1
FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

For the quarterly period ended July 1, 2001

[ ] 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 August 7, 2001, 21,057,224 shares of the registrant's Common Stock were
issued and outstanding.

Page 1 of 20

WACKENHUT CORRECTIONS CORPORATION

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The following consolidated financial statements of Wackenhut Corrections
Corporation, a Florida corporation (the "Company"), have been prepared in
accordance with the instructions to Form 10-Q and, therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
Certain amounts in the prior year have been reclassified to conform to the
current presentation. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
financial information for the interim periods reported have been made. Results
of operations for the twenty-six weeks ended July 1, 2001 are not necessarily
indicative of the results for the entire fiscal year ending December 30, 2001.

Page 2 of 20
3

WACKENHUT CORRECTIONS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED
JULY 1, 2001 AND JULY 2, 2000
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------------------- -----------------------------------
JULY 1, 2001 JULY 2, 2000 JULY 1, 2001 JULY 2, 2000
---------------- ---------------- ---------------- ----------------

Revenues .......................................... $ 141,715 $ 133,875 $ 276,718 $ 264,383

Operating expenses (including amounts related
to The Wackenhut Corporation ("TWC") of $4,936,
$3,125, $10,075 and $5,722) ................... 126,862 121,835 250,932 238,540

Depreciation and amortization ..................... 2,277 1,806 4,734 3,888
--------- --------- --------- ---------

Contribution from operations .................. 12,576 10,234 21,052 21,955

G&A expense (including amounts related to
TWC of $781, $954, $1,566 and $1,880) ......... 6,159 5,154 12,092 11,306
--------- --------- --------- ---------

Operating income .............................. 6,417 5,080 8,960 10,649

Interest income (including amounts related to
TWC of $3, $28, $5 and $28) .................. 531 741 1,123 1,440

Interest expense (including amounts related to
TWC of $13, $33, $28, and $53) ................ (268) (252) (631) (412)

Other income ...................................... -- 640 -- 640
--------- --------- --------- ---------

Income before income taxes and equity in earnings
of affiliates ................................. 6,680 6,209 9,452 12,317

Provision for income taxes ........................ 2,568 2,490 3,650 4,939
--------- --------- --------- ---------

Income before equity in earnings of affiliates .... 4,112 3,719 5,802 7,378

Equity in earnings of affiliates, net of income
tax provision of $807, $740, $1,435 and $1,496 .... 1,211 1,119 2,153 2,249
--------- --------- --------- ---------
Net income ........................................ $ 5,323 $ 4,838 $ 7,955 $ 9,627
========= ========= ========= =========

Basic earnings per share .......................... $ 0.25 $ 0.23 $ 0.38 $ 0.45
========= ========= ========= =========
Basic weighted average shares outstanding ......... 21,026 21,011 21,019 21,207
========= ========= ========= =========

Diluted earnings per share ........................ $ 0.25 $ 0.23 $ 0.37 $ 0.45
========= ========= ========= =========
Diluted weighted average shares outstanding ....... 21,246 21,142 21,211 21,360
========= ========= ========= =========

The accompanying notes to consolidated financial statements are
an integral part of these statements.

Page 3 of 20
4

WACKENHUT CORRECTIONS CORPORATION

CONSOLIDATED BALANCE SHEETS
JULY 1, 2001 AND DECEMBER 31, 2000
(IN THOUSANDS EXCEPT SHARE DATA)

JULY 1, 2001 DECEMBER 31, 2000
-------------------------- -------------------------
(UNAUDITED)

ASSETS
Current Assets:
Cash and cash equivalents ............................. $ 34,200 $ 33,821
Accounts receivable, less allowance for doubtful
accounts of $2,517 and $1,262 .................... 72,974 80,508
Deferred income tax asset ............................. 5,063 4,124
Other ................................................. 12,127 11,184
--------- ---------
Total current assets ..................... 124,364 129,637

