CORRECTIONS CORPORATION OF AMERICA - FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| |
|
|
| þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
OR
| |
|
|
| o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-16109
CORRECTIONS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
| |
|
|
| MARYLAND
|
|
62-1763875 |
| (State or other jurisdiction of
|
|
(I.R.S. Employer |
| incorporation or organization)
|
|
Identification No.) |
10 BURTON HILLS BLVD., NASHVILLE, TENNESSEE 37215
(Address and zip code of principal executive office)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 263-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| |
|
|
| Title of each class
|
|
Name of each exchange on which registered |
| Common Stock, $.01 par value per share
|
|
New York Stock Exchange |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15 (d) of the Act. Yes o No x
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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
| Large accelerated
filer x
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act.). Yes o No x
The aggregate market value of the shares of the registrant’s Common Stock held by non-affiliates
was approximately $3,760,232,737 as of June 30, 2007, based on the closing price of such shares on
the New York Stock Exchange on that day. The number of shares of the Registrant’s Common Stock
outstanding on February 22, 2008 was 124,954,133.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders, currently scheduled to be held on May 16, 2008, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
1
CORRECTIONS CORPORATION OF AMERICA
FORM 10-K
For the fiscal year ended December 31, 2007
TABLE OF CONTENTS
2
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
This annual report on Form 10-K contains statements that are forward-looking statements as defined
within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements give our current expectations of forecasts of future events. All statements other than
statements of current or historical fact contained in this annual report, including statements
regarding our future financial position, business strategy, budgets, projected costs, and plans and
objectives of management for future operations, are forward-looking statements. The words
“anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “projects,”
“will,” and similar expressions, as they relate to us, are intended to identify forward-looking
statements. These statements are based on our current plans and actual future activities, and our
results of operations may be materially different from those set forth in the forward-looking
statements. In particular these include, among other things, statements relating to:
| |
• |
|
fluctuations in operating results because of changes in occupancy levels, competition,
increases in cost of operations, fluctuations in interest rates and risks of operations; |
| |
| |
• |
|
changes in the privatization of the corrections and detention industry and the public
acceptance of our services; |
| |
| |
• |
|
our ability to obtain and maintain correctional facility management contracts, including
as the result of sufficient governmental appropriations, inmate disturbances, and the
timing of the opening of new facilities and the commencement of new management contracts as
well as our ability to utilize current available beds and new capacity as development and
expansion projects are completed; |
| |
| |
• |
|
increases in costs to develop or expand correctional facilities that exceed original
estimates, or the inability to complete such projects on schedule as a result of various
factors, many of which are beyond our control, such as weather, labor conditions, and
material shortages, resulting in increased construction costs; |
| |
| |
• |
|
changes in government policy and in legislation and regulation of the corrections and
detention industry that adversely affect our business including, but not limited to,
judicial challenges regarding the transfer of California inmates to out-of-state private
correctional facilities; |
| |
| |
• |
|
the availability of debt and equity financing on terms that are favorable to us; and |
| |
| |
• |
|
general economic and market conditions. |
Any or all of our forward-looking statements in this annual report may turn out to be inaccurate.
We have based these forward-looking statements largely on our current expectations and projections
about future events and financial trends that we believe may affect our financial condition,
results of operations, business strategy and financial needs. They can be affected by inaccurate
assumptions we might make or by known or unknown risks, uncertainties and assumptions, including
the risks, uncertainties and assumptions described in “Risk Factors.”
In light of these risks, uncertainties and assumptions, the forward-looking events and
circumstances discussed in this annual report may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements. When you consider
these forward-looking statements, you should keep in mind the risk factors and other cautionary
statements in this annual
3
report, including in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Business.”
Our forward-looking statements speak only as of the date made. We undertake no obligation to
publicly update or revise forward-looking statements, whether as a result of new information,
future events or otherwise. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained in this annual report.
4
PART I.
ITEM 1. BUSINESS.
Overview
We are the nation’s largest owner and operator of privatized correctional and detention facilities
and one of the largest prison operators in the United States behind only the federal government and
three states. We currently operate 65 correctional, detention and juvenile facilities, including
41 facilities that we own, with a total design capacity of approximately 78,000 beds in 19 states
and the District of Columbia. Further, we are constructing an additional 1,668-bed facility in
Adams County, Mississippi that is expected to be completed in the fourth quarter of 2008 as well as
a 3,060-bed facility in Eloy, Arizona that is expected to be completed in the second quarter of
2009. We also own three additional correctional facilities that we lease to third-party operators.
We specialize in owning, operating, and managing prisons and other correctional facilities and
providing inmate residential and prisoner transportation services for governmental agencies. In
addition to providing the fundamental residential services relating to inmates, our facilities
offer a variety of rehabilitation and educational programs, including basic education, religious
services, life skills and employment training and substance abuse treatment. These services are
intended to help reduce recidivism and to prepare inmates for their successful reentry into society
upon their release. We also provide health care (including medical, dental, and psychiatric
services), food services, and work and recreational programs.
Our website address is www.correctionscorp.com. We make our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and Section 16 reports under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), available on our website, free of charge, as
soon as reasonably practicable after these reports are filed with or furnished to the Securities
and Exchange Commission (the “SEC”). Information contained on our website is not part of this
report.
Operations
Management and Operation of Correctional and Detention Facilities
Our customers consist of federal, state, and local correctional and detention authorities. For the
years ended December 31, 2007, 2006, and 2005, federal correctional and detention authorities
represented 40%, 40%, and 39%, respectively, of our total revenue. Federal correctional and
detention authorities primarily consist of the Federal Bureau of Prisons, or the BOP, the United
States Marshals Service, or the USMS, and the U.S. Immigration and Customs Enforcement, or ICE.
Our management services contracts typically have terms of three to five years and contain multiple
renewal options. Most of our facility contracts also contain clauses that allow the government
agency to terminate the contract at any time without cause, and our contracts are generally subject
to annual or bi-annual legislative appropriations of funds.
We are compensated for operating and managing facilities at an inmate per diem rate based upon
actual or minimum guaranteed occupancy levels. Occupancy rates for a particular facility are
typically low when first opened or when expansions are first available. However, beyond the
start-up period, which typically ranges from 90 to 180 days, the occupancy rate tends to stabilize.
For the years 2007, 2006, and 2005, the average compensated occupancy of our facilities, based on
rated capacity, was 98.3%, 95.0%, and 91.4.%, respectively, for all of the facilities we owned or
managed, exclusive of facilities where operations have been discontinued. As a result of recently
completed bed development, we had
5
three facilities, our Red Rock Correctional Center, North Fork Correctional Facility, and our
Tallahatchie County Correctional Facility, that provided us with approximately 1,900 available beds
as of December 31, 2007. We recently completed expansions at the North Fork and Tallahatchie
facilities. We expect both of these expansions, as well as the substantial portion of the remaining
beds available at the Red Rock Correctional Center, to be completely utilized by the State of
California Department of Corrections and Rehabilitation (“CDCR”) during the first half of 2008.
On October 5, 2007, we announced that we had entered into a new agreement with the CDCR for the
housing of up to 7,772 inmates from the state of California. The new contract replaced and
superseded the previous contract we had with the CDCR, which provided housing for up to 5,670
inmates. In January 2008, this agreement was further amended to allow for an additional 360 CDCR
inmates. As a result, we now have a contract that provides the CDCR with the ability to house up
to 8,132 inmates in six of the facilities we own. The agreement with the CDCR is subject to
appropriations by the California legislature, expires June 30, 2011 and provides for a minimum
payment based on the greater of the actual occupancy or 90% of the capacity made available to the
CDCR at each facility in which inmates are housed. The minimum payments are subject to specific
terms and conditions in the contract at each facility that houses CDCR inmates.
We currently expect that we will ultimately provide the CDCR up to 960 beds at our Florence
Correctional Center, 80 beds at our West Tennessee Detention Facility, 2,592 beds at our
Tallahatchie County Correctional Facility, 1,080 beds at our North Fork Correctional Facility, 360
beds at our Red Rock Correctional Center, and 3,060 beds at the new La Palma Correctional Center
(described hereafter under the heading “Facilities Under Construction or Development”), with the
final transfer from California occurring during the second quarter of 2009. As of December 31,
2007, we held 2,055 California inmates.
We remain optimistic that the state of California will continue to utilize out-of-state beds to
alleviate its severe overcrowding situation. However, several legal proceedings have challenged the
State’s ability to send inmates out-of-state. The Governor of California has announced an intention
to transfer up to 8,000 inmates out of state to both public and private institutions under
authority granted to him by “The Public Safety and Offender Rehabilitation Services Act of 2007”.
However, legislative enactments or additional legal proceedings, including a proceeding under
federal jurisdiction that could potentially reduce the number of inmates in the California prison
system, may prohibit the out-of-state transfer of inmates or could result in the return of inmates
we currently house for the CDCR. If transfers from California are limited as a result of one or
more of these proceedings, we would market the beds designated for the CDCR, including those that
will be provided at our new La Palma Correctional Center, to other federal and state customers.
While we currently believe we would ultimately be able to fill a substantial portion of such beds,
the utilization would likely be at a much slower pace.
In order to maintain an adequate supply of available beds to meet anticipated demand, while
offering the state of Hawaii the opportunity to consolidate its inmates into fewer facilities, we
commenced construction during 2005 of the Saguaro Correctional Facility. The Saguaro Correctional
Facility was completed in June 2007 at an estimated cost of approximately $102.6 million. As of
December 31, 2007, we housed 1,732 inmates from the state of Hawaii at the Saguaro facility. We
expect the facility to be substantially full with Hawaiian inmates by the end of the first quarter
of 2008.
Focus on Delivering New Bed Capacity
As a result of increasing demand from both our federal and state customers and the utilization of a
significant portion of our existing available beds, we have intensified our efforts to deliver new
capacity to address the lack of available beds that our existing and potential customers are
experiencing. We can provide no assurance, however, that the increased capacity that we construct
6
will be utilized. The following table sets forth current expansion and development projects at
facilities we own:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Total Bed |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Capacity |
|
|
Estimated |
|
|
|
|
| |
|
|
|
|
|
Following |
|
|
Completion |
|
|
Potential |
|
| Facilities Under Development(1) |
|
Beds |
|
|
Expansion |
|
|
Date |
|
|
Customer(s) |
|
Eden Detention Center,
Texas |
|
|
129 |
|
|
|
1,422 |
|
|
|
Q1 2008 |
|
|
BOP |
Kit Carson Correctional Center,
Colorado |
|
|
720 |
|
|
|
1,488 |
|
|
|
Q1 2008 |
|
|
Colorado |
Bent County Correctional Facility,
Colorado |
|
|
720 |
|
|
|
1,420 |
|
|
|
Q2 2008 |
|
|
Colorado |
Leavenworth Detention Center,
Kansas |
|
|
266 |
|
|
|
1,033 |
|
|
|
Q2 2008 |
|
|
USMS |
Tallahatchie County Correctional Facility,
Mississippi |
|
|
848 |
|
|
|
2,672 |
|
|
|
Q2 2008 |
|
|
State of California |
Cimarron Correctional Facility,
Oklahoma |
|
|
660 |
|
|
|
1,692 |
|
|
|
Q3 2008 |
|
|
Various States |
Davis Correctional Facility,
Oklahoma |
|
|
660 |
|
|
|
1,670 |
|
|
|
Q3 2008 |
|
|
Various States |
Adams County Correctional Center, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal or Various |
Mississippi |
|
|
1,668 |
|
|
|
1,668 |
|
|
|
Q4 2008 |
|
|
States |
La Palma
Correctional Center, Arizona |
|
|
3,060 |
|
|
|
3,060 |
|
|
|
Q3 2008-Q2 2009 |
|
|
State of California |
(1) These development projects are described in further detail in “Facilities Under Construction or Development” hereafter.
