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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER: 1-13560
CORRECTIONS CORPORATION OF AMERICA
(Exact name of Registrant as specified in its charter)
TENNESSEE 62-1156308
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 BURTON HILLS BOULEVARD
NASHVILLE, TENNESSEE 37215
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(Address of principal executive offices) (Zip Code)
(615) 263-3000
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(Registrant's telephone number, including area code)
102 WOODMONT BLVD., SUITE 800, NASHVILLE, TN 37205
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(Former name, address and fiscal year if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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79,279,774
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(Outstanding shares of the issuer's common stock as of November 1, 1997.)
EXHIBIT INDEX ON PAGE 12
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CORRECTIONS CORPORATION OF AMERICA
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997 (Unaudited) and December 31, 1996 3
Consolidated Statements of Operations
Three months ended September 30, 1997 and 1996
(Unaudited) 4
Consolidated Statements of Operations
Nine months ended September 30, 1997 and 1996
(Unaudited) 5
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996
(Unaudited) 6-7
Notes to Consolidated Financial Statements
(Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
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PART I - FINANCIAL INFORMATION
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
----------- ------------
ASSETS (unaudited)
Current assets:
Cash, cash equivalents and restricted cash $ 134,197 $ 8,282
Accounts receivable, less allowance 82,433 100,551
Prepaid expenses 7,733 2,940
Deferred tax assets -- 1,026
Other 2,294 1,643
--------- ---------
Total current assets 226,657 114,442
--------- ---------
Restricted investments -- 587
Deferred tax assets 94 --
Other assets 36,020 29,405
Property and equipment, net 266,457 288,697
Notes receivable 22,519 22,859
Investment in direct financing leases 66,963 12,898
--------- ---------
$ 618,710 $ 468,888
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,635 $ 39,224
Accrued salaries and wages 7,714 5,487
Accrued property taxes 2,333 1,675
Deferred tax liabilities 696 --
Other accrued expenses 21,079 9,227
Current portion of long-term debt 45 8,281
--------- ---------
Total current liabilities 79,502 63,894
--------- ---------
Long-term debt, net of current portion 77,887 117,535
Deferred tax liabilities -- 4,717
Deferred gain on real estate transactions 131,813 --
Other long-term liabilities 247 990
--------- ---------
Total liabilities 289,449 187,136
--------- ---------
Shareholders' equity:
Common stock - $1 par value 80,150 75,029
Additional paid-in capital 178,038 165,317
Retained earnings 78,574 42,132
Treasury stock, at cost (7,501) (726)
--------- ---------
Total shareholders' equity 329,261 281,752
--------- ---------
$ 618,710 $ 468,888
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months ended
September 30
------------------
1997 1996
--------- -------
Revenues $ 127,069 $75,203
Expenses:
Operating 93,062 54,428
Leases 6,826 693
General and administrative 4,267 3,327
Depreciation and amortization 3,011 2,489
--------- -------
Total expenses 107,166 60,937
--------- -------
Operating income 19,903 14,266
Interest expense (income), net (1,625) 763
--------- -------
Income before income taxes 21,528 13,503
Provision for income taxes 7,863 5,043
--------- -------
Net income $ 13,665 $ 8,460
========= =======
Net income per share:
Primary $ .16 $ .10
========= =======
Fully diluted $ .15 $ .10
========= =======
Weighted average shares outstanding:
Primary 84,905 84,603
========= =======
Fully diluted 90,496 90,851
========= =======
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<CATION>
Nine months ended
September 30
-----------------------
1997 1996
------- --------
Revenues $ 325,931 $ 205,933
Expenses:
Operating 234,034 150,031
Leases 9,123 2,010
General and administrative 11,558 9,210
Depreciation and amortization 10,941 7,030
--------- ---------
Total expenses 265,656 168,281
--------- ---------
Operating income 60,275 37,652
Interest expense (income), net (273) 3,293
--------- ---------
Income before income taxes 60,548 34,359
Provision for income taxes 23,276 13,186
--------- ---------
Net income $ 37,272 $ 21,173
========= =========
Net income per share:
Primary $ .44 $ .26
========= =========
Fully diluted $ .42 $ .25
========= =========
Weighted average shares outstanding:
Primary 84,459 82,270
========= =========
Fully diluted 90,341 88,629
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine months ended
September 30
------------------
1997 196
---------- --------
