1998 compared with Fiscal 1997
Revenues increased $105.8 million, or 51.1%, to $312.8 million in 1998 from
$206.9 million in 1997. Approximately $103.7 million of the increase in revenues
in 1998 compared with 1997 is attributable to increased compensated resident
days resulting from the opening of ten new domestic facilities in 1998 and
increased compensated resident days at thirteen facilities that opened in 1997
(see Table 1 on page 25). 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 and Australian facilities
increased to 7.7 million in 1998 from 5.2 million in 1997. Average facility
occupancy in domestic and Australian facilities decreased slightly to 95.4% and
98.2% in 1998 as compared to 96.9% and 100% in 1997, respectively.
Operating expenses increased by 58.0% to $271.8 million in 1998 from $172.0
million in 1997 resulting from the new facilities opened in 1998 and 1997. As a
percentage of revenues, operating expenses increased to 86.9% from 83.1% due
primarily to lease payments to CPV and higher start-up expenses related to the
opening of ten new domestic facilities during the year (see Table 1) and the
Company's implementation of SOP 98-5.
Depreciation and amortization decreased by 43.4% to $3.6 million in 1998 from
$6.3 million in 1997. This decrease results from the implementation of AICPA SOP
98-5 and the elimination of start-up cost amortization during the year.
Contribution from operations increased 30.6% to $37.4 million in 1998 from $28.6
million in 1997. As discussed above, this increase is due to new facilities
opened in 1998 and 1997. As a percentage of revenues, contribution from
operations decreased to 11.9% from 13.8% impacted by lease payments to CPV which
commenced in April 1998 and the expensing of $7.5 million of start-up costs,
partially offset by the decrease in amortization expense.
General and administrative expenses increased by 23.2% to $14.9 million in 1998
from $12.1 million in 1997. This reflects increased business development
activities and additional infrastructure including expansion of the Company's
regional offices. General and administrative expenses decreased to 4.7% of total
revenues in 1998 from 5.8% in 1997.
Operating income increased by 36.0% to $22.5 million in 1998 from $16.5 million
in 1997 as result of the factors described above. As a percentage of revenue,
operating income decreased to 7.2% from 8.0% due to the factors impacting
contribution from operations offset by leveraging of overhead.
Interest income was $2.4 million in 1998 compared to interest income of $1.5
million in 1997, resulting from an increase in average invested cash related to
the sale of facilities to CPV 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 $24.9 million in
1998 from $18.0 million in 1997 due to the factors described above.
Provision for income taxes increased to $10.2 million in 1998 from $7.2 million
in 1997 due to higher taxable income and an increase in the Company's effective
tax rate to 40.8% from 40.2% in 1997.
Equity in earnings of affiliates increased to $2.1 million in 1998 from $1.1
million in 1997. This increase is due to the opening of H.M. Prison Lowdham
Grange in February 1998, and improved operational performance.
Income before cumulative effect of change in accounting for start-up costs
increased 41.7% to $16.8 million in 1998 from $11.9 million in 1997 as a result
of the factors discussed above.
Cumulative effect of change in accounting for start-up costs, net of tax was
$11.5 million in 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 decreased by 55.4% to $5.3 million in 1998 from $11.9 million in 1997
resulting solely from the Company's implementation of SOP 98-5.
6
<PAGE> 7
Table 1 :
The following table summarizes certain information with respect to facilities
opened by the Company (or a subsidiary or joint venture of the Company) during
Fiscal years 1999, 1998, and 1997.
<TABLE>
<CAPTION>
Facility Name Company Design Facility Security Opening Renewal
Location Role Capacity Type Level Date Term Option
------------- ------- -------- -------- -------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CORRECTIONAL FACILITIES OPENED IN 1999:
Guadalupe County Design/ 600 State Prison Medium January 1999 3 years Annual
Correctional Facility Construction/
Santa Rosa, New Mexico Management
- ----------------------------------------------------------------------------------------------------------------------------------
H.M. Prison Kilmarnock Design/ 500 National All levels March 1999 25 years None
Kilmarnock, Scotland Construction/ Prison
Management
- ----------------------------------------------------------------------------------------------------------------------------------
Victoria Police Custody Management 80 City Jail All levels March 1999 3 years Two
Center One-year
Melbourne, Australia Options
- ----------------------------------------------------------------------------------------------------------------------------------
East Mississippi Design/ 500 State Prison Mental Health April 1999 5 years One
Correctional Facility Construction/ Two-year
Meridian, Mississippi Management Option
- ----------------------------------------------------------------------------------------------------------------------------------
Michigan Youth Design/ 480 State Prison Maximum July 1999 4 years Unlimited,
Correctional Facility Construction/ Four-year
Baldwin, Michigan Management terms
- ----------------------------------------------------------------------------------------------------------------------------------
Hassockfield Secure Design/ 40 National Medium September 1999 15 years None
Training Centre Construction/ Prison
Medomsley, England Management
- ----------------------------------------------------------------------------------------------------------------------------------
Curtin Immigration Management 1,000 Immigration All levels October 1999 3 years Two
Reception & Processing Detention (3) Three-year
Centre
Derby, Western Australia
- ----------------------------------------------------------------------------------------------------------------------------------
H.M. Prison Pucklechurch Design/ 400 National Medium November 1999 25 years None
Pucklechurch, England Construction/ Prison
Management
- ----------------------------------------------------------------------------------------------------------------------------------
Woomera Immigration Management 1,000 Immigration All levels November 1999 3 years Two
Reception & Processing Detention (3) Three-year
Centre
Woomera,
South Australia
- ----------------------------------------------------------------------------------------------------------------------------------
CORRECTIONAL FACILITIES OPENED IN 1998:
Scott Grimes Design/ 600 State Prison Minimum/ January 1998 2 years Unlimited,
Correctional Facility Construction/ Medium Two-year
Newport, Arkansas Management
- ----------------------------------------------------------------------------------------------------------------------------------
Ronald McPherson Design/ 600 State Prison All levels January 1998 2 years Unlimited,
Correctional Facility Construction/ Two-year
Newport, Arkansas Management
- ----------------------------------------------------------------------------------------------------------------------------------
