EXHIBIT 99.1
News Release
Contact: Karin Demler: (615) 263-3005
CORRECTIONS CORPORATION OF AMERICA
ANNOUNCES 2006 FIRST QUARTER FINANCIAL RESULTS
NASHVILLE, TENN. - MAY 3, 2006 - CORRECTIONS CORPORATION OF AMERICA (NYSE: CXW)
(the "Company"), the nation's largest provider of corrections management
services to government agencies, today announced its financial results for the
three-month period ended March 31, 2006.
FINANCIAL REVIEW
FIRST QUARTER OF 2006 COMPARED WITH FIRST QUARTER OF 2005
For the three months ended March 31, 2006, the Company reported net income
available to common stockholders of $21.3 million, or $0.52 per diluted share,
compared with a net loss available to common stockholders of $8.9 million, or
$0.24 per diluted share, for the same period in 2005.
Financial results for the first quarter of 2006 included a pre-tax charge of
$1.0 million, compared with $35.0 million during the first quarter of 2005, for
refinancing transactions completed during each respective quarter. Excluding
these special charges, net income available to common stockholders was $21.9
million or $0.54 per diluted share for the first quarter of 2006, compared with
$14.0 million, or $0.35 per diluted share for the first quarter of 2005, an
increase of $0.19 per diluted share, or 54%.
Operating income for the first quarter of 2006 was $49.9 million, compared with
$39.6 million for the first quarter of 2005. EBITDA, adjusted for the
refinancing charges ("Adjusted EBITDA") for the three months ended March 31,
2006, increased 22% to $65.6 million, from $53.7 million for the same period in
2005. The financial results for the quarter ended March 31, 2006, were
positively affected by the management contract with the Federal Bureau of
Prisons ("BOP") at the Northeast Ohio Correctional Center that commenced in June
2005, as well as increased inmate populations at the Company's Prairie,
Florence, Diamondback and Central Arizona facilities. These increases were
partially offset by a reduction in populations at the T. Don Hutto facility,
which was vacant during the first quarter of 2006 but is expected to commence
operations with a population of detainees from U.S. Immigration and Customs
Enforcement ("ICE") during the second quarter of 2006, as described hereafter.
The increases in operating income and Adjusted EBITDA are net of an increase in
general and administrative expenses of $1.8 million, of which $0.6 million, or
$0.01 per diluted share, resulted from an increase in stock-based compensation.
Adjusted Free Cash Flow, which does not include special charges, increased by
$27.3 million to $43.0 million during the first quarter of 2006, from $15.7
million generated during the same period in 2005. The increase in Adjusted Free
Cash Flow was primarily brought about by the increase in operating income and a
reduction in interest expense resulting from the Company's refinancing
activities. Additionally, the prior year quarter was negatively impacted by the
repayment of $13.5 million in taxes associated with excess refunds received by
the Company in 2002 and 2003.
-more-
10 Burton Hills Boulevard, Nashville, Tennessee 37215, Phone: 615-263-3000
CCA First Quarter 2006 Results
Page 2
Earnings Per Diluted Share Excluding Special Charges, EBITDA, Adjusted EBITDA
and Adjusted Free Cash Flow are non-GAAP financial measures. Please refer to the
Supplemental Financial Information and related note following the financial
statements herein for further discussion and reconciliations of these measures
to GAAP financial measures.
OPERATIONS HIGHLIGHTS
For the quarter ended March 31, 2006 and 2005, key operating statistics for the
continuing operations of the Company were as follows:
QUARTER ENDED MARCH 31,
-----------------------
Metric 2006 2005
------ ---------- ----------
Average Available Beds 70,969 68,625
Average Compensated Occupancy 93.7% 89.6%
Total Compensated Man-Days 5,985,056 5,533,030
Revenue per Compensated Man-Day $ 52.03 $ 49.90
Operating Expense per Compensated Man-Day:
Fixed 28.86 28.98
Variable 9.73 8.87
---------- ----------
Total 38.59 37.85
---------- ----------
Operating Margin per Compensated Man-Day $ 13.44 $ 12.05
========== ==========
Operating Margin 25.8% 24.1%
Operating margins increased from 24.1% during the first quarter of 2005 to 25.8%
during the first quarter of 2006. The increase in operating margins from the
prior-year period was substantially the result of the aforementioned higher
inmate populations at a number of the Company's facilities. As further described
hereafter, the prior year period also included increased staffing levels in
anticipation of additional inmate populations at several facilities where
expansions had been completed. The Company discloses a complete listing of
occupancies by facility in its Supplemental Financial Information posted on its
website at www.correctionscorp.com.
