-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BL3Ost57UUGSFUVbiIbkyidAAJJ8U5UmN5cxjZS6Dx6qjgyG9xnrQPhlcNtv2vvP fxC22kh6mOOlKFO4/MFJSA== 0000950144-01-501759.txt : 20010510 0000950144-01-501759.hdr.sgml : 20010510 ACCESSION NUMBER: 0000950144-01-501759 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010401 FILED AS OF DATE: 20010509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACKENHUT CORRECTIONS CORP CENTRAL INDEX KEY: 0000923796 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-FACILITIES SUPPORT MANAGEMENT SERVICES [8744] IRS NUMBER: 650043078 STATE OF INCORPORATION: FL FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24438 FILM NUMBER: 1627133 BUSINESS ADDRESS: STREET 1: 4200 WACKENHUT DR STREET 2: #100 CITY: PALM BEACH GARDENS STATE: FL ZIP: 33410 BUSINESS PHONE: 3056627396 MAIL ADDRESS: STREET 1: 4200 WACKENHUT DR 100 CITY: PALM BEACH GARDENS STATE: FL ZIP: 33410-4243 10-Q 1 g69135e10-q.txt WACKENHUT CORRECTIONS CORP. FORM 10-Q 4-1-2001 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended April 1, 2001 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 (I.R.S. Employer of incorporation or organization) Identification No.) 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 May 4, 2001, 21,013,024 shares of the registrant's Common Stock were issued and outstanding. 2 WACKENHUT CORRECTIONS CORPORATION PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following consolidated financial statements of Wackenhut Corrections Corporation, a Florida corporation (the "Company"), have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles. Certain amounts in the prior year have been reclassified to conform to the current presentation. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information for the interim periods reported have been made. Results of operations for the thirteen weeks ended April 1, 2001 are not necessarily indicative of the results for the entire fiscal year ending December 30, 2001. Page 2 of 17 3 WACKENHUT CORRECTIONS CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTEEN WEEKS ENDED APRIL 1, 2001 AND APRIL 2, 2000 (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
THIRTEEN WEEKS ENDED ---------------------------------- APRIL 1, 2001 APRIL 2, 2000 ---------------- ---------------- Revenues ..................................................... $ 135,003 $ 130,508 Operating expenses (including amounts related to The Wackenhut Corporation ("TWC") of $5,139 and $2,597) .................. 124,070 116,705 Depreciation and amortization ................................ 2,457 2,082 --------- --------- Contribution from operations ............................. 8,476 11,721 G&A expense (including amounts related to TWC of $785 and $926) .................................... 5,933 6,152 --------- --------- Operating income ......................................... 2,543 5,569 Interest income (including amounts related to TWC of $2 and $--) ....................................... 592 699 Interest expense (including amounts related to TWC of $(15) and ($20)) .................................. (363) (160) --------- --------- Income before income taxes and equity in earnings of affiliates ............................................ 2,772 6,108 Provision for income taxes ................................... 1,082 2,449 --------- --------- Income before equity in earnings of affiliates ............... 1,690 3,659 Equity in earnings of affiliates, net of income tax provision of $628 and $756 ............................... 942 1,130 --------- --------- Net income ................................................... $ 2,632 $ 4,789 ========= ========= Basic earnings per share: Net income ............................................... $ 0.13 $ 0.22 ========= ========= Basic weighted average shares outstanding ................ 21,013 21,402 ========= ========= Diluted earnings per share: Net income ............................................... $ 0.12 $ 0.22 ========= ========= Diluted weighted average shares outstanding .............. 21,173 21,577 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. Page 3 of 17 4 WACKENHUT CORRECTIONS CORPORATION CONSOLIDATED BALANCE SHEETS APRIL 1, 2001 AND DECEMBER 31, 2000 (IN THOUSANDS EXCEPT SHARE DATA)
APRIL 1, 2001 DECEMBER 31, 2000 -------------------- ------------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ............................. $ 24,097 $ 33,821 Accounts receivable, less allowance for doubtful accounts of $2,218 and $1,262 ...................... 78,816 80,508 Deferred income tax asset ............................. 4,675 4,124 Other ................................................. 11,846 11,184 --------- --------- Total current assets ..................... 119,434 129,637 Property and equipment, net ................................ 54,557 54,620 Investments in and advances to affiliates .................. 16,674 30,610 Goodwill, net .............................................. 1,220 1,398 Deferred income tax asset .................................. 1,202 1,963 Other ...................................................... 