Certain of our customers have also engaged us to expand certain facilities they own, that we
manage for them. During 2007, we completed an expansion by 360-beds of the 400-bed Citrus County
Detention Facility, owned by Citrus County and located in Lecanto, Florida. We funded the
expansion with cash on hand. If the County terminates our management contract at any time prior to
twenty years following completion of construction, the County would be required to pay us an amount
equal to the construction cost less an allowance for amortization over a twenty-year period. In
addition, the Florida Department of Management Services awarded to us contracts to design,
construct, and operate a 235-bed expansion of their Bay Correctional Facility in Panama City,
Florida and a 384-bed expansion of their Gadsden Correctional Institution in Quincy, Florida. Both
of these expansions were funded by the state of Florida for a fixed price and construction was
completed during the third quarter of 2007. During July 2007, we executed a definitive agreement
to operate both the expanded Gadsden and Bay Correctional facilities for a term of three years with
an indefinite number of two-year renewal periods.
In addition to the above listed projects, we are actively pursuing a number of additional sites for
new prison development.
Operating Procedures
Pursuant to the terms of our management contracts, we are responsible for the overall operations of
our facilities, including staff recruitment, general administration of the facilities, facility
maintenance, security, and supervision of the offenders. We are required by our contracts to
maintain certain levels of insurance coverage for general liability, workers’ compensation, vehicle
liability, and property loss or damage. We are also required to indemnify the contracting agencies
for claims and costs arising out
7
of our operations and, in certain cases, to maintain performance bonds and other collateral
requirements. Approximately 88% of the facilities we operated at December 31, 2007 were accredited
by the American Correctional Association Commission on Accreditation. The American Correctional
Association, or the ACA, is an independent organization comprised of corrections professionals that
establish accreditation standards for correctional and detention institutions.
We provide a variety of rehabilitative and educational programs at our facilities. Inmates at most
facilities we manage may receive basic education through academic programs designed to improve
literacy levels and the opportunity to acquire GED certificates. We also offer vocational training
to inmates who lack marketable job skills. Our craft vocational training programs are accredited
by the National Center for Construction Education and Research. This organization provides
training curriculum and establishes industry standards for over 4,000 construction and trade
organizations in the United States and several foreign countries. In addition, we offer life
skills transition planning programs that provide inmates with job search skills, health education,
financial responsibility training, parenting training, and other skills associated with becoming
productive citizens. At many of our facilities, we also offer counseling, education and/or
treatment to inmates with alcohol and drug abuse problems through our “Strategies for Change” and
Residential Drug Addictions Treatment Program, or RDAP. Equally significant, we offer cognitive
behavioral programs aimed at changing the anti-social attitudes and behaviors of offenders, and
faith-based and religious programs that offer all offenders the opportunity to practice their
spiritual beliefs. These programs incorporate the use of thousands of volunteers, along with our
staff, that assist in providing guidance, direction, and post-incarceration services to offenders.
We believe these programs help reduce recidivism.
We operate our facilities in accordance with both company- and facility-specific policies and
procedures. The policies and procedures reflect the high standards generated by a number of
sources, including the ACA, the Joint Commission on Accreditation of Healthcare Organizations, the
National Commission on Correctional Healthcare, the Occupational Safety and Health Administration,
federal, state, and local government guidelines, established correctional procedures, and
company-wide policies and procedures that may exceed these guidelines. Outside agency standards,
such as those established by the ACA, provide us with the industry’s most widely accepted
operational guidelines. Our facilities not only operate under these established standards (we have
sought and received accreditation for 57 of the facilities we operated as of December 31, 2007) but
are consistently challenged by management to exceed these standards. This challenge is presented,
in large part, through an extensive, comprehensive Quality Assurance Program. We intend to apply
for ACA accreditation for all of our eligible facilities that are not currently accredited where it
is economically feasible to complete the 18-24 month accreditation process.
Our Quality Assurance Department independently operates under the auspices of, and reports directly
to, the Company’s Office of General Counsel. The Quality Assurance Department consists of two
major sections. The first is the Research and Data Analysis Section which collects and analyzes
performance metrics across multiple databases. Through rigorous reporting and analyses of
comprehensive, comparative statistics across disciplines, divisions, business units and the Company
as a whole, the Research and Data Analysis Section provides timely, independently generated
performance and trend data to senior management. The second major section within the Quality
Assurance Department is the Operational Audit Section. This section consists of two full time
audit teams comprised of subject matter experts from all the major discipline areas within
institutional operations. These two audit teams conduct rigorous, on site annual evaluations of
each facility within the Company with only minimal or no advance notice. Highly specialized,
discipline specific audit tools, containing over 800 audited items are employed in this detailed,
comprehensive process. The results of these on site evaluations are used to discern areas of
strength and areas in need of management attention. The audit findings also comprise a major part
of our continuous operational risk assessment and management process. The Company has devoted
significant resources to the Quality Assurance Department, enabling us to monitor compliance with
contractual requirements,
8
outside agency and accrediting organization standards. Quality Assurance closely monitors all
efforts by our facilities to deliver the exceptional quality of services and operations expected.
Prisoner Transportation Services
We currently provide transportation services to governmental agencies through our wholly-owned
subsidiary, TransCor America, LLC, or TransCor. Through a “hub-and-spoke” network, TransCor
provides nationwide coverage to federal, state, and local agencies across the country. During the
years ended December 31, 2007, 2006, and 2005, TransCor generated total consolidated revenue of
$14.2 million, $15.1 million, and $14.6 million, respectively, comprising 1.0%, 1.1%, and 1.2% of
our total consolidated revenue in each respective year. We believe TransCor provides a
complementary service to our core business that enables us to quickly respond to our customers’
transportation needs.
Facility Portfolio
General
Our facilities can generally be classified according to the level(s) of security at such facility.
Minimum security facilities have open housing within an appropriately designed and patrolled
institutional perimeter. Medium security facilities have either cells, rooms or dormitories, a
secure perimeter, and some form of external patrol. Maximum security facilities have cells, a
secure perimeter, and external patrol. Multi-security facilities have various areas encompassing
minimum, medium or maximum security. Non-secure facilities are facilities having open housing that
inhibit movement by their design. Secure facilities are facilities having cells, rooms, or
dormitories, a secure perimeter, and some form of external patrol.
Our facilities can also be classified according to their primary function. The primary functional
categories are:
| |
• |
|
Correctional Facilities. Correctional facilities house and provide contractually agreed
upon programs and services to sentenced adult prisoners, typically prisoners on whom a
sentence in excess of one year has been imposed. |
| |
| |
• |
|
Detention Facilities. Detention facilities house and provide contractually agreed upon
programs and services to (i) prisoners being detained by ICE, (ii) prisoners who are
awaiting trial who have been charged with violations of federal criminal law (and are
therefore in the custody of the USMS) or state criminal law, and (iii) prisoners who have
been convicted of crimes and on whom a sentence of one year or less has been imposed. |
| |
| |
• |
|
Juvenile Facilities. Juvenile facilities house and provide contractually agreed upon
programs and services to juveniles, typically defined by applicable federal or state law as
being persons below the age of 18, who have been determined to be delinquents by a juvenile
court and who have been committed for an indeterminate period of time but who typically
remain confined for a period of six months or less. At December 31, 2007, we owned only
one such juvenile facility. The operation of juvenile facilities is not considered part of
our strategic focus. |
| |
| |
• |
|
Leased Facilities. Leased facilities are facilities that are within one of the above
categories and that we own but do not manage. These facilities are leased to third-party
operators. |
9
Facilities and Facility Management Contracts
We own 44 correctional, detention, and juvenile facilities in 14 states and the District of
Columbia, three of which we lease to third-party operators. We also own two corporate office
buildings. Additionally, we currently manage 24 correctional and detention facilities owned by
government agencies. The segment disclosures are included in Note 17 of the Notes to the Financial
Statements. The following table sets forth all of the facilities which we currently (i) own and
manage, (ii) own, but are leased to another operator, and (iii) manage but are owned by a
government authority. The table includes certain information regarding each facility, including
the term of the primary management contract related to such facility, or, in the case of facilities
we own but lease to a third-party operator, the term of such lease. We have a number of management
contracts and leases that expire in 2008 (or have expired) with no remaining renewal options. We
continue to operate, and, unless otherwise noted, expect to continue to manage or lease these
facilities, although we can provide no assurance that we will maintain our contracts to manage or
lease these facilities or when new contracts will be renewed.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
| |
|
Primary |
|
|
Design |
|
|
Security |
|
|
Facility |
|
|
|
|
|
|
Renewal |
|
| Facility Name |
|
Customer |
|
|
Capacity (A) |
|
|
Level |
|
|
Type (B) |
|
|
Term |
|
|
Options (C) |
|
Owned and Managed Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Arizona Detention Center |
|
USMS |
|
|
2,304 |
|
|
Multi |
|
Detention |
|
May 2008 |
|
|
— |
|
Florence, Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eloy Detention Center |
|
ICE |
|
|
1,500 |
|
|
Medium |
|
Detention |
|
Indefinite |
|
|
— |
|
Eloy, Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florence Correctional Center |
|
USMS |
|
|
1,824 |
|
|
Multi |
|
Correctional |
|
May 2008 |
|
|
— |
|
Florence, Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Rock Correctional Center |
|
State of Alaska |
|
|
1,596 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
(6) 1 year |
Eloy, Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saguaro Correctional Facility |
|
State of Hawaii |
|
|
1,896 |
|
|
Medium |
|
Correctional |
|
June 2009 |
|
(1) 2 year |
Eloy, Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California City Correctional Center |
|
BOP |
|
|
2,304 |
|
|
Medium |
|
Correctional |
|
September 2008 |
|
(2) 1 year |
California City, California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Diego Correctional Facility (D) |
|
ICE |
|
|
1,154 |
|
|
Minimum/ |
|
Detention |
|
June 2008 |
|
(5) 3 year |
San Diego, California |
|
|
|
|
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bent County Correctional Facility |
|
State of Colorado |
|
|
700 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
|
— |
|
Las Animas, Colorado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crowley County Correctional Facility |
|
State of Colorado |
|
|
1,794 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
|
— |
|
Olney Springs, Colorado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huerfano County Correctional Center |
|
State of Colorado |
|
|
752 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
|
— |
|
(E)
Walsenburg, Colorado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kit Carson Correctional Center |
|
State of Colorado |
|
|
768 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
|
— |
|
Burlington, Colorado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coffee Correctional Facility (F) |
|
State of |
|
|
1,524 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
(21) 1 year |
Nicholls, Georgia |
|
Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McRae Correctional Facility |
|
BOP |
|
|
1,524 |
|
|
Medium |
|
Correctional |
|
November 2008 |
|
(4) 1 year |
McRae, Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
| |
|
Primary |
|
|
Design |
|
|
Security |
|
|
Facility |
|
|
|
|
|
|
Renewal |
|
| Facility Name |
|
Customer |
|
|
Capacity (A) |
|
|
Level |
|
|
Type (B) |
|
|
Term |
|
|
Options (C) |
|
Stewart Detention Center |
|
ICE |
|
|
1,752 |
|
|
Medium |
|
Correctional |
|
Indefinite |
|
|
— |
|
Lumpkin, Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheeler Correctional Facility (F) |
|
State of |
|
|
1,524 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
(21) 1 year |
Alamo, Georgia |
|
Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leavenworth Detention Center |
|
USMS |
|
|
767 |
|
|
Maximum |
|
Detention |
|
December 2011 |
|
(3) 5 year |
Leavenworth, Kansas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lee Adjustment Center |
|
State of Vermont |
|
|
816 |
|
|
Minimum/ |
|
Correctional |
|
June 2009 |
|
(2) 2 year |
Beattyville, Kentucky |
|
|
|
|
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marion Adjustment Center |
|
Commonwealth of |
|
|
826 |
|
|
Minimum |
|
Correctional |
|
December 2007 |
|
(3) 2 year |
St. Mary, Kentucky |
|
Kentucky |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Otter Creek Correctional Center (G) |
|
Commonwealth of |
|
|
656 |
|
|
Minimum/ |
|
Correctional |
|
July 2009 |
|
(3) 2 year |
Wheelwright, Kentucky |
|
Kentucky |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prairie Correctional Facility |
|
State of Minnesota |
|
|
1,600 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
(4) 1 year |
Appleton, Minnesota |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tallahatchie
County Correctional Facility (H) |
|
State of |
|
|
1,824 |
|
|
Medium |
|
Correctional |
|
June 2011 |
|
Indefinite |
Tutwiler, Mississippi |
|
California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossroads Correctional Center (I) |
|
State of Montana |
|
|
664 |
|
|
Multi |
|
Correctional |
|
August 2007 |
|
(6) 2 year |
Shelby, Montana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cibola County Corrections Center |
|
BOP |
|
|
