SEC Filing

1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to ---------- ----------- COMMISSION FILE NUMBER 1-14260 WACKENHUT CORRECTIONS CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 65-0043078 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4200 Wackenhut Drive #100, Palm Beach Gardens, Florida 33410-4243 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (561) 622-5656 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At November 3, 1997, 22,155,542 shares of the registrant's Common Stock were issued and outstanding. Page 1 of 15

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 "Corporation") have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information for the interim periods reported have been made. Results of operations for the thirty-nine weeks ended September 28, 1997 are not necessarily indicative of the results for the entire fiscal year ending December 28, 1997. Page 2 of 15

3 WACKENHUT CORRECTIONS CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) THIRTEEN WEEKS ENDED -------------------------------------------------- SEPTEMBER 28, 1997 SEPTEMBER 29, 1996 ----------------------- ---------------------- Revenues $ 55,104 $ 36,785 Operating expenses (including amounts related to The Wackenhut Corporation ("Parent") of $803 and $1,018) 45,594 30,837 Depreciation and amortization 1,947 948 ----------------------- ---------------------- Contribution from operations 7,563 5,000 G&A expense (including amounts related to Parent of $396 and $358) 2,762 2,061 ----------------------- ---------------------- Operating income 4,801 2,939 Interest income (including amounts related to Parent of $42 and ($118)) 128 455 ----------------------- ---------------------- Income before income taxes and equity income of affiliate 4,929 3,394 Provision for income taxes 1,923 1,263 ----------------------- ---------------------- Income before equity income of affiliate 3,006 2,131 Equity income of affiliate, net of income tax provision of $123 and $175 182 280 ----------------------- ---------------------- Net income $ 3,188 $ 2,411 ======================= ====================== Earnings per share $ 0.14 $ 0.11 ======================= ====================== Weighted average shares outstanding 22,771 22,642 ======================= ====================== The accompanying notes to consolidated financial statements are an integral part of these statements. Page 3 of 15

4 WACKENHUT CORRECTIONS CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) THIRTY-NINE WEEKS ENDED ------------------------------------------------- SEPTEMBER 28, 1997 SEPTEMBER 29, 1996 ----------------------- ---------------------- Revenues $ 147,840 $ 99,635 Operating expenses (including amounts related to Parent of $3,531 and $2,623) 123,160 84,053 Depreciation and amortization 4,605 2,554 ----------------------- ---------------------- Contribution from operations 20,075 13,028 G&A expense (including amounts related to Parent of $1,167 and $1,074) 8,213 6,457 ----------------------- ---------------------- Operating income 11,862 6,571 Interest income (including amounts related to Parent of ($50) and ($9)) 946 1,752 ----------------------- ---------------------- Income before income taxes and equity income of affiliate 12,808 8,323 Provision for income taxes 4,995 3,092 ----------------------- ---------------------- Income before equity income of affiliate 7,813 5,231 Equity income of affiliate, net of income tax provision of $434 and $289 679 462 ----------------------- ---------------------- Net income $ 8,492 $ 5,693 ======================= ====================== Earnings per share $ 0.37 $ 0.26 ======================= ====================== Weighted average shares outstanding 22,666 22,058 ======================= ====================== The accompanying notes to consolidated financial statements are an integral part of these statements. Page 4 of 15