5,039 5,343 --------- --------- $ 198,126 $ 223,571 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ...................................... $ 15,412 $ 18,351 Accrued payroll and related taxes ..................... 13,652 12,744 Accrued expenses ...................................... 36,804 39,548 Current portion of deferred revenue ................... 2,869 2,993 --------- --------- Total current liabilities ................ 68,737 73,636 --------- --------- Long-term debt ............................................. 5,000 10,000 --------- --------- Deferred revenue ........................................... 11,974 12,771 --------- --------- Commitments and contingencies (Note 7) Shareholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized ...................... -- -- Common stock, $.01 par value, 30,000,000 shares authorized, 21,013,024 shares issued and outstanding ....................................... 210 210 Additional paid-in capital ............................ 61,992 61,992 Retained earnings ..................................... 73,089 70,457 Accumulated other comprehensive loss .................. (22,876) (5,495) --------- --------- Total shareholders' equity ............... 112,415 127,164 --------- --------- $ 198,126 $ 223,571 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. Page 4 of 17 5 WACKENHUT CORRECTIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED APRIL 1, 2001 AND APRIL 2, 2000 (IN THOUSANDS) (UNAUDITED)
THIRTEEN WEEKS ENDED ---------------------------------------------------- APRIL 1, 2001 APRIL 2, 2000 ------------------------- ------------------------ Cash flows from operating activities: Net income ........................................................ $ 2,632 $ 4,789 Adjustments to reconcile net income to net cash used in operating activities-- Depreciation and amortization expense ........................ 2,457 2,082 Deferred tax provision (benefit) ............................. 210 (234) Provision for bad debt expense ............................... 977 382 Equity in earnings of affiliates ............................. (942) (1,130) Changes in assets and liabilities -- (Increase) decrease in assets: Accounts receivable .......................................... (922) (10,085) Other current assets ......................................... (1,343) (818) Other assets ................................................. 298 (3,777) Increase (decrease) in liabilities: Accounts payable and accrued expenses ........................ (4,369) 3,436 Accrued payroll and related taxes ............................ 1,173 1,358 Deferred revenue ............................................. (921) (593) -------- -------- Net cash used in operating activities ............................. (750) (4,590) -------- -------- Cash flows from investing activities: Investments in affiliates ......................................... (115) (169) Repayments of investments in affiliates ........................... 1,685 157 Capital expenditures .............................................. (2,960) (10,304) -------- -------- Net cash used in investing activities ............................. (1,390) (10,316) -------- -------- Cash flows from financing activities: Payments on debt .................................................. (5,000) -- Proceeds from issuance of debt .................................... -- 6,000 Advances from The Wackenhut Corporation ........................... 4,138 1,011 Repayments to The Wackenhut Corporation ........................... (4,138) (1,011) Repurchase of common stock ........................................ -- (4,245) -------- -------- Net cash (used in) provided by financing activities ............... (5,000) 1,755 -------- -------- Effect of exchange rate changes on cash .................................... (2,584) (706) Net decrease in cash ....................................................... (9,724) (13,857) Cash, beginning of period .................................................. 33,821 41,029 -------- -------- Cash, end of period ........................................................ $ 24,097 $ 27,172 ======== ======== Supplemental disclosures: Cash paid for income taxes ........................................ $ 118 $ 2,153 ======== ======== Cash paid for interest ............................................ $ 226 $ 28 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. Page 5 of 17 6 WACKENHUT CORRECTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The accounting policies followed for 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 26, 2001 for the fiscal year ended December 31, 2000. Certain prior year amounts have been reclassified to conform with current year financial statement presentation. The Company adopted Statement of Financial Accounting Standards No.133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No.137 and 138, on January 1, 2001. 