þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-16109
MARYLAND | 62-1763875 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
Title of each class | Name of each exchange on which registered | |
Common Stock, $.01 par value per share | New York Stock Exchange |
39,934,481.
Item No. | Page | |||||||
PART I | ||||||||
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1A. | 21 | |||||||
1B. | 30 | |||||||
2. | 30 | |||||||
3. | 30 | |||||||
4. | 30 | |||||||
PART II | ||||||||
5. | 31 | |||||||
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6. | 31 | |||||||
7. | 34 | |||||||
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7A. | 64 | |||||||
8. | 65 | |||||||
9. | 65 | |||||||
9A. | 65 | |||||||
PART III | ||||||||
10. | 69 | |||||||
11. | 69 | |||||||
12. | 69 | |||||||
13. | 70 | |||||||
14. | 70 | |||||||
PART IV | ||||||||
15. | 71 | |||||||
SIGNATURES | ||||||||
EX-10.7 REGISTRATION RIGHTS AGREEMENT | ||||||||
EX-10.15 NON-QUALIFIED STOCK OPTION AGREEMENT | ||||||||
EX-10.16 RESTRICTED STOCK AGREEMENT | ||||||||
EX-10.26 DIRECTOR AND OFFICER COMPENSATION | ||||||||
EX-21 LIST OF SUBSIDIARIES | ||||||||
EX-23.1 CONSENT OF ACCOUNTING FIRM | ||||||||
EX-31.1 SECTION 302 CEO CERTIFICATION | ||||||||
EX-31.2 SECTION 302 CFO CERTIFICATION | ||||||||
EX-32.1 SECTION 906 CEO CERTIFICATION | ||||||||
EX-32.2 SECTION 906 CFO CERTIFICATION |
• | fluctuations in operating results because of changes in occupancy levels, competition, increases in cost of operations, fluctuations in interest rates and risks of operations; | ||
• | changes in the privatization of the corrections and detention industry and the public acceptance of our services; | ||
• | our ability to obtain and maintain correctional facility management contracts, including as the result of sufficient governmental appropriations and inmate disturbances, and the timing of the opening of new | ||
• | increases in costs to develop or expand correctional facilities that exceed original estimates, or the inability to complete such projects on schedule as a result of various factors, many of which are beyond our control, such as weather, labor conditions and material shortages, resulting in increased construction costs; | ||
• | changes in government policy and in legislation and regulation of the corrections and detention industry that adversely affect our business; | ||
• | the availability of debt and equity financing on terms that are favorable to us; and | ||
• | general economic and market conditions. |
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ICE.
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On December 23, 2004, we were awarded a new contract from the BOP to house approximately 1,195 federal inmates at the Northeast Ohio
2006. In addition to these four facilities, which provide an aggregate of approximately 5,000 available beds, as of December 31, 2005, our Crowley County Correctional Facility had approximately 650 beds available, which we expect to be substantially filled with inmates from the state of Colorado, providing further potential for increased cash flow.
Operating Procedures
Pursuant to the terms of our management contracts, we are responsible for the overall operations of our facilities, including staff recruitment, general administration of the facilities, facility maintenance, security and supervision of the offenders. institutions.
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and an ACA Accreditation Team. Considerable resources have been devoted to the Quality Assurance Department, enabling themus to monitor compliance with contractual requirements and outside agency standards, as well as tracking all efforts of the facilities to deliver the exceptional quality of services and operations expected.
• | Correctional Facilities. Correctional facilities house and provide contractually agreed upon programs and services to sentenced adult prisoners, typically prisoners on whom a sentence in excess of one year has been imposed. | |||
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• | Detention Facilities. Detention facilities house and provide contractually agreed upon programs and services to (i) prisoners being detained by the ICE, (ii) prisoners who are awaiting trial who have been charged with violations of federal criminal law | ||
• | Juvenile Facilities. Juvenile facilities house and provide contractually agreed upon programs and services to juveniles, typically defined by applicable federal or state law as being persons below the age of 18, who have been determined to be delinquents by a juvenile court and who have been committed for an indeterminate period of time but who typically remain confined for a period of six months or less. At December 31, |
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• | Leased Facilities. Leased facilities are facilities that are within one of the above categories and that we own but do not manage. These facilities are leased to third-party operators. |
Remaining | ||||||||||||||
Primary | Design | Security | Facility | Renewal | ||||||||||
Facility Name | Customer | Capacity (A) | Type (B) | Term | Options (C) | |||||||||
Owned and Managed Facilities: | ||||||||||||||
Central Arizona Detention Center Florence, Arizona | USMS | 2,304 | Multi | Detention | May | |||||||||
Eloy Detention Center Eloy, Arizona | 1,500 | Medium | Detention | |||||||||||
Florence Correctional Center Florence, Arizona | State of Alaska | 1,824 | Multi | Correctional | June 2008 | (6) 1 year | ||||||||
California City Correctional Center California City, California | BOP | 2,304 | Medium | Correctional | September | |||||||||
San Diego Correctional Facility (D) San Diego, California | ICE | 1,216 | Minimum/ Medium | Detention | ||||||||||
Bent County Correctional Facility Las Animas, Colorado | State of Colorado | 700 | Medium | Correctional | June | |||||||||
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Remaining | ||||||||||||||
Primary | Design | Security | Facility | Renewal | ||||||||||
Facility Name | Customer | Capacity (A) | Type (B) | Term | Options (C) | |||||||||
Crowley County Correctional Facility Olney Springs, Colorado | State of Colorado | 1,794 | Medium | Correctional | June 2006 | (2) 1 year | ||||||||
Huerfano County Correctional Center (E) Walsenburg, Colorado | State of Colorado | 752 | Medium | Correctional | June 2006 | (2) 1 year | ||||||||
Kit Carson Correctional Center Burlington, Colorado | State of Colorado | 768 | Medium | Correctional | June 2006 | (2) 1 year | ||||||||
Coffee Correctional Facility (F) Nicholls, Georgia | State of Georgia | 1,524 | Medium | Correctional | June 2006 | (13) 1 year | ||||||||
McRae Correctional Facility McRae, Georgia | BOP | 1,524 | Medium | Correctional | November 2006 | (6) 1 year | ||||||||
Stewart County Correctional Facility (G) Lumpkin, Georgia | — | 1,524 | Medium | Correctional | — | — | ||||||||
Wheeler Correctional Facility (F) Alamo, Georgia | State of Georgia | 1,524 | Medium | Correctional | June | |||||||||
Leavenworth Detention Center Leavenworth, Kansas | USMS | 767 | Maximum | Detention | ||||||||||
Lee Adjustment Center Beattyville, Kentucky | State of Vermont | 816 | Minimum/ Medium | Correctional | June 2007 | — | ||||||||
Marion Adjustment Center St. Mary, Kentucky | Commonwealth of Kentucky | 826 | Minimum | Correctional | December 2007 | (3) 2 year | ||||||||
Otter Creek Correctional Center Wheelwright, Kentucky | 656 | Minimum/ Medium | Correctional | |||||||||||
Prairie Correctional Facility Appleton, Minnesota | State of | 1,550 | Medium | Correctional | ||||||||||
Tallahatchie County Correctional Facility Tutwiler, Mississippi | State of Hawaii | 1,104 | Medium | Correctional | June 2006 | — | ||||||||
Crossroads Correctional Center (J) Shelby, Montana | State of Montana | 568 | Multi | Correctional | ||||||||||
Cibola County Corrections Center Milan, New Mexico | BOP | 1,129 | Medium | Correctional | September | |||||||||
New Mexico Women’s Correctional Facility Grants, New Mexico | State of New Mexico | 596 | Multi | Correctional | June | — | ||||||||
Torrance County Detention Facility Estancia, New Mexico | USMS | 910 | Multi | Detention | Indefinite | — | ||||||||
Northeast Ohio Correctional Center Youngstown, Ohio | 2,016 | Medium | Correctional | (3) | ||||||||||
Cimarron Correctional Facility (K) Cushing, Oklahoma | State of Oklahoma | 960 | Medium | Correctional | June | |||||||||
Davis Correctional Facility (K) Holdenville, Oklahoma | State of Oklahoma | 960 | Medium | Correctional | June |
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Remaining | ||||||||||||||
Primary | Design | Security | Facility | Renewal | ||||||||||
Facility Name | Customer | Capacity (A) | Level | Type (B) | Term | Options (C) | ||||||||
Diamondback Correctional Facility Watonga, Oklahoma | State of Arizona | 2,160 | Medium | Correctional | June | |||||||||
North Fork Correctional Facility (L) Sayre, Oklahoma | — | 1,440 | Medium | Correctional | — | — | ||||||||
West Tennessee Detention Facility Mason, Tennessee | USMS | 600 | Multi | Detention | February | |||||||||
Shelby Training Center (M) Memphis, Tennessee | Shelby County, Tennessee | 200 | Secure | Juvenile | April 2015 | — | ||||||||
Whiteville Correctional Facility (N) Whiteville, Tennessee | State of Tennessee | 1,536 | Medium | Correctional | September | (2) 1 year | ||||||||
Bridgeport Pre-Parole Transfer Facility Bridgeport, Texas | State of Texas | 200 | Medium | Correctional | February 2007 | (4) 1 year |
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Eden Detention Center Eden, Texas | BOP | 1,225 | Medium | Correctional | April | |||||||||||
Houston Processing Center Houston, Texas | ICE | 905 | Medium | Detention | September | |||||||||||
Laredo Processing Center Laredo, Texas | ICE | 258 | Minimum/ Medium | Detention | — | |||||||||||
Webb County Detention Center Laredo, Texas | USMS | 480 | Medium | Detention | — | |||||||||||
Mineral Wells Pre-Parole Transfer Facility Mineral Wells, Texas | State of Texas | 2,103 | Minimum | Correctional | February 2007 | (4) 1 year | ||||||||||
T. Don Hutto Correctional Center Taylor, Texas | 480 | Minimum | Indefinite | — | ||||||||||||
D.C. Correctional Treatment Facility (O) Washington, D.C. | District of Columbia | 1,500 | Medium | Detention | March 2017 | — | ||||||||||
Managed Only Facilities: | ||||||||||||||||
Bay Correctional Facility Panama City, Florida | State of Florida | 750 | Medium | Correctional | June | — | ||||||||||
Bay County Jail and Annex Panama City, Florida | Bay County, Florida | 1,150 | Multi | Detention | September 2006 | — | ||||||||||
Citrus County Detention Facility Lecanto, Florida | Citrus County, Florida | 400 | Multi | Detention | September | (1) 5 year | ||||||||||
Gadsden Correctional Institution Quincy, Florida | State of Florida | Minimum/ Medium | Correctional | June | — | |||||||||||
Hernando County Jail Brooksville, Florida | Hernando County, Florida | Multi | Detention | October 2010 | — | |||||||||||
Lake City Correctional Facility Lake City, Florida | State of Florida | Secure | Correctional | June | — | |||||||||||
Idaho Correctional Center Boise, Idaho | State of Idaho | 1,270 | Minimum/ Medium | Correctional | June | — |
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Remaining | ||||||||||||||
Primary | Design | Security | Facility | Renewal | ||||||||||
Facility Name | Customer | Capacity (A) | Level | Type (B) | Term | Options (C) | ||||||||
Marion County Jail Indianapolis, Indiana | Marion County, Indiana | 1,030 | Multi | Detention | — | |||||||||
Winn Correctional Center Winnfield, Louisiana | State of Louisiana | 1,538 | Medium/ Maximum | Correctional | September 2006 | (1) 2 year | ||||||||
Delta Correctional Facility Greenwood, Mississippi | State of Mississippi | 1,172 | Minimum/Medium | Correctional | (1) | |||||||||
Wilkinson County Correctional Facility Woodville, Mississippi | State of Mississippi | 1,000 | Medium | Correctional | September 2005 | (3) 1 year | ||||||||
Elizabeth Detention Center Elizabeth, New Jersey | ICE | 300 | Minimum | Detention | ||||||||||
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Silverdale Facilities Chattanooga, Tennessee | Hamilton County, Tennessee | Multi | Detention | February 2007 | Indefinite | |||||||||
South Central Correctional Center Clifton, Tennessee | State of Tennessee | 1,676 | Medium | Correctional | ||||||||||
Metro-Davidson County Detention Facility Nashville, Tennessee | Davidson County, Tennessee | 1,092 | Multi | Detention | July 2006 | (2) 1 year | ||||||||
Hardeman County Correctional Facility Whiteville, Tennessee | State of Tennessee | 2,016 | Medium | Correctional | ||||||||||
B. M. Moore Correctional Center Overton, Texas | State of Texas | 500 | Minimum/ Medium | Correctional | January 2007 | (2) 1 year | ||||||||
Bartlett State Jail Bartlett, Texas | State of Texas | 1,001 | Minimum/ Medium | Correctional | January 2007 | (4) 1 year | ||||||||
Bradshaw State Jail Henderson, Texas | State of Texas | 1,980 | Minimum/ Medium | Correctional | January 2007 | (4) 1 year | ||||||||
Dawson State Jail Dallas, Texas | State of Texas | 2,216 | Minimum/ Medium | Correctional | January 2007 | (4) 1 year | ||||||||
Diboll Correctional Center Diboll, Texas | State of Texas | 518 | Minimum/ Medium | Correctional | January 2007 | (2) 1 year | ||||||||
Liberty County Jail/Juvenile Center Liberty, Texas | Liberty County, Texas | 380 | Multi | Detention | January | (1) 3 year | ||||||||
Lindsey State Jail Jacksboro, Texas | State of Texas | 1,031 | Minimum/ Medium | Correctional | January 2007 | (4) 1 year | ||||||||
Willacy State Jail Raymondville, Texas | State of Texas | 1,069 | Minimum/ Medium | Correctional | January 2007 | (4) 1 year | ||||||||
Leased Facilities: | ||||||||||||||
Leo Chesney Correctional Center Live Oak, California | Cornell Corrections | 240 | Minimum | Owned/Leased | ||||||||||
Queensgate Correctional Facility Cincinnati, Ohio | Hamilton County, Ohio | 850 | Medium | Owned/Leased | February 2006 | (1) 1 year | ||||||||
Community Education Partners (P) Houston, Texas | Community Education Partners | — | Non-secure | Owned/Leased | June 2008 | (3) 5 year |
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(A) | Design capacity measures the number of beds, and accordingly, the number of inmates each facility is designed to accommodate. Facilities housing detainees on a short term basis may exceed the original intended design capacity for sentenced inmates due to the lower level of services required by detainees in custody for a brief period. From time to time we may evaluate the design capacity of our facilities based on customers using the facilities, and the ability to reconfigure space with minimal capital outlays. As a result, the design capacity of certain facilities may vary from the design capacity previously presented. We believe design capacity is an appropriate measure for evaluating prison operations, because the revenue generated by each facility is based on a per diem or monthly rate per inmate housed at the facility paid by the corresponding contracting governmental entity. | |
(B) | We manage numerous facilities that have more than a single function (e.g., housing both long-term sentenced adult prisoners and pre-trial detainees). The primary functional categories into which facility types are identified were determined by the relative size of prisoner populations in a particular facility on December 31, |
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primary functional category to which it would be assigned would be that of correctional facilities and not detention facilities. It should be understood that the primary functional category to which multi-user facilities are assigned may change from time to time. | ||
(C) | Remaining renewal options represents the number of renewal options, if applicable, and the term of each option renewal. | |
(D) | The facility is subject to a ground lease with the County of San Diego whereby the initial lease term is 18 years from the commencement of the contract, as defined. The County has the right to buy out all, or designated portions of, the premises at various times prior to the expiration of the term at a price generally equal to the cost of the premises, or the designated portion of the premises, less an allowance for the amortization over a 20-year period. Upon expiration of the lease, ownership of the facility automatically reverts to the County of San Diego. | |
(E) | The facility is subject to a purchase option held by Huerfano County which grants Huerfano County the right to purchase the facility upon an early termination of the contract at a price generally equal to the cost of the facility plus 80% of the percentage increase in the Consumer Price Index, cumulated annually. | |
(F) | The facility is subject to a purchase option held by the Georgia Department of Corrections, or GDOC, which grants the GDOC the right to purchase the facility for the lesser of the facility’s depreciated book value or fair market value at any time during the term of the contract between us and the GDOC. | |
(G) | During the fourth quarter of 2004, 273 beds were completed and available for | |
(H) | The facility is subject to a deed of conveyance with the city of Wheelwright, KY which included provisions that would allow assumption of ownership by the city of Wheelwright under the following occurrences: (1) we cease to operate the facility for more than two years, (2) our failure to maintain at least one employee for a period of sixty consecutive days, or (3) a conversion to a maximum security facility based upon classification by the Kentucky Corrections Cabinet. | |
(I) | The facility is subject to a purchase option held by the Tallahatchie County Correctional Authority which grants Tallahatchie County Correctional Authority the right to purchase the facility at any time during the contract at a price generally equal to the cost of the premises less an allowance for amortization over a 20-year period. | |
(J) | The state of Montana has an option to purchase the facility generally at any time during the term of the contract with us at fair market value, less the then present value of a pre-determined portion of per diem payments made to us by the state of Montana. | |
(K) | The facility is subject to a purchase option held by the Oklahoma Department of Corrections, or ODC, which grants the ODC the right to purchase the facility at its fair market value at any time. | |
(L) | During the third quarter of 2003, all of the Wisconsin inmates housed at the North Fork Correctional Facility were transferred to the Diamondback Correctional Facility in order to satisfy a contractual provision mandated by the state of Wisconsin. Upon completion of the inmate transfers, North Fork Correctional Facility was | |
(M) | Upon the conclusion of the thirty-year ground lease with Shelby County, Tennessee, the facility will become the property of Shelby County. Prior to such time, if the County terminates the lease without cause, breaches the lease or the State fails to fund the contract, we may purchase the property for $150,000. If we terminate the lease without cause, or breach the contract, we will be required to purchase the property for its fair market value as agreed to by the County and us. | |
(N) | The state of Tennessee has the option to purchase the facility in the event of our bankruptcy, or upon an operational breach, as defined, at a price equal to the book value of the facility, as defined. | |
(O) | The District of Columbia has the right to purchase the facility at any time during the term of the contract at a price generally equal to the present value of the remaining lease payments for the premises. Upon expiration of the lease, ownership of the facility automatically reverts to the District of Columbia. | |
(P) | The alternative educational facility is currently configured to accommodate 900 at-risk juveniles and may be expanded to accommodate a total of 1,400 at-risk juveniles. |
Facilities Under Construction or Development.On September 10, 2003, we announced our intention to complete construction of the Stewart County Correctional Facility located in Stewart County, Georgia. The anticipated cost to complete the Stewart facility is approximately $26.5 million, with completion estimated to occur during the second quarter of 2005. Construction on the 1,524-bed Stewart County Correctional Facility began in August 1999 and was suspended in May 2000. Our decision to complete construction of this facility is based on anticipated demand from several government customers having a need for inmate bed capacity in the Southeast region of the country. However, we can provide no assurance that we will be successful in utilizing the increased bed capacity resulting from this project.
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General
• | Maintaining and expanding our existing customer relationships and continuing to fill existing beds within our | ||
• | Enhancing the terms of our existing contracts; and | ||
• | Establishing relationships with new customers who have either previously not outsourced their correctional management needs or have utilized other private enterprises. |
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bid by private enterprises.
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the bidder is willing to provide the services (which services may include the renovation, improvement or expansion of an existing facility or the planning, design and construction of a new facility). Based on the proposals received in response to an RFP, the agency will award a contract to the successful bidder. In addition to issuing formal RFPs, local jurisdictions may issue an RFQ. In the RFQ process, the requesting agency selects a firm believed to be most qualified to provide the requested services and then negotiates the terms of the contract with that firm, includingwhich terms include the price at which its services are to be provided.
scale.
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income, facility operating margins, and profitability.
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effective “shelf” registration statement under which we may issue up to approximately $280.0 million in equity or debtan indeterminate amount of securities preferred stock and warrants. The “shelf” registration statement provides us with the flexibility to issue additional equity or debt securities, preferred stock, and warrants from time to time when we determine that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable. Further, as
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population and tailor our services based on local conditions and our ability to provide services on a cost-effective basis.
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2004.
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Governmental Budgeting Constraints. We believe the outsourcing of prison management services to private operators allows governments to manage increasing inmate populations while simultaneously controlling correctional costs and improving correctional services. The use of facilities owned and managed by private operators allows governments to expand prison capacity without incurring large capital commitments required to increase correctional capacity. In addition, contracting with a private operator allows governmental agencies to add beds without making significant capital investment or
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Americans with Disabilities Act
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Insurance expense represents a significant component of our operating expenses.
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governance and corporate accounting scandals. However, unanticipated additional insurance expenses resulting from adverse claims experience or an increasing cost environment for
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The Company’s
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Risk Factors
ITEM 1A. | RISK FACTORS. |
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Competition for inmates may adversely affect the profitability of our business.We compete with government entities and other private operators on the basis of cost, quality, and range of services offered, experience in managing facilities and reputation of management and personnel. While there are barriers to entering the market for the management of correctional and detention facilities, these barriers may not be sufficient to limit additional competition. In addition, our government customers may assume the management of a facility we currently manage upon the termination of the corresponding management contract or, if such customers have capacity at their facilities, may take inmates currently housed in our facilities and transfer them to government run facilities. Since we are paid on a per diem basis with no minimum guaranteed occupancy under most of our contracts, the loss of such inmates and resulting decrease in occupancy would cause a decrease in our revenues and profitability. Further, many of our state customers are currently experiencing budget difficulties. These budget difficulties could result in decreases to our per diem rates, which could cause a decrease in our revenues and profitability.
Public resistance to privatization of correctional and detention facilities could result in our inability to obtain new contracts or the loss of existing contracts.The operation of correctional and detention facilities by private entities has not achieved complete acceptance by either governments or the public. The movement toward privatization of correctional and detention facilities has also encountered resistance from certain groups, such as labor unions and others that believe that correctional and detention facilities should only be operated by governmental agencies.
Moreover, negative publicity about an escape, riot or other disturbance or perceived poor conditions at a privately managed facility may result in publicity adverse to us and the private corrections industry in general. Any of these occurrences or continued trends may make it more difficult for us to renew or maintain existing contracts or to obtain new contracts, which could have a material adverse effect on our business.
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monitoring who would otherwise be incarcerated. Similarly, reductions in crime rates could lead to reductions in arrests, convictions and sentences requiring incarceration at correctional facilities.
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Moreover, the Federal Communications Commission, (the “FCC”)or the FCC, has published for comment a petition for rulemaking, filed on behalf of an inmate family, which would prevent private prison managers from collecting commissions from the operations of inmate telephone systems. We believe that there are sound reasons for the collection of such commissions by all operators of prisons, whether public or private. The FCC has traditionally deferred from rulemaking in this area; however, there is
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significant numbers of personnel at existing facilities could adversely affect our business and operations.
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not be economically feasible to obtain insurance coverage, in light of the substantial costs associated with such insurance. As a result, we could lose both our capital invested in, and anticipated profits from, one or more of the facilities we own. Further, it is possible to experience losses that may exceed the limits of insurance coverage.
Further, if we are unable to utilize this new capacity, our financial results could deteriorate.
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Our issuance of additional series of preferred stock could adversely affect holders of our common stock and discourage a takeover.
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• | authorize us to issue “blank check” preferred stock, which is preferred stock that can be created and issued by our board of directors, without stockholder approval, with rights senior to those of common stock; | ||
• | provide that directors may be removed with or without cause only by the affirmative vote of at least a majority of the votes of shares entitled to vote thereon; and | ||
• | establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting. |
• | make it more difficult for us to satisfy our obligations with respect to our indebtedness; |
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• | increase our vulnerability to general adverse economic and industry conditions; | ||
• | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes; | ||
• | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; | ||
• | place us at a competitive disadvantage compared to our competitors that have less debt; and |
• | limit our ability to borrow additional funds or refinance existing indebtedness on favorable terms. |
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• | limitations on incurring additional indebtedness; | ||
• | limitations on the sale of assets; | ||
• | limitations on the declaration and payment of dividends or other restricted payments; | ||
• | limitations on transactions with affiliates; and | ||
• | limitations on liens. |
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subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Because portions of our indebtedness have floating interest rates, a general increase in interest rates will adversely affect cash flows.
Our senior secured credit facility bears interest at a variable rate. To the extent our exposure to increases in interest rates is not eliminated through interest rate protection agreements, such increases will adversely affect our cash flows. We do not currently have any interest rate protection agreements in place to protect against interest rate fluctuations related to our senior secured credit facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures About Market Risk” for a further discussion of our exposure to interest rate increases.
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ITEM 2. PROPERTIES.
ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
ITEM 2. | PROPERTIES. |
ITEM 3. LEGAL PROCEEDINGS
ITEM 3. | LEGAL PROCEEDINGS. |
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is one for which coverage is available. The combination of self-insured retentions and deductible amounts means that, in the aggregate, we are subject to substantial self-insurance risk. In the opinion of management, other than those described below, there are no pending legal proceedings that would have a material effect on our consolidated financial position, results of operations or cash flows. Adversarial proceedings and litigation are, however, subject to inherent uncertainties, and unfavorable decisions and rulings could occur which could have a material adverse impact on our consolidated financial position, results of operations or cash flows for a period in which such decisions or rulings occur, or future periods.
The USCC ESOP Litigation.During the second quarter of 2002, we completed the settlement of certain claims made against us as the successor to U.S. Corrections Corporation (“USCC”), a privately-held owner and operator of correctional and detention facilities which was acquired by a predecessor of ours in April 1998, by participants in USCC’s Employee Stock Ownership Plan (“ESOP”). As a result of the settlement, we made a cash payment of $575,000 to the plaintiffs in the action. As described below, we are currently in litigation with USCC’s insurer seeking to recover all or a portion of this settlement amount.
