<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 October 1, 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)
Florida 65-0043078
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4200 Wackenhut Drive #100, Palm Beach Gardens, Florida 33410-4243
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(Address of principal executive offices) (Zip code)
(561) 622-5656
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(Registrant's telephone number, including area code)
Not Applicable
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF
CHANGED SINCE LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At November 10, 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 thirty-nine weeks ended October 1, 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 THIRTY-NINE WEEKS ENDED
OCTOBER 1, 2000 AND OCTOBER 3, 1999
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------- -----------------------------
OCT. 1, 2000 OCT. 3, 1999 OCT. 1, 2000 OCT. 3, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $135,888 $112,046 $400,271 $315,526
Operating expenses (including amounts related
to Parent of $3,760, $2,571, $9,482 and $7,290) 122,385 99,051 360,925 278,752
Jena charge 3,849 -- 3,849 --
Depreciation and amortization 2,482 1,283 6,370 3,761
-------- -------- -------- --------
Contribution from operations 7,172 11,712 29,127 33,013
G&A expense (including amounts related to
Parent of $941, $1,001, $2,821 and $2,656) 5,336 4,778 16,642 12,747
-------- -------- -------- --------
Operating income 1,836 6,934 12,485 20,266
Other income (including interest (expense) income
related to Parent of ($28), $84, ($52), and $463) 36 969 1,704 2,030
-------- -------- -------- --------
Income before income taxes and equity in earnings
of affiliates 1,872 7,903 14,189 22,296
Provision for income taxes 727 3,170 5,666 8,941
-------- -------- -------- --------
Income before equity in earnings of affiliates 1,145 4,733 8,523 13,355
Equity in earnings of affiliates, net of income
tax provision of $822, $643, $2,318 and $1,697 1,228 961 3,477 2,535
-------- -------- -------- --------
Net income $ 2,373 $ 5,694 $ 12,000 $ 15,890
======== ======== ======== ========
Basic earnings per share $ 0.11 $ 0.26 $ 0.57 $ 0.73
======== ======== ======== ========
Basic weighted average shares outstanding 21,013 21,593 21,142 21,699
======== ======== ======== ========
Diluted earnings per share $ 0.11 $ 0.26 $ 0.56 $ 0.72
======== ======== ======== ========
Diluted weighted average shares outstanding 21,151 22,062 21,290 22,125
======== ======== ======== ========
</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
OCTOBER 1, 2000 AND JANUARY 2, 2000
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
October 1, 2000 January 2, 2000
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 19,556 $ 41,029
Accounts receivable, less allowance for doubtful
accounts of $1,332 and $1,499 94,741 77,779
Current deferred income tax asset, net 4,299 3,069
Other 12,965 13,016
--------- ---------
Total current assets 131,561 134,893
--------- ---------
Property and equipment, net 54,668 43,360
Investments in and advances to affiliates 29,529 20,686
Goodwill 1,451 1,776
Deferred income tax asset, net 1,741 1,066
Other 5,601 2,644
--------- ---------
$ 224,551 $ 204,425
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 15,564 $ 12,631
Accrued payroll and related taxes 12,641 11,305
Accrued expenses 42,518 28,553
Current portion of deferred revenue 2,975 3,027
--------- ---------
Total current liabilities 73,698 55,516
--------- ---------
Deferred income tax liability, net 1,198 --
Long-term debt 14,000 15,000
Deferred revenue 13,625 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,
21,013,024 and 21,508,992 shares
issued and outstanding 210 215
Additional paid-in capital 61,992 66,908
Retained earnings 65,462 53,463
Accumulated other comprehensive loss (5,634) (1,902)
--------- ---------
Total shareholders' equity 122,030 118,684
--------- ---------
$ 224,551 $ 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 THIRTY-NINE WEEKS ENDED
OCTOBER 1, 2000 AND OCTOBER 3, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
-----------------------------------
October 1, 2000 October 3, 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,000 $ 15,890
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization expense 6,370 3,761
Deferred tax provision (benefit) (2,210) 3,470
Provision for bad debt expense 1,256 306
Gain on sale of loans receivable (641) --
Equity in earnings of affiliates (3,477) (2,535)
Changes in assets and liabilities -- (Increase) decrease in assets:
Accounts receivable (20,505) (13,210)
Deferred income tax asset (153) (2,277)
Other current assets (1,723) 2,347
Other assets (3,504) (2,356)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 19,890 9,387
Accrued payroll and related taxes 1,727 (1,556)
Deferred income tax liability, net (944) 580