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. The Company's 50% owned equity affiliate operating in the United Kingdom has entered into interest rate swaps to fix the interest rate it receives on its variable rate credit facility. Management of the Company has determined the swaps to be effective cash flow hedges. Accordingly, the Company recorded its share of the affiliate's change in other comprehensive income as a result of applying SFAS 133. The adoption of SFAS 133 resulted in approximately a $14 million reduction in shareholders' equity in the Company's financial statements for the quarter ended April 1, 2001. 2. DOMESTIC AND INTERNATIONAL OPERATIONS A summary of domestic and international operations is presented below (dollars in thousands): THIRTEEN WEEKS ENDED ------------------------------------ APRIL 1, 2001 APRIL 2, 2000 -------------- -------------- REVENUES Domestic operations ........... $110,702 $102,197 International operations....... 24,301 28,311 -------- -------- Total revenues ............... $135,003 $130,508 ======== ======== OPERATING INCOME Domestic operations ........... $ 1,278 $ 1,651 International operations....... 1,265 3,918 -------- -------- Total operating income....... $ 2,543 $ 5,569 ======== ======== AS OF ------------------------------------ LONG-LIVED ASSETS APRIL 1, 2001 DECEMBER 31, 2000 ------------- ----------------- Domestic operations ............ $ 49,129 $ 48,274 International operations ....... 5,428 6,346 -------- -------- Total long-lived assets...... $ 54,557 $ 54,620 ======== ======== Long-lived assets consist of property, plant and equipment. Page 6 of 17 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). THIRTEEN WEEKS ENDED ------------------------------------------ APRIL 1, 2001 APRIL 2, 2000 -------------------- ------------------ STATEMENT OF OPERATIONS DATA Revenues ................... $ 32,969 $ 37,124 Operating income ........... 6,361 7,889 Net income ................. 1,956 2,260 BALANCE SHEET DATA Current assets ............. $ 65,226 $ 51,251 Noncurrent assets .......... 276,547 236,840 Current liabilities ........ 30,205 20,170 Noncurrent liabilities ..... 284,693 247,014 Stockholders' equity ....... 26,875 20,907 In addition, during the later part of 2000, the Company began developing a correctional facility and preparing for facility operation in South Africa through 50% owned affiliates. The following table summarizes certain financial information pertaining to these unconsolidated foreign affiliates, on a combined basis (dollars in thousands). THIRTEEN WEEKS ENDED ---------------------- APRIL 1, 2001 ---------------------- STATEMENT OF OPERATIONS DATA Revenues.................................... $ -- Operating loss.............................. (166) Net loss.................................... (72) BALANCE SHEET DATA Current assets.............................. $ 4,323 Noncurrent assets........................... 21,530 Current liabilities......................... 28 Noncurrent liabilities...................... 19,336 Stockholders' equity........................ 6,489 Page 7 of 17 8 WACKENHUT CORRECTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. COMPREHENSIVE INCOME (LOSS) 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 (loss) are as follows (dollars in thousands):
THIRTEEN WEEKS ENDED --------------------------------------------- APRIL 1, 2001 APRIL 2, 2000 -------------------- ------------------- Net income ................................................ $ 2,632 $ 4,789 Foreign currency translation adjustments, net of income tax benefit of $2,295 and $1,077, respectively ........... (3,443) (1,609) Unrealized loss on affiliate's derivative instruments ..... (13,938) -- -------- ------- Comprehensive income (loss) ............................... $(14,749) $ 3,180 ======== =======
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). THIRTEEN WEEKS ENDED -------------------------------------- APRIL 1, 2001 APRIL 2, 2000 ----------------- ----------------- Net Income ................... $ 2,632 $ 4,789 Basic earnings per share: Weighted average shares outstanding ................ 21,013 21,402 ======= ======= Per share amount ............. $ 0.13 $ 0.22 ======= ======= Diluted earnings per share: Weighted average shares outstanding ................ 21,013 21,402 Effect of dilutive securities: Employee and director stock options .................... 160 175 ------- ------- Weighted average shares assuming dilution .......... 21,173 21,577 ======= ======= Per share amount ............. $ 0.12 $ 0.22 ======= ======= Page 8 of 17 9 WACKENHUT CORRECTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. EARNINGS PER SHARE (CONTINUED) Options to purchase 889,500 shares of the Company's common stock, with exercise prices ranging from $9.30 to $26.88 per share and expiration dates between 2005 and 2011, were outstanding at April 1, 2001, but were not included in the computation of diluted EPS because their effect would be anti-dilutive if exercised. At April 2, 2000, outstanding options to purchase 766,200 shares of the Company's common stock, with exercise prices ranging from $11.88 to $26.88 and expiration dates between 2005 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 five-year, $30.0 million multi-currency revolving credit facility with a syndicate of banks, the proceeds of which may be used for working capital, acquisitions and general