Karnes County Management 579 County Jail All levels January 1998 Varies Varies
Correctional Center (1) (1)
Karnes City, Texas
- ----------------------------------------------------------------------------------------------------------------------------------
Broward County Work Design/ 300 Community Non-Secure February 1998 5 years Unlimited,
Release Center Construction/ Work Release Two-year
Broward County, FL Management Center
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
Facility Name Company Design Facility Security Opening Renewal
Location Role Capacity Type Level Date Term Option
------------- ------- -------- -------- -------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
H.M. Prison Lowdham Management 524 National All levels February 1998 25 years None
Grange Prison
Nottinghamshire, England
- ----------------------------------------------------------------------------------------------------------------------------------
Lea County Correctional Design/ 1,200 County Jail All levels May 1998 3 years Annual
Facility Construction/
Hobbs, New Mexico Management
- ----------------------------------------------------------------------------------------------------------------------------------
Lawton Correctional Design/ 1,800 State Prison Medium July 1998 1 year Four
Facility Construction/ One-year
Lawton, Oklahoma Management
- ----------------------------------------------------------------------------------------------------------------------------------
George W. Hill Design/ 1,562 (2) County Jail All levels July 1998 5 years Unlimited,
Correctional Facility Construction/ Facility Two-year
Thornton, Management
Pennsylvania
- ----------------------------------------------------------------------------------------------------------------------------------
Jena Juvenile Justice Design/ 276 Juvenile All levels December 1998 25 years None
Center Construction/ Center
Jena, Louisiana Management
- ----------------------------------------------------------------------------------------------------------------------------------
Cleveland Correctional Management 520 State Prison Medium January 1999 1 year Four
Center One-year
Cleveland, Texas
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER FACILITIES OPENED IN 1998:
South Florida State Design/ 350 State N/A November 1998 5 years Three
Hospital Construction/ Psychiatric Five-year
Pembroke Pines, Florida Management Hospital
- ----------------------------------------------------------------------------------------------------------------------------------
CORRECTIONAL FACILITIES OPENED IN 1997:
South Bay Correctional Design/ 1,436 State Prison Medium/ February 1997 3 years Unlimited,
Facility Construction/ Close Custody Two-year
South Bay, Florida Management
- ----------------------------------------------------------------------------------------------------------------------------------
Bayamon Correctional Design/ 500 Prison Medium March 1997 5 years One,
Facility Construction/ Five-year
Bayamon, Puerto Rico Consultation/
Management
- ----------------------------------------------------------------------------------------------------------------------------------
Travis County Community Design/ 1,000 State Jail Medium March 1997 5 years Automatic,
Justice Center Consultation/ Facility Unlimited,
Travis County, Texas Management Two-year
- ----------------------------------------------------------------------------------------------------------------------------------
Queens Private Construction/ 200 INS Detention Minimum/ March 1997 1 year Four,
Correctional Facility Management Facility Medium One-year
Queens, New York
- ----------------------------------------------------------------------------------------------------------------------------------
Fulham Correctional Design/ 660 State Prison Minimum/ March 1997 5 years Five,
Centre Consultation/ Medium Three-year
Victoria, Australia Management
- ----------------------------------------------------------------------------------------------------------------------------------
Villawood Detention Management 300 Immigration All levels November 1997 3 years Two
Centre Detention Three-year
Sydney, Australia
- ----------------------------------------------------------------------------------------------------------------------------------
Central Valley Community Design/ 550 State Medium December 1997 10 years None
Correctional Facility Construction/ Community
McFarland, Texas Management Correctional
Facility
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Facility Name Company Design Facility Security Opening Renewal
Location Role Capacity Type Level Date Term Option
------------- ------- -------- -------- -------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Desert View Community Design/ 568 State Medium December 1997 10 years None
Correctional Facility Construction/ Community
Adelanto, California Management Correctional
Facility
- ----------------------------------------------------------------------------------------------------------------------------------
Golden State Community Design/ 550 State Medium December 1997 10 years None
Correctional Facility Construction/ Community
McFarland, California Management Correctional
Facility
- ----------------------------------------------------------------------------------------------------------------------------------
Maribyrnong Detention Management 80 Immigration All levels December 1997 3 years Two
Centre Detention Three-year
Melbourne, Australia
- ----------------------------------------------------------------------------------------------------------------------------------
Perth Detention Centre Management 40 Immigration All Levels December 1997 3 years Two
Perth, Australia Detention Three-year
- ----------------------------------------------------------------------------------------------------------------------------------
Port Hedland Detention Management 700 Immigration All levels December 1997 3 years Two
Center Detention Three-year
Port Hedland, Australia
- ----------------------------------------------------------------------------------------------------------------------------------
Taft Correctional Management 2,048 Federal Prison Low/ December 1997 3 years Seven,
Institution Medium One-year
Taft, California
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER FACILITIES OPENED IN 1997:
Atlantic Shores Hospital Management 72 Psychiatric N/A July 1997 N/A N/A
Fort Lauderdale, Florida Hospital
- ----------------------------------------------------------------------------------------------------------------------------------
Pacific Shores Healthcare Management N/A Correctional All levels November 1997 3 years One
Victoria, Australia Healthcare Two-year
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This facility is occupied by inmates under several contracts with
varying terms and renewal options. The terms of these contracts range
from two weeks to an indefinite period and the renewal option features
range from no option to unlimited renewals.
(2) The new 1,562-bed facility replaced the existing 1,000-bed facility
managed by the Company.
(3) This facility represents additional work under the current Detention
Services contractual agreement with the Department of Immigration &
Multicultural Affairs (DIMA), and is subject to a six-week termination
clause depending on client need.