Deferred revenue (1,652) --
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,434 13,807
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (4,868) (2,950)
Proceeds from the sale of loans receivable 2,461 --
Capital expenditures (17,410) (23,437)
Proceeds from sale of capital assets to CPV -- 22,281
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (19,817) (4,106)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to Parent -- (17,910)
Repayments from Parent -- 17,910
Proceeds from long-term debt 9,000 --
Payments of long-term debt (10,000) (213)
Proceeds from exercise of stock options 12 214
Repurchase of common stock (4,933) (7,947)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (5,921) (7,946)
-------- --------
Effect of exchange rate changes on cash (2,169) 716
Net increase in cash and cash equivalents (21,473) 2,471
Cash and cash equivalents, beginning of period 41,029 20,240
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,556 $ 22,711
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes $ 5,881 $ 5,673
======== ========
Cash paid for interest $ 412 $ --
======== ========
Impact on equity from tax benefit related to the
exercise of options issued under the company's non-
qualified stock option plan $ -- $ 321
======== ========
</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
International operations consist of the operations of the Company's 100% owned
subsidiary in Australia.
A summary of domestic and international operations is presented below (dollars
in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------- -------------------------------
Oct. 1 , 2000 Oct. 3, 1999 Oct. 1 , 2000 Oct. 3, 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Domestic operations $108,948 $ 96,393 $316,260 $271,697
International operations 26,940 15,653 84,011 43,829
-------- -------- -------- --------
Total revenues $135,888 $112,046 $400,271 $315,526
======== ======== ======== ========
OPERATING INCOME
Domestic operations $ 675 $ 6,420 $ 4,599 $ 18,337
International operations 1,161 514 7,886 1,929
-------- -------- -------- --------
Total operating income $ 1,836 $ 6,934 $ 12,485 $ 20,266
======== ======== ======== ========
</TABLE>
As of
---------------------------------
October 1, 2000 January 2, 2000
--------------- ---------------
LONG-LIVED ASSETS
Domestic operations $48,976 $39,005
International operations 5,692 4,355
------- -------
Total long-lived assets $54,668 $43,360
======= =======
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
detention facilities management, home monitoring and court escort services in
the United Kingdom. The following table summarizes certain financial information
pertaining to these unconsolidated foreign affiliates, on a combined basis
(dollars in thousands).
Thirty-nine Weeks Ended
---------------------------------
October 1, 2000 October 3, 1999
--------------- ---------------
STATEMENT OF OPERATIONS DATA
Revenues $106,294 $102,745
Operating income 11,590 8,464
Net income 6,954 5,070
BALANCE SHEET DATA
Current Assets $ 63,807 $ 51,757
Noncurrent Assets 262,674 207,285
Current liabilities 28,080 26,053
Noncurrent liabilities 274,658 218,072
Stockholders' equity 23,743 14,917
In addition, the Company is providing construction services for correctional
detention facilities in South Africa through a 50% owned affiliate.
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 Thirty-nine Weeks Ended
------------------------------ -------------------------------
Oct. 1, 2000 Oct. 3, 1999 Oct. 1, 2000 Oct. 3, 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 2,373 $ 5,694 $ 12,000 $ 15,890
Foreign currency translation adjustments,
net of income tax benefit / (expense) of
$1,225, $251, $2,488 and ($819),
respectively (1,838) (376) (3,732) 1,223
-------- -------- -------- --------
Comprehensive income $ 535 $ 5,318 $ 8,268 $ 17,113
======== ======== ======== ========
</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 Thirty-nine Weeks Ended
---------------------------- ----------------------------
Oct. 1, 2000 Oct. 3, 1999 Oct. 1, 2000 Oct. 3, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic weighted average shares 21,013 21,593 21,142 21,699
Effect of dilutive securities:
Employee and director stock
options 138 469 148 426
------ ------ ------ ------
Diluted weighted average shares 21,151 22,062 21,290 22,125
====== ====== ====== ======
</TABLE>
Options to purchase 1,042,200 shares of the Company's common stock, with
exercise prices ranging from $8.44 to $26.88 per share and expiration dates
between 2005 and 2010, were outstanding at October 1, 2000, but were not
included in the computation of diluted EPS because their effect would be
anti-dilutive if exercised. At October 3, 1999, outstanding options to purchase
606,500 shares of the Company's common stock, with exercise prices ranging from
$18.38 to $26.88 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.