The USCC ESOP litigation, entitledHorn v. McQueen, continued to proceed, however, against two other defendants, Milton Thompson and Robert McQueen, both of whom were stockholders and executive officers of USCC and trustees of the ESOP prior to our acquisition of USCC. In theHorn litigation, the ESOP participants alleged numerous violations of the Employee Retirement Income Security Act, including breaches of fiduciary duties to the ESOP by causing the ESOP to overpay for employer securities. On July 29, 2002, the United States District Court of the Western District of Kentucky found that McQueen and Thompson had breached their fiduciary duties to the ESOP and had acted to benefit themselves to the detriment of the ESOP participants. In January 2005, the Court determined that the plaintiffs were entitled to recover approximately $21 million in damages, including pre-judgment interest, from McQueen and Thompson.
In or about the second quarter of 2001, Northfield Insurance Co. (“Northfield”), the issuer of the liability insurance policy to USCC and its directors and officers, filed suit against McQueen, Thompson and us seeking a declaration that it did not owe coverage under the policy for any liabilities arising from theHornlitigation. Among other things, Northfield claimed that it did not receive timely notice of the litigation under the terms of the policy. McQueen and Thompson subsequently filed a cross-claim in theNorthfieldlitigation against us in which they asserted we were obligated to indemnify them for any liability arising out of theHornlitigation, which could now total more than $21 million. Among other claims, McQueen and Thompson assert that, as the result of our alleged failure to timely notify the insurance carrier of theHorncase on their behalf, they were entitled to indemnification or contribution from us for any loss incurred by them as a result of theHornlitigation if there were no insurance available to cover the loss.
On September 30, 2002, the Court in theNorthfieldlitigation found that Northfield was not obligated to cover McQueen and Thompson or us. Though it did not then resolve the cross-claim, the Court did note that there was no basis for excusing McQueen and Thompson from their independent obligation to provide timely notice to the carrier because of our alleged failure to provide timely notice to the carrier. On March 31, 2004 the United States District Court granted our summary judgment motion with respect to most of the contentions made by McQueen and Thompson in their effort to seek indemnification. In January 2005, we filed an additional motion for summary judgment on the remaining theory of liability asserted by McQueen and Thompson in the federal lawsuit. McQueen and Thompson have also filed a state court action essentially duplicating their cross-claim in the federal case, and we have initiated claims against the lawyer who jointly represented us, McQueen and Thompson in theHornlitigation. In addition, we have asserted claims
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against McQueen and Thompson for indemnification for the $575,000 and attorneys’ fees incurred by us in connection with theHornlitigation.
We cannot predict whether we will be successful in recovering all or a portion of the amount we have paid in settlement of theHornlitigation. With respect to the cross-claim and the state court claims made by McQueen and Thompson, we believe that such claims are without merit and that we will be able to defend ourselves successfully against such claims and/or any additional claims of such nature that may be brought in the future; however, no assurance can be given that we will prevail in either the federal proceedings or the state proceedings. If we were ordered to indemnify McQueen and Thompson in whole or in part, such an outcome could have a material adverse affect on our consolidated financial position, results of operations or cash flows.
Corrections Facilities Development, LLC Litigation.During the first quarter of 2005, we settled a lawsuit we filed against Corrections Facilities Development, LLC (“CFD”) seeking a declaratory judgment regarding our obligations pursuant to a consulting agreement, as amended, with CFD and the validity of that agreement under applicable law. CFD had filed certain counterclaims against us. The settlement of that lawsuit has resulted in the dismissal of all claims and will not have a material adverse affect on our consolidated financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
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ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
SALES PRICE | SALES PRICE | |||||||||||||||
HIGH | LOW | |||||||||||||||
FISCAL YEAR 2005 | ||||||||||||||||
First Quarter | $ | 43.06 | $ | 36.67 | ||||||||||||
Second Quarter | $ | 39.77 | $ | 35.25 | ||||||||||||
Third Quarter | $ | 40.14 | $ | 36.70 | ||||||||||||
Fourth Quarter | $ | 45.40 | $ | 36.51 | ||||||||||||
HIGH | LOW | |||||||||||||||
FISCAL YEAR 2004 | ||||||||||||||||
First Quarter | $ | 35.78 | $ | 27.66 | $ | 35.78 | $ | 27.66 | ||||||||
Second Quarter | $ | 39.89 | $ | 33.50 | $ | 39.89 | $ | 33.50 | ||||||||
Third Quarter | $ | 41.15 | $ | 32.54 | $ | 41.15 | $ | 32.54 | ||||||||
Fourth Quarter | $ | 40.81 | $ | 33.53 | $ | 40.81 | $ | 33.53 | ||||||||
FISCAL YEAR 2003 | ||||||||||||||||
First Quarter | $ | 18.35 | $ | 16.42 | ||||||||||||
Second Quarter | $ | 25.74 | $ | 17.48 | ||||||||||||
Third Quarter | $ | 27.36 | $ | 21.00 | ||||||||||||
Fourth Quarter | $ | 29.48 | $ | 24.40 |
Recent Issuances of Unregistered Securities
The following description sets forth our issuances of unregistered equity securities during the year ended December 31, 2004 that have not been previously reported in a quarterly report on Form 10-Q or a current report on Form 8-K. Unless otherwise indicated, all equity securities were issuedTaking into consideration these limitations, management and sold in private placements pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), contained in Section 4(2) of the Securities Act and no underwriters were engaged in connection with the issuances of such equity securities.
Issuances to Directors.During the year ended December 31, 2004, we issued 1,680 shares of common stock to certain members of our board of directors who have elected to receiveregularly evaluate the merits of declaring and paying a portiondividend. Future dividends, if any, will depend on our future earnings, our capital requirements, our financial condition, alternative uses of their compensation in sharescapital, and on such other factors as our board of our common stock rather than in cash pursuant to our Non-Employee Directors’ Compensation Plan.
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For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||||||||||||
STATEMENT OF OPERATIONS: | ||||||||||||||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||||||||||
Management and other | $ | 1,144,413 | $ | 1,025,493 | $ | 925,820 | $ | 898,072 | $ | 231,764 | $ | 1,188,649 | $ | 1,122,542 | $ | 1,003,865 | $ | 906,556 | $ | 881,884 | ||||||||||||||||||||
Rental | 3,845 | 3,742 | 3,701 | 5,718 | 40,232 | 3,991 | 3,845 | 3,742 | 3,701 | 5,718 | ||||||||||||||||||||||||||||||
Licensing fees from affiliates | — | — | — | — | 7,566 | |||||||||||||||||||||||||||||||||||
Total revenue | 1,148,258 | 1,029,235 | 929,521 | 903,790 | 279,562 | 1,192,640 | 1,126,387 | 1,007,607 | 910,257 | 887,602 | ||||||||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||||||||||
Operating | 870,572 | 766,468 | 712,738 | 689,793 | 189,936 | 898,793 | 850,366 | 747,800 | 694,372 | 673,003 | ||||||||||||||||||||||||||||||
General and administrative | 48,186 | 40,467 | 36,907 | 34,568 | 45,463 | 57,053 | 48,186 | 40,467 | 36,907 | 34,568 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 54,511 | 52,930 | 51,291 | 52,639 | 58,812 | 59,882 | 54,445 | 52,884 | 53,417 | 56,325 | ||||||||||||||||||||||||||||||
Fees paid to a company acquired in 2000 | — | — | — | — | 1,401 | |||||||||||||||||||||||||||||||||||
Write-off of amounts under lease arrangements | — | — | — | — | 11,920 | |||||||||||||||||||||||||||||||||||
Impairment losses | — | — | — | — | 527,842 | |||||||||||||||||||||||||||||||||||
Total expenses | 973,269 | 859,865 | 800,936 | 777,000 | 835,374 | 1,015,728 | 952,997 | 841,151 | 784,696 | 763,896 | ||||||||||||||||||||||||||||||
Operating income (loss) | 174,989 | 169,370 | 128,585 | 126,790 | (555,812 | ) | ||||||||||||||||||||||||||||||||||
Operating income | 176,912 | 173,390 | 166,456 | 125,561 | 123,706 | |||||||||||||||||||||||||||||||||||
Other (income) expense: | ||||||||||||||||||||||||||||||||||||||||
Interest expense, net | 69,177 | 74,446 | 87,478 | 126,242 | 131,545 | 63,928 | 69,177 | 74,446 | 87,393 | 125,771 | ||||||||||||||||||||||||||||||
Expenses associated with debt refinancing and recapitalization transactions | 101 | 6,687 | 36,670 | — | — | 35,269 | 101 | 6,687 | 36,670 | — | ||||||||||||||||||||||||||||||
Change in fair value of derivative instruments | — | (2,900 | ) | (2,206 | ) | (14,554 | ) | — | — | — | (2,900 | ) | (2,206 | ) | (14,554 | ) | ||||||||||||||||||||||||
Stockholder litigation settlements | — | — | — | — | 75,406 | |||||||||||||||||||||||||||||||||||
Other (income) expense | 943 | (414 | ) | (359 | ) | 483 | 18,419 | 263 | 943 | (414 | ) | (359 | ) | 483 | ||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes, minority interest, and cumulative effect of accounting change | 104,768 | 91,551 | 7,002 | 14,619 | (781,182 | ) | ||||||||||||||||||||||||||||||||||
Income from continuing operations before income taxes and cumulative effect of accounting change | 77,452 | 103,169 | 88,637 | 4,063 | 12,006 | |||||||||||||||||||||||||||||||||||
Income tax (expense) benefit | (42,126 | ) | 52,352 | 63,284 | 3,358 | 48,738 | (26,888 | ) | (41,514 | ) | 52,352 | 63,284 | 3,358 | |||||||||||||||||||||||||||
Income (loss) from continuing operations before minority interest and cumulative effect of accounting change | 62,642 | 143,903 | 70,286 | 17,977 | (732,444 | ) | ||||||||||||||||||||||||||||||||||
Minority interest | — | — | — | — | 254 | |||||||||||||||||||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change | 50,564 | 61,655 | 140,989 | 67,347 | 15,364 | |||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change | 62,642 | 143,903 | 70,286 | 17,977 | (732,190 | ) | ||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | (99 | ) | (2,120 | ) | 2,074 | 7,717 | 1,408 | (442 | ) | 888 | 794 | 5,013 | 10,330 | |||||||||||||||||||||||||||
Cumulative effect of accounting change | — | — | (80,276 | ) | — | — | — | — | — | (80,276 | ) | — | ||||||||||||||||||||||||||||
Net income (loss) | 62,543 | 141,783 | (7,916 | ) | 25,694 | (730,782 | ) | 50,122 | 62,543 | 141,783 | (7,916 | ) | 25,694 | |||||||||||||||||||||||||||
Distributions to preferred stockholders | (1,462 | ) | (15,262 | ) | (20,959 | ) | (20,024 | ) | (13,526 | ) | — | (1,462 | ) | (15,262 | ) | (20,959 | ) | (20,024 | ) | |||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 61,081 | $ | 126,521 | $ | (28,875 | ) | $ | 5,670 | $ | (744,308 | ) | $ | 50,122 | $ | 61,081 | $ | 126,521 | $ | (28,875 | ) | $ | 5,670 | |||||||||||||||||
(continued)
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For the Years Ended December 31, | ||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change | $ | 1.74 | $ | 3.99 | $ | 1.78 | $ | (0.08 | ) | $ | (56.79 | ) | ||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.07 | ) | 0.08 | 0.31 | 0.11 | ||||||||||||||
Cumulative effect of accounting change | — | — | (2.90 | ) | — | — | ||||||||||||||
Net income (loss) available to common stockholders | $ | 1.74 | $ | 3.92 | $ | (1.04 | ) | $ | 0.23 | $ | (56.68 | ) | ||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change | $ | 1.55 | $ | 3.50 | $ | 1.61 | $ | (0.08 | ) | $ | (56.79 | ) | ||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.06 | ) | 0.06 | 0.31 | 0.11 | ||||||||||||||
Cumulative effect of accounting change | — | — | (2.49 | ) | — | — | ||||||||||||||
Net income (loss) available to common stockholders | $ | 1.55 | $ | 3.44 | $ | (0.82 | ) | $ | 0.23 | $ | (56.68 | ) | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 35,059 | 32,245 | 27,669 | 24,380 | 13,132 | |||||||||||||||
Diluted | 39,780 | 38,049 | 32,208 | 24,380 | 13,132 |
December 31, | ||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||
Total assets | $ | 2,023,078 | $ | 1,959,028 | $ | 1,874,071 | $ | 1,971,280 | $ | 2,176,992 | ||||||||||
Total debt | $ | 1,002,295 | $ | 1,003,428 | $ | 955,959 | $ | 963,600 | $ | 1,152,570 | ||||||||||
Total liabilities | $ | 1,207,084 | $ | 1,183,563 | $ | 1,140,073 | $ | 1,224,119 | $ | 1,488,977 | ||||||||||
Stockholders’ equity | $ | 815,994 | $ | 775,465 | $ | 733,998 | $ | 747,161 | $ | 688,015 |
For the Years Ended December 31, | ||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change | $ | 1.31 | $ | 1.71 | $ | 3.90 | $ | 1.68 | $ | (0.19 | ) | |||||||||
Income (loss) from discontinued operations, net of taxes | (0.01 | ) | 0.03 | 0.02 | 0.18 | 0.42 | ||||||||||||||
Cumulative effect of accounting change | — | — | — | (2.90 | ) | — | ||||||||||||||
Net income (loss) available to common stockholders | $ | 1.30 | $ | 1.74 | $ | 3.92 | $ | (1.04 | ) | $ | 0.23 | |||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change | $ | 1.26 | $ | 1.53 | $ | 3.42 | $ | 1.51 | $ | (0.19 | ) | |||||||||
Income (loss) from discontinued operations, net of taxes | (0.01 | ) | 0.02 | 0.02 | 0.16 | 0.42 | ||||||||||||||
Cumulative effect of accounting change | — | — | — | (2.49 | ) | — | ||||||||||||||
Net income (loss) available to common stockholders | $ | 1.25 | $ | 1.55 | $ | 3.44 | $ | (0.82 | ) | $ | 0.23 | |||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 38,475 | 35,059 | 32,245 | 27,669 | 24,380 | |||||||||||||||
Diluted | 40,281 | 39,780 | 38,049 | 32,208 | 24,380 |
December 31, | ||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||
Total assets | $ | 2,086,313 | $ | 2,023,078 | $ | 1,959,028 | $ | 1,874,071 | $ | 1,971,280 | ||||||||||
Total debt | $ | 975,636 | $ | 1,002,295 | $ | 1,003,428 | $ | 955,959 | $ | 963,600 | ||||||||||
Total liabilities | $ | 1,169,682 | $ | 1,207,084 | $ | 1,183,563 | $ | 1,140,073 | $ | 1,224,119 | ||||||||||
Stockholders’ equity | $ | 916,631 | $ | 815,994 | $ | 775,465 | $ | 733,998 | $ | 747,161 |
In connection with a merger completed in 1999, we elected to change our tax status from a taxable corporation to a real estate investment trust, or REIT, effective with the filing of our 1999 federal income tax return. As a REIT, we were dependent on a company, as a lessee, for a significant source of our income. In connection with a restructuring in 2000, we acquired the company on October 1, 2000 and two additional service companies on December 1, 2000, and amended our charter to remove provisions requiring us to elect to qualify and be taxed as a REIT. Therefore, the 2000 financial statements reflect our operation for a part of the year as an owner and lessor of prisons and other correctional facilities, and a part of the year as an owner, operator and manager of prisons and other correctional facilities. The financial statements for 2001 through 2004 reflect our financial condition, results of operations and cash flows for a full year as an owner, operator and manager of prisons and other correctional facilities.
3433
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
34
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Facility,had approximately 650 beds available, which arewe expect to be substantially vacant and provide usfilled with approximately 5,500 available beds. On December 23, 2004, we were awarded a new contractinmates from the BOP to house approximately 1,195 federal inmates at the Northeast Ohio Correctional Center. We expect to begin receiving inmates pursuant to this contract during the second quarterstate of 2005. We also have an additional facility located in Stewart County, Georgia, which is partially complete. This facility, which is expected to be completed during the second quarter of 2005, will bring approximately 1,500 additional beds on-line. In addition to these facilities, as of December 31, 2004, we also had a total of five facilities that had 200 or more beds available at each facility,Colorado, providing further potential for increased revenue and cash flow.
We As previously described, we are utilizing ourthis financial flexibility and liquidity to strategically add bedincrease our capacity in a prudent manner. During 2004 we completed the expansion of 1,652 beds at five of our facilities, which we expect to fill with existing customers. In addition, during September 2003, we announced our intention to complete construction of our 1,524-bed Stewart County Correctional Facility located in Stewart County, Georgia, which is expected to be complete during the second quarter of 2005. During February 2005, we announced the commencement of construction of the Red Rock Correctional Center, a new 1,596-bed correctional facility located in Eloy, Arizona, which is expected to be complete during the first quarter of 2006.
for sustained growth.
industry, which we believe can enable us to operate safe and secure facilities with more efficient, highly skilled and better-trained staff, and to reduce turnover.
3635
Based on our initial impairment tests, we recognized an impairment of $80.3 million to write-off the carrying value of goodwill associated with our locations included in the owned and managed reporting segment during the first quarter of 2002. This goodwill was established in connection with the acquisition of a company during 2000. The remaining goodwill, which is associated with the facilities we manage but do not own, was deemed to be not impaired. This remaining goodwill was established in connection with the acquisitions of two service companies during 2000, both of which were privately-held service companies, that managed certain government-owned adult and juvenile prison and jail facilities. The implied fair value of goodwill of the locations included in the owned and managed reporting segment did not support the carrying value of any goodwill, primarily due to the highly leveraged capital structure. No impairment of goodwill allocated to the locations included in the managed-only reporting segment was deemed necessary, primarily because of the relatively minimal capital expenditure requirements, and therefore indebtedness, in connection with obtaining such management contracts. Under SFAS 142, the impairment recognized at adoption of the new rules was reflected as a cumulative effect of accounting change in our statement of operations for the first quarter of 2002. Impairment adjustments recognized after adoption, if any, are required to be recognized as operating expenses.
37
Deferred income taxes reflect the available net operating losses and the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including our past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of our deferred tax assets, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. Prior to the year ended December 31, 2003, we provided a valuation allowance to substantially reserve our deferred tax assets in accordance with SFAS 109. However, at December 31, 2003, we concluded that it was more likely than not that substantially all of our deferred tax assets would be realized. As a result, in accordance with SFAS 109, the valuation allowance applied to such deferred tax assets was reversed.
36
The repayment of the refund adjusted by the IRS resulted in an increase in the amount of deferred tax assets reflected on our balance sheet for the incremental net operating losses made available to offset taxable income in the future. Prior to this finding by the IRS,December 31, 2004, we expected to generate sufficient taxable income during 2005 to utilize our remaining federal net operating loss carryforwards. Although the increaselosses in 2005. However, deductible expenses associated with debt refinancing transactions completed during March 2005 resulted in a decrease in our net operating loss carryforwards resulting from the repayment effectively extends the dateestimate of taxable income to be generated in which our net operating loss carryforwards are fully utilized,2005, such that we nonetheless stillnow do not expect to generate sufficient taxable income during 2005 tofully utilize all of our remaining federal net operating loss carryforwards. As a result, the IRS finding and corresponding payment effectively accelerated to the first quarter of 2005 the cash taxeslosses until 2006. Although we expected to pay more evenly throughout 2005, having no material impact on the total estimated cash flows for 2005.
Although wenow expect to utilize our remaining federal net operating losses in 2005,2006, we have approximately $10.3$11.6 million in net operating losses applicable to various states that we expect to
38
carry forward in future years to offset taxable income in such states. TheseCertain of these net operating losses begin expiring in 2005.have begun to expire. Accordingly, we have a valuation allowance of $1.0$2.8 million for the estimated amount of the net operating losses that will expire unused, in addition to a $5.5 million valuation allowance related to state tax credits that are also expected to expire unused. Although our estimate of future taxable income is based on current assumptions we believe to be reasonable, our assumptions may prove inaccurate and could change in the future, which could result in the expiration of additional net operating losses or credits. We would be required to establish a valuation allowance at such time that we no longer expected to utilize these net operating losses or credits, which could result in a material impact on our results of operations in the future.
37
39
Owned | ||||||||||||||||||||||||
and | Managed | �� | ||||||||||||||||||||||
Effective Date | Managed | Only | Leased | Incomplete | Total | |||||||||||||||||||
Facilities as of December 31, 2003 | 38 | 21 | 3 | 1 | 63 | |||||||||||||||||||
Management contracts awarded by the Texas Department of Criminal Justice, net | January 15, 2004 | — | 5 | — | — | 5 | ||||||||||||||||||
Management contract awarded for the Delta Correctional Facility | April 1, 2004 | — | 1 | — | — | 1 | ||||||||||||||||||
Expiration of the management contract for the Tall Trees Facility | August 9, 2004 | — | (1 | ) | — | — | (1 | ) | ||||||||||||||||
Expiration of the management contract for the Southern Nevada Women’s Correctional Center | October 1, 2004 | — | (1 | ) | — | — | (1 | ) | ||||||||||||||||
Facilities as of December 31, 2004 | 38 | 25 | 3 | 1 | 67 | |||||||||||||||||||
Expiration of the management contract for the David L. Moss Criminal Justice Center | July 1, 2005 | — | (1 | ) | — | — | (1 | ) | ||||||||||||||||
Completion of construction at the Stewart County Correctional Facility | October 10, 2005 | 1 | — | — | (1 | ) | — | |||||||||||||||||
Facilities as of December 31, 2005 | 39 | 24 | 3 | — | 66 | |||||||||||||||||||
Owned | ||||||||||||||||||||
and | Managed | |||||||||||||||||||
Managed | Only | Leased | Incomplete | Total | ||||||||||||||||
Facilities as of December 31, 2002 | 37 | 23 | 3 | 1 | 64 | |||||||||||||||
Purchase of Crowley County Correctional Facility | 1 | — | — | — | 1 | |||||||||||||||
Expiration of the management contract for the Okeechobee Juvenile Offender Correctional Center | — | (1 | ) | — | — | (1 | ) | |||||||||||||
Expiration of the management contract for the Lawrenceville Correctional Facility | — | (1 | ) | — | — | (1 | ) | |||||||||||||
Facilities as of December 31, 2003 | 38 | 21 | 3 | 1 | 63 | |||||||||||||||
Management contracts awarded by the Texas Department of Criminal Justice, net | — | 5 | — | — | 5 | |||||||||||||||
Management contract awarded for the Delta Correctional Facility | — | 1 | — | — | 1 | |||||||||||||||
Expiration of the management contract for the Tall Trees Facility | — | (1 | ) | — | — | (1 | ) | |||||||||||||
Expiration of the management contract for the Southern Nevada Women’s Correctional Center | — | (1 | ) | — | — | (1 | ) | |||||||||||||
Facilities as of December 31, 2004 | 38 | 25 | 3 | 1 | 67 | |||||||||||||||
2004
expenses and depreciation and amortization.
38
40
facility. These refinancing and recapitalization transactions effectively reduced the average interest rates on a significant portion of our outstanding indebtedness, and substantially reduced the after-tax dividend obligations associated with our outstanding preferred stock. Partially offsetting the favorable impacts of the refinancing and recapitalization transactions, the Company recorded a non-cash gain of $2.9 million during 2003 associated with the extinguishment of a promissory note issued in connection with certain stockholder litigation that was settled during the first quarter of 2001. In addition, financial results for 2003 included a charge of $6.7 million for expenses associated with the refinancing and recapitalization transactions completed in the second and third quarters of 2003.
During the first and second quarters of 2004, the Company completed the redemption of the remaining shares of both series A and series B preferred stock at the stated rates of $25.00 per share and $24.46 per share, respectively, plus accrued dividends to the redemption date, and obtained an additional amendment to the senior bank credit facility further lowering the interest rate spread applicable to the term loan portion of the facility.
Our financial results were also favorably impacted by an increase in the amount of interest capitalized, from $0.9 million during 2003 to $5.8 million during 2004, in accordance with Statement of Financial Accounting Standards No. 34, “Capitalization of Interest” associated with the construction and expansion projects during 2004 at six of our facilities. We funded these construction and expansion projects with cash on hand and with cash generated from operating activities.
Facility Operations
For the Years Ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
Revenue per compensated man-day | $ | 50.69 | $ | 49.21 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 28.50 | 27.59 | ||||||
Variable expense | 9.39 | 9.21 | ||||||
Total | 37.89 | 36.80 | ||||||
Operating margin per compensated man-day | $ | 12.80 | $ | 12.41 | ||||
Operating margin | 25.3 | % | 25.2 | % | ||||
Average compensated occupancy | 91.4 | % | 94.9 | % | ||||
For the Years Ended | ||||||||
December 31, | ||||||||
2004 | 2003 | |||||||
Revenue per compensated man-day | $ | 49.18 | $ | 50.97 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 27.69 | 27.96 | ||||||
Variable expense | 9.25 | 9.75 | ||||||
Total | 36.94 | 37.71 | ||||||
Operating margin per compensated man-day | $ | 12.24 | $ | 13.26 | ||||
Operating margin | 24.9 | % | 26.0 | % | ||||
Average compensated occupancy | 94.7 | % | 93.0 | % | ||||
41
Business from our federal customers, including the Bureau of Prisons, or the BOP, the United States Marshals Service, or the USMS, and the United States Bureau of Immigration and Customs Enforcement, or ICE, remains strong, while manycontinues to be a significant component of our state customers continue to experience budget difficulties.business. Our federal customers generated 37%39% and 38% of our total revenue for both the years ended December 31, 2005 and 2004, and 2003. While the budget difficulties experienced by our state customers present challenges with respect to our per-diem rates resulting in pressure on our management revenue in future quarters, these governmental entities are also constrained with respect to funds available for prison construction. We believe the lack of new bed supply combined with state budget difficulties has contributed to the increase in our occupancy and has led several states, some of which have never utilized the private sector, to outsource their correctional needs to us. We currently expect these trends to continue.respectively.