9
<PAGE> 10
Wackenhut Corrections Corporation
Consolidated Statements of Income
(In thousands, except per share data)
FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, and DECEMBER 28, 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES $ 438,484 $ 312,759 $ 206,930
OPERATING EXPENSES
(including amounts related to The Wackenhut Corporation
(TWC) of $9,454, $8,182, and $5,337) 389,325 271,840 172,031
DEPRECIATION AND AMORTIZATION 5,355 3,567 6,303
--------- --------- ---------
CONTRIBUTION FROM OPERATIONS 43,804 37,352 28,596
GENERAL AND ADMINISTRATIVE EXPENSES
(including amounts related to TWC of $3,229, $2,159, and $1,566) 17,763 14,851 12,051
--------- --------- ---------
OPERATING INCOME 26,041 22,501 16,545
OTHER INCOME, NET
(including amounts related to TWC of $492, $122, and ($10)) 5,062 2,410 1,451
--------- --------- ---------
INCOME BEFORE INCOME TAXES, EQUITY IN EARNINGS OF
AFFILIATES, AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR START-UP COSTS 31,103 24,911 17,996
PROVISION FOR INCOME TAXES 12,472 10,164 7,226
--------- --------- ---------
INCOME BEFORE EQUITY IN EARNINGS OF AFFILIATES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR START-UP COSTS 18,631 14,747 10,770
EQUITY IN EARNINGS OF AFFILIATES,
(net of income tax provision of $2,215, $1,434, and $692) 3,309 2,081 1,105
--------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR START-UP COSTS 21,940 16,828 11,875
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
START-UP COSTS, NET OF TAX -- 11,528 --
--------- --------- ---------
NET INCOME $ 21,940 $ 5,300 $ 11,875
--------- --------- ---------
EARNINGS PER SHARE
Basic
Income before cumulative effect of change in accounting for start-up costs $ 1.01 $ 0.76 $ 0.54
Cumulative effect of change in accounting for start-up costs -- (0.52) --
--------- --------- ---------
Net income $ 1.01 $ 0.24 $ 0.54
--------- --------- ---------
Diluted
Income before cumulative effect of change in accounting for start-up costs $ 1.00 $ 0.74 $ 0.52
Cumulative effect of change in accounting for start-up costs -- (0.51) --
--------- --------- ---------
Net income $ 1.00 $ 0.23 $ 0.52
--------- --------- ---------
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 21,652 22,119 22,015
--------- --------- ---------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 22,015 22,683 22,697
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
10
<PAGE> 11
Wackenhut Corrections Corporation
Consolidated Balance Sheets
(In thousands, except share data)
JANUARY 2, 2000 and JANUARY 3, 1999
<TABLE>
<CAPTION>
1999 1998
---------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 41,029 $ 20,240
Accounts receivable, less allowance for doubtful accounts of $1,499 and $401 77,779 61,188
Current portion of deferred income tax asset, net 3,069 1,769
Other 13,016 11,267
--------- ---------
Total current assets 134,893 94,464
--------- ---------
PROPERTY AND EQUIPMENT, NET 43,360 33,005
INVESTMENTS IN AND ADVANCES TO AFFILIATES 20,686 15,447
GOODWILL 1,776 2,011
DEFERRED INCOME TAX ASSET, NET -- 1,277
OTHER 7,507 1,804
--------- ---------
$ 208,222 $ 148,008
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 12,631 5,944
Accrued payroll and related taxes 11,305 9,955
Accrued expenses 28,553 9,850
Current portion of deferred revenue 3,027 2,383
Current portion of long-term debt -- 13
--------- ---------
Total current liabilities 55,516 28,145
--------- ---------
DEFERRED INCOME TAX LIABILITY, NET 3,797 --
LONG-TERM DEBT 15,000 200
DEFERRED REVENUE 15,225 16,723
--------- ---------
COMMITMENTS AND CONTINGENCIES (note 6)
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 and
22,347,922 shares issued and outstanding 224 223
Additional paid-in capital 83,699 83,164
Retained earnings 53,463 31,523
Accumulated other comprehensive loss (1,902) (3,117)
Less: common stock in treasury at cost - 878,000 and 453,500 shares, respectively (16,800) (8,853)
-------- ---------
Total shareholders' equity 118,684 102,940
-------- ---------
$ 208,222 $148,008
--------------------------
</TABLE>
THE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
11
<PAGE> 12
Wackenhut Corrections Corporation
Consolidated Statements of Cash Flows
(In thousands)
FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, and DECEMBER 28, 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 21,940 $ 5,300 $ 11,875
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization expense 5,355 3,567 6,303
Deferred tax provision 2,021 (3,723) 6,751
Equity in earnings of affiliates (3,309) (2,081) (1,105)
Cumulative effect of change in accounting for start-up costs -- 11,528 --
Changes in assets and liabilities
(Increase) decrease in assets:
Accounts receivable (17,051) (24,745) (12,623)
Other current assets (1,997) (5,561) (3,606)
Deferred income tax asset (23) (3,046) --
Other assets (5,139) (1,053) (201)
Goodwill -- -- (782)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 18,874 10,677 3,296
Accrued payroll and related taxes 1,228 1,740 4,027
Deferred income taxes, net 3,797 (7,259) 7,442
Deferred revenue (854) 694 --
--------- --------- ---------
Net cash provided by (used in) operating activities 24,842 (13,962) 21,377
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (5,528) (4,607) (3,718)
Repayments of investments in affiliates 1,442 -- --
Proceeds from the sale of loans 9,997 -- --
Gain on sale of loans (2,608) -- --
Capital expenditures (38,966) (24,516) (23,965)
Proceeds from sales of facilities to CPV 23,881 41,768 --
Deferred charge expenditures -- -- (9,625)
--------- --------- ---------
Net cash (used in) provided by investing activities (11,782) 12,645 (37,308)
--------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 215 1,928 1,760
Payments on debt (213) (12) (12)
Advances to TWC (23,102) (175,091) (116,019)
Repayments from TWC 23,102 175,091 116,019
Proceeds from long-term debt 15,000 -- --
Repurchase of common stock (7,947) (8,853) --
--------- --------- ---------
Net cash provided by (used in) financing activities 7,055 (6,937) 1,748
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 674 (466) (1,225)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 20,789 (8,720) (15,408)
CASH, BEGINNING OF PERIOD 20,240 28,960 44,368
--------- --------- ---------
CASH, END OF PERIOD $ 41,029 $ 20,240 $ 28,960
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Income taxes $ 7,867 $ 16,849 $ 100
--------- --------- ---------
Non-cash activities:
Impact on equity from tax benefit related to the exercise of options
issued under the Company's non-qualified stock option plan $ 321 $ 3,231 $ 3,263
---------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
12
<PAGE> 13
Wackenhut Corrections Corporation
Consolidated Statements of Shareholders' Equity and Comprehensive Income
(In thousands)
FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, and DECEMBER 28, 1997
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
Number Paid-in Retained Comprehensive Treasury Shareholders'
Of Shares Amount Capital Earnings Income Stock Equity
------- ------ -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 29, 1996 21,938 $ 219 $ 72,986 $ 14,348 $ 416 -- $ 87,969
Proceeds from stock options exercised 231 3 1,757 -- -- -- 1,760
Tax benefit related to employee stock options -- -- 3,263 -- -- -- 3,263
Comprehensive income
Net income -- -- -- 11,875 -- --
Change in foreign currency translation,
net of income tax benefits of $1,644 -- -- -- -- (2,572) --
Total comprehensive income -- -- -- -- -- -- 9,303
------- ------ -------- -------- ------- --------- ---------
BALANCE, DECEMBER 28, 1997 22,169 222 78,006 26,223 (2,156) -- 102,295
Proceeds from stock options exercised 179 1 1,927 -- -- -- 1,928
Tax benefit related to employee stock options -- -- 3,231 -- -- -- 3,231
Treasury Stock purchased -- -- -- -- -- (8,853) (8,853)
Comprehensive income
Net income -- -- -- 5,300 -- --
Change in foreign currency translation,
net of income tax benefits of $614 -- -- -- -- (961) --
Total comprehensive income -- -- -- -- -- -- 4,339
------- ------ -------- -------- ------- --------- ---------
BALANCE, JANUARY 3, 1999 22,348 223 83,164 31,523 (3,117) (8,853) 102,940
Proceeds from stock options exercised 39 1 214 -- -- -- 215
Tax benefit related to employee stock options -- -- 321 -- -- -- 321
Treasury stock purchased -- -- -- -- -- (7,947) (7,947)
Comprehensive income
Net income -- -- -- 21,940 -- --
Change in foreign currency translation,
net of income tax expense of $813 -- -- -- -- 1,215 --
Total comprehensive income -- -- -- -- -- -- 23,155
------- ------ -------- -------- ------- --------- ---------
BALANCE, JANUARY 2, 2000 22,387 $ 224 $ 83,699 $ 53,463 $(1,902) $ (16,800) $ 118,684
------- ------ -------- -------- ------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
13
<PAGE> 14
Wackenhut Corrections Corporation
Notes to Consolidated Financial Statements
For the Fiscal Years Ended January 2, 2000, January 3, 1999, and December 28,
1997.