5. LONG-TERM DEBT
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 October
1, 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.
In connection with an international project, the Company has provided letters of
credit totaling $9.0 million that may be drawn upon by the beneficiary in the
event the Company's joint venture is terminated for default by the contracting
governmental agency. The letters of credit bear interest at 2.0%.
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 October 1, 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.
Page 8 of 20
<PAGE> 9
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES
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.
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.
During 1998, the Company entered into a contract with the State of Florida
Department of Children and Families ("DCF") to design and construct a new
350-bed South Florida State Psychiatric Hospital for approximately $35 million.
The Company also entered into a separate contract to manage the operations of an
existing 350-bed facility prior to and during construction of the new facility
and to manage the operations of the new facility upon construction completion.
The construction phase of the contract is near completion. However, the Company
has incurred additional costs of approximately $1.8 million beyond the initial
scope of the construction contract through October 1, 2000. The Company is in
the process of negotiating with DCF to recover these additional costs. DCF has
indicated a willingness to allow for funds to be raised through additional bond
completion certificates to pay for these additional costs. DCF can provide no
assurances that it will be able to complete the potential bond offering or
secure alternative funding. Accordingly, the Company has deferred the profit on
the construction of the facility.
8. JENA CHARGE
On January 7, 2000, the Company exercised the right to acquire the 276-bed Jena
Juvenile Justice Center (the "Facility") in Jena, Louisiana from the trust of
the Company's operating lease facility and, simultaneously sold it to
Correctional Properties Trust ("CPV"). This Facility is being leased back to the
Company under a 10-year non-cancelable 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 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 has recorded an operating charge of $3.8 million ($2.3 million after
tax, or $0.11 (eleven cents) per share), that represents the losses to be
incurred on the lease with CPV. Management estimates that the facility will
remain inactive through the end of 2001.
Page 9 of 20
<PAGE> 10
WACKENHUT CORRECTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. JENA CHARGE (CONTINUED)
The Company is continuing its efforts to sublease or find an alternative use for
the facility. If the Company is unable to sublease or find an alternative use
for the facility, there could be an adverse impact on the Company's financial
position and future results of operations.
9. 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 and 138, 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 November 2, 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 October 1, 2000 of $19.6 million decreased $21.5
million from January 2, 2000. Cash provided by operating activities amounted to
$6.4 million in the thirty-nine weeks ended October 1, 2000 ("Nine Months 2000")
versus cash provided by operating activities of $13.8 million in the thirty-nine
weeks ended October 3, 1999 ("Nine Months 1999") primarily reflecting the $3.9
million decrease in net income and an increase in accounts receivable offset by
an increase in accounts payable and accrued expenses.
Cash used in investing activities amounted to $19.8 million in the Nine Months
2000 as compared to cash used in investing activities of $4.1 million in the
Nine Months 1999. The difference primarily reflects 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
Nine Months 1999. There were no proceeds from the sale of facilities in the Nine
Months 2000 to offset capital expenditures. However, capital expenditures were
partially offset by a gain related to the sale of a portion of the Company's
loan receivable from an overseas affiliate in the Nine Months 2000.
Cash used in financing activities in the Nine Months 2000 amounted to $5.9
million as compared to cash used in financing activities in the Nine Months 1999
of $7.9 million. The decrease primarily results from decreases in repurchases of
the Company's common stock.
Working capital decreased from $79.4 million at January 2, 2000 to $57.9 million
at the end of the Third Quarter of 2000 primarily due to an increase in accrued
expenses and a decrease in cash and cash equivalents. This was partially offset
by an increase in accounts receivable.
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 October 1, 2000, the Company had $14.0 million outstanding of its $30
million revolving credit facility for the funding of construction projects. As
of October 1, 2000, approximately $123.6 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 (the "Facility") in Jena, Louisiana from the trust of
the Company's operating lease facility and, simultaneously sold it to CPV. This
Facility is being leased back to the Company under a 10-year non-cancelable
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 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 has recorded an operating charge of $3.8
million ($2.3 million after tax, or $0.11 (eleven cents) per share), that
represents the losses to be incurred on the lease with management's estimation
that the facility will remain inactive through the end of 2001.
