<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended July 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
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Florida 65-0043078
-------------------------------------------------------------------------------------------------------------
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4200 Wackenhut Drive #100, Palm Beach Gardens, Florida 33410-4243
-------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
</TABLE>
(561) 622-5656
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
--------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF
CHANGED SINCE LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At August 8, 2000, 21,013,024 shares of the registrant's Common Stock were
issued and outstanding.
Page 1 of 20
<PAGE> 2
WACKENHUT CORRECTIONS CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of Wackenhut Corrections
Corporation, a Florida corporation (the "Company"), have been prepared in
accordance with the instructions to Form 10-Q and, therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
Certain amounts in the prior year have been reclassified to conform to the
current presentation. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
financial information for the interim periods reported have been made. Results
of operations for the twenty-six weeks ended July 2, 2000 are not necessarily
indicative of the results for the entire fiscal year ending December 31, 2000.
Page 2 of 20
<PAGE> 3
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED
JULY 2, 2000 AND JULY 4, 1999
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
----------------------------- ----------------------------
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues .......................................... $133,875 $106,049 $264,383 $203,480
Operating expenses (including amounts related
to Parent of $3,125, $2,392, $5,722 and $4,719) 121,835 93,578 238,540 179,701
Depreciation and amortization ..................... 1,806 1,175 3,888 2,478
-------- -------- -------- --------
Contribution from operations .................. 10,234 11,296 21,955 21,301
G&A expense (including amounts related to
Parent of $954, $803, $1,880 and $1,655) ...... 5,154 4,507 11,306 7,969
-------- -------- -------- --------
Operating income .............................. 5,080 6,789 10,649 13,332
Other income (including interest income
related to Parent of $28, $200, $8, and $379) . 1,129 654 1,668 1,061
-------- -------- -------- --------
Income before income taxes and equity in earnings
of affiliates ................................. 6,209 7,443 12,317 14,393
Provision for income taxes ........................ 2,490 2,984 4,939 5,771
-------- -------- -------- --------
Income before equity in earnings of affiliates .... 3,719 4,459 7,378 8,622
Equity in earnings of affiliates, net of income
tax provision of $740, $601, $1,496 and $1,054 1,119 898 2,249 1,574
-------- -------- -------- --------
Net income ........................................ $ 4,838 $ 5,357 $ 9,627 $ 10,196
======== ======== ======== ========
Basic earnings per share .......................... $ 0.23 $ 0.25 $ 0.45 $ 0.47
======== ======== ======== ========
Basic weighted average shares outstanding ......... 21,011 21,654 21,207 21,752
======== ======== ======== ========
Diluted earnings per share ........................ $ 0.23 $ 0.24 $ 0.45 $ 0.46
======== ======== ======== ========
Diluted weighted average shares outstanding ....... 21,142 22,034 21,360 22,157
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 3 of 20
<PAGE> 4
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
JULY 2, 2000 AND JANUARY 2, 2000
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
July 2, 2000 January 2, 2000
------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 45,738 $ 41,029
Accounts receivable, less allowance for doubtful
accounts of $1,135 and $1,499 ................. 75,480 77,779
Current deferred income tax asset, net ............. 3,129 3,069
Other .............................................. 12,659 13,016
--------- ---------
Total current assets .................. 137,006 134,893
Property and equipment, net ........................ 54,820 43,360
Investments in and advances to affiliates .......... 23,589 20,686
Goodwill ........................................... 1,584 1,776
Deferred income tax asset, net ..................... 1,734 1,066
Other .............................................. 5,790 2,644
--------- ---------
$ 224,523 $ 204,425
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................... $ 12,544 $ 12,631
Accrued payroll and related taxes .................. 11,909 11,305
Accrued expenses ................................... 35,485 28,553
Current portion of long-term debt .................. 10,000 --
Current portion of deferred revenue ................ 3,048 3,027
Current deferred tax liability ..................... 337 --
--------- ---------
Total current liabilities ............. 73,323 55,516
--------- ---------
Deferred income tax liability, net ...................... 1,103 --
Long-term debt .......................................... 14,000 15,000
Deferred revenue ........................................ 14,613 15,225
Commitments and contingencies (Note 7)
Shareholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized ................... -- --
Common stock, $.01 par value,
60,000,000 shares authorized,
21,008,992 and 21,508,992 shares
issued and outstanding ......................... 210 215
Additional paid-in capital ......................... 61,980 66,908
Retained earnings .................................. 63,090 53,463
Accumulated other comprehensive loss ............... (3,796) (1,902)
--------- ---------
Total shareholders' equity ............ 121,484 118,684
--------- ---------
$ 224,523 $ 204,425
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
Page 4 of 20
<PAGE> 5
WACKENHUT CORRECTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED
JULY 2, 2000 AND JULY 4, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
------------------------------
July 2, 2000 July 4, 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 9,627 $ 10,196
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization expense ........................ 3,888 2,478
Deferred tax provision ....................................... 97 2,129
Provision for bad debt expense ............................... 859 178
Gain on sale of loans receivable ............................. (641) --