(1) General
Wackenhut Corrections Corporation, a Florida corporation, and subsidiaries (the
"Company"), a majority owned subsidiary of The Wackenhut Corporation ("TWC"), is
a leading developer and manager of privatized correctional, detention and public
sector mental health services facilities located in North America, the United
Kingdom, South Africa and Australia.
(2) Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Sunday closest to the calendar year end.
Fiscal 1998 included 53 weeks and Fiscal 1999 and 1997 each included 52 weeks.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Investments in 20 percent to 50 percent owned affiliates are
accounted for under the equity method. All significant intercompany transactions
and balances between the Company and its subsidiaries have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform with
current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable, other
receivables, notes payable, accounts payable and long-term debt approximates
fair value.
Cash and Cash Equivalents
The Company classifies as cash equivalents all interest-bearing deposits or
investments with original maturities of three months or less.
Inventories
Food and supplies inventories are carried at the lower of cost or market, on a
first-in first-out basis and are included in "other current assets" in the
accompanying consolidated balance sheets. Uniform inventories are carried at
amortized cost and are amortized over a period of eighteen months. The current
portion of unamoritized uniforms is included in "other current assets". The
long-term portion is included in "other assets" in the accompanying consolidated
balance sheets.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Maintenance and repairs are expensed as incurred. Depreciation is computed using
the straight-line method over the estimated useful lives of related assets.
Accelerated methods of depreciation are generally used for income tax purposes.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the useful life of the improvement or the term of the lease.
Long-lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," requires that long-lived assets, including certain identifiable
intangibles, and the goodwill related to those assets, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset in question may not be recoverable. Management has
reviewed the Company's long-lived assets and has determined that there are no
events requiring impairment loss recognition. Events that would trigger an
impairment assessment include deterioration of profits for a business segment
that has long-lived assets, or when other changes occur which might impair
recovery of long-lived assets. The method used to measure impairment would be
undiscounted operating cash flows estimated over the remaining amortization
period for the related long-lived assets.
Goodwill
Goodwill represents the cost of an acquired enterprise in excess of the fair
market value of the net tangible and identifiable intangible assets acquired.
Goodwill is amortized on a straight-line basis over the period, which represents
management's estimation of the related benefit to be derived from the acquired
business, not to exceed twenty-five years. Accumulated amortization totaled
approximately $1.7 million and $1.4 million at January 2, 2000 and January 3,
1999, respectively.
Deferred Charges
Through December 28, 1997, the Company capitalized and amortized facility
start-up costs, consisting of costs of initial employee training, travel and
other direct expenses incurred in connection with the opening of new facilities,
on a straight-line basis over the lesser of the original contract term plus
renewals or five years.
14
<PAGE> 15
Also through December 28, 1997, project development costs consisting of direct
and incremental costs paid to unrelated third parties that were directly
associated with a specific anticipated contract were deferred until the
anticipated contract had been awarded. At the time the contract was awarded to
the Company, the deferred project development costs were either capitalized as
part of property and equipment or were amortized over five years as project
development costs. Project development costs were charged to general and
administrative expenses when the success of obtaining a new contract was
considered doubtful. Internal costs associated with securing new contracts are
expensed as incurred.
In April 1998, the Financial Accounting Standards Board issued Statement of
Position 98-5 ("SOP 98-5") on accounting for costs of start-up that requires the
expensing of start-up costs as incurred. By adopting SOP 98-5 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. Also, upon adoption,
the Company reversed start-up amortization expense recorded during Fiscal 1998
and expensed start-up and project development costs previously deferred during
Fiscal 1998. All 1999 and future start-up and project development costs are
expensed as incurred.
Deferred Revenue
Deferred revenue primarily represents the unamortized net profit on the
development of properties and on the sale of properties by the Company to
Correctional Properties Trust ("CPV"), a Maryland real estate investment trust.
The Company leases these properties back from CPV under operating leases.
Deferred revenue is being amortized over the lives of the leases and is
recognized in income as a reduction of rental expenses.
Revenue Recognition
Facility management revenues are recognized as services are provided based on a
net rate per day per inmate or on a fixed monthly rate. Project development and
design revenues are recognized as earned on a percentage of completion basis
measured by the percentage of costs incurred to date as compared to estimated
total cost for each contract. This method is used because management considers
costs incurred to date to be the best available measure of progress on these
contracts. Provisions for estimated losses on uncompleted contracts are made in
the period in which the Company determines that such losses are probable.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance. Changes in job performance, job
conditions, and estimated profitability, including those arising from contract
penalty provisions, and final contract settlements may result in revisions to
costs and income and are recognized in the period in which the revisions are
determined.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred income taxes are determined on the estimated future tax effects of
differences between the financial reporting and tax basis of assets and
liabilities given the provisions of enacted tax laws. Deferred income tax
provisions and benefits are based on changes to the asset or liability from year
to year.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding. In the computation of
diluted earnings per share, the weighted-average number of common shares
outstanding is adjusted for the effect of all potential common stock.
Foreign Currency Translation
The Company's foreign operations use the local currency as their functional
currency. Assets and liabilities of the operations are translated at the
exchange rates in effect on the balance sheet date. Income statement items are
translated at the average exchange rates for the year. The impact of currency
fluctuation is included in shareholders' equity as a component of accumulated
other comprehensive income.
Accounting Pronouncements
In June 1998, the 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 in 2001 will not
have a material impact upon the Company's results of operations or financial
position.
(3) Property and Equipment
Property and equipment consist of the following at fiscal year end:
(In thousands)
Years 1999 1998
-------- ------- --------
Land --- $ 2,036 $ 2,069
Buildings and improvements 2 to 40 16,861 9,361
Equipment 3 to 20 9,432 6,760
Furniture and fixtures 3 to 20 1,798 1,994
Construction in progress --- 21,191 18,038
-------- --------
$ 51,318 $ 38,222
Less-accumulated depreciation (7,958) (5,217)
-------- --------
$ 43,360 $ 33,005
-------- --------
Construction in progress represents costs incurred in the development of
facilities intended for sale to third parties and renovation costs associated
with leased facilities.