Page 12 of 20
<PAGE> 13
WACKENHUT CORRECTIONS CORPORATION
The Company is continuing its efforts to sublease or find an alternative use for
the facility. If the Company is unable to sublease or 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 OCTOBER 1, 2000 AND THIRTEEN WEEKS ENDED
OCTOBER 3, 1999
Revenues increased by 21.3% to $135.9 million in the thirteen weeks ended
October 1, 2000 ("Third Quarter 2000") from $112.0 million in the thirteen weeks
ended October 3, 1999 ("Third Quarter 1999"). Approximately $18.2 million of the
increase in revenues in the Third Quarter 2000 compared to the Third Quarter
1999 is attributable to increased compensated resident days resulting from the
opening of five facilities in 1999, (Guadalupe County Correctional Facility,
Santa Rosa, New Mexico in January, 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) and the opening of two facilities in 2000,
(Auckland Central Remand Prison, Auckland, New Zealand in July, 2000 and the
Western Region Detention Facility at San Diego, San Diego, California in July,
2000). Approximately $6.3 million of the increase in revenue in the Third
Quarter 2000 compared to the Third Quarter 1999 is attributable to the
construction of new facilities for South Florida State Hospital and for the
government of the Netherlands Antilles in Curacao and approximately $1.4 million
for development activities in South Africa. This increase in revenues was
partially offset by a decrease of approximately $4.4 million in the Third
Quarter 2000 as compared to the Third Quarter 1999 because the Company ceased
operations at the Travis County Community Justice Center and Jena Juvenile
Justice Center. The balance of the increase in revenues was attributable to
facilities open for the entirety of both periods and increases in per diem
rates.
The number of compensated resident days in domestic facilities decreased to
2,200,772 in the Third Quarter 2000 from 2,209,563 in the Third Quarter 1999.
The average facility occupancy in domestic facilities decreased to 97.4% of
capacity in the Third Quarter 2000 compared to 97.7% in the Third Quarter 1999.
The cessation of operations at the Jena Juvenile Justice Center and Travis
County Community Justice Center was partially offset by the opening of the
Western Region Detention Facility at San Diego. Compensated resident days in
Australian facilities increased to 435,364 from 267,013 for the comparable
periods primarily due to higher compensated resident days at the immigration
detention facilities including the opening of the Curtin Immigration Reception
and Processing Centre and Woomera Immigration and Processing Centre.
Operating expenses increased by 23.6% to $122.4 million in the Third Quarter
2000 compared to $99.1 million in the Third Quarter 1999. As a percentage of
revenues, operating expenses increased to 90.1% in the Third Quarter 2000 from
88.4% in the comparable period in 1999. The increase in operating expenses
primarily reflects the five facilities that were opened in 1999 and the two
facilities that were opened in 2000, as described above. Additionally, there are
several other factors contributing to the increase including expenses related to
the construction of new facilities for South Florida State Hospital and the
government of the Netherlands Antilles and increases in general and
comprehensive liability insurance premiums. There were also additional
operational expenses at the George W. Hill Correctional Facility (Pennsylvania),
Guadalupe County Correctional Facility (New Mexico), Michigan Youth Correctional
Facility (Michigan), North Texas Intermediate Sanction Facility (Texas), Ronald
McPherson
Page 13 of 20
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WACKENHUT CORRECTIONS CORPORATION
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") increased due to an adverse
trend in the development of claims experience. Premiums increased again
effective July 1, 2000. As a result of these increases the Company continues to
incur additional operating expenses for general comprehensive liability
insurance. The Company is developing a strategy to improve the management of its
future loss claims but can provide no assurances that this strategy will be
successful.
During a period of low unemployment, some facilities may experience difficulty
in finding qualified personnel. This may have an adverse impact on the Company's
results of operations if wages and salaries increase at a faster rate than the
per diem or fixed rate received by the Company for its services.
The Company reported a third quarter operating charge of $3.8 million ($2.3
million after tax, or $0.11 (eleven cents) per share), related to the
de-activation of the Jena, Louisiana facility. The Company estimates the
facility will remain inactive through the end of 2001.