Total revenue for the first quarter of 2006 increased 12.5% to $316.0 million
from $280.9 million during the same period in 2005, as total compensated
man-days increased 8.2% to 6.0 million from 5.5 million compensated man-days,
and as revenue per compensated man-day increased to $52.03 from $49.90, an
increase of 4.3%. Average compensated occupancy for the three months ended March
31, 2006 increased to 93.7% from 89.6% for the three months ended March 31,
2005.
Fixed expenses for the three months ended March 31, 2006, decreased to $28.86
per compensated man-day compared with $28.98 per compensated man-day during the
same period in 2005, a decrease of $0.12 per compensated man-day. The decrease
in fixed expenses per compensated man-day was primarily the result of a decrease
in salaries and benefits of $0.38 per compensated man-day, partially offset by
an increase in utilities of $0.18 per compensated man-day resulting from
increasing energy costs. The decrease in salaries and benefits per compensated
man-day is primarily the result of leveraging those costs over higher inmate
populations in the current quarter. In the prior year, the Company had increased
staffing levels in anticipation of increased inmate populations at the Northeast
Ohio, Lake City, Houston and Florence facilities. As these inmate populations
increased in the current quarter, salaries and benefits on a per man-day basis
declined.
-more-
CCA First Quarter 2006 Results
Page 3
Variable expenses increased from $8.87 per compensated man-day during the first
quarter of 2005 to $9.73 per compensated man-day during the first quarter of
2006, an increase of $0.86 per compensated man-day. The increase in variable
expenses per compensated man-day includes an increase in legal expenses, as well
as a modest increase in inmate medical expenses. Legal expense in the prior year
quarter was affected favorably by the successful resolution of a number of legal
matters.
REFINANCING TRANSACTIONS
In January 2006, the Company refinanced its senior bank credit facility, paying
off the $149.0 million balance of the facility using cash on hand and the net
proceeds from the issuance of $150.0 million of 6.75% senior unsecured notes due
2014. In connection with the refinancing, the Company increased its borrowing
capacity by obtaining a new $150.0 million revolving credit facility which
currently has no outstanding balance. The new revolving credit facility is
secured primarily by security interests in the Company's accounts receivable and
is not secured by liens on any of the Company's real estate assets. The Company
intends to use the new facility to fund capital expenditures and for general
corporate purposes. The Company incurred a pre-tax charge of $1.0 million for
the write-off of existing deferred loan costs associated with the retirement of
the old revolving credit facility and pay-off of the term portion of the
facility. As a result of the refinancing and repayments, the interest rates on
all of the Company's outstanding indebtedness are fixed, with a total weighted
average stated interest rate of 6.9%.
During the first quarter of 2005, the Company incurred a pre-tax charge of $35.0
million consisting of a tender premium paid to the holders of the Company's
9.875% senior notes who tendered their notes pursuant to a tender offer the
Company made for their notes, as well as fees and expenses associated with the
tender offer. The charge also included the write-off of existing deferred loan
costs associated with the purchase of the 9.875% senior notes and a lump sum
pay-down of the old senior bank credit facility made with the proceeds from the
issuance of $375.0 million of 6.75% senior unsecured notes due 2013.
BUSINESS DEVELOPMENT UPDATE
In April 2006, the Company modified an agreement with Williamson County, Texas
to house non-criminal detainees from ICE under an Inter-Governmental Service
Agreement between Williamson County and ICE. As part of its Secure Border
Initiative, the agreement will enable ICE to accommodate non-criminal aliens
being detained for deportation at the Company's 512-bed T. Don Hutto Residential
Center in Taylor, Texas. The Company originally announced an agreement in
December 2005 to house up to 600 detainees from ICE. However, for various
reasons, the initial intake of detainees originally scheduled to occur in
February 2006 was delayed. The modified agreement, which is effective beginning
May 8, 2006, provides for an indefinite term and a fixed monthly payment.
Also in April 2006, the Company received a Notice of Intent to Award from the
state of Florida, Department of Management Services, a contract for the
continued management of the 893-bed Lake City Correctional Facility in Lake
City, Florida.