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Additionally, as expected, we experienced a modest reduction in our operating margins during 2004 compared with 2003 as a result of recent contract awards for facilities we manage but do not own, which, as further described hereafter, provide per diem rates and operating margins at lower levels than our owned and managed business. We entered into these contracts knowing our overall per diem rates and operating margins would decrease slightly; however, the opportunity to both expand our level of service with existing customers and provide services to new customers with very little capital requirements outweighed the effects of the operating margin reductions. Our operating margins were also negatively impacted by the expenses incurred in connection with the resumption of operations and the process of ramping up occupancy at three of our facilities, the Northeast Ohio Correctional Center located in Youngstown, Ohio during the second and third quarters of 2004, the Tallahatchie County Correctional Facility located in Tutwiler, Mississippi during the first and second quarters of 2004, and the managed-only Delta Correctional Facility located in Greenwood, Mississippi during the second quarter of 2004.
While we were successful in containing or reducing most types of variable expenses, the reduction in variable operating expenses per compensated man-day to $9.25$9.39 per compensated man-day during 2004 from $9.75 per compensated man-day during 20032005. The increase in facility variable expenses was primarily due tothe result of general inflationary increases in the costs of services such as our food service and inmate medical expenses, partially offset by a reduction in expenses related to legal proceedings in which we are involved.
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The operation of the facilities we own carries a higher degree of risk associated with a management contract than the operation of the facilities we manage but do not own because we incur significant capital expenditures to construct or acquire facilities we own. Additionally, correctional and detention facilities have a limited or no alternative use. Therefore, if a management contract is terminated at a facility we own, we continue to incur certain operating expenses, such as real estate taxes, utilities, and insurance, that we would not incur if a management contract was terminated for a managed-only facility. As a result, revenue per compensated man-day is typically higher for facilities we own and manage than for managed-only facilities. Because we incur higher expenses, such as repairs and maintenance, real estate taxes, and insurance, on the facilities we own and manage, our cost structure for facilities we own and manage is also higher than the cost structure for the managed-only facilities. The following tables display the revenue and expenses per compensated man-day for the facilities we own and manage and for the facilities we manage but do not own:
For the Years Ended | ||||||||
December 31, | ||||||||
2004 | 2003 | |||||||
Owned and Managed Facilities: | ||||||||
Revenue per compensated man-day | $ | 57.02 | $ | 55.25 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 30.81 | 29.34 | ||||||
Variable expense | 9.96 | 10.13 | ||||||
Total | 40.77 | 39.47 | ||||||
Operating margin per compensated man-day | $ | 16.25 | $ | 15.78 | ||||
Operating margin | 28.5 | % | 28.6 | % | ||||
Average compensated occupancy | 90.3 | % | 88.6 | % | ||||
Managed Only Facilities: | ||||||||
Revenue per compensated man-day | $ | 37.23 | $ | 42.22 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 22.94 | 25.14 | ||||||
Variable expense | 8.15 | 8.97 | ||||||
Total | 31.09 | 34.11 | ||||||
Operating margin per compensated man-day | $ | 6.14 | $ | 8.11 | ||||
Operating margin | 16.5 | % | 19.2 | % | ||||
Average compensated occupancy | 102.4 | % | 103.5 | % | ||||
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For the Years Ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
Owned and Managed Facilities: | ||||||||
Revenue per compensated man-day | $ | 58.95 | $ | 57.02 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 31.79 | 30.81 | ||||||
Variable expense | 10.19 | 9.96 | ||||||
Total | 41.98 | 40.77 | ||||||
Operating margin per compensated man-day | $ | 16.97 | $ | 16.25 | ||||
Operating margin | 28.8 | % | 28.5 | % | ||||
Average compensated occupancy | 88.3 | % | 90.3 | % | ||||
Managed Only Facilities: | ||||||||
Revenue per compensated man-day | $ | 37.46 | $ | 36.68 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 23.22 | 22.42 | ||||||
Variable expense | 8.12 | 7.99 | ||||||
Total | 31.34 | 30.41 | ||||||
Operating margin per compensated man-day | $ | 6.12 | $ | 6.27 | ||||
Operating margin | 16.3 | % | 17.1 | % | ||||
Average compensated occupancy | 96.7 | % | 103.3 | % | ||||
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For the Years Ended | ||||||||
December 31, | ||||||||
2004 | 2003 | |||||||
Revenue per compensated man-day | $ | 49.21 | $ | 51.10 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 27.59 | 27.92 | ||||||
Variable expense | 9.21 | 9.74 | ||||||
Total | 36.80 | 37.66 | ||||||
Operating margin per compensated man-day | $ | 12.41 | $ | 13.44 | ||||
Operating margin | 25.2 | % | 26.3 | % | ||||
Average compensated occupancy | 94.9 | % | 93.1 | % | ||||
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For the Years Ended | ||||||||
December 31, | ||||||||
2004 | 2003 | |||||||
Owned and Managed Facilities: | ||||||||
Revenue per compensated man-day | $ | 57.02 | $ | 55.25 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 30.81 | 29.34 | ||||||
Variable expense | 9.96 | 10.13 | ||||||
Total | 40.77 | 39.47 | ||||||
Operating margin per compensated man-day | $ | 16.25 | $ | 15.78 | ||||
Operating margin | 28.5 | % | 28.6 | % | ||||
Average compensated occupancy | 90.3 | % | 88.6 | % | ||||
Managed Only Facilities: | ||||||||
Revenue per compensated man-day | $ | 36.68 | $ | 41.94 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 22.42 | 24.80 | ||||||
Variable expense | 7.99 | 8.89 | ||||||
Total | 30.41 | 33.69 | ||||||
Operating margin per compensated man-day | $ | 6.27 | $ | 8.25 | ||||
Operating margin | 17.1 | % | 19.7 | % | ||||
Average compensated occupancy | 103.3 | % | 104.7 | % | ||||
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Due toAs a result of a combination of rate increases and/or an increase in population at four of our facilities, including our 2,304-bed Central Arizona Detention Center, 1,600-bed Florence Correctional Center, 1,232-bed San Diego Correctional Facility, and 866-bed D.C. Correctional Treatment Facility, primarily from the USMS, the ICE, and the District of Columbia, total management revenue increased during 2004 from the comparable period in 2003, by $33.5 million at these facilities.
2005.
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During March 2004, we entered into an agreement with the state of Arizona to initially manage 1,200 Arizona inmates. The contractual terms provide for the out-of-state management of male, medium-security Arizona inmates at our Diamondback Correctional Facility. The initial contract term ended June 30, 2004, corresponding with Arizona’s fiscal year, and was renewed for one year on July 1, 2004. The contract allows for two more one year extension options. As of December 31, 2004, we housed 805 inmates from the state of Arizona at this facility.
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State’s maximum security inmates at the Tallahatchie facility. The terms of the contract include an initial period which concludes on June 30, 2006, and includes three one-year renewal options. As of December 31, 2004, we housed 127 Mississippi inmates at the Tallahatchie County Correctional Facility.
We have been notified by the state of Indiana that during
During the second quarter of 2005, we expect to complete construction on our Stewart County Correctional Facility. Although we currently do not have a contract to house inmates at the 1,524-bed facility, our decision to complete construction was based on anticipated demand from several government customers having a need for inmate bed capacity in the Southeast region of the country. However, we can provide no assurance that we will be successful in utilizing the increased bed capacity. Once construction is complete we will incur depreciation expense on the new facility and will cease capitalizing interest on this project, which will have a negative affect on our results of operations. During 2004, we capitalized $4.3 million in interest costs incurred on this facility. We estimate the book value of the facility to be approximately $70.0 million upon completion of construction. We also expect our occupancy percentage to decline slightly as a result of the additional vacant beds available at the Stewart facility, if we are unable to utilize the beds when they are ready for use.
assurance.
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Total revenue per compensated man-day and total variable expenses per compensated man-day decreased for our managed-only facilities primarily because we did not assume responsibility for medical services for inmates provided under terms of our new contracts with the TDCJ. Eliminating this responsibility results in a lower per-diem rate; however, it also reduces the risk that our profitability will be eroded in the future by increasing medical costs. The new Texas contracts
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Our contract for the 1,440-bed David L. Moss Criminal Justice Center expires June 2005. Rather than renew the contract pursuant to its renewal provisions, Tulsa County, Oklahoma, the owner of the facility, decided to solicit a Request for Proposal, or RFP, for the management of the facility. We have provided a response to the RFP, but can provide no assurance that we will be selected for the continued management of this facility, or that a new contract would yield as much cash flow as our existing contract. This facility contributed $21.9 million in total revenue during 2004.
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continue to evaluate the potential need to expand our corporate office infrastructure to help ensure the quality and effectiveness of our facility operations. These initiatives could also lead to higher general and administrative expenses in the future.
Interest expense, net
Interest expense was reported net of interest income and capitalized interest for the years ended December 31, 2004 and 2003.
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fifteen consecutive trading days following the note’s issuance. The terms of the note, which allowed the principal balance to fluctuate dependent on the trading price of our common stock, created a derivative instrument that was valued and accounted for under the provisions of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or SFAS 133, as amended. Since we had previously reflected the maximum obligation of the contingency associated with the state portion of the stockholder litigation on the balance sheet, the extinguishment of the note in June 2003 resulted in a $2.9 million non-cash gain during the second quarter of 2003.
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2004.
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Although theThe increase in our net operating loss carryforwards resulting from the repayment effectively extends the date in which our net operating loss carryforwards are fully utilized, we nonetheless stillutilized. We currently expect to generate sufficient taxable income during 2005 tofully utilize all of our remaining federal net operating loss carryforwards. As a result, the IRS finding and corresponding payment effectively accelerated to the first quarter of 2005 the cash taxes we expected to pay more evenly throughout 2005, having no material impact on the total estimated cash flows for 2005.
losses during 2006.
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During March 2005, we received notification from the Tulsa County Commission in Oklahoma that, as a result of a contract bidding process, the County elected to have the Tulsa County Sheriff’s Office manage the 1,440-bed David L. Moss Criminal Justice Center, located in Tulsa. Our contract expired on June 30, 2005. Accordingly, we transferred operation of the facility to the Tulsa County Sheriff’s Office on July 1, 2005. During 2004 and 2003, the facility generated total revenue of $21.9 million and $21.6 million, respectively, and incurred total operating expenses of $20.2 million and $18.7 million, respectively.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
During the year ended December 31, 2003, we generated net income available to common stockholders of $126.5 million, or $3.44 per diluted share, compared with a net loss available to common stockholders of $28.9 million, or $0.82 per diluted share, for the previous year. Contributing to the net income for 2003 compared to the previous year was an increase in operating income of $40.8 million, from $128.6 million during 2002 to $169.4 million during 2003. The increase was due to the commencement of operations at our McRae Correctional Facility in December 2002 and the acquisition of the Crowley County Correctional Facility in January 2003, as well as increased occupancy levels and improved margins. Net income available to common stockholders during 2003 was favorably impacted by an income tax benefit of $52.4 million primarily due to the reversal of the valuation allowance previously established for our deferred tax assets. Weighted average common shares outstanding for 2003 includes the effect of our issuance of 6.4 million shares in connection with the recapitalization in May 2003.
Contributing to the net loss for 2002 was a non-cash charge for the cumulative effect of an accounting change for goodwill of $80.3 million, or $2.49 per diluted share, related to the adoption of SFAS 142, in addition to expenses associated with debt refinancing transactions of $36.7 million, or $1.14 per diluted share, during the second quarter of 2002. The debt refinancing completed during 2002 also contributed to the reduction in net interest expense, from $87.5 million during 2002 to $74.4 million during 2003. The cumulative effect of accounting change and the costs of refinancing were partially offset by an aggregate income tax benefit of $63.3 million, which included a cash income tax benefit of $32.2 million recognized during the first quarter of 2002 related to a change in tax law that became effective in March 2002, which enabled us to utilize certain of our net operating losses to offset taxable income generated in 1997 and 1996. In addition, $30.3 million of the income tax benefit in 2002 was due to the reduction of the tax valuation allowance applied to certain deferred tax assets arising primarily as a result of 2002 tax deductions based on a cumulative effect of accounting change for tax depreciation reported on our 2002 federal income tax return.
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Facility Operations
Revenue and expenses per compensated man-day for all of the facilities we owned or managed, exclusive of those discontinued (see further discussion below regarding discontinued operations), were as follows for the years ended December 31, 2003 and 2002:
For the Years Ended | ||||||||
December 31, | ||||||||
2003 | 2002 | |||||||
Revenue per compensated man-day | $ | 50.97 | $ | 49.63 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 27.96 | 27.78 | ||||||
Variable expense | 9.75 | 10.18 | ||||||
Total | 37.71 | 37.96 | ||||||
Operating margin per compensated man-day | $ | 13.26 | $ | 11.67 | ||||
Operating margin | 26.0 | % | 23.5 | % | ||||
Average compensated occupancy | 93.0 | % | 89.1 | % | ||||
Business from our federal customers, including the Bureau of Prisons, or the BOP, the United States Marshals Service, or the USMS, and the United States Bureau of Immigration and Customs Enforcement, or ICE, remains strong, while many of our state customers have experienced budget difficulties. Our federal customers generated 37% and 33%, respectively, of our total revenue for the years ended December 31, 2003 and 2002.
Operating expenses totaled $766.5 million and $712.7 million for the years ended December 31, 2003 and 2002, respectively. Operating expenses consist of those expenses incurred in the operation and management of adult and juvenile correctional and detention facilities, and for our inmate transportation subsidiary.
Salaries and benefits represent the most significant component of fixed operating expenses. During 2003, salaries and benefits expense increased $43.4 million from 2002. The increase in salaries and benefits expense was primarily due to the arrival of inmates at the McRae Correctional Facility beginning in December 2002 and the purchase of the Crowley County Correctional Facility in January 2003. Salaries and benefits per compensated man-day increased $0.50 per compensated man-day during 2003 from 2002.
We also experienced a trend of increasing insurance expense during 2003 compared with 2002. Because we are significantly self-insured for employee health, workers’ compensation, and automobile liability insurance, our insurance expense is dependent on claims experience and our ability to control our claims. Our insurance policies contain various deductibles and stop-loss amounts intended to limit our exposure for individually significant occurrences. However, the nature of our self-insurance provides little protection for a deterioration in claims experience or increasing employee medical costs in general.
We continue to incur increasing insurance expense due to adverse claims experience primarily resulting from rising healthcare costs throughout the country. We continue to develop new strategies to improve the management of our future loss claims, but can provide no assurance that these strategies will be successful. Additionally, general liability insurance costs have risen substantially since the terrorist attacks on September 11, 2001, and other types of insurance, such as directors and
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officers liability insurance, have increased due to several high profile business failures and concerns about corporate governance and accounting in the marketplace.
The reduction in variable operating expenses per compensated man-day to $9.75 per compensated man-day during 2003 from $10.18 per compensated man-day during 2002 was primarily due to the renegotiation of our contract for food services. We decided to outsource food services at almost all of the facilities we operate. Outsourcing our food services to one vendor for substantially all of the facilities we manage generated opportunities to produce economies of scale. We also achieved reductions in inmate medical expenses primarily due to the renegotiation of our management contract for the Correctional Treatment Facility located in the District of Columbia, as well as through the negotiation of a national contract with our pharmaceutical provider and reduced reliance on outsourced nursing.
The following tables display the revenue and expenses per compensated man-day for the facilities we own and manage and for the facilities we manage but do not own:
For the Years Ended | ||||||||
December 31, | ||||||||
2003 | 2002 | |||||||
Owned and Managed Facilities: | ||||||||
Revenue per compensated man-day | $ | 55.25 | $ | 54.61 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 29.34 | 29.62 | ||||||
Variable expense | 10.13 | 11.34 | ||||||
Total | 39.47 | 40.96 | ||||||
Operating margin per compensated man-day | $ | 15.78 | $ | 13.65 | ||||
Operating margin | 28.6 | % | 25.0 | % | ||||
Average compensated occupancy | 88.6 | % | 83.4 | % | ||||
Managed Only Facilities: | ||||||||
Revenue per compensated man-day | $ | 42.22 | $ | 40.83 | ||||
Operating expenses per compensated man-day: | ||||||||
Fixed expense | 25.14 | 24.51 | ||||||
Variable expense | 8.97 | 8.13 | ||||||
Total | 34.11 | 32.64 | ||||||
Operating margin per compensated man-day | $ | 8.11 | $ | 8.19 | ||||
Operating margin | 19.2 | % | 20.1 | % | ||||
Average compensated occupancy | 103.5 | % | 101.2 | % | ||||
The following discussions under “Owned and Managed Facilities” and “Managed-Only Facilities” address significant events that impacted our results of operations for the respective periods, and events that will affect our results of operations in the future.
Owned and Managed Facilities
On May 30, 2002, we were awarded a contract by the BOP to house 1,524 federal detainees at our McRae Correctional Facility located in McRae, Georgia. The three-year contract, awarded as part of the Criminal Alien Requirement Phase II Solicitation, or CAR II, also provides for seven one-year renewals. The contract with the BOP guarantees at least 95% occupancy on a take-or-pay basis, and commenced full operations in December 2002. Total management and other revenue at this facility
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was $35.8 million during the year ended December 31, 2003. This facility did not reach an average physical occupancy of 95% until October 2003. As a result, during much of 2003, we benefited from a relatively low level of operating expense resulting from lower physical occupancies while generating revenue at the guaranteed 95% occupancy rate. As of December 31, 2003, the physical occupancy was 110.4%. While only $2.7 million of management and other revenue was generated by this facility during 2002, we incurred $4.6 million of operating expenses during the year ended December 31, 2002.
Results for 2003 were also favorably impacted by the acquisition, on January 17, 2003, of the Crowley County Correctional Facility, a 1,200-bed medium security adult male prison facility located in Olney Springs, Crowley County, Colorado. As part of the transaction, we also assumed a management contract with the state of Colorado and entered into a new management contract with the state of Wyoming, and took over management of the facility effective January 18, 2003.
During the third quarter of 2003, we transferred all of the Wisconsin inmates housed at our 1,440-bed medium security North Fork Correctional Facility located in Sayre, Oklahoma to our 2,160-bed medium security Diamondback Correctional Facility located in Watonga, Oklahoma in order to satisfy a contractual provision mandated by the state of Wisconsin. As a result of the transfer, North Fork Correctional Facility will remain closed for an indefinite period of time. We are currently pursuing new management contracts and other opportunities to take advantage of the beds that became available at the North Fork Correctional Facility, but can provide no assurance that we will be successful in doing so. The operational consolidations did not have a material impact on our 2003 financial statements. However, long-term, the consolidation will result in certain operational efficiencies.
Additionally, during the second quarter of 2003, the state of Wisconsin approved legislation to open various prison facilities owned by the State. The opening of these facilities led to a reduction in the number of inmates we house from the state of Wisconsin at our Diamondback Correctional Facility and our Prairie Correctional Facility, totaling approximately 1,900 inmates at December 31, 2003.
During October 2002, we entered into a new agreement with Hardeman County, Tennessee, with respect to the management of up to 1,536 medium security inmates from the state of Tennessee in the Whiteville Correctional Facility. Total management revenue increased during the year ended December 31, 2003 from the comparable period in 2002 by $9.2 million at this facility.
Due to a combination of rate increases and/or an increase in population at seven of our facilities, including our 2,304-bed Central Arizona Detention Center, 1,600-bed Florence Correctional Center, 1,338-bed Prairie Correctional Facility, 1,232-bed San Diego Correctional Facility, 910-bed Torrance County Detention Facility, 483-bed Leavenworth Detention Center, and 480-bed Webb County Detention Center, primarily from the BOP, the USMS, the ICE, and the state of Wisconsin in the case of Prairie Correctional Facility, total management and other revenue increased during 2003 from 2002 by $36.0 million at these facilities.
During June 2003, we announced our first inmate management contract with the state of Alabama to house up to 1,440 medium security inmates in our Tallahatchie County Correctional Facility, located in Tutwiler, Mississippi, under a temporary emergency agreement to provide the state of Alabama immediate relief of its overcrowded prison system. The facility began receiving inmates in July 2003. Prior to receiving inmates from the state of Alabama, this facility was substantially idle. During January 2004, we received notice from the Alabama Department of Corrections that it would withdraw its inmates housed at the facility. The Alabama Department of Corrections took custody of all of the inmates previously housed at the facility during the first quarter of 2004. Based on the
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terms of the short-term contract, Alabama compensated us at a guaranteed rate of 95% occupancy of the facility through March 11, 2004.
Fixed expenses per compensated man-day for our owned and managed facilities decreased from $29.62 during 2002 to $29.34 during 2003. The aforementioned increase in fixed operating expense for salaries and benefits and insurance across the portfolio of facilities we manage, was partially offset by decreases in property tax expenses of $2.4 million for 2003, compared with 2002, or a decrease of $0.35 per compensated man-day. The decrease in property tax expense was primarily as the result of a successful settlement during the third quarter of 2003 of a property tax dispute at our Northeast Ohio Correctional Center. Further, as our occupancy levels increase, we are able to provide the same quality of services without proportionately increasing our staffing levels, resulting in reductions to our fixed expenses per compensation man-day.
Variable expenses per compensated man-day for our owned and managed facilities decreased from $11.34 during 2002 to $10.13 for 2003. The aforementioned decrease in variable expenses for reduced food and medical expenses across the portfolio of facilities we manage was net of an increase in variable expenses for an increase in litigation expenses during 2003 compared with 2002 of $4.9 million, or $0.34 per compensated man-day, at certain of our owned facilities for legal proceedings in which we are involved. The amount of the increase was also due to the settlement during the first quarter of 2002 of a number of outstanding legal matters for amounts less than reserves previously established for such matters, which resulted in a reversal of litigation expenses during the first quarter of 2002 of $1.3 million.
Managed-Only Facilities
During the fourth quarter of 2001, we committed to a plan to terminate a management contract at the Southwest Indiana Regional Youth Village, a 188-bed juvenile facility located in Vincennes, Indiana. During the first quarter of 2002, we entered into a mutual agreement with Children and Family Services Corporation, or CFSC, to terminate our management contract at the facility, effective April 1, 2002, prior to the contract’s expiration date in 2004. In connection with the mutual agreement to terminate the management contract, CFSC also paid in full an outstanding note receivable totaling $0.7 million, which was previously considered uncollectible and was fully reserved.
On June 28, 2002, we received notice from the Mississippi Department of Corrections terminating our contract to manage the 1,016-bed Delta Correctional Facility located in Greenwood, Mississippi, due to the non-appropriation of funds. We ceased operations of the facility during October 2002. However, the state of Mississippi agreed to expand our management contract at the Wilkinson County Correctional Facility located in Woodville, Mississippi to accommodate an additional 100 inmates. As a result, the results of operations of the Delta Correctional Facility are not reported in discontinued operations. Total management and other revenue at Delta Correctional Facility was $6.3 million during the year ended December 31, 2002, while we incurred $7.1 million in operating expenses during the same period.
During July 2002, we renewed our contract with Tulsa County, Oklahoma for the management of inmates at the David L. Moss Criminal Justice Center. The contract renewal included an increase in the per-diem rate, and also shifted to Tulsa County the burden of certain utility expenses, resulting in a modest improvement in profitability for the management of this facility during the year ended December 31, 2003, compared with 2002.
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General and administrative expense
For the years ended December 31, 2003 and 2002, general and administrative expenses totaled $40.5 million and $36.9 million, respectively. General and administrative expenses consist primarily of corporate management salaries and benefits, professional fees and other administrative expenses, and increased from 2002 primarily due to an increase in salaries and benefits, combined with an increase in professional services, during 2003 compared with 2002. These increases were net of a decrease of $4.0 million incurred in 2002 in connection with the implementation of tax strategies to maximize opportunities created by a settlement with the IRS with respect to our predecessor’s 1997 federal income tax return combined with a change in tax law in March 2002.
Interest expense, net
Interest expense was reported net of interest income for the years ended December 31, 2003 and 2002. Gross interest expense was $78.0 million and $91.9 million, respectively, for the years ended December 31, 2003 and 2002. Gross interest expense is based on outstanding indebtedness, net settlements on certain derivative instruments, and amortization of loan costs and unused credit facility fees. The decrease in gross interest expense from the prior year was primarily attributable to the refinancing of our senior indebtedness completed on May 3, 2002, which resulted in a decrease in the interest rate spread on our senior bank credit facility and the redemption of a substantial portion of our 12% senior notes. Further, the recapitalization and refinancing transactions completed during the second and third quarters of 2003 resulted in the elimination of the regular and contingent interest associated with $40.0 million of convertible subordinated notes, a further reduction in the interest rate spread on the term portion of our senior bank credit facility, a reduction in the interest rate on our $30.0 million convertible subordinated notes, and the repayment of the remaining balance of our 12% senior notes, partially offset by additional borrowings used to repurchase and redeem a substantial portion of our preferred stock. Interest expense also decreased due to the termination of an interest rate swap agreement, lower amortization of loan costs, and a lower interest rate environment.
Gross interest income was $3.6 million and $4.4 million, respectively, for the years ended December 31, 2003 and 2002. Gross interest income is earned on cash collateral requirements, a direct financing lease, notes receivable and investments of cash and cash equivalents.
Expenses associated with debt refinancing and recapitalization transactions
For the years ended December 31, 2003 and 2002, expenses associated with debt refinancing and recapitalization transactions were $6.7 million and $36.7 million, respectively. Charges during the third quarter of 2003 primarily resulted from the write-off of existing deferred loan costs associated with the repayment of the term loan portion of our senior bank credit facility made with proceeds from the issuance of the $200.0 million 7.5% senior notes, premiums paid to defease the remaining outstanding 12% senior notes, and certain fees paid to amend the term portion of our senior bank credit facility. Charges during the second quarter of 2003 included expenses associated with the tender offer for our series B preferred stock, the redemption of our series A preferred stock, and the write-off of existing deferred loan costs associated with the repayment of the term loan portions of our senior bank credit facility made with proceeds from the common stock and note offerings, a tender premium paid to the holders of the 12% senior notes who tendered their notes to us at a price of 120% of par, and fees associated with the modifications to the terms of the $30.0 million of convertible subordinated notes.