Equity in earnings of affiliates ............................. (2,249) (1,574)
Changes in assets and liabilities --
(Increase) decrease in assets:
Accounts receivable .......................................... 447 (1,747)
Deferred income tax asset .................................... (858) (1,156)
Other current assets ......................................... (646) 2,476
Other assets ................................................. (3,593) (1,213)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses ........................ 8,012 6,567
Accrued payroll and related taxes ............................ 793 4,311
Deferred income tax liability, net ........................... (85) 102
Deferred revenue ............................................. (591) (644)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................... 15,060 22,103
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates ......................................... (1,135) (1,537)
Repayments of investments in affiliates ........................... 157 --
Proceeds from the sale of loans receivable ........................ 2,461 --
Capital expenditures .............................................. (14,864) (14,506)
Proceeds from sale of capital assets to CPV ....................... -- 22,281
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .......... (13,381) 6,238
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to The Wackenhut Corporation ............................. -- (17,444)
Repayments from The Wackenhut Corporation ......................... -- 17,444
Proceeds from long-term debt ...................................... 9,000 --
Payments of long-term debt ........................................ -- (213)
Proceeds from exercise of stock options ........................... -- 209
Repurchase of common stock ........................................ (4,933) (6,112)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ......... 4,067 (6,116)
-------- --------
Effect of exchange rate changes on cash .................................... (1,037) 1,082
Net increase in cash ....................................................... 4,709 23,307
Cash, beginning of period .................................................. 41,029 20,240
-------- --------
CASH, END OF PERIOD ........................................................ $ 45,738 $ 43,547
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes ........................................ $ 4,543 $ 3,835
======== ========
Cash paid for interest ............................................ $ 80 $ --
======== ========
Impact on equity from tax benefit related to the
exercise of options issued under the company's non-
qualified stock option plan ....................................... $ -- $ 311
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 5 of 20
<PAGE> 6
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed for the quarterly financial reporting are the
same as those disclosed in the Notes to Consolidated Financial Statements
included in the Company's Form 10-K filed with the Securities and Exchange
Commission on March 31, 2000 for the fiscal year ended January 2, 2000. Certain
prior year amounts have been reclassified to conform with current year financial
statement presentation.
2. DOMESTIC AND INTERNATIONAL OPERATIONS
A summary of domestic and international operations is presented below (dollars
in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------------- ----------------------------
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Domestic operations ......... $105,115 $ 90,340 $207,312 $175,304
International operations..... 28,760 15,709 57,071 28,176
-------- -------- -------- --------
Total revenues ............. $133,875 $106,049 $264,383 $203,480
======== ======== ======== ========
OPERATING INCOME
Domestic operations .......... $ 2,273 $ 6,394 $ 3,924 $ 11,917
International operations...... 2,807 395 6,725 1,415
-------- -------- -------- --------
Total operating income..... $ 5,080 $ 6,789 $ 10,649 $ 13,332
======== ======== ======== ========
As of
-------------------------------
July 2, 2000 January 2, 2000
------------ ---------------
LONG-LIVED ASSETS
Domestic operations........... $ 48,782 $ 39,005
International operations...... 6,038 4,355
======== ========
Total long-lived assets.... $ 54,820 $ 43,360
======== ========
</TABLE>
Long-lived assets consist of property, plant and equipment.
Page 6 of 20
<PAGE> 7
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. DOMESTIC AND INTERNATIONAL OPERATIONS (CONTINUED)
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 (dollars in thousands).
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
------------------------------------
July 2, 2000 July 4, 1999
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.................................... $ 72,114 $ 62,087
Operating income............................ 7,490 5,256
Net income.................................. 4,498 3,148
BALANCE SHEET DATA
Current Assets.............................. $ 60,531 $ 36,782
Noncurrent Assets........................... 248,561 162,167
Current liabilities......................... 29,467 21,273
Noncurrent liabilities...................... 258,685 166,094
Stockholders' equity........................ 20,940 11,582
</TABLE>
3. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income," establishes standards for reporting and display of comprehensive income
and its components in financial statements. The components of the Company's
comprehensive income are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------------- -----------------------------
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net income .............................. $ 4,838 $ 5,357 $ 9,627 $10,196
Foreign currency translation adjustments,
net of income tax benefit / (expense) of
$191, ($672) $1,268 and ($1,070),
respectively ............................ (285) 1,004 (1,894) 1,599
------- ------- ------- -------
Comprehensive income .................... $ 4,553 $ 6,361 $ 7,733 $11,795
======= ======= ======= =======
</TABLE>
Page 7 of 20
<PAGE> 8
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. EARNINGS PER SHARE
The following table shows the amounts used in computing earnings per share (EPS)
in accordance with Statement of Financial Accounting Standards No. 128 and the
effects on income and the weighted average number of shares of potential
dilutive common stock (in thousands except per share data).