Cash Flows from Operating Activities:
Net income $ 37,272 $21,173
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,941 7,029
Deferred and other noncash income taxes 2,153 9,742
Other noncash items 275 432
(Gain) loss on disposal of assets (1,244) 19
Equity in earnings of unconsolidated entities (616) (650)
Recognized gain on real estate transactions (2,591) --
Changes in assets and liabilities:
Accounts receivable 18,186 (19,222)
Prepaid expenses (4,793) (1,819)
Other current assets (651) (400)
Accounts payable 8,411 20,138
Accrued expenses 14,737 1,556
--------- -------
Net cash provided by operating activities 82,080 37,998
--------- -------
Cash Flows from Investing Activities:
(Increase) decrease in restricted and escrow cash 3,450 (2,496)
(Increase) decrease in restricted investments 587 (144)
Increase in other assets (13,310) (9,547)
Additions of property and equipment (224,887) (106,179)
Proceeds from disposals of assets 380,904 6,533
Increase in direct financing leases (55,850) (3,693)
Payments received on direct financing leases and notes
receivable 2,057 342
--------- -------
Net cash provided by (used in) investing activities 92,951 (115,184)
--------- -------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt -- 50,000
Payments on long-term debt (57,184) (19,300)
Proceeds from (payments on) line of credit, net 11,000 (15,146)
Payment of debt issuance costs (743) (743)
Payment of prepayment penalties (1,782) --
Issuance of common stock -- 138,750
Payments of stock issuance costs -- (6,939)
Proceeds from exercise of stock options and warrants 3,043 9,588
--------- -------
Net cash provided by (used in) financing activities (45,666) 156,210
--------- -------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine months ended
September 30
------------------------------
1997 1996
---------------------- --------------------
Net increase in cash 129,365 79,024
CASH AND CASH EQUIVALENTS, beginning of period 4,832 2,145
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 134,197 $ 81,169
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 10,197 $ 4,984
============ ===========
Income taxes $ 5,577 $ 2,978
============ ===========
Supplemental Schedule of Noncash Investing and Financing
Activities:
The Company acquired treasury stock and issued common
stock through the exercise of stock options:
Common stock 669 $ 1,026
Additional paid-in capital 4,573 2,400
Retained earnings (830) (3,129)
Treasury stock, at cost (4,412) (297)
============ ============
$ -- $ -
============ ============
Long-term debt was converted into common stock: $ 23 $ -
Other assets (1,700) -
Long-term debt 1,003 -
Common stock 674 -
Additional paid-in capital ------------ ------------
$ - $ -
============ ============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheets as of September 30, 1997 and December
31, 1996, the consolidated statements of operations and cash flows for
the nine month periods ended September 30, 1997 and 1996, and the
consolidated statement of operations for the quarters ended September
30, 1997 and 1996 have been prepared by the Company in accordance with
the accounting policies described in its 1996 Annual Report on Form
10-K and should be read in conjunction with the notes thereto.
In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows at September
30, 1997 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The results of
operations for the period ended September 30, 1997, are not necessarily
indicative of the operating results for the full year.
2. TRANSACTIONS WITH CCA PRISON REALTY TRUST
In July 1997, the Company sold ten of its facilities to CCA Prison
Realty Trust ("Prison Realty") for approximately $378,000,000 as
described in the Form 8-K filed on August 1, 1997. Simultaneously with
the sale of the facilities to Prison Realty, the Company entered into
agreements to lease the facilities from Prison Realty pursuant to
long-term, non-cancelable, triple net leases ("Leases") which require
the Company to pay all operating expenses, taxes, insurance and other
costs. As a result of the transactions the Company recorded a deferred
gain of $134,404,000 that will be recognized over the terms of the
leases.
3. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), has been issued effective for fiscal periods
ending after December 15, 1997. SFAS 128 establishes standards for
computing and presenting earnings per share. The Company is required to
adopt the provisions of SFAS 128 in the fourth quarter of 1997. Under
the standards established by SFAS 128, earnings per share is measured
at two levels: basic earnings per share and diluted earnings per share.
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the year.
Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares after considering the
additional dilution related to preferred stock, convertible debt,
options and warrants.