As a result of the early extinguishment of our old senior bank credit facility and the redemption of substantially all of the 12% senior notes in May 2002, we recorded charges of $36.7 million during
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the second quarter of 2002, which included the write-off of existing deferred loan costs, certain bank fees paid, premiums paid to redeem the 12% senior notes, and certain other costs associated with the refinancing.
Change in fair value of derivative instruments
On May 16, 2003, 0.3 million shares of common stock were issued, along with a $2.9 million subordinated promissory note, in connection with the final settlement of the state court portion of our stockholder litigation settlement. Under the terms of the promissory note, the note and accrued interest were extinguished in June 2003 once the average closing price of our common stock exceeded a “termination price” equal to $16.30 per share for fifteen consecutive trading days following the note’s issuance. The terms of the note, which allowed the principal balance to fluctuate dependent on the trading price of our common stock, created a derivative instrument that was valued and accounted for under the provisions of SFAS 133. Since we had previously reflected the maximum obligation of the contingency associated with the state portion of the stockholder litigation on the balance sheet, the extinguishment of the note in June 2003 resulted in a $2.9 million non-cash gain during the second quarter of 2003.
Income tax benefit
During the years ended December 31, 2003 and 2002, our financial statements reflected income tax benefits of $52.4 million and $63.3 million, respectively. The income tax benefit during the year ended December 31, 2003 was primarily the result of our reversal of substantially all of the valuation allowance previously established for our deferred tax assets.
Deferred income taxes reflect the available net operating losses and the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including our past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of our deferred tax assets, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. During the years ended December 31, 2003 and 2002, we provided a valuation allowance to substantially reserve our deferred tax assets in accordance with SFAS 109. As a result, our financial statements did not reflect a provision for income taxes other than for certain state taxes. However, at December 31, 2003, we concluded that it was more likely than not that substantially all of our deferred tax assets would be realized. As a result, in accordance with SFAS 109, the valuation allowance applied to such deferred tax assets was reversed.
The removal of the valuation allowance resulted in a significant non-cash reduction in income tax expense during the fourth quarter of 2003. Accordingly, beginning with the first quarter of 2004, our financial statements reflect a provision for income taxes at the applicable federal and state tax rates on income before taxes.
The income tax benefit during the year ended December 31, 2002, primarily resulted from the “Job Creation and Worker Assistance Act of 2002,” which was signed into law on March 9, 2002. Among other changes, the tax law extended the net operating loss carryback period to five years from two years for net operating losses arising in tax years ending in 2001 and 2002, and allows use of net operating loss carrybacks and carryforwards to offset 100% of the alternative minimum tax. We experienced net operating losses during 2001 resulting primarily from the sale of assets at prices below the tax basis of such assets. Under terms of the new law, we utilized certain of these net operating losses to offset taxable income generated in 1997 and 1996. As a result of this tax law
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change in 2002, we reported an income tax benefit and claimed a refund of $32.2 million during the first quarter of 2002, which was received in April 2002.
On October 24, 2002, we entered into a definitive settlement with the IRS in connection with the IRS’s audit of our predecessor’s 1997 federal income tax return. Under the terms of the settlement, in consideration for the IRS’s final determinations with respect to the 1997 tax year, in December 2002 we paid $52.2 million in cash to satisfy federal and state taxes and interest.
Due to the change in tax law in March 2002, the settlement created an opportunity to utilize any 2002 tax losses to claim a refund of a portion of the taxes paid. We experienced tax losses during 2002 primarily resulting from a cumulative effect of accounting change in depreciable lives of property and equipment for tax purposes. Under terms of the new law, we utilized our net operating losses to offset taxable income generated in 1997, which was increased substantially in connection with the settlement with the IRS. As a result of the tax law change in 2002, combined with the adoption of an accounting change in the depreciable lives of certain tax assets, as of December 31, 2002 we claimed an income tax refund of $32.1 million, which was received during the second quarter of 2003.
The cumulative effect of accounting change in tax depreciation resulted in the establishment of a significant deferred tax liability for the tax effect of the book over tax basis of certain assets in 2002. The creation of such a deferred tax liability, and the significant improvement in our tax position since the original valuation allowance was established to reserve our deferred tax assets, resulted in the reduction of the valuation allowance, generating an income tax benefit of $30.3 million during the fourth quarter of 2002, as we determined that substantially all of these deferred tax liabilities would be utilized to offset the reversal of deferred tax assets during the net operating loss carryforward periods.
Discontinued Operations
In late 2001 and early 2002, we were provided notice from the Commonwealth of Puerto Rico of its intention to terminate the management contracts at the 500-bed multi-security Ponce Young Adult Correctional Facility and the 1,000-bed medium security Ponce Adult Correctional Facility, located in Ponce, Puerto Rico, upon the expiration of the management contracts in February 2002. Attempts to negotiate continued operation of these facilities were unsuccessful. As a result, the transition period to transfer operation of the facilities to the Commonwealth of Puerto Rico ended May 4, 2002, at which time operation of the facilities was transferred to the Commonwealth of Puerto Rico. During the year ended December 31, 2002, these facilities generated total revenue of $7.9 million and incurred total operating expenses of $7.4 million. We recorded a non-cash charge of $1.8 million during the second quarter of 2002 for the write-off of the carrying value of assets associated with the terminated management contracts.
During the fourth quarter of 2001, we obtained an extension of our management contract with the Commonwealth of Puerto Rico for the operation of the 1,000-bed Guayama Correctional Center located in Guayama, Puerto Rico, through December 2006. However, on May 7, 2002, we received notice from the Commonwealth of Puerto Rico terminating our contract to manage this facility, which occurred on August 6, 2002. During the year ended December 31, 2002, this facility generated total revenue of $12.3 million and incurred total operating expenses of $9.9 million.
On June 28, 2002, we sold our interest in a juvenile facility located in Dallas, Texas for $4.3 million. The facility, which was designed to accommodate 900 at-risk juveniles, was leased to an independent third party operator pursuant to a lease expiring in 2008. Net proceeds from the sale were used for working capital purposes. This facility generated rental income of $0.4 million during the year ended December 31, 2002.
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During the fourth quarter of 2002, we were notified by the state of Florida of its intention to not renew our contract to manage the 96-bed Okeechobee Juvenile Offender Correctional Center located in Okeechobee, Florida, upon the expiration of a short-term extension to the existing management contract, which expired in December 2002. Upon expiration, which occurred March 1, 2003, the operation of the facility was transferred to the state of Florida. During the years ended December 31, 2003 and 2002, the facility generated total revenue of $0.8 million and $4.8 million, respectively, and incurred total operating expenses of $0.7 million and $4.0 million, respectively. Additionally, the expiration of the contract resulted in the impairment of goodwill previously recorded in connection with this facility, which totaled $0.3 million, during the first quarter of 2003.
On March 18, 2003, we were notified by the Department of Corrections of the Commonwealth of Virginia of its intention to not renew our contract to manage the 1,500-bed Lawrenceville Correctional Center located in Lawrenceville, Virginia, upon the expiration of the contract. Accordingly, we terminated our operation of the facility on March 22, 2003 in connection with the expiration of the contract. During the years ended December 31, 2003 and 2002, the facility generated total revenue of $4.6 million and $20.3 million, respectively, and incurred total operating expenses of $5.3 million and $18.8 million, respectively. Additionally, the expiration of the contract resulted in the impairment of goodwill previously recorded in connection with this facility, which totaled $0.3 million, during the first quarter of 2003.
Due to operating losses incurred at the Southern Nevada Women’s Correctional Center, we elected to not renew our contract to manage the facility upon the expiration of the contract. Accordingly, we transferred operation of the facility to the Nevada Department of Corrections on October 1, 2004. During 2003 and 2002, the facility generated total revenue of $7.5 million and $8.3 million, respectively, and incurred total operating expenses of $8.8 and $8.7 million, respectively.
During 2003, additional depreciation and amortization and income tax benefit totaled $0.5 million and $0.9 million, respectively, for these facilities. During 2002, additional depreciation and amortization, interest income, and income tax expense totaled $1.3 million, $0.6 million, and $0.6 million, respectively, for these facilities.
Distributions to preferred stockholders
For the years ended December 31, 2003 and 2002, distributions to preferred stockholders totaled $15.3 million and $21.0 million, respectively, and decreased as the result of the redemption of a substantial portion of our outstanding series A preferred stock and tender offer for our series B preferred stock.
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OnDuring September 10, 2003,2005, we announced an expansionthat Citrus County renewed our contract for the continued management of 594 beds at the CrowleyCitrus County CorrectionalDetention Facility located in Olney Springs, Colorado,Lecanto, Florida. The contract has a facility we acquired in January 2003.ten-year base term with one five-year renewal option. The costterms of the new agreement include a 360-bed expansion was approximately $23.3 million and was completedthat commenced during the fourth quarter of 2004. This expansion was undertaken in anticipation of increasing demand from the states of Colorado and Wyoming. We also announced on September 10, 2003, our intention to complete construction of the Stewart County Correctional Facility located in Stewart County, Georgia. The anticipated cost to complete the Stewart facility is approximately $26.5 million, with completion estimated to occur during the second quarter of 2005. During the fourth quarter of 2004, we have approximately 273 beds available for use at the Stewart County Correctional Facility. Construction on the 1,524-bed Stewart County Correctional Facility began in August 1999 and was suspended in May 2000. Our decision to complete construction of this facility is based on anticipated demand from several government customers having a need for inmate bed capacity in the Southeast region of the country. However, we can provide no assurance that we will be successful in utilizing the increased bed capacity resulting from these projects. Additionally, in October 2003, we announced the signing of a new contract with ICE for up to 905 detainees at our Houston Processing Center located in Houston, Texas. We also announced our intention to expand the facility by 494 beds from its current 411 beds to 905 beds. The anticipated cost of the expansion is approximately $27.1 million2005 and is estimatedexpected to be completed during the first quarter of 2005. This2007. The expansion of the facility, which is being undertaken in orderowned by the County, is currently anticipated to accommodate additional detainee populations that are anticipated as a result of this contract,cost approximately $18.5 million which contains a guarantee that ICEwe will utilize 679 beds at such time asfund by utilizing our cash on hand. The estimated remaining cost to complete the expansion is completed.
$17.3 million as of December 31, 2005. If the County terminates the management contract at any time prior to twenty years following completion of construction, the County would be required to pay us an amount equal to the construction cost less an allowance for the amortization over a twenty-year period.
On February 1, 2005, we commenced construction of the Red Rock Correctional Center, a new 1,596-bed correctional facility located in Eloy, Arizona. The facility is expected to cost approximately $75$81.5 million, and is slated for completion during the firstthird quarter of 2006.2006 with an estimated remaining cost to complete of $18.1 million as of December 31, 2005. The capacity at the new facility is intended primarily for our existing customers.
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Estimated cost to | ||||||||||||
No. of | Estimated | complete | ||||||||||
Facility | beds | completion date | (thousands) | |||||||||
Stewart County Correctional Facility Stewart County, GA | 1,524 | Second quarter 2005 | $ | 3,653 | ||||||||
Houston Processing Center Houston, TX | 494 | First quarter 2005 | $ | 3,672 | ||||||||
Red Rock Correctional Center Eloy, AZ | 1,596 | First quarter 2006 | $ | 75,000 | ||||||||
Total | 3,614 | $ | 82,325 | |||||||||
Estimated cost to | ||||||||||||
No. of | Estimated | complete | ||||||||||
Facility | beds | completion date | (in thousands) | |||||||||
Red Rock Correctional Center | Third | |||||||||||
Eloy, AZ | 1,596 | quarter 2006 | $ | 18,058 | ||||||||
Citrus County Detention Facility Lecanto, FL | 360 | First quarter 2007 | 17,269 | |||||||||
Saguaro Correctional Facility Eloy, AZ | 1,896 | Second half 2007 | 97,108 | |||||||||
Total | 3,852 | $ | 132,435 | |||||||||
2006.
During 2003, the Internal Revenue Service completed its field audit of our 2001 federal income tax return. During the fourth quarter of 2004, the 2001 audit results underwent a review by the Joint Committee on Taxation, a division of the IRS. Based on that review, the IRS adjusted the carryback claims2006 we filed on our 2001 and 2002 federal income tax returns, requiring us to repay approximately $16.3 million of refunds we received during 2002 and 2003 as a result of tax law changes provided by the “Job Creation and Worker Assistance Act of 2002.” A portion of our tax loss was deemed not to be available for carryback to 1997 and 1996 due to our restructuring that occurred between 1997 and 2001. However, we will carry this tax loss forward to offset future taxable income. While the adjustment did not result in a loss of deductions claimed, we were obligated to repay the amount of the adjusted refund, plus interest of approximately $2.9 million, or $1.7 million after taxes through December 31, 2004. These obligations were accrued in our consolidated financial statements as of December 31, 2004, and were paid during the first quarter of 2005.
The repayment of the refund adjusted by the IRS resulted in an increase in the amount of deferred tax assets reflected on our balance sheet for the incremental net operating losses made available to offset taxable income in the future. Prior to this finding by the IRS, we expectedexpect to generate sufficient taxable income during 2005 to utilize our remaining federal net operating loss carryforwards. Although the increase in our net operating loss carryforwards, resulting from the repayment effectively extends the date in which our net operating loss carryforwards are fully utilized, we nonetheless still expect to generate sufficient taxable income during 2005 to utilize all of our
6160
remaining federal net operating loss carryforwards.
a full year’s taxes beginning in 2007.
The increase in cash provided by operating activities during 2005 was primarily the result of an increase in higher operating income and lower interest costs, partially offset by an increase in income tax payments for the aforementioned repayment of excess tax refunds received in prior years.
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restricted cash for a capital improvements,improvement, replacements, and repairs reserve totaling $5.6 million for our San Diego Correctional Facility.
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Payments Due By Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payments Due By Year Ended December 31, | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | $ | 2,890 | $ | 2,847 | $ | 228,708 | $ | 66,011 | $ | 250,000 | $ | 450,000 | $ | 1,000,456 | $ | 11,538 | $ | 103,250 | $ | 34,300 | $ | — | $ | — | $ | 825,000 | $ | 974,088 | ||||||||||||||||||||||||||||
Houston Processing Center expansion | 3,672 | — | — | — | — | — | 3,672 | |||||||||||||||||||||||||||||||||||||||||||||||||
Citrus County | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Detention Facility expansion | 16,627 | 642 | — | — | — | — | 17,269 | |||||||||||||||||||||||||||||||||||||||||||||||||
Mineral Wills remediation | 225 | — | — | — | — | — | 225 | |||||||||||||||||||||||||||||||||||||||||||||||||
Operating leases | 267 | — | — | — | — | — | 267 | 211 | — | — | — | — | — | 211 | ||||||||||||||||||||||||||||||||||||||||||
Total Contractual Cash Obligations | $ | 6,829 | $ | 2,847 | $ | 228,708 | $ | 66,011 | $ | 250,000 | $ | 450,000 | $ | 1,004,395 | $ | 28,601 | $ | 103,892 | $ | 34,300 | $ | — | $ | — | $ | 825,000 | $ | 991,793 | ||||||||||||||||||||||||||||
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letters of credit are renewable annually. We did not have any draws under any outstanding letters of credit during 2005, 2004, 2003, or 2002.2003.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51,” or FIN 46. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or in which equity investors do not bear the residual economic risks. FIN 46 is effective for all entities other than special purpose entities no later than the end of the first period that ends after March 15, 2004. We have no investments in special purpose entities. We adopted FIN 46 effective January 1, 2004.
We have determined that our joint venture, Agecroft Prison Management, Ltd., or APM, is a variable interest entity (“VIE”), of which we are not the primary beneficiary. APM has a management contract for a correctional facility located in Salford, England. All gains and losses under the joint venture are accounted for using the equity method of accounting. During 2000, we extended a working capital loan to APM, which totaled $6.5 million, including accrued interest, as of December 31, 2004. The outstanding working capital loan represents our maximum exposure to loss in connection with APM. APM has not been, and in accordance with FIN 46 will not be, consolidated with our financial statements.
1. | A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share-based |
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payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. | ||||
2. | A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either for (a) all prior periods presented or (b) prior interim periods of the year of adoption. |
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As previously permitted by SFAS 123, we currently accountaccounted for share-based payments to employees using APB 25’s intrinsic value method and, as such, recognizerecognized no compensation cost for employee stock options.options, except as a result of the previously announced December 2005 accelerated vesting of stock options which resulted in a compensation charge during the fourth quarter of 2005 of $1.0 million in accordance with APB 25. Accordingly, the adoption of SFAS 123R’s fair value method willcould have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, hadbecause we adopted SFAS 123Rmade changes in prior periods,2005 to our historical business practices with respect to awarding stock-based employee compensation, the impact of thatthe standard would have approximatedis expected to be less than the historical pro forma impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in the footnote, “Accounting for Stock-Based Compensation”, in our Notes to Consolidated Financial Statements. Further, the pro forma data for 2005 also includes $6.3 million of compensation expense associated with the accelerated vesting of all stock options outstanding effective December 30, 2005. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.
Inflation
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(i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | ||
(ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and | ||
(iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. |
66
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004.2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
67.
6766
6867
/s/ Ernst & Young LLP | ||
Ernst & Young LLP | ||
Nashville, Tennessee | ||
March 1, 2006 |
Nashville, TennesseeMarch 4, 2005
6968
7069
(c) | (a) | (b) | (c) | |||||||||||||||||||||
Number of Securities | Number of Securities | |||||||||||||||||||||||
Remaining Available | Remaining Available | |||||||||||||||||||||||
(a) | (b) | for Future Issuance | for Future Issuance | |||||||||||||||||||||
Number of Securities | Weighted – Average | Under Equity | Number of Securities | Weighted - Average | Under Equity | |||||||||||||||||||
to be Issued Upon | Exercise Price of | Compensation Plan | to be Issued Upon | Exercise Price of | Compensation Plan | |||||||||||||||||||
Exercise of | Outstanding | (Excluding Securities | Exercise of | Outstanding | (Excluding Securities | |||||||||||||||||||
Outstanding Options, | Options, Warrants | Reflected in Column | Outstanding Options, | Options, Warrants | Reflected in Column | |||||||||||||||||||
Plan Category | Warrants and Rights | and Rights | (a)) | Warrants and Rights | and Rights | (a)) | ||||||||||||||||||
Equity compensation plans approved by stockholders | 3,800,212 | $ | 22.63 | 1,533,530 | (1) | 3,329,210 | $ | 25.86 | 1,216,428 | (1) | ||||||||||||||
Equity compensation plans not approved by stockholders | — | — | — | — | — | — | ||||||||||||||||||
Total | 3,800,212 | $ | 22.63 | 1,533,530 | (1) | 3,329,210 | $ | 25.86 | 1,216,428 | (1) | ||||||||||||||
(1) | Reflects shares of common stock available for issuance under our Amended and Restated 1997 Employee Share Incentive Plan and Amended and Restated 2000 Stock Incentive Plan, the only equity compensation plans approved by our stockholders under which we continue to grant awards. |
7170
(1) | Financial Statements. | ||
The financial statements as set forth under Item 8 of this annual report on Form 10-K have been filed herewith, beginning on page F-1 of this report. | |||
(2) | Financial Statement Schedules. | ||
Schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statements and, therefore, have been omitted. | |||
(3) | The Exhibits are listed in the Index of Exhibits required by Item 601 of Regulation S-K included herewith. |
7271
CORRECTIONS CORPORATION OF AMERICA | ||||||
Date: March 7, | By: | /s/ John D. Ferguson | ||||
John D. Ferguson, President and Chief Executive Officer |
/s/ John D. Ferguson | March 7, | |||
John D. Ferguson, President and Chief Executive Officer and | ||||
Director (Principal Executive Officer) | ||||
/s/ Irving E. Lingo, Jr. | March 7, | |||
Irving E. Lingo, Jr., Executive Vice President and Chief Financial Officer | ||||
(Principal Financial and Accounting Officer) | ||||
/s/ William F. Andrews | March 7, | |||
William F. Andrews, Chairman of the Board and Director | ||||
/s/ Donna M. Alvarado | March 7, | |||
Donna M. Alvarado, Director | ||||
/s/ Lucius E. Burch, III | March 7, | |||
Lucius E. Burch, III, Director | ||||
/s/ John D. Correnti | March 7, | |||
John D. Correnti, Director | ||||
/s/ John R. Horne | March 7, | |||
John R. Horne, Director | ||||
/s/ C. Michael Jacobi | March 7, | |||
C. Michael Jacobi, Director | ||||
/s/ Thurgood Marshall, Jr. | March 7, | |||
Thurgood Marshall, Jr., Director | ||||
/s/ Charles L. Overby | March 7, | |||
Charles L. Overby, Director | ||||
/s/ John R. Prann, Jr. | March 7, | |||
John R. Prann, Jr., Director | ||||
/s/ Joseph V. Russell | March 7, | |||
Joseph V. Russell, Director | ||||
/s/ Henri L. Wedell | February 22, 2006 | |||
Henri L. Wedell, Director |
7372
Exhibit | ||
Number | Description of Exhibits | |
3.1 | Amended and Restated Charter of the Company (previously filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K (Commission File no. | |
3.2 | Amendment to the Amended and Restated Charter of the Company effecting the reverse stock split of the Company’s Common Stock and a related reduction in the stated capital stock of the Company (previously filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q (Commission File no. | |
3.3 | Third Amended and Restated Bylaws of the Company (previously filed as Exhibit 3.3 to the Company’s Amendment No. 3 to its Registration Statement on Form S-4 (Commission File no. | |
4.1 | Provisions defining the rights of stockholders of the Company are found in Article V of the Amended and Restated Charter of the Company, as amended (included as Exhibits 3.1 and 3.2 hereto), and Article II of the Third Amended and Restated Bylaws of the Company (included as Exhibit 3.3 hereto). | |
4.2 | Specimen of certificate representing shares of the Company’s Common Stock (previously filed as Exhibit 4.2 to the Company’s Annual Report on Form 10-K (Commission File no. | |
4.3 | ||
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Indenture, dated as of May 7, 2003, by and | ||
Supplemental Indenture, dated as of May 7, 2003, by and |
73
Description of Exhibits | ||
4.5 | First Supplement, dated as of August 8, 2003, to the Supplemental Indenture, dated as of May 7, 2003, by and | |
Second Supplement, dated as of August 8, 2003, to the Supplemental Indenture, dated as of May 7, 2003, by and |
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7674
Exhibit | ||
Number | Description of Exhibits | |
| ||
Note Purchase Agreement, dated as of January 1, 1999, by and between the Company and PMI Mezzanine Fund, L.P., including, as Exhibit R-1 thereto, Registration Rights Agreement, dated as of January 1, 1999, by and between the Company and PMI Mezzanine Fund, L.P. (previously filed as Exhibit 10.22 to the Company’s Current Report on Form 8-K (Commission File no. | ||
Amendment to Note Purchase Agreement and Note by and between the Company and PMI Mezzanine Fund, L.P., dated April 28, 2003 (previously filed as Exhibit 10.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-3 (Commission File no. |
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Waiver and Amendment, dated as of June 30, 2000, by and between the Company and PMI Mezzanine Fund, L.P., with form of replacement note attached thereto as Exhibit B (previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K (File no. | ||
Waiver and Amendment, dated as of March 5, 2001, by and between the Company and PMI Mezzanine Fund, L.P., including, as an exhibit thereto, Amendment to Registration Rights Agreement (previously filed as Exhibit 10.10 to the Company’s Annual Report on Form 10-K (Commission File no. | ||
Form of Amendment No. 2 to Registration Rights Agreement by and between the Company and PMI Mezzanine Fund, L.P. (previously filed as Exhibit 10.3 to Amendment No. 2 to the Company’s Registration Statement on Form S-3 (Commission File no. | ||
Registration Rights Agreement, dated as of December 31, 1998, by and between Correctional Management Services Corporation, a predecessor of the Company, and CFE, Inc. | ||
10.8 | The Company’s Amended and Restated 1997 Employee Share Incentive Plan (previously filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K (Commission File no. | |
Form of Non-qualified Stock Option Agreement for the Company’s Amended and Restated 1997 Employee Share Incentive Plan (previously filed as Exhibit 10.17 to the Company’s Annual Report on Form 10-K (Commission File no. 001—16109), filed with the Commission on March 7, 2005 and incorporated herein by this reference). |
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Description of Exhibits | ||
10.10 | Old Prison Realty’s Non-Employee Trustees’ Compensation Plan (previously filed as Exhibit 4.3 to Old Prison Realty’s Registration Statement on Form S-8 (Commission File no. | |
Old CCA’s 1995 Employee Stock Incentive Plan, effective as of March 20, 1995 (previously filed as Exhibit 4.3 to Old CCA’s Registration Statement on Form S-8 (Commission File no. | ||
Old CCA’s Non-Employee Directors’ Compensation Plan (previously filed as Appendix A to Old CCA’s definitive Proxy Statement relating to Old CCA’s 1998 Annual Meeting of Shareholders (Commission File no. | ||
The Company’s Amended and Restated 2000 Stock Incentive Plan (previously filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K (Commission File no. | ||
Amendment No. 1 to Amended and Restated Corrections Corporation of America 2000 Stock Incentive Plan (previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (Commission File no. |
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Form of Non-qualified Stock Option Agreement for the Company’s Amended and Restated 2000 Stock Incentive Plan (supersedes previous form filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K (Commission File No. 001—16109) filed with the Commission on February 21, 2006). | ||
10.16 * | Form of Restricted Stock Agreement for the Company’s Amended and Restated 2000 Stock Incentive Plan | |
10.17 | Form of Resale Restriction Agreement for certain stock option award agreements issued under the Company’s Amended and Restated 1997 Employee Share Incentive Plan and the Company’s Amended and Restated 2000 Stock Incentive Plan (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission File no. |
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Exhibit Number | Description of Exhibits | |
10.18 | Form of Resale Restriction Agreement for key employees for certain stock option award agreements issued under the Company’s Amended and Restated 1997 Employee Share Incentive Plan and the Company’s Amended and Restated 2000 Stock Incentive Plan (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission File no. 001—16109), filed with the Commission on December 14, 2005 and incorporated herein by this reference). | |
Employment Agreement, dated as of August 4, 2000, by and between the Company and John D. Ferguson, with form of option agreement included as Exhibit A thereto (previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File no. | ||
First Amendment to Employment Agreement with John D. Ferguson, dated as of December 31, 2002, by and between the Company and John D. Ferguson (previously filed as Exhibit 10.30 to the Company’s Annual Report on Form 10-K (Commission File no. | ||
Employment Agreement, dated as of January 3, 2005, by and between the Company and Irving E. Lingo, Jr. (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission File no. | ||
Employment Agreement, dated as of February 1, 2003, by and between the Company and Kenneth A. Bouldin (previously filed as Exhibit 10.34 to the Company’s Annual Report on Form 10-K (Commission File no. | ||
Employment Agreement dated as of May 1, 2003, by and between the Company and G.A. Puryear IV (previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (Commission File no. | ||
Employment Agreement, dated as of January 3, 2005, by and between the Company and Richard P. Seiter (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission File no. | ||
10.25 | Employment Agreement, dated as of June 20, 2005, by and between the Company and Anthony M. DaDante (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission File no 001—16109), filed with the Commission on June 22, 2005 and incorporated herein by this reference). |
7977
Exhibit | ||
Number | Description of Exhibits | |
10.26 * | Summary of Director and Executive Officer Compensation. | |
21* | Subsidiaries of the Company. | |
23.1* | Consent of Ernst & Young LLP. | |
31.1* | Certification of the Company’s Chief Executive Officer pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of the Company’s Chief Financial Officer pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1* | Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2* | Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
8078
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-7 | ||||
F-10 |
F - 1
As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangibles in 2002.