Property and equipment, net ................................ 54,203 54,620
Investments in and advances to affiliates .................. 22,281 30,610
Goodwill, net .............................................. 1,175 1,398
Deferred income tax asset .................................. 1,108 1,963
Other ...................................................... 6,958 5,343
--------- ---------
$ 210,089 $ 223,571
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ...................................... $ 14,624 $ 18,351
Accrued payroll and related taxes ..................... 14,664 12,744
Accrued expenses ...................................... 41,100 39,548
Current portion of deferred revenue ................... 2,846 2,993
--------- ---------
Total current liabilities ................ 73,234 73,636
--------- ---------
Long-term debt ............................................. -- 10,000
Deferred revenue ........................................... 11,269 12,771
Other ...................................................... 1,995 --
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized ...................... -- --
Common stock, $.01 par value,
30,000,000 shares authorized,
21,057,224 and 21,013,024 shares
issued and outstanding ............................ 211 210
Additional paid-in capital ............................ 62,341 61,992
Retained earnings ..................................... 78,412 70,457
Accumulated other comprehensive loss .................. (17,373) (5,495)
--------- ---------
Total shareholders' equity ............... 123,591 127,164
--------- ---------
$ 210,089 $ 223,571
========= =========

The accompanying notes to consolidated financial statements are
an integral part of these balance sheets.

Page 4 of 20
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WACKENHUT CORRECTIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED
JULY 1, 2001 AND JULY 2, 2000
(IN THOUSANDS)
(UNAUDITED)

TWENTY-SIX WEEKS ENDED
-----------------------------------------------
JULY 1, 2001 JULY 2, 2000
------------------------ --------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 7,955 $ 9,627
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization expense ........................ 4,734 3,888
Deferred tax (benefit) ....................................... (84) (728)
Tax benefit related to employee stock options ................ 168 --
Provision for bad debts ...................................... 1,940 859
Gain on sale of loans receivable ............................. -- (640)
Equity in earnings of affiliates ............................. (2,153) (2,249)

Changes in assets and liabilities --
(Increase) decrease in assets:
Accounts receivable .......................................... 4,602 447
Other current assets ......................................... (1,572) (646)
Other assets ................................................. (1,602) (3,593)

Increase (decrease) in liabilities:
Accounts payable and accrued expenses ........................ (2,275) 7,893
Accrued payroll and related taxes ............................ 2,107 793
Deferred revenue ............................................. (1,649) (591)
Other liabilities ............................................ 1,995 --
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................... 14,166 15,060
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates ......................................... (30) (1,135)
Repayments of investments in affiliates ........................... 2,888 157
Proceeds from the sale of loans receivable ........................ -- 2,461
Capital expenditures .............................................. (4,577) (14,864)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ........................ (1,719) (13,381)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to The Wackenhut Corporation ............................. 15,493 31,903
Repayments from The Wackenhut Corporation ......................... (15,493) (31,903)
Proceeds from long-term debt ...................................... -- 9,000
Payments of long-term debt ........................................ (10,000) --
Proceeds from exercise of stock options ........................... 182 --
Repurchase of common stock ........................................ -- (4,933)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .......... (9,818) 4,067
-------- --------
Effect of exchange rate changes on cash .................................... (2,250) (1,037)
Net increase in cash ....................................................... 379 4,709
Cash, beginning of period .................................................. 33,821 41,029
-------- --------
CASH, END OF PERIOD ........................................................ $ 34,200 $ 45,738
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes ........................................ $ 1,201 $ 4,543
======== ========
Cash paid for interest ............................................ $ 366 $ 80
======== ========

The accompanying notes to consolidated financial statements are
an integral part of these statements.

Page 5 of 20
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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 26, 2001 for the fiscal year ended December 31, 2000.

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. As of July 1, 2001, the swaps approximated $9 million which
is reflected as a reduction in shareholders' equity in the Company's financial
statements for the quarter ended July 1, 2001.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), "Business Combinations." SFAS 141 addresses financial
accounting and reporting for business combinations and supercedes APB No. 16,
"Business Combinations" and SFAS No. 38 " Accounting for Preacquistion
Contingencies of Purchased Enterprises." All business combinations in the scope
of SFAS 141 are to be accounted for under the purchase method. SFAS 141 is
effective June 30, 2001. The adoption of SFAS 141 did not have an impact on the
Company's financial position, results of operations or cash flows.