5 WACKENHUT CORRECTIONS CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 28, 1997 AND DECEMBER 29, 1996 (IN THOUSANDS EXCEPT SHARE DATA) SEPTEMBER 28, 1997 DECEMBER 29, 1996 ----------------------- ------------------------ (UNAUDITED) ASSETS Current Assets: Cash $ 24,889 $ 44,368 Accounts receivable, net 32,803 24,879 Other 7,363 6,066 ----------------------- ------------------------ Total current assets 65,055 75,313 Property and equipment, net 34,474 18,975 Investments in and advances to affiliates 5,767 1,810 Deferred charges, net 11,170 7,522 Unamortized cost in excess of net assets of acquired companies, net 1,816 2,224 Other 5,867 967 ----------------------- ------------------------ $ 124,149 $ 106,811 ======================= ======================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 4,363 $ 4,020 Accrued payroll and related taxes 4,515 4,558 Accrued expenses 6,404 3,717 Current portion of long-term debt 12 12 Deferred income tax liability, net 1,095 876 ----------------------- ------------------------ Total current liabilities 16,389 13,183 ----------------------- ------------------------ Deferred income taxes, net 10,437 5,434 ----------------------- ------------------------ Long-term debt 405 225 ----------------------- ------------------------ Shareholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized --- --- Common stock, $.01 par value, 30,000,000 shares authorized, 22,066,644 and 21,937,992 shares issued and outstanding 221 219 Additional paid-in capital 74,057 72,986 Retained earnings 22,840 14,348 Cumulative translation adjustment (200) 416 ----------------------- ------------------------ Total shareholders' equity 96,918 87,969 ----------------------- ------------------------ $ 124,149 $ 106,811 ======================= ======================== The accompanying notes to consolidated financial statements are an integral part of these balance sheets. Page 5 of 15

6 WACKENHUT CORRECTIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (IN THOUSANDS) (UNAUDITED) THIRTY-NINE WEEKS ENDED ---------------------------------------------- SEPTEMBER 28, 1997 SEPTEMBER 29, 1996 ------------------------ ------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,492 $ 5,693 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization expense 4,605 2,554 Equity income of affiliates (1,113) (751) Changes in assets and liabilities -- (Increase) decrease in assets: Accounts receivable (8,208) (4,850) Other current assets (1,496) (2,766) Other assets (927) 42 Increase (decrease) in liabilities: Accounts payable and accrued expenses 3,345 353 Accrued payroll and related taxes 96 (190) Deferred income tax liability - current 231 20 Deferred income taxes - non-current 5,003 2,522 ------------------------ ----------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,028 $ 2,627 ------------------------ ----------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in affiliates (2,844) --- Capital expenditures (18,278) (8,811) Deferred charge expenditures (9,599) (2,991) ------------------------ ----------------------- NET CASH USED IN INVESTING ACTIVITIES $ (30,721) $ (11,802) ------------------------ ----------------------- (Continued) The accompanying notes to consolidated financial statements are an integral part of these statements. Page 6 of 15

7 WACKENHUT CORRECTIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 (IN THOUSANDS) (UNAUDITED) (Continued) THIRTY-NINE WEEKS ENDED ------------------------------------------------- SEPTEMBER 28, 1997 SEPTEMBER 29, 1996 --------------------- --------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock $ --- $ 51,593 Proceeds from exercise of stock options 1,073 719 Retirement of debt (21) (783) Proceeds from debt 201 --- Advances from Parent 62,614 72,847 Repayments to Parent (62,308) (72,847) --------------------- --------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ 1,559 $ 51,529 --------------------- --------------------- Effect of exchange rate changes on cash (345) 190 Net (decrease) increase in cash (19,479) 42,544 Cash, beginning of period 44,368 909 --------------------- --------------------- CASH, END OF PERIOD $ 24,889 $ 43,453 ===================== ===================== SUPPLEMENTAL DISCLOSURES: Impact on equity from tax benefit related to the exercise of options issued under the company's non- qualified stock option plan $ --- $ 1,157 ===================== ===================== The accompanying notes to consolidated financial statements are an integral part of these statements. Page 7 of 15