/s/ Ernst & Young LLP | |||||
Ernst & Young LLP | |||||
F - 2
December 31, | December 31, | |||||||||||||||
2004 | 2003 | 2005 | 2004 | |||||||||||||
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 50,938 | $ | 70,705 | $ | 64,901 | $ | 50,938 | ||||||||
Restricted cash | 12,965 | 12,823 | 11,284 | 12,965 | ||||||||||||
Investments | 8,686 | 13,526 | 19,014 | 8,686 | ||||||||||||
Accounts receivable, net of allowance of $1,380 and $1,999, respectively | 155,926 | 135,185 | ||||||||||||||
Accounts receivable, net of allowance of $2,258 and $1,380, respectively | 176,560 | 154,288 | ||||||||||||||
Deferred tax assets | 56,410 | 50,473 | 32,488 | 56,410 | ||||||||||||
Prepaid expenses and other current assets | 16,636 | 8,028 | 15,884 | 16,636 | ||||||||||||
Current assets of discontinued operations | 727 | 2,438 | — | 2,365 | ||||||||||||
Total current assets | 302,288 | 293,178 | 320,131 | 302,288 | ||||||||||||
Property and equipment, net | 1,660,010 | 1,586,914 | 1,710,794 | 1,659,858 | ||||||||||||
Investment in direct financing lease | 17,073 | 17,751 | 16,322 | 17,073 | ||||||||||||
Goodwill | 15,563 | 15,563 | 15,246 | 15,563 | ||||||||||||
Deferred tax assets | — | 6,739 | ||||||||||||||
Other assets | 28,144 | 38,818 | 23,820 | 28,144 | ||||||||||||
Non-current assets of discontinued operations | — | 65 | — | 152 | ||||||||||||
Total assets | $ | 2,023,078 | $ | 1,959,028 | $ | 2,086,313 | $ | 2,023,078 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Accounts payable and accrued expenses | $ | 146,751 | $ | 155,877 | $ | 158,267 | $ | 144,815 | ||||||||
Income taxes payable | 22,207 | 913 | 1,435 | 22,207 | ||||||||||||
Distributions payable | — | 150 | ||||||||||||||
Current portion of long-term debt | 3,182 | 1,146 | 11,836 | 3,182 | ||||||||||||
Current liabilities of discontinued operations | 125 | 1,540 | 1,774 | 2,061 | ||||||||||||
Total current liabilities | 172,265 | 159,626 | 173,312 | 172,265 | ||||||||||||
Long-term debt, net of current portion | 999,113 | 1,002,282 | 963,800 | 999,113 | ||||||||||||
Deferred tax liabilities | 14,132 | — | 12,087 | 14,132 | ||||||||||||
Other liabilities | 21,574 | 21,655 | 20,483 | 21,574 | ||||||||||||
Total liabilities | 1,207,084 | 1,183,563 | 1,169,682 | 1,207,084 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Preferred stock - $0.01 par value; 50,000 shares authorized: | ||||||||||||||||
Series A - 300 shares issued and outstanding at December 31, 2003 stated at liquidation preference of $25.00 per share | — | 7,500 | ||||||||||||||
Series B - 962 shares issued and outstanding at December 31, 2003 stated at liquidation preference of $24.46 per share | — | 23,528 | ||||||||||||||
Common stock - - $0.01 par value; 80,000 shares authorized; 35,415 and 35,020 shares issued and outstanding at December 31, 2004 and 2003, respectively | 354 | 350 | ||||||||||||||
Common stock — $0.01 par value; 80,000 shares authorized; 39,694 and 35,415 shares issued and outstanding at December 31, 2005 and 2004, respectively | 397 | 354 | ||||||||||||||
Additional paid-in capital | 1,451,885 | 1,441,742 | 1,506,184 | 1,451,885 | ||||||||||||
Deferred compensation | (1,736 | ) | (1,479 | ) | (5,563 | ) | (1,736 | ) | ||||||||
Retained deficit | (634,509 | ) | (695,590 | ) | (584,387 | ) | (634,509 | ) | ||||||||
Accumulated other comprehensive loss | — | (586 | ) | |||||||||||||
Total stockholders’ equity | 815,994 | 775,465 | 916,631 | 815,994 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 2,023,078 | $ | 1,959,028 | $ | 2,086,313 | $ | 2,023,078 | ||||||||
F - 3
For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2005 | 2004 | 2003 | |||||||||||||||||||
REVENUE: | ||||||||||||||||||||||||
Management and other | $ | 1,144,413 | $ | 1,025,493 | $ | 925,820 | $ | 1,188,649 | $ | 1,122,542 | $ | 1,003,865 | ||||||||||||
Rental | 3,845 | 3,742 | 3,701 | 3,991 | 3,845 | 3,742 | ||||||||||||||||||
1,148,258 | 1,029,235 | 929,521 | 1,192,640 | 1,126,387 | 1,007,607 | |||||||||||||||||||
EXPENSES: | ||||||||||||||||||||||||
Operating | 870,572 | 766,468 | 712,738 | 898,793 | 850,366 | 747,800 | ||||||||||||||||||
General and administrative | 48,186 | 40,467 | 36,907 | 57,053 | 48,186 | 40,467 | ||||||||||||||||||
Depreciation and amortization | 54,511 | 52,930 | 51,291 | 59,882 | 54,445 | 52,884 | ||||||||||||||||||
973,269 | 859,865 | 800,936 | 1,015,728 | 952,997 | 841,151 | |||||||||||||||||||
OPERATING INCOME | 174,989 | 169,370 | 128,585 | 176,912 | 173,390 | 166,456 | ||||||||||||||||||
OTHER (INCOME) EXPENSE: | ||||||||||||||||||||||||
Interest expense, net | 69,177 | 74,446 | 87,478 | 63,928 | 69,177 | 74,446 | ||||||||||||||||||
Expenses associated with debt refinancing and recapitalization transactions | 101 | 6,687 | 36,670 | 35,269 | 101 | 6,687 | ||||||||||||||||||
Change in fair value of derivative instruments | — | (2,900 | ) | (2,206 | ) | — | — | (2,900 | ) | |||||||||||||||
Other (income) expense | 943 | (414 | ) | (359 | ) | 263 | 943 | (414 | ) | |||||||||||||||
70,221 | 77,819 | 121,583 | 99,460 | 70,221 | 77,819 | |||||||||||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE | 104,768 | 91,551 | 7,002 | |||||||||||||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 77,452 | 103,169 | 88,637 | |||||||||||||||||||||
Income tax (expense) benefit | (42,126 | ) | 52,352 | 63,284 | (26,888 | ) | (41,514 | ) | 52,352 | |||||||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE | 62,642 | 143,903 | 70,286 | |||||||||||||||||||||
INCOME FROM CONTINUING OPERATIONS | 50,564 | 61,655 | 140,989 | |||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | (99 | ) | (2,120 | ) | 2,074 | (442 | ) | 888 | 794 | |||||||||||||||
Cumulative effect of accounting change | — | — | (80,276 | ) | ||||||||||||||||||||
NET INCOME (LOSS) | 62,543 | 141,783 | (7,916 | ) | ||||||||||||||||||||
NET INCOME | 50,122 | 62,543 | 141,783 | |||||||||||||||||||||
Distributions to preferred stockholders | (1,462 | ) | (15,262 | ) | (20,959 | ) | — | (1,462 | ) | (15,262 | ) | |||||||||||||
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS | $ | 61,081 | $ | 126,521 | $ | (28,875 | ) | |||||||||||||||||
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS | $ | 50,122 | $ | 61,081 | $ | 126,521 | ||||||||||||||||||
BASIC EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change | $ | 1.74 | $ | 3.99 | $ | 1.78 | ||||||||||||||||||
Income from continuing operations | $ | 1.31 | $ | 1.71 | $ | 3.90 | ||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.07 | ) | 0.08 | (0.01 | ) | 0.03 | 0.02 | ||||||||||||||||
Cumulative effect of accounting change | — | — | (2.90 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 1.74 | $ | 3.92 | $ | (1.04 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 1.30 | $ | 1.74 | $ | 3.92 | ||||||||||||||||||
DILUTED EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change | $ | 1.55 | $ | 3.50 | $ | 1.61 | ||||||||||||||||||
Income from continuing operations | $ | 1.26 | $ | 1.53 | $ | 3.42 | ||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.06 | ) | 0.06 | (0.01 | ) | 0.02 | 0.02 | ||||||||||||||||
Cumulative effect of accounting change | — | — | (2.49 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 1.55 | $ | 3.44 | $ | (0.82 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 1.25 | $ | 1.55 | $ | 3.44 | ||||||||||||||||||
F - 4
For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2005 | 2004 | 2003 | |||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||
Net income (loss) | $ | 62,543 | $ | 141,783 | $ | (7,916 | ) | |||||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||||||
Net income | $ | 50,122 | $ | 62,543 | $ | 141,783 | ||||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 54,574 | 54,011 | 54,388 | 60,068 | 54,574 | 54,011 | ||||||||||||||||||
Amortization of debt issuance costs and other non-cash interest | 6,750 | 7,505 | 11,816 | 5,341 | 6,750 | 7,505 | ||||||||||||||||||
Cumulative effect of accounting change | — | — | 80,276 | |||||||||||||||||||||
Expenses associated with debt refinancing and recapitalization transactions | 101 | 6,687 | 36,670 | 35,269 | 101 | 6,687 | ||||||||||||||||||
Deferred income taxes | 14,934 | (52,725 | ) | 646 | 21,255 | 14,934 | (52,725 | ) | ||||||||||||||||
Other (income) expense | 807 | (675 | ) | (469 | ) | 248 | 783 | (409 | ) | |||||||||||||||
Other non-cash items | 2,369 | 2,259 | 2,455 | 4,192 | 2,369 | 2,259 | ||||||||||||||||||
Income tax benefit of equity compensation | 3,683 | 2,643 | — | 6,900 | 3,683 | 2,643 | ||||||||||||||||||
(Gain) loss on disposals of assets | (24 | ) | 266 | 130 | ||||||||||||||||||||
Stock option compensation expense | 989 | — | — | |||||||||||||||||||||
Change in fair value of derivative instruments | — | (2,900 | ) | (2,206 | ) | — | — | (2,900 | ) | |||||||||||||||
Changes in assets and liabilities, net: | ||||||||||||||||||||||||
Accounts receivable, prepaid expenses and other assets | (28,654 | ) | 2,892 | 7,706 | (20,193 | ) | (28,654 | ) | 2,892 | |||||||||||||||
Income taxes receivable | — | 32,499 | (32,141 | ) | — | — | 32,499 | |||||||||||||||||
Accounts payable, accrued expenses and other liabilities | (12,396 | ) | 12,294 | 5,405 | 9,947 | (12,396 | ) | 12,294 | ||||||||||||||||
Income taxes payable | 21,294 | (3,692 | ) | (55,371 | ) | (20,772 | ) | 21,294 | (3,692 | ) | ||||||||||||||
Net cash provided by operating activities | 125,981 | 202,847 | 101,389 | 153,366 | 125,981 | 202,847 | ||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||
Expenditures for acquisitions and development | (80,548 | ) | (56,673 | ) | (4,843 | ) | ||||||||||||||||||
Expenditures for acquisitions, development, and expansions | (73,895 | ) | (80,548 | ) | (56,673 | ) | ||||||||||||||||||
Expenditures for other capital improvements | (47,480 | ) | (35,522 | ) | (12,254 | ) | (36,410 | ) | (47,480 | ) | (35,522 | ) | ||||||||||||
Proceeds from sale of investments | 5,000 | 7,000 | — | — | 5,000 | 7,000 | ||||||||||||||||||
Purchases of investments | (160 | ) | (230 | ) | (20,296 | ) | (10,328 | ) | (160 | ) | (230 | ) | ||||||||||||
(Increase) decrease in restricted cash | (66 | ) | (5,460 | ) | 5,174 | 1,848 | (66 | ) | (5,460 | ) | ||||||||||||||
Proceeds from sale of assets | 179 | 487 | 4,595 | 1,046 | 179 | 487 | ||||||||||||||||||
(Increase) decrease in other assets | 6,257 | (4,099 | ) | (3,199 | ) | 726 | 6,257 | (4,099 | ) | |||||||||||||||
Purchase of business | — | — | (321 | ) | ||||||||||||||||||||
Payments received on direct financing leases and notes receivable | 601 | 986 | 1,175 | 665 | 601 | 986 | ||||||||||||||||||
Net cash used in investing activities | (116,217 | ) | (93,511 | ) | (29,969 | ) | (116,348 | ) | (116,217 | ) | (93,511 | ) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||
Proceeds from issuance of debt | — | 482,250 | 890,000 | 375,000 | — | 482,250 | ||||||||||||||||||
Scheduled principal repayments | (843 | ) | (7,394 | ) | (17,764 | ) | (1,233 | ) | (843 | ) | (7,394 | ) | ||||||||||||
Other principal repayments | — | (387,266 | ) | (878,938 | ) | (370,135 | ) | — | (387,266 | ) | ||||||||||||||
Payment of debt issuance and other refinancing and related costs | (993 | ) | (18,579 | ) | (37,478 | ) | (36,240 | ) | (993 | ) | (18,579 | ) | ||||||||||||
Proceeds from issuance of common stock | — | 124,800 | — | — | — | 124,800 | ||||||||||||||||||
Payment of stock issuance costs | — | (7,674 | ) | (21 | ) | — | — | (7,674 | ) | |||||||||||||||
Proceeds from exercise of stock options and warrants | 4,945 | 1,276 | 433 | 9,586 | 4,945 | 1,276 | ||||||||||||||||||
Purchase and retirement of common stock | — | (66,464 | ) | — | (33 | ) | — | (66,464 | ) | |||||||||||||||
Purchase and redemption of preferred stock | (31,028 | ) | (191,984 | ) | (354 | ) | — | (31,028 | ) | (191,984 | ) | |||||||||||||
Payment of dividends | (1,612 | ) | (12,706 | ) | (19,648 | ) | — | (1,612 | ) | (12,706 | ) | |||||||||||||
Payment to terminate interest rate swap agreement | — | — | (8,847 | ) | ||||||||||||||||||||
Net cash used in financing activities | (29,531 | ) | (83,741 | ) | (72,617 | ) | (23,055 | ) | (29,531 | ) | (83,741 | ) | ||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (19,767 | ) | 25,595 | (1,197 | ) | 13,963 | (19,767 | ) | 25,595 | |||||||||||||||
CASH AND CASH EQUIVALENTS, beginning of year | 70,705 | 45,110 | 46,307 | 50,938 | 70,705 | 45,110 | ||||||||||||||||||
CASH AND CASH EQUIVALENTS, end of year | $ | 50,938 | $ | 70,705 | $ | 45,110 | $ | 64,901 | $ | 50,938 | $ | 70,705 | ||||||||||||
F - 5
For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2005 | 2004 | 2003 | |||||||||||||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||||||||||||||
Cash paid during the period for: | ||||||||||||||||||||||||
Interest (net of amounts capitalized of $5,839 and $900 in 2004 and 2003, respectively) | $ | 65,592 | $ | 79,068 | $ | 73,067 | ||||||||||||||||||
Interest (net of amounts capitalized of $4,543, $5,839, and $900 in 2005, 2004, and 2003, respectively) | $ | 61,877 | $ | 65,592 | $ | 79,068 | ||||||||||||||||||
Income taxes | $ | 3,511 | $ | 2,183 | $ | 56,396 | $ | 15,776 | $ | 3,511 | $ | 2,183 | ||||||||||||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||||||||||||
Convertible subordinated notes were converted to common stock: | ||||||||||||||||||||||||
Long-term debt | $ | — | $ | (40,000 | ) | $ | (1,114 | ) | $ | (30,000 | ) | $ | — | $ | (40,000 | ) | ||||||||
Common stock | — | 34 | 1 | 34 | — | 34 | ||||||||||||||||||
Additional paid-in capital | — | 39,512 | 1,113 | 29,944 | — | 39,512 | ||||||||||||||||||
Other assets | — | 454 | — | 12 | — | 454 | ||||||||||||||||||
$ | — | $ | — | $ | — | |||||||||||||||||||
The Company acquired a business for debt and cash: | ||||||||||||||||||||||||
Accounts receivable | $ | — | $ | — | $ | (177 | ) | |||||||||||||||||
Prepaid expenses and other current assets | — | — | (21 | ) | ||||||||||||||||||||
Property and equipment, net | — | — | (20 | ) | ||||||||||||||||||||
Other assets | — | — | (578 | ) | ||||||||||||||||||||
Accounts payable and accrued expenses | — | — | 300 | 10 | — | — | ||||||||||||||||||
Debt | — | — | 175 | |||||||||||||||||||||
$ | — | $ | — | $ | (321 | ) | $ | — | $ | — | $ | — | ||||||||||||
The Company issued shares of common stock and a promissory note payable in satisfaction of stockholder litigation: | ||||||||||||||||||||||||
Accounts payable and accrued expenses | $ | — | $ | (5,998 | ) | $ | — | $ | — | $ | — | $ | (5,998 | ) | ||||||||||
Long-term debt | — | 2,900 | — | — | — | 2,900 | ||||||||||||||||||
Common stock | — | 3 | — | — | — | 3 | ||||||||||||||||||
Additional paid-in capital | — | 3,051 | — | — | — | 3,051 | ||||||||||||||||||
Other assets | — | 44 | — | — | — | 44 | ||||||||||||||||||
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
The Company issued Series B Preferred Stock in lieu of cash distributions to the holders of shares of Series B Preferred Stock on the applicable record date: | ||||||||||||||||||||||||
Distributions payable | $ | — | $ | (7,736 | ) | $ | (11,834 | ) | $ | — | $ | — | $ | (7,736 | ) | |||||||||
Preferred stock – Series B | — | 7,736 | 11,834 | |||||||||||||||||||||
Preferred stock — Series B | — | — | 7,736 | |||||||||||||||||||||
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
F - 6
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series B | Additional | Retained | Other | Total | Series A | Series B | Additional | Retained | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Common | Paid-In | Deferred | Earnings | Treasury | Comprehensive | Stockholders’ | Preferred | Preferred | Common | Paid-In | Deferred | Earnings | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock | Stock | Stock | Capital | Compensation | (Deficit) | Stock | Income (Loss) | Equity | Stock | Stock | Stock | Capital | Compensation | (Deficit) | Income (Loss) | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2001 | $ | 107,500 | $ | 96,566 | $ | 279 | $ | 1,341,958 | $ | (3,153 | ) | $ | (793,236 | ) | $ | (242 | ) | $ | (2,511 | ) | $ | 747,161 | ||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2002 | $ | 107,500 | $ | 107,831 | $ | 280 | $ | 1,343,066 | $ | (1,604 | ) | $ | (822,111 | ) | $ | (964 | ) | $ | 733,998 | |||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (7,916 | ) | — | — | (7,916 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 141,783 | — | 141,783 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate cap, net of tax | — | — | — | — | — | — | — | (964 | ) | (964 | ) | — | — | — | — | — | — | 378 | 378 | |||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of transition adjustment, net of tax | — | — | — | — | — | — | — | 2,511 | 2,511 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (7,916 | ) | — | 1,547 | (6,369 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 141,783 | 378 | 142,161 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to preferred stockholders | — | 11,834 | — | — | — | (20,959 | ) | — | — | (9,125 | ) | — | 7,736 | — | — | — | (15,262 | ) | — | (7,526 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net | — | — | 64 | 117,103 | — | — | — | 117,167 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement of common stock | — | — | — | (842 | ) | — | — | — | (842 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred tax valuation allowance reversal | — | — | — | 2,643 | — | — | — | 2,643 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement of series B preferred stock | — | (347 | ) | — | — | — | — | — | (347 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of preferred stock | (100,000 | ) | (91,637 | ) | — | — | — | — | — | (191,637 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of subordinated notes | — | — | 1 | 1,113 | — | — | — | — | 1,114 | — | — | 34 | 39,512 | — | — | — | 39,546 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | (34 | ) | (65,588 | ) | — | — | — | (65,622 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants exercised | — | — | 1 | — | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
State stockholder litigation settlement | — | — | 3 | 3,051 | — | — | — | 3,054 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of deferred compensation, net of forfeitures | — | (167 | ) | — | (223 | ) | 1,549 | — | — | — | 1,159 | — | (55 | ) | — | (71 | ) | 1,720 | — | — | 1,594 | |||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance costs | — | — | — | (21 | ) | — | — | — | — | (21 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock grant | — | — | 1 | 1,594 | (1,595 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock options exercised | — | — | — | 433 | — | — | — | — | 433 | — | — | 1 | 1,274 | — | — | — | 1,275 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement of treasury stock | — | — | — | (242 | ) | — | — | 242 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement of series B preferred stock | — | (402 | ) | — | 48 | — | — | — | — | (354 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2002 | $ | 107,500 | $ | 107,831 | $ | 280 | $ | 1,343,066 | $ | (1,604 | ) | $ | (822,111 | ) | $ | — | $ | (964 | ) | $ | 733,998 | |||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2003 | $ | 7,500 | $ | 23,528 | $ | 350 | $ | 1,441,742 | $ | (1,479 | ) | $ | (695,590 | ) | $ | (586 | ) | $ | 775,465 | |||||||||||||||||||||||||||||||||||||||||||||||||
F - 7
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series B | Additional | Retained | Other | Total | Series A | Series B | Additional | Retained | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Common | Paid-In | Deferred | Earnings | Treasury | Comprehensive | Stockholders’ | Preferred | Preferred | Common | Paid-In | Deferred | Earnings | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock | Stock | Stock | Capital | Compensation | (Deficit) | Stock | Income (Loss) | Equity | Stock | Stock | Stock | Capital | Compensation | (Deficit) | Income (Loss) | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2002 | $ | 107,500 | $ | 107,831 | $ | 280 | $ | 1,343,066 | $ | (1,604 | ) | $ | (822,111 | ) | $ | — | $ | (964 | ) | $ | 733,998 | |||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2003 | $ | 7,500 | $ | 23,528 | $ | 350 | $ | 1,441,742 | $ | (1,479 | ) | $ | (695,590 | ) | $ | (586 | ) | $ | 775,465 | |||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 141,783 | — | — | 141,783 | — | — | — | — | — | 62,543 | — | 62,543 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate cap, net of tax | — | — | — | — | — | — | — | 378 | 378 | — | — | — | — | — | — | 586 | 586 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 141,783 | — | 378 | 142,161 | — | — | — | — | — | 62,543 | 586 | 63,129 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to preferred stockholders | — | 7,736 | — | — | — | (15,262 | ) | — | — | (7,526 | ) | — | — | — | — | — | (1,462 | ) | — | (1,462 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net | — | — | 64 | 117,103 | — | — | — | — | 117,167 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement of common stock | — | — | — | (842 | ) | — | — | — | — | (842 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred tax valuation allowance reversal | — | — | — | 2,643 | — | — | — | — | 2,643 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement of series B preferred stock | — | (347 | ) | — | — | — | — | — | — | (347 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax benefit of equity compensation | — | — | — | 3,683 | — | — | — | 3,683 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of preferred stock | (100,000 | ) | (91,637 | ) | — | — | — | — | — | — | (191,637 | ) | (7,500 | ) | (23,528 | ) | — | — | — | — | — | (31,028 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Conversion of subordinated notes | — | — | 34 | 39,512 | — | — | — | — | 39,546 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | (34 | ) | (65,588 | ) | — | — | — | — | (65,622 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants exercised | — | — | 1 | — | — | — | — | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
State stockholder litigation settlement | — | — | 3 | 3,051 | — | — | — | — | 3,054 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | — | — | — | 50 | — | — | — | 50 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of deferred compensation, net of forfeitures | — | (55 | ) | — | (71 | ) | 1,720 | — | — | — | 1,594 | — | — | — | (106 | ) | 1,318 | — | — | 1,212 | ||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock grant | — | — | 1 | 1,594 | (1,595 | ) | — | — | — | — | — | — | 1 | 1,574 | (1,575 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Stock options exercised | — | — | 1 | 1,274 | — | — | — | — | 1,275 | — | — | 3 | 4,942 | — | — | — | 4,945 | |||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2003 | $ | 7,500 | $ | 23,528 | $ | 350 | $ | 1,441,742 | $ | (1,479 | ) | $ | (695,590 | ) | $ | — | $ | (586 | ) | $ | 775,465 | |||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2004 | $ | — | $ | — | $ | 354 | $ | 1,451,885 | $ | (1,736 | ) | $ | (634,509 | ) | $ | — | $ | 815,994 | ||||||||||||||||||||||||||||||||||||||||||||||||||
F - 8
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series B | Additional | Retained | Other | Total | Series A | Series B | Additional | Retained | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Common | Paid-In | Deferred | Earnings | Treasury | Comprehensive | Stockholders’ | Preferred | Preferred | Common | Paid-In | Deferred | Earnings | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock | Stock | Stock | Capital | Compensation | (Deficit) | Stock | Income (Loss) | Equity | Stock | Stock | Stock | Capital | Compensation | (Deficit) | Income (Loss) | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2003 | $ | 7,500 | $ | 23,528 | $ | 350 | $ | 1,441,742 | $ | (1,479 | ) | $ | (695,590 | ) | $ | — | $ | (586 | ) | $ | 775,465 | |||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2004 | $ | — | $ | — | $ | 354 | $ | 1,451,885 | $ | (1,736 | ) | $ | (634,509 | ) | $ | — | $ | 815,994 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income : | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 62,543 | — | — | 62,543 | — | — | — | — | — | 50,122 | — | 50,122 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of interest rate cap, net of tax | — | — | — | — | — | — | — | 586 | 586 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 62,543 | — | 586 | 63,129 | — | — | — | — | — | 50,122 | — | 50,122 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to preferred stockholders | — | — | — | — | — | (1,462 | ) | — | — | (1,462 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of subordinated notes | — | — | 34 | 29,944 | — | — | — | 29,978 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | — | — | — | 68 | — | — | — | 68 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement of common stock | — | — | — | (33 | ) | — | — | — | (33 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of deferred compensation, net of forfeitures | — | — | — | (142 | ) | 3,169 | — | — | 3,027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option compensation expense | — | — | — | 989 | — | — | — | 989 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax benefit of equity compensation | — | — | — | 3,683 | — | — | — | — | 3,683 | — | — | — | 6,900 | — | — | — | 6,900 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of preferred stock | (7,500 | ) | (23,528 | ) | — | — | — | — | — | — | (31,028 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | — | — | — | 50 | — | — | — | — | 50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of deferred compensation, net of forfeitures | — | — | — | (106 | ) | 1,318 | — | — | — | 1,212 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock grant | — | — | 1 | 1,574 | (1,575 | ) | — | — | — | — | — | — | 2 | 6,994 | (6,996 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Warrants exercised | — | — | 1 | 999 | — | — | — | 1,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock options exercised | — | — | 3 | 4,942 | — | — | — | — | 4,945 | — | — | 6 | 8,580 | — | — | — | 8,586 | |||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2004 | $ | — | $ | — | $ | 354 | $ | 1,451,885 | $ | (1,736 | ) | $ | (634,509 | ) | $ | — | $ | — | $ | 815,994 | ||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2005 | $ | — | $ | — | $ | 397 | $ | 1,506,184 | $ | (5,563 | ) | $ | (584,387 | ) | $ | — | $ | 916,631 | ||||||||||||||||||||||||||||||||||||||||||||||||||
F - 9
2003
The Company is also constructing two additional correctional facilities in Eloy, Arizona, one that is expected to be completed during the third quarter of 2006 and the other that is expected to be completed during the second half of 2007.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
F - 10
Land improvements | 5 – 20 years | |||
Buildings and improvements | 5 – 50 years | |||
Equipment | 3 – 5 years | |||
Office furniture and fixtures | 5 years |
F - 11
F - 12
F - 13
and the amounts used for income tax purposes. Realization of the future tax benefits related to
F - 13
Derivative Instruments
The Company may enter into derivative financial instrument transactions from time to time in order to mitigate its interest rate risk on a related financial instrument. The Company accounts for these derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 133, as amended, requires that changes in a derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company estimates the fair value of its derivative instruments using third-party valuation specialists and option-pricing models that value the potential for the derivative instruments to become in-the-money through changes in interest rates during the remaining term of the agreements. A negative fair value represents the estimated amount the Company would have to pay to cancel the contract or transfer it to other parties.