The following pro forma amounts represent the basic earnings per share
and diluted earnings per share as if the Company had adopted SFAS 128
for the quarters presented:
(Unaudited Pro Forma) (Unaudited Pro Forma)
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
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Basic earnings
per share $ .18 $ .11 $ .49 $ .30
============ ============= ============== =============
Diluted earnings
per share $ .15 $ .10 $ .42 $ .25
============ ============= ============== =============
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4. SUBSEQUENT EVENT
On October 1, 1997 the Company sold the Torrance County Detention
Facility, located in Estancia, New Mexico to Prison Realty for
$38,500,000. The Company will continue to operate the medium-security
detention facility under the terms of the ten year operating lease,
with terms substantially similar to those of the Leases. Annual first
year rent for the facility is expected to be approximately $4,200,000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this
report.
Management's Discussion and Analysis of Financial Condition and Results
of Operations includes certain forward-looking statements about the
Company's business, revenues, prospects, expenditures and operating and
capital requirements. In addition, forward-looking statements may be
included in various other Company documents to be issued in the future
and in various oral statements by Company representatives to securities
analysts and potential investors from time to time. Any such statements
are subject to risks that could cause the actual results to vary
materially. The risks and uncertainties associated with the
forward-looking information include the strength of the markets in
which the Company operates, competitive market conditions, general
economic growth, interest rates and capital market conditions.
Reference is hereby made to the more detailed discussion of such risks
in the Company's annual report on Form 10-K.
RESULTS OF OPERATIONS
REVENUES AND EXPENSES FROM OPERATIONS
Revenues for the third quarter and first nine months of 1997 increased
69% and 58%, respectively, over the comparable periods of 1996.
Management revenues increased $51,114,000 and $118,559,000 for the
third quarter and first nine months of 1997, respectively, as compared
to the same periods of 1996, while transportation revenues increased
$752,000 and $1,439,000, respectively, for the same relative time
periods. The increase in management revenues was due to compensated
mandays increasing by 54% and 46% for the third quarter and first nine
months of 1997, respectively, over the comparable periods of 1996.
During the third quarter of 1997, the Company opened two new facilities
representing 2,500 beds and expanded five facilities representing 1,959
beds. These beds were in addition to the 8,131 beds brought on line in
the first half of 1997 which resulted in the Company cumulatively
adding 12,590 beds through the first nine months of 1997.
Transportation revenues increased 28% and 18% for the third quarter and
first nine months of 1997, respectively, over the comparable periods of
1996, primarily as a result of an expanded customer base and increased
compensated mileage realized through the opening of two new
transportation hubs in the first quarter of 1997 and more "mass
transports," which are generally moves of 40 or more inmates per trip.
Operating expenses for the third quarter and first nine months of 1997
increased 71% and 56%, respectively, over the comparable periods of
1996. This increase was due to the increased compensated mandays and
compensated mileage that the Company realized in the third quarter and
first nine months of 1997 as previously mentioned. As a percentage of
revenues, operating expenses increased to 73% in the third quarter of
1997 as compared with 72% in the comparable period of 1996. The
Company's cost per compensated manday was $31.73 during the third
quarter of 1997 as compared to $27.84 in the comparable period of 1996.
This increase was primarily due to the Company having seven facilities
in the start-up phase of operation during the third quarter which
resulted in increased personnel costs including employee training and
overtime.
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The significant increase in lease expense was the result of the Leases
that the Company entered into with Prison Realty in July 1997 whereby,
the Company sold ten of its facilities to Prison Realty and
simultaneously entered into agreements to lease the facilities pursuant
to long-term leases. Annual first year rent for these ten facilities is
expected to be approximately $41,200,000. In the future, lease expense
is expected to increase as the Company enters into additional
sale/leaseback transactions with Prison Realty.
General and administrative expenses for the third quarter and first
nine months of 1997 increased 28% and 25% respectively, over the
comparable periods of 1996. However, as a percentage of revenues,
general and administrative expenses for the third quarter and first
nine months of 1997 declined to 3.4% and 3.5% as compared to 4.4% and
4.5% for the comparable periods of 1996. The Company expects that as it
continues to grow, general and administrative expenses will increase in
volume but continue to decrease as a percentage of revenues.
Depreciation and amortization for the third quarter and first nine
months of 1997 increased 21% and 56%, respectively, over the comparable
periods of 1996. The increases are due to the 59% growth in beds in
operation at the end of the third quarter of 1997 as compared to the
comparable period of 1996.