15
<PAGE> 16
(4) Long-Term Debt
Long-term debt consists of the following:
(In thousands)
1999 1998
-------- ------
Revolving credit facility $ 15,000 $ --
Note payable - 8% -- 213
Less - current portion -- 13
-------- ------
$15,000 $ 200
-------- ------
In June 1994, the Company signed an unsecured note payable in the amount of
$262,000, bearing an interest rate of 8.0%, for the purchase of land for the
construction of a correctional facility. The note was repaid in 1999.
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. The
credit facility also includes a letter of credit of up to $5.0 million for the
issuance of standby letters of credit. 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 January 2, 2000, the interest rate for this
facility was 8.0%. 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 January 2, 2000, $15 million was outstanding under this
facility, in addition to six standby letters of credit in an aggregate amount of
approximately $2.6 million. At January 2, 2000, the Company also had outstanding
eight letters of guarantee totaling approximately $3.5 million under a separate
Australian facility.
Aggregate annual maturities of long-term debt are as follows:
(In thousands)
Annual
Fiscal Year Maturity
- ----------- --------
2000 $ --
2001 --
2002 15,000 15,000
---------
$ 15,000
---------
(5) Sale of Facilities to Correctional Properties Trust
On April 28, 1998, Correctional Properties Trust ("CPV"), a Maryland real estate
investment trust, sold 6.2 million shares of common stock at an offering price
of $20.00 per share in an initial public offering. Approximately $113.0 million
of the net proceeds of the offering were used to acquire eight correctional and
detention facilities operated by the Company. The Company received approximately
$42.0 million for the three facilities owned by it and for the rights to acquire
four of the other five facilities, and realized a profit of approximately $18.0
million. The eighth facility was purchased directly from the government entity.
CPV also was granted the option to acquire three additional correctional
facilities and the fifteen-year right to acquire and lease back future
correctional and detention facilities developed or acquired by the Company. On
October 30, 1998, CPV acquired the completed portion of the ninth facility for
$26.0 million. During Fiscal 1999, CPV acquired a 600-bed expansion of the ninth
facility and the right to acquire a tenth facility for $67.7 million.
Sub-sequent to January 2, 2000, CPV purchased an eleventh facility that the
Company had the right to acquire for $15.3 million.
Simultaneous with the purchases, the Company entered into a ten-year operating
lease of these facilities from CPV. As the lease agreements are subject to
contractual lease increases, the Company records operating lease expense for
these leases on a straight-line basis over the term of the leases.
The deferred unamortized net profit at January 2, 2000, which is included in
"Deferred revenue" in the accom-panying consolidated balance sheets, is $14.9
million with $1.8 million short-term and $13.1 million long-term, excluding the
long-term portion of deferred development fee revenue. The net profit is being
amortized over the ten-year lease terms. The Company recorded net rental expense
related to CPV in 1999 and 1998 of $18.9 million and $6.9 million, respectively.
The future minimum lease commitments under the leases for these eleven
facilities are as follows:
(In thousands)
Annual
Fiscal Year Rental
- ----------- ----------
2000 $ 22,280
2001 22,633
2002 22,703
2003 22,703
2004 22,703
Thereafter 84,227
----------
$ 197,249
----------
(6) Commitments and Contingencies
The nature of the Company's business results in claims for damages arising from
the conduct of its employees or others. In the opinion of management, there are
no pending legal proceedings, except those disclosures made below, for which the
potential impact if decided unfavorable to the Company could have a material
adverse effect on the consolidated financial statements of the Company.
In Texas, grand juries have been convened in Travis and Caldwell Counties and
are taking testimony regarding alleged sexual misconduct and document tampering
by individuals employed or formerly employed by the Company. At this time, the
Company is unable to predict the outcome of these investigations and any
potential impact on the financial position, net worth or results of operations
of the Company.
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 the Legislative Finance Committee to remedy serious
operational issues at the Company's facilities in Lea and Guadalupe Counties.
The Company has developed and presented to the State of New Mexico (the "State")
recommended contract modifications with associated operational and fiscal
resource needs for both facilities. The Company can give no assurances as to the
ultimate acceptability of these contract modifications by the State.
Additionally, the Company has submitted a proposal to the Federal Bureau of
Prisons for the Lea County Correctional Facility for its possible use to hold
low security criminal aliens.
16
<PAGE> 17
The Company leases correctional facility office space, computers and vehicles
under non-cancelable operating leases expiring between 2000 and 2009. The future
minimum commitments under these leases exclusive of lease commitments related to
the sale of correctional facilities to CPV (Note 5), are as follows:
(In thousands)
Annual
Year Rental
- ---- ----------
2000 $ 8,710
2001 7,882
2002 7,537
2003 7,537
2004 7,537
Thereafter 37,685
----------
$ 76,888
----------
Rent expense was approximately $8.7 million, $4.7 million, and $3.4 million for
Fiscal 1999, 1998, and 1997 respectively.
In December 1997, the Company also entered into a $220.0 million operating lease
facility that has been established to acquire and develop new correctional
institutions used in its business. As a condition of this facility, the Company
unconditionally agreed to guarantee certain obligations of First Security Bank,
National Association, a party to the aforementioned operating lease facility. As
of January 2, 2000, approximately $88.7 million of this operating lease facility
was utilized for properties under development.
(7) Common, Preferred and Treasury Stock
In April 1994, the Company's Board of Directors authorized 10,000,000 shares of
"blank check" preferred stock. The Board of Directors is authorized to determine
the rights and privileges of any future issuance of preferred stock such as
voting and dividend rights, liquidation privileges, redemption rights and
conversion privileges.
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. 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 January 2, 2000, the Company had repurchased
878,000 shares of the one million common shares authorized for repurchase at an
average price of $19.13. The repurchased shares are recorded as treasury stock
and result in a reduction of shareholders' equity.
Subsequent to January 2, 2000, the Company's Board of Directors authorized the
purchase of up to an additional 500,000 shares of the Company's common stock.
(8) Business Segment and Geographic Information
In June 1997, the FASB issued SFAS 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information" which was adopted by the Company in
1998. SFAS 131 establishes standards for reporting information about operating
segments and related disclosures about products and services, geographic areas
and major customers.
The Company operates in one industry segment encom-passing the development and
management of privatized government institutions located in North America, the
United Kingdom, South Africa and Australia.
As the Company operates and tracks its results in one operating segment, certain
disclosure requirements are not applicable. Information about the Company's
operations in different geographical regions is shown below. Sales are
attributed to geographical areas based on location of operations and long-lived
assets consist of property, plant and equipment.