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------------- ---------------------------
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income ................... $ 4,838 $ 5,357 $ 9,627 $10,196
Basic earnings per share:
Weighted average shares
outstanding ................ 21,011 21,654 21,207 21,752
======= ======= ======= =======
Per share amount ............. $ 0.23 $ 0.25 $ 0.45 $ 0.47
======= ======= ======= =======
Diluted earnings per share:
Weighted average shares
outstanding ................ 21,011 21,654 21,207 21,752
Effect of dilutive securities:
Employee and director stock
options .................... 131 380 153 405
======= ======= ======= =======
Weighted average shares
assuming dilution .......... 21,142 22,034 21,360 22,157
======= ======= ======= =======
Per share amount ............. $ 0.23 $ 0.24 $ 0.45 $ 0.46
======= ======= ======= =======
</TABLE>
Options to purchase 1,051,200 shares of the Company's common stock, with
exercise prices ranging from $7.88 to $26.88 per share and expiration dates
between 2005 and 2010, were outstanding at July 2, 2000, but were not included
in the computation of diluted EPS because their effect would be anti-dilutive if
exercised. At July 4, 1999, outstanding options to purchase 368,500 shares of
the Company's common stock, with exercise prices ranging from $20.25 to $29.56
and expiration dates between 2006 and 2009, were also excluded from the
computation of diluted EPS because their effect would be anti-dilutive if
exercised.
Page 8 of 20
<PAGE> 9
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
July 2, 2000 January 2, 2000
------------ ---------------
Revolving credit facility.......... $24,000 $15,000
Less - Current portion ............ 10,000 --
======= =======
$14,000 $15,000
======= =======
In December 1997, the Company entered into a $30.0 million multi-currency
revolving credit facility with a syndicate of banks, the proceeds of which may
be used for working capital, acquisitions and general corporate purposes.
Indebtedness under this facility bears interest at the alternate base rate
(defined as the higher of prime rate or federal funds plus 0.5%) or LIBOR plus
150 to 250 basis points, depending upon fixed charge coverage ratios. At July 2,
2000, the interest rate for this facility was 8.1%. 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. Subsequent to July 2, 2000, the
Company repaid $10.0 million under this facility.
6. SHARES REPURCHASED
On February 18, 2000, the Company's Board of Directors authorized the repurchase
of up to an additional 500,000 shares of its common stock, in addition to the
1,000,000 shares previously authorized for repurchase. As of July 2, 2000, the
Company had repurchased a total of 1,378,000 of the 1,500,000 common shares
authorized for repurchase at an average price per share of $15.77. For fiscal
year 2000, the Company repurchased 500,000 shares at an average price of $9.87.
The common stock repurchased has been retired and resulted in a reduction of
shareholders' equity.
7. COMMITMENTS AND CONTINGENCIES
On August 31, 1999, the Company announced the mutual decision between the
Company, the Texas Department of Criminal Justice State Jail Division ("TDCJ")
and Travis County, Texas to discontinue the Company's contract for the operation
of the Travis County Community Justice Center. The contract was discontinued
effective November 8, 1999. The Company successfully completed the close-out of
contract claims with the TDCJ which resulted in no adverse impact to the
Company's financial position and results of operation.
In New Mexico, the Company has been in discussions with the State's Department
of Corrections and Legislative Finance Committee and has submitted proposed
contract modifications regarding additional compensation for physical plant
modification and increased staffing at Guadalupe County Correctional Facility
and Lea County Correctional Facility which have been or are in the process of
being implemented by the Company. At this time, no agreement has been reached
regarding these contract modifications.
Page 9 of 20
<PAGE> 10
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On May 17, 2000, the Louisiana Department of Public Safety and Corrections
("LDPSC") had removed all inmates from the Jena Juvenile Justice Center in Jena,
Louisiana, and the Company terminated the employment of the facility staff. The
cooperative agreement for such facility was terminated effective June 30, 2000.