Depreciation and amortization increased by 93.5% to $2.5 million in the Third
Quarter 2000 from $1.3 million in the Third Quarter 1999. As a percentage of
revenues, depreciation and amortization increased to 1.8% from 1.1% in the Third
Quarter in 1999. This increase is primarily attributable to leasehold
improvements at the New Mexico, Oklahoma and San Diego facilities and additional
operational assets.
Contribution from operations decreased 38.8% to $7.2 million in the Third
Quarter 2000 from $11.7 million in Third Quarter 1999. As a percentage of
revenue, contribution from operations decreased to 5.3% in the Third Quarter
2000 from 10.5% in the Third Quarter 1999. As discussed above, this decrease is
primarily attributable to the factors impacting the increase in operating
expenses, the operating charge related to the Jena, Louisiana facility, and
depreciation and amortization expenses.
General and administrative expenses increased by 11.7% to $5.3 million in the
Third Quarter 2000 from $4.8 million in the Third Quarter 1999. This increase
reflects costs for additional infrastructure, legal and professional fees and
additional costs related to the Company's services agreement with TWC. As a
percentage of revenue, general and administrative expenses decreased to 3.9% in
the Third Quarter 2000 from 4.3% in the Third Quarter 1999.
Operating income decreased by 73.5% to $1.8 million in the Third Quarter 2000
from $6.9 million in the Third Quarter 1999. As a percentage of revenue,
operating income decreased to 1.4% in the Third Quarter 2000 from 6.2% in the
Third Quarter 1999 due to the factors impacting contribution from operations and
general and administrative expenses.
There was minimal other income during the Third Quarter 2000 compared to $1.0
million in the Third Quarter 1999. This decrease primarily results from a lower
return on investment in overseas projects due to the sale of loans in the Fourth
Quarter 1999 and Second Quarter 2000 and lower invested cash balances.
Income before income taxes and equity in earnings of affiliates decreased to
$1.9 million in the Third Quarter 2000 from $7.9 million in the Third Quarter
1999 due to the factors described above.
Provision for income taxes decreased to $0.8 million in the Third Quarter 2000
from $3.2 million in the Third Quarter 1999 due to lower taxable income and a
slight decrease in the Company's estimated tax rate.
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WACKENHUT CORRECTIONS CORPORATION
Equity in earnings of affiliates, net of income tax provision increased to $1.2
million in the Third Quarter 2000 from $1.0 million in the Third Quarter 1999
due to achieving normalized operations at 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 $2.4 million in the Third Quarter 2000 from $5.7 million
in the Third Quarter 1999 as a result of the factors described above.
COMPARISON OF THIRTY-NINE WEEKS ENDED OCTOBER 1, 2000 AND THIRTY-NINE WEEKS
ENDED OCTOBER 3, 1999:
Revenues increased by 26.9% to $400.3 million in the thirty-nine weeks ended
October 1, 2000 from $315.5 million in the thirty-nine weeks ended October 3,
1999. Approximately $59.6 million of the increase in revenues in Nine Months
2000 compared to Nine Months 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) and the opening of two facilities in
2000, (Auckland Central Remand Prison, Auckland, New Zealand in July, 2000 and
the Western Region Detention Facility at San Diego, San Diego, California in
July, 2000). Approximately $28.3 million of the increase in revenue in Nine
Months 2000 compared to Nine Months 1999 is attributable to the construction of
new facilities for South Florida State Hospital and for the government of the
Netherlands Antilles in Curacao and approximately $1.9 million for development
activities in South Africa. This increase in revenues was partially offset by a
decrease of approximately $10.2 million in Nine Months 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. The balance of
the increase in revenues was attributable to facilities open for the entirety of
both periods and an increase in per diem rates.