In June 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible
Assets." SFAS 142 addresses financial accounting and reporting for intangible
assets acquired individually or with a group of other assets (but not those
acquired in a business combination) at acquisition. SFAS 142 also addresses
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. With the adoption of SFAS 142, goodwill is no
longer subject to amortization. Rather, goodwill will be subject to at least an
annual assessment for impairment by applying a fair value based test. The
impairment loss is the amount, if any, by which the implied fair value of
goodwill is less than the carrying or book value. SFAS 142 is effective for
fiscal years beginning after December 15, 2001. Impairment loss for goodwill
arising from the initial application of SFAS 142 is to be reported as resulting
from a change in accounting principle. The Company is currently assessing the
impact of adopting SFAS 142, but does not believe the impact will be material to
its financial position, results of operations or cash flows in the year of
adoption.

Page 6 of 20
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WACKENHUT CORRECTIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

2. DOMESTIC AND INTERNATIONAL OPERATIONS

A summary of domestic and international operations is presented below (dollars
in thousands):

THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------------------- --------------------------------------
JULY 1, 2001 JULY 2, 2000 JULY 1, 2001 JULY 2, 2000
------------------- ------------------- ------------------- -------------------

REVENUES
Domestic operations .... $115,630 $105,115 $226,332 $207,312
International operations 26,085 28,760 50,386 57,071
-------- -------- -------- --------
Total revenues ........ $141,715 $133,875 $276,718 $264,383
======== ======== ======== ========

OPERATING INCOME
Domestic operations ..... $ 5,506 $ 2,273 $ 6,771 $ 3,924
International operations 911 2,807 2,189 6,725
-------- -------- -------- --------
Total operating income $ 6,417 $ 5,080 $ 8,960 $ 10,649
======== ======== ======== ========

AS OF
-----------------------------------
JULY 1, 2001 DECEMBER 31, 2000
------------- -----------------
LONG-LIVED ASSETS
Domestic operations ...... $48,493 $48,274
International operations . 5,710 6,346
------- -------
Total long-lived assets $54,203 $54,620
======= =======

Long-lived assets consist of property, plant and equipment.

The Company has affiliates (50% or less owned) that provide correctional and
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).

TWENTY-SIX WEEKS ENDED
-------------------------------------------
JULY 1, 2001 JULY 2, 2000
------------------- ---------------------
STATEMENT OF OPERATIONS DATA
Revenues ................... $ 70,229 $ 72,114
Operating income ........... 13,767 15,639
Net income ................. 4,556 4,498

BALANCE SHEET DATA
Current Assets ............. $ 58,937 $ 60,531
Noncurrent Assets .......... 287,351 248,561
Current liabilities ........ 34,581 29,467
Noncurrent liabilities ..... 283,165 258,685
Stockholders' equity ....... 28,542 20,940

Page 7 of 20
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WACKENHUT CORRECTIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

2. DOMESTIC AND INTERNATIONAL OPERATIONS (CONTINUED)

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).

TWENTY-SIX WEEKS ENDED
JULY 1, 2001
---------------------
STATEMENT OF OPERATIONS DATA
Revenues ................... $ --
Operating loss ............. (377)
Net loss ................... (250)

BALANCE SHEET DATA

Current Assets ............. $ 5,523
Noncurrent Assets .......... 30,535
Current liabilities ........ 49
Noncurrent liabilities ..... 29,684
Stockholders' equity ....... 6,325

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 are as follows (dollars in thousands):

THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------------------- --------------------------------------
JULY 1, 2001 JULY 2, 2000 JULY 1, 2001 JULY 2, 2000
----------------- ----------------- ----------------- -----------------

Net income ................................ $ 5,323 $ 4,838 $ 7,955 $ 9,627
Foreign currency translation adjustments,
net of income tax (expense) benefit of
($416), $191, $1,879 and $1,268,
respectively .......................... 624 (285) (2,819) (1,894)
Cumulative effect of change in accounting
principle related to affiliate's
derivative instruments, net of income
tax benefit of $--, $--, $8,062, $--,
respectively .......................... -- -- (12,093) --
Unrealized gain (loss) on affiliate's
derivative instruments, net of income
tax expense of $3,253, $--, $2,023,
$--, respectively ..................... 4,879 -- 3,034 --
-------- -------- -------- --------
Comprehensive income (loss) ............... $ 10,826 $ 4,553 $ (3,923) $ 7,733
======== ======== ======== ========

Page 8 of 20
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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).

THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------------------- -------------------------------------
JULY 1, 2001 JULY 2, 2000 JULY 1, 2001 JULY 2, 2000
----------------- ----------------- ---------------- ----------------

Net Income ................... $ 5,323 $ 4,838 $ 7,955 $ 9,627

Basic earnings per share:
Weighted average shares
outstanding ................ 21,026 21,011 21,019 21,207
======= ======= ======= =======
Per share amount ............. $ 0.25 $ 0.23 $ 0.38 $ 0.45
======= ======= ======= =======
Diluted earnings per share:
Weighted average shares
outstanding ................ 21,026 21,011 21,019 21,207
Effect of dilutive securities:
Employee and director stock
options .................... 220 131 192 153
------- ------- ------- -------
Weighted average shares
assuming dilution .......... 21,246 21,142 21,211 21,360
======= ======= ======= =======
Per share amount ............. $ 0.25 $ 0.23 $ 0.37 $ 0.45
======= ======= ======= =======

Options to purchase 521,000 shares of the Company's common stock, with exercise
prices ranging from $13.75 to $26.88 per share and expiration dates between 2005
and 2009, were outstanding at the thirteen weeks ended July 1, 2001, but were
not included in the computation of diluted EPS because their effect would be
anti-dilutive if exercised. At the thirteen weeks ended July 2, 2000,
outstanding options to purchase 1,051,200 shares of the Company's common stock,
with exercise prices ranging from $7.88 to $26.88 and expiration dates between
2005 and 2010, were also excluded from the computation of diluted EPS because
their effect would be anti-dilutive if exercised.

Options to purchase 629,000 shares of the Company's common stock, with exercise
prices ranging from $11.88 to $26.88 per share and expiration dates between 2005
and 2011, were outstanding at the twenty-six weeks ended July 1, 2001, but were
not included in the computation of diluted EPS because their effect would be
anti-dilutive if exercised. At the twenty-six weeks ended July 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.

Page 9 of 20
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WACKENHUT CORRECTIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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. 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 July 1, 2001, no amount was outstanding
under this facility. In addition, at July 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 July 1, 2001 was $30.0 million. At
July 1, 2001, the Company also had twelve letters of guarantee totaling
approximately $12.6 million under separate international facilities.

6. COMMITMENTS AND CONTINGENCIES

The Company previously disclosed that the Travis County, Texas District Attorney
was reviewing certain Company documents related to the operation of the
Company's facility in Travis County, Texas. The Company no longer operates the
facility and has no further information related to the document review.

During the third quarter of 2000, the Company recorded an operating charge of
$3.8 million ($2.3 million after tax) related to the lease of the 276-bed Jena
Juvenile Justice Center in Jena, Louisiana, which had been vacated. The charge
represented the expected losses to be incurred under the lease agreement with
Correctional Properties Trust ("CPV"), including lease costs and property taxes
for the second half of 2000 and all of 2001. At that time, management estimated
the Jena Facility would remain inactive through the end of 2001.

In June 2001, the Louisiana State Senate passed a resolution requesting the
Louisiana Department of Public Safety and Corrections to enter into discussions
and negotiations regarding the potential purchase of a facility in LaSalle
Parish. Subsequently, the State and the Company in coordination with CPV began
discussions regarding the sale of the Jena Facility located in LaSalle Parish.

