1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------- ------------
COMMISSION FILE NUMBER: 0-25245
PRISON REALTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 62-1763875
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10 BURTON HILLS BLVD., SUITE 100, NASHVILLE, TENNESSEE 37215
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
(615) 263-0200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
none
(FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
(Outstanding shares of the issuer's common stock, $0.01 par value per share, as
of August 11, 1999)
118,168,443
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PRISON REALTY TRUST, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
INDEX
PAGE
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Consolidated Balance Sheets as of June 30, 1999
(Unaudited) and December 31, 1998......................................... 2
b) Condensed Consolidated Statements of Income (Unaudited) for
the three and six months ended June 30, 1999 and 1998..................... 4
c) Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1999 and 1998........................... 5
d) Notes to Condensed Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 18
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................................... 35
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 36
Item 2. Changes in Securities and Use of Proceeds................................. 37
Item 3. Defaults Upon Senior Securities........................................... 37
Item 4. Submission of Matters to a Vote of Security Holders....................... 37
Item 5. Other Information......................................................... 37
Item 6. Exhibits and Reports on Form 8-K.......................................... 38
SIGNATURE........................................................................... 39
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS.
PRISON REALTY TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (SEE NOTE 3)
JUNE 30, 1999 AND DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1999 1998
----------- ----------
(UNAUDITED)
ASSETS
Real estate properties, at cost:
Correctional and detention facilities $ 2,200,325 $ 637,640
Less accumulated depreciation (27,799) (10,251)
----------- ----------
Net real estate properties 2,172,526 627,389
Cash and cash equivalents 2,052 31,141
Restricted cash 38,870 --
Notes receivable 138,549 138,549
Investments in affiliates and others 129,975 127,691
Investments in direct financing leases 74,981 77,809
Deferred tax assets -- 51,200
Assets under lease arrangements, net 44,423 --
Receivable from New CCA 10,593 --
Other assets 41,607 36,658
----------- ----------
Total assets $ 2,653,576 $1,090,437
=========== ==========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
(Continued)
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PRISON REALTY TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (SEE NOTE 3)
JUNE 30, 1999 AND DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(CONTINUED)
JUNE 30, DECEMBER 31,
1999 1998
----------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Distributions payable $ 215,642 $ --
Bank credit facility 648,750 222,000
Notes payable 100,000 --
Convertible subordinated notes and other debt 70,796 77,833
Accounts payable and accrued expenses 99,373 81,200
Income taxes payable 5,746 14,966
Deferred gains on real estate transactions -- 125,751
Deferred gains on sales of contracts 110,996 116,701
Deferred tax liability 32,000 --
----------- ----------
Total liabilities 1,283,303 638,451
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; 4,300,000 and 0 outstanding 43 --
Common stock, $.01 par value; 300,000,000 shares
authorized, 118,166,000 and 79,956,000 shares issued
and outstanding 1,182 800
Additional paid-in capital 1,378,922 398,493
Retained earnings -- 52,693
Cumulative net income 121,018 --
Accumulated distributions (130,892) --
----------- ----------
Total stockholders' equity 1,370,273 451,986
----------- ----------
Total liabilities and stockholders' equity $ 2,653,576 $1,090,437
=========== ==========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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PRISON REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (SEE NOTE 3)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
--------- --------- --------- ---------
REVENUES:
Rental revenues $ 65,828 $ -- $ 129,468 $ --
Interest income 5,827 -- 12,041 --
Licensing fees 2,186 -- 4,318 --
Management and other revenues -- 164,071 -- 305,369
--------- --------- --------- ---------
73,841 164,071 145,827 305,369
--------- --------- --------- ---------
EXPENSES:
Depreciation and amortization 10,502 3,899 20,419 7,287
General and administrative 1,725 5,510 2,607 10,463
Operating -- 114,623 -- 214,342
Lease -- 13,841 -- 24,936
--------- --------- --------- ---------
12,227 137,873 23,026 257,028
--------- --------- --------- ---------
OPERATING INCOME 61,614 26,198 122,801 48,341
Equity in earnings of subsidiaries and amortization
of deferred gains 7,476 -- 15,157 --
Interest expense (7,036) (1,785) (15,309) (3,276)
Interest income -- 4,205 -- 8,487
Loss on disposition of property (1,631) -- (1,631) --
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 60,423 28,618 121,018 53,552
Provision for change in tax status -- -- 83,200 --
Provision for income taxes -- 7,530 -- 14,021
--------- --------- --------- ---------
NET INCOME 60,423 21,088 37,818 39,531
DIVIDENDS TO PREFERRED SHAREHOLDERS (2,150) -- (4,300) --
--------- --------- --------- ---------
NET INCOME AVAILABLE FOR COMMON
SHARES $ 58,273 $ 21,088 $ 33,518 $ 39,531
========= ========= ========= =========
NET INCOME AVAILABLE PER COMMON
SHARE:
BASIC $ 0.50 $ 0.30 $ 0.30 $ 0.57
========= ========= ========= =========
DILUTED $ 0.50 $ 0.27 $ 0.30 $ 0.50
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, BASIC 116,421 70,312 111,871 69,934
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, DILUTED 117,763 78,806 112,687 78,971
========= ========= ========= =========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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PRISON REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (SEE NOTE 3)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED AND AMOUNTS IN THOUSANDS)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
----------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 37,818 $ 39,531
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 20,419 7,287
Provision for change in tax status 83,200 --
Deferred and other noncash income taxes -- 1,818
Other noncash items 536 243
Loss on disposition of property 1,631 2
Equity in earnings of unconsolidated entities (9,819) (544)
Recognized gain on sales of contracts (5,338) --
Recognized gain on real estate transactions -- (5,070)
Changes in assets and liabilities, net
Accounts receivable (1,412) (24,253)
Prepaid expenses (120) (2,367)
Other current assets (9,285) (622)
Accounts payable (9,304) 31,248
Income taxes payable (9,220) (10,253)
Accrued expenses and other liabilities 5,460 1,705
----------- --------
Net cash provided by operating activities 104,566 38,725
----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment (351,032) (189,225)
Increase in restricted cash and investments (21,682) --
Cash acquired in purchase of CCA Prison Realty Trust 21,894 --
Payments under lease arrangements (44,959) --
Increase in other assets (400) (12,414)
Proceeds from disposal of assets -- 36,132
Acquisition of USCC subsidiaries, net of cash acquired -- (9,341)
Payments from investment in affiliates, net 7,535 (157)
Payments received on direct financing leases and notes receivable 2,827 2,627
----------- --------
Net cash used in investing activities (385,817) (172,378)
----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 40,000 --
Payments on long-term debt (1,286) (22)
Proceeds from line of credit, net 148,400 140,000
Proceeds from issuance of senior notes 100,000 --
Payment of debt issuance costs (12,290) (2,925)
Proceeds from issuance of common stock 119,672 --
Distributions paid on common shares (138,075) --
Distributions paid on preferred shares (4,300) --
Proceeds from exercise of stock options and warrants 41 1,508
Purchase of treasury stock -- (7,600)
----------- --------
Net cash provided by financing activities 252,162 130,961
----------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (29,089) (2,692)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 31,141 136,147
----------- --------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 2,052 $133,455
=========== ========
(CONTINUED)
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PRISON REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (SEE NOTE 3)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED AND AMOUNTS IN THOUSANDS)
(CONTINUED)
1999 1998
----------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of capitalized amounts) $ 984 $ 2,921
=========== ========
Income taxes $ 9,220 $ 22,231
=========== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES-
INCREASES (DECREASES) TO CASH:
Long-term debt was converted into common stock:
Other assets $ 1,161 $ 5
Long-term debt (47,000) (1,400)
Common stock 50 51
Additional paid-in capital 45,789 32
Treasury stock -- 32,812
Retained earnings -- (31,500)
----------- --------
$ -- $ --
=========== ========
The Company acquired treasury stock and issued common stock
through the exercise of stock options:
Common stock $ -- $ 398
Additional paid-in capital -- 3,331
Retained earnings -- (114)
Treasury stock, at cost -- (3,615)
----------- --------
$ -- $ --
=========== ========
The Company converted a facility from investment in direct
financing lease to property and equipment by acquiring the
equity in the facility from the leasing entity:
Accounts receivable $ -- $ 3,500
Property and equipment -- (16,207)
Investment in direct financing leases -- 12,707
----------- --------
$ -- $ --
=========== ========
The Company acquired CCA Prison Realty Trust's assets and
liabilities for stock:
Restricted cash $ (17,188) $ --
Property and equipment (1,323,100) --
Other assets (9,496) --
Accounts payable and accrued expenses 29,248 --
Line of credit 279,600 --
Distributions payable 2,150 --
Common stock 253 --
Preferred stock 43 --
Additional paid-in capital 1,081,161 --
Retained earnings 43,817 --
Accumulated distributions -- --
(64,594) --
----------- --------
Net cash acquired $ 21,894 $ --
=========== ========
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. ORGANIZATION AND OPERATIONS
BACKGROUND AND FORMATION TRANSACTIONS
Prison Realty Trust, Inc., formerly Prison Realty Corporation, a Maryland
corporation (the "Company"), was formed in September 1998. Corrections
Corporation of America, a Tennessee corporation ("Old CCA"), and CCA Prison
Realty Trust, a Maryland real estate investment trust ("Prison Realty"), merged
with and into the Company on December 31, 1998 and January 1, 1999, respectively
(collectively, the "Merger"), pursuant to an Amended and Restated Agreement and
Plan of Merger by and among Old CCA, Prison Realty and the Company, dated as of
September 29, 1998. Reference is made to the "Notes to the Condensed
Consolidated Financial Statements" for the Company included in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, filed with
the Commission on May 14, 1999 (File no. 0-25245), with respect to certain
Merger transactions and contractual relationships as well as other pertinent
information of the Company.
The Merger has been accounted for as a reverse acquisition of the Company by Old
CCA and the acquisition of Prison Realty by the Company. As such, Old CCA's
assets and liabilities have been carried forward at historical cost and the
provisions of reverse acquisition accounting prescribe that Old CCA's historical
financial statements be presented as the Company's historical financial
statements. The historical equity sections of the financial statements and
earnings per share have been retroactively restated to reflect the Company's
equity structure including the exchange ratio and the effects of the differences
in par values of the respective companies' common stock. Prison Realty's assets
and liabilities have been recorded at fair market value, as required by
Accounting Principles Board Opinion No. 16.
OPERATIONS
Prior to the Merger, Old CCA operated and managed prisons and other correctional
and detention facilities and provided prisoner transportation services for
governmental agencies. Old CCA also provided a full range of related services to
governmental agencies, including managing, financing, developing, designing and
constructing new correctional and detention facilities and redesigning and
renovating older facilities. Subsequent to the Merger, the Company specializes
in acquiring, developing and owning correctional and detention facilities. The
Company intends to operate so as to qualify as a real estate investment trust,
or REIT, for federal income tax purposes and intends to elect to qualify as a
REIT commencing with its taxable year ending December 31, 1999.