corporate purposes. The credit facility also includes a letter of credit facility of up to $5.0 million for the issuance of standby letters of credit. Indebtedness under this facility bears interest at the alternate base rate (defined as the higher of prime rate or federal funds plus 0.5%) or LIBOR plus 150 to 250 basis points, depending upon fixed charge coverage ratios. At April 1, 2001, the interest rate for this facility was 6.7%. The facility requires the Company to, among other things, maintain a maximum leverage ratio; minimum fixed charge coverage ratio; and a minimum tangible net worth. The facility also limits certain payments and distributions. At April 1, 2001, $5.0 million was outstanding under this facility. In addition, at April 1, 2001, the Company had six standby letters of credit in an aggregate amount of approximately $2.8 million. Availability related to these instruments at April 1, 2001 was $25.0 million. At April 1, 2001, the Company also had twelve letters of guarantee totaling approximately $12.8 million under separate international facilities. 6. COMMON SHARES REPURCHASED AND RETIRED On February 18, 2000, the Company's Board of Directors authorized the repurchase of up to 500,000 shares of its common stock, in addition to the 1,000,000 shares previously authorized for repurchase. As of April 1, 2001, the Company had repurchased and retired 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. 7. COMMITMENTS AND CONTINGENCIES In December 1999, a Travis County, Texas grand jury indicted twelve of the Company's former facility employees for various types of sexual misconduct. Management believes these indictments are not expected to have any material financial impact on the Company. Eleven of the twelve indicted former employees already resigned from or had been terminated by the Company as a result of Company-initiated investigations over the course of the prior three years. The Company is not providing counsel to assist in the defense of these twelve individuals. The District Attorney in Travis County continues to review Company documents at the Travis County Facility. At this time the Company cannot predict the outcome of this investigation. Page 9 of 17 10 WACKENHUT CORRECTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) During the third quarter of 2000, the Company recorded an operating charge of $3.8 million ($2.3 million after tax) for the 276-bed Jena Juvenile Justice Center in Jena, Louisiana. The charge represented the expected losses to be incurred on the lease with Correctional Properties Trust ("CPV"), including lease costs and property taxes. Management estimates that the facility will remain inactive through the end of 2001. The Company is continuing its efforts to sublease or find an alternative correctional use for the facility. If the Company is unable to sublease or find an alternative correctional use for the facility by the end of 2001, there would be an adverse impact on the Company's financial position, future results of operations and future cash flows. Page 10 of 17 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 December 31, 2000, filed with the Securities and Exchange Commission on March 26, 2001, for further discussion and analysis of information pertaining to the Company's results of operations, liquidity and capital resources. FORWARD-LOOKING STATEMENTS: The management's discussion and analysis of financial condition and results of operations and the May 3, 2001 press release announcing earnings contain forward-looking statements that are based on current expectations, estimates and projections about the industry in which the Company operates. This section of the quarterly report also includes beliefs and assumptions made by management. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Future Factors include, but are not limited to, (1) the Company's ability to timely open facilities as planned, profitably manage such facilities and successfully integrate such facilities into the Company without substantial costs; (2) the instability of foreign exchange rates, exposing the Company to currency risks in Australia, New Zealand, South Africa and the United Kingdom; (3) an increase in unreimbursed labor rates; (4) the Company's ability to expand correctional services and diversify its services in the mental health services market; (5) the Company's ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (6) the Company's ability to raise capital given the short-term nature of the customers' commitment to the use of the Company's facilities; (7) the Company's ability to expand its core capabilities pursuant to its organizational restructuring program implemented in 2000; (8) the Company's ability to lease or sell the Jena Louisiana Facility; (9) the Company's ability to timely terminate services with the Arkansas Department of Correction without substantial costs; (10) the Company's ability to project the size and growth of the U.S. privatized corrections industry; (11) the Company's ability to estimate the government's level of dependency on privatization; (12) the Company's ability to create long-term earnings