1,129 |
|
|
Medium |
|
Correctional |
|
September 2008 |
|
(2) 1 year |
Milan, New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Mexico
Women’s Correctional Facility |
|
State of |
|
|
596 |
|
|
Multi |
|
Correctional |
|
June 2009 |
|
|
— |
|
Grants, New Mexico |
|
New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Torrance County Detention Facility |
|
USMS |
|
|
910 |
|
|
Multi |
|
Detention |
|
Indefinite |
|
|
— |
|
Estancia, New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast Ohio Correctional Center |
|
BOP |
|
|
2,016 |
|
|
Medium |
|
Correctional |
|
May 2009 |
|
(3) 2 year |
Youngstown, Ohio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cimarron Correctional Facility (J) |
|
State of Oklahoma |
|
|
1,032 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
(1) 1 year |
Cushing, Oklahoma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Davis Correctional Facility (J) |
|
State of Oklahoma |
|
|
1,010 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
(1) 1 year |
Holdenville, Oklahoma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diamondback Correctional Facility |
|
State of |
|
|
2,160 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
(4) 1 year |
Watonga, Oklahoma |
|
Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Fork Correctional Facility |
|
State of Colorado |
|
|
2,400 |
|
|
Medium |
|
Correctional |
|
June 2008 |
|
|
— |
|
Sayre, Oklahoma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Tennessee Detention Facility |
|
USMS |
|
|
600 |
|
|
Multi |
|
Detention |
|
February 2009 |
|
|
— |
|
Mason, Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shelby Training Center (K) |
|
Shelby County, |
|
|
200 |
|
|
Secure |
|
Juvenile |
|
April 2015 |
|
|
— |
|
Memphis, Tennessee |
|
Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Whiteville Correctional Facility (L) |
|
State of Tennessee |
|
|
1,536 |
|
|
Medium |
|
Correctional |
|
September 2008 |
|
(2) 1 year |
Whiteville, Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeport Pre-Parole Transfer Facility |
|
State of |
|
|
200 |
|
|
Medium |
|
Correctional |
|
February 2009 |
|
(2) 1 year |
Bridgeport, Texas |
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
| |
|
Primary |
|
|
Design |
|
|
Security |
|
|
Facility |
|
|
|
|
|
|
Renewal |
|
| Facility Name |
|
Customer |
|
|
Capacity (A) |
|
|
Level |
|
|
Type (B) |
|
|
Term |
|
|
Options (C) |
|
Eden Detention Center |
|
BOP |
|
|
1,293 |
|
|
Medium |
|
Correctional |
|
April 2011 |
|
(3) 2 year |
Eden, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Processing Center |
|
ICE |
|
|
905 |
|
|
Medium |
|
Detention |
|
September 2008 |
|
|
|
|
Houston, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laredo Processing Center |
|
ICE |
|
|
258 |
|
|
Minimum/ |
|
Detention |
|
Indefinite |
|
|
|
|
Laredo, Texas |
|
|
|
|
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Webb County Detention Center |
|
USMS |
|
|
480 |
|
|
Medium |
|
Detention |
|
November |
|
(1) 5 year |
Laredo, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral
Wells Pre-Parole Transfer Facility |
|
State of |
|
|
2,103 |
|
|
Minimum |
|
Correctional |
|
February 2009 |
|
(2) 1 year |
Mineral Wells, Texas |
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T. Don Hutto Residential Center |
|
ICE |
|
|
512 |
|
|
Non-secure |
|
Detention |
|
Indefinite |
|
|
|
|
Taylor, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.C.
Correctional Treatment Facility (M) |
|
District of Columbia |
|
|
1,500 |
|
|
Medium |
|
Detention |
|
March 2017 |
|
|
|
|
Washington, D.C. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Only Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bay Correctional Facility |
|
State of |
|
|
985 |
|
|
Medium |
|
Correctional |
|
June 2010 |
|
Indefinite |
Panama City, Florida |
|
Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bay County Jail and Annex |
|
Bay County, Florida |
|
|
1,150 |
|
|
Multi |
|
Detention |
|
September 2012 |
|
(1) 6 year |
Panama City, Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citrus County Detention Facility |
|
Citrus County, |
|
|
760 |
|
|
Multi |
|
Detention |
|
September 2015 |
|
Indefinite |
Lecanto, Florida |
|
Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gadsden Correctional Institution |
|
State of |
|
|
1,520 |
|
|
Minimum/ |
|
Correctional |
|
June 2010 |
|
Indefinite |
Quincy, Florida |
|
Florida |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hernando County Jail |
|
Hernando County, |
|
|
876 |
|
|
Multi |
|
Detention |
|
October 2010 |
|
|
— |
|
Brooksville, Florida |
|
Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lake City Correctional Facility |
|
State of |
|
|
893 |
|
|
Secure |
|
Correctional |
|
June 2009 |
|
Indefinite |
Lake City, Florida |
|
Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Idaho Correctional Center |
|
State of |
|
|
1,270 |
|
|
Minimum/ |
|
Correctional |
|
June 2009 |
|
|
|
|
Boise, Idaho |
|
Idaho |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marion County Jail |
|
Marion County, |
|
|
1,030 |
|
|
Multi |
|
Detention |
|
December 2017 |
|
(10) 1 year |
Indianapolis, Indiana |
|
Indiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winn Correctional Center |
|
State of Louisiana |
|
|
1,538 |
|
|
Medium/ |
|
Correctional |
|
September 2008 |
|
|
|
|
Winnfield, Louisiana |
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delta Correctional Facility |
|
State of Mississippi |
|
|
1,172 |
|
|
Minimum/Medium |
|
Correctional |
|
May |
|
|
— |
|
Greenwood, Mississippi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilkinson County Correctional Facility |
|
State of Mississippi |
|
|
1,000 |
|
|
Medium |
|
Correctional |
|
May 2008 |
|
(2) 1 year |
Woodville, Mississippi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elizabeth Detention Center |
|
ICE |
|
|
300 |
|
|
Minimum |
|
Detention |
|
September 2008 |
|
(5) 3 year |
Elizabeth, New Jersey |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camino Nuevo Correctional Center |
|
State of New Mexico |
|
|
192 |
|
|
Multi |
|
Correctional |
|
March 2010 |
|
|
— |
|
Albuquerque, New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
| |
|
Primary |
|
|
Design |
|
|
Security |
|
|
Facility |
|
|
|
|
|
|
Renewal |
|
| Facility Name |
|
Customer |
|
|
Capacity (A) |
|
|
Level |
|
|
Type (B) |
|
|
Term |
|
|
Options (C) |
|
Silverdale Facilities |
|
Hamilton County, |
|
|
918 |
|
|
Multi |
|
Detention |
|
January 2008 |
|
Indefinite |
Chattanooga, Tennessee |
|
Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Central Correctional Center |
|
State of Tennessee |
|
|
1,676 |
|
|
Medium |
|
Correctional |
|
June 2010 |
|
(1) 2 year |
Clifton, Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metro-Davidson County Detention Facility |
|
Davidson County, |
|
|
1,092 |
|
|
Multi |
|
Detention |
|
July 2008 |
|
|
|
|
Nashville, Tennessee |
|
Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardeman County Correctional Facility |
|
State of Tennessee |
|
|
2,016 |
|
|
Medium |
|
Correctional |
|
May 2009 |
|
(3) 3 year |
Whiteville, Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. M. Moore Correctional Center |
|
State of |
|
|
500 |
|
|
Minimum/ |
|
Correctional |
|
January 2009 |
|
|
|
|
Overton, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bartlett State Jail |
|
State of |
|
|
1,049 |
|
|
Minimum/ |
|
Correctional |
|
January 2009 |
|
(2) 1 year |
Bartlett, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradshaw State Jail |
|
State of |
|
|
1,980 |
|
|
Minimum/ |
|
Correctional |
|
January 2009 |
|
(2) 1 year |
Henderson, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dawson State Jail |
|
State of |
|
|
2,216 |
|
|
Minimum/ |
|
Correctional |
|
January 2009 |
|
(2) 1 year |
Dallas, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diboll Correctional Center |
|
State of |
|
|
518 |
|
|
Minimum/ |
|
Correctional |
|
January 2009 |
|
|
|
|
Diboll, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindsey State Jail |
|
State of |
|
|
1,031 |
|
|
Minimum/ |
|
Correctional |
|
January 2009 |
|
(2) 1 year |
Jacksboro, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Willacy State Jail |
|
State of |
|
|
1,069 |
|
|
Minimum/ |
|
Correctional |
|
January 2009 |
|
(2) 1 year |
Raymondville, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leo Chesney Correctional Center |
|
Cornell |
|
|
240 |
|
|
Minimum |
|
Owned/Leased |
|
September 2010 |
|
|
|
|
Live Oak, California |
|
Corrections |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Queensgate Correctional Facility |
|
Hamilton County, |
|
|
850 |
|
|
Medium |
|
Owned/Leased |
|
March 2009 |
|
(4) 1 year |
Cincinnati, Ohio |
|
Ohio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Education Partners (N) |
|
Community Education |
|
|
|
|
|
Non-secure |
|
Owned/Leased |
|
June 2008 |
|
|
|
|
Houston, Texas |
|
Partners |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
| |
(A) |
|
Design capacity measures the number of beds and, accordingly, the number of inmates
each facility is designed to accommodate. Facilities housing detainees on a short term
basis may exceed the original intended design capacity for sentenced inmates due to the
lower level of services required by detainees in custody for a brief period. From time to
time we may evaluate the design capacity of our facilities based on customers using the
facilities, and the ability to reconfigure space with minimal capital outlays. As a
result, the design capacity of certain facilities may vary from the design capacity
previously presented. We believe design capacity is an appropriate measure for evaluating
prison operations, because the revenue generated by each facility is based on a per diem or
monthly rate per inmate housed at the facility paid by the corresponding contracting
governmental entity. |
| |
| |
(B) |
|
We manage numerous facilities that have more than a single function (e.g., housing both
long-term sentenced adult prisoners and pre-trial detainees). The primary functional
categories into which facility types are identified were determined by the relative size of
inmate populations in a particular facility on December 31, 2007. If, for example, a
1,000-bed facility housed 900 adult inmates with sentences in excess of one year and 100
pre-trial detainees, the primary functional category to which it would be assigned would be
that of correctional facilities and not detention facilities. It should be understood that
the primary functional category to which multi-user facilities are assigned may change from
time to time. |
| |
| |
(C) |
|
Remaining renewal options represents the number of renewal options, if applicable, and
the term of each option renewal. |
13
| |
(D) |
|
The facility is subject to a ground lease with the County of San Diego whereby the
initial lease term is 18 years from the commencement of the contract, as defined. The
County has the right to buy out all, or designated portions of, the premises at various
times prior to the expiration of the term at a price generally equal to the cost of the
premises, or the designated portion of the premises, less an allowance for the amortization
over a 20-year period. Upon expiration of the lease, ownership of the facility
automatically reverts to the County of San Diego. |
| |
| |
(E) |
|
The facility is subject to a purchase option held by Huerfano County which grants
Huerfano County the right to purchase the facility upon an early termination of the
contract at a price generally equal to the cost of the facility plus 80% of the percentage
increase in the Consumer Price Index, cumulated annually. |
| |
| |
(F) |
|
The facility is subject to a purchase option held by the Georgia Department of
Corrections, or GDOC, which grants the GDOC the right to purchase the facility for the
lesser of the facility’s depreciated book value or fair market value at any time during the
term of the contract between us and the GDOC. |
| |
| |
(G) |
|
The facility is subject to a deed of conveyance with the city of Wheelwright, Kentucky
which includes provisions that allow assumption of ownership by the city of Wheelwright
under the following occurrences: (1) we cease to operate the facility for more than two
years, (2) our failure to maintain at least one employee for a period of sixty consecutive
days, or (3) a conversion to a maximum security facility based upon classification by the
Kentucky Corrections Cabinet. |
| |
| |
(H) |
|
The facility is subject to a purchase option held by the Tallahatchie County
Correctional Authority which grants Tallahatchie County Correctional Authority the right to
purchase the facility at any time during the contract at a price generally equal to the
cost of the premises less an allowance for amortization originally over a 20-year period,
and which amortization period was extended through 2050 in connection with an expansion
completed during 2007. |
| |
| |
(I) |
|
The state of Montana has an option to purchase the facility generally at any time
during the term of the contract with us at fair market value less the sum of a
pre-determined portion of per diem payments made to us by the state of Montana. |
| |
| |
(J) |
|
The facility is subject to a purchase option held by the Oklahoma Department of
Corrections, or ODC, which grants the ODC the right to purchase the facility at its fair
market value at any time during the term of the contract with ODC. |
| |
| |
(K) |
|
Upon the conclusion of the thirty-year ground lease with Shelby County, Tennessee, the
facility will become the property of Shelby County. Prior to such time, if the County
terminates the lease without cause, breaches the lease or the State fails to fund the
contract, we may purchase the property for $150,000. If we terminate the lease without
cause, or breach the contract, we will be required to purchase the property for its fair
market value as agreed to by the County and us. |
| |
| |
(L) |
|
The state of Tennessee has the option to purchase the facility in the event of our
bankruptcy, or upon an operational breach, as defined, at a price equal to the book value
of the facility, as defined. |
| |
| |
(M) |
|
The District of Columbia has the right to purchase the facility at any time during the
term of the contract at a price generally equal to the present value of the remaining lease
payments for the premises. Upon expiration of the lease, ownership of the facility
automatically reverts to the District of Columbia. |
| |
| |
(N) |
|
The alternative educational facility is currently configured to accommodate 900 at-risk
juveniles and may be expanded to accommodate a total of 1,400 at-risk juveniles. In
November 2007, we accepted an unsolicited offer to sell this facility to the third-party
operator. During February 2008, at the request of Community Education Partners we agreed
to extend the proposed closing date and fix the sales price through June 30, 2008. |
Facilities Under Construction or Development
In July 2006, we were notified by the state of Colorado that the State had accepted our proposal to
expand our 700-bed Bent County Correctional Facility in Las Animas, Colorado by 720 beds to fulfill
part of a 2,250-bed request for proposal issued by the state of Colorado in December 2005. As a
result of the award, we have now entered into an Implementation Agreement with the state of
Colorado for the expansion of our Bent County Correctional Facility by 720 beds. In addition,
during November 2006 we entered into another Implementation Agreement to also expand our 768-bed
Kit Carson Correctional Center in Burlington, Colorado by 720 beds. Construction of the Bent and
Kit Carson facilities is estimated to cost approximately $88 million. The Kit Carson expansion is
anticipated to be completed during the first quarter of 2008 while the Bent expansion is
anticipated to be completed during the second quarter of 2008.