The Company's results of operations for all periods prior to January 1, 1999
reflect the operating results of Old CCA and the results of operations
subsequent to January 1, 1999 reflect the operating results of the Company as a
REIT. The accompanying unaudited condensed consolidated financial statements
compare the operating results of the Company for the three and six months ended
June 30, 1999 to the three and six months ended June 30, 1998. Management
believes the comparison between 1999 and 1998 is not meaningful because the 1998
results reflect the operations of Old CCA and the 1999 results of operations
reflect the operating results of the Company as a REIT.
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PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
The following unaudited pro forma operating information presents a summary of
comparable consolidated results of combined operations as a REIT of the Company
and Prison Realty for the six months ended June 30, 1998, as if the Merger had
occurred as of January 1, 1998 and excluding the effect of any provision for the
change in tax status. The unaudited pro forma operating information is presented
for comparison purposes only and does not purport to represent what the
Company's results of operations actually would have been had the Merger, in
fact, occurred on January 1, 1998.
PRO FORMA
SIX MONTHS ENDED
JUNE 30, 1998
-------------
(amounts in thousands, except per share amounts)
Revenues $103,872
Operating income 84,389
Net income available to common shareholders 80,735
Net income per common share:
Basic $ 0.88
Diluted 0.80
2. MERGER TRANSACTIONS AND RELATED CONTRACTUAL RELATIONSHIPS
On December 31, 1998, immediately prior to the Merger, Old CCA sold to
Corrections Corporation of America, formerly Correctional Management Services
Corporation, a privately-held Tennessee corporation formed in connection with
the Merger ("New CCA"), all of the issued and outstanding capital stock of
certain wholly-owned corporate subsidiaries of Old CCA, certain management
contracts and certain other assets and liabilities, and entered into a trade
name use agreement as described below. In exchange, Old CCA received an
installment note in the principal amount of $137.0 million (the "CCA Note") and
100% of the non-voting common stock of New CCA, representing a 9.5% economic
interest in New CCA valued at the implied fair market value of $4.8 million. The
CCA Note has a term of 10 years and bears interest at a rate of 12% per annum.
Interest only is generally payable for the first four years of the CCA Note, and
the principal will be amortized over the following six years. The sale to New
CCA generated a deferred gain of $62.2 million.
On December 31, 1998, immediately prior to the Merger and in connection with the
Merger, Old CCA sold to Prison Management Services, LLC, ("PMS") and Juvenile
and Jail Facility Management Services, LLC ("JJFMS"), two privately-held
Delaware limited liability companies formed in connection with the Merger,
certain management contracts and certain other assets and liabilities relating
to government-owned adult prison facilities and government-owned jails and
juvenile facilities managed by Old CCA. In exchange, Old CCA received 100% of
the non-voting membership interests in PMS and JJFMS which obligate PMS and
JJFMS to make distributions to Old CCA equal to 95% of each companies' net
income, as defined, and are valued at the combined implied fair market value of
$123.0 million. The Company succeeded to these interests as a result of the
Merger, and the Company's interests in PMS and JJFMS are included in
"Investments in affiliates and others" in the accompanying balance sheet. The
sales to PMS and JJFMS generated a combined deferred gain of $53.4 million. On
January 1, 1999, PMS merged with Prison Management Services, Inc., a
privately-held Tennessee corporation ("Service Company A") and JJFMS merged with
Juvenile and Jail Facility Management Services, Inc., a
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PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
privately-held Tennessee corporation ("Service Company B," and collectively with
Service Company A, the "Service Companies").
The deferred gains from the sales of contracts to New CCA and the Service
Companies will be amortized into income over multi-year periods as specified by
the Securities and Exchange Commission's Staff Accounting Bulletin No. 81. The
Company's investments in the Service Companies are being accounted for under the
equity method of accounting. The Company's investment in New CCA is being
accounted for under the cost method of accounting.
Under a trade name use agreement with New CCA resulting from the Merger (the
"Trade Name Use Agreement"), New CCA pays a licensing fee to the Company for the
right to use the name "Corrections Corporation of America" and derivatives
thereof.
On January 1, 1999, immediately after the Merger, all existing leases between
Old CCA and Prison Realty were cancelled and the Company entered into a master
lease agreement and leases with respect to each leased property with New CCA
(the "New CCA Leases"). The terms of the New CCA Leases are twelve years which
may be extended at fair market rates for three additional five-year periods upon
the mutual agreement of the Company and New CCA.
On January 1, 1999, immediately after the Merger, the Company entered into a
services agreement (the "Services Agreement") with New CCA pursuant to which New
CCA agreed to serve as a facilitator of the construction and development of
additional facilities on behalf of the Company for a term of five years from the
date of the Services Agreement. In such capacity, New CCA will perform, at the
direction of the Company, such services as are customarily needed in the
construction and development of correctional and detention facilities, including
services related to construction of the facilities, project bidding, project
design, and governmental relations. In consideration for the performance of such
services by New CCA, the Company agreed to pay a fee equal to 5% of the total
capital expenditures (excluding the incentive fee discussed below and the 5% fee
referred to herein) incurred in connection with the construction and development
of a facility, plus an amount equal to approximately $560 per bed for facility
preparation services provided by New CCA prior to the date on which inmates are
first received at such facility. The Board of Directors of the Company has
authorized payments up to an additional 5% of the total capital expenditures (as
determined above) to New CCA if additional services are requested by the
Company. A majority of the Company's current development projects are subject to
a fee totaling 10%.
On January 1, 1999, immediately after the Merger, the Company entered into a
tenant incentive agreement (the "Tenant Incentive Agreement") with New CCA
pursuant to which the Company agreed to pay to New CCA an incentive fee to
induce New CCA to enter into New CCA Leases with respect to those facilities
developed and facilitated by New CCA. The amount of the incentive fee was set at
$840 per bed for each facility leased by New CCA for which New CCA served as
developer and facilitator. This $840 per bed incentive fee, however, did not
include an allowance for rental payments to be paid by New CCA. Therefore, on
May 4, 1999, the Company and New CCA entered into an amended and restated tenant
incentive agreement (the "Amended and Restated Tenant Incentive Agreement"),
effective as of January 1, 1999, providing for (i) a tenant incentive fee of up
to $4,000 per bed payable with respect to all future facilities developed and
facilitated by New CCA, as well as certain other facilities which, although
operational on January 1, 1999, had not achieved full occupancy, and (ii) an
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PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
$840 per bed allowance for all beds in operation at the beginning of January
1999, approximately 21,500 beds, that were not subject to the tenant allowance
in the first quarter of 1999. The amount of the amended tenant incentive fee
includes an allowance for rental payments to be paid by New CCA prior to the
facility reaching stabilized occupancy. The term of the Amended and Restated
Tenant Incentive Agreement is four years unless extended upon the written
agreement of the Company and New CCA. The incentive fees with New CCA are being
deferred and amortized as a reduction to rental revenues over the respective
lease term.
Effective January 1, 1999, the Company entered into a four year business
development agreement (the "Business Development Agreement") with New CCA which
provides that New CCA will perform, at the direction of the Company, services
designed to assist the Company in identifying and obtaining new business.
Pursuant to the agreement, the Company has agreed to pay to New CCA a total fee
equal to 4.5% of the total capital expenditures (excluding the amount of the
tenant incentive fee and the services fee discussed above as well as the 4.5%
fee referred to herein) incurred in connection with the construction and
development of each new facility, or the construction and development of an
addition to an existing facility, for which New CCA performed business
development services.
3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company include all the accounts of
the Company and its subsidiaries subsequent to the Merger, including Prison
Realty Management, Inc., a Tennessee corporation and wholly-owned management
subsidiary. All significant intercompany balances and transactions have been
eliminated.
The accompanying interim consolidated financial statements are unaudited. The
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in conjunction with
the rules and regulations of the United States Securities and Exchange
Commission (the "Commission"). Accordingly, they do not include all of the
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring matters) necessary for a fair presentation of the
financial statements for this interim period have been included. The results of
operations for the interim period are not necessarily indicative of the results
to be obtained for the full fiscal year. Reference is made to the audited
financial statements of the Company included in the Company's Annual Report on
Form 10-K for the fiscal year ending December 31, 1998, filed with the
Commission on March 30, 1999 (File no. 0-25245), with respect to certain
significant accounting and financial reporting policies as well as other
pertinent information of the Company. Since prior to the Merger Prison Realty
had operated so as to qualify as a REIT, the Company has adopted certain
significant accounting policies of Prison Realty. Reference is made to the
audited financial statements of Prison Realty included in Prison Realty's Annual
Report on Form 10-K for the fiscal year ending December 31, 1998, filed with the
Commission on March 30, 1999 (File no. 1-13049), with respect to certain
significant accounting and financial reporting policies as well as other
pertinent information of Prison Realty.
10
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PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
4. REAL ESTATE PROPERTIES
As discussed previously, pursuant to the Merger, the Company acquired all of the
assets and liabilities of Prison Realty on January 1, 1999, including 23 leased
facilities and one real estate property under construction. The real estate
properties acquired by the Company in conjunction with the acquisition of Prison
Realty have been recorded at estimated fair market value in accordance with the
purchase method of accounting prescribed by Accounting Principles Board Opinion
No. 16.
At June 30, 1999, the Company owned 51 correctional and detention facilities, of
which 39 facilities were operating, nine were under construction or expansion
and three were in the planning stages, with a total aggregate cost of $2.2
billion. At June 30, 1999, New CCA leased 31 facilities from the Company,
governmental agencies leased five facilities from the Company, and private
operators leased three facilities from the Company. The Company expects to lease
11 of the facilities under development to New CCA.
In April 1999, the Company purchased the Eden Detention Center in Eden, Texas
for $28.0 million. The facility has a design capacity of 1,225 beds and is
managed by New CCA and leased to New CCA under lease terms substantially similar
to the New CCA leases.
5. LONG TERM DEBT
On January 1, 1999, in connection with the completion of the Merger, the Company
obtained a $650.0 million, secured credit facility (the "Credit Facility") from
NationsBank, N.A., as Administrative Agent and several U.S. and non-U.S. banks.
The Credit Facility includes up to a maximum of $250.0 million in tranche B term
loans and $400.0 million in revolving loans, including a $150.0 million
subfacility for letters of credit. The term loans require principal quarterly
payments of $625,000 throughout the term of the loan with the remaining balance
maturing on January 1, 2003 and the revolving loans maturing on January 1, 2002.