(In thousands)
Fiscal Year 1999 1998 1997
- -------------- -------- -------- ---------
REVENUES:
Domestic operations $371,333 $264,642 $167,223
International operations 67,151 48,117 39,707
-------- -------- --------
Total revenues $438,484 $312,759 $206,930
OPERATING INCOME:
Domestic operations $ 18,939 $ 18,649 $ 12,388
International operations 7,102 3,852 4,157
-------- ------- --------
Total operating income $ 26,041 $ 22,501 $ 16,545
LONG-LIVED ASSETS:
Domestic operations $ 39,005 $ 28,944 $ 34,061
International operations 4,355 4,061 4,693
-------- ------- --------
Total long-lived assets $ 43,360 $ 33,005 $ 38,754
-------- ------- --------
The Company's international operations represent its wholly-owned Australian
subsidiaries which are pursuing construction and management contracts for
correctional and detention facilities. Through its wholly-owned subsidiary,
Wackenhut Corrections Corporation Australia Pty. Limited, the Company currently
manages four correctional facilities and six immigration detention centers.
Except for the major customers noted in the following table, no single customer
provided more than 10% of consolidated revenues during Fiscal 1999, 1998 and
1997:
Customer 1999 1998 1997
- -------- ---- ---- ----
Various agencies of the
State of Texas 19% 25% 32%
State of Florida Correctional
Privatization Committee 19% 11% 13%
-- -- --
Concentration of credit risk related to accounts receivable is reflective of the
related revenues.
17
<PAGE> 18
Equity earnings of affiliates represents the operations of the Company's 50%
owned joint venture in the United Kingdom (Premier Custodial Group Limited).
This entity and its subsidiaries accounted for under the equity method,
commenced operations of an initial prison in Fiscal 1994, two court escort and
transport contracts in Fiscal 1996, a second correctional facility in Fiscal
1998 and three correctional facilities and electronic monitoring contracts in
Fiscal 1999. Total equity in the undistributed earnings for Fiscal 1999, 1998,
and 1997 was $5.5 million, $3.5 million and $1.8 million, respectively.
A summary of financial data for the Company's equity affiliates is as follows:
(In thousands)
1999 1998 1997
-------- -------- --------
STATEMENT OF OPERATIONS DATA
Revenues $147,274 $ 91,071 $ 51,009
Operating income 11,048 7,032 3,884
Net income 6,618 4,163 2,209
BALANCE SHEET DATA
Current assets $ 44,213 $ 25,274 $ 14,595
Noncurrent assets 230,581 145,433 517
Current liabilities 26,774 17,769 8,115
Noncurrent liabilities 232,961 141,165 4,029
Stockholders equity 15,059 11,773 2,968
-------- -------- --------
The Company provided management services totaling $0.5 million to one U.K.
affiliate in Fiscal 1997. No management fees were charged by the Company in
Fiscal 1999 or 1998.
(9) Income Taxes
The provision for income taxes in the consolidated statements of income consists
of the following components:
(In thousands)
1999 1998 1997
-------- -------- --------
Federal income taxes:
Current $ 8,621 $ 11,440 $ 175
Deferred 1,843 (3,233) 6,131
-------- -------- --------
10,464 8,207 6,306
State income taxes:
Current $ 1,830 $ 2,447 $ 300
Deferred 178 (490) 620
-------- -------- --------
2,008 1,957 920
-------- -------- --------
Total $ 12,472 $ 10,164 $ 7,226
-------- -------- --------
A reconciliation of the statutory U.S. federal tax rate (35.0%) and the
effective income tax rate is as follows:
(In thousands)
1999 1998 1997
-------- -------- --------
Provisions using statutory
federal income tax rate $ 10,886 $ 8,718 $ 6,299
State income tax, net of
federal tax benefit 1,367 1,101 818
Other, net 219 345 109
-------- -------- --------
$ 12,472 $ 10,164 $ 7,226
-------- -------- --------
The components of the net current deferred income tax liability/ (asset) at
fiscal year end are as follows:
(In thousands)
1999 1998
------- -------
Uniforms $ 249 $ 320
Allowance for doubtful
accounts (398) --
Accrued vacation (579) (529)
Accrued liabilities (2,341) (1,560)
------- -------
$(3,069) $(1,769)
------- -------
The components of the net non-current deferred income tax liability/ (asset) at
fiscal year end are as follows:
(In thousands)
1999 1998
-------- -------
Depreciation $ 948 $ --
Deferred revenue (8,356) (9,026)
Deferred charges (489) (291)
Income of foreign subsidiaries
and affiliates 11,675 8,086
Other, net 19 (46)
-------- -------
$ 3,797 $(1,277)
-------- -------
The exercise of non-qualified stock options which have been granted under the
Company's stock option plans give rise to compensation which is includable in
the taxable income of the applicable employees and deducted by the Company for
federal and state income tax purposes. Such compensation results from increases
in the fair market value of the Company's common stock subsequent to the date of
grant. In accordance with Accounting Principles Board Opinion No. 25, such
compensation is not recognized as an expense for financial accounting purposes
and related tax benefits are credited directly to additional paid-in-capital.
(10) Earnings Per Share
The table below shows the amounts used in computing earnings per share in
accordance with Statement of Financial Accounting Standards No. 128 and the
effects on income and the weighted average number of shares of potential
dilutive common stock.
For Fiscal 1999, options to purchase 630,500 shares of the Company's common
stock with exercise prices ranging from $13.75 to $26.88 per share and
expiration dates between 2006 and 2009 were outstanding at January 2, 2000, but
were not included in the computation of diluted EPS because their effect would
be anti-dilutive if exercised.
For Fiscal 1998, outstanding options to purchase 178,000 shares of the Company's
common stock with exercise prices ranging from $25.06 to $29.56 and expiration
dates between 2007 and 2008, were also excluded from the computation of diluted
EPS because their effect would be anti-dilutive if exercised.
18
<PAGE> 19
For Fiscal 1997, options to purchase 1,000 shares of the Company's common stock
at $29.56 per share were outstanding during 1997 but were not included in the
computation of diluted EPS because their effect would be anti-dilutive. The
options, which expire in 2007, were still outstanding at December 28, 1997.
(In thousands except per share data)
1999 1998 1997
-------- -------- -------
Net Income $ 21,940 $ 5,300 $11,875
Basic earnings per share:
Weighted average shares
outstanding 21,652 22,119 22,015
-------- -------- -------
Per share amount $ 1.01 $ 0.24 $ 0.54
-------- -------- -------
Diluted earnings per share:
Weighted average shares
outstanding 21,652 22,119 22,015
Effect of dilutive securities:
Employee and director stock
options 363 564 682
-------- -------- -------
Weighted average shares
assuming dilution 22,015 22,683 22,697
-------- -------- -------
Per share amount $ 1.00 $ 0.23 $ 0.52
-------- -------- -------
(11) Related Party Transactions
Related party transactions occur in the normal course of business between the
Company and TWC. Such transactions include the purchase of goods and services
and corporate costs for management support, office space, insurance and interest
expense.