In April 2006, the Company was selected by Bay County for the continued
management of the Bay County Jail and Annex, in Panama City, Florida. In
addition, the Company was selected to construct new beds to replace capacity of
the existing jail facility that will be demolished. Both the management and
construction contracts are subject to final execution by Bay County, which the
Company believes is imminent. The construction of the new and replacement beds
will be funded by Bay County at a fixed
-more-
CCA First Quarter 2006 Results
Page 4
price. Construction is currently scheduled for completion in the second quarter
of 2008. The Company does not expect a material change in the capacity of the
facility as a result of the new construction.
In March 2006, the Company resumed operations at its 1,440-bed North Fork
Correctional Facility in Sayre, Oklahoma with a modest population from the state
of Vermont. Although the Company expects to accommodate additional inmate
populations from the state of Vermont at this facility in the future, a major
consideration in re-opening North Fork was the expectation of additional inmate
populations from various existing state and federal customers. Based on the
Company's decision to utilize this facility primarily to satisfy future state
inmate requirements, on April 28, 2006, the Company provided the BOP with notice
of its withdrawal of the North Fork facility from the BOP's Criminal Alien
Requirement 5 (CAR 5) solicitation. As a result of the North Fork withdrawal,
the Company's Stewart County Correctional Facility is the only company facility
remaining in the CAR 5 solicitation.
Also in March 2006, the Company was awarded a contract with the New Mexico
Department of Corrections to operate and manage the State-owned Camino Nuevo
Female Correctional Facility. The 192-bed facility located in Albuquerque, New
Mexico will house overflow offenders from the Company's New Mexico Women's
Correctional Facility in Grants, New Mexico. The Company anticipates receiving
an initial population of female offenders in July 2006.
In February 2006, the Company announced that it reached an agreement with the
City of Eloy, Arizona to house detainees from ICE under an Inter-Governmental
Service Agreement between the City of Eloy and ICE. The agreement will enable
ICE to accommodate detainees at the Company's 1,500-bed Eloy Detention Center in
Eloy, Arizona. Under its agreement with the City, the Company is eligible for
periodic rate increases. Although the contract does not provide for a guaranteed
occupancy, the Company expects over time that the facility will be substantially
occupied by ICE. At March 31, 2006, the facility housed over 1,100 inmates on
behalf of ICE and the state of Washington.
FACILITY DEVELOPMENT UPDATE
Based upon the Company's expectations for increased federal demand for detention
space along the Texas border with Mexico, the Company is proceeding with an
expansion of its 480-bed Webb County Detention Center by 722 beds, increasing
total capacity to 1,202 beds. The expansion, estimated to cost approximately
$38.9 million, is currently scheduled for completion in the first quarter 2008.
The state of Florida has contracted with the Company to expand the State's Bay
Correctional Facility and Gadsden Correctional Institution. The Bay expansion
will add approximately 235 beds to the existing 750-bed facility, while the
Gadsden expansion will add 384 beds to the existing 1,136-bed facility. Both
expansions are being funded by the state of Florida, and are currently scheduled
for completion in the third quarter of 2007.
The Company is expanding the Citrus County Detention Facility on behalf of
Citrus County, Florida. The expansion, anticipated to cost approximately $18.5
million, is being funded by the Company. Upon completion, the existing capacity
of the facility will be increased from 400 beds to 760 beds. The expansion is
currently scheduled for completion in the first quarter of 2007.
Construction continues on the Company's 1,596-bed Red Rock Correctional Center
in Eloy, Arizona, with completion anticipated in July 2006 at an estimated cost
of $82.6 million. The Company currently expects to relocate approximately 800
Alaskan inmates from its Florence Correctional Center to Red Rock during the
third quarter of this year. The beds that will be made available at Florence are
expected
-more-
CCA First Quarter 2006 Results
Page 5
to be used to satisfy anticipated federal demand for detention beds in the
Arizona area. The Company expects that the Red Rock facility will be
substantially occupied by inmates from the states of Alaska and Hawaii by
December 2006.
Construction continues on the Company's 1,896-bed Saguaro Correctional Facility,
also in Eloy, Arizona. The $100 million project is scheduled for completion in
the third quarter of 2007. Upon completion, the Company anticipates it will
consolidate into Saguaro, inmates from the state of Hawaii that are currently
located in a number of the Company's facilities. It is anticipated that growing
state and federal demand for beds will ultimately absorb the beds vacated by
Hawaii.