Interest rates, unused commitment fees, and letter of credit fees on the Credit
Facility are subject to change based on the Company's senior debt rating. The
Credit Facility is secured by mortgages on the Company's real property. At June
30, 1999, the weighted average borrowing rate under the Credit Facility was
7.89% and the outstanding borrowings thereunder were $648.8 million.
On August 4, 1999, the Company completed an amendment and restatement of the
Credit Facility (the "Amended Credit Facility") increasing amounts available to
the Company under the original Credit Facility to $1.0 billion through the
addition of $350.0 million tranche C term loans. The tranche C term loans will
be payable in equal quarterly installments in the amount of $875,000 through the
calendar quarter ending September 30, 2002 with the balance to be paid in full
on December 31, 2002. Under the Amended Credit Facility, Lehman Commercial
Paper, Inc. ("LCPI") replaced NationsBank, N.A., as Administrative Agent.
The Amended Credit Facility, similar to the Credit Facility, provides for
interest rates, unused commitment fees, and letter of credit fees to change
based on the Company's senior debt rating. As with the Credit Facility, the
Amended Credit Facility bears interest at variable rates of interest based on a
spread over the base rate or LIBOR (as elected by the Company), which spread is
determined by reference to the Company's credit rating. The revised spread
ranges from 0.50% to 2.25% for base rate loans and from 2.00% to 3.75% for LIBOR
rate loans. These ranges replace the original spread ranges of
11
13
PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
0.25% to 1.25% for base rate loans and 1.375% to 2.75% for LIBOR rate loans. The
term loan portions of the Amended Credit Facility bear interest at a variable
base rate equal to 4.0% in excess of LIBOR. This revised rate replaces the
variable base rate equal to 3.25% in excess of LIBOR in the Credit Facility.
The Amended Credit Facility, similar to the Credit Facility, is secured by
mortgages on the Company's real property. Borrowings are limited based on a
revised borrowing base formula which considers, among other things, eligible
real estate. The Amended Credit Facility contains certain revised financial
covenants, primarily: (a) maintenance of leverage, interest coverage, debt
service coverage and total indebtedness ratios, and (b) restrictions on the
incurrence of additional indebtedness. The Amended Credit Facility restricts the
Company's ability to make the 1999 cash payment of the Special Dividend (as
herein defined) unless (a) the Company has liquidity of at least $75.0 million
at the dividend declaration date and (b) the Company receives at least $100.0
million in cash proceeds for the issuance of equity or similar securities from a
new investor receiving representation on the Company's Board of Directors and
(c) New CCA receives at least $25.0 million in cash proceeds from the issuance
of any combination of equity securities and subordinated debt. The Company may,
however, pay up to $31.0 million in cash if only (a) and (c) above are achieved.
The Company was in compliance with all covenants under the Credit Facility
through August 4, 1999 and currently, is in compliance with all covenants under
the Amended Credit Facility. The Company expects to incur expenses of
approximately $40 million related to this amendment and restatement.
On June 11, 1999 the Company completed its offering of $100.0 million aggregate
principal amount of 12% Senior Notes due 2006 (the "Notes"). Interest on the
Notes will be paid semi-annually in arrears and the Notes have a seven year
non-callable term due June 1, 2006. Net proceeds from the offering were
approximately $95 million after deducting expenses payable by Prison Realty in
connection with the offering. The Company used the net proceeds from the sale of
the Notes for general corporate purposes and to repay revolving bank borrowings
under its Credit Facility.
On January 29, 1999, the Company issued $20.0 million of convertible
subordinated notes due in 2009 with interest payable semi-annually at 9.5%. The
notes are convertible into shares of the Company's common stock at a conversion
price of $28.00 per share. This issuance constituted the second tranche of a
commitment by the Company to issue an aggregate of $40.0 million of convertible
subordinated notes, with the first $20.0 million tranche issued in December,
1998 under substantially similar terms.
On March 8, 1999, the Company issued a $20.0 million convertible subordinated
note to Sodexho Alliance, S.A. ("Sodexho") pursuant to a forward contract
assumed by the Company from Old CCA in the Merger. The note bore interest at
LIBOR plus 1.35% and was convertible into shares of the Company's common stock
at a conversion price of $7.80 per share. On March 8, 1999, Sodexho converted
(i) $7.0 million of convertible subordinated notes bearing interest at 8.5% into
1.7 million shares of the Company's common stock at a conversion price of $4.09
per share, (ii) $20.0 million of convertible notes bearing interest at 7.5% into
700,000 shares of the Company's common stock at a conversion price of $28.53 and
(iii) $20.0 million of convertible subordinated notes bearing interest at LIBOR
plus 1.35% into 2.6 million shares of the Company's common stock at a conversion
price of $7.80 per share.
The $30.0 million of 7.5% convertible subordinated notes issued to PMI Mezzanine
Fund L.P. in connection with the Merger require that the Company revise the
conversion price as a result of the payment of a dividend or the issuance of
stock or convertible securities below market price. As of June
12
14
PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
30, 1999, the conversion price for the notes was $24.79 as compared to $27.42 at
issuance. This change in conversion price resulted from dividends paid by the
Company in 1999 and from the conversion of the Sodexho convertible subordinated
note on March 8, 1999 into 1.7 million shares of common stock at a conversion
price of $4.09 per share and 2.6 million shares of common stock at a conversion
price of $7.80 per share.
6. DISTRIBUTIONS TO STOCKHOLDERS
On March 4, 1999, the Company's Board of Directors declared a distribution of
$0.60 per share on the Company's common stock, comprised of a regular quarterly
dividend of $0.55 per share and a special dividend of $0.05 per share for the
quarter ended March 31, 1999, to common stockholders of record on March 19,
1999, payable on March 31, 1999. These distributions were paid on March 31,
1999. In addition, the Board of Directors declared a quarterly dividend on the
Company's 8.0% Series A Cumulative Preferred Stock of $0.50 per share to
preferred stockholders of record on March 31, 1999, payable on April 15, 1999.
These dividends were paid on April 15, 1999.
On May 11, 1999, the Company's Board of Directors declared a distribution of
$0.60 per share on the Company's common stock, comprised of a regular quarterly
dividend of $0.55 per share and a special dividend of $0.05 per share for the
quarter ended June 30, 1999, to common stockholders of record on June 18, 1999,
payable on June 30, 1999. These distributions were paid on June 30, 1999. In
addition, the Board of Directors declared a quarterly dividend on the Company's
8.0% Series A Cumulative Preferred Stock of $0.50 per share to preferred
stockholders of record on June 30, 1999, payable on July 15, 1999. These
dividends were paid on July 15, 1999.
The Company, as a REIT, cannot complete any taxable year with accumulated
earnings and profits from a taxable corporation. Accordingly, to preserve its
REIT status, the Company will distribute Old CCA's accumulated earnings and
profits to which it succeeded in the Merger (the "Special Dividend"). The
Company anticipates that it will make this distribution to all holders of shares
of its common stock in December 1999. This total distribution is estimated at
$225.0 million and has been accrued on the Company's balance sheet at June 30,
1999 net of a two quarterly prepayments totaling $11.5 million. These
prepayments represent $0.05 per share paid out in March 1999 and $0.05 per share
paid out in June 1999. At the time of payment, the Company intends to allocate
any overage between the Company's regular quarterly dividends paid and an amount
equal to 95% of the Company's taxable net income toward the payment of the
Special Dividend. Certain provisions of the Amended Credit Facility restrict the
Company's ability to make the 1999 cash payment of the Special Dividend in cash,
as described in Note 5, "Long Term Debt."
7. CONTINGENCIES
Since May 26, 1999, fifteen complaints have been filed in federal court in the
United States District Court for the Middle District of Tennessee, Nashville
Division, alleging securities fraud in connection with the agreements entered
into by the Company in May of this year to increase the tenant incentive and
other payments from the Company to New CCA, the Company's primary tenant. A
complaint substantially identical to the majority of those filed in federal
court in Tennessee has been filed in the United States District Court for the
Eastern District of New York. The Company believes it is likely that the
complaint filed in the United States District Court for the Eastern District of
New York will be transferred to the United States District Court for the Middle
13
15
PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
District of Tennessee and that all of the complaints will be consolidated into
one action. Additionally, a purported shareholders derivative complaint was
filed in the Chancery Court for Davidson County, Tennessee in Nashville against
the Company and the members of its board of directors regarding the increased
payments to New CCA. The Company is investigating the allegations in the
complaints, and although their outcome is not determinable, the Company intends
to defend these actions vigorously.
8. EARNINGS PER SHARE
SFAS 128, "Earnings per Share," 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 adopted the provisions of SFAS 128 in
the fourth quarter of 1997. Under the standards established by SFAS 128,
earnings per share are measured at two levels: basic earnings per share and
diluted earnings per share. Basic earnings per share for the Company was
computed by dividing net income by the weighted average number of common shares
outstanding during the period. Diluted earnings per share was computed by
dividing net income (as adjusted) by the weighted average number of common
shares after considering the additional dilution related to convertible
preferred stock, convertible subordinated notes, options and warrants. For the
three and six months ended June 30, 1999, earnings per share for basic and
diluted were the same, respectively.
9. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", effective for fiscal years beginning after
December 15, 1998. SFAS No. 130 requires that changes in the amounts of certain
items, including gains and losses on certain securities, be shown in the
Financial Statements. The Company adopted the provisions of SFAS No. 130 on
January 1, 1998. The Company's comprehensive income is equivalent to net income
for the six months ended June 30, 1999.
10. RELATIONSHIP WITH CORRECTIONS CORPORATION OF AMERICA
New CCA is a private prison management company which operates and manages the
substantial majority of facilities owned by the Company. As a result of the
Merger and certain contractual relationships existing between the Company and
New CCA, the Company has significant sources of income from New CCA. In
addition, the Company pays New CCA for services rendered to the Company in the
development of its correctional and detention facilities. As of June 30, 1999,
New CCA leased 31 of the 39 operating facilities owned by the Company.
INCOME
For the three and six months ended June 30, 1999, the Company recognized rental
revenue from New CCA of $63.2 million and $124.0 million, respectively.
For the three months and six months ended June 30, 1999, the Company recognized
interest income of $4.1 million and $8.2 million, respectively, on the CCA Note
in the principal amount of $137.0 million from New CCA. The interest is due from
New CCA by December 31, 1999.
14
16
PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
The Company also recognized $2.2 million and $4.3 million in licensing fee
revenues from New CCA for the use of the name "Corrections Corporation of
America" for the three and six months ended June 30, 1999, respectively.