The Company is continuing its efforts to find an alternative use for the
facility. If the Company is unable to find an alternative use for the facility,
there could be an adverse impact on the Company's financial position and future
results of operations.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an Amendment of SFAS No. 133." SFAS 138 addresses a limited
number of issues causing implementation difficulties for numerous entities that
apply SFAFS No. 133 and amends the accounting and reporting standards of SFAS
133 for certain derivative instruments and certain hedging activities. 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 SFAS 133 and 138 will
not have a material impact upon the Company's results of operations or financial
position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition" ("SAB No. 101"), which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB No. 101 outlines the basic criteria that must be met to recognize
revenue and provides guidance for disclosure related to revenue recognition
policies. An amendment in June 2000 delayed the effective date until the fourth
quarter of 2000. Management believes that the Company's revenue recognition
practices are in conformity with the guidelines prescribed in SAB No. 101.
Page 10 of 20
<PAGE> 11
WACKENHUT CORRECTIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Reference is made to Part II, Item 7 of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 2000, filed with the Securities and
Exchange Commission on March 31, 2000, for further discussion and analysis of
information pertaining to the Company's results of operations, liquidity and
capital resources.
FORWARD-LOOKING STATEMENTS: The management's discussion and analysis of
financial condition and results of operations and the Company's August 3, 2000
earnings press release contain forward-looking statements that are based on
current expectations, estimates and projections about the segments in which the
Company operates. This section of the quarterly report also includes
management's beliefs and assumptions made by management. Words such as
"expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates",
and variations of such words and similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") which are difficult to predict. Therefore, actual outcomes and results
may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
Future Factors include increasing price and product/service competition by
foreign and domestic competitors, including new entrants; rapid technological
developments and changes; the ability to continue to introduce competitive new
products and services on a timely, cost effective basis; the mix of
products/services; the achievement of lower costs and expenses; domestic and
foreign governmental and public policy changes including environmental
regulations; protection and validity of patent and other intellectual property
rights; reliance on large customers; technological, implementation and
cost/financial risks in increasing use of large, multi-year contracts; the
outcome of pending and future litigation and governmental proceedings and
continued availability of financing; financial instruments and financial
resources in the amounts, at the times and on the terms required to support the
Company's future business. These are representative of the Future Factors that
could affect the outcome of the forward-looking statements. In addition, such
statements could be affected by general industry and market conditions and
growth rates, general domestic and international economic conditions including
interest rate and currency rate fluctuations and other future factors.
Page 11 of 20
<PAGE> 12
WACKENHUT CORRECTIONS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at July 2, 2000 of $45.7 million increased $4.7
million from January 2, 2000. Cash provided by operating activities amounted to
$15.1 million in the twenty-six weeks ended July 2, 2000 ("First Half 2000")
versus cash provided by operating activities of $22.1 million in twenty-six
weeks ended July 4, 1999 ("First Half 1999") primarily reflecting a higher
balance in other assets offset by a decrease in accounts receivable. Cash used
in investing activities amounted to $13.4 million in the First Half 2000 as
compared to cash provided by investing activities of $6.2 million in the First
Half 1999. The Company received proceeds of $22.3 million for the sale of Lea
County Correctional Facility to Correctional Properties Trust ("CPV") and the
right to acquire the Lawton Correctional Facility in the First Half 1999. There
were no proceeds from the sale of facilities in the First Half 2000. The Company
did recognize a gain from the sale of a portion of the Company's loan receivable
from an overseas affiliate in the First Half 2000.
Cash provided by financing activities in the First Half 2000 amounted to $4.1
million as compared to cash used in financing activities in the First Half 1999
of $6.1 million. The increase is due primarily to the proceeds received by the
Company of $9.0 million from long-term debt and the decrease in repurchases of
the Company's common stock.
Working capital decreased from $79.4 million at January 2, 2000 to $63.7 million
at the end of the Second Quarter of 2000 primarily due to an increase in accrued
expenses and the current portion of long-term debt. This was partially offset by
an increase in cash and cash equivalents.
The Company's access to capital and ability to compete for future capital
intensive projects is dependent upon, among other things, its ability to meet
certain financial covenants included in the $220 million operating lease
facility and the Company's $30 million revolving credit facility. A substantial
decline in the Company's financial performance as a result of an increase in
operational expenses relative to revenue could negatively impact the Company's
ability to meet these covenants, and could therefore, limit the Company's access
to capital.
As of July 2, 2000, the Company had $24.0 million outstanding of its $30 million
revolving credit facility for the funding of construction projects. Subsequent
to July 2, 2000, the Company repaid $10.0 million under this facility. As of
July 2, 2000, approximately $101.1 million of the Company's $220 million
operating lease facility, established to acquire and develop new correctional
facilities, was outstanding for properties under development. With the
completion of the remaining properties under development, the Company will have
consumed its available capacity under the operating lease facility. The Company
is exploring other financing alternatives for future project development such as
the sale of facilities to government entities, the third-party sale and
leaseback of facilities, and the issuance of taxable or nontaxable bonds by
local government entities.