Commenting on the Company's financial results, President and CEO John Ferguson
stated, "We are pleased with our first quarter results, as our earnings
benefited from higher than expected inmate populations at a number of key
facilities. The environment for our business continues to improve, with demand
for prison beds exceeding supply on behalf of many of our customers. As a result
of this situation, we continue to see rising occupancies, while our inventory of
available beds continues to be absorbed."
Ferguson continued, "We continue to monitor the status of immigration policy to
determine the effect it may have on our business. At this time, based upon
comments from both the President and the Secretary of Homeland Security, we
believe there will be a significant expansion of border enforcement efforts,
which should result in a substantial increase in the population of illegal
detainees. We also see increased funding from Congress in support of these
enhanced enforcement efforts."
"As a result of the potential of increased federal demand, as well as the
increasing demand on the part of many of our state customers, we have
intensified our efforts to deliver additional beds, as indicated by the facility
development efforts we have underway. We are currently building on our own
behalf, or constructing on behalf of our customers, projects totaling
approximately 5,200 beds with an aggregate construction cost of almost $272
million."
GUIDANCE
The Company expects diluted earnings per share for the second quarter of 2006 to
be in the range of $0.55 to $0.59, and full year EPS to be in the range of $2.20
to $2.27, excluding $0.02 per diluted share, net of taxes, for expenses
associated with the aforementioned debt refinancing transactions completed in
the first quarter of 2006. The full year guidance includes expenses totaling
$0.07 per diluted share, net of taxes, for stock-based compensation, compared
with $0.03 per diluted share, net of taxes, during 2005.
During 2006, the Company expects to invest approximately $166.1 million in
capital expenditures, consisting of approximately $117.5 million in prison
construction and expansions, $31.6 million in maintenance capital expenditures
and $17.0 million in information technology.
SUPPLEMENTAL FINANCIAL INFORMATION AND INVESTOR PRESENTATIONS
The Company has made available on its website supplemental financial information
and other data for the first quarter 2006. The Company does not undertake any
obligation, and disclaims any duty, to update any of the information disclosed
in this report. Interested parties may access this information through the
Company's website at www.correctionscorp.com under "Financial Information" of
the Investor section.
-more-
CCA First Quarter 2006 Results
Page 6
The Company's management may meet with investors from time to time during the
second quarter of 2006. Written materials used in the investor presentations
will also be available on the Company's website beginning on or about May 26,
2006. Interested parties may access this information through the Company's
website at www.correctionscorp.com under "Webcasts" of the Investor section.
WEBCAST AND REPLAY INFORMATION
The Company will host a webcast conference call at 2:00 p.m. Central Time (3:00
p.m. Eastern Time) today to discuss its 2006 first quarter financial results. To
listen to this discussion, please access "Webcasts" on the Investor page at
www.correctionscorp.com. The conference call will be archived on the Company's
website following the completion of the call. In addition, a telephonic replay
will begin today at 5:00 p.m. Central Time through 11:59 p.m. Central Time on
May 10, 2006, by dialing 877-519-4471, pass code 7293368.
ABOUT THE COMPANY
The Company is the nation's largest owner and operator of privatized
correctional and detention facilities and one of the largest prison operators in
the United States, behind only the federal government and three states. The
Company currently operates 63 facilities, including 39 company-owned facilities,
with a total design capacity of approximately 71,000 beds in 19 states and the
District of Columbia. The Company specializes in owning, operating and managing
prisons and other correctional facilities and providing inmate residential and
prisoner transportation services for governmental agencies. In addition to
providing the fundamental residential services relating to inmates, the
Company's facilities offer a variety of rehabilitation and educational programs,
including basic education, religious services, life skills and employment
training and substance abuse treatment. These services are intended to reduce
recidivism and to prepare inmates for their successful re-entry into society
upon their release. The Company also provides health care (including medical,
dental and psychiatric services), food services and work and recreational
programs.
FORWARD-LOOKING STATEMENTS
This press release contains statements as to the Company's beliefs and
expectations of the outcome of future events that are forward-looking statements
as defined within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from the statements made.
These include, but are not limited to, the risks and uncertainties associated
with: (i) fluctuations in the Company's operating results because of, among
other things, changes in occupancy levels, competition, increases in cost of
operations, fluctuations in interest rates and risks of operations; (ii) changes
in the privatization of the corrections and detention industry, the public
acceptance of the Company's services and the timing of the opening of and demand
for new prison facilities and the commencement of new management contracts;
(iii) the Company's ability to obtain and maintain correctional facility
management contracts, including as the result of sufficient governmental
appropriations and as the result of inmate disturbances; (iv) increases in costs
to construct 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 the Company's control, such as weather, labor
conditions and material shortages, resulting in increased construction costs;
and (v) general economic and market conditions. Other factors that could cause
operating and financial results to differ are described in the filings made from
time to time by the Company with the Securities and Exchange Commission.
