-----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, P7Epr2jGmfl89yTvoZkdpHZd6BXl64S8Y5L23hJlnvQCm+1hrC9Qa8B75uJllbvS trcMauT6sCM9Pr65FHgTjA== 0000950144-97-009301.txt : 19970815 0000950144-97-009301.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950144-97-009301 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORRECTIONS CORPORATION OF AMERICA CENTRAL INDEX KEY: 0000739404 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-FACILITIES SUPPORT MANAGEMENT SERVICES [8744] IRS NUMBER: 621156308 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13560 FILM NUMBER: 97664048 BUSINESS ADDRESS: STREET 1: 102 WOODMONT BLVD STE 800 CITY: NASHVILLE STATE: TN ZIP: 37205 BUSINESS PHONE: 6152923100 10-Q 1 CORRECTIONS CORPORATION FORM 10-Q 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: JUNE 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM__________TO __________. COMMISSION FILE NUMBER: 1-13560 --------- CORRECTIONS CORPORATION OF AMERICA ------------------------------------------------------ (Exact name of Registrant as specified in its charter) TENNESSEE 62-1156308 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 102 WOODMONT BLVD., SUITE 800 NASHVILLE, TENNESSEE 37205 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (615) 292-3100 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NONE - -------------------------------------------------------------------------------- (Former name, address and 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 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 76,642,980 - -------------------------------------------------------------------------------- (Outstanding shares of the issuer's common stock as of August 1, 1997.) EXHIBIT INDEX ON PAGE 11 Total number of sequentially numbered pages is 12. 2 CORRECTIONS CORPORATION OF AMERICA INDEX
PART I. FINANCIAL INFORMATION: Number Item 1. Financial Statements Consolidated Balance Sheets June 30, 1997 (Unaudited) and December 31, 1996 3 Consolidated Statements of Operations Three months ended June 30, 1997 and 1996 (Unaudited) 4 Consolidated Statements of Operations Six months ended June 30, 1997 and 1996 (Unaudited) 5 Consolidated Statements of Cash Flows Six months ended June 30, 1997 and 1996 (Unaudited) 6-7 Notes to Consolidated Financial Statements (Unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Default Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12
2 3 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, December 31, 1997 1996 --------- ----------- ASSETS (Unaudited) Current assets: Cash, cash equivalents and restricted cash $ 9,935 $ 8,282 Accounts receivable, less allowance 83,991 100,551 Prepaid expenses 6,913 2,940 Deferred taxes 1,627 1,026 Other 2,977 1,643 --------- --------- Total current assets 105,443 114,442 --------- --------- Restricted investments 587 587 Other assets 38,419 29,405 Property and equipment, net 431,003 288,697 Notes receivable 22,635 22,859 Investment in direct financing leases 67,794 12,898 --------- --------- $ 665,881 $ 468,888 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 73,610 $ 39,224 Accrued salaries and wages 7,569 5,487 Accrued property taxes 1,454 1,675 Other accrued expenses 27,375 9,227 Current portion of long-term debt 7,875 8,281 --------- --------- Total current liabilities 117,883 63,894 --------- --------- Long-term debt, net of current portion 231,886 117,535 Deferred taxes 3,692 4,717 Other long-term liabilities 495 990 --------- --------- Total liabilities 353,956 187,136 --------- --------- Stockholders' equity: Common stock - $1 par value 76,560 75,029 Additional paid-in capital 171,525 165,317 Retained earnings 64,910 42,132 Treasury stock, at cost (1,070) (726) --------- --------- Total stockholders' equity 311,925 281,752 --------- --------- $ 665,881 $ 468,888 ========= =========
3 4 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share data)
Three months ended June 30 ------------------- 1997 1996 -------- -------- Revenues $107,024 $ 67,453 Expenses: Operating 78,934 49,325 General and administrative 4,112 3,369 Depreciation and amortization 4,007 2,264 -------- -------- Total expenses 87,053 54,958 -------- -------- Operating income 19,971 12,495 Interest expense, net 854 1,180 -------- -------- Income before income taxes 19,117 11,315 Provision for income taxes 7,505 4,308 -------- -------- Net income $ 11,612 $ 7,007 ======== ======== Net income per share: Primary $ .14 $ .09 ======== ======== Fully diluted $ .13 $ .08 ======== ======== Weighted average shares outstanding: Primary 84,411 82,001 ======== ======== Fully diluted 90,318 86,361 ======== ========
4 5 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share data)
Six months ended June 30 ------- 1997 1996 -------- -------- Revenues $198,862 $130,730 Expenses: Operating 142,853 96,509 General and administrative 7,707 6,294 Depreciation and amortization 7,930 4,541 -------- -------- Total expenses 158,490 107,344 -------- -------- Operating income 40,372 23,386 Interest expense, net 1,352 2,530 -------- -------- Income before income taxes 39,020 20,856 Provision for income taxes 15,413 8,143 -------- -------- Net income $ 23,607 $ 12,713 ======== ======== Net income per share: Primary $ .28 $ .16 ======== ======== Fully diluted $ .27 $ .15 ======== ======== Weighted average shares outstanding: Primary 84,197 81,065 ======== ======== Fully diluted 90,199 85,671 ======== ========