On January 7, 2000, the Company exercised the right to acquire the 276-bed Jena
Juvenile Justice Center in Jena, Louisiana from the trust of the Company's
operating lease facility and, simultaneously sold it to CPV. The Company did not
receive any proceeds from the sale. This facility is being leased back to the
Company under a 10-year operating lease. On May 17, 2000, the Louisiana
Department of Public Safety and Corrections ("LDPSC") had removed all inmates
from the Jena Juvenile Justice Center and the Company terminated the employment
of the facility staff. The cooperative agreement for such facility was
terminated effective June 30, 2000. The Company is continuing its efforts to
find an alternative use for the facility. If the Company is unable to find an
alternative use for the facility, there could be an adverse impact on the
Company's financial position and future results of operations.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto.
COMPARISON OF THIRTEEN WEEKS ENDED JULY 2, 2000 AND THIRTEEN WEEKS ENDED
JULY 4, 1999
Revenues increased by 26.2% to $133.9 million in the thirteen weeks ended July
2, 2000 ("Second Quarter 2000") from $106.0 million in the thirteen weeks ended
July 4, 1999 ("Second Quarter 1999"). Approximately $15.9 million of the
increase in revenues in Second Quarter 2000 compared to Second Quarter 1999 is
attributable to increased compensated resident days resulting from the opening
of six facilities in 1999, (Guadalupe County Correctional Facility, Santa Rosa,
New Mexico in January, 1999; East Mississippi Correctional Facility, Meridian,
Mississippi in April, 1999; Michigan Youth Correctional Facility, Baldwin,
Michigan in July, 1999; South Bay Correctional Facility - Sexually Violent
Predators Unit, South Bay, Florida in September, 1999; Curtin Immigration
Reception and Processing Centre, Derby, Western Australia in September, 1999;
and Woomera Immigration and Processing Centre, Woomera, South Australia in
November, 1999). Approximately $10.0 million of the increase in revenue in the
Second Quarter 2000 compared to the Second Quarter 1999 is attributable to the
construction of new facilities for
Page 12 of 20
<PAGE> 13
WACKENHUT CORRECTIONS CORPORATION
South Florida State Hospital and for the government of the Netherlands Antilles
in Curacao. This increase in revenues was partially offset by a decrease of
approximately $4.1 million in the Second Quarter 2000 as compared to the same
period in 1999 due to the loss of the contracts for operation of the Travis
County Community Justice Center and Jena Juvenile Justice Center and from a
decrease in development activities. The balance of the increase in revenues was
attributable to facilities open during all of both periods.
The number of compensated resident days in domestic facilities increased to
2,163,793 in Second Quarter 2000 from 2,135,658 in Second Quarter 1999. The
average facility occupancy in domestic facilities decreased to 97.2% of capacity
in Second Quarter 2000 compared to 98.3% in Second Quarter 1999 due primarily to
the termination of the Jena Juvenile Justice Center and Travis County Community
Justice Center contracts. Compensated resident days in Australian facilities
increased to 513,205 from 251,701 for the comparable periods primarily due to
higher compensated resident days at the immigration detention facilities as well
as the opening of the Curtin Immigration Reception and Processing Centre and
Woomera Immigration and Processing Centre.
Operating expenses increased by 30.2% to $121.8 million in Second Quarter 2000
compared to $93.6 million in Second Quarter 1999. As a percentage of revenues,
operating expenses increased to 91.0% in Second Quarter 2000 from 88.2% in the
comparable period in 1999. The increase in operating expenses primarily
reflected the six facilities that were opened in 1999, as described above.
Additionally, there are several other factors contributing to the increase which
include the following: expenses related to the construction of new facilities
for South Florida State Hospital and the government of the Netherlands Antilles;
additional expenses incurred related to the closing of the Jena Juvenile Justice
Center in Jena, Louisiana; and the increase in general and comprehensive
liability insurance premiums. There were also additional expenses related to
operations at the East Mississippi Correctional Facility (Mississippi), George
W. Hill Correctional Facility (Pennsylvania), Lea County Correctional Facility
(New Mexico), Guadalupe County Correctional Facility (New Mexico), Michigan
Youth Correctional Facility (Michigan), Ronald McPherson Correctional Facility
(Arkansas), and Scott Grimes Correctional Facility (Arkansas). 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.