During January 2007, we announced that we received a contract award from the BOP to house up to
1,558 federal inmates at our Eden Detention Center in Eden, Texas. As of December 31, 2007, we
housed 1,353 BOP inmates at the Eden facility. The contract requires a renovation and an expansion
of the Eden facility, which will increase the rated capacity of the facility by 129 beds to an
aggregate capacity of 1,422 beds. Renovation of the Eden facility is expected to be completed in
the first quarter of 2008 at an estimated cost of $20.0 million.
During the fourth quarter of 2007, we completed a 720-bed expansion of our Tallahatchie County
Correctional Facility in Tutwiler, Mississippi resulting in a total of 1,824 beds. In order to
satisfy demand for prison beds for the state of California and/or other state customers, during
July 2007 we announced our intention to further expand our Tallahatchie facility by an additional
848 beds to bring
14
the total capacity to 2,672 beds and expect to complete this expansion during the second quarter of
2008. As previously described herein, we expect to house up to 2,592 inmates from the state of
California at the Tallahatchie facility pursuant to the newest contract with the CDCR. The total
cost of these expansions is estimated to be $96.0 million.
In March 2007, we announced our intention to expand our 767-bed Leavenworth Detention Center in
Leavenworth, Kansas by 266 beds. We anticipate that construction will be completed during the
second quarter of 2008, at an estimated cost of $22.5 million. This expansion will also include a
renovation of the existing building infrastructure to accommodate higher detainee populations. As
of December 31, 2007, the Leavenworth facility housed approximately 930 USMS detainees.
In May 2007, we announced our intention to expand two of our owned facilities located in Oklahoma
based on our expectation of increased demand from the state of Oklahoma and a number of other
existing state customers. We are expanding our 1,032-bed Cimarron Correctional Facility in Cushing,
Oklahoma and our 1,010-bed Davis Correctional Facility in Holdenville, Oklahoma by 660 beds each.
Currently, the state of Oklahoma occupies both facilities which are running at or near full
capacity. Both expansions are expected to be completed by the end of the third quarter of 2008 at
an estimated total cost of $90.0 million.
In July 2007, we announced the commencement of construction of a new 1,668-bed correctional
facility in Adams County, Mississippi. Construction of the new facility is estimated to be
completed during the fourth quarter of 2008 at an estimated cost of approximately $105.0 million.
We do not currently have a management contract to utilize these new beds, but will market the new
beds to various existing and potential customers.
In October 2007, we announced the commencement of construction of our new 3,060-bed La Palma
Correctional Center located in Eloy, Arizona, which we expect to be fully utilized by the CDCR. We
expect to complete construction of the new La Palma Correctional Center during the second quarter
of 2009 at an estimated total cost of $205.0 million. However, we expect to open a portion of the
new facility to begin receiving inmates from the state of California during the third quarter of
2008, with the continued receipt of California inmates through completion of construction, as
phases of the facility become available.
Business Development
We are currently the nation’s largest provider of outsourced correctional management services. We
believe we manage approximately 47% of all beds under contract with private operators of
correctional and detention facilities in the United States.
Under the direction of our business development department and our senior management and with the
aid, where appropriate, of certain independent consultants, we market our services to government
agencies responsible for federal, state, and local correctional facilities in the United States.
Business from our federal customers, including primarily the BOP, USMS, and ICE, continues to be a
significant component of our business accounting for 40%, 40%, and 39% of total revenue in 2007,
2006, and 2005, respectively. The BOP, USMS, and ICE were our only customers that accounted for 10%
or more of our total revenue during these years. The BOP accounted for 13%, 14%, and 17% of total
revenue for 2007, 2006, and 2005, respectively. The USMS accounted for 14%, 15%, and 15% of total
revenue for 2007, 2006, and 2005, respectively. ICE accounted for 13%, 11%, and 8% of total
revenue for 2007, 2006, and 2005, respectively. Certain federal contracts contain “take-or-pay”
clauses that guarantee us a certain amount of management revenue, regardless of occupancy levels.
In addition, business from our state customers, which constituted 49% of total revenue during each
of 2007, 2006, and 2005, increased 11.6% from $645.1 million during 2006 to $719.6 million during
15
2007, as we have also experienced an increase in demand from state customers. While we believe we
have been successful in expanding our relationships with existing customers, we have also begun to
provide correctional services to states that have not previously utilized the private sector for
their correctional needs.
We believe that we can further develop our business by, among other things:
| |
• |
|
Maintaining and expanding our existing customer relationships and continuing to fill
existing beds within our facilities, while maintaining an adequate inventory of
available beds through new facility construction and expansion opportunities that we
believe provides us with flexibility and a competitive advantage when bidding for new
management contracts; |
| |
| |
• |
|
Enhancing the terms of our existing contracts; and |
| |
| |
• |
|
Establishing relationships with new customers who have either previously not
outsourced their correctional management needs or have utilized other private
enterprises. |
We generally receive inquiries from or on behalf of government agencies that are considering
outsourcing the management of certain facilities or that have already decided to contract with
private enterprise. When we receive such an inquiry, we determine whether there is an existing
need for our services and whether the legal and political climate in which the inquiring party
operates is conducive to serious consideration of outsourcing. Based on the findings, an initial
cost analysis is conducted to further determine project feasibility.
We pursue new business opportunities through Request for Proposals, or RFPs, and Request for
Qualifications, or RFQs. RFPs and RFQs are issued by government agencies and are solicited for bid
by private enterprises.
Generally, government agencies responsible for correctional and detention services procure goods
and services through RFPs and RFQs. Most of our activities in the area of securing new business
are in the form of responding to RFPs. As part of our process of responding to RFPs, members of
our management team meet with the appropriate personnel from the agency making the request to best
determine the agency’s needs. If the project fits within our strategy, we submit a written
response to the RFP. A typical RFP requires bidders to provide detailed information, including,
but not limited to, the service to be provided by the bidder, its experience and qualifications,
and the price at which the bidder is willing to provide the services (which services may include
the renovation, improvement or expansion of an existing facility or the planning, design and
construction of a new facility). Based on the proposals received in response to an RFP, the agency
will award a contract to the successful bidder. In addition to issuing formal RFPs, local
jurisdictions may issue an RFQ. In the RFQ process, the requesting agency selects a firm believed
to be most qualified to provide the requested services and then negotiates the terms of the
contract with that firm, which terms include the price at which its services are to be provided.
Competitive Strengths
We believe that we benefit from the following competitive strengths:
The Largest and Most Recognized Private Prison Operator. Our recognition as the industry’s leading
private prison operator provides us with significant credibility with our current and prospective
clients. We believe we manage approximately 47% of all privately managed prison beds in the United
States. We pioneered modern-day private prisons with a list of notable accomplishments, such as
being the first company to design, build, and operate a private prison and the first company to
manage a private
16
maximum-security facility under a direct contract with the federal government. In addition to
providing us with extensive experience and institutional knowledge, our size also helps us deliver
value to our customers by providing purchasing power and allowing us to achieve certain economies
of scale.
Available Beds within Our Existing Facilities. As of December 31, 2007, we had three facilities,
our Red Rock Correctional Center, North Fork Correctional Facility, and our Tallahatchie County
Correctional Facility which had vacancies and provided us with approximately 1,900 available beds.
During the fourth quarter of 2007, we completed a 720-bed expansion at our Tallahatchie facility
and a 960-bed expansion at our North Fork facility. Both of these expansions have just recently
been completed and thus have not had sufficient time to become fully occupied. We expect both of
these expansions to be completely utilized by the CDCR during the first half of 2008. Further,
there were approximately 2,100 additional available beds at five of our other facilities as of
December 31, 2007. Substantially all of these available beds are either under contract or are
targeted for specific customers. As a result, we believe that substantially all of these beds will
be utilized in the near term.
Development and Expansion Opportunities. As a result of persistent demand from both our federal
and state customers, the utilization of a significant portion of our available beds, and the
expectation of an environment that continues to be constrained by a lack of available supply of
prison beds, we have intensified our efforts to deliver new bed capacity through development of new
prison facilities and the expansion of certain of our existing facilities.
We have recently commenced construction of two new facilities to address the demand for prison
beds. The Adams County Correctional Center will be a 1,668-bed correctional facility in Adams
County, Mississippi expected to be completed during the fourth quarter of 2008 that we will market
to various existing and potential customers. The La Palma Correctional Center will be a 3,060-bed
correctional facility that we expect to be fully utilized by the state of California. We expect to
open portions of the La Palma facility beginning in the third quarter of 2008, with continued
receipt of California inmates through the completion of construction, currently expected to be in
the second quarter of 2009, as phases of the facility become available. We are also actively
pursuing a number of additional sites for new prison development.