In addition to these activities, the Company is continuing its efforts to
sublease or find an alternative correctional use for the Facility including a
sale of the Facility to a Federal agency. There can be no assurance that the
Company and CPV will be able to successfully negotiate with any of these
entities for the final sale or alternate use of the Facility. In the event the
Facility is sold or subleased at a loss, the Company would be required to
compensate CPV for such loss. If CPV does not complete a sale of the Facility
prior to December 30, 2001 or if the Company is unable to sublease or find an
alternative correctional use for the Facility during 2001, an additional charge
related to the Facility would be required. The Company estimates the impact of
any delay past December 30, 2001 to be approximately $2 million per year during
the period in which the Facility is expected to be vacant. The Company's total
remaining obligation under the lease agreement is approximately $16 million.

Page 10 of 20
11

WACKENHUT CORRECTIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)

On June 30, 2001, the Company's contract with the Arkansas Board of Correction
and Community Punishment and the Arkansas Department of Correction for the
management of the Grimes and McPherson correctional facilities expired and the
contract was discontinued by mutual agreement between the client and the
Company. Costs associated with the expiration of the contract were not
significant. Management believes that the expiration of the contract will not
have a material negative financial impact on the Company's future results of
operations or cash flows.

On July 11, 2001 the Company issued a 120-day notice to the Delaware County
Board of Prison Inspectors, pursuant to the terms of its contract, to
discontinue its operation of the George W. Hill Correctional Facility located in
Thornton, Pennsylvania effective November 11, 2001. Costs associated with the
discontinuation of this contract are not expected to be significant. The Company
does not expect the discontinuation of the management contract to have a
significant adverse impact on the Company's future results of operations or cash
flows.

In December 1997, the Company entered into a $220 million operating lease
facility established to acquire and develop new correctional institutions used
in its business. As a condition of this facility, the Company unconditionally
agreed to guarantee certain obligations of First Security Bank, National
Association, a party to the operating lease facility. These obligations include,
among other things, amounts equal to 88% of amounts outstanding under the
operating lease facility.

7. RETIREMENT AND DEFERRED COMPENSATION PLANS

During the quarter ending July 1, 2001, the Company established non-qualified
deferred compensation agreements with certain senior executives providing for
fixed annual benefits ranging from $150,000 to $250,000 payable upon retirement
at age 60 for a period of 25 years. In the event of death before retirement,
annual benefits are paid to beneficiaries for a period of 12.5 years. Currently,
the plan is not funded. The Company purchases and is the beneficiary of life
insurance policies for each participant enrolled in the plan. The cost of these
agreements is being charged to expense and accrued using a present value method
over the expected terms of employment. The related accumulated benefit
obligation is included in other liabilities on the accompanying consolidated
balance sheet.

Page 11 of 20
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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 Company's August 2, 2001
earnings press release contain forward-looking statements that are based on
current expectations, estimates and projections about the industry in which the
Company operates. This section of the 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, 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 sub-lease or
coordinate the sale of the Jena, Louisiana Facility with CPV; (9) the Company's
ability to timely terminate services with the Delaware County Board of Prison
Inspectors 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; (14) the Company's
exposure to rising general liability and workers' compensation insurance costs;
and (15) 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.

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WACKENHUT CORRECTIONS CORPORATION

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at July 1, 2001 of $34.2 million increased $0.4
million from December 31, 2000. Cash provided by operating activities amounted
to $14.2 million in the twenty-six weeks ended July 1, 2001 ("First Half 2001")
versus cash provided by operating activities of $15.1 million in twenty-six
weeks ended July 2, 2000 ("First Half 2000") primarily reflecting a decline in
net income.

Cash used in investing activities amounted to $1.7 million in the First Half
2001 compared to $13.4 million in the First Half 2000. The change is primarily a
result of fewer capital expenditures in the First Half 2001. In the First Half
2000, the Company also recognized a gain from the sale of a portion of the
Company's loan receivable from an overseas affiliate.

Cash used in financing activities in the First Half 2001 amounted to $9.8
million compared to cash provided by financing activities of $4.1 million in the
First Half 2000. The change is due primarily to the Company repaying $10.0
million of its long-term debt as compared to proceeds received by the Company of
$9.0 million in the First Half 2000.