5 6 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six months ended June 30 ------- 1997 1996 --------- --------- Cash Flows from Operating Activities: Net income $ 23,607 $ 12,713 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,930 4,541 Deferred and other noncash income taxes 2,029 7,041 Other noncash items 183 -- Loss on disposal of assets 86 29 Equity in earnings of unconsolidated entities (313) (530) Changes in assets and liabilities, net of acquisitions: Accounts receivable 16,605 (17,473) Prepaid expenses (3,973) (1,759) Other current assets (1,334) (435) Accounts payable 34,386 12,281 Accrued expenses 20,009 399 --------- --------- Net cash provided by operating activities 99,215 16,807 --------- --------- Cash Flows from Investing Activities: (Increase) decrease in restricted and escrow cash 2,851 (407) Increase in other assets (10,864) (5,145) Additions of property and equipment (148,188) (44,302) Proceeds from disposals of assets 14 22 Increase in direct financing lease (55,850) (3,590) Payments received on direct financing leases and notes receivable 1,133 234 --------- --------- Net cash used in investing activities (210,904) (53,188) --------- --------- Cash Flows from Financing Activities: Proceeds from issuance of long-term debt -- 50,000 Payments on long-term debt (4,655) (17,831) Proceeds from (payments on) line of credit, net 119,500 (14,464) Payment of debt issuance cost (495) (496) Issuance of common stock -- 138,750 Payments of stock issuance costs -- (6,939) Proceeds from exercise of stock options and warrants 1,843 8,861 --------- --------- Net cash provided by financing activities 116,193 157,881 --------- ---------
6 7 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six months ended June 30 ---------------- 1997 1996 --------- --------- Net increase in cash $ 4,504 $ 121,500 CASH AND CASH EQUIVALENTS, beginning of period 4,832 2,145 --------- --------- CASH AND CASH EQUIVALENTS, end of period $ 9,336 $ 123,645 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 3,102 $ 2,431 ========= ========= Income taxes $ 1,492 $ 1,877 ========= ========= Supplemental Schedule of Noncash Investing and Financing Activities: The Company acquired treasury stock and issued common stock through the exercise of stock options: Common stock $ 494 $ 717 Additional paid-in capital 2,736 1,673 Retained earnings (829) (3,042) Treasury stock, at cost (2,401) 652 --------- --------- $ 0 $ 0 ========= ========= Long-term debt was converted into common stock: Other assets $ 15 $ 0 Long-term debt (900) -- Common stock 531 -- Additional paid-in capital 354 -- --------- --------- $ 0 $ 0 ========= =========
7 8 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of June 30, 1997 and December 31, 1996, the consolidated statements of operations and cash flows for the six month periods ended June 30, 1997 and 1996, and the consolidated statement of operations for the quarters ended June 30, 1997 and 1996 have been prepared by the Company in accordance with the accounting policies described in its 1996 Annual Report on Form 10-K and should be read in conjunction with the notes thereto. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows at June 30, 1997 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The results of operations for the period ended June 30, 1997, are not necessarily indicative of the operating results for the full year. 2. EARNINGS PER SHARE Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), has been issued effective for fiscal periods ending after December 15, 1997. SFAS 128 establishes standards for computing and presenting earnings per share. The Company is required to adopt the provisions of SFAS 128 in the fourth quarter of 1997. Under the standards established by SFAS 128, earnings per share is measured at two levels: basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares after considering the additional dilution related to preferred stock, convertible debt, options and warrants. The following pro forma amounts represent the basic earnings per share and diluted earnings per share as if the Company had adopted SFAS 128 for the quarters presented:
(Unaudited Pro Forma) (Unaudited Pro Forma) Three Months Ended June 30, Six Months Ended June 30, 1997 1996 1997 1996 ---- ---- ---- ---- Basic earnings per share $ .15 $ .10 $ .31 $ .19 ============ ============= ============= ============= Diluted earnings per share $ .13 $ .08 $ .27 $ .15 ============ ============= ============= =============
8 9 3. SUBSEQUENT EVENT: In July 1997 CCA Prison Realty Trust (Prison Realty), a Maryland real estate investment trust, sold 18,500,000 common shares at $21 per share in an initial public offering. In addition, as a result of the exercise of the Underwriter's overallotment option, 2,775,000 common shares were also sold at $21 per share resulting in gross proceeds to Prison Realty of approximately $446,000,000. In accordance with applicable Securities and Exchange Commission guidelines the Company was deemed to be a co-registrant with respect to these offered securities. Immediately following the initial public offering for Prison Realty the Company sold ten of its facilities to Prison Realty for approximately $378,000,000 as described in the Form 8-K filed on August 1, 1997. Simultaneously with the sale of the facilities to Prison Realty, the Company entered into agreements to lease the facilities from Prison Realty pursuant to long-term, non-cancelable, triple net leases which require the Company to pay all operating expenses, taxes, insurance and other costs. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RISK FACTORS In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company hereby makes reference to items set forth under the heading "Risk Factors" in the Company's Registration Statement on Form S-3, as amended (Registration No. 333-03009). Such cautionary statements identify important facts that could cause the Company's actual results to differ materially from those projected in forward looking statements made by or on behalf of the Company. RESULTS OF OPERATIONS REVENUES AND EXPENSES FROM OPERATIONS Revenues for the second quarter and first half of 1997 increased 59% and 52%, respectively, over the comparable periods of 1996. Management revenues increased $39,143,000 and $67,446,000 for the second quarter and first half of 1997, respectively, as compared to the same periods of 1996, while transportation revenues increased $428,000 and $686,000, respectively, for the same relative time periods. The increase in management revenues was due to compensated mandays increasing by 44% and 41% for the second quarter and first half of 1997, respectively, over the comparable periods of 1996. During the second quarter of 1997, the Company opened three new facilities representing 3,968 beds and expanded two facilities representing 411 beds. These beds were in addition to the 3,752 beds brought on line in the first quarter of 1997 which resulted in the Company cumulatively adding 8,131 beds through the first half of 1997. Transportation revenues increased 17% and 13% for the second quarter and first half of 1997, respectively, over the comparable periods of 1996, primarily as a result of an expanded customer base and increased compensated mileage realized through the opening of two new transportation hubs in the first quarter of 1997. The Company recognized after-tax, development-fee income related to a contract to design, construct and equip a facility of $766,000 and $2,107,000 for the second quarter and first half of 1997, respectively. 9 10 Operating expenses for the second quarter and first half of 1997 increased 60% and 48%, respectively, over the comparable periods of 1996. This increase was due to the increased compensated mandays and compensated mileage that the Company realized in the second quarter and first half of 1997 as previously mentioned. General and administrative expenses for the second quarter and first half of 1997 increased 22% for both respective periods, over the comparable periods of 1996. However, as a percentage of revenues, general and administrative expenses for the second quarter and first half of 1997 declined to 3.8% and 3.9% as compared with 5.0% and 4.8% for the comparable periods of 1996. As the Company continues to grow, general and administrative expenses should grow in volume but continue to decrease as a percentage of revenues. Depreciation and amortization for the second quarter and first half of 1997 increased 77% and 75%, respectively, over the comparable periods of 1996. The increases are due to the growth in total beds in facilities owned by the Company. The Company discontinued operations at two facilities, totaling 601 beds, effective June 30, 1997. Accordingly, the Company incurred a $1,400,000 after-tax loss for the second quarter of 1997, as a result of decreasing populations and increased personnel costs to maintain the operations through the contract expiration date. OTHER EXPENSES Interest expense, net, decreased 28% and 47% for the second quarter and first half of 1997, respectively, as compared to the same periods in 1996. These decreases are primarily due to the fact that several facilities were under construction and the associated interest expense was capitalized. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company's business is capital intensive in relation to the development of a correctional facility. The Company's efforts to obtain contracts, construct additional facilities and maintain its day-to-day operations have required the continued acquisition of funds through borrowings and equity offerings. The Company has financed these activities through the sale of capital stock, subordinated convertible notes and senior secured debt, through the issuance of taxable and tax-exempt bonds, by bank borrowings, by assisting governmental agencies in the issuance of municipal bonds and most recently through the sale and leaseback of certain correctional facilities to Prison Realty. Cash flow from operations for the first six months of 1997 was $99,215,000 as compared to $16,807,000 in the comparable period in 1996. The Company has strengthened its cash flow through its expanded business, additional focus on larger, more profitable facilities, the expansion of existing facilities where economies of scale can be realized, and the continuing effort of cost containment. The Company has a revolving credit facility with a group of banks which matures in September 1999. The credit facility provides for borrowings of up to $170,000,000 for general corporate purposes and letters of credit. The credit facility bears interest, at the election of the Company, at either the bank's prime rate or a rate which is .75% above the applicable 30, 60, or 90 day LIBOR rate. Interest is payable quarterly with respect to prime rate loans and at the expiration of the applicable LIBOR period with respect to LIBOR based loans. There are no prepayment penalties associated with the credit facility. The credit facility requires the Company, among other things, to maintain maximum leverage ratios and a minimum debt service coverage ratio. The facility also limits certain payments and distributions. As of June 30, 1997, there was $106,000,000 borrowed under this facility. Letters of credit totaling $63,519,000 have been issued leaving the total unused commitment at $481,000. 