We also currently have bed expansions ongoing at seven facilities we own by an aggregate of
approximately 4,000 beds. We expect these expansions to be complete at various times over the next
12 months. Although we have identified potential customers for a substantial portion of these new
beds, we can provide no assurance that these beds will be utilized. Further, none of the customers
that we expect to fill the expansion beds has provided a guarantee of occupancy.
Diverse, High Quality Customer Base. We provide services under management contracts with federal,
state, and local agencies that generally have credit ratings of single-A or better. In addition, a
majority of our contracts have terms between one and five years which contribute to our relatively
predictable and stable revenue base.
Proven Senior Management Team. Our senior management team has applied their prior experience and
diverse industry expertise to significantly improve our operations, related financial results, and
capital structure. Under our senior management team’s leadership, we have created new business
opportunities with customers that have not previously utilized the private corrections sector,
expanded relationships with existing customers, including all three federal correctional and
detention agencies, and successfully completed numerous recapitalization and refinancing
transactions, resulting in increases in revenues, operating income, facility operating margins, and
profitability.
Financial Flexibility. As of December 31, 2007, we had cash on hand of $58.0 million and $415.1
million available under our $450.0 million revolving credit facility. During the year ended
December
17
31, 2007, we generated $250.9 million in cash through operating activities, and as of December 31,
2007, we had net working capital of $125.9 million. In addition, we have an effective “shelf”
registration statement under which we may issue an indeterminate amount of securities from time to
time when we determine that market conditions and the opportunity to utilize the proceeds from the
issuance of such securities are favorable.
At December 31, 2007, the interest rates on all our outstanding indebtedness were fixed, with a
weighted average stated interest rate of 6.9%, while our total weighted average debt maturity was
4.5 years. Standard & Poor’s Ratings Services currently rates our unsecured debt and corporate
credit as “BB”, while Moody’s Investors Service currently rates our unsecured debt as “Ba2”.
Business Strategy
Our primary business strategy is to provide quality corrections services, offer a compelling value,
and increase bed capacity occupancy and revenue, while maintaining our position as the leading
owner, operator, and manager of privatized correctional and detention facilities. We will also
consider opportunities for growth, including potential acquisitions of businesses within our line
of business and those that provide complementary services, provided we believe such opportunities
will broaden our market and/or increase the services we can provide to our customers.
Own and Operate High Quality Correctional and Detention Facilities. We believe that our customers
choose an outsourced correctional service provider based primarily on availability of beds, price,
and the quality services provided. Approximately 88% of the facilities we operated as of December
31, 2007 are accredited by the ACA, an independent organization of corrections industry
professionals that establishes standards by which a correctional facility may gain accreditation.
We believe that this percentage compares favorably to the percentage of government-operated adult
prisons that are accredited by the ACA. We have experienced wardens managing our facilities, with
an average of over 24 years of corrections experience and an average tenure of over 11 years with
us.
Offer Compelling Value. We believe that our customers also seek a compelling value and service
offering when selecting an outsourced correctional services provider. We believe that we offer a
cost-effective alternative to our customers by reducing their correctional services costs. We
attempt to accomplish this through improving operating performance and efficiency through the
following key operating initiatives: (1) standardizing supply and service purchasing practices and
usage; (2) implementing a standard approach to staffing and business practices in an effort to
reduce our fixed expenses; (3) improving inmate management, resource consumption, and reporting
procedures through the utilization of numerous technological initiatives; and (4) improving
productivity and reducing employee turnover. We also intend to continue to implement a wide
variety of specialized services that address the unique needs of various segments of the inmate
population. Because the facilities we operate differ with respect to security levels, ages,
genders, and cultures of inmates, we focus on the particular needs of an inmate population and
tailor our services based on local conditions and our ability to provide services on a
cost-effective basis.
Increase Occupancy and Revenue. Our industry benefits from significant economies of scale,
resulting in lower operating costs per inmate as occupancy rates increase. We believe we have been
successful in increasing occupancy and continue to pursue a number of initiatives intended to
further increase our revenue. We are focused on renewing and enhancing the terms of our existing
contracts, and have intensified our efforts to create new bed capacity and take advantage of
additional expansion opportunities that we believe have favorable investment returns and increase
value to our stockholders.
18
The Corrections and Detention Industry
We believe we are well-positioned to capitalize on government outsourcing of correctional
management services because of our competitive strengths and business strategy. The key reasons
for this outsourcing trend include (unless otherwise noted, statistical references obtained from
the “Bureau of Justice Statistics Bulletin” issued by the U.S. Department of Justice in December
2007):
Growing United States Prison Population. The annual growth rate of the federal and state prison
population increased 2.8% for the year ended December 31, 2006, which was larger than the average
annual growth rate of 1.9% from 2000 to 2005. During 2006, the number of prisoners under federal
jurisdiction increased 2.9%. Federal agencies are collectively our largest customer and accounted
for 40% of our total revenues (when aggregating all of our federal contracts) for the year ended
December 31, 2007. The Department of Homeland Security has also increased its efforts to secure the
U.S. borders and reduce illegal immigration through its Secure Border Initiative, or SBI.
According to the Department of Homeland Security, the overall vision of SBI includes more agents to
patrol the U.S. borders, secure ports of entry and enforce immigration laws, and expand detention
and removal capabilities to eliminate the “catch and release” policy. The proposal to pass a
comprehensive immigration reform bill encompassing border security, guest worker programs, and
paths to citizenship for the estimated 12 million aliens currently in the U.S. broke down in the
Senate in June 2007. Despite the failure to pass a comprehensive immigration reform bill, there
continues to be significant focus on the need for increased border security and enforcement
efforts. We also believe growth will come from the growing demographic of the 18 to 24
year-old at-risk population. Males between 18 and 24 years of age have demonstrated the highest
propensity for criminal behavior and the highest rates of arrest, conviction, and incarceration.
Prison Overcrowding. The significant growth of the prison population in the United States has led
to overcrowding in the state and federal prison systems. In 2006, at least 24 states and the
federal prison system reported operating at or above capacity. The federal prison system was
operating at 37% above capacity at December 31, 2006.
According to the “Public Safety, Public Spending” report issued by Pew Charitable Trusts on
February 14, 2007, prison populations are expected to grow by more than 192,000 inmates by the end
of 2011. The “Public Safety, Public Spending” report also forecasts that inmate populations of the
20 states with which we currently do business will grow by nearly 98,000 by 2011, or about
two-thirds of the projected total state inmate population growth. Based on this report, other
publicly available data, and our own proprietary research, we do not currently believe that our
customers will be able to develop the capacity needed to accommodate their demand for prison beds.
Acceptance of Privatization. The prisoner population housed in privately managed facilities in the
United States as of December 31, 2006 was approximately 114,000. At December 31, 2006, 14.4% of
federal inmates and 6.2% of state inmates were held in private facilities. Since December 31,
2000, the number of federal inmates held in private facilities has increased approximately 79%,
while the number of state inmates held in private facilities has increased approximately 15%.
Twenty-two states had at least 5% of their prison population held in private facilities at December
31, 2006. Six states, all of which are our customers, housed at least 25% of their prison
population in private facilities as of December 31, 2006 — New Mexico (44%), Wyoming (37%), Alaska
(33%), Hawaii (32%), Idaho (27%), and Montana (27%).
Governmental Budgeting Constraints. We believe the outsourcing of prison management services to
private operators allows governments to manage increasing inmate populations while simultaneously
controlling correctional costs and improving correctional services. The use of facilities owned
and managed by private operators allows governments to expand prison capacity without incurring
large capital commitments required to increase correctional capacity. In addition, contracting
with a private
19
operator allows governmental agencies to add beds without making significant capital investment or
incurring new debt. We believe these advantages translate into significant cost savings for
government agencies.
Approved fiscal year 2008 funding for the BOP (signed into law by President Bush in late December
2007) included $806.0 million for “Contract Confinement” for use by the BOP during fiscal year
2008, which represented a $27.0 million increase over fiscal year 2007 enacted funding. The
President’s fiscal year 2009 budget request (released February 4, 2008) proposes a $50.0 million
increase over fiscal year 2008 level for Contract Confinement.
Approved fiscal year 2008 funding for the Office of the Federal Detention Trustee (which has
responsibility for funding USMS prisoner detention) was $1.081 billion. The President’s fiscal year
2009 budget request for the Office of the Federal Detention Trustee proposes a total of $1.295
billion. A Department of Justice news release issued on February 4, 2008 states that the budget
proposal for the Office of the Federal Detention Trustee includes “$37.6 million to accommodate an
anticipated increase in the number of detainees housed in non-federal facilities. These resources
will be utilized to fund the costs associated with prisoner detention, care and transportation of
detainees along the Southwest Border.”
Approved fiscal year 2008 funding for ICE includes resources that will allow ICE to house a daily
average of 32,000 detainees during the fiscal year. ICE received funding for 27,500 detainees
during fiscal year 2007. The President’s fiscal year 2009 budget request proposes funding for an
additional 1,000 ICE detention beds during fiscal year 2009. If ultimately approved at this level,
ICE would be able to house a daily average of 33,000 detainees during fiscal year 2009 and maintain
the policy of “catch and return” of illegal aliens which was implemented in 2006. The fiscal year
2009 budget request states that, since 2001, the Administration has “acquired nearly 13,000 new
detention beds.”
We believe these numbers reflect a clear understanding by both the Administration and Congress of
the need for additional capacity and a commitment to allocate resources for additional public and
private beds.
Government Regulation
Business Regulations
The industry in which we operate is subject to extensive federal, state, and local regulations,
including educational, health care, and safety regulations, which are administered by many
governmental and regulatory authorities. Some of the regulations are unique to the corrections
industry. Facility management contracts typically include reporting requirements, supervision, and
on-site monitoring by representatives of the contracting governmental agencies. Corrections
officers and juvenile care workers are customarily required to meet certain training standards and,
in some instances, facility personnel are required to be licensed and subject to background
investigation. Certain jurisdictions also require us to award subcontracts on a competitive basis
or to subcontract with businesses owned by members of minority groups. Our facilities are also
subject to operational and financial audits by the governmental agencies with which we have
contracts. Failure to comply with these regulations can result in material penalties or
non-renewal or termination of facility management contracts.
In addition, private prison managers are increasingly subject to government legislation and
regulation attempting to restrict the ability of private prison managers to house certain types of
inmates. Legislation has been enacted in several states, and has previously been proposed in the
United States Congress, containing such restrictions. Although we do not believe that existing
legislation will have a material adverse effect on us, there can be no assurance that future
legislation would not have such an effect.
20
Environmental Matters
Under various federal, state, and local environmental laws, ordinances and regulations, a current
or previous owner or operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under, or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was responsible for, the presence
of such hazardous or toxic substances. As an owner of correctional and detention facilities, we
have been subject to these laws, ordinances, and regulations as the result of our operation and
management of correctional and detention facilities. Phase I environmental assessments have been
obtained on substantially all of the properties we currently own. The cost of complying with
environmental laws could materially adversely affect our financial condition and results of
operations.
Health Insurance Portability and Accountability Act of 1996
In 1996, Congress enacted the Health Insurance Portability and Accountability Act of 1996, or
HIPAA. HIPAA is designed to improve the portability and continuity of health insurance coverage,
simplify the administration of health insurance, and protect the privacy and security of
health-related information. Privacy regulations promulgated under HIPAA regulate the use and disclosure of individually
identifiable health-related information, whether communicated electronically, on paper, or orally.
The regulations also provide patients with significant rights related to understanding and
controlling how their health information is used or disclosed. Security regulations promulgated
under HIPAA require that health care providers implement administrative, physical, and technical
practices to protect the security of individually identifiable health information that is
maintained or transmitted electronically. Examples of mandated safeguards include requirements that
notices of the entity’s privacy practices be sent and that patients and insureds be given the right
to access and request amendments to their records. Authorizations are required before a provider,
insurer, or clearinghouse can use health information for marketing and certain other purposes.