8 WACKENHUT CORRECTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The accounting policies followed for the quarterly financial reporting are the same as those disclosed in Note 2 of the Notes To Consolidated Financial Statements included in the Corporation's Form 10-K filed with the Securities and Exchange Commission on March 28, 1997 for the fiscal years ended December 29, 1996, December 31, 1995 and January 1, 1995. Certain prior year amounts have been reclassified to conform with current year financial statement presentation. 2. EARNINGS PER SHARE Statement of Financial Accounting Standards No. 128, "Earnings per Share" requires the disclosure of basic and diluted earnings per share for periods ending after December 15, 1997 and, upon adoption, will require restatement of prior periods to conform with the new disclosure format. The computation under SFAS No. 128 differs from the primary and fully diluted earnings per share computed under APB Opinion No. 15 primarily in the manner in which potential common stock is treated. Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. In the computation of diluted earnings per share, the weighted-average number of common shares outstanding is adjusted for the effect of all potential common stock. The pro forma basic and diluted earnings per share computed according to SFAS No. 128 are as follows: THIRTEEN WEEKS ENDED -------------------- SEPTEMBER 28, 1997 SEPTEMBER 29, 1996 ------------------ ------------------ Basic earnings per share $ 0.14 $ 0.11 Diluted earnings per share 0.14 0.11 THIRTY-NINE WEEKS ENDED ----------------------- SEPTEMBER 28, 1997 SEPTEMBER 29, 1997 ------------------ ------------------ Basic earnings per share $ 0.39 $ 0.27 Diluted earnings per share 0.37 0.26 Page 8 of 15

9 WACKENHUT CORRECTIONS CORPORATION 3. DOMESTIC AND INTERNATIONAL OPERATIONS A summary of domestic and international operations is presented below: THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1997 SEPTEMBER 29, 1996 ----------------------- ----------------------- (in thousands) REVENUES Domestic operations $ 120,291 $ 77,524 International operations 27,549 22,111 ----------------------- ----------------------- Total revenues $ 147,840 $ 99,635 ======================= ======================= OPERATING INCOME Domestic operations $ 8,847 $ 4,352 International operations 3,015 2,219 ----------------------- ----------------------- Total operating income $ 11,862 $ 6,571 ======================= ======================= SEPTEMBER 28, 1997 DECEMBER 29, 1996 ----------------------- ----------------------- (in thousands) IDENTIFIABLE ASSETS Domestic operations $ 105,501 $ 96,872 International operations 18,648 9,938 ----------------------- ----------------------- Total identifiable assets $ 124,149 $ 106,811 ======================= ======================= 4. FINANCING INSTRUMENTS In June 1997, the Corporation entered into a $30 million multi-currency revolving credit facility with a syndicate of banks, the proceeds of which may be used for working capital, acquisitions and general corporate purposes. The credit facility also includes a letter of credit of up to $10 million for the issuance of standby letters of credit. As of November 3, 1997, no amounts were outstanding under this facility. In June 1997, the Corporation also entered into an $80 million operating lease facility that has been established to acquire and develop new correctional institutions used in its business. As a condition of this facility, the Corporation unconditionally agreed to guarantee certain obligations of First Security Bank, National Association, a party to the aforementioned operating lease facility. As of November 3, 1997, approximately $47 million of properties were under development. Page 9 of 15

10 WACKENHUT CORRECTIONS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION In June 1997, the Corporation entered into a $30 million multi-currency revolving credit facility with a syndicate of banks, the proceeds of which may be used for working capital, acquisitions and general corporate purposes. The credit facility also includes a letter of credit of up to $10 million for the issuance of standby letters of credit. As of November 3, 1997, no amounts were outstanding under this facility. In June 1997, the Corporation also entered into an $80 million operating lease facility that has been established to acquire and develop new correctional institutions used in its business. As a condition of this facility, the Corporation unconditionally agreed to guarantee certain obligations of First Security Bank, National Association, a party to the aforementioned operating lease facility. As of November 3, 1997, approximately $47 million of properties were under development. In addition, the Corporation had outstanding four standby letters of credit with a bank in the aggregate amount of approximately $220,000. In June 1997, the Corporation purchased the Queens Private Correctional Facility, a 66,000 square foot building currently being as a 200-bed federal detention facility, for $6.6 million. The Corporation also invested another $4.7 million to renovate the building. On July 18, 1997, Atlantic Shores Healthcare, Inc. a wholly-owned subsidiary of Wackenhut Corrections Corporation, completed the purchase of an 86-bed psychiatric hospital in Fort Lauderdale, Florida for $6 million. The hospital has been renamed Atlantic Shores Hospital. Reference is made to Item 7, Part II of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 29, 1996, filed with the Securities and Exchange Commission on March 28, 1997, for further discussion and analysis of information pertaining to the Corporation's results of operations, liquidity and capital resources. RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Corporation's consolidated financial statements and the notes thereto. COMPARISON OF THIRTEEN WEEKS ENDED SEPTEMBER 28, 1997 AND THIRTEEN WEEKS ENDED SEPTEMBER 29, 1996: Revenues increased by 49.8% to $55.1 million in the thirteen weeks ended September 28, 1997 ("Third Quarter 1997") from $36.8 million in the thirteen weeks ended September 29, 1996 ("Third Quarter 1996"). The increase in revenues in Third Quarter 1997 compared to Third Quarter 1996 is primarily attributable to increased compensated resident days resulting from the opening of five facilities in the First Quarter of 1997 (South Bay Correctional Facility, South Bay, Florida in February 1997, Travis County Community Justice Center, Travis County, Texas in March 1997, Bayamon Regional Detention Center, Bayamon, Puerto Rico in March 1997, Queens Private Correctional Facility, Queens, New York in March 1997 and Fulham Correctional Center, Victoria, Australia in March 1997). Page 10 of 15