Effective April 1, 2000, the premium paid by the Company for general and
comprehensive liability insurance under the liability insurance program
maintained by The Wackenhut Corporation ("TWC") was increased due to an adverse
trend in the development of claims experience. The Company is developing a
strategy to improve the management of future loss claims incurred by the Company
but can provide no assurances that this strategy will be successful. As a
result, the Company has incurred additional operating expenses related to
general comprehensive liability insurance. The Company continues to incur this
additional insurance expense which could have an adverse impact on the Company's
future financial results of operations.
During a period of low unemployment, some facilities may experience difficulty
in finding qualified personnel. This could have an adverse impact on the
Company's results of operations in the event wages and salaries increase at a
faster rate then the per diem or fixed rate received by the Company for its
services.
Depreciation and amortization increased by 53.7% to $1.8 million in Second
Quarter 2000 from $1.2 million in Second Quarter 1999. As a percentage of
revenues, depreciation and amortization increased to 1.3% from 1.1% in the
Second Quarter in 1999. This increase is primarily attributable to leasehold
improvements at the New Mexico and Oklahoma facilities and additional
operational assets.
Page 13 of 20
<PAGE> 14
WACKENHUT CORRECTIONS CORPORATION
Contribution from operations decreased 9.4% to $10.2 million in Second Quarter
2000 from $11.3 million in Second Quarter 1999. As a percentage of revenue,
contribution from operations decreased to 7.6% in Second Quarter 2000 from 10.7%
in Second Quarter 1999. As discussed above, this decrease is primarily
attributable to the factors impacting the increase in operating expenses and
depreciation and amortization expenses as discussed above.
General and administrative expenses increased by 14.4% to $5.2 million in Second
Quarter 2000 from $4.5 million in Second Quarter 1999. As a percentage of
revenue, general and administrative expenses decreased to 3.8% in Second Quarter
2000 from 4.2% in Second Quarter 1999. The increase reflects costs related to
additional infrastructure and additional costs related to the Company's services
agreement with TWC as well as legal and professional fees.
Operating income decreased by 25.2% to $5.1 million in Second Quarter 2000 from
$6.8 million in Second Quarter 1999. As a percentage of revenue operating income
decreased to 3.8% in Second Quarter 2000 from 6.4% in Second Quarter 1999 due to
the factors impacting contribution from operations and general and
administrative expenses.
Other income was $1.1 million during the Second Quarter 2000 compared to $0.7
million in Second Quarter 1999 resulting primarily from a $0.6 million gain from
the sale of a portion of the Company's loan receivable from an overseas
affiliate and an increase in invested cash balances. This increase was offset by
a decrease in the return on investment in overseas projects resulting from the
Company's sale of loans in the Fourth Quarter 1999.
Income before income taxes and equity in earnings of affiliates decreased to
$6.2 million in Second Quarter 2000 from $7.4 million in Second Quarter 1999 due
to the factors described above.
Provision for income taxes decreased to $2.5 million in Second Quarter 2000 from
$3.0 million in Second Quarter 1999 due to lower taxable income.
Equity in earnings of affiliates, net of income tax provision increased to $1.1
million in Second Quarter 2000 from $0.9 million in Second Quarter 1999 due to
the continued phase-in of H.M. Prison Kilmarnock which opened in March, 1999;
the Hassockfield Secure Training Centre in Medomsley, England which opened in
September, 1999; and H.M. Prison & Youth Offender Institution Ashfield in
Pucklechurch, England which opened in November, 1999.
Net income decreased to $4.8 million in Second Quarter 2000 from $5.4 million in
Second Quarter 1999 as a result of the factors described above.
Page 14 of 20
<PAGE> 15
WACKENHUT CORRECTIONS CORPORATION
COMPARISON OF TWENTY-SIX WEEKS ENDED JULY 2, 2000 AND TWENTY-SIX WEEKS ENDED
JULY 4, 1999:
Revenues increased by 29.9% to $264.4 million in the twenty-six weeks ended July
2, 2000 from $203.5 million in the twenty-six weeks ended July 4, 1999.
Approximately $36.9 million of the increase in revenues in First Half 2000
compared to First Half 1999 is attributable to increased compensated resident
days resulting from the opening of seven facilities in 1999, (Guadalupe County
Correctional Facility, Santa Rosa, New Mexico in January, 1999; Melbourne
Custody Detention Centre, Melbourne, Australia in March, 1999; East Mississippi
Correctional Facility, Meridian, Mississippi in April, 1999; Michigan Youth
Correctional Facility, Baldwin, Michigan in July, 1999; South Bay Correctional
Facility - Sexually Violent Predators Unit, South Bay, Florida in September,
1999; Curtin Immigration Reception and Processing Centre, Derby, Western
Australia in September, 1999; and Woomera Immigration and Processing Centre,
Woomera, South Australia in November, 1999). Approximately $17.4 million of the
increase in revenue in First Half 2000 compared to First Half 1999 is
attributable to the construction of new facilities for South Florida State
Hospital and for the government of the Netherlands Antilles in Curacao. This
increase in revenues was partially offset by a decrease of approximately $6.8
million in First Half 2000 as compared to the same period in 1999 due to the
loss of the contracts for operation of the Travis County Community Justice
Center and Jena Juvenile Justice Center and from a decrease in development
activities. The balance of the increase in revenues was attributable to
facilities open during all of both periods.