Working capital decreased from $56.0 million at December 31, 2000 to $51.1
million at the end of the Second Quarter of 2001 primarily due to the paydown of
the Company's long-term debt.

The Company's access to capital and ability to compete for future capital
intensive projects is dependent upon, among other things, its ability to meet
certain financial covenants included in the $220 million operating lease
facility and the Company's $30 million revolving credit facility. A substantial
decline in the Company's financial performance as a result of an increase in
operational expenses relative to revenue could negatively impact the Company's
ability to meet these covenants, and could therefore, limit the Company's access
to capital.

As of July 1, 2001, the Company had no amount outstanding on its $30 million
revolving credit facility for the funding of construction projects. As of July
1, 2001, approximately $154.3 million of the Company's $220 million operating
lease facility, established to acquire and develop new correctional facilities,
was outstanding for completed properties. Currently there are no properties
under development and the Company has available capacity of approximately $23
million remaining 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.

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. As of July 1, 2001, the swaps approximated $9 million which
is reflected as a reduction in shareholders' equity in the Company's financial
statements for the quarter ended July 1, 2001.

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14

WACKENHUT CORRECTIONS CORPORATION

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto.

COMPARISON OF THIRTEEN WEEKS ENDED JULY 1, 2001 AND THIRTEEN WEEKS ENDED JULY 2,
2000

Revenues increased by 5.9% to $141.7 million in the thirteen weeks ended July 1,
2001 ("Second Quarter 2001") from $133.9 million in the thirteen weeks ended
July 2, 2000 ("Second Quarter 2000"). The increase in revenues is the result of
new facility openings offset by lower construction revenue, closure of one
facility and lower mandays at the Department of Immigration and Multicultural
Affairs ("DIMA") facilities. Specifically, revenue increased approximately $18.4
million in Second Quarter 2001 compared to Second Quarter 2000 due to increased
compensated resident days resulting from 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) 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 $8.2 million in the Second Quarter 2001 compared to the Second
Quarter 2000 due to the substantial completion of construction of South Florida
State Hospital. Revenues also decreased by approximately $5.9 million in Second
Quarter 2001 compared to the same period in 2000 due to the cessation of
operations at the Jena Juvenile Justice Center and a decline in mandays at the
DIMA facilities. The balance of the increase in revenues was attributable to
facilities open during all of both periods.

The number of compensated resident days in domestic facilities increased to
2,358,801 in Second Quarter 2001 from 2,163,793 in Second Quarter 2000. The
average facility occupancy in domestic facilities decreased to 96.8% of capacity
in Second Quarter 2001 compared to 97.2% in Second Quarter 2000 due primarily to
the termination of the Jena Juvenile Justice Center contract. Compensated
resident days in Australian facilities decreased to 446,418 from 513,205 for the
comparable periods primarily due to lower compensated resident days at the DIMA
facilities.

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WACKENHUT CORRECTIONS CORPORATION

Operating expenses increased by 4.1% to $126.9 million in Second Quarter 2001
compared to $121.8 million in Second Quarter 2000. As a percentage of revenues,
operating expenses decreased to 89.5% in Second Quarter 2001 from 91.0% in the
comparable period in 2000. The increase in operating expenses primarily
reflected the four facilities that were opened in 2001 and 2000, as described
above. Additionally, there are secondary factors contributing to the increase
including expenses related to construction activities, increases in general and
comprehensive liability insurance premiums and increases in utility costs.

Casualty insurance related to workers' compensation, general liability and
automobile insurance coverage is provided by an independent insurer. A portion
of this coverage is reinsured by an insurance subsidiary of TWC. Insurance rates
are based on the Company's loss experience and are prospectively adjusted from
time-to-time based on this loss experience.

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. The Company anticipates significant increased
insurance costs during the third and fourth quarters of 2001. These increases
could adversely impact the Company's 2001 results of operations and cash flows.