TENANT INCENTIVE AGREEMENT
The Amended and Restated Tenant Incentive Agreement between the Company and New
CCA allows for Company payment of tenant incentive fees to induce New CCA to
enter into New CCA Leases with respect to those facilities developed and
facilitated by New CCA. The amount of the amended tenant incentive fee includes
an allowance for rental payments to be paid by New CCA prior to the facility
reaching stabilized occupancy. Pursuant to the Amended and Restated Tenant
Incentive Agreement the Company pays (i) a tenant incentive fee of up to $4,000
per bed payable with respect to all future facilities developed and facilitated
by New CCA, as well as certain other facilities which, although operational on
January 1, 1999, had not achieved full occupancy, and (ii) an $840 per bed
allowance for all beds in operation at the beginning of January 1999,
approximately 21,500 beds, that were not subject to the tenant allowance in the
first quarter of 1999. For the six months ended June 1999, the Company had paid
tenant incentive fees of $45.0 million of which $18.1 million related to the
$840 per bed allowance on the aforementioned 21,500 beds. These fees are being
amortized against rental revenues over the life of the leases. The amount of
unamortized incentives pursuant to the Amended and Restated Tenant Incentive
Agreement, as of June 30, 1999 is $44.4 million.
PAYMENT FOR SERVICES
The Company has entered into the Business Development Agreement and the Services
Agreement with New CCA, which provide for the Company to pay fees to New CCA for
services rendered to the Company for obtaining new construction projects (4.5%
of expected project expenditures) and facilitating the construction and
development of facilities (up to 10% of actual construction expenditures) and
facility preparation services ($560 per new bed) provided by New CCA prior to
the date on which inmates are first received at such facility. Costs incurred by
the Company under these construction and development agreements are capitalized
as part of the facilities' development cost. For the three and six months ended
June 30, 1999, costs incurred related to the Business Development Agreement were
$3.3 million and $11.9 million, respectively. Costs incurred related to the
Services Agreement for the three and six months ended June 30, 1999 were $14.4
million and $26.5 million, respectively.
15
17
PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
NEW CCA FINANCIAL INFORMATION
The following summarized unaudited operating information presents New CCA's
results of operations for the three and six months ended June 30, 1999:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
(AMOUNTS IN THOUSANDS)
Revenues $ 127,617 $ 244,109
Net loss (22,492) (48,134)
The following summarized unaudited balance sheet information presents New CCA's
financial position as of June 30, 1999:
JUNE 30, 1999
-------------
(AMOUNTS IN THOUSANDS)
Current assets $ 94,955
Total assets 224,995
Current liabilities 49,910
Deferred credits 64,479
Total liabilities 251,389
Stockholders' equity (26,394)
The following summary presents New CCA's cash flows for the six months ended
June 30, 1999:
SIX MONTHS ENDED
JUNE 30, 1998
-------------
(AMOUNTS IN THOUSANDS)
Cash flows provided by operating activities $ 3,091
Cash flows used in investing activities (1,256)
Cash flows used in financing activities (6,125)
-------
Net decrease in cash for the six months ended June 30, 1999 $(4,290)
=======
New CCA has utilized cash from equity issuances and from payments from the
Company for tenant incentive arrangements and services provided to the Company
to offset its operating losses. New CCA expects to continue to use these sources
of cash and its availability under a line of credit to offset its anticipated
losses from operations. Cash used in investing activities consists of equipment
additions. Cash used in financing activities consists of line of credit issuance
fee.
The Company has included additional financial information of New CCA for the six
months ended June 30, 1999 herein under "Results of Operations" contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
16
18
PRISON REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(CONTINUED)
The following unaudited operating information presents a combined summary of the
Service Companies' results of operations for the three and six months ended June
30, 1999:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
(AMOUNTS IN THOUSANDS)
Revenues $70,596 $139,678
Net income 5,059 10,335
The following unaudited balance sheet information presents a combined summary of
the Service Companies' financial position as of June 30, 1999:
JUNE 30, 1999
-------------
(AMOUNTS IN THOUSANDS)
Current assets $ 60,197
Total assets 156,345
Current liabilities 31,016
Total liabilities 32,586
Stockholders' equity 123,759
Total dividends accrued 7,381
Company share of dividends accrued 7,381
17
19
PRISON REALTY TRUST, INC.
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.
This Quarterly Report on Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements reflect the Company's current views
with respect to future events and financial performance, and these statements
can be identified, without limitations, by the use of the words "anticipates,"
"believes", "estimates", "expects", "intends", "plans", "projects" and similar
expressions. Forward-looking statements are subject to risks, uncertainties and
other factors that may cause actual results or outcomes to differ materially
from future outcomes expressed or implied by the forward-looking statement. Such
factors include, but are not limited to, risks associated with the corrections
and detention industry, competitive market conditions, strength of the real
estate markets in which the Company operates and general economic conditions.
The Company disclosed such risks in detail in its Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, filed with the Commission on March 30,
1999 (File No. 0-25245). Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events.
OVERVIEW.
Reference is made to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for the Company included in the Company's
Quarterly Report on Form 10-Q for the quarter ending March 31, 1999, filed with
the Commission on May 14, 1999 (File no. 0-25245), with respect to certain
Merger transactions and contractual relationships as well as other pertinent
information of the Company.
The Company was formed in September 1998 and commenced operations on January 1,
1999 after completion of the Merger. On December 31, 1998, immediately prior to
the Merger, and in connection with the Merger, Old CCA sold to New CCA all of
the issued and outstanding capital stock of certain wholly-owned corporate
subsidiaries of Old CCA, certain management contracts and certain other assets
and liabilities, and entered into the Trade Name Use Agreement, as described
below. In exchange, Old CCA received an installment note in the principal amount
of $137.0 million (the "CCA Note") and 100% of the non-voting common stock of
New CCA, representing a 9.5% economic interest. The CCA Note has a term of 10
years and bears interest at a rate of 12% per annum.
On December 31, 1998, immediately prior to the Merger and in connection with the
Merger, Old CCA sold to Prison Management Services, LLC, ("PMS") and Juvenile
and Jail Facility Management Services, LLC ("JJFMS"), two privately-held
Delaware limited liability companies formed in connection with the Merger,
certain management contracts and certain other assets and liabilities relating
to government-owned adult prison facilities and government-owned jails and
juvenile facilities managed by Old CCA. In exchange, Old CCA received 100% of
the non-voting membership interests in PMS and JJFMS which obligate PMS and
JJFMS to make distributions to Old CCA equal to 95% of each companies' net
income, as defined, and are valued at the combined implied fair market value of
$123.0 million. The Company succeeded to these interests as a result of the
Merger, and the Company's interests in PMS and JJFMS are included in
"Investments in affiliates and others" in the accompanying balance sheet. The
sales to PMS and JJFMS generated a combined deferred gain of $53.4 million. On
January 1,
18
20
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
1999, PMS merged with Prison Management Services, Inc., a privately-held
Tennessee corporation ("Service Company A") and JJFMS merged with Juvenile and
Jail Facility Management Services, Inc., a privately-held Tennessee corporation
("Service Company B," and collectively with Service Company A, the "Service
Companies").
Under a trade name use agreement with New CCA resulting from the Merger (the
"Trade Name Use Agreement"), New CCA pays a licensing fee to the Company for the
right to use the name "Corrections Corporation of America" and derivatives
thereof.
The Merger has been accounted for as a reverse acquisition of the Company by Old
CCA and the acquisition of Prison Realty by the Company. As such, Old CCA's
assets and liabilities have been carried forward at historical cost and Old
CCA's historical financial statements are presented as the continuing accounting
entity's historical financial statements.
The Company's principal business strategy is to design, build and finance new
correctional and detention facilities and to lease these facilities under
long-term "triple net" leases to government entities and qualified private
prison managers, as well to expand its existing facilities. In addition, the
Company acquires existing facilities meeting certain investment criteria from
government and private prison owners.
Substantially all of the Company's revenues are derived from: (i) rents received
under triple net leases of correctional and detention facilities, (ii) dividends
from investments in the non-voting stock of certain subsidiaries, (iii) interest
income on the CCA Note, and (iv) license fees earned under the Trade Name Use
Agreement. New CCA currently leases 31 of the Company's 39 operating facilities
pursuant to the New CCA Leases and is the Company's primary tenant.
As New CCA is the lessee of a substantial majority of the Company's facilities,
the Company is dependent for its rental revenues upon New CCA's ability to make
the lease payments required under the New CCA Leases for such facilities. New
CCA's obligation to make payments under the New CCA Leases is not secured by any
of the assets of New CCA, although the obligations under the New CCA Leases are
cross-defaulted so that the Company could terminate all the leases if New CCA
fails to make required lease payments. If this were to happen, however, the
Company would be required to renegotiate existing leases or incentive fee
arrangements, to find other suitable lessees or to risk losing its ability to
elect or maintain REIT status, as applicable. New CCA experienced a net loss of
$22.5 million and $48.1 million for the three and six months ended June 30,
1999, respectively and had $3.1 million of cash flow provided by operating
activities for the first six months ended June 30, 1999. Net decrease in cash
and cash equivalents for the six months ended June 30, 1999 by New CCA was $4.3
million. New CCA has utilized cash from equity issuances and from payments from
the Company for tenant incentive arrangements and services provided to the
Company to offset its operating losses. New CCA expects to continue to use
these sources of cash and its availability under a line of credit to offset its
anticipated losses from operations.
In monitoring the ability of New CCA to satisfy its obligations under the lease
agreements, the Company reviews on a quarterly basis (i) the net increase or
decrease in cash of New CCA, (ii) the amount of available cash of New CCA (iii)
the amount of outstanding borrowings under New CCA's credit facility and (iv)
lease coverage ratios. On this basis, the Company believes that New CCA has
sufficient assets and borrowing capacity to enable it to satisfy its obligations
under such lease agreements at this time; however, there can be no assurance
that New CCA will have such assets, borrowing capacity or income
19
21
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
in the future. A delay in payments from New CCA would likely require the Company
to borrow funds in order to continue its dividend policy. Moreover, while the
Company has leases with tenants other than New CCA, there can be no assurance
that the Company will be successful in obtaining lease agreements with lessees
other than New CCA to an extent such that the Company is not dependent on New
CCA as the primary source of its revenues. Due to the unique nature of
correctional and detention facilities, the Company may be unable to locate
suitable replacement lessees or to attract such lessees, and may, therefore, be
required to provide additional tenant incentives or reduce the amounts to be
received by the Company under its lease agreements. The Company will continue to
monitor the performance of New CCA, and, to the extent New CCA's financial
performance exceeds expectations, the Company will attempt to modify its
contractual relationships with New CCA to make them more favorable to the
Company.
The Company, together with its wholly owned management subsidiary, Prison Realty
Management, Inc., incurs operating and administrative expenses including,
principally, compensation expenses for its executive officers and other
employees, office rental and related occupancy costs and various expenses
incurred in the process of acquiring additional properties. The Company is
self-administered and managed by its executive officers and staff, and does not
engage a separate advisor or pay an advisory fee for administrative or
investment services, although the Company does procure property related services
from New CCA and engage legal, accounting, tax and financial advisors from time
to time. The primary non-cash expense of the Company is depreciation of its
correctional and detention facilities.