Additionally, health plans are required to electronically transmit and receive certain standardized
health care information. These regulations require the implementation of compliance training and
awareness programs for our health care service providers associated with healthcare we provide to
inmates, and selected other employees primarily associated with our employee medical plans.
Insurance
We maintain general liability insurance for all the facilities we operate, as well as insurance in
amounts we deem adequate to cover property and casualty risks, workers’ compensation, and directors
and officers liability. In addition, each of our leases with third parties provides that the
lessee will maintain insurance on each leased property under the lessee’s insurance policies
providing for the following coverages: (i) fire, vandalism, and malicious mischief, extended
coverage perils, and all physical loss perils; (ii) comprehensive general public liability
(including personal injury and property damage); and (iii) workers’ compensation. Under each of
these leases, we have the right to periodically review our lessees’ insurance coverage and provide
input with respect thereto.
Each of our management contracts and the statutes of certain states require the maintenance of
insurance. We maintain various insurance policies including employee health, workers’
compensation, automobile liability, and general liability insurance. Because we are significantly
self-insured for employee health, workers’ compensation, and automobile liability insurance, the
amount of our insurance expense is dependent on claims experience, and our ability to control our
claims experience. Our insurance policies contain various deductibles and stop-loss amounts
intended to limit our exposure for individually significant occurrences. However, the nature of
our self-insurance policies provides little protection for deterioration in overall claims
experience. Although we have experienced modest improvements in claims experience in both employee
medical and workers’ compensation, we
21
are continually developing strategies to improve the management of our future loss claims but can
provide no assurance that these strategies will be successful. However, unanticipated additional
insurance expenses resulting from adverse claims experience or an increasing cost environment for
general liability and other types of insurance could adversely impact our results of operations and
cash flows.
Employees
As of December 31, 2007, we employed approximately 16,600 employees. Of such employees,
approximately 340 were employed at our corporate offices and approximately 16,260 were employed at
our facilities and in our inmate transportation business. We employ personnel in the following
areas: clerical and administrative, facility administrators/wardens, security, medical, quality
assurance, transportation and scheduling, maintenance, teachers, counselors, and other support
services.
Each of the correctional and detention facilities we currently operate is managed as a separate
operational unit by the facility administrator or warden. All of these facilities follow a
standardized code of policies and procedures.
We have not experienced a strike or work stoppage at any of our facilities. Approximately 1,125
employees at six of our facilities are represented by labor unions. In the opinion of management,
overall employee relations are good.
Competition
The correctional and detention facilities we operate and manage, as well as those facilities we own
but are managed by other operators, are subject to competition for inmates from other private
prison managers. We compete primarily on the basis of bed availability, cost, the quality and
range of services offered, our experience in the operation and management of correctional and
detention facilities, and our reputation. We compete with government agencies that are responsible
for correctional facilities and a number of privatized correctional service companies, including,
but not limited to, the GEO Group, Inc., Cornell Companies, Inc, and Management and Training
Corporation. We also compete in some markets with small local companies that may have a better
knowledge of the local conditions and may be better able to gain political and public acceptance.
Other potential competitors may in the future enter into businesses competitive with us without a
substantial capital investment or prior experience. We may also compete in the future for new
development projects with companies that have more financial resources than we have. Competition by
other companies may adversely affect the number of inmates at our facilities, which could have a
material adverse effect on the operating revenue of our facilities. In addition, revenue derived
from our facilities will be affected by a number of factors, including the demand for inmate beds,
general economic conditions, and the age of the general population.
ITEM 1A. RISK FACTORS.
As the owner and operator of correctional and detention facilities, we are subject to certain risks
and uncertainties associated with, among other things, the corrections and detention industry and
pending or threatened litigation in which we are involved. In addition, we are also currently
subject to risks associated with our indebtedness. These risks and uncertainties set forth below
could cause our actual results to differ materially from those indicated in the forward-looking
statements contained herein and elsewhere. The risks described below are not the only risks we
face. Additional risks and uncertainties not currently known to us or those we currently deem to
be immaterial may also materially and adversely affect our business operations. Any of the
following risks could materially adversely affect our business, financial condition, or results of
operations.
22
Risks Related to Our Business and Industry
Our results of operations are dependent on revenues generated by our jails, prisons, and detention
facilities, which are subject to the following risks associated with the corrections and detention
industry.
We are subject to fluctuations in occupancy levels. While a substantial portion of our cost
structure is fixed, a substantial portion of our revenues are generated under facility management
contracts that specify per diem payments based upon occupancy. Under a per diem rate structure, a
decrease in our occupancy rates could cause a decrease in revenue and profitability. Average
compensated occupancy for our facilities in operation for 2007, 2006, and 2005 was 98.3%, 95.0%,
and 91.4%, respectively. Occupancy rates may, however, decrease below these levels in the future.
Competition for inmates may adversely affect the profitability of our business. We compete with
government entities and other private operators on the basis of bed availability, cost, quality,
and range of services offered, experience in managing facilities and reputation of management and
personnel. While there are barriers to entering the market for the management of correctional and
detention facilities, these barriers may not be sufficient to limit additional competition. In
addition, our government customers may assume the management of a facility that they own and we
currently manage for them upon the termination of the corresponding management contract or, if such
customers have capacity at their facilities, may take inmates currently housed in our facilities
and transfer them to government-run facilities. Since we are paid on a per diem basis with no
minimum guaranteed occupancy under most of our contracts, the loss of such inmates and resulting
decrease in occupancy would cause a decrease in our revenues and profitability.
Escapes, inmate disturbances, and public resistance to privatization of correctional and detention
facilities could result in our inability to obtain new contracts or the loss of existing contracts.
The operation of correctional and detention facilities by private entities has not achieved
complete acceptance by either governments or the public. The movement toward privatization of
correctional and detention facilities has also encountered resistance from certain groups, such as
labor unions and others that believe that correctional and detention facilities should only be
operated by governmental agencies.
Moreover, negative publicity about an escape, riot or other disturbance or perceived poor
conditions at a privately managed facility may result in adverse publicity to us and the private
corrections industry in general. Any of these occurrences or continued trends may make it more
difficult for us to renew or maintain existing contracts or to obtain new contracts, which could
have a material adverse effect on our business.
We are subject to termination or non-renewal of our government contracts. We typically enter into
facility management contracts with governmental entities for terms of up to five years, with
additional renewal periods at the option of the contracting governmental agency. Notwithstanding
any contractual renewal option of a contracting governmental agency, 28 of our facility management
contracts with the customers listed under “Business — Facility Portfolio — Facilities and
Facility Management Contracts” have expired or are currently scheduled to expire on or before
December 31, 2008. See “Business — Facility Portfolio — Facilities and Facility Management
contracts.” One or more of these contracts may not be renewed by the corresponding governmental
agency. In addition, these and any other contracting agencies may determine not to exercise
renewal options with respect to any of our contracts in the future. Governmental agencies
typically may also terminate a facility contract at any time without cause or use the possibility
of termination to negotiate a lower fee for per diem rates. In the event any of our management
contracts are terminated or are not renewed on favorable terms or otherwise, we may not be able to
obtain additional replacement contracts. The non-renewal or termination of any of our contracts
with governmental agencies could materially adversely
23
affect our financial condition, results of operations and liquidity, including our ability to
secure new facility management contracts from others.
We are dependent on government appropriations. Our cash flow is subject to the receipt of
sufficient funding of and timely payment by contracting governmental entities. If the appropriate
governmental agency does not receive sufficient appropriations to cover its contractual
obligations, it may terminate our contract or delay or reduce payment to us. Any delays in
payment, or the termination of a contract, could have an adverse effect on our cash flow and
financial condition. In addition, federal, state and local governments are constantly under
pressure to control additional spending or reduce current levels of spending. These pressures may
be compounded by negative economic developments. Accordingly, we may be requested in the future to
reduce our existing per diem contract rates or forego prospective increases to those rates. In
addition, it may become more difficult to renew our existing contracts on favorable terms or
otherwise.
Our ability to secure new contracts to develop and manage correctional and detention facilities
depends on many factors outside our control. Our growth is generally dependent upon our ability to
obtain new contracts to develop and manage new correctional and detention facilities. This
possible growth depends on a number of factors we cannot control, including crime rates and
sentencing patterns in various jurisdictions and acceptance of privatization. The demand for our
facilities and services could be adversely affected by the relaxation of enforcement efforts,
leniency in conviction and sentencing practices or through the decriminalization of certain
activities that are currently proscribed by our criminal laws. For instance, any changes with
respect to drugs and controlled substances or illegal immigration could affect the number of
persons arrested, convicted, and sentenced, thereby potentially reducing demand for correctional
facilities to house them. Legislation has been proposed in numerous jurisdictions that could lower
minimum sentences for some non-violent crimes and make more inmates eligible for early release
based on good behavior. Also, sentencing alternatives under consideration could put some offenders
on probation with electronic monitoring who would otherwise be incarcerated. Similarly, reductions
in crime rates could lead to reductions in arrests, convictions and sentences requiring
incarceration at correctional facilities.
Moreover, certain jurisdictions recently have required successful bidders to make a significant
capital investment in connection with the financing of a particular project, a trend that will
require us to have sufficient capital resources to compete effectively. We may compete for such
projects with companies that have more financial resources than we have. Further, we may not be
able to obtain the capital resources when needed.
We may face community opposition to facility location, which may adversely affect our ability to
obtain new contracts. Our success in obtaining new awards and contracts sometimes depends, in
part, upon our ability to locate land that can be leased or acquired, on economically favorable
terms, by us or other entities working with us in conjunction with our proposal to construct and/or
manage a facility. Some locations may be in or near populous areas and, therefore, may generate
legal action or other forms of opposition from residents in areas surrounding a proposed site. When
we select the intended project site, we attempt to conduct business in communities where local
leaders and residents generally support the establishment of a privatized correctional or detention
facility. Future efforts to find suitable host communities may not be successful. We may incur
substantial costs in evaluating the feasibility of the development of a correctional or detention
facility. As a result, we may report significant charges if we decide to abandon efforts to
develop a correctional or detention facility on a particular site. In many cases, the site
selection is made by the contracting governmental entity. In such cases, site selection may be made
for reasons related to political and/or economic development interests and may lead to the
selection of sites that have less favorable environments.
We may incur significant start-up and operating costs on new contracts before receiving related
revenues, which may impact our cash flows and not be recouped. When we are awarded a contract to
24
manage a facility, we may incur significant start-up and operating expenses, including the cost of
constructing the facility, purchasing equipment and staffing the facility, before we receive any
payments under the contract. These expenditures could result in a significant reduction in our
cash reserves and may make it more difficult for us to meet other cash obligations. In addition, a
contract may be terminated prior to its scheduled expiration and as a result we may not recover
these expenditures or realize any return on our investment.
Failure to comply with unique and increased governmental regulation could result in material
penalties or non-renewal or termination of our contracts to manage correctional and detention
facilities. The industry in which we operate is subject to extensive federal, state, and local
regulations, including educational, health care, and safety regulations, which are administered by
many regulatory authorities. Some of the regulations are unique to the corrections industry and
the combination of regulations we face is unique. Facility management contracts typically include
reporting requirements, supervision, and on-site monitoring by representatives of the contracting
governmental agencies. Corrections officers and juvenile care workers are customarily required to
meet certain training standards and, in some instances, facility personnel are required to be
licensed and subject to background investigation. Certain jurisdictions also require us to award
subcontracts on a competitive basis or to subcontract with businesses owned by members of minority
groups. Our facilities are also subject to operational and financial audits by the governmental
agencies with whom we have contracts. We may not always successfully comply with these
regulations, and failure to comply can result in material penalties or non-renewal or termination
of facility management contracts.
In addition, private prison managers are increasingly subject to government legislation and
regulation attempting to restrict the ability of private prison managers to house certain types of
inmates, such as inmates from other jurisdictions or inmates at medium or higher security levels.
Legislation has been enacted in several states, and has previously been proposed in the United
States Congress, containing such restrictions. Such legislation may have an adverse effect on us.