-more-
CCA First Quarter 2006 Results
Page 7
The Company takes no responsibility for updating the information contained in
this press release following the date hereof to reflect events or circumstances
occurring after the date hereof or the occurrence of unanticipated events or for
any changes or modifications made to this press release.
-more-
CCA First Quarter 2006 Results
Page 8
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, December 31,
2006 2005
---------- ------------
ASSETS
Cash and cash equivalents $ 64,924 $ 64,901
Restricted cash 11,399 11,284
Investments 49,481 19,014
Accounts receivable, net of allowance of $1,622 and $2,258, respectively 167,554 176,560
Deferred tax assets 27,076 32,488
Prepaid expenses and other current assets 9,453 15,884
---------- ----------
Total current assets 329,887 320,131
Property and equipment, net 1,722,742 1,710,794
Investment in direct financing lease 16,118 16,322
Goodwill 15,246 15,246
Other assets 26,057 23,820
---------- ----------
Total assets $2,110,050 $2,086,313
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 137,797 $ 141,090
Income taxes payable 1,715 1,435
Current portion of long-term debt 381 11,836
Current liabilities of discontinued operations 682 1,774
---------- ----------
Total current liabilities 140,575 156,135
Long-term debt, net of current portion 976,185 963,800
Deferred tax liabilities 13,906 12,087
Other liabilities 37,719 37,660
---------- ----------
Total liabilities 1,168,385 1,169,682
---------- ----------
Commitments and contingencies
Common stock - $0.01 par value; 80,000 shares authorized; 40,095
and 39,694 shares issued and outstanding at March 31, 2006 and
December 31, 2005, respectively 401 397
Additional paid-in capital 1,504,322 1,506,184
Deferred compensation -- (5,563)
Retained deficit (563,058) (584,387)
---------- ----------
Total stockholders' equity 941,665 916,631
---------- ----------
Total liabilities and stockholders' equity $2,110,050 $2,086,313
========== ==========
-more-
CCA First Quarter 2006 Results
Page 9
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE QUARTER
ENDED MARCH 31,
-------------------
2006 2005
-------- --------
REVENUE:
Management and other $314,978 $279,915
Rental 1,036 972
-------- --------
316,014 280,887
-------- --------
EXPENSES:
Operating 236,034 214,750
General and administrative 14,377 12,538
Depreciation and amortization 15,703 14,037
-------- --------
266,114 241,325
-------- --------
OPERATING INCOME 49,900 39,562
-------- --------
OTHER (INCOME) EXPENSE:
Interest expense, net 15,126 17,428
Expenses associated with debt refinancing and
recapitalization transactions 982 35,032
Other income (12) (124)
-------- --------
16,096 52,336
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 33,804 (12,774)
Income tax (expense) benefit (12,475) 4,455
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 21,329 (8,319)
Income (loss) from discontinued operations, net of taxes -- (620)
-------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ 21,329 $ (8,939)
======== ========
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $ 0.54 $ (0.22)
Income (loss) from discontinued operations, net of taxes -- (0.02)
-------- --------
Net income (loss) available to common stockholders $ 0.54 $ (0.24)
======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $ 0.52 $ (0.22)
Income (loss) from discontinued operations, net of taxes -- (0.02)
-------- --------
Net income (loss) available to common stockholders $ 0.52 $ (0.24)
======== ========
-more-
CCA First Quarter 2006 Results
Page 10
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CALCULATION OF ADJUSTED FREE CASH FLOW
FOR THE QUARTER
ENDED MARCH 31,
------------------
2006 2005
------- --------
Pre-tax income available to common stockholders $33,804 $(13,394)
Expenses associated with debt refinancing and recapitalization transactions 982 35,032
Income taxes paid -- (13,761)
Depreciation and amortization 15,703 14,037
Depreciation and amortization for discontinued operations -- 163
Income tax (benefit) expense for discontinued operations -- (332)
Stock-based compensation reflected in G&A expenses 778 206
Amortization of debt costs and other non-cash interest 1,235 1,378
Maintenance and technology capital expenditures (9,519) (7,632)
------- --------
ADJUSTED FREE CASH FLOW $42,983 $ 15,697
======= ========
CALCULATION OF EBITDA AND ADJUSTED EBITDA
FOR THE QUARTER
ENDED MARCH 31,
-----------------
2006 2005
------- -------
Net income (loss) $21,329 $(8,939)
Interest expense, net 15,126 17,428
Depreciation and amortization 15,703 14,037
Income tax expense (benefit) 12,475 (4,455)