See Note 13 for a further description of derivative instruments outstanding during the three year period ended December 31, 2004.
F - 14
Financial Instruments
To meet the reporting requirements of Statement of Financial Accounting Standards No. 107, “Disclosures About Fair Value of Financial Instruments,” the Company calculates the estimated fair value of financial instruments using quoted market prices of similar instruments or discounted cash flow techniques. At December 31, 20042005 and 2003,2004, there were no material differences between the carrying amounts and the estimated fair values of the Company’s financial instruments, other than as follows (in thousands):
December 31, | ||||||||||||||||||
2004 | 2003 | |||||||||||||||||
Carrying | Carrying | |||||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||||
Investment in direct financing lease | $ | 17,744 | $ | 22,623 | $ | 18,346 | $ | 23,919 | ||||||||||
Note receivable from APM | $ | 6,078 | $ | 9,875 | $ | 5,610 | $ | 9,323 | ||||||||||
Debt | $ | (1,002,295 | ) | $ | (1,061,566 | ) | $ | (1,003,428 | ) | $ | (1,051,629 | ) |
December 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Investment in direct financing lease | $ | 17,080 | $ | 21,926 | $ | 17,744 | $ | 22,623 | ||||||||
Note receivable from APM | $ | 5,428 | $ | 9,104 | $ | 6,078 | $ | 9,875 | ||||||||
Debt | $ | (975,636 | ) | $ | (987,026 | ) | $ | (1,002,295 | ) | $ | (1,061,566 | ) |
F - 14
2003.
F - 15
full set of general purpose financial statements. Comprehensive income encompasses all changes in stockholders’ equity except those arising from transactions with stockholders.
F - 15
F - 16
For the Years Ended December 31, | ||||||||||||||||||||||||
For the Years Ended December 31, | 2005 | 2004 | 2003 | |||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
As Reported: | ||||||||||||||||||||||||
Income from continuing operations and after preferred stock distributions | $ | 61,180 | $ | 128,641 | $ | 49,327 | $ | 50,564 | $ | 60,193 | $ | 125,727 | ||||||||||||
Income (loss) from discontinued operations, net of taxes | (99 | ) | (2,120 | ) | 2,074 | (442 | ) | 888 | 794 | |||||||||||||||
Cumulative effect of accounting change | — | — | (80,276 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 61,081 | $ | 126,521 | $ | (28,875 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 50,122 | $ | 61,081 | $ | 126,521 | ||||||||||||||||||
Pro Forma: | ||||||||||||||||||||||||
Income from continuing operations and after preferred stock distributions | $ | 57,168 | $ | 122,233 | $ | 44,166 | $ | 42,519 | $ | 56,181 | $ | 119,319 | ||||||||||||
Income (loss) from discontinued operations, net of taxes | (99 | ) | (2,120 | ) | 2,074 | (442 | ) | 888 | 794 | |||||||||||||||
Cumulative effect of accounting change | — | — | (80,276 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 57,069 | $ | 120,113 | $ | (34,036 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 42,077 | $ | 57,069 | $ | 120,113 | ||||||||||||||||||
As Reported: | ||||||||||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||
Income from continuing operations | $ | 1.74 | $ | 3.99 | $ | 1.78 | $ | 1.31 | $ | 1.71 | $ | 3.90 | ||||||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.07 | ) | 0.08 | (0.01 | ) | 0.03 | 0.02 | ||||||||||||||||
Cumulative effect of accounting change | — | — | (2.90 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 1.74 | $ | 3.92 | $ | (1.04 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 1.30 | $ | 1.74 | $ | 3.92 | ||||||||||||||||||
As Reported: | ||||||||||||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||
Income from continuing operations | $ | 1.55 | $ | 3.50 | $ | 1.61 | $ | 1.26 | $ | 1.53 | $ | 3.42 | ||||||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.06 | ) | 0.06 | (0.01 | ) | 0.02 | 0.02 | ||||||||||||||||
Cumulative effect of accounting change | — | — | (2.49 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 1.55 | $ | 3.44 | $ | (0.82 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 1.25 | $ | 1.55 | $ | 3.44 | ||||||||||||||||||
Pro Forma: | ||||||||||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||
Income from continuing operations | $ | 1.63 | $ | 3.80 | $ | 1.59 | $ | 1.11 | $ | 1.60 | $ | 3.71 | ||||||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.07 | ) | 0.08 | (0.01 | ) | 0.03 | 0.02 | ||||||||||||||||
Cumulative effect of accounting change | — | — | (2.90 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 1.63 | $ | 3.73 | $ | (1.23 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 1.10 | $ | 1.63 | $ | 3.73 | ||||||||||||||||||
Pro Forma: | ||||||||||||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||
Income from continuing operations | $ | 1.45 | $ | 3.33 | $ | 1.45 | $ | 1.06 | $ | 1.43 | $ | 3.25 | ||||||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.06 | ) | 0.06 | (0.01 | ) | 0.02 | 0.02 | ||||||||||||||||
Cumulative effect of accounting change | — | — | (2.49 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 1.45 | $ | 3.27 | $ | (0.98 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 1.05 | $ | 1.45 | $ | 3.27 | ||||||||||||||||||
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (“FIN 46”). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or in which equity investors do not bear the residual economic risks. FIN 46 is effective for all entities other than special purpose entities no later than the end of the first period that ends after March 15,
F - 17
2004. The Company has no investments in special purpose entities. The Company adopted FIN 46 effective January 1, 2004.
The Company has determined that its joint venture in APM as discussed in Note 6 is a variable interest entity (“VIE”), of which the Company is not the primary beneficiary. APM has a management contract for a correctional facility located in Salford, England. All gains and losses under the joint venture are accounted for using the equity method of accounting. During 2000, the Company extended a working capital loan to APM, which totaled $6.5 million, including accrued interest, as of December 31, 2004. The outstanding working capital loan represents the Company’s maximum exposure to loss in connection with APM. APM has not been, and in accordance with FIN 46 will not be, consolidated with the Company’s financial statements.
In December 2004, the FASB issued Statement of Financial Accounting Standards No.SFAS 123R “Share-Based Payment” (“which revises SFAS 123R”), which is a revision of SFAS 123. SFAS 123R123, supersedes APB Opinion No. 25, and amends Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. ProWhen adopted, pro forma disclosure iswill no longer be an alternative.
F - 17
1. | A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. | ||
2. | A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either for (a) all prior periods presented or (b) prior interim periods of the year of adoption. |
“modified prospective” method.
F - 18
literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.
Effective January 1, 2002 the Company adopted
Based on the Company’s initial impairment tests, the Company recognized an impairment of $80.3 million to write-off the carrying value of goodwill associated with the Company’s locations included in the owned and managed reporting segment during the first quarter of 2002. This goodwill was established in connection with the acquisition of a company during 2000. The remaining goodwill, which is associated with the facilities the Company manages but does not own, was deemed to be not impaired. This remaining goodwill was established in connection with the acquisitions of two service companies during 2000. The implied fair value of goodwill of the locations included in the owned and managed reporting segment did not support the carrying value of any goodwill, primarily due to its highly leveraged capital structure. No impairment of goodwill allocated to the locations included in the managed-only reporting segment was deemed necessary, primarily because of the relatively minimal capital expenditure requirements, and therefore indebtedness, in connection with obtaining such management contracts. Under SFAS 142, the impairment recognized at adoption of the new rules was reflected as a cumulative effect of accounting change in the Company’s statement of operations for the first quarter of 2002. Impairment adjustments recognized after adoption, if any, are required to be recognized as operating expenses.
F - 18
Also, as2005.
In
F - 19
December 31, 2005 | December 31, 2004 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Contract acquisition costs | $ | 873 | $ | (855 | ) | $ | 873 | $ | (839 | ) | ||||||
Customer list | 765 | (328 | ) | 765 | (219 | ) | ||||||||||
Contract values | (35,688 | ) | 19,294 | (35,688 | ) | 16,759 | ||||||||||
Total | $ | (34,050 | ) | $ | 18,111 | $ | (34,050 | ) | $ | 15,701 | ||||||
December 31, 2004 | December 31, 2003 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Contract acquisition costs | $ | 873 | $ | (839 | ) | $ | 873 | $ | (820 | ) | ||||||
Customer list | 765 | (219 | ) | 765 | (110 | ) | ||||||||||
Contract values | (35,688 | ) | 16,759 | (35,688 | ) | 15,336 | ||||||||||
Total | $ | (34,050 | ) | $ | 15,701 | $ | (34,050 | ) | $ | 14,406 | ||||||
Contract acquisition costs and the customer list are included in other non-current assets, and contract values are included in other non-current liabilities in the accompanying consolidated balance sheets. Contract values are amortized using the interest method. Amortization income, net of amortization expense, for intangible assets and liabilities during the years ended December 31, 2005, 2004, and 2003 and 2002 was $3.4$4.2 million, $3.4 million and $3.4 million, respectively. Interest expense associated with the amortization of contract values for the years ended December 31, 2005, 2004, and 2003 was $1.8 million, $2.1 million, and $2.3 million, respectively. Estimated amortization income, net of amortization expense, for the five succeeding fiscal years is as follows (in thousands):
2005 | $ | 4,223 | ||||||
2006 | 4,552 | $ | 4,552 | |||||
2007 | 4,552 | 4,552 | ||||||
2008 | 4,552 | 4,552 | ||||||
2009 | 3,095 | 3,095 | ||||||
2010 | 2,632 |
F - 19
December 31, | ||||||||||||||||
December 31, | 2005 | 2004 | ||||||||||||||
2004 | 2003 | |||||||||||||||
Land and improvements | $ | 36,165 | $ | 34,277 | $ | 37,673 | $ | 36,165 | ||||||||
Buildings and improvements | 1,734,872 | 1,649,063 | 1,810,706 | 1,734,833 | ||||||||||||
Equipment | 94,590 | 66,167 | 126,549 | 94,347 | ||||||||||||
Office furniture and fixtures | 23,370 | 22,225 | 24,386 | 23,302 | ||||||||||||
Construction in progress | 68,033 | 56,675 | 71,627 | 68,032 | ||||||||||||
1,957,030 | 1,828,407 | 2,070,941 | 1,956,679 | |||||||||||||
Less: Accumulated depreciation | (297,020 | ) | (241,493 | ) | (360,147 | ) | (296,821 | ) | ||||||||
$ | 1,660,010 | $ | 1,586,914 | $ | 1,710,794 | $ | 1,659,858 | |||||||||
F - 20
As of December 31, 2004,2005, ten of the facilities owned by the Company are subject to options that allow various governmental agencies to purchase those facilities. In addition, three facilities, including two that are also subject to purchase options, are constructed on land that the Company leases from governmental agencies under ground leases. Under the terms of those ground leases, the facilities become the property of the governmental agencies upon expiration of the ground leases. The Company depreciates these properties over the shorter of the term of the applicable ground lease or the estimated useful life of the property.
During the second quarter of 2004, the Company resumed operations at its Northeast Ohio Correctional Center located in Youngstown, Ohio. Throughout the remainder of 2004, the Company managed 100-300 federal prisoners from United States federal court districts that experienced a lack of detention space and/or high detention costs. On December 23, 2004, the Company announced that it received a contract award from the BOP to house approximately 1,195 federal inmates at this facility. The contract, awarded as part of the Criminal Alien Requirement Phase 4 Solicitation (“CAR 4”), provides for an initial four-year term with three two-year renewal options. The terms of the contract provide for a 50% guaranteed rate of occupancy for 90 days following a Notice to Proceed, and a 90% guaranteed rate of occupancy thereafter. The Company expects to receive a Notice to Proceed within 180 days of the contract award.
F - 20
On However, as further described in Note 11, the New Revolving Credit Facility (as defined hereafter) significantly reduced the portion of assets that have been pledged as collateral, and does not contain liens on any of the Company’s real property assets.
F - 21
On During September 10, 2003, in anticipation of increasing demand from the states of Colorado and Wyoming, the Company announced its intention to expand by 594 beds the Crowley County Correctional Facility. On July 1, 2004, the Company announced the completion of a contractual agreement with the state of Washington Department of Corrections. The Company currently houses inmates from the state of Washington pursuant to this contract at the Crowley County Correctional Facility as well as at its Prairie Correctional Facility, located in Appleton, Minnesota and its Florence Correctional Center located in Florence, Arizona. The cost of the expansion was approximately $23.3 million and was completed during the fourth quarter of 2004.
F - 21
On
F - 22
7. INVESTMENT IN DIRECT FINANCING LEASE
F - 22
2005 | $ | 2,793 | ||||||
2006 | 2,793 | $ | 2,793 | |||||
2007 | 2,793 | 2,793 | ||||||
2008 | 2,793 | 2,793 | ||||||
2009 | 2,793 | 2,793 | ||||||
2010 | 2,793 | |||||||
Thereafter | 20,243 | 17,451 | ||||||
Total minimum obligation | 34,208 | 31,416 | ||||||
Less unearned interest income | (16,464 | ) | (14,336 | ) | ||||
Less current portion of direct financing lease | (671 | ) | (758 | ) | ||||
Investment in direct financing lease | $ | 17,073 | $ | 16,322 | ||||
December 31, | December 31, | |||||||||||||||
2004 | 2003 | 2005 | 2004 | |||||||||||||
Debt issuance costs, less accumulated amortization of $9,773 and $5,417, respectively | $ | 18,827 | $ | 22,298 | ||||||||||||
Debt issuance costs, less accumulated amortization of $8,539 and $9,773, respectively | $ | 16,138 | $ | 18,827 | ||||||||||||
Notes receivable, net | 4,921 | 6,102 | 4,241 | 4,921 | ||||||||||||
Contract acquisition costs, less accumulated amortization of $839 and $820, respectively | 34 | 53 | ||||||||||||||
Cash surrender value of life insurance | 1,540 | 1,376 | ||||||||||||||
Deposits | 2,326 | 8,629 | 1,375 | 2,326 | ||||||||||||
Customer list, less accumulated amortization of $219 and $110, respectively | 546 | 655 | ||||||||||||||
Customer list, less accumulated amortization of $328 and $219, respectively | 437 | 546 | ||||||||||||||
Contract acquisition costs, less accumulated amortization of $855 and $839, respectively | 18 | 34 | ||||||||||||||
Other | 1,490 | 1,081 | 71 | 114 | ||||||||||||
$ | 28,144 | $ | 38,818 | $ | 23,820 | $ | 28,144 | |||||||||
F - 23
Accounts payable and accrued expenses consist of the following (in thousands):
December 31, | ||||||||||||||||
December 31, | 2005 | 2004 | ||||||||||||||
2004 | 2003 | |||||||||||||||
Trade accounts payable | $ | 13,219 | $ | 16,283 | $ | 37,993 | $ | 31,775 | ||||||||
Accrued salaries and wages | 16,947 | 25,573 | 23,159 | 16,769 | ||||||||||||
Accrued workers’ compensation and auto liability | 27,168 | 24,168 | 26,756 | 27,168 | ||||||||||||
Accrued litigation | 17,248 | 20,214 | 13,186 | 16,594 | ||||||||||||
Accrued employee medical insurance | 7,212 | 7,796 | 6,860 | 7,212 | ||||||||||||
Accrued property taxes | 12,538 | 12,142 | 12,802 | 12,538 | ||||||||||||
Accrued interest | 11,745 | 10,893 | 13,814 | 11,745 | ||||||||||||
Other | 40,674 | 38,808 | 23,697 | 21,014 | ||||||||||||
$ | 158,267 | $ | 144,815 | |||||||||||||
$ | 146,751 | $ | 155,877 | |||||||||||||
F - 23
On December 7, 2001,
Record | Payment | Distribution Per | Return of | Record | Payment | Distribution Per | Return of | |||||||||||||||||||||||||||
Declaration Date | Date | Date | Share | Ordinary Income | Capital | Date | Date | Share | Ordinary Income | Capital | ||||||||||||||||||||||||
12/31/01 | 12/31/01 | 01/15/02 | $ | 3.00 | 100.0 | % | 0.0% | |||||||||||||||||||||||||||
03/19/02 | 03/28/02 | 04/15/02 | $ | 0.50 | 100.0 | % | 0.0% | |||||||||||||||||||||||||||
06/13/02 | 06/28/02 | 07/15/02 | $ | 0.50 | 100.0 | % | 0.0% | |||||||||||||||||||||||||||
09/18/02 | 09/30/02 | 10/15/02 | $ | 0.50 | 100.0 | % | 0.0% | |||||||||||||||||||||||||||
12/11/02 | 12/31/02 | 01/15/03 | $ | 0.50 | 100.0 | % | 0.0% | 12/31/02 | 01/15/03 | $ | 0.50 | 100.0 | % | 0.0 | % | |||||||||||||||||||
03/11/03 | 03/31/03 | 04/15/03 | $ | 0.50 | 100.0 | % | 0.0% | 03/31/03 | 04/15/03 | $ | 0.50 | 100.0 | % | 0.0 | % | |||||||||||||||||||
06/20/03 | 06/30/03 | 07/15/03 | $ | 0.50 | 100.0 | % | 0.0% | 06/30/03 | 07/15/03 | $ | 0.50 | 100.0 | % | 0.0 | % | |||||||||||||||||||
09/05/03 | 09/30/03 | 10/15/03 | $ | 0.50 | 100.0 | % | 0.0% | 09/30/03 | 10/15/03 | $ | 0.50 | 100.0 | % | 0.0 | % | |||||||||||||||||||
12/08/03 | 12/31/03 | 01/15/04 | $ | 0.50 | 100.0 | % | 0.0% | 12/31/03 | 01/15/04 | $ | 0.50 | 100.0 | % | 0.0 | % | |||||||||||||||||||
02/19/04 | 03/19/04 | 03/19/04 | $ | 0.36 | 100.0 | % | 0.0% | 03/19/04 | 03/19/04 | $ | 0.36 | 100.0 | % | 0.0 | % |
F - 24
Series B Preferred Stock
On December 13, 2000, the Company’s board of directors declared a paid-in-kind dividend on the shares of series B preferred stock for the period from September 22, 2000 (the original date of issuance) through December 31, 2000, payable on January 2, 2001, to the holders of record of the Company’s series B preferred stock on December 22, 2000. As a result of the board’s declaration, the holders of the Company’s series B preferred stock were entitled to receive 3.3 shares of series B preferred stock for every 100 shares of series B preferred stock they held on the record date.
Fair Market | Cash | Fair Market | Cash | |||||||||||||||||||||||||||||||||||||
Record | Payment | Value Per | Distributions | Ordinary | Return of | Record | Payment | Value Per | Distributions | Return of | ||||||||||||||||||||||||||||||
Declaration Date | Date | Date | Share | Per Share | Income | Capital | Date | Date | Share | Per Share | Ordinary Income | Capital | ||||||||||||||||||||||||||||
12/11/01 | 12/21/01 | 01/02/02 | $ | 19.55 | — | 100.0% | 0.0% | |||||||||||||||||||||||||||||||||
03/13/02 | 03/22/02 | 04/01/02 | $ | 19.30 | — | 100.0% | 0.0% | |||||||||||||||||||||||||||||||||
06/11/02 | 06/21/02 | 07/01/02 | $ | 23.55 | — | 100.0% | 0.0% | |||||||||||||||||||||||||||||||||
09/11/02 | 09/20/02 | 10/01/02 | $ | 23.15 | — | 100.0% | 0.0% | |||||||||||||||||||||||||||||||||
12/11/02 | 12/20/02 | 01/02/03 | $ | 24.73 | — | 100.0% | 0.0% | 12/20/02 | 01/02/03 | $ | 24.73 | — | 100.0 | % | 0.0 | % | ||||||||||||||||||||||||
03/11/03 | 03/17/03 | 03/31/03 | $ | 24.83 | — | 100.0% | 0.0% | 03/17/03 | 03/31/03 | $ | 24.83 | — | 100.0 | % | 0.0 | % | ||||||||||||||||||||||||
06/09/03 | 06/16/03 | 06/30/03 | $ | 25.45 | — | 100.0% | 0.0% | 06/16/03 | 06/30/03 | $ | 25.45 | — | 100.0 | % | 0.0 | % | ||||||||||||||||||||||||
09/05/03 | 09/16/03 | 09/30/03 | $ | 25.37 | — | 100.0% | 0.0% | 09/16/03 | 09/30/03 | $ | 25.37 | — | 100.0 | % | 0.0 | % | ||||||||||||||||||||||||
12/08/03 | 12/17/03 | 12/31/03 | $ | — | $ | 0.7338 | 100.0% | 0.0% | 12/17/03 | 12/31/03 | $ | — | $ | 0.7338 | 100.0 | % | 0.0 | % | ||||||||||||||||||||||
03/16/04 | 03/23/04 | 03/31/04 | $ | — | $ | 0.7338 | 100.0% | 0.0% | 03/23/04 | 03/31/04 | $ | — | $ | 0.7338 | 100.0 | % | 0.0 | % | ||||||||||||||||||||||
05/14/04 | 06/28/04 | 06/28/04 | $ | — | $ | 0.7175 | 100.0% | 0.0% | 06/28/04 | 06/28/04 | $ | — | $ | 0.7175 | 100.0 | % | 0.0 | % |
F - 2524
December 31, | ||||||||
2004 | 2003 | |||||||
Senior Bank Credit Facility, with quarterly principal payments of varying amounts with unpaid balance due in March 2008; interest payable periodically at variable interest rates. The interest rate was 4.4% and 3.9% at December 31, 2004 and 2003, respectively. | $ | 270,135 | $ | 270,813 | ||||
9.875% Senior Notes, principal due at maturity in May 2009; interest payable semi-annually in May and November at 9.875%. | 250,000 | 250,000 | ||||||
7.5% Senior Notes, principal due at maturity in May 2011; interest payable semi-annually in May and November at 7.5%. | 250,000 | 250,000 | ||||||
7.5% Senior Notes, principal due at maturity in May 2011; interest payable semi-annually in May and November at 7.5%. These notes were issued with a $2.3 million premium, of which $1.8 million and $2.1 million was unamortized at December 31, 2004 and 2003, respectively. | 201,839 | 202,129 | ||||||
4.0% Convertible Subordinated Notes, principal due at maturity in February 2007 with call provisions beginning in March 2005; interest payable quarterly at 4.0% (decreased from 8.0% in May 2003, as further described below). | 30,000 | 30,000 | ||||||
Other | 321 | 486 | ||||||
1,002,295 | 1,003,428 | |||||||
Less: Current portion of long-term debt | (3,182 | ) | (1,146 | ) | ||||
$ | 999,113 | $ | 1,002,282 | |||||
December 31, | ||||||||
2005 | 2004 | |||||||
Senior Bank Credit Facility: | ||||||||
Term Loan E Facility, with quarterly principal payments of varying amounts with unpaid balance due in March 2008; interest payable periodically at variable interest rates. The interest rate was 6.0% and 4.4% at December 31, 2005 and 2004, respectively. | $ | 138,950 | $ | 270,135 | ||||
Revolving Loan, principal due at maturity in March 2006, interest payable periodically at variable interest rates. The interest rate was 5.9% at December 31, 2005. | 10,000 | — | ||||||
9.875% Senior Notes, principal due at maturity in May 2009; interest payable semi-annually in May and November at 9.875%. These notes were paid off in connection with a tender offer for the notes in March 2005. | — | 250,000 | ||||||
7.5% Senior Notes, principal due at maturity in May 2011; interest payable semi-annually in May and November at 7.5%. | 250,000 | 250,000 | ||||||
7.5% Senior Notes, principal due at maturity in May 2011; interest payable semi-annually in May and November at 7.5%. These notes were issued with a $2.3 million premium, of which $1.5 million and $1.8 million was unamortized at December 31, 2005 and 2004, respectively. | 201,548 | 201,839 | ||||||
6.25% Senior Notes, principal due at maturity in March 2013; interest payable semi-annually in March and September at 6.25%. | 375,000 | — | ||||||
4.0% Convertible Subordinated Notes, principal due at maturity in February 2007 with call provisions beginning in March 2005; interest payable quarterly at 4.0%. These notes were converted into shares of common stock in March 2005. | — | 30,000 | ||||||
Other | 138 | 321 | ||||||
975,636 | 1,002,295 | |||||||
Less: Current portion of long-term debt | (11,836 | ) | (3,182 | ) | ||||
$ | 963,800 | $ | 999,113 | |||||
Senior Bank Credit Facility. In May 2002,
F - 25
amendment.