11 WACKENHUT CORRECTIONS CORPORATION The number of compensated resident days in domestic facilities increased to 1,156,912 in Third Quarter 1997 from 866,197 in Third Quarter 1996 and average facility occupancy in domestic facilities increased to 97.0% of capacity in Third Quarter 1997 compared to 96.6% in the same period in 1996. In addition, compensated resident days in Australian facilities increased to 162,158 from 109,848 for the comparable periods. Operating expenses increased by 47.9% to $45.6 million in Third Quarter 1997 compared to $30.8 million in Third Quarter 1996, reflecting the operations of the five facilities that opened in First Quarter 1997. Depreciation and amortization increased by 105.3% to $1.9 million in Third Quarter 1997 from $0.9 million in Third Quarter 1996. This increase represents deferred charge amortization attributable to the new facilities, in addition to depreciation associated with the purchase of two facilities. Contribution from operations increased 51.2% to $7.6 million in Third Quarter 1997 from $5.0 million in Third Quarter 1996 due primarily to the operations of facilities opened during the First Quarter of 1997. General and administrative expenses increased 34.0% to $2.8 million in Third Quarter 1997 from $2.1 million in Third Quarter 1996. This increase is attributable to increased business development activities in response to additional interest in the Corporation's services and infrastructure growth to support the Corporation's expanded operations. Operating income increased by 63.3% to $4.8 million in Third Quarter 1997 from $2.9 million in Third Quarter 1996. As described above, the operations of newly opened facilities were the principal factors contributing to the increase in operating income during Third Quarter 1997. Income before taxes and equity income increased by 45.2% to $4.9 million in Third Quarter 1997 from $3.4 million in Third Quarter 1996 due to the factors described above, offset by lower interest income resulting from a decrease in invested cash. Provision for income taxes increased to $1.9 million in Third Quarter 1997 from $1.3 million in Third Quarter 1996 due to higher taxable income and a higher effective tax rate. Equity income of affiliates decreased 35% to $182,000 in Third Quarter 1997 from $280,000 in Third Quarter 1996. This decrease is the result of the payment of management fees to the two joint venture partners beginning in the Fourth Quarter of 1996. Page 11 of 15