Depreciation and amortization increased by 26.1% to $2.3 million in Second
Quarter 2001 from $1.8 million in Second Quarter 2000. As a percentage of
revenues, depreciation and amortization increased to 1.6% in Second Quarter 2001
from 1.3% in the Second Quarter in 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 increased 22.9% to $12.6 million in Second Quarter
2001 from $10.2 million in Second Quarter 2000. As a percentage of revenue,
contribution from operations increased to 8.9% in Second Quarter 2001 from 7.6%
in Second Quarter 2000. This increase is primarily the result of the activation
of newly constructed facilities as discussed above, the decline in construction
activity and improved financial performance at a number of additional
facilities.

General and administrative expenses increased by 19.5% to $6.2 million in Second
Quarter 2001 from $5.2 million in Second Quarter 2000. As a percentage of
revenue, general and administrative expenses increased to 4.3% in Second Quarter
2001 from 3.8% in Second Quarter 2000. The increase reflects costs primarily
related to additional infrastructure.

Interest income was $0.5 million during the Second Quarter 2001 compared to $0.7
million in Second Quarter 2000 resulting from a decrease in invested cash and a
reduction in interest earnings from subordinated debt as well as lower interest
rates since the beginning of the year.

Interest expense was $0.3 million during the Second Quarter 2001 and Second
Quarter 2000.

Other income in Second Quarter 2000 of $0.6 million represents the one-time gain
from the sale of subordinated debt with an international joint venture. There
was no such activity in the second quarter 2001.

Provision for income taxes increased to $2.6 million in Second Quarter 2001 from
$2.5 million in Second Quarter 2000 due to higher taxable income. This was
offset by a lower effective tax rate.

Equity in earnings of affiliates, net of income tax provision increased to $1.2
million in Second Quarter 2001 from $1.1 million in Second Quarter 2000.

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16

WACKENHUT CORRECTIONS CORPORATION

COMPARISON OF TWENTY-SIX WEEKS ENDED JULY 1, 2001 AND TWENTY-SIX WEEKS ENDED
JULY 2, 2000:

Revenues increased by 4.7% to $276.7 million in the twenty-six weeks ended July
1, 2001 from $264.4 million in the twenty-six weeks ended July 2, 2000. The
increase in revenues is the result of new facility openings offset by lower
construction revenue, closure of one facility and lower mandays at the DIMA
facilities. Specifically, revenue increased approximately $31.1 million in First
Half 2001 compared to First Half 2000 due to increased compensated resident days
resulting from 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) 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 $12.3 million in the First Half
2001 compared to the First Half 2000 due to the substantial completion of
construction of South Florida State Hospital. Revenues also decreased by
approximately $13.7 million in First Half 2001 compared to the same period in
2000 due to the cessation of operations at the Jena Juvenile Justice Center and
a decline in mandays at the DIMA facilities. 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
4,654,026 in First Half 2001 from 4,329,665 in First Half 2000. The average
facility occupancy in domestic facilities slightly decreased to 96.8% of
capacity in First Half 2001 compared to 97.3% in First Half 2000 due primarily
to the termination of the Jena Juvenile Justice Center contract. Compensated
resident days in Australian facilities decreased to 896,417 from 999,551 for the
comparable period primarily due to lower compensated resident days at the DIMA
facilities.

Operating expenses increased by 5.2% to $250.9 million in First Half 2001
compared to $238.5 million in First Half 2000. As a percentage of revenues,
operating expenses increased to 90.7% in First Half 2001 from 90.2% in the
comparable period in 2000. The increase in operating expenses primarily reflects
$3.5 million in start-up costs related to the opening of the Val Verde, Texas
and Winton, North Carolina facilities in the First Quarter 2001, as well as a
full quarter of operating expenses related to these facilities and two full
quarters of operating expenses for the facilities opened in July 2000.
Additionally, there are secondary factors contributing to the increase including
expenses related to construction activities, increases in general and
comprehensive liability insurance premiums and increases in utility costs.

Depreciation and amortization increased by 21.8% to $4.7 million in the First
Half 2001 from $3.9 million in the First Half 2000. As a percentage of revenue,
depreciation and amortization increased to 1.7% from 1.5%. This increase is
primarily attributable to leasehold improvements at the New Mexico, Oklahoma and
San Diego facilities and additional operational assets.