The Company expects to leverage its portfolio of real estate equity investments
and will incur long and short-term indebtedness, and related interest expense,
from time to time.
The Company has made distributions to its stockholders in amounts not less than
the amounts required to maintain REIT status under the Code and, in general, in
amounts exceeding taxable income.
RESULTS OF OPERATIONS.
The Company commenced operations on January 1, 1999 as a result of the Merger.
The Merger was accounted for as a reverse acquisition of the Company by Old CCA
and the purchase of Prison Realty by the Company. As such, Old CCA was treated
as the acquiring company and Prison Realty was treated as the acquired company
for financial reporting purposes. The provisions of purchase method of
accounting prescribe that Old CCA's historical financial statements be presented
as the Company's historical financial statements. Management believes that
comparison of financial results between 1999 and 1998 is not meaningful because
the 1998 results reflect the operations of Old CCA and the 1999 results of
operations reflect the operating results of the Company as a REIT.
20
22
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
To provide a more reasonable prior period comparison, the following table
presents the results of operations of the Company for the six months ended June
30, 1999 and the pro forma results of operations of the Company for the six
months ended June 30, 1998 as if the Merger had occurred on January 1, 1998.
(UNAUDITED AND AMOUNTS IN THOUSANDS)
SIX MONTHS PROFORMA SIX
ENDED MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
REVENUES:
Rental revenue $ 129,468 $ 83,406
Interest income 12,041 17,324
Licensing fees 4,318 3,142
--------- ---------
Total revenues 145,827 103,872
--------- ---------
EXPENSES:
Depreciation and amortization 20,419 17,733
General and administrative 2,607 1,750
--------- ---------
Total expenses 23,026 19,483
--------- ---------
OPERATING INCOME 122,801 84,389
Equity in earnings of subsidiaries and
amortization of deferred gains 15,157 13,529
Interest expense (15,309) (13,614)
Loss on disposition of property (1,631) --
---------
INCOME BEFORE TAX EFFECTS AND
DIVIDENDS TO PREFERRED
SHAREHOLDERS $ 121,018 $ 84,304
========= =========
RENTAL REVENUES -- For the three and six months ended June 30, 1999, rental
revenues were $65.8 million and $129.5 million, respectively, and were generated
from the leasing of correctional and detention facilities. During the year, the
Company began leasing two new facilities, one in February 1999 and one in April
1999, respectively, in addition to the 37 facilities which were previously
leased as of the beginning of the year.
INTEREST INCOME -- For the three and six months ended June, 1999, interest
income was $5.8 million and $12.0 million, respectively. The $137.0 million CCA
Note bears interest at 12% and generated $4.1 million and $8.2 million in
interest income for the three and six months ended June 30, 1999. The remaining
$1.7 million and $3.8 million, respectively, was a result of interest earned on
cash used to collateralize letters of credit for certain construction projects,
direct financing leases and investments of cash prior to the funding of
construction projects.
LICENSING FEES -- For the three and six months ended June 30, 1999, licensing
fees were $2.2 million and $4.3 million, respectively. The licensing fees were
earned as a result of the Trade Name Use Agreement which granted New CCA the
right to use the name "Corrections Corporation of America" and derivatives
thereof subject to specified terms and conditions therein. The fee is based upon
gross revenues of New CCA, subject to a limitation of 2.75% of the gross
revenues of the Company.
DEPRECIATION AND AMORTIZATION-- For the three and six months ended June 30,
1999, depreciation expense was $10.5 million and $20.4 million, respectively.
Depreciation expense as a percentage of
21
23
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
rental revenues for the three and six months ended June 30, 1999 was 16.0 % and
15.8%, respectively. The Company uses the straight-line depreciation method over
the 50 and five year lives of buildings and machinery and equipment,
respectively.
GENERAL AND ADMINISTRATIVE EXPENSES -- For the three and six months ended June
30, 1999, general and administrative expenses were $1.7 million and $2.6
million, respectively. General and administrative expenses were 2.6% and 2.0% of
total rental revenues for the three and six months ended June 30, 1999. General
and administrative expenses consist primarily of management salaries and
benefits, legal and other administrative costs.
LOSS ON DISPOSITION OF PROPERTY - During the second quarter, the Company
incurred a noncash loss of $1.6 million as a result of a settlement with the
State of South Carolina for property previously owned by Old CCA. Under the
settlement dated June 1999, the Company, as the successor to Old CCA, will
receive $6.5 million in three installments by June 30, 2001 for the transferred
assets. The net proceeds were approximately $1.6 million less than the
surrendered assets depreciated book value. As of June 30, 1999, the Company had
a receivable of $6.5 million related to this settlement of which $3.5 million
was received by the Company in July 1999.
EQUITY IN EARNINGS OF SUBSIDIARIES AND AMORTIZATION OF DEFERRED GAINS -- For the
three and six months ended June 30, 1999, equity in earnings of subsidiaries and
amortization of deferred gains were $7.5 million and $15.2 million,
respectively. The equity in earnings of the Service Companies were $4.8 million
and $9.8 million, respectively, for the three and six months ended June 30,
1999. The amortization of the deferred gain on the sales of contracts to the
Service Companies was $2.7 million and $5.4 million for the three and six months
ended June 30, 1999.
INTEREST EXPENSE -- For the three and six months ended June 30, 1999, interest
expense was $7.0 million and $15.3 million, respectively. Interest expense is
based on outstanding convertible notes payable balances and borrowings under the
Company's bank credit facility and 12% senior notes due 2006, including
amortization of loan costs and unused fees. Interest expense is reported net of
capitalized interest on construction in progress of $9.3 million and $16.4
million, respectively, for the three and six months ended June 30, 1999.
CHANGE IN TAX STATUS -- In connection with the Merger, the Company intends to
change its tax status from a C-Corporation to a REIT effective January 1, 1999.
As of December 31, 1998, the Company's balance sheet reflected $51.2 million in
deferred tax assets. In accordance with the provisions of Statement of Financial
Accounting Standards No. 109, the Company was required to provide a provision
for these deferred tax assets, excluding any tax liabilities required for
subsequent periods, upon completion of the Merger and the election to be taxed
as a REIT. As such, the Company's results of operations reflect a provision for
change in tax status of $83.2 million for the six months ended June 30, 1999.
22
24
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
NEW CCA FINANCIAL INFORMATION
The following unaudited operating information presents New CCA's results of
operations for the six months ended June 30, 1999:
SIX MONTHS ENDED
JUNE 30, 1999
-------------
(UNAUDITED AND AMOUNTS IN THOUSANDS)
REVENUES $ 244,109
---------
EXPENSES:
Operating 168,502
Trade name use agreement 4,318
Lease 124,484
General and administrative 11,740
Depreciation and amortization 4,135
---------
313,179
---------
OPERATING LOSS (69,070)
Interest expense, net 10,870
---------
LOSS BEFORE INCOME TAXES (79,940)
BENEFIT FOR INCOME TAXES (31,806)
---------
NET LOSS $ (48,134)
=========
The following unaudited balance sheet information presents New CCA's financial
position as of June 30, 1999:
JUNE 30, 1999
-------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
CURRENT ASSETS:
Cash and cash equivalents $ 14,767
Accounts receivable, net of allowances 65,207
Prepaid expenses 5,366
Deferred tax assets 328
Other current assets 9,287
---------
Total current assets 94,955
PROPERTY AND EQUIPMENT, NET 23,456
OTHER LONG-TERM ASSETS:
Investment in contracts 65,320
Deferred tax assets 31,478
Other 9,786
---------
Total assets $ 224,995
=========
(CONTINUED)
23
25
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
The following unaudited balance sheet information presents New CCA's financial
position as of June 30, 1999 (Continued):
JUNE 30, 1999
-------------
(UNAUDITED)
(CONTINUED)
(AMOUNTS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,370
Accrued salaries and wages 7,907
Accrued property taxes 4,741
Accrued interest 8,220
Deferred revenue 176
Other accrued expenses 15,496
---------
Total current liabilities 49,910
LONG-TERM DEBT 137,000
DEFERRED CREDITS 64,479
---------
Total liabilities 251,389
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock- Class A; $0.01 (one cent) par value;
9,349 issued and outstanding; 100,000 shares
authorized 93
Common stock- Class B; $0.01 (one cent) par value;
981 issued and outstanding; 100,000 shares authorized 10
Additional paid-in capital 25,133
Deferred compensation (3,496)
Retained deficit (48,134)
---------
Total stockholders' equity (26,394)
---------
Total liabilities and stockholders' equity $ 224,995
=========
24
26
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
The following is the unaudited cash flow statement for New CCA for the six
months ended June 30, 1999:
SIX MONTHS ENDED
JUNE 30, 1999
-------------
(UNAUDITED AND AMOUNTS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (48,134)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization 4,135
Amortization of deferred credits (1,763)
Deferred credit payments received from Prison Realty 66,242
Deferred income taxes (31,806)
Other noncash items 397
Write-off of debt issuance costs 2,706
Changes in assets and liabilities, net
Trade accounts receivable (1,130)
Prepaid expenses (763)
Other current assets (3,592)
Other long-term assets 2,591
Accounts payable (1,193)
Accrued salaries and wages 3,488
Accrued property taxes 440
Deferred revenue (3,598)
Accrued interest 8,220
Other accrued expenses 6,851
---------
Net cash provided by operating activities 3,091
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions, net (1,256)
---------
Net cash used in investing activities (1,256)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt issuance costs (6,125)
---------
Net cash used in financing activities (6,125)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,290)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 19,057
---------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 14,767
=========
25
27
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
The Company owns 100% of the non-voting stock of the Service Companies, which
manage certain government-owned prison and jail facilities under the
"Corrections Corporation of America" name. On a quarterly basis, the Company
receives 95% of the net income, as defined, of each Service Company through
ownership of the non-voting stock.
The following unaudited operating information presents a combined summary of the
Service Companies' results of operations for the three and six months ended June
30, 1999:
SIX MONTHS
ENDED
JUNE 30, 1999
-------------
(AMOUNTS IN THOUSANDS)
Revenues $139,678
Net income 10,335
The following unaudited balance sheet information presents a combined summary of
the Service Companies' financial position as of June 30, 1999:
JUNE 30, 1999
-------------
(AMOUNTS IN THOUSANDS)
Current assets $ 60,197
Total assets 156,345
Current liabilities 31,016
Total liabilities 32,586
Stockholders' equity 123,759
Total dividends accrued 7,381
Company share of dividends accrued 7,381
LIQUIDITY AND CAPITAL RESOURCES.