(Income) loss from discontinued operations, net of taxes -- 620
------- -------
EBITDA $64,633 $18,691
Expenses associated with debt refinancing and recapitalization transactions 982 35,032
------- -------
ADJUSTED EBITDA $65,615 $53,723
======= =======
-more-
CCA First Quarter 2006 Results
Page 11
CALCULATION OF ADJUSTED DILUTED EARNINGS PER SHARE
FOR THE QUARTER
ENDED MARCH 31,
------------------
2006 2005
------- --------
Net income available to common stockholders $21,329 $ (8,939)
Expenses associated with debt refinancing and recapitalization transactions 982 35,032
Income tax benefit for special items (362) (12,218)
------- --------
Adjusted net income available to common stockholders 21,949 13,875
Interest expense applicable to convertible notes, net of taxes -- 121
------- --------
Diluted adjusted net income available to common stockholders $21,949 $ 13,996
======= ========
Weighted average common shares outstanding - basic 39,533 36,536
Effect of dilutive securities:
Stock options and warrants 1,029 1,277
Convertible notes -- 2,204
Restricted stock-based compensation 148 75
------- --------
Weighted average shares and assumed conversions - diluted 40,710 40,092
------- --------
ADJUSTED DILUTED EARNINGS PER SHARE $ 0.54 $ 0.35
======= ========
NOTE TO SUPPLEMENTAL FINANCIAL INFORMATION
Net income excluding special charges (Adjusted Diluted Earnings Per Share),
EBITDA, Adjusted EBITDA and Adjusted free cash flow are non-GAAP financial
measures. The Company believes that these measures are important operating
measures that supplement discussion and analysis of the Company's results of
operations and are used to review and assess operating performance of the
Company and its correctional facilities and their management teams. The Company
believes that it is useful to provide investors, lenders and security analysts
disclosures of its results of operations on the same basis as that used by
management.
Management and investors review both the Company's overall performance
(including GAAP EPS, net income, Adjusted Diluted Earnings Per Share and
Adjusted free cash flow) and the operating performance of the Company's
correctional facilities (EBITDA and Adjusted EBITDA). EBITDA and Adjusted EBITDA
are useful as supplemental measures of the performance of the Company's
correctional facilities because they do not take into account depreciation and
amortization, tax provisions, or with respect to Adjusted EBITDA, the impact of
the Company's financing strategies. Because the historical cost accounting
convention used for real estate assets requires depreciation (except on land),
this accounting presentation assumes that the value of real estate assets
diminishes at a level rate over time. Because of the unique structure, design
and use of the Company's correctional facilities, management believes that
assessing performance of the Company's correctional facilities without the
impact of depreciation or amortization is useful. The calculation of Adjusted
free cash flow substitutes capital expenditures incurred to maintain the
functionality and condition of the Company's correctional facilities in lieu of
a provision for depreciation; Adjusted free cash flow also excludes certain
other non-cash expenses that do not affect the Company's ability to service
debt.
The Company may make adjustments to GAAP net income, Adjusted EBITDA and
Adjusted free cash flow from time to time for certain other income and expenses
that it considers non-recurring, infrequent or unusual, such as the special
charges in the preceding calculation of earnings per diluted share excluding
special charges (Adjusted Diluted Earnings Per Share), even though such items
may require cash settlement, because such items do not reflect a necessary
component of the ongoing operations of the Company. Other companies may
calculate Adjusted Diluted Earnings Per Share, EBITDA, Adjusted EBITDA and
Adjusted free cash flow differently than the Company does, or adjust for other
items, and therefore comparability may be limited. EPS excluding special charges
(Adjusted Diluted Earnings Per Share), EBITDA, Adjusted EBITDA and Adjusted free
cash flow are not measures of performance under GAAP, and should not be
considered as an alternative to cash flows from operating activities or as a
measure of liquidity or an alternative to net income as indicators of the
Company's operating performance or any other measure of performance derived in
accordance with GAAP. This data should be read in conjunction with the Company's
consolidated financial statements and related notes included in its filings with
the Securities and Exchange Commission.
###