The Company incurred the following expenses related to transactions with TWC in
the following years:
(In thousands)
1999 1998 1997
-------- -------- -------
Food services $ -- $ 839 $ 461
General and administrative
expenses 2,944 1,718 1,200
Casualty insurance premiums 9,454 7,423 4,957
Rent 286 361 285
Interest (income) expense (492) (122) 10
-------- -------- -------
$ 12,192 $ 10,219 $ 6,913
-------- -------- -------
Food services represent charges for meals for inmates at certain correctional
facilities operated by the Company. General and administrative expenses
represent charges for management and support services. TWC provides various
general and administrative services to the Company under a Services Agreement.
The initial Agreement expired December 31, 1997 and provided for one-year
renewal periods at the Company's option. Annual rates are negotiated by the
Company and TWC based upon the level of service provided.
The Company monitors the scope of these services on an ongoing basis and may
adjust the level and related charges as required. Expenses under the Agreement
for Fiscal 1999, Fiscal 1998, and Fiscal 1997 were $2.9 million, $1.7 million
and $1.2 million, respectively. Casualty insurance premiums related to workers'
compensation, general liability and automobile insurance coverage are provided
through an insurance subsidiary of TWC. In addition, the Company is charged or
charges interest on intercompany indebtedness at rates which reflect TWC's
average interest costs on long-term debt, exclusive of mortgage financing.
Interest expense (income) is calculated based on the average intercompany
indebtedness. The Company's corporate offices are located in TWC's corporate
office building for which it is allocated rent based upon space occupied under
separate lease agreements.
Management believes that the difference between these expenses and those that
would have been incurred on a stand-alone basis is not material.
(12) Stock Options
The Company has four stock option plans: the Wackenhut Corrections Corporation
1994 Stock Option Plan (First Plan), the Wackenhut Corrections Corporation Stock
Option Plan (Second Plan), the 1995 Non-Employee Director Stock Option Plan
(Third Plan) and the Wackenhut Corrections Corporation 1999 Stock Option Plan
(Fourth Plan).
Under the First Plan, the Company may grant up to 897,600 shares of common stock
to key employees and consultants. All options granted under this plan are
exercisable at the fair market value of the common stock at date of grant, vest
100% after a minimum of six months and no later than ten years after the date of
grant.
Under the Second Plan and Fourth Plan, the Company may grant options to key
employees for up to 1,500,000 and 550,000 shares of common stock, respectively.
Under the terms of these plans, the exercise price per share and vesting period
is determined at the sole discretion of the Board of Directors. All options that
have been granted under these plans are exercisable at the fair market value of
the common stock at date of grant. Generally, the options vest and become
exercisable ratably over a five-year period, beginning immediately on the date
of grant. However, the Board of Directors has exercised its discretion and has
granted options that vest 100% after a minimum of six months. All options under
the Second Plan and Fourth Plan expire no later than ten years after the date of
grant.
Under the Third Plan, the Company may grant up to 60,000 shares of common stock
to non-employee directors of the Company. Under the terms of this plan, options
are granted at the fair market value of the common stock at date of grant,
become 100% exercisable immediately, and expire ten years after end of grant.
19
<PAGE> 20
A summary of the status of the Company's four stock option plans as of January
2, 2000, January 3, 1999, and December 28, 1997, and changes during the years
then ended is presented below.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ --------------------- ----------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 929,904 $ 12.78 923,484 $ 9.76 989,534 $ 7.16
Granted 277,500 18.51 191,000 25.02 176,500 21.08
Exercised 39,070 5.50 179,380 9.98 228,550 7.12
Forfeited/Cancelled 17,000 21.67 5,200 21.93 14,000 11.88
--------- ------- ------- --------- ------- --------
Options outstanding at end of year 1,151,334 14.28 929,904 12.78 923,484 9.76
--------- ------- ------- --------- ------- --------
Options exercisable at year end 817,934 11.67 758,904 11.50 629,084 6.13
--------- ------- ------- --------- ------- --------
</TABLE>
The following table summarizes information about the stock options outstanding
at January 2, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ------------------ -----------
Wtd. Avg.
Number Remaining Wtd. Avg. Number Wtd. Avg.
Outstanding Contractual Exercixe Exercisable Exercise
At 1/2/00 Life Price At 1/2/00 Price
--------- ----------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 1.20 - $ 3.75 369,634 4.3 $ 3.47 369,634 $ 3.47
$11.88 - $13.75 153,200 6.0 11.90 153,200 11.90
$14.69 - $16.88 33,000 9.1 15.20 11,000 15.85
$17.63 - $21.50 352,000 8.5 19.51 144,200 19.81
$22.63 - $25.06 231,000 7.7 24.40 129,400 24.22
$26.13 - $26.88 12,500 8.4 26.28 10,500 26.16
--------- --- ------- ------- -------
1,151,334 817,934
--------- -------
</TABLE>
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined based on the fair value at date of grant in accordance with FASB
Statement No. 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
Pro Forma Disclosures 1999 1998
- --------------------- ------------ --------------
<S> <C> <C>
Pro forma net earnings $20,599 $ 4,234
Pro forma basic net earnings per share $ 0.95 $ 0.19
Pro forma diluted net earnings per share $ 0.94 $ 0.19
Pro forma weighted average fair value of options granted $ 10.40 $ 14.36
Risk free interest rates 4.63% - 5.91% 4.49% - 5.79%
Expected lives 4-8 years 4-8 years
Expected volatility 54% 55%
------------ --------------
</TABLE>
(13) Retirement and Deferred Compensation Plans
The Company has two noncontributory defined benefit pension plans covering
certain of its executives. Retire-ment benefits are based on years of service,
employees' average compensation for the last five years prior to retirement and
social security benefits. Currently, the plan is not funded. The Company
purchases and is the beneficiary of life insurance policies for each participant
enrolled in the plan.
The assumptions for the discount rate and the average increase in compensation
used in determining the pension expense and funded status information are 7.5%
and 5.5%, respectively.
The total pension expense for 1999, 1998, and 1997 was $0.2 million, $0.1
million, and $0, respectively. The present value of accumulated pension benefits
at year-end 1999, 1998, and 1997 was $0.4 million, $0.2 million, and $0.1
million, respectively and is included in "Other liabilities" in the accompanying
consolidated balance sheets.
The Company has established a deferred compensation agreement for non-employee
directors which allows eligible directors to defer their compensation in either
the form of cash or stock. Participants may elect lump sum or monthly payments
to be made at least one year after the deferral is made or at the time the
participant ceases to be a director. The Company recognized total compensation
expense under this plan of $0, $0.1 million and $0.2 million for 1999, 1998, and
1997, respectively.
20
<PAGE> 21
The liability for the deferred compensation was $0.3 million, $0.3 million and
$0.2 million for years ending 1999, 1998 and 1997, respectively, and is included
in "Accrued expenses" in the accompanying consolidated balance sheets.