visibility; (13) the Company's ability to obtain future low-interest financing; and (14) other future factors including, but not limited to, 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 and other factors contained in the Company's Securities and Exchange Commission filings, including the prospectus dated January 23, 1996, and its current Form 10-K, 10-Q and 8-K reports. Page 11 of 17 12 WACKENHUT CORRECTIONS CORPORATION LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity are from operations, borrowings under its credit facilities, and sale of its right to acquire prison facilities. Cash and cash equivalents as of April 1, 2001 were $24.1 million, a decrease of $9.7 million from December 31, 2000. Cash used in operating activities amounted to $0.8 million in the thirteen weeks ended April 1, 2001 ("First Quarter 2001") versus cash used in operating activities of $4.6 million in the thirteen weeks ended April 2, 2000 ("First Quarter 2000") primarily reflecting lower balances in accounts receivable and accounts payable and accrued expenses. Cash used in investing activities decreased by $8.9 million in the First Quarter 2001 as compared to First Quarter 2000. The decrease was primarily the result of lower capital expenditures. The First Quarter 2000 included expenditures for the construction of the San Diego facility. Cash used in financing activities was $5.0 million in the First Quarter 2001 as compared to cash provided by financing activities of $1.8 million in First Quarter 2000. The change was primarily due to the payment of $5.0 million of long-term debt. Working capital decreased from $56.0 million at December 31, 2000 to $50.7 million at April 1, 2001 primarily due to the decrease in cash and cash equivalents and accounts receivable offset by a decrease in accounts payable. As of April 1, 2001, the Company has operating leases utilizing approximately $154.3 million of the Company's $220 million operating lease facility. The Company has $5.0 million outstanding of its $30 million multi-currency revolving credit facility. This facility may also fund new project development. The Company's access to capital and ability to compete for future capital intensive projects is dependent upon, among other things, its ability to meet certain financial covenants included in the $220 million operating lease facility and the Company's $30 million revolving credit facility. A substantial decline in the Company's financial performance as a result of an increase in operational expenses relative to revenue could negatively impact the Company's ability to meet these covenants, and could therefore, limit the Company's access to capital. RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes thereto. COMPARISON OF THIRTEEN WEEKS ENDED APRIL 1, 2001 AND THIRTEEN WEEKS ENDED APRIL 2, 2000 Revenues increased by 3.4% to $135.0 million in the thirteen weeks ended April 1, 2001 from $130.5 million in the thirteen weeks ended April 2, 2000. Approximately $12.8 million of the increase in revenues in First Quarter 2001 compared to First Quarter 2000 is attributable to increased compensated resident days resulting from the opening of two facilities in 2000 (Auckland Central Page 12 of 17 13 WACKENHUT CORRECTIONS CORPORATION Remand Prison, Auckland, New Zealand in July 2000 and the Western Region Detention Facility at San Diego, San Diego, California in July, 2000) and the opening of two facilities in 2001 (Val Verde Correctional Facility, Del Rio, Texas in January 2001 and the Rivers Correctional Institution, Winton, North Carolina in March 2001). Revenues decreased by approximately $7.1 million in the First Quarter 2001 compared to First Quarter 2000 due to the substantial completion of construction of South Florida State Hospital. Revenues also decreased by approximately $1.7 million in First Quarter 2001 as compared to the same period in 2000 due to the cessation of operations at the Jena Juvenile Justice Center. The balance of the increase in revenues was attributable to facilities open during all of both periods and increases in per diem rates. The number of compensated resident days in domestic facilities increased to 2,295,225 in First Quarter 2001 from 2,165,872 in First Quarter 2000. The average facility occupancy in domestic facilities was 96.9% of capacity in First Quarter 2001 compared to 97.3% in First Quarter 2000. Compensated resident days in Australian facilities decreased to 449,999 from 486,346 for the comparable periods primarily due to lower compensated resident days at the immigration detention facilities. Operating expenses increased by 6.3% to $124.1 million in First Quarter 2001 compared to $116.7 million in First Quarter 2000. As a percentage of revenue, operating expenses increased to 91.9% in First Quarter 2001 from 89.4% in the comparable period in 2000. This increase primarily reflects $3.5 million in start-up costs related to the opening of the Val Verde, Texas and Winton, North Carolina facilities as well as a full quarter's operating expenses for the two facilities opened in 2000. Additionally, there are secondary factors contributing to the increase including expenses related to construction activities and increases in general and comprehensive liability insurance premiums. The Company continues to incur increasing insurance costs due to adverse claims experience. The Company is implementing 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. Unanticipated additional insurance costs could adversely impact the Company's Fiscal 2001 results of operations. Depreciation and amortization increased to $2.5 million in First Quarter 2001 from $2.1 million in First Quarter 2000. As a percentage of revenue, depreciation and amortization slightly increased to 1.8% in First Quarter 2001 from 1.6% in the First Quarter 2000. 