The Company's growth strategy includes acquiring, developing and expanding
correctional and detention facilities as well as other properties. The Company
expects that it generally will not be able to fund its growth with cash from its
operating activities because the Company will be required to distribute to its
stockholders at least 95% of its taxable income each year to qualify as a REIT.
Consequently, the Company will be required to rely primarily upon the
availability of debt or equity capital to fund the construction and acquisitions
of and improvements to correctional and detention facilities.
On January 1, 1999, in connection with the completion of the Merger, the Company
obtained a $650.0 million, secured credit facility (the "Credit Facility") from
NationsBank, N.A., as Administrative Agent and several U.S. and non-U.S. banks.
The Credit Facility includes up to a maximum of $250.0 million in tranche B term
loans and $400.0 million in revolving loans, including a $150.0 million
subfacility for letters of credit. The term loans require principal quarterly
payments of $625,000 throughout the term of the loan with the remaining balance
maturing on January 1, 2003 and the revolving loans maturing on January 1, 2002.
Interest rates, unused commitment fees, and letter of credit fees on the Credit
Facility are subject to change based on the Company's senior debt rating. The
Credit Facility is secured by
26
28
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
mortgages on the Company's real property. At June 30, 1999, the weighted average
borrowing rate under the Credit Facility was 7.89% and the outstanding
borrowings thereunder were $648.8 million.
On August 4, 1999, the Company completed an amendment and restatement of the
Credit Facility (the "Amended Credit Facility") increasing amounts available to
the Company under the original Credit Facility to $1.0 billion through the
addition of $350.0 million tranche C term loans. The tranche C term loans will
be payable in equal quarterly installments in the amount of $875,000 through the
calendar quarter ending September 30, 2002 with the balance paid in full on
December 31, 2002. Under the Amended Credit Facility, Lehman Commercial Paper,
Inc. ("LCPI") replaced NationsBank, N.A., as Administrative Agent.
The Amended Credit Facility, similar to the original Credit Facility, provides
for interest rates, unused commitment fees, and letter of credit fees to change
based on the Company's senior debt rating. As with the Credit Facility, the
Amended Credit Facility bears interest at variable rates of interest based on a
spread over the base rate or LIBOR (as elected by the Company), which spread is
determined by reference to the Company's credit rating. The revised spread
ranges from 0.50% to 2.25% for base rate loans and from 2.00% to 3.75% for LIBOR
rate loans. These ranges replace the original spread ranges of 0.25% to 1.25%
for base rate loans and 1.375% to 2.75% for LIBOR rate loans. The term loan
portions of the Amended Credit Facility bear interest at a variable base rate
equal to 4.0% in excess of LIBOR. This revised rate replaces the variable base
rate equal to 3.25% in excess of LIBOR in the Credit Facility.
The Amended Credit Facility, similar to the original Credit Facility, is secured
by mortgages on the Company's real property. Borrowings are limited based on a
revised borrowing base formula which considers, among other things, eligible
real estate. The Amended Credit Facility contains certain revised financial
covenants, primarily: (a) maintenance of a leverage, interest coverage, debt
service coverage and total indebtedness ratios, and (b) restrictions on the
incurrence of additional indebtedness. The Amended Credit Facility restricts the
Company's ability to make the 1999 cash payment of the Special Dividend (as
herein defined) unless (a) the Company has liquidity of at least $75.0 million
at the dividend declaration date and (b) the Company receives at least $100.0
million in cash proceeds for the issuance of equity or similar securities from a
new investor receiving representation on the Company's Board of Directors and
(c) New CCA receives at least $25.0 million in cash proceeds from the issuance
of any combination of equity securities and subordinated debt. The Company may,
however, pay up to $31.0 million in cash if only (a) and (c) above are achieved.
The Company was in compliance with all covenants under the Credit Facility
through August 4, 1999 and currently, is in compliance with all covenants under
the Amended Credit Facility. The Company expects to incur expenses of
approximately $40 million related to this amendment and restatement.
On June 11, 1999 the Company completed its offering of $100.0 million aggregate
principal amount of 12% Senior Notes due 2006 (the "Notes"). Interest on the
Notes will be paid semi-annually in arrears and the Notes have a seven year
non-callable term due June 1, 2006. Net proceeds from the offering were
approximately $95 million after deducting expenses payable by Prison Realty in
connection with the offering. The Company intends to use the net proceeds from
the sale of the Notes for general corporate purposes and to repay revolving bank
borrowings under its Credit Facility. The Credit Facility repayments do not
permanently reduce the commitments under the credit facility.
On March 8, 1999, the Company issued a $20.0 million convertible subordinated
note to Sodexho pursuant to a forward contract assumed by the Company from Old
CCA in the Merger. Interest on the note was payable at LIBOR plus 1.35% and the
note was convertible into shares of the Company's
27
29
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
common stock at a conversion price of $7.80 per share. On March 8, 1999, Sodexho
converted (i) $7.0 million of convertible subordinated notes bearing interest at
8.5% into 1.7 million shares of common stock at a conversion price of $4.09 per
share, (ii) $20.0 million of convertible notes bearing interest at 7.5% into
700,000 shares of common stock at a conversion price of $28.53 and (iii) $20.0
million of convertible subordinated notes bearing interest at LIBOR plus 1.35%
into 2.6 million shares of common stock at a conversion price of $7.80 per
share.
On January 29, 1999, the Company issued $20.0 million of convertible
subordinated notes due in 2009 with interest payable semi-annually at 9.5%. The
notes are convertible into shares of the Company's common stock at a conversion
price of $28.00 per share. This issuance constituted the second tranche of a
commitment by the Company to issue an aggregate of $40.0 million of convertible
subordinated notes, with the first $20.0 million tranche issued in December,
1998 under substantially similar terms.
The $30.0 million of 7.5% convertible subordinated notes issued to PMI Mezzanine
Fund L.P. in connection with the Merger require that the Company revise the
conversion price as a result of the payment of a dividend or the issuance of
stock or convertible securities below market price. As of June 30, 1999, the
conversion price for the notes was $24.79 as compared to $27.42 at issuance.
This change in conversion price resulted from dividends paid by the Company in
1999 and from the conversion of the Sodexho convertible subordinated note on
March 8, 1999 into 1.7 million shares of common stock at a conversion price of
$4.09 per share and 2.6 million shares of common stock at a conversion price of
$7.80 per share.
On January 11, 1999, the Company filed a Registration Statement on Form S-3 to
register an aggregate of $1.5 billion in value of its common stock, preferred
stock, common stock rights, warrants and debt securities for sale to the public
(the "Shelf Registration Statement"). Proceeds from sales under the Shelf
Registration Statement have been and will be used for general corporate
purposes, including the acquisition and development of correction and detention
facilities. During the six months ended June 30, 1999, the Company issued and
sold approximately 6.7 million shares of its common stock under the Shelf
Registration Statement, resulting in net proceeds to the Company of
approximately $120 million.
On May 14, 1999, the Company registered 10.0 million shares of the Company's
common stock for issuance under the Company's Dividend Reinvestment and Stock
Purchase Plan (the "Plan"). The Plan provides a method of investing cash
dividends in, and making optional monthly cash purchases of the Company's common
stock, at prices reflecting a discount between 0% and 5% from the market price
of the common stock on the NYSE. As of June 30, 1999, the Company has issued
1,039,025 shares under the Plan with 1,036,441 of these shares issued under the
Plan's optional cash feature resulting in proceeds of $10.0 million which were
received by the Company on July 1, 1999.
The Company expects to meet its short-term liquidity requirements generally
through cash provided by operations and borrowings provided from the Notes and
the Amended Credit Facility. The Company used the net proceeds from the sale of
the Notes for general corporate purposes and to repay revolving bank borrowings
under its Credit Facility The Credit Facility repayments did not permanently
reduce the commitments under the credit facility.
The Company, as a REIT, cannot complete any taxable year with accumulated
earnings and profits from a taxable corporation. Accordingly, to preserve its
REIT status, the Company will distribute Old CCA's accumulated earnings and
profits to which it succeeded in the Merger (the "Special Dividend"). The
Company anticipates that it will make this distribution to all holders of shares
of its common stock in
28
30
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
December 1999. This total distribution is estimated at $225.0 million and has
been accrued on the Company's balance sheet at June 30, 1999 net of a two
quarterly prepayments totaling $11.5 million. These prepayments represent $0.05
per share paid out in March 1999 and $0.05 per share paid out in June 1999. At
the time of payment, the Company intends to allocate any overage between the
Company's regular quarterly dividends paid and an amount equal to 95% of the
Company's taxable net income toward the payment of the Special Dividend. Certain
provisions of the Amended Credit Facility restrict the Company's ability to make
the 1999 cash payment of the Special Dividend in cash, as previously described.
All facilities owned by the Company will be leased to third parties generally
under triple net leases, which require the lessee to pay substantially all
expenses associated with the operation of such facilities. As a result of these
arrangements, the Company does not believe it will be responsible for any
significant expenses in connection with the facilities during the terms of the
New Leases. The Company anticipates entering into similar leases with respect to
all properties acquired in the future.
The Company expects to meet its long-term liquidity requirements for the funding
of real estate property development and acquisitions (including fees for
property related services and tenant incentives to New CCA) by borrowing under
the Amended Credit Facility and by issuing equity or debt securities in public
or private transactions. For facilities to be owned by the Company and managed
by governmental entities, the Company may elect to finance some or all of the
total project cost through non-recourse long-term debt secured by the stream of
lease payments. The Company anticipates that as a result of its initially low
debt to total capitalization ratio and its intention to maintain a debt to total
capitalization ratio of 50% or less, it will be able to obtain financing for its
long-term capital needs. However, there can be no assurance that such additional
financing or capital will be available on terms acceptable to the Company. The
Company may, under certain circumstances, borrow additional amounts in
connection with the renovation or expansion of facilities, the acquisition of
additional properties, or as necessary, to meet certain distribution
requirements imposed on REITs under the Code.
On January 1, 1999, immediately after the Merger, the Company entered into the
Services Agreement with New CCA pursuant to which New CCA agreed to serve as a
facilitator of the construction and development of additional facilities on
behalf of the Company for a term of five years from the date of the Services
Agreement. In such capacity, New CCA agreed to perform, at the direction of the
Company, such services as are customarily needed in the construction and
development of correctional and detention facilities, including services related
to construction of the facilities, project bidding, project design, and
governmental relations. In consideration for the performance of construction and
development services by New CCA pursuant to the Services Agreement, the Company
agreed to pay a fee equal to 5% of the total capital expenditures (excluding the
incentive fee discussed below and the 5%
29
31
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
fee herein referred to) incurred in connection with the construction and
development of a facility, plus an amount equal to approximately $560 per bed
for facility preparation services provided by New CCA prior to the date on which
inmates are first received at such facility. The Board of Directors of the
Company has authorized payments of up to an additional 5% of the total capital
expenditures (as determined above) to New CCA if additional services are
requested by the Company. A majority of the Company's current development
projects are subject to a fee totaling 10%. Costs incurred related to the
Services Agreement for the three and six months ended June 30, 1999 were $14.4
million and $26.5 million, respectively.