Our inmate transportation subsidiary, TransCor, is subject to regulations promulgated by the
Departments of Transportation and Justice. TransCor must also comply with the Interstate
Transportation of Dangerous Criminals Act of 2000, which covers operational aspects of transporting
prisoners, including, but not limited to, background checks and drug testing of employees; employee
training; employee hours; staff-to-inmate ratios; prisoner restraints; communication with local law
enforcement; and standards to help ensure the safety of prisoners during transport. We are subject
to changes in such regulations, which could result in an increase in the cost of our transportation
operations.
Moreover, the Federal Communications Commission, or the FCC, has published for comment a petition
for rulemaking, filed on behalf of an inmate family, which would prevent private prison managers
from collecting commissions from the operations of inmate telephone systems. We believe that there
are sound reasons for the collection of such commissions by all operators of prisons, whether
public or private. The FCC has traditionally deferred from rulemaking in this area; however, there
is the risk that the FCC could act to prohibit private prison managers, like us, from collecting
such revenues. Such an outcome could have a material adverse effect on our results of operations.
Government agencies may investigate and audit our contracts and, if any improprieties are found, we
may be required to refund revenues we have received, to forego anticipated revenues, and we may be
subject to penalties and sanctions, including prohibitions on our bidding in response to RFPs.
Certain of the governmental agencies with which we contract have the authority to audit and
investigate our contracts with them. As part of that process, government agencies may review our
performance of the contract, our pricing practices, our cost structure and our compliance with
applicable laws, regulations and standards. For contracts that actually or effectively provide for
certain reimbursement of expenses, if an agency determines that we have improperly allocated costs
to a specific contract, we may not be
25
reimbursed for those costs, and we could be required to refund the amount of any such costs that
have been reimbursed. If a government audit asserts improper or illegal activities by us, we may
be subject to civil and criminal penalties and administrative sanctions, including termination of
contracts, forfeitures of profits, suspension of payments, fines and suspension or disqualification
from doing business with certain government entities. Any adverse determination could adversely
impact our ability to bid in response to RFPs in one or more jurisdictions.
We depend on a limited number of governmental customers for a significant portion of our revenues.
We currently derive, and expect to continue to derive, a significant portion of our revenues from a
limited number of governmental agencies. The loss of, or a significant decrease in, business from
the BOP, ICE, USMS, or various state agencies could seriously harm our financial condition and
results of operations. The three primary federal governmental agencies with correctional and
detention responsibilities, the BOP, ICE, and USMS, accounted for 40% of our total revenues for the
fiscal year ended December 31, 2007 ($594.8 million). The USMS accounted for 14% of our total
revenues for the fiscal year ended December 31, 2007 ($210.4 million), the BOP accounted for 13% of
our total revenues for the fiscal year ended December 31, 2007 ($189.9 million), and ICE accounted
for 13% of our total revenues for the fiscal year ended December 31, 2007 ($194.5 million). We
expect to continue to depend upon the federal agencies and a relatively small group of other
governmental customers for a significant percentage of our revenues.
A decrease in occupancy levels could cause a decrease in revenues and profitability. While a
substantial portion of our cost structure is generally fixed, a significant portion of our revenues
are generated under facility management contracts which provide for per diem payments based upon
daily occupancy. We are dependent upon the governmental agencies with which we have contracts to
provide inmates for our managed facilities. We cannot control occupancy levels at our managed
facilities. Under a per diem rate structure, a decrease in our occupancy rates could cause a
decrease in revenues and profitability. When combined with relatively fixed costs for operating
each facility, regardless of the occupancy level, a decrease in occupancy levels could have a
material adverse effect on our profitability.
We are dependent upon our senior management and our ability to attract and retain sufficient
qualified personnel.
We are dependent upon the continued service of each member of our senior management team, including
John D. Ferguson, our President and Chief Executive Officer. The unexpected loss of any of these
persons could materially adversely affect our business and operations. We only have employment
agreements with certain of our current and former executive officers. The employment agreements
with our current executive officers expire in 2008 subject to automatic annual renewals unless
either party gives notice of termination.
In addition, the services we provide are labor-intensive. When we are awarded a facility
management contract or open a new facility, we must hire operating management, correctional
officers, and other personnel. The success of our business requires that we attract, develop, and
retain these personnel. Our inability to hire sufficient qualified personnel on a timely basis or
the loss of significant numbers of personnel at existing facilities could adversely affect our
business and operations.
We are subject to necessary insurance costs.
Workers’ compensation, employee health, and general liability insurance represent significant costs
to us. Because we are significantly self-insured for workers’ compensation, employee health, and
general liability risks, the amount of our insurance expense is dependent on claims experience, our
ability to control our claims experience, and in the case of workers’ compensation and employee
health, rising health care costs in general. Unanticipated additional insurance costs could
adversely impact our
26
results of operations and cash flows, and the failure to obtain or maintain any necessary insurance
coverage could have a material adverse effect on us.
We may be adversely affected by inflation.
Many of our facility management contracts provide for fixed management fees or fees that increase
by only small amounts during their terms. If, due to inflation or other causes, our operating
expenses, such as wages and salaries of our employees, insurance, medical, and food costs, increase
at rates faster than increases, if any, in our management fees, then our profitability would be
adversely affected. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Inflation.”
We are subject to legal proceedings associated with owning and managing correctional and detention
facilities.
Our ownership and management of correctional and detention facilities, and the provision of inmate
transportation services by a subsidiary, expose us to potential third-party claims or litigation by
prisoners or other persons relating to personal injury or other damages resulting from contact with
a facility, its managers, personnel or other prisoners, including damages arising from a prisoner’s
escape from, or a disturbance or riot at, a facility we own or manage, or from the misconduct of
our employees. To the extent the events serving as a basis for any potential claims are alleged or
determined to constitute illegal or criminal activity, we could also be subject to criminal
liability. Such liability could result in significant monetary fines and could affect our ability
to bid on future contracts and retain our existing contracts. In addition, as an owner of real
property, we may be subject to a variety of proceedings relating to personal injuries of persons at
such facilities. The claims against our facilities may be significant and may not be covered by
insurance. Even in cases covered by insurance, our deductible (or self-insured retention) may be
significant.
We are subject to risks associated with ownership of real estate.
Our ownership of correctional and detention facilities subjects us to risks typically associated
with investments in real estate. Investments in real estate and, in particular, correctional and
detention facilities have limited or no alternative use and thus, are relatively illiquid, and
therefore, our ability to divest ourselves of one or more of our facilities promptly in response to
changed conditions is limited. Investments in correctional and detention facilities, in
particular, subject us to risks involving potential exposure to environmental liability and
uninsured loss. Our operating costs may be affected by the obligation to pay for the cost of
complying with existing environmental laws, ordinances and regulations, as well as the cost of
complying with future legislation. In addition, although we maintain insurance for many types of
losses, there are certain types of losses, such as losses from earthquakes and acts of terrorism,
which may be either uninsurable or for which it may not be economically feasible to obtain
insurance coverage, in light of the substantial costs associated with such insurance. As a result,
we could lose both our capital invested in, and anticipated profits from, one or more of the
facilities we own. Further, it is possible to experience losses that may exceed the limits of
insurance coverage.
In addition, our increased focus on facility development and expansions poses an increased risk,
including cost overruns caused by various factors, many of which are beyond our control, such as
weather, labor conditions, and material shortages, resulting in increased construction costs.
Further, if we are unable to utilize this new bed capacity, our financial results could
deteriorate.
Certain of our facilities are subject to options to purchase and reversions. Ten of our facilities
are or will be subject to an option to purchase by certain governmental agencies. Such options are
exercisable by the corresponding contracting governmental entity generally at any time during the
term
27
of the respective facility management contract. Certain of these purchase options are based on the
depreciated book value of the facility, which essentially results in the transfer of ownership of
the facility to the governmental agency at the end of the life used for accounting purposes. See
“Business — Facility Portfolio — Facilities and Facility Management Contracts.” If any of these
options are exercised, there exists the risk that we will be unable to invest the proceeds from the
sale of the facility in one or more properties that yield as much cash flow as the property
acquired by the government entity. In addition, in the event any of these options are exercised,
there exists the risk that the contracting governmental agency will terminate the management
contract associated with such facility. For the year ended December 31, 2007, the facilities
subject to these options generated $237.4 million in revenue (16% of total revenue) and incurred
$172.1 million in operating expenses. Certain of the options to purchase are exercisable at prices
below fair market value. See “Business — Facility Portfolio — Facilities and Facility Management
Contracts.”
In addition, ownership of three of our facilities (including two that are also subject to options
to purchase) will, upon the expiration of certain ground leases with remaining terms generally
ranging from 9 to 11 years, revert to the respective governmental agency contracting with us. See
“Business — Facility Portfolio — Facilities and Facility Management Contracts.” At the time of
such reversion, there exists the risk that the contracting governmental agency will terminate the
management contract associated with such facility. For the year ended December 31, 2007, the
facilities subject to reversion generated $79.6 million in revenue (5% of total revenue) and
incurred $57.8 million in operating expenses.
Risks related to facility construction and development activities may increase our costs related
to such activities.
When we are engaged to perform construction and design services for a facility, we typically act as
the primary contractor and subcontract with other companies who act as the general contractors. As
primary contractor, we are subject to the various risks associated with construction (including,
without limitation, shortages of labor and materials, work stoppages, labor disputes, and weather
interference) which could cause construction delays. In addition, we are subject to the risk that
the general contractor will be unable to complete construction at the budgeted costs or be unable
to fund any excess construction costs, even though we require general contractors to post
construction bonds and insurance. Under such contracts, we are ultimately liable for all late
delivery penalties and cost overruns.
We may be adversely affected by the rising cost and increasing difficulty of obtaining adequate
levels of surety credit on favorable terms.
We are often required to post bid or performance bonds issued by a surety company as a condition to
bidding on or being awarded a contract. Availability and pricing of these surety commitments are
subject to general market and industry conditions, among other factors. Recent events in the
economy have caused the surety market to become unsettled, causing many reinsurers and sureties to
reevaluate their commitment levels and required returns. As a result, surety bond premiums
generally are increasing. If we are unable to effectively pass along the higher surety costs to
our customers, any increase in surety costs could adversely affect our operating results. We
cannot assure you that we will have continued access to surety credit or that we will be able to
secure bonds economically, without additional collateral, or at the levels required for any
potential facility development or contract bids. If we are unable to obtain adequate levels of
surety credit on favorable terms, we would have to rely upon letters of credit under our revolving
credit facility, which would entail higher costs even if such borrowing capacity was available when
desired at the time, and our ability to bid for or obtain new contracts could be impaired.
28
Our issuance of preferred stock could adversely affect holders of our common stock and discourage a
takeover.
Our board of directors has the power to issue up to 50.0 million shares of preferred stock without
any action on the part of our stockholders. Our board of directors also has the power, without
stockholder approval, to set the terms of any new series of preferred stock that may be issued,
including voting rights, dividend rights, preferences over our common stock with respect to
dividends or in the event of a dissolution, liquidation or winding up, and other terms. In the
event that we issue additional shares of preferred stock in the future that has preference over our
common stock, with respect to payment of dividends or upon our liquidation, dissolution or winding
up, or if we issue preferred stock with voting rights that dilute the voting power of our common
stock, the rights of the holders of our common stock or the market price of our common stock could
be adversely affected. In addition, the ability of our board of directors to issue shares of
preferred stock without any action on the part of our stockholders may impede a takeover of us and
prevent a transaction favorable to our stockholders.
Our charter and bylaws and Maryland law could make it difficult for a third party to acquire our
company.