The number of compensated resident days in domestic facilities increased to
6,530,437 in Nine Months 2000 from 6,375,091 in Nine Months 1999. The average
facility occupancy in domestic facilities slightly decreased to 97.3% of
capacity in Nine Months 2000 compared to 97.7% in Nine Months 1999. The
cessation of operations at the Jena Juvenile Justice Center and Travis County
Community Justice Center contracts was partially offset by the opening of the
Western Region Detention Facility at San Diego. Compensated resident days in
Australian facilities increased to 1,434,915 from 740,983 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 29.5% to $360.9 million in Nine Months 2000
compared to $278.8 million in Nine Months 1999. As a percentage of revenues,
operating expenses increased to 90.2% in Nine Months 2000 from 88.3% in the
comparable period in 1999. This increase primarily reflects the seven facilities
that were opened in 1999 and the two facilities that opened in 2000, 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 and increases 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
Page 15 of 20
<PAGE> 16
WACKENHUT CORRECTIONS CORPORATION
County Correctional Facility (New Mexico), Michigan Youth Correctional Facility
(Michigan), North Texas Intermediate Sanction Facility (Texas), 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.
The Company reported a third quarter operating charge of $3.8 million ($2.3
million, after tax, or $0.11 (eleven cents) per share), related to the
de-activation of the Jena, Louisiana facility. The Company estimates the
facility will remain inactive through the end of 2001.
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") increased due to an adverse
trend in the development of claims experience. Premiums increased again
effective July 1, 2000. As a result of these increases the Company continues to
incur additional operating expenses for general comprehensive liability
insurance. The Company is developing a strategy to improve the management of its
future loss claims but can provide no assurances that this strategy will be
successful.
During a period of low unemployment, some facilities may experience difficulty
in finding qualified personnel. This may have an adverse impact on the Company's
results of operations if wages and salaries increase at a faster rate than the
per diem or fixed rate received by the Company for its services.
Depreciation and amortization increased by 69.4% to $6.4 million in the Nine
Months 2000 from $3.8 million in the Nine Months 1999. As a percentage of
revenue, depreciation and amortization increased to 1.6% from 1.2%. This
increase is primarily attributable to leasehold improvements at the New Mexico,
Oklahoma and San Diego facilities and additional operational assets.
Contributions from operations decreased by 11.8% to $29.1 million in Nine Months
2000 from $33.0 million in Nine Months 1999. As a percentage of revenue,
contribution from operations decreased to 7.3% in Nine Months 2000 from 10.5% in
Nine Months 1999. As discussed above, this decrease is primarily attributable to
the factors impacting the increase in operating expenses, the operating charge
related to the Jena, Louisiana facility and depreciation and amortization
expenses.
General and administrative expenses increased by 30.6% to $16.6 million in Nine
Months 2000 from $12.7 million in Nine Months 1999. As a percentage of revenue,
general and administrative expenses increased to 4.2% in the Nine Months 2000
from 4.0% in the Nine Months 1999. This increase reflects costs for additional
infrastructure, legal and professional fees and additional costs related to the
Company's services agreement with TWC.
Operating income decreased by 38.4% to $12.5 million in Nine Months 2000 from
$20.3 million in Nine Months 1999. As a percentage of revenue, operating income
decreased to 3.1% in Nine Months 2000 from 6.4% in Nine Months 1999 due to the
factors impacting contribution from operations and general and administrative
expenses.
Other income decreased 16.1% to $1.7 million in Nine Months 2000 from $2.0
million in Nine Months 1999. This decrease primarily results from a lower return
on investment in overseas projects due to the sale of loans in the Fourth
Quarter 1999 and Second Quarter 2000. This was partially offset by a $0.6
million gain from the sale of a portion of the Company's loan receivable from an
overseas affiliate in Nine Months 2000.
Income before income taxes and equity in earnings of affiliates decreased by
36.4% to $14.2 million in Nine Months 2000 from $22.3 million in Nine Months
1999 due to the factors described above.
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WACKENHUT CORRECTIONS CORPORATION
Provision for income taxes decreased to $5.7 million in Nine Months 2000 from
$8.9 million in Nine Months 1999 due to lower taxable income.
Equity in earnings of affiliates increased 37.2% to $3.5 million for Nine Months
2000 from $2.5 million in Nine Months 1999 due to normalized operations at 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 $12.0 million in Nine Months 2000 from $15.9 million in
Nine Months 1999 as a result of the factors described above.
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<PAGE> 18
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 thirty-nine weeks ended October 1, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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<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 during the quarter ended October 1, 2000.
Report on Form 8-K filed on September 19, 2000, regarding the press
release filed on that same date.
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
11/15/00 /s/ John G. O'Rourke
---------------------- ------------------------------------------
Date John G. O'Rourke
Senior Vice President - Finance, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Page 20 of 20