OTHER EXPENSES
Interest expense, net for the third quarter and first nine months of
1997 was actually interest income of $1,625,000 and $273,000
respectively. This change to interest income was primarily the result
of the sale of the ten facilities to Prison Realty for an aggregate
purchase price of approximately $378,000,000 which allowed the Company
to pay off approximately $183,000,000 in debt and benefit from interest
earnings on approximately $125,000,000 invested for a portion of the
third quarter.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's business is capital intensive in relation to the
development of a correctional facility. The Company's efforts to obtain
contracts, construct additional facilities and maintain its day-to-day
operations have required the continued acquisition of funds through
borrowings and equity offerings. The Company has financed these
activities through the sale of capital stock, subordinated convertible
notes and senior secured debt, through the issuance of taxable and
tax-exempt bonds, by bank borrowings, by assisting governmental
agencies in the issuance of municipal bonds and most recently through
the sale and leaseback of certain correctional facilities to Prison
Realty.
Cash flow from operations for the first nine months of 1997 was
$82,080,000 as compared to $37,998,000 in the comparable period in
1996. The Company has strengthened its cash flow through its expanded
business, additional focus on larger, more profitable facilities, the
expansion of existing facilities where economies of scale can be
realized, and the continuing effort of cost containment.
The Company has a revolving credit facility with a group of banks which
matures in September 1999. The credit facility provides for borrowings
of up to $170,000,000 for general corporate purposes and letters of
credit. The credit facility bears interest, at the election of the
Company, at either the bank's prime rate or a rate which is .5% above
the applicable 30, 60, or 90 day LIBOR rate. Interest is payable
quarterly with respect to prime rate loans and at the expiration of the
applicable LIBOR period with respect to LIBOR based loans. There are no
prepayment penalties associated with the credit facility. The credit
facility requires the Company, among other things, to maintain maximum
leverage ratios and a minimum debt service coverage ratio. The facility
also limits certain payments and distributions. As of September 30,
1997, there was $15,000,000 borrowed under this facility. Letters of
credit totaling $38,362,000 have been issued leaving the total unused
commitment at $116,638,000.
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The Company also has a $2,500,000 credit facility with a bank that
provides for the issuance of letters of credit and matures in September
1999. As of September 30, 1997 there were $1,615,000 in letters of
credit issued, leaving the unused commitment at $885,000.
In July 1997, the Company sold ten of its facilities to Prison Realty
for approximately $378,000,000. The proceeds were used to pay off
$131,000,000 of credit facility debt, $42,206,000 of first mortgage
debt and $9,442,000 of senior secured notes. The remaining proceeds
will be used to fund existing construction projects and for general
working capital purposes. Subsequent to the formation of Prison Realty,
the Company granted Prison Realty an option to acquire facilities that
it develops in the future. Management expects that as a result of this
relationship, the Company will have access to additional capital that
will help fund future growth.
The Company anticipates making cash investments in connection with
future acquisitions and expansions. In addition, in accordance with the
developing trend of private prison managers toward making strategic
financial investments in facilities, the Company plans to use a portion
of its cash to finance start-up costs, leasehold improvements and
equity investments in facilities, if appropriate in connection with
undertaking new contracts. The Company believes that the cash flow from
operations, the availability of future capital from Prison Realty and
amounts available under its credit facility will be sufficient to meet
its capital requirements for the foreseeable future. Furthermore,
management believes that additional resources may be available to the
Company through a variety of other financing methods.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
EXHIBIT INDEX
10.1 Lease Agreement between the Company and
CCA Prison Realty Trust with respect to the Torrance
County Detention Facility.
27 Financial Data Schedule. (For SEC use only)
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on
August 1, 1997, pursuant to Item 2 of such form, with
respect to the sale of 10 correctional and detention
facilities to CCA Prison Realty Trust. Certain
financial statements of the Company were incorporated
into the Form 8-K by reference to that certain
Prospectus filed with the Commission pursuant to Rule
424 (b)(1) of the Securities Act of 1933, as amended,
on July 15, 1997 (Commission File Nos. 33-25727 and
33-25727-01). The Company was deemed to be a
co-registrant with respect to the securities offered
thereby.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORRECTIONS CORPORATION OF AMERICA
(Registrant)
November 14, 1997 /s/ Darrell K. Massengale
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(Date) Darrell K. Massengale
Chief Financial Officer
Secretary, Treasurer
Principal Accounting Officer
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