The number of compensated resident days in domestic facilities increased to
4,329,665 in First Half 2000 from 4,165,528 in First Half 1999. The average
facility occupancy in domestic facilities slightly decreased to 97.3% of
capacity in First Half 2000 compared to 97.6% in First Half 1999 due primarily
to the termination of the Jena Juvenile Justice Center and Travis County
Community Justice Center contracts. Compensated resident days in Australian
facilities increased to 999,551 from 473,970 for the comparable period primarily
due to higher compensated resident days at the immigration detention facilities
as well as the opening of the Curtin Immigration Reception and Processing Centre
and Woomera Immigration and Processing Centre.
Operating expenses increased by 32.7% to $238.5 million in First Half 2000
compared to $179.7 million in First Half 1999. As a percentage of revenues,
operating expenses increased to 90.2% in Second Quarter 2000 from 88.3% in the
comparable period in 1999. This increase primarily reflected the seven
facilities that were opened in 1999, as described above. Additionally, there are
several other factors contributing to the increase which include the following:
expenses related to the construction of new facilities for South Florida State
Hospital and the government of the Netherlands Antilles; additional expenses
incurred related to the closing of the Jena Juvenile Justice Center in Jena,
Louisiana; and the increase in general and comprehensive liability insurance
premiums. There were also additional expenses related to operations at the East
Mississippi Correctional Facility (Mississippi), George W. Hill Correctional
Facility (Pennsylvania), Lea County Correctional Facility (New Mexico),
Guadalupe County Correctional Facility (New Mexico), and Michigan Youth
Correctional Facility (Michigan). The Company has developed strategies to
improve the operational performance of these facilities, however, there can be
no assurances that these strategies will be successful.
Effective April 1, 2000, the premium paid by the Company for general and
comprehensive liability insurance under the liability insurance program
maintained by TWC was increased due to an adverse trend in the development of
claims experience. The Company is developing a strategy to improve the
management of future loss claims incurred by the Company but can provide no
assurances that this strategy will be successful. As a result, the Company has
incurred additional operating expenses related to general comprehensive
liability insurance. The Company continues to incur this additional insurance
expense which could have an adverse impact on the Company's future financial
results of operations.
Page 15 of 20
<PAGE> 16
WACKENHUT CORRECTIONS CORPORATION
During a period of low unemployment, some facilities may experience difficulty
in finding qualified personnel. This could have an adverse impact on the
Company's results of operations in the event wages and salaries increase at a
faster rate then the per diem or fixed rate received by the Company for its
services.
Depreciation and amortization increased by 56.9% to $3.9 million in the First
Half 2000 from $2.5 million in the First Half 1999. As a percentage of revenue,
depreciation and amortization increased to 1.5% from 1.2%. This increase is
primarily attributable to leasehold improvements at the New Mexico and Oklahoma
facilities and additional operational assets.
Contributions from operations increased by 3.1% to $22.0 million in First Half
2000 from $21.3 million in First Half 1999. As discussed above, this increase is
primarily attributable to six new facilities that opened in 1999. As a
percentage of revenue, contribution from operations decreased to 8.3% in First
Half 2000 from 10.5% in First Half 1999. As discussed above, this decrease is
primarily attributable to the factors impacting the increase in operating
expenses and depreciation and amortization expenses as discussed above.
General and administrative expenses increased by 41.9% to $11.3 million in First
Half 2000 from $8.0 million in First Half 1999. As a percentage of revenue,
general and administrative expenses increased to 4.3% in the First Half 2000
from 3.9% in the First Half 1999. This increase reflects costs related to
additional infrastructure and additional costs related to the Company's
services agreement with TWC as well as legal and professional fees.
Operating income decreased by 20.1% to $10.6 million in First Half 2000 from
$13.3 million in First Half 1999. As a percentage of revenue, operating income
decreased to 4.0% in First Half 2000 from 6.6% in First Half 1999 due to the
factors impacting contribution from operations and general and administrative
expenses.
Other income increased 57.2% to $1.7 million in First Half 2000 from $1.1
million in First Half 1999 resulting primarily from the $0.6 million gain from
the sale of a portion of the Company's loan receivable from an overseas
affiliate and an increase in invested cash balances. This increase was offset by
a decrease in the return on investment in overseas projects resulting from the
Company's sale of loans in the Fourth Quarter 1999.