On January 1, 1999, immediately after the Merger, the Company entered into the
Tenant Incentive Agreement with New CCA pursuant to which the Company agreed to
pay to New CCA an incentive fee to induce New CCA to enter into New CCA Leases
with respect to those facilities developed and facilitated by New CCA. The
amount of the incentive fee was set at $840 per bed for each facility leased by
New CCA for which New CCA served as developer and facilitator. This $840 per bed
incentive fee, however, did not include an allowance for rental payments to be
paid by New CCA.
On May 4, 1999, the Company and New CCA entered into the Amended and Restated
Tenant Incentive Agreement, effective as of January 1, 1999, providing for (i) a
tenant incentive fee of up to $4,000 per bed payable with respect to all future
facilities developed and facilitated by New CCA, as well as certain other
facilities which, although operational on January 1, 1999, had not achieved full
occupancy and (ii) an $840 per bed allowance for all beds in operation at the
beginning of January 1999, approximately 21,500 beds, that were not subject to
the tenant allowance in the first quarter of 1999. The amount of the amended
tenant incentive fee includes an allowance for rental payments to be paid by New
CCA prior to the facility reaching stabilized occupancy. The term of the Amended
and Restated Tenant Incentive Agreement is four years unless extended upon the
written agreement of the Company and New CCA. The incentive fees with New CCA
are being deferred and amortized as a reduction to rental revenues over the
respective lease term. For the six months ended June 1999, the Company had paid
tenant incentive fees of $45.0 million of which $18.1 million related to the
$840 per bed allowance on the aforementioned 21,500 beds. These fees are being
amortized against rental revenues over the life of the leases. The amount of
unamortized incentives pursuant to the Amended and Restated Tenant Incentive
Agreement, as of June 30, 1999 is $44.4 million.
Effective January 1, 1999, the Company entered into a business development
agreement (the "Business Development Agreement") with New CCA which provides
that New CCA will perform, at the direction of the Company, services designed to
assist the Company in identifying and obtaining new business. Pursuant to the
agreement, the Company has agreed to pay to New CCA a total fee equal to 4.5% of
the total capital expenditures (excluding the amount of the tenant incentive fee
and the services fee discussed above as well as the 4.5% fee referred to herein)
incurred in connection with the construction and development of each new
facility, or the construction and development of an addition to an existing
facility, for which New CCA performed business development services. For the
three and six months ended June 30, 1999, costs incurred related to the Business
Development Agreement were $3.3 million and $11.9 million, respectively.
YEAR 2000 COMPLIANCE.
The Company has completed an initial assessment and remediation of its key
information technology systems including its client server and minicomputer
hardware and operating systems and critical financial and nonfinancial
applications. Based on this initial assessment, the Company believes that these
key information technology systems are Year 2000 compliant. However, there can
be no assurance that coding errors or other defects will not be discovered in
the future. The Company is in the process of evaluating the remaining
noncritical information technology systems for Year 2000 compliance.
The Company depends upon the proper functioning of third-party computer and
non-information technology systems. These third parties include commercial banks
and other lenders, construction contractors, architects and engineers and
vendors such as the providers of telecommunications and utilities. The Company
has initiated communications with third parties with whom it has important
financial or operational relationships to determine the extent to which they are
vulnerable to the Year 2000 issue. The Company has not yet received sufficient
information from all parties about their remediation plans to predict the
outcome of their efforts.
30
32
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
The Company is currently developing a contingency plan that is expected to
address financial and operational problems that might arise on and around
January 1, 2000. This contingency plan would include establishing additional
sources of liquidity that could be drawn upon in the event of systems disruption
and identifying alternative vendors and back-up processes that do not rely on
computers, whenever possible. The Company's key information technology systems
were Year 2000 compliant when acquired in the Merger. As such, the Company has
incurred no expenses through June 30, 1999 and expects to incur no material
costs in the future on Year 2000 remediation efforts.
Because New CCA is the lessee of a substantial majority of the Company's
facilities, the Company may be vulnerable to New CCA's failure to remedy its
Year 2000 issues. The failure of New CCA to remedy its Year 2000 problems could
result in the delayed collection of lease payments by the Company, potentially
resulting in liquidity stress. New CCA's Year 2000 compliance program is focused
on addressing Year 2000 readiness in the following areas: (i) New CCA's
information technology hardware and software; (ii) material non-information
technology systems; (iii) Year 2000 compliance of third parties with which
Operating Company has a material relationship; (iv) systems used to track and
report assets not owned by New CCA (e.g. inmate funds and personal effects); and
(v) development of contingency plans.
New CCA has completed an initial assessment and remediation of its key
information technology systems including its client server and minicomputer
hardware and operating systems and critical financial and nonfinancial
applications. Remediation efforts as of the date hereof include upgrades of New
CCA's minicomputer hardware and critical financial applications. Based on this
initial assessment and remediation efforts, New CCA believes that these key
information technology systems are Year 2000 compliant. However, there can be no
assurance that coding errors or other defects will not be discovered in the
future. New CCA is in the process of evaluating the remaining noncritical
information technology systems for Year 2000 compliance.
New CCA manages facilities it leases from the Company, and facilities owned by
and leased from government entities. New CCA is currently evaluating whether the
material non-information technology systems such as security control equipment,
fire suppression equipment and other physical plant equipment at the facilities
it leases from the Company are Year 2000 compliant. New CCA also intends to
request that the owners of the government facilities it manages provide Year
2000 certification for material information technology and non-information
technology systems at those facilities. All of New CCA's managed correctional
facilities, as a part of general operating policy, have existing contingency
plans that are deployed in the event key operational systems, such as security
control equipment fail (e.g. when a power failure occurs). In addition, the
correctional facilities' key security systems are "fail secure" systems which
automatically "lock down" and are then operated manually should the related
electronic components fail. Therefore, New CCA management believes no additional
material risks associated with the physical operation of its correctional
facilities are created as a result of potential Year 2000 issues.
New CCA depends upon the proper functioning of third-party computer and non-
information technology systems. These third parties include government agencies
for which New CCA provides services, commercial banks and other lenders,
construction contractors, architects and engineers, and vendors such as
providers of food supplies and services, inmate medical services,
telecommunications and utilities. New CCA has initiated communications with
third parties with whom it has important financial or operational relationships
to determine the extent to which they are vulnerable to the Year 2000 issue.
31
33
PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
New CCA has not yet received sufficient information from all parties about their
remediation plans to predict the outcome of their efforts. If third parties with
whom New CCA interacts have Year 2000 problems that are not remedied, the
following problems could result: (i) in the case of construction contractors and
architects and engineers, in the delayed construction of correctional
facilities; (ii) in the case of vendors, in disruption of important services
upon which New CCA depends, such as medical services, food services and
supplies, telecommunications and electrical power, (iii) in the case of
government agencies, in delayed collection of accounts receivable potentially
resulting in liquidity stress, or (iv) in the case of banks and other lenders,
in the disruption of capital flows potentially resulting in liquidity stress.
New CCA is also evaluating Year 2000 compliance of other software applications
used to track and report assets that are not the property of New CCA. This
includes applications used to track and report inmate funds and the inmates'
personal effects.
New CCA is currently developing a contingency plan that is expected to address
financial and operational problems that might arise on and around January 1,
2000. This contingency plan would include establishing additional sources of
liquidity that could be drawn upon in the event of systems disruption and
identifying alternative vendors and back-up processes that do not rely on
computers, whenever possible. New CCA management expects to have the contingency
plan completed by fall 1999.
New CCA has incurred and expects to continue to incur expenses allocable to
internal staff, as well as costs for outside consultants, computer systems'
remediation and replacement and non-information technology systems' remediation
and replacement (including validation) in order to achieve Year 2000 compliance.
New CCA currently estimates that these costs will total approximately $4.0
million. Of this total, it is estimated that $2.5 million will be for the repair
of software problems and $1.5 million will be for the replacement of problem
systems and equipment. These costs are expensed as incurred. Management of New
CCA believes there will be no material impact on New CCA's financial condition
or results of operations resulting from other information technology projects
being delayed due to Year 2000 efforts.
The costs of New CCA's Year 2000 compliance program and the date on which New
CCA plans to complete it are based on current estimates, which reflect numerous
assumptions about future events, including the continued availability of certain
resources, the timing and effectiveness of third-party remediation plans and
other factors. New CCA can give no assurance that these estimates will be
achieved, and actual results could differ materially from New CCA's plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct relevant computer source codes and embedded
technology, the results of internal and external testing and the timeliness and
effectiveness of remediation efforts of third parties.
Management's estimate of the Company's most reasonably likely worst case
scenario involves the replacement of hardware, software or equipment if coding
errors or other defects are discovered in the future. The foregoing
notwithstanding, management does not currently believe that the costs of
assessment, remediation or replacement of the Company's systems, or the
potential failure of third parties' systems will have a material adverse effect
on the Company's business, financial condition, results of operations or
liquidity.
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PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
FUNDS FROM OPERATIONS.
Management believes Funds from Operations is helpful to investors as a measure
of the performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities, it provides
investors with an understanding of the ability of the Company to incur and
service debt and make capital expenditures. The Company computes Funds from
Operations in accordance with standards established by the White Paper on Funds
from Operations approved by the Board of Governors of NAREIT in 1995, which may
differ from the methodology for calculating Funds from Operations utilized by
other equity REITs, and accordingly, may not be comparable to such other REITs.
The White Paper defines Funds from Operations as net income (loss), computed in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of property, plus real
estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Further, Funds from Operations
does not represent amounts available for management's discretionary use because
of needed capital replacement or expansion, debt service obligations, or other
commitments and uncertainties. Funds from Operations should not be considered as
an alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions. The Company
believes that in order to facilitate a clear understanding of the consolidated
operating results of the Company, Funds from Operations should be examined in
conjunction with net income as presented in the consolidated financial
statements.
The following table presents the Company's Funds from Operations for the three
and six months ended June 30, 1999:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
(AMOUNTS IN THOUSANDS)
FUNDS FROM OPERATIONS:
Net income available to common shareholders $ 58,273 $ 33,518
Plus: real estate depreciation 10,502 20,419
Add back non-recurring items:
Change in tax status -- 83,200
Loss on disposition of property 1,631 1,631
-------- --------
$ 70,406 $138,768
======== ========
CASH FLOW FROM OPERATING, INVESTING AND FINANCING ACTIVITIES
The Company's cash flow provided by operating activities was $104.6 million for
the six months ended June 30, 1999 and represents net income plus depreciation
and amortization and changes in the various components of working capital. The
Company's cash flow used in investing activities was $385.8 million for the six
months ended June 30, 1999 and represents acquisitions of real estate properties
and payments made under lease arrangements. The Company's cash flow provided by
financing activities was $252.2 million for the six months ended June 30, 1999
and represents proceeds from the issuance of common
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PRISON REALTY TRUST, INC.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
stock, issuance of long-term debt, borrowings under the Credit Facility and the
Notes and payments of dividends on the preferred and common shares.