F-26
Loan C Facility accrued interest at a base rate plus 1.75%, or LIBOR plus 2.75%, at the Company’s option. The interest rates and commitment fee on the Revolving Loan were unchanged under termsportion of the amendment. Covenants under the amended facility provide greater flexibility for, among other matters, incurring unsecured indebtedness, capital expenditures, and permitted acquisitions, that were further restricted prior to the amendment. In addition, certain mandatory prepayment provisions were eliminated under the terms of the amendment.
On June 4, 2004, the Company executed an amendment to the Senior Bank Credit Facility that allowed the Company to reduce the applicable interest rate spread on the term loan portion of the facility by 50 basis points (0.50%(the “Term Loan D Facility”), and to increasepaying the Company’s capital expenditure capacity.related tender premium, fees, and expenses incurred in connection therewith. The Term Loan C Facility, now referred to astender offer for the 9.875% Senior Notes and pay-down of the Term Loan D Facility resulted in expenses associated with refinancing transactions of $35.0 million during the first quarter of 2005, consisting of a tender premium paid to the holders of the 9.875% Senior Notes who tendered their notes to the Company at a price of 111% of par, estimated fees and expenses associated with the tender offer, and the write-off of existing deferred loan costs associated with the purchase of the 9.875% Senior Notes and lump sum pay-down of the Term Loan D Facility.
The amended Senior Bank Credit Facility iswas secured by liens on a substantial portion of the Company’s real property and other assets (inclusive of its domestic subsidiaries), and pledges of all of the capital stock of the Company’s domestic subsidiaries. The loans and other obligations under the facility arewere guaranteed by each of the Company’s domestic subsidiaries and were secured by a pledge of up to 65% of the capital stock of the Company’s foreign subsidiaries. Prepayments of loans outstanding under the Senior BankThe New Revolving Credit Facility are permitted at any time without premium or penalty, uponis secured by a pledge of all of the givingcapital stock of proper notice.
the Company’s domestic subsidiaries, 65% of the capital stock of the Company’s foreign subsidiaries, all of the Company’s accounts receivable, and all of the Company’s deposit accounts.
F - 26
The amendment to the Senior BankNew Revolving Credit Facility contains similar covenants and related pay-downs with net proceeds from the issuance of the $200 Million 7.5% Senior Notes resulted in a charge to expenses associated with refinancing transactions during the third quarter of 2003 of $1.9 million representing the pro-rata write-off of existing deferred loan costs and certain fees paid.
cross-default provisions.
F-27
$250 Million 7.5% Senior Notes.Concurrently with the common stock offering further described in Note 15, on May 7, 2003, the Company completed the sale and issuance of $250.0 million aggregate principal amount of its 7.5% unsecured senior notes (the “$250 Million 7.5% Senior Notes”). As further described in Note 15, proceeds from the common stock and note offerings were used to purchase shares of common stock issued upon the conversion of the Company’s $40.0 Million Convertible Subordinated Notes (as hereafter defined) (and to pay accrued interest on the notes through the date of purchase), to purchase shares of the Company’s seriesSeries B preferred stockPreferred Stock that were tendered in a tender offer, to redeem shares of the Company’s seriesSeries A preferred stockPreferred Stock and to pay-down a portion of the Senior Bank Credit Facilitysenior bank credit facility outstanding at that time (the “Old Senior Bank Credit Facility”).
F - 27
Facility, resulting in a charge to expenses associated with refinancing transactions during the third quarter of 2003 of $1.6 million.
12% On April 1, 2004, the Company filed a registration statement with the SEC, which the SEC declared effective April 19, 2004, to exchange the $200 Million 7.5% Senior Notes.Notes for a new issuance of identical debt securities registered under the Securities Act of 1933, as amended.
F-28
connection with the tender offer and consent solicitation, the Company received sufficient consents and amended the indenture governing the 12%6.75% Senior Notes to delete substantially all ofprepay the restrictive covenants and events of default contained therein.
As a result of$139.0 million balance outstanding on the early extinguishment ofterm loan indebtedness under the OldCompany’s Senior Bank Credit Facility, and the redemption of all but $10.8 million of the Company’s 12% Senior Notes, the Company recorded a charge of $36.7 million during the second quarter of 2002, which included the write-off of existing deferred loan costs, certain bank fees paid, premiums paid to redeem the 12% Senior Notes, and certain other costs associated with the refinancing.
During June and July 2003, pursuant to an offer to purchase the balance of the remaining 12% Senior Notes, holders of $7.7 million principal amount of the notes tendered their notes to the Company at a price of 120% of par, resulting in a charge of $1.5 million. In connection with the tender offer for the notes, the Company received sufficient consents and further amended the indenture governing the 12% Senior Notes to remove certain restrictions related to the legal defeasance of the notes and the solicitation of consents to waive or amend the terms of the indenture.
During August 2003, pursuant to the indenture relating to the 12% Senior Notes, the Company legally defeased the remaining outstanding 12% Senior Notes by depositing with a trustee an amount sufficient to pay the principalfees and interest on such notes through the maturity date in June 2006,expenses, and by meeting certain other conditions required under the indenture. Under the terms of the indenture, the 12% Senior Notes were deemedfor general corporate purposes. The Company expects to have been repaid in full. As a result, the Company reportedreport a charge of $0.9 million during the thirdfirst quarter of 20032006 in connection with the prepayment of the term portion of the Senior Bank Credit Facility. The Company capitalized approximately $3.0 million of costs associated with the reliefissuance of its obligation.the 6.75% Senior Notes.
F - 28
F-29
and enter into transactions with affiliates. In addition, if the Company sells certain assets (and generally does not use the proceeds of such sales for certain specified purposes) or experiences specific kinds of changes in control, the Company must offer to repurchase all or a portion of the Senior Notes. The offer price for the Senior Notes in connection with an asset sale would be equal to 100% of the aggregate principal amount of the notes repurchased plus accrued and unpaid interest and liquidated damages, if any, on the notes repurchased to the date of purchase. The offer price for the Senior Notes in connection with a change in control would be 101% of the aggregate principal amount of the notes repurchased plus accrued and unpaid interest and liquidated damages, if any, on the notes repurchased to the date of purchase. The Senior Notes are also subject to certain cross-default provisions with the terms of the Company’s other indebtedness, as more fully described hereafter.
$40 Million Convertible Subordinated Notes
Prior to their conversion into shares of the Company’s common stock, as further described in Note 15, an aggregate of $40.0 million of 10% convertible subordinated notes of the Company were due December 31, 2008 (the “$40.0 Million Convertible Subordinated Notes”). The conversion price for the notes, which were convertible into shares of the Company’s common stock, was established at $11.90, subject to adjustment in the future upon the occurrence of certain events. At an adjusted conversion price of $11.90, the $40.0 Million Convertible Subordinated Notes were convertible into 3.4 million shares of common stock. In connection with the recapitalization transactions described in Note 15, during May 2003, Income Opportunity Fund I, LLC, Millennium Holdings II LLC, and Millennium Holdings III LLC, which are collectively referred to as MDP, the holders of the notes, converted the entire amount of the notes into shares of the Company’s common stock and subsequently sold such shares to the Company. In addition, the Company paid the outstanding contingent interest balance, which totaled $15.5 million.
F-30F - 29
At any time after February 28, 2005, the Company may generally require the holder to convert all or a portion of the notes if the average market price of the Company’s common stock meets or exceeds 150% of the notes’ conversion price for 45 consecutive trading days. The Company may not prepay the indebtedness evidenced by the notes at any time prior to their maturity; provided, however, that in the event of a change of control or other similar event, the notes are subject to mandatory prepayment in full at the option of the holder. The current terms of the Company’s senior indebtedness, however, would prevent such a prepayment.
Other Debt Transactions
its obligation.
Facility.
2005 | $ | 2,890 | ||||||
2006 | 2,847 | $ | 11,538 | |||||
2007 | 228,708 | 103,250 | ||||||
2008 | 66,011 | 34,300 | ||||||
2009 | 250,000 | — | ||||||
2010 | — | |||||||
Thereafter | 450,000 | 825,000 | ||||||
Total principal payments | 1,000,456 | 974,088 | ||||||
Unamortized bond premium | 1,839 | 1,548 | ||||||
Total debt | $ | 1,002,295 | $ | 975,636 | ||||
F - 30
F-31
If the Company were to be in default under the Senior Bank Credit Facility or the New Revolving Credit Facility, and if the lenders under the Senior Bank Credit Facility or the New Revolving Credit Facility elected to exercise their rights to accelerate the Company’s obligations under the Senior Bank Credit Facility or the New Revolving Credit Facility, such events could result in the acceleration of all or a portion of the Company’s Senior Notes, which would have a material adverse effect on the Company’s liquidity and financial position. The Company does not have sufficient working capital to satisfy its debt obligations in the event of an acceleration of all or a substantial portion of the Company’s outstanding indebtedness.
For the Years Ended December 31, | ||||||||||||||||||||||||
For the Years Ended December 31, | 2005 | 2004 | 2003 | |||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
Current provision (benefit) | ||||||||||||||||||||||||
Federal | $ | 21,120 | $ | (4,603 | ) | $ | (64,365 | ) | $ | 363 | $ | 20,508 | $ | (4,603 | ) | |||||||||
State | 2,286 | 1,492 | 435 | (485 | ) | 2,286 | 1,492 | |||||||||||||||||
23,406 | (3,111 | ) | (63,930 | ) | (122 | ) | 22,794 | (3,111 | ) | |||||||||||||||
Deferred provision (benefit) | ||||||||||||||||||||||||
Federal | 16,666 | (44,191 | ) | 580 | 27,286 | 16,666 | (44,191 | ) | ||||||||||||||||
State | 2,054 | (5,050 | ) | 66 | (276 | ) | 2,054 | (5,050 | ) | |||||||||||||||
18,720 | (49,241 | ) | 646 | 27,010 | 18,720 | (49,241 | ) | |||||||||||||||||
Income tax provision (benefit) | $ | 42,126 | $ | (52,352 | ) | $ | (63,284 | ) | $ | 26,888 | $ | 41,514 | $ | (52,352 | ) | |||||||||
F-32F - 31
2005 | 2004 | |||||||||||||||
2004 | 2003 | |||||||||||||||
Current deferred tax assets: | ||||||||||||||||
Asset reserves and liabilities not yet deductible for tax | $ | 21,565 | $ | 21,638 | $ | 21,053 | $ | 21,565 | ||||||||
Net operating loss and tax credit carryforwards | 34,845 | 28,835 | 13,385 | 34,845 | ||||||||||||
Net current deferred tax assets | 34,438 | 56,410 | ||||||||||||||
Current deferred tax liabilities: | ||||||||||||||||
Other | (1,950 | ) | — | |||||||||||||
Net total current deferred tax assets | $ | 56,410 | $ | 50,473 | $ | 32,488 | $ | 56,410 | ||||||||
Noncurrent deferred tax assets: | ||||||||||||||||
Asset reserves and liabilities not yet deductible for tax | $ | 1,572 | $ | 904 | 3,767 | 1,572 | ||||||||||
Net operating loss and tax credit carryforwards | 23,740 | 20,119 | 31,114 | 23,740 | ||||||||||||
Other | 9,136 | 12,283 | 11,037 | 9,136 | ||||||||||||
Total noncurrent deferred tax assets | 34,448 | 33,306 | 45,918 | 34,448 | ||||||||||||
Less valuation allowance | (6,457 | ) | (4,241 | ) | (8,252 | ) | (6,457 | ) | ||||||||
Net noncurrent deferred tax assets | 27,991 | 29,065 | 37,666 | 27,991 | ||||||||||||
Noncurrent deferred tax liabilities: | ||||||||||||||||
Book over tax basis of certain assets | (41,718 | ) | (21,330 | ) | (49,573 | ) | (41,718 | ) | ||||||||
Other | (405 | ) | (996 | ) | (180 | ) | (405 | ) | ||||||||
Total noncurrent deferred tax liabilities | (42,123 | ) | (22,326 | ) | (49,753 | ) | (42,123 | ) | ||||||||
Net total noncurrent deferred tax assets (liabilities) | $ | (14,132 | ) | $ | 6,739 | |||||||||||
Net total noncurrent deferred tax liabilities | $ | (12,087 | ) | $ | (14,132 | ) | ||||||||||
2004 | 2003 | 2002 | ||||||||||
Statutory federal rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State taxes, net of federal tax benefit | 4.0 | 4.0 | 4.0 | |||||||||
Permanent differences | 3.1 | 4.7 | 1.7 | |||||||||
Change in valuation allowance | 2.1 | (97.6 | ) | (947.9 | ) | |||||||
Other items, net | (4.0 | ) | (3.3 | ) | 3.4 | |||||||
40.2 | % | (57.2 | )% | (903.8 | )% | |||||||
F - 32
2005 | 2004 | 2003 | ||||||||||
Statutory federal rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State taxes, net of federal tax benefit | 0.7 | 4.0 | 4.0 | |||||||||
Permanent differences | 1.9 | 3.2 | 4.9 | |||||||||
Change in valuation allowance | 2.3 | 2.1 | (99.5 | ) | ||||||||
Adjustments to prior year’s tax returns | (3.2 | ) | (4.4 | ) | — | |||||||
Other items, net | (2.0 | ) | 0.3 | (3.5 | ) | |||||||
34.7 | % | 40.2 | % | (59.1 | )% | |||||||
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income. The Company experienced tax losses during 2002 primarily resulting from a cumulative effect of accounting change in depreciable lives of property and equipment for tax purposes, and the Company experienced tax losses during 2001 resulting primarily from the sale of assets at prices below the tax basis of such assets. Under terms of the new law, the Company utilized its net operating losses to offset taxable income generated in 1997 and 1996. As a result of this tax law change in 2002, the Company received an income tax refund of $32.2 million relating to the 2001 tax year in April 2002, and received an income tax refund of $32.1 million relating to the 2002 tax year in May 2003.
The cumulative effect of accounting change in tax depreciation resulted in the establishment of a significant deferred tax liability for the tax effect of the book over tax basis of certain assets in 2002. The creation of such a deferred tax liability, and the significant improvement in tax position of the Company since the original valuation allowance was established, resulted in the reduction of the valuation allowance, generating an income tax benefit of $30.3 million during the fourth quarter of 2002, as the Company determined that substantially all of these deferred tax liabilities would be utilized to offset the reversal of deferred tax assets during the net operating loss carryforward periods. The receipt in April 2002 of an additional refund of $32.2 million relating to the 2001 tax year also reduced the valuation allowance and was reflected as an income tax benefit during the first quarter of 2002.
While
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In accordanceThe Company’s effective tax rate was 34.7% during 2005 compared with 40.2% during 2004. The lower effective tax rate during 2005 resulted from certain tax planning strategies implemented during the fourth quarter of 2004 that were magnified by the recognition of deductible expenses associated with the termsCompany’s debt refinancing transactions completed during the first and second quarters of 2005. In addition, the Company also successfully pursued and recognized investment tax credits of $0.7 million during 2005. The Company’s overall effective tax rate is estimated based on the Company’s current projection of taxable income and could change in the future as a result of changes in these estimates, the implementation of additional tax strategies, changes in federal or state tax rates, or changes in state apportionment factors, as well as changes in the valuation allowance applied to the Company’s deferred tax assets that are based primarily on the amount of state net operating losses and tax credits that could expire unused.
The Company did not meet the hedge accounting criteria for the interest rate swap agreement under SFAS 133, as amended, and thus reflected in earnings the change in the estimated fair value of the interest rate swap agreement each reporting period. In accordance with SFAS 133, as amended, the Company recorded a non-cash gain of $2.2 million for the change in fair value of the interest rate swap agreement for the year ended December 31, 2002, which is net of $2.5 million for amortization of the transition adjustment. The Company was no longer required to maintain the existing interest rate swap agreement due to the early extinguishment of the Old Senior Bank Credit Facility. During May 2002, the Company terminated the swap agreement prior to its expiration at a price of $8.8 million. In accordance with SFAS 133, the Company continued to amortize the unamortized portion of the transition adjustment as a non-cash expense through December 31, 2002, at which time the transition adjustment became fully amortized.
The Senior Bank Credit Facility obtained in May 2002Note 11) required the Company to hedge at least $192.0 million of the term loan portions of the facility within 60 days following the closing of the loan. In May 2002, the Company entered into an interest rate cap agreement to fulfill this requirement, capping LIBOR at 5.0% (prior to the applicable spread) on outstanding balances of $200.0 million through the expiration of the cap agreement on May 20, 2004. The Company paid a premium of $1.0 million to enter into the interest rate cap agreement. The Company continued to amortize this premium as the estimated fair values assigned to each of the hedged interest payments expired throughout the term of the cap agreement, amounting to $0.6 million in 2004 and $0.4 million in 2003. The Company met the hedge accounting criteria under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133133”) and related interpretations in accounting for the interest rate cap agreement. As a result, the interest rate cap agreement was marked to market each reporting period, and the change in the fair value of the interest rate cap agreement of $0.6 million and $0.4 million during the years ended December 31, 2004 and 2003, respectively, was reported through other comprehensive income in the statements of stockholders’ equity.
equity until its expiration in 2004.
F-35F - 34
Effective January 1, 2002,
2003. In late 2001 and early 2002, the Company was provided notice from the Commonwealth of Puerto Rico of its intention to terminate the management contracts at the Ponce Young Adult Correctional Facility and the Ponce Adult Correctional Facility, upon the expiration of the management contracts in February 2002. Attempts to negotiate continued operation of these facilities were unsuccessful. As a result, the transition period to transfer operation of the facilities to the Commonwealth of Puerto Rico ended May 4, 2002, at which time operation of the facilities was transferred to the Commonwealth of Puerto Rico. The Company recorded a non-cash charge of $1.8 millionaddition, during the second quarter of 2002 for the write-off of the carrying value of assets associated with the terminated management contracts. During the first quarter of 2004, the Company received $0.6 million in proceeds from the Commonwealth of Puerto Rico as a settlement for repairs the Company previously made to a facility the Company formerly operated in Ponce, Adult Correctional Facility.Puerto Rico. These proceeds, net of taxes, are included in 2004 as discontinued operations.
During the fourth quarter of 2001, the Company obtained an extension of its management contract with the Commonwealth of Puerto Rico for the operation of the Guayama Correctional Center located in Guayama, Puerto Rico, through December 2006. However, on May 7, 2002, the Company received notice from the Commonwealth of Puerto Rico terminating the Company’s contract to manage this facility. As a result of the termination of the management contract for the Guayama Correctional Center, which occurred on August 6, 2002, operation of the facility was transferred to the Commonwealth of Puerto Rico.
On June 28, 2002, the Company sold its interest in a juvenile facility located in Dallas, Texas for $4.3 million. The facility was leased to a third party pursuant to a lease expiring in 2008. Net proceeds from the sale were used for working capital purposes.
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On March 18, 2003, the Company was notified by the Department of Corrections of the Commonwealth of Virginia of its intention to not renew the Company’s contract to manage the Lawrenceville Correctional Center located in Lawrenceville, Virginia, upon the expiration of the contract, which occurred on March 22, 2003.
For the Years Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
REVENUE: | ||||||||||||
Managed-only | $ | 6,707 | $ | 12,868 | $ | 53,495 | ||||||
Rental | — | — | 360 | |||||||||
6,707 | 12,868 | 53,855 | ||||||||||
EXPENSES: | ||||||||||||
Managed-only | 6,973 | 14,822 | 48,639 | |||||||||
Depreciation and amortization | 63 | 1,081 | 3,096 | |||||||||
7,036 | 15,903 | 51,735 | ||||||||||
OPERATING INCOME (LOSS) | (329 | ) | (3,035 | ) | 2,120 | |||||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest income | — | — | 575 | |||||||||
Other income (expense) | 160 | (5 | ) | (21 | ) | |||||||
160 | (5 | ) | 554 | |||||||||
INCOME (LOSS) BEFORE INCOME TAXES | (169 | ) | (3,040 | ) | 2,674 | |||||||
Income tax benefit (expense) | 70 | 920 | (600 | ) | ||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES | $ | (99 | ) | $ | (2,120 | ) | $ | 2,074 | ||||
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For the Years Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
REVENUE: | ||||||||||||
Managed-only | $ | 10,681 | $ | 28,578 | $ | 34,496 | ||||||
EXPENSES: | ||||||||||||
Managed-only | 11,169 | 27,179 | 33,490 | |||||||||
Depreciation and amortization | 186 | 129 | 1,127 | |||||||||
11,355 | 27,308 | 34,617 | ||||||||||
OPERATING INCOME (LOSS) | (674 | ) | 1,270 | (121 | ) | |||||||
Other income (expense) | 15 | 160 | (5 | ) | ||||||||
INCOME (LOSS) BEFORE INCOME TAXES | (659 | ) | 1,430 | (126 | ) | |||||||
Income tax benefit (expense) | 217 | (542 | ) | 920 | ||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES | $ | (442 | ) | $ | 888 | $ | 794 | |||||
December 31, | ||||||||
2004 | 2003 | |||||||
ASSETS | ||||||||
Accounts receivable | $ | 727 | $ | 2,438 | ||||
Total current assets | 727 | 2,438 | ||||||
Property and equipment, net | — | 65 | ||||||
Total assets | $ | 727 | $ | 2,503 | ||||
LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 125 | $ | 1,540 | ||||
Total current liabilities | $ | 125 | $ | 1,540 | ||||
December 31, | ||||||||
ASSETS | 2005 | 2004 | ||||||
Accounts receivable | $ | — | $ | 2,365 | ||||
Total current assets | — | 2,365 | ||||||
Property and equipment, net | — | 152 | ||||||
Total assets | $ | — | $ | 2,517 | ||||
F-37
LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 1,774 | $ | 2,061 | ||||
Total current liabilities | $ | 1,774 | $ | 2,061 | ||||
15. STOCKHOLDERS’ EQUITY |
Common Stock
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F - 37
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any time by the Company on or after January 30, 2003 at $25.00 per share, plus dividends accrued and unpaid to the redemption date. Shares of the Company’s seriesSeries A preferred stockPreferred Stock had no stated maturity, sinking fund provision or mandatory redemption and were not convertible into any other securities of the Company. Dividends on shares of the Company’s seriesSeries A preferred stockPreferred Stock were cumulative from the date of original issue of such shares and were payable quarterly in arrears on the fifteenth day of January, April, July and October of each year, to shareholders of record on the last day of March, June, September and December of each year, respectively, at a fixed annual rate of 8.0%.
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Preferred Stock.
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Under the terms of the Series B Restricted Stock Plans, the shares in the key employee plan vested in equal intervals over a three-year period expiring in May 2004, while the shares in the warden plan vested all at one time in May 2004. During the years ended December 31, 2004 2003, and 2002,2003, the Company expensed $0.3 million $0.6 million, and $0.5$0.6 million, net of forfeitures, respectively, relating to the Series B Restricted Stock Plans.