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 27.7% to $8.5 million in First Quarter 2001 from $11.7 million in First Quarter 2000. As a percentage of revenue, contribution from operations decreased to 6.3% in First Quarter 2001 from 9.0% in First Quarter 2000. This decrease is primarily due to start-up costs and the other factors impacting the increase in operating expenses and depreciation and amortization expense as discussed above. General and administrative expenses decreased 3.6% to $5.9 million in First Quarter 2001 from $6.2 million in First Quarter 2000. As a percentage of revenue, general and administrative expenses decreased to 4.4% in First Quarter 2001 from 4.7% in First Quarter 2000. The decrease reflects a reduction in costs related to the Company's services agreement with The Wackenhut Corporation as well as lower consulting and professional fees. Operating income decreased by 54.3% to $2.5 million in First Quarter 2001 from $5.6 million in First Quarter 2000. As a percentage of revenue, operating income Page 13 of 17 14 WACKENHUT CORRECTIONS CORPORATION decreased to 1.9% in First Quarter 2001 from 4.3% in First Quarter 2000 due to start-up costs and the factors impacting contribution from operations and general and administrative expenses. Interest income was $0.6 million during First Quarter 2001 compared to $0.7 million in First Quarter 2000 resulting from a decrease in invested cash and a reduction in interest earnings from subordinated debt. Interest expense was $0.4 million during First Quarter 2001 compared to $0.2 million in First Quarter 2000 resulting from increased interest expense on the revolving credit facility. Income before income taxes and equity in earnings of affiliates decreased to $2.8 million in First Quarter 2001 from $6.1 million in First Quarter 2000 due to the factors described above. Provision for income taxes decreased to $1.1 million in First Quarter 2001 from $2.4 million in First Quarter 2000 due to lower taxable income. Equity in earnings of affiliates, net of income tax provision, decreased to $0.9 million in First Quarter 2001 from $1.1 million in First Quarter 2000 due primarily to the devaluation of the British pound relative to the U.S. dollar. Net income decreased to $2.6 million in First Quarter 2001 from $4.8 million in First Quarter 2000 as a result of the factors described above. Page 14 of 17 15 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 December 31, 2000, for discussion pertaining to the Company's exposure to certain market risks. There have been no material changes in the disclosure for the thirteen weeks ended April 1, 2001. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In December 1999, a Travis County, Texas grand jury indicted twelve of the Company's former facility employees for various types of sexual misconduct. Management believes these indictments are not expected to have any material financial impact on the Company. Eleven of the twelve indicted former employees already resigned from or had been terminated by the Company as a result of Company-initiated investigations over the course of the prior three years. The Company is not providing counsel to assist in the defense of these twelve individuals. The District Attorney in Travis County continues to review Company documents at the Travis County Facility. At this time the Company cannot predict the outcome of this investigation. The nature of the Company's business results in claims or litigation against the Company for damages arising from the conduct of its 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. The Company believes that if the outcome of the proceedings to which it is currently a party is unfavorable, the Company could have a material adverse effect upon its operations or financial condition. ITEM 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. Page 15 of 17 16 WACKENHUT CORRECTIONS CORPORATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None. (b) Reports on Form 8-K - The Company did not file a current report on Form 8-K during the thirteen weeks ended April 1, 2001. Page 16 of 17 17 WACKENHUT CORRECTIONS CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WACKENHUT CORRECTIONS CORPORATION MAY 9, 2001 /s/ JOHN G. O'ROURKE - ------------------- -------------------------------------------- Date John G. O'Rourke Senior Vice President - Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) Page 17 of 17 -----END PRIVACY-ENHANCED MESSAGE-----