10 11 The Company also has a $2,500,000 credit facility with a bank that provides for the issuance of letters of credit and matures in September 1999. As of June 30, 1997 there were $1,615,000 in letters of credit issued, leaving the unused commitment at $885,000. During the second quarter of 1997 the Company entered into a short-term credit facility with a bank which matures in September 1997. This credit facility provides for borrowings of up to $25,000,000 for general corporate purposes under terms similar to the Company's $170,000,000 revolving credit facility. As of June 30, 1997, there was $17,500,000 borrowed under this facility leaving $7,500,000 in unused commitments. Subsequent to the end of the second quarter, in July 1997, the Company sold ten of its facilities to CCA Prison Realty Trust for approximately $378,000,000. The proceeds were used to pay off $131,000,000 of credit facility debt, $42,206,000 of first mortgage debt and $9,442,000 of senior secured notes. The remaining proceeds will be used to fund existing construction projects and for general working capital purposes. The Company anticipates making cash investments in connection with future acquisitions and expansions. In addition, in accordance with the developing trend of private prison manages toward making strategic financial investments in facilities, the Company plans to use a portion of its cash to finance start-up costs, leasehold improvements and equity investments in facilities, if appropriate in connection with undertaking new contracts. The Company believes that the cash flow from operations, the availability of future capital from Prison Realty and amounts available under its credit facility will be sufficient to meet its capital requirements for the foreseeable future. Furthermore, management believes that additional resources may be available to the Company through a variety of other financing methods. 11 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Default Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders of the Company held on May 13, 1997, the nominees for election as Directors of the Company were elected without opposition. The amendments to the Company's Non-Employee Directors' Stock Option Plan to: (i) increase the amount of authorized common stock reserved for issuance from 600,000 shares to 900,000 shares, (ii) extend the term for which non-employee directors are to receive stock options by six years and (iii) provide for future amendments to the Plan at the sole discretion of the board of directors, were approved. The Agreement and Plan of Merger whereby the Company changed its state of incorporation from Delaware to Tennessee pursuant to a "migratory merger" that merged the Company with and into a newly-formed Tennessee corporation was approved. Item 5. Other Information None 12 13 Item 6. Exhibits and Current Reports on Form 8-K. (a) Exhibits. EXHIBIT NO ---------- 2.1 Agreement and Plan of Merger, dated May 12, 1997, between CCA of Tennessee, Inc., a Tennessee corporation (the "Company"), and Corrections Corporation of America, a Delaware corporation. (Incorporated by reference to the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders held May 13, 1997). 2.2 Articles of Merger of Corrections Corporation of America, a Delaware corporation, with and into the Company, dated May 13, 1997. (Incorporated by reference to Exhibit 2.2 of the Company's Registration Statement on Form 8-B filed with the Commission on July 10, 1997 (the "Form 8-B")). 2.3 Agreement of Sale and Purchase between CCA Prison Realty Trust and the Company. (Incorporated by reference to the Company's Registration Statement on Form S-11 and S-3, as amended, originally filed with the Commission on April 24, 1997, Registration No. 333-25727-01. (the "Form S-11/S-3")). 3.1 Charter of the Company, as amended. (Incorporated by reference to Exhibit 3.1 of the Company's Form 8-B). 3.2 Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 of the Company's Form 8-B). 10.1 Option Agreement between CCA Prison Realty Trust and the Company with respect to the Northeast Ohio Correctional Center. (Incorporated by reference to Exhibit 10.1(a) of the Company's Form S-11/S-3). 10.2 Option Agreement between CCA Prison Realty Trust and the Company with respect to the Torrance County Detention Facility. (Incorporated by reference to Exhibit 10.1(b) of the Company's Form S-11/S-3). 10.3 Option Agreement between CCA Prison Realty Trust and the Company with respect to the Southern Colorado Correctional Facility. (Incorporated by reference to Exhibit 10.1(c) of the Company's Form S-11/S-3). 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF CORRECTIONS CORPORATION OF AMERICA FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 APR-01-1997 JUN-30-1997 9,935 0 83,991 0 0 105,443 431,003 0 665,881 117,883 231,886 0 0 76,560 235,365 665,881 0 198,862 0 158,490 0 0 1,352 39,020 15,413 23,607 0 0 0 23,607 .28 .27
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