Income before income taxes and equity in earnings of affiliates decreased by
14.4% to $12.3 million in First Half 2000 from $14.4 million in First Half 1999
due to the factors described above.
Provision for income taxes decreased to $4.9 million in First Half 2000 from
$5.8 million in First Half 1999 due to lower taxable income.
Equity in earnings of affiliates increased 42.9% to $2.2 million for First Half
2000 from $1.6 million in First Half 1999 due to the continued phase-in of H.M.
Prison Kilmarnock which opened in March, 1999; the Hassockfield Secure Training
Centre in Medomsley, England which opened in September, 1999; and H.M. Prison &
Youth Offender Institution Ashfield in Pucklechurch, England which opened in
November, 1999.
Net income decreased to $9.6 million in First Half 2000 from $10.2 million in
First Half 1999 as a result of the factors described above.
Page 16 of 20
<PAGE> 17
WACKENHUT CORRECTIONS CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Item 7A, Part II of the Company's Annual Report on Form
10-K for the fiscal year ended January 2, 2000, for discussion pertaining to the
Company's exposure to certain market risks. There have been no material changes
in the disclosure for the twenty-six weeks ended July 2, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In Travis County, Texas, a grand jury indicted twelve of the Company's former
facility employees for various types of sexual misconduct at the Travis County
Community Justice Center. Eleven of the twelve indicted former employees already
resigned from or had been terminated by the Company as a result of
Company-initiated investigations over the course of the prior three years. The
Company is not providing counsel to assist in the defense of these twelve
individuals. Management believes these indictments are not expected to have any
material financial impact on the Company. The District Attorney in Travis County
continues to review Company documents for alleged document tampering at the
Travis County Facility. At this time the Company cannot predict the outcome of
this investigation or the potential impact on the Company's financial position
and results of operations.
The nature of the Company's business results in claims or litigation against the
Company for damages arising from the conduct of its employees or others. Except
for litigation set forth above and routine litigation incidental to the business
of the Company, there are no pending material legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of their property
is subject.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Page 17 of 20
<PAGE> 18
WACKENHUT CORRECTIONS CORPORATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 4, 2000 in
Manalapan, Florida. All directors nominated for election were elected by a
majority of the votes cast and the tabulation of the votes cast were as follows:
Votes For Votes Withheld
---------- --------------
Wayne H. Calabrese 20,178,869 191,437
Norman A. Carlson 20,172,269 198,037
Benjamin R. Civiletti 20,170,469 199,837
Richard H. Glanton 20,173,519 196,787
Manuel J. Justiz 20,183,222 187,084
John F. Ruffle 20,182,769 187,537
George R. Wackenhut 19,842,223 528,083
Richard R. Wackenhut 20,180,869 189,437
George C. Zoley 20,180,069 190,237
The second matter voted upon at the Annual Meeting was the ratification of the
action of the Board of Directors appointing the firm of Arthur Andersen LLP to
be the independent certified public accountants of the Company for the fiscal
year 2000. The tabulation of the votes on this matter was as follows:
For: 20,279,301 Against: 66,481 Abstain: 24,524
The third matter voted upon at the Annual Meeting was the approval of an
amendment to the Wackenhut Corrections Corporation Stock Option Plan - 1994. The
tabulation of the votes on this matter was as follows:
For: 19,619,914 Against: 332,948 Abstain: 417,444
The fourth matter voted upon at the Annual Meeting was the approval of an
amendment to the Wackenhut Corrections Corporation Stock Option Plan - 1999. The
tabulation of the votes on this matter was as follows:
For: 19,602,607 Against: 347,975 Abstain: 419,724
The final matter voted upon at the Annual Meeting was the approval of an
amendment and restatement of the Articles of Incorporation. The tabulation of
the votes on this matter was as follows:
For: 19,782,721 Against: 180,481 Abstain: 407,104
ITEM 5. OTHER INFORMATION
Not applicable.
Page 18 of 20
<PAGE> 19
WACKENHUT CORRECTIONS CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- ------------
27.1 Financial Data Schedule (SEC use only)
(b) Reports on Form 8-K - The Company did not file a Form 8-K during the second
quarter of the fiscal year ending December 31, 2000.
Page 19 of 20
<PAGE> 20
WACKENHUT CORRECTIONS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WACKENHUT CORRECTIONS CORPORATION
/s/ John G. O'Rourke
August 15, 2000 --------------------------------------------
Date John G. O'Rourke
Senior Vice President - Finance, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Page 20 of 20