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17

WACKENHUT CORRECTIONS CORPORATION

Contributions from operations decreased by 4.1% to $21.1 million in First Half
2001 from $22.0 million in First Half 2000. As a percentage of revenue,
contribution from operations decreased to 7.6% in First Half 2001 from 8.3% in
First Half 2000. As discussed above, this decrease is primarily attributable to
the factors impacting the increase in operating expenses and depreciation and
amortization expenses.

General and administrative expenses increased by 7.0% to $12.1 million in First
Half 2001 from $11.3 million in First Half 2000. As a percentage of revenue,
general and administrative expenses increased to 4.4% in the First Half 2001
from 4.3% in the First Half 2000. This increase reflects costs related to
additional infrastructure.

Interest income was $1.1 million during the First Half 2001 compared to $1.4
million in First Half 2000 resulting from a decrease in invested cash and a
reduction in interest earnings from subordinated debt as well as lower of
interest rates since the beginning of the year.

Interest expense was $0.6 million during the First Half 2001 compared to $0.4
million in First Half 2000. The increase is related to interest on borrowings
related to leasehold improvements at the San Diego facility.

Other income in the First Half 2000 of $0.6 million represents the one-time gain
from the sale of subordinated debt with an international joint venture. There
was no such activity in the First Half 2001.

Provision for income taxes decreased to $3.7 million in First Half 2001 from
$4.9 million in First Half 2000 due to lower taxable income and a lower
effective tax rate.

Equity in earnings of affiliates remained constant at approximately $2.2 million
for First Half 2001 and First Half 2000.

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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 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 twenty-six weeks ended July 1, 2001.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

The Annual Meeting of Shareholders of the Company was held on May 3, 2001 in
Palm Beach, Florida. All directors nominated for election were elected by a
majority of the votes cast and the tabulation of the votes cast were as follows:

VOTES FOR VOTES WITHHELD
--------- --------------

Wayne H. Calabrese 19,676,763 67,092
Norman A. Carlson 19,675,882 67,973
Benjamin R. Civiletti 19,679,007 64,848
Richard H. Glanton 19,676,913 66,942
Manuel J. Justiz 19,678,082 65,773
John F. Ruffle 19,679,332 64,523
George R. Wackenhut 19,664,457 79,398
Richard R. Wackenhut 19,675,232 68,623
George C. Zoley 19,678,713 65,142
Philip L. Maslowe 19,663,182 80,673

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19

WACKENHUT CORRECTIONS CORPORATION

The second matter voted upon at the Annual Meeting was the ratification of the
action of the Board of Directors appointing the firm of Arthur Andersen LLP to
be the independent certified public accountants of the Company for the fiscal
year 2001. The tabulation of the votes on this matter was as follows:

For: 19,683,213 Against: 26,824 Abstain: 33,818

The third matter voted upon at the Annual Meeting was the approval of an
amendment to the Wackenhut Corrections Corporation Stock Option Plan - 1999
authorizing the issuance of an additional 300,000 shares of WCC Common Stock
subject to awards. The tabulation of the votes on this matter was as follows:

For: 18,324,007 Against: 503,755 Abstain: 916,093

The fourth matter voted upon at the Annual Meeting was the approval of an
amendment to the Non-Employee Director Stock Option Plan authorizing the
issuance of an additional 25,000 shares of WCC Common Stock subject to awards.
The tabulation of the votes on this matter was as follows:

For: 18,454,786 Against: 376,186 Abstain: 912,883

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

EXHIBIT

NUMBER DESCRIPTION
------ -----------

10.1 Senior Officer Retirement Agreement

10.2 Executive Severance Agreement

(b) Reports on Form 8-K - The Company did not file a Form 8-K during the
second quarter of the fiscal year ending December 30, 2001.

Page 19 of 20
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

AUGUST 10, 2001 /s/ JOHN G. O'ROURKE
- ------------------------ -------------------------------------------
Date John G. O'Rourke
Senior Vice President - Finance, Chief
Financial Officer and Treasurer
(Principal Financial Officer)

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