The Company also has a non-qualified deferred compensation plan for employees
who are ineligible to participate in the Company's qualified 401(k) plan.
Eligible employees may defer a fixed percentage of their salary, which earns
interest at a rate equal to the prime rate less 0.75%. The Company matches
employee contributions up to $400 each year based on the employee's years of
service. Payments will be made at retirement age of 65 or at termination of
employment. The expense recognized by the Company in 1999, 1998, and 1997 was
$0.2 million, $0.08 million and $0.04 million, respectively. The liability for
this plan was $0.38 million, $0.18 million, and $0.1 million, respectively, and
is included in "Accrued expenses" in the accompanying consolidated balance
sheets.
(14) Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for the Company and its subsidiaries for the
Fiscal years ended January 2, 2000, and January 3, 1999, is as follows:
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
- ---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 97,431 $ 106,049 $ 112,046 $ 122,958
Operating income $ 6,543 $ 6,789 $ 6,934 $ 5,775
Net income $ 4,839 $ 5,357 $ 5,694 $ 6,050
Basic earnings per share $ 0.22 $ 0.25 $ 0.26 $ 0.28
Diluted earnings per share $ 0.22 $ 0.24 $ 0.26 $ 0.28
1998
- ---- ---------- ---------- ---------- ----------
Revenues $ 71,269 $ 74,617 $ 78,177 $ 88,696
Operating income $ 4,992 $ 6,369 $ 6,101 $ 5,039
Net income (loss) $ (8,165) $ 4,652 $ 4,337 $ 4,476
Basic earnings per share
Income before cumulative effect of change in accounting
for start-up costs $ 0.15 $ 0.21 $ 0.20 $ 0.20
Cumulative effect of change in accounting for start-up $ (0.52) $ --- $ --- $ ---
costs
Net income (loss) $ (0.37) $ 0.21 $ 0.20 $ 0.20
Diluted earnings per share
Income before cumulative effect of change in accounting
for start-up costs $ 0.15 $ 0.20 $ 0.19 $ 0.20
Cumulative effect of change in accounting for start-up $ (0.51) $ --- $ --- $ ---
costs
Net income (loss) $ (0.36) $ 0.20 $ 0.19 $ 0.20
---------- ---------- ---------- ----------
</TABLE>
21
<PAGE> 22
Report of Independent Certified Public Accountants
To the Shareholders of
Wackenhut Corrections Corporation:
We have audited the accompanying consolidated balance sheets of Wackenhut
Corrections Corporation (a Florida corporation) and subsidiaries as of January
2, 2000, and January 3, 1999, and the related consolidated statements of income,
shareholders' equity and comprehensive income and cash flows for each of the
three fiscal years in the period ended January 2, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wackenhut Corrections
Corporation and subsidiaries as of January 2, 2000, and January 3, 1999, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 2, 2000, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective
December 29, 1997 the Company changed its method of accounting for costs of
start-up activities.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
February 15, 2000.
22
<PAGE> 23
Management's Responsibility for Financial Statements
To the Shareholders of
Wackenhut Corrections Corporation:
The accompanying consolidated financial statements have been prepared in
conformity with generally accept-ed accounting principles. They include amounts
based on judgments and estimates.
Representation in the consolidated financial statements and the fairness and
integrity of such statements are the responsibility of management. In order to
meet manage-ment's responsibility, the Company maintains a system of internal
controls and procedures and a program of internal audits designed to provide
reasonable assurance that the Company's assets are controlled and safe-guarded,
that transactions are executed in accordance with management's authorization and
properly recorded, and that accounting records may be relied upon in the
preparation of financial statements.
The consolidated financial statements have been audited by Arthur Andersen LLP,
independent certified public accountants, whose appointment was ratified by
shareholders. Their report expresses a professional opinion as to whether
management's consolidated financial statements considered in their entirety
present fairly, in conformity with generally accepted accounting principles, the
Company's financial position and results of operations. Their audit was
conducted in accordance with generally accepted auditing standards. As part of
this audit, Arthur Andersen LLP considered the Company's system of internal
controls to the degree they deemed necessary to determine the nature, timing,
and extent of their audit tests which support their opinion on the consolidated
financial statements.
The Audit Committee of the Board of Directors meets periodically with
representatives of management, the independent certified public accountants and
the Com-pany's internal auditors to review matters relating to financial
reporting, internal accounting controls and auditing. Both the internal auditors
and the independent certified public accountants have unrestricted access to the
Audit Committee to discuss the results of their reviews.
George R. Wackenhut John G. O'Rourke
Chairman Senior Vice President
Chief Financial Officer
and Treasurer
George C. Zoley
Vice Chairman and Chief Executive Officer
23
<PAGE> 1
EXHIBIT 21.1
WACKENHUT CORRECTIONS CORPORATION'S SUBSIDIARIES
------------------------------------------------
WACKENHUT CORRECTIONS (UK) LIMITED
WACKENHUT CORRECTIONS CORPORATION AUSTRALIA PTY LIMITED
WACKENHUT CORRECTIONAL SERVICES PTY LIMITED
AUSTRALASIAN CORRECTIONAL MANAGEMENT PTY LIMITED
AUSTRALASIAN CORRECTIONAL INVESTMENT PTY LIMITED
ATLANTIC SHORES HEALTHCARE, INC.
MIRAMICHI YOUTH CENTRE MANAGEMENT, INC.
WACKENHUT CORRECTIONS CANADA, INC.
WACKENHUT CORRECTIONS NETHERLANDS ANTILLES, N.V.
WACKENHUT CORRECTIONS PUERTO RICO, INC.
WCC DEVELOPMENT, INC.
WCC/FL/01, INC.
WCC/FL/02, INC.
WCC REAL ESTATE HOLDINGS, INC.
WACKENHUT CORRECTIONS DESIGN SERVICES, INC.
WCC FINANCIAL, INC.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statement File Nos. 333-17265,
333-09981, 333-09977, 33-90606, and 333-79817.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
March 27, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JANUARY 2, 2000 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE FISCAL PERIOD ENDING JANUARY 2, 2000 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> JAN-02-2000
<CASH> 41,029
<SECURITIES> 0
<RECEIVABLES> 77,779
<ALLOWANCES> 1,499
<INVENTORY> 0
<CURRENT-ASSETS> 134,893
<PP&E> 51,318
<DEPRECIATION> 7,958
<TOTAL-ASSETS> 208,222
<CURRENT-LIABILITIES> 55,516
<BONDS> 15,000
0
0
<COMMON> 224
<OTHER-SE> 118,460
<TOTAL-LIABILITY-AND-EQUITY> 208,222
<SALES> 0
<TOTAL-REVENUES> 438,484
<CGS> 0
<TOTAL-COSTS> 394,680
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 31,103
<INCOME-TAX> 12,472
<INCOME-CONTINUING> 21,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,940
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.00
</TABLE>