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F-40
Weighted | ||||||||
Number of | average exercise | |||||||
options | price per option | |||||||
Outstanding at December 31, 2002 | 3,102 | $ | 20.86 | |||||
Granted | 774 | $ | 17.29 | |||||
Cancelled | (84 | ) | $ | 19.74 | ||||
Exercised | (122 | ) | $ | 10.43 | ||||
Outstanding at December 31, 2003 | 3,670 | $ | 20.48 | |||||
Granted | 696 | $ | 30.53 | |||||
Cancelled | (220 | ) | $ | 25.03 | ||||
Exercised | (346 | ) | $ | 14.28 | ||||
Outstanding at December 31, 2004 | 3,800 | $ | 22.63 | |||||
Granted | 324 | $ | 38.93 | |||||
Cancelled | (131 | ) | $ | 31.15 | ||||
Exercised | (664 | ) | $ | 12.94 | ||||
Outstanding at December 31, 2005 | 3,329 | $ | 25.86 | |||||
Weighted | ||||||||
Number of | average exercise | |||||||
options | price per option | |||||||
Outstanding at December 31, 2001 | 2,432 | $ | 25.30 | |||||
Granted | 926 | $ | 17.04 | |||||
Cancelled | (207 | ) | $ | 58.86 | ||||
Exercised | (49 | ) | $ | 8.77 | ||||
Outstanding at December 31, 2002 | 3,102 | $ | 20.86 | |||||
Granted | 774 | $ | 17.29 | |||||
Cancelled | (84 | ) | $ | 19.74 | ||||
Exercised | (122 | ) | $ | 10.43 | ||||
Outstanding at December 31, 2003 | 3,670 | $ | 20.48 | |||||
Granted | 696 | $ | 30.53 | |||||
Cancelled | (220 | ) | $ | 25.03 | ||||
Exercised | (346 | ) | $ | 14.28 | ||||
Outstanding at December 31, 2004 | 3,800 | $ | 22.63 | |||||
The weighted average fair value of options granted during 2005, 2004, and 2003 was $13.33, $12.07, and 2002 was $12.07, $7.39 and $8.10 per option, respectively, based on the estimated fair value using the Black-Scholes option-pricing model.
2005 | 2004 | 2003 | ||||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
Expected dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||
Expected stock price volatility | 36.6 | % | 42.0 | % | 45.8 | % | 26.9 | % | 36.6 | % | 42.0 | % | ||||||||||||
Risk-free interest rate | 3.6 | % | 2.8 | % | 4.0 | % | 4.1 | % | 3.6 | % | 2.8 | % | ||||||||||||
Expected life of options | 6 years | 6 years | 6 years | 6 years | 6 years | 6 years |
Options | Weighted average | Options | ||||||||||||||
outstanding at | remaining | exercisable at | Weighted average | |||||||||||||
December 31, 2004 | contractual life | December 31, 2004 | exercise price of | |||||||||||||
Exercise Price | (in thousands) | (in years) | (in thousands) | options exercisable | ||||||||||||
$8.75 – 19.91 | 2,747 | 6.81 | 1,914 | $ | 11.83 | |||||||||||
$21.11 – 27.38 | 77 | 8.07 | 50 | $ | 22.12 | |||||||||||
$29.87 – 39.97 | 762 | 8.55 | 169 | $ | 31.46 | |||||||||||
$66.57 – 159.31 | 214 | 2.46 | 214 | $ | 118.74 | |||||||||||
3,800 | 6.94 | 2,347 | $ | 23.21 | ||||||||||||
Weighted | Weighted | |||||||||||||||
Options | average | Options | average | |||||||||||||
outstanding at | remaining | exercisable at | exercise price | |||||||||||||
December 31, 2005 | contractual life | December 31, 2005 | of options | |||||||||||||
Exercise Price | (in thousands) | (in years) | (in thousands) | exercisable | ||||||||||||
$ 8.75 — 19.91 | 2,063 | 5.97 | 2,063 | $ | 13.19 | |||||||||||
$21.11 — 27.38 | 65 | 7.67 | 65 | $ | 21.95 | |||||||||||
$29.87 — 39.97 | 1,002 | 8.14 | 1,002 | $ | 33.18 | |||||||||||
$66.57 — 159.31 | 199 | 1.89 | 199 | $ | 121.65 | |||||||||||
3,329 | 4.91 | 3,329 | $ | 25.86 | ||||||||||||
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F-41
equity incentives. As of December 31, 2004,2005, the Company had 1,533,5301.1 million shares available for issuance under the 2000 Stock Incentive Plan and another existing plan, and 71,85670,000 shares available for issuance under the Non-Employee Directors’ Compensation Plan.
16. | EARNINGS |
F-42F - 41
For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2005 | 2004 | 2003 | |||||||||||||||||||
NUMERATOR | ||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change and after preferred stock distributions | $ | 61,180 | $ | 128,641 | $ | 49,327 | ||||||||||||||||||
Income from continuing operations after preferred stock distributions | $ | 50,564 | $ | 60,193 | $ | 125,727 | ||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | (99 | ) | (2,120 | ) | 2,074 | (442 | ) | 888 | 794 | |||||||||||||||
Cumulative effect of accounting change | — | — | (80,276 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 61,081 | $ | 126,521 | $ | (28,875 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 50,122 | $ | 61,081 | $ | 126,521 | ||||||||||||||||||
Diluted: | ||||||||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change and after preferred stock distributions | $ | 61,180 | $ | 128,641 | $ | 49,327 | ||||||||||||||||||
Income from continuing operations after preferred stock distributions | $ | 50,564 | $ | 60,193 | $ | 125,727 | ||||||||||||||||||
Interest expense applicable to convertible notes, net of taxes | 720 | 4,496 | 2,400 | 129 | 720 | 4,496 | ||||||||||||||||||
Diluted income from continuing operations before cumulative effect of accounting change and after preferred stock distributions | 61,900 | 133,137 | 51,727 | |||||||||||||||||||||
Diluted income from continuing operations after preferred stock distributions | 50,693 | 60,913 | 130,223 | |||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | (99 | ) | (2,120 | ) | 2,074 | (442 | ) | 888 | 794 | |||||||||||||||
Cumulative effect of accounting change | — | — | (80,276 | ) | ||||||||||||||||||||
Diluted net income (loss) available to common stockholders | $ | 61,801 | $ | 131,017 | $ | (26,475 | ) | |||||||||||||||||
Diluted net income available to common stockholders | $ | 50,251 | $ | 61,801 | $ | 131,017 | ||||||||||||||||||
DENOMINATOR | ||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||
Weighted average common shares outstanding | 35,059 | 32,245 | 27,669 | 38,475 | 35,059 | 32,245 | ||||||||||||||||||
Diluted: | ||||||||||||||||||||||||
Weighted average common shares outstanding | 35,059 | 32,245 | 27,669 | 38,475 | 35,059 | 32,245 | ||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Stock options and warrants | 1,301 | 917 | 621 | 1,149 | 1,301 | 917 | ||||||||||||||||||
Stockholder litigation | — | 115 | 310 | — | — | 115 | ||||||||||||||||||
Convertible notes | 3,362 | 4,523 | 3,370 | 544 | 3,362 | 4,523 | ||||||||||||||||||
Restricted stock-based compensation | 58 | 249 | 238 | 113 | 58 | 249 | ||||||||||||||||||
Weighted average shares and assumed conversions | 39,780 | 38,049 | 32,208 | 40,281 | 39,780 | 38,049 | ||||||||||||||||||
BASIC EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change and after preferred stock distributions | $ | 1.74 | $ | 3.99 | $ | 1.78 | ||||||||||||||||||
Income from continuing operations after preferred stock distributions | $ | 1.31 | $ | 1.71 | $ | 3.90 | ||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.07 | ) | 0.08 | (0.01 | ) | 0.03 | 0.02 | ||||||||||||||||
Cumulative effect of accounting change | — | — | (2.90 | ) | ||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 1.74 | $ | 3.92 | $ | (1.04 | ) | |||||||||||||||||
Net income available to common stockholders | $ | 1.30 | $ | 1.74 | $ | 3.92 | ||||||||||||||||||
DILUTED EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||||||||
Income from continuing operations before cumulative effect of accounting change and after preferred stock distributions | $ | 1.55 | $ | 3.50 | $ | 1.61 | ||||||||||||||||||
Income from continuing operations after preferred stock distributions | $ | 1.26 | $ | 1.53 | $ | 3.42 | ||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.06 | ) | 0.06 | (0.01 | ) | 0.02 | 0.02 | ||||||||||||||||
Cumulative effect of accounting change | — | — | (2.49 | ) | ||||||||||||||||||||
Net income available to common stockholders | $ | 1.25 | $ | 1.55 | $ | 3.44 | ||||||||||||||||||
Net income (loss) available to common stockholders | $ | 1.55 | $ | 3.44 | $ | (0.82 | ) | |||||||||||||||||
For the year ended December 31, 2002, the Company’s $40.0 Million Convertible Subordinated Notes were convertible into 3.4 million shares of common stock, using the if-converted method. These incremental shares were excluded from the computation of diluted earnings per share for the year ended December 31, 2002, as the effect of their inclusion was anti-dilutive.
F-43
17. | COMMITMENTS AND CONTINGENCIES |
F - 42
The USCC ESOP litigation, entitledHorn v. McQueen, continued to proceed, however, against two other defendants, Milton Thompson and Robert McQueen, both of whom were stockholders and executive officers of USCC and trustees of the ESOP prior to the Company’s acquisition of USCC. In theHornlitigation, the ESOP participants alleged numerous violations of the Employee Retirement Income Security Act, including breaches of fiduciary duties to the ESOP by causing the ESOP to overpay for employer securities. On July 29, 2002, the United States District Court of the Western District of Kentucky found that McQueen and Thompson had breached their fiduciary duties to the ESOP and had acted to benefit themselves to the detriment of the ESOP participants. In January 2005, the Court determined that the plaintiffs were entitled to recover approximately $21 million in damages, including pre-judgment interest, from McQueen and Thompson.
In or about the second quarter of 2001, Northfield Insurance Co. (“Northfield”), the issuer of the liability insurance policy to USCC and its directors and officers, filed suit against McQueen, Thompson and the Company seeking a declaration that it did not owe coverage under the policy for any liabilities arising from theHornlitigation. Among other things, Northfield claimed that it did not receive timely notice of the litigation under theinvolved on terms of the policy. McQueen and Thompson subsequently filed a cross-claim in theNorthfieldlitigation against the Company in which they asserted the Company was obligated to indemnify them for any liability arising out of theHornlitigation, which could now total more than $21 million. Among other claims, McQueen and Thompson assert that, as the result of the Company’s alleged failure to timely notify the insurance carrier of theHorncase on their behalf, they were entitled to indemnification or contribution from the Company for any loss incurred by them as a result of theHornlitigation if there were no insurance available to cover the loss.
F-44
On September 30, 2002, the Court in theNorthfieldlitigation found that Northfield was not obligated to cover McQueen and Thompson or the Company. Though it did not then resolve the cross-claim, the Court did note that there was no basis for excusing McQueen and Thompson from their independent obligation to provide timely notice to the carrier because of the Company’s alleged failure to provide timely notice to the carrier. On March 31, 2004 the United States District Court granted the Company’s summary judgment motion with respect to most of the contentions made by McQueen and Thompson in their effort to seek indemnification. In January 2005, the Company filed an additional motion for summary judgment on the remaining theory of liability asserted by McQueen and Thompson in the federal lawsuit. McQueen and Thompson have also filed a state court action essentially duplicating their cross-claim in the federal case, and the Company has initiated claims against the lawyer who jointly represented the Company, McQueen and Thompson in theHornlitigation. In addition, the Company has asserted claims against McQueen and Thompson for indemnification for the $575,000 and attorneys’ fees incurred by the Company in connection with theHornlitigation.
The Company cannot predict whether it will be successful in recovering all or a portion of the amount it has paid in settlement of theHornlitigation. With respect to the cross-claim and the state court claims made by McQueen and Thompson, the Company believes that such claims are without merit and that the Company will be able to defend itself successfully against such claims and/or any additional claims of such nature that may be brought in the future; however, no assurance can be given that the Company will prevail in either the federal proceedings or the state proceedings. If the Company were ordered to indemnify McQueen and Thompson in whole or in part, such an outcome could have a material adverse affect on the Company’s consolidated financial position, results of operations or cash flows.
Corrections Facilities Development, LLC Litigation.favorable. During the first quarter of 2005, the Company settled a lawsuit it filed against Corrections Facilities Development, LLC (“CFD”) seekingnumber of outstanding legal matters for amounts less than reserves previously established for such matters, which resulted in a declaratory judgment regardingreduction to operating expenses of approximately $2.7 million during 2005 compared with 2004. Expenses associated with legal proceedings may fluctuate from quarter to quarter based on changes in the Company’s obligations pursuant to a consulting agreement, as amended, with CFD andassumptions, new developments, or by the validityeffectiveness of that agreement under applicable law. CFD had filed certain counterclaims against the Company. The settlement of that lawsuit resulted in the dismissal of all claims and did not have a material adverse affect on the Company’s consolidated financial position,litigation and settlement strategies. The Company’s recent success in settling outstanding claims at amounts less than previously reserved is not likely to be sustained for the long-term and it is possible that future cash flows and results of operations or cash flows.
could be adversely affected by increases in expenses associated with legal matters in which the Company becomes involved.
F-45
Guarantees
F - 43
F-46
Deferred Compensation Plans
F - 44
18. | SEGMENT REPORTING |
F-47
above two reportable segments, without differentiation, based on facility contribution. The Company defines facility contribution as a facility’s operating income or loss from operations before interest, taxes, depreciation and amortization. Since each of the Company’s facilities within the two reportable segments exhibit similar economic characteristics, provide similar services to governmental agencies, and operate under a similar set of operating procedures and regulatory guidelines, the facilities within the identified segments have been aggregated and reported as one reportable segment.
For the Years Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Revenue: | ||||||||||||
Owned and managed | $ | 787,397 | $ | 732,465 | $ | 639,104 | ||||||
Managed-only | 337,504 | 274,022 | 270,687 | |||||||||
Total management revenue | 1,124,901 | 1,006,487 | 909,791 | |||||||||
Operating expenses: | ||||||||||||
Owned and managed | 563,058 | 523,202 | 479,336 | |||||||||
Managed-only | 281,815 | 221,374 | 216,407 | |||||||||
Total operating expenses | 844,873 | 744,576 | 695,743 | |||||||||
Facility contribution: | ||||||||||||
Owned and managed | 224,339 | 209,263 | 159,768 | |||||||||
Managed-only | 55,689 | 52,648 | 54,280 | |||||||||
Total facility contribution | 280,028 | 261,911 | 214,048 | |||||||||
Other revenue (expense): | ||||||||||||
Rental and other revenue | 23,357 | 22,748 | 19,730 | |||||||||
Other operating expense | (25,699 | ) | (21,892 | ) | (16,995 | ) | ||||||
General and administrative expense | (48,186 | ) | (40,467 | ) | (36,907 | ) | ||||||
Depreciation and amortization | (54,511 | ) | (52,930 | ) | (51,291 | ) | ||||||
Operating income | $ | 174,989 | $ | 169,370 | $ | 128,585 | ||||||
F - 45
For the Years Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Revenue: | ||||||||||||
Owned and managed | $ | 840,800 | $ | 787,397 | $ | 732,465 | ||||||
Managed-only | 333,051 | 315,633 | 252,394 | |||||||||
Total management revenue | 1,173,851 | 1,103,030 | 984,859 | |||||||||
Operating expenses: | ||||||||||||
Owned and managed | 598,786 | 563,058 | 523,202 | |||||||||
Managed-only | 278,650 | 261,609 | 202,706 | |||||||||
Total operating expenses | 877,436 | 824,667 | 725,908 | |||||||||
Facility contribution: | ||||||||||||
Owned and managed | 242,014 | 224,339 | 209,263 | |||||||||
Managed-only | 54,401 | 54,024 | 49,688 | |||||||||
Total facility contribution | 296,415 | 278,363 | 258,951 | |||||||||
Other revenue (expense): | ||||||||||||
Rental and other revenue | 18,789 | 23,357 | 22,748 | |||||||||
Other operating expense | (21,357 | ) | (25,699 | ) | (21,892 | ) | ||||||
General and administrative expense | (57,053 | ) | (48,186 | ) | (40,467 | ) | ||||||
Depreciation and amortization | (59,882 | ) | (54,445 | ) | (52,884 | ) | ||||||
Operating income | $ | 176,912 | $ | 173,390 | $ | 166,456 | ||||||
For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||
2004 | 2003 | 2002 | 2005 | 2004 | 2003 | |||||||||||||||||||
Capital expenditures: | ||||||||||||||||||||||||
Owned and managed | $ | 84,691 | $ | 60,523 | $ | 10,110 | $ | 90,515 | $ | 84,691 | $ | 60,523 | ||||||||||||
Managed-only | 5,178 | 2,825 | 1,419 | 5,288 | 5,137 | 2,722 | ||||||||||||||||||
Corporate and other | 40,899 | 28,843 | 5,411 | 19,292 | 40,899 | 28,843 | ||||||||||||||||||
Discontinued operations | 3 | 4 | 157 | — | 44 | 107 | ||||||||||||||||||
Total capital expenditures | $ | 130,771 | $ | 92,195 | $ | 17,097 | $ | 115,095 | $ | 130,771 | $ | 92,195 | ||||||||||||
December 31, | December 31, | |||||||||||||||
2004 | 2003 | 2005 | 2004 | |||||||||||||
Assets: | ||||||||||||||||
Owned and managed | $ | 1,672,463 | $ | 1,606,675 | $ | 1,672,941 | $ | 1,672,463 | ||||||||
Managed-only | 82,228 | 72,806 | 92,101 | 80,438 | ||||||||||||
Corporate and other | 267,660 | 277,044 | 321,271 | 267,660 | ||||||||||||
Discontinued operations | 727 | 2,503 | — | 2,517 | ||||||||||||
Total assets | $ | 2,023,078 | $ | 1,959,028 | $ | 2,086,313 | $ | 2,023,078 | ||||||||
19. | SUBSEQUENT EVENTS | |
During February 2006, the Company issued 161,256 shares of restricted common stock to the Company’s employees, with an aggregate value of $6.9 million. Unless earlier vested under the terms of the restricted stock, 81,587 shares issued to officers and executive officers are subject to vesting over a three year period based upon satisfaction of certain performance criteria for the fiscal years ending December 31, 2006, 2007 and 2008. No more than one third of such shares may vest in the first performance period; however, the performance criteria are cumulative for the three year period. Unless earlier vested under the terms of the restricted stock, the remaining 79,669 shares of restricted stock issued to certain other employees of the Company vest during 2009. |
F-48F - 46
During February 2005, the Company announced that it received notification from the Indiana Department of Corrections of its intent to return to Indiana approximately 620 male Indiana inmates currently housed at the Company’s Otter Creek Correctional Center in Wheelwright, Kentucky. The Company is working with Indiana corrections officials on plans to return the inmates to the Indiana corrections system by the end of May 2005. The Company is pursuing opportunities with a number of potential customers, including the Kentucky Department of Corrections, to fill the vacant space. However, if the Company is unable to obtain a new agreement it intends to implement a phased closure of the Otter Creek facility that will coincide with the return of Indiana inmates.
During February 2005, the Company issued 182,966 shares of restricted common stock to the Company’s employees, with an aggregate value of $7.2 million. Unless earlier vested under the terms of the restricted stock, 93,890 shares issued to officers and executive officers are subject to vesting over a three year period based upon satisfaction of certain performance criteria for the fiscal years ending December 31, 2005, 2006 and 2007. No more than one third of such shares may vest in the first performance period; however, the performance criteria are cumulative for the three year period. Unless earlier vested under the terms of the restricted stock, the remaining 89,076 shares of restricted stock issued to certain other employees of the Company vest during 2008.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) | ||
Selected quarterly financial information for each of the quarters in the years ended December 31, 2005 and 2004 is as follows (in thousands, except per share data): |
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2005 | 2005 | 2005 | 2005 | |||||||||||||
Revenue (1) | $ | 280,887 | $ | 290,189 | $ | 304,367 | $ | 317,197 | ||||||||
Operating income (1) | 39,562 | 38,225 | 48,694 | 50,431 | ||||||||||||
Income (loss) from discontinued operations, net of taxes (1) | (620 | ) | 427 | — | (249 | ) | ||||||||||
Net income (loss) available to common stockholders | (8,939 | ) | 14,863 | 20,793 | 23,405 | |||||||||||
Basic earnings (loss) per share: | ||||||||||||||||
Net income (loss) available to common stockholders | $ | (0.24 | ) | $ | 0.38 | $ | 0.53 | $ | 0.59 | |||||||
Diluted earnings (loss) per share: | ||||||||||||||||
Net income (loss) available to common stockholders | $ | (0.24 | ) | $ | 0.37 | $ | 0.52 | $ | 0.58 |
(1) | The amounts presented for the first two quarters of 2005 are not equal to the same amounts previously reported in Form 10-Q for each period as a result of discontinued operations. Below is a reconciliation to the amounts previously reported in Form 10-Q: |
March 31, | June 30, | |||||||
2005 | 2005 | |||||||
Total revenue previously reported | $ | 285,930 | $ | 295,827 | ||||
Discontinued operations | (5,043 | ) | (5,638 | ) | ||||
Revised total revenue | $ | 280,887 | $ | 290,189 | ||||
Operating income previously reported | $ | 38,610 | $ | 38,868 | ||||
Discontinued operations | 952 | (643 | ) | |||||
Revised operating income | $ | 39,562 | $ | 38,225 | ||||
Income (loss) from discontinued operations, net of taxes | $ | — | $ | — | ||||
Additional discontinued operations subsequent to the respective reporting period | (620 | ) | 427 | |||||
Revised income (loss) from discontinued operations, net of taxes | $ | (620 | ) | $ | 427 | |||
Selected quarterly financial information for each of the quarters in the years ended December 31, 2004 and 2003 is as follows (in thousands, except per share data):
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2004 | 2004 | 2004 | 2004 | |||||||||||||
Revenue | $ | 276,811 | $ | 287,384 | $ | 290,276 | $ | 293,787 | ||||||||
Operating income | 42,649 | 44,046 | 43,252 | 45,042 | ||||||||||||
Income tax expense | (9,975 | ) | (10,931 | ) | (9,038 | )(1) | (12,182 | )(2) | ||||||||
Income from continuing operations | 14,962 | 15,493 | 17,144 | 15,043 | ||||||||||||
Income (loss) from discontinued operations, net of taxes | 222 | (69 | ) | (136 | ) | (116 | ) | |||||||||
Net income available to common stockholders | 14,370 | 14,776 | 17,008 | 14,927 | ||||||||||||
Basic earnings per share: | ||||||||||||||||
Income from continuing operations | 0.40 | 0.42 | 0.49 | 0.42 | ||||||||||||
Income from discontinued operations, net of taxes | 0.01 | — | — | — | ||||||||||||
Net income available to common stockholders | $ | 0.41 | $ | 0.42 | $ | 0.49 | $ | 0.42 | ||||||||
Diluted earnings per share: | ||||||||||||||||
Income from continuing operations | $ | 0.36 | $ | 0.38 | $ | 0.43 | $ | 0.38 | ||||||||
Income from discontinued operations, net of taxes | 0.01 | — | — | — | ||||||||||||
Net income available to common stockholders | $ | 0.37 | $ | 0.38 | $ | 0.43 | $ | 0.38 | ||||||||
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March 31, | June 30, | September 30, | December 31, | March 31, | June 30, | September 30, | December 31, | |||||||||||||||||||||||||
2003 | 2003 | 2003 | 2003 | 2004 | 2004 | 2004 | 2004 | |||||||||||||||||||||||||
Revenue | $ | 248,485 | $ | 252,312 | $ | 261,515 | $ | 266,923 | $ | 271,187 | $ | 281,901 | $ | 284,804 | $ | 288,495 | ||||||||||||||||
Operating income | 42,508 | 40,941 | 41,204 | 44,717 | 42,447 | 43,606 | 42,473 | 44,864 | ||||||||||||||||||||||||
Income tax benefit (expense) | 170 | — | (277 | ) | 52,459 | (3) | ||||||||||||||||||||||||||
Income from continuing operations | 24,755 | 20,369 | 19,440 | 79,339 | ||||||||||||||||||||||||||||
Income tax expense | (9,894 | ) | (10,749 | ) | (8,769 | )(2) | (12,102 | )(3) | ||||||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | (1,853 | ) | (139 | ) | (403 | ) | 275 | 343 | 189 | 374 | (18 | ) | ||||||||||||||||||||
Net income available to common stockholders | 17,422 | 12,140 | 18,201 | 78,758 | 14,370 | 14,776 | 17,008 | 14,927 | ||||||||||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||||||||||
Income from continuing operations | 0.70 | 0.38 | 0.54 | 2.26 | ||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | (0.07 | ) | — | (0.01 | ) | 0.01 | ||||||||||||||||||||||||||
Basic earnings per share: | ||||||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 0.63 | $ | 0.38 | $ | 0.53 | $ | 2.27 | $ | 0.41 | $ | 0.42 | $ | 0.49 | $ | 0.42 | ||||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.61 | $ | 0.34 | $ | 0.48 | $ | 2.00 | ||||||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | (0.05 | ) | — | (0.01 | ) | 0.01 | ||||||||||||||||||||||||||
Diluted earnings per share: | ||||||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 0.56 | $ | 0.34 | $ | 0.47 | $ | 2.01 | $ | 0.37 | $ | 0.38 | $ | 0.43 | $ | 0.38 | ||||||||||||||||
(2) | Financial results for the third quarter of 2004 included income tax benefits netting $0.03 per diluted share primarily resulting from a change in estimated income taxes associated with certain financing transactions completed during 2003. | |||
(3) | Financial results for the fourth quarter of 2004 included income tax charges netting $0.03 per diluted share related to an assessment by the Internal Revenue Service of taxes associated with prior refunds received by the Company during 2002 and 2003, partially offset by a net income tax benefit for the implementation of tax planning strategies that | |||
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