12 WACKENHUT CORRECTIONS CORPORATION COMPARISON OF THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1997 AND THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996. Revenues increased by 48.4% to $147.8 million in the thirty-nine weeks ended September 28, 1997 ("First Nine Months 1997") from $99.6 million in the thirty-nine weeks ended September 29, 1996 ("First Nine Months 1996"). The increase in revenues in First Nine Months 1997 compared to First Nine Months 1996 is primarily attributable to increased compensated resident days at: two facilities opened in the first half of 1996 (Willacy County Unit, Willacy County, Texas in January 1996, and Marshall County Correctional Facility, Marshall County, Mississippi in June 1996), one facility for which the Corporation assumed operational responsibility (Delaware County Prison, Delaware County, Pennsylvania in April 1996); and five facilities opened in the First Quarter of 1997 (South Bay Correctional Facility, South Bay, Florida in February 1997, Travis County Community Justice Center, Travis County, Texas in March 1997, Bayamon Regional Detention Center, Bayamon, Puerto Rico in March 1997, Queens Private Correctional Facility, Queens, New York in March 1997 and Fulham Correctional Center, Victoria, Australia in March 1997). The number of compensated resident days in domestic facilities increased to 3,262,307 in First Nine Months 1997 from 2,255,492 in First Nine Months 1996 and average facility occupancy increased to 96.9% of capacity in First Nine Months of 1997 compared to 96.1% in 1996. In addition, compensated resident days in Australian facilities increased to 412,196 from 333,344 for the comparable periods. Operating expenses increased by 46.5% to $123.2 million in First Nine Months 1997 compared to $84.1 million in First Nine Months 1996, reflecting the eight facilities that opened in 1996 and 1997, as described above. Depreciation and amortization increased by 80.3% to $4.6 million in the First Nine Months 1997 from $2.6 million in the First Nine Months 1996. This increase represents deferred charge amortization attributable to the new facilities in addition to depreciation associated with the purchase of two facilities. Contribution from operations increased by 54.1% to $20.1 million in First Nine Months 1997 from $13.0 million in First Nine Months 1996 due primarily to the opening of the South Bay Correctional Facility in February 1997, the openings of the Queens Private Correctional Facility, Travis County Community Justice Center and Fulham Correctional Center in March 1997, and a full nine months of operating results at the Marshall County Correctional Facility which opened in June 1996. General and administrative expenses increased by 27.2% to $8.2 million in First Nine Months 1997 from $6.5 million in First Nine Months 1996. This increase is primarily attributable to increased business development activities in response to additional interest in the Corporation's services and infrastructure growth to support the Corporation's expanded operations. Operating income increased by 80.5% to $11.9 million in First Nine Months 1997 from $6.6 million in First Nine Months 1996, primarily due to the operations of newly opened facilities, as described above. Page 12 of 15

13 WACKENHUT CORRECTIONS CORPORATION Income before taxes and equity income increased by 53.9% to $12.8 million in First Nine Months 1997 from $8.3 million in First Nine Months 1996 due to the factors described above, offset by lower interest income resulting from a decrease in invested cash. Provision for income taxes increased to $5.0 million in First Nine Months 1997 from $3.1 million in First Nine Months 1996 due to higher taxable income and an increase in the Company's effective tax rate. Equity income of affiliates increased 47% to $679,000 for First Nine Months 1997 versus $462,000 in First Nine Months 1996. The current year increase results from expansions at the H.M. Prison Doncaster, (Doncaster, England) in June 1996 and March 1997, and operations of two court escort contracts that commenced in May 1996. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. Page 13 of 15

14 WACKENHUT CORRECTIONS CORPORATION PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The nature of the Corporation's business results in claims or litigation against the Corporation for damages arising from the conduct of its employees or others. Except for routine litigation incidental to the business of the Corporation, there are no pending material legal proceedings to which the Corporation or any of its subsidiaries is a party or to which any of their property is subject. The Corporation believes that the outcome of the proceedings to which it is currently a party will not have a material adverse effect upon its operations or financial condition. ITEM 2. CHANGES IN SECURITIES Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - 27 Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K - The Corporation did not file a Form 8-K during the third quarter of 1997. Page 14 of 15

15 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. November 12, 1997 /s/ JOHN G. O'ROURKE ------------------------------------- John G. O'Rourke Senior Vice President - Finance, Chief Financial Officer and Treasurer Page 15 of 15

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 28, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE FISCAL PERIOD ENDING SEPTEMBER 28, 1997. 1,000 9-MOS DEC-28-1997 DEC-30-1996 SEP-28-1997 24,889 0 32,803 0 0 65,055 32,790 4,316 124,149 16,389 417 0 0 221 96,698 124,149 0 147,840 0 127,765 0 0 0 12,809 5,001 8,492 0 0 0 8,492 .37 .37