INFLATION
The Company does not believe that inflation has had or will have a direct
adverse effect on its operations. The New CCA Leases generally contain
provisions which will mitigate the adverse impact of inflation on net income.
These provisions include clauses enabling the Company to pass through to New CCA
certain operating costs, including real estate taxes, utilities and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. Additionally, the New CCA Leases contain
provisions which provide the Company with the opportunity to achieve increases
in rental income in the future.
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PRISON REALTY TRUST, INC.
ITEM 3. -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposure is to changes in U.S. interest rates.
The Company is exposed to market risk related to its Amended Credit Facility and
certain other indebtedness as discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Liquidity and Capital
Resources". The interest on the Amended Credit Facility and such other
indebtedness is subject to fluctuations in the market. If the interest rate for
the Credit Facility debt was 100 basis points higher or lower during the three
months and six ended June 30, 1999, the Company's interest expense net of
amounts capitalized would have been increased or decreased by approximately $0.6
million or $1.3 million, respectively.
As of June 30, 1999, the Company had outstanding $100.0 million of its senior
Notes with a fixed interest rate of 12.0%, $40.0 million of convertible notes
with a fixed interest rate of 9.5%, $30.0 million of convertible notes with a
fixed interest rate of 7.5% and $107.5 million of preferred stock with a fixed
dividend rate of 8%. Similarly, as of June 30, 1999, the Company had a note
receivable in the amount of $137.0 million with a fixed interest rate of 12%.
Because the interest and dividend rates with respect to these instruments are
fixed, a hypothetical 10% decrease in market interest rates would not have a
material impact on the Company. The Amended Credit Facility required the Company
to hedge $325.0 million of its floating rate debt on or before August 16, 1999.
The Company has entered into certain swap arrangements guaranteeing that it will
not pay an index rate greater than 6.51% on outstanding balances of at least (a)
$325.0 million through December 31, 2001 and (b) $200.0 million through December
31, 2002.
Additionally, the Company may, from time to time, invest its cash in a variety
of short-term financial instruments. These instruments generally consist of
highly liquid investments with original maturities at the date of purchase
between three and 12 months. While these investments are subject to interest
rate risk and will decline in value if market interest rates increase, a
hypothetical 10% increase in market interest rates would not materially affect
the value of these investments.
The Company also uses, or intends to use, long-term and medium-term debt as a
source of capital. These debt instruments, if issued, will typically bear fixed
interest rates. When these debt instruments mature, the Company may refinance
such debt at then-existing market interest rates which may be more or less than
the interest rates on the maturing debt. In addition, the Company may attempt to
reduce interest rate risk associated with a forecasted issuance of new debt. In
order to reduce interest rate risk associated with these transactions, the
Company may occasionally enter into interest rate protection agreements.
The Company does not believe it has any other material exposure to market risks
associated with interest rates.
The Company does not have a material exposure to risks associated with foreign
currency fluctuations related to its operations. The Company does not use
derivative financial instruments in its operations or investment portfolio.
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PRISON REALTY TRUST, INC.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
FEDERAL COURT LITIGATION
Since May 26, 1999, fifteen complaints have been filed in federal court in the
United States District Court for the Middle District of Tennessee, Nashville
Division, alleging securities fraud in connection with the agreements entered
into by the Company in May of this year to increase the tenant incentive and
other payments from the Company to New CCA, the Company's primary tenant.
Thirteen of these complaints name as defendants the Company, Doctor R. Crants
and D. Robert Crants, III. The remaining two complaints name as defendants the
Company, Doctor R. Crants, D. Robert Crants, III, Sodexho Alliance, S.A., all
current directors of the Company and all of the former directors of Old CCA. A
complaint substantially identical to the majority of those filed in federal
court in Tennessee has been filed in the United States District Court for the
Eastern District of New York. All of these complaints allege violations of
federal securities laws based on the allegation that the Company and the
individual defendants knew or should have known of the increased payments to New
CCA prior to the date on which they were disclosed to the public and that,
therefore, certain public filings and representations made by the Company and
certain individuals were false and misleading. All of the complaints purport to
be brought as class actions on behalf of one of two separate classes: (i) a
class of all persons who publicly acquired shares of the Company on the open
market from the time of the Merger through mid May of 1999, together with all
former shareholders of Prison Realty who acquired shares of the Company as a
result of the Merger, or (ii) a class of all persons who publicly acquired
shares of the Company on the open market from the time of the Merger through mid
May of 1999, together with all former shareholders of Prison Realty and
shareholders of Old CCA who acquired shares of the Company as a result of the
Merger. The Company believes it is likely that the complaint filed in the United
States District Court for the Eastern District of New York will be transferred
to the United States District Court for the Middle District of Tennessee and
that all of the complaints will be consolidated into one action. The Company is
investigating the allegations in the complaints, and although their outcome is
not determinable, the Company intends to defend these actions vigorously.
STATE COURT LITIGATION
A purported shareholders derivative complaint was filed in the Chancery Court
for Davidson County, Tennessee in Nashville against the Company, the current
directors of the Company, persons who were directors of the Company at the time
the agreements regarding the increased payments to New CCA were made, and New
CCA. The derivative action alleges, among other things, that the directors of
the Company violated their fiduciary duties in approving the increased payments
to New CCA. The Company also intends to defend this action vigorously.
MOTION TO SHOW CAUSE IN CCA SHAREHOLDER LITIGATION
The plaintiffs in the case In re Corrections Corporation of America Shareholder
Litigation, which was filed in 1998 challenging the Merger and was settled based
on certain revisions to the structure of the Merger, have filed a motion in the
Chancery Court for Davidson County, Tennessee in Nashville to show cause why the
defendants in that case are not in violation of the court order approving the
settlement and should not be held in contempt. The motion alleges that the
decisions in May, 1999, regarding the increased payments to New CCA violate the
terms of the Stipulation of Settlement reached in that case and, therefore, also
violate the order of the court of February 26, 1999, approving the settlement.
The Company believes the motion is without merit and has responded accordingly.
The matter is currently under advisement by the court.
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PRISON REALTY TRUST, INC.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's 1999 Annual Meeting of Stockholders was held on May 11, 1999. A
total of 84,573,667 shares of the Company's common stock, constituting a quorum
of those shares entitled to vote, were represented at the meeting by
stockholders either present in person or by proxy. At such meeting the following
six (6) nominees for election as directors of the Company were elected without
opposition, no nominee for director receiving less than 84,108,356 votes, or
99.4% of the shares represented at the meeting: D. Robert Crants, III, John W.
Eakin, Jr., Ted Feldman, Ned Ray McWherter, and Jackson W. Moore as Class I
directors; and Jean-Pierre Cuny as a Class III director. The stockholders also
approved and/or ratified the following proposals presented to them pursuant to
the vote totals indicated next to each item:
PROPOSAL VOTE (# OF SHARES)
FOR AGAINST ABSTAINED
Approval of an amendment to the Company's
Charter to change the name of the Company to 84,088,478 386,643 98,546
Prison Realty Trust, Inc.
Ratification of the action of the Board of Directors
in selecting the firm of Arthur Andersen LLP
to be the independent auditors of the Company
for the fiscal year ending December 31, 1999 82,424,870 135,740 2,013,057
ITEM 5. OTHER INFORMATION.
COMPLETION OF HIGH YIELD NOTE OFFERING
On June 11, 1999, the company completed the issuance and sale of $100.0 million
of its senior Notes, generating net proceeds to the Company, after the deduction
of offering expenses, of approximately $95.0 million. Lehman Brothers Inc. was
the underwriter of the offering. The Company used the net proceeds from the
offering for general corporate purposes and to repay revolving bank borrowing
under the Credit Facility. More detailed information regarding the Notes and the
related offering can be found herein under Note 5 to the Company's Condensed
Consolidated Financial Statements and under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
AMENDMENT TO AND RESTATEMENT OF CREDIT FACILITY
On August 4, 1999, the Company completed the Amended Credit Facility, increasing
amounts available to the Company to $1.0 billion through the addition of a
$350.0 million term loan. Lehman Brothers
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PRISON REALTY TRUST, INC.
acted as advisor and lead arranger in connection with the expansion and Lehman
Commercial Paper, Inc. and serves as Administrative Agent of the amended and
restated facility. More detailed information regarding the Amended Credit
Facility can be found herein under Note 5 to the Company's Condensed
Consolidated Financial Statements and under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
1.1 Amended and Restated Underwriting Agreement, dated June 11,
1999, by and between the Company and Lehman Brothers Inc.
4.1 Indenture dated as of June 10, 1999 by and between the Company
and State Street Bank and Trust Company, as trustee, relating
to the issuance of debt securities.
4.2 First Supplemental Indenture, by and between the Company and
State Street Bank and Trust Company, as trustee, dated as of
June 11, 1999 relating to the $100.0 million aggregate
principal amount of the Company's 12% Senior Notes due 2006.
10.1 Amended and Restated Credit Agreement, dated as of August 4,
1999, by and among the Company, as Borrower, certain
subsidiaries of the Company, as Guarantor, the several lenders
from time to time party thereto, Lehman Commercial Paper Inc.,
as Administrative Agent, Societe Generale, as Documentation
Agent, The Bank of Nova Scotia, as Syndication Agent,
SouthTrust Bank, N.A., as Co-Agent, and Lehman Brothers Inc.,
as Advisor, as Lead Arranger, and as Book Manager.
27.1 Financial Data Schedule (For SEC use only).
(b). Reports on Form 8-K
The Company's Current Report on Form 8-K, as filed with the Commission
on May 25, 1999 (File no. 0-25245), relating to (i) the filing of a
Preliminary Prospectus to the Company's Registration Statement on Form
S-3 (Reg. no. 333-70419) covering the public offering of its senior
unsecured notes, and (ii) the levels of occupancy at the facilities
owned by the Company and New CCA, the Company's primary tenant.
The Company's Current Report on Form 8-K, as filed with the Commission
on June 4, 1999(File no. 0-25245) relating to certain litigation
commenced against the Company as the result of the disclosure of
increased payments by the Company to New CCA.
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PRISON REALTY TRUST, INC.
SIGNATURE
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.
PRISON REALTY TRUST, INC.
Date: August 16, 1999
/s/ Vida H. Carroll
----------------------------------------
Vida H. Carroll
Chief Financial Officer/
Chief Accounting Officer
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