The Maryland General Corporation Law and our charter and bylaws contain provisions that could
delay, deter, or prevent a change in control of our company or our management. These provisions
could also discourage proxy contests and make it more difficult for our stockholders to elect
directors and take other corporate actions. These provisions:
| |
• |
|
authorize us to issue “blank check” preferred stock, which is preferred stock that
can be created and issued by our board of directors, without stockholder approval, with
rights senior to those of common stock; |
| |
| |
• |
|
provide that directors may be removed with or without cause only by the affirmative
vote of at least a majority of the votes of shares entitled to vote thereon; and |
| |
| |
• |
|
establish advance notice requirements for submitting nominations for election to the
board of directors and for proposing matters that can be acted upon by stockholders at
a meeting. |
We are also subject to anti-takeover provisions under Maryland law, which could also delay or
prevent a change of control. Together, these provisions of our charter and bylaws and Maryland law
may discourage transactions that otherwise could provide for the payment of a premium over
prevailing market prices for our common stock, and also could limit the price that investors are
willing to pay in the future for shares of our common stock.
Risks Related to Our Leveraged Capital Structure
Our indebtedness could adversely affect our financial health and prevent us from fulfilling our
obligations under our debt securities.
We have a significant amount of indebtedness. As of December 31, 2007, we had total indebtedness
of $976.0 million. Our indebtedness could have important consequences. For example, it could:
| |
• |
|
make it more difficult for us to satisfy our obligations with respect to our
indebtedness; |
| |
| |
• |
|
increase our vulnerability to general adverse economic and industry conditions; |
29
| |
• |
|
require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures, and other general corporate purposes; |
| |
| |
• |
|
limit our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate; |
| |
| |
• |
|
place us at a competitive disadvantage compared to our competitors that have less
debt; and |
| |
| |
• |
|
limit our ability to borrow additional funds or refinance existing indebtedness on
favorable terms. |
Our revolving credit facility and other debt instruments have restrictive covenants that could
affect our financial condition.
The indenture related to our aggregate principal amount of $450.0 million 7.5% senior notes due
2011, the indenture related to our aggregate principal amount of $375.0 million 6.25% senior notes
due 2013, and the indenture related to our aggregate principal amount of $150.0 million 6.75%
senior notes due 2014, collectively referred to herein as our senior notes, and our revolving
credit facility contain financial and other restrictive covenants that limit our ability to engage
in activities that may be in our long-term best interests. Our ability to borrow under our
revolving credit facility is subject to compliance with certain financial covenants, including
leverage and interest coverage ratios. Our revolving credit facility includes other restrictions
that, among other things, limit our ability to incur indebtedness; grant liens; engage in mergers,
consolidations and liquidations; make asset dispositions, restricted payments and investments;
enter into transactions with affiliates; and amend, modify or prepay certain indebtedness. The
indentures related to our senior notes contain limitations on our ability to effect mergers and
change of control events, as well as other limitations, including:
| |
• |
|
limitations on incurring additional indebtedness; |
| |
| |
• |
|
limitations on the sale of assets; |
| |
| |
• |
|
limitations on the declaration and payment of dividends or other restricted
payments; |
| |
| |
• |
|
limitations on transactions with affiliates; and |
| |
| |
• |
|
limitations on liens. |
Our failure to comply with these covenants could result in an event of default that, if not cured
or waived, could result in the acceleration of all of our debts. We do not have sufficient working
capital to satisfy our debt obligations in the event of an acceleration of all or a significant
portion of our outstanding indebtedness.
Servicing our indebtedness will require a significant amount of cash. Our ability to generate cash
depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness and to fund planned capital
expenditures will depend on our ability to generate cash in the future. This, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory, and other factors
that are beyond our control.
30
The risk exists that our business will be unable to generate sufficient cash flow from operations
or that future borrowings will not be available to us under our revolving credit facility in an
amount sufficient to enable us to pay our indebtedness, including our existing senior notes, or new
debt securities, or to fund our other liquidity needs. We may need to refinance all or a portion
of our indebtedness, including our senior notes, or new debt securities, on or before maturity. We
may not, however, be able to refinance any of our indebtedness, including our revolving credit
facility and including our senior notes, or new debt securities on commercially reasonable terms or
at all.
We are required to repurchase all or a portion of our senior notes upon a change of control.
Upon certain change of control events, as that term is defined in the indentures for our senior
notes, including a change of control caused by an unsolicited third party, we are required to make
an offer in cash to repurchase all or any part of each holder’s notes at a repurchase price equal
to 101% of the principal thereof, plus accrued interest. The source of funds for any such
repurchase would be our available cash or cash generated from operations or other sources,
including borrowings, sales of equity or funds provided by a new controlling person or entity.
Sufficient funds may not be available to us, however, at the time of any change of control event to
repurchase all or a portion of the tendered notes pursuant to this requirement. Our failure to
offer to repurchase notes, or to repurchase notes tendered, following a change of control will
result in a default under the respective indentures, which could lead to a cross-default under our
revolving credit facility and under the terms of our other indebtedness. In addition, our
revolving credit facility prohibits us from making any such required repurchases. Prior to
repurchasing the notes upon a change of control event, we must either repay outstanding
indebtedness under our revolving credit facility or obtain the consent of the lenders under our
revolving credit facility. If we do not obtain the required consents or repay our outstanding
indebtedness under our revolving credit facility, we would remain effectively prohibited from
offering to purchase the notes.
Despite current indebtedness levels, we may still incur more debt.
The terms of the indentures for our senior notes and our revolving credit facility restrict our
ability to incur significant additional indebtedness in the future. However, in the future we may
refinance all or a portion of our indebtedness, including our revolving credit facility, and may
incur additional indebtedness as a result. As of December 31, 2007, we had $415.1 million of
additional borrowing capacity available under our $450.0 million revolving credit facility. In
addition, we have an effective “shelf” registration statement under which we may issue an
indeterminate amount of securities from time to time when we determine that market conditions and
the opportunity to utilize the proceeds from the issuance of such securities are favorable. If new
debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they
now face could intensify.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
The properties we owned at December 31, 2007 are described under Item 1 and in Note 4 of the Notes
to the Financial Statements contained in this annual report.
ITEM 3. LEGAL PROCEEDINGS.
General. The nature of our business results in claims and litigation alleging that we are liable
for damages arising from the conduct of our employees, inmates or others. The nature of such
claims includes, but is not limited to, claims arising from employee or inmate misconduct, medical
31
malpractice, employment matters, property loss, contractual claims, and personal injury or other
damages resulting from contact with our facilities, personnel, or inmates, including damages
arising from an inmate’s escape or from a disturbance or riot at a facility. We maintain insurance
to cover many of these claims which may mitigate the risk that any single claim would have a
material effect on our consolidated financial position, results of operations, or cash flows,
provided the claim is one for which coverage is available. The combination of self-insured
retentions and deductible amounts means that, in the aggregate, we are subject to substantial
self-insurance risk.
We record litigation reserves related to certain matters for which it is probable that a loss has
been incurred and the range of such loss can be estimated. Based upon management’s review of the
potential claims and outstanding litigation and based upon management’s experience and history of
estimating losses, management believes a loss in excess of amounts already recognized would not be
material to our financial statements. In the opinion of management, there are no pending legal
proceedings that would have a material effect on our consolidated financial position, results of
operations, or cash flows. Any receivable for insurance recoveries is recorded separately from the
corresponding litigation reserve, and only if recovery is determined to be probable. Adversarial
proceedings and litigation are, however, subject to inherent uncertainties, and unfavorable
decisions and rulings could occur which could have a material adverse impact on our consolidated
financial position, results of operations, or cash flows for the period in which such decisions or
rulings occur, or future periods. Expenses associated with legal proceedings may also fluctuate
from quarter to quarter based on changes in our assumptions, new developments, or the effectiveness
of our litigation and settlement strategies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Market Price of and Distributions on Capital Stock
Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol “CXW.” On
February 22, 2008 the last reported sale price of our common
stock was $26.65 per share and there
were approximately 5,000 registered holders and
approximately 54,000 beneficial holders, respectively,
of our common stock.
The following table sets forth, for the fiscal quarters indicated, the range of high and low sales
prices of the common stock as adjusted for the Company’s 3-for-2 stock split in September 2006 and
the Company’s 2-for-1 stock split in July 2007.
Common Stock
| |
|
|
|
|
|
|
|
|
| |
|
SALES PRICE |
|
| |
|
HIGH |
|
|
LOW |
|
FISCAL YEAR 2007 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
27.11 |
|
|
$ |
21.66 |
|
Second Quarter |
|
$ |
32.99 |
|
|
$ |
26.15 |
|
Third Quarter |
|
$ |
33.40 |
|
|
$ |
24.08 |
|
Fourth Quarter |
|
$ |
31.58 |
|
|
$ |
24.97 |
|
32
| |
|
|
|
|
|
|
|
|
| |
|
SALES PRICE |
|
| |
|
HIGH |
|
|
LOW |
|
FISCAL YEAR 2006 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
15.43 |
|
|
$ |
13.37 |
|
Second Quarter |
|
$ |
18.23 |
|
|
$ |
14.30 |
|
Third Quarter |
|
$ |
22.63 |
|
|
$ |
17.19 |
|
Fourth Quarter |
|
$ |
24.86 |
|
|
$ |
21.33 |
|
Dividend Policy
During the years ended December 31, 2007 and 2006, we did not pay any dividends on our common
stock. Pursuant to the terms of the indentures governing our senior notes and our senior secured
revolving credit agreement, we are limited in the amount of dividends we can declare or pay on our
outstanding shares of common stock. Taking into consideration these limitations, management and our
board of directors regularly evaluate the merits of declaring and paying a dividend. Future
dividends, if any, will depend on our future earnings, our capital requirements, our financial
condition, alternative uses of capital, and on such other factors as our board of directors may
consider relevant.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the five years ended December 31, 2007, was derived from
our consolidated financial statements and the related notes thereto. This data should be read in
conjunction with our audited consolidated financial statements, including the related notes, and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our
audited consolidated financial statements, including the related notes, as of December 31, 2007 and
2006, and for the years ended December 31, 2007, 2006, and 2005 are included in this annual report.
33
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL INFORMATION
(in thousands, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| STATEMENT OF OPERATIONS: |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management and other |
|
$ |
1,475,821 |
|
|
$ |
1,321,420 |
|
|
$ |
1,183,338 |
|
|
$ |
1,116,899 |
|
|
$ |
998,093 |
|
Rental |
|
|
3,016 |
|
|
|
2,721 |
|
|
|
2,563 |
|
|
|
2,471 |
|
|
|
2,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
1,478,837 |
|
|
|
1,324,141 |
|
|
|
1,185,901 |
|
|
|
1,119,370 |
|
|
|
1,000,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
1,058,050 |
|
|
|
968,327 |
|
|
|
893,342 |
|
|
|
845,047 |
|
|
|
742,878 |
|
General and administrative |
|
|
74,399 |
|
|
|
63,593 |
|
|
|
57,053 |
|
|
|
48,186 |
|
|
|
40,467 |
|
Depreciation and amortization |
|
|
78,514 |
|
|
|
67,236 |
|
|
|
59,460 |
|
|
|
54,198 |
|
|
|
52,404 |
|
Goodwill impairment |
|
|
1,574 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,212,537 |
|
|
|
1,099,156 |
|
|
|
1,009,855 |
|
|
|
947,431 |
|
|
|
835,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
266,300 |
|
|
|
224,985 |
|
|
|
176,046 |
|
|
|
171,939 |
|
|
|
164,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
53,776 |
|
|
|
58,783 |
|
|
|
63,928 |
|
|
|
69,177 |
|
|
|
74,446 |
|
Expenses associated with debt refinancing and
recapitalization transactions |
|
|
— |
|
|
|
982 |
|
|
|
35,269 |
|
|
|
101 |
|
|
|
6,687 |
|
Change in fair value of derivative instruments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,900 |
) |
Other (income) expense |
|
|
(303 |
) |
|
|
(254 |
) |
|
|
263 |
|
|
|
943 |
|
|
|
(414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
|
212,827 |
|
|
|
165,474 |
|
|
|
76,586 |
|
|
|
101,718 |
|
|
|
86,701 |
|
Income tax (expense) benefit |
|
|
(80,312 |
) |
|
|
(60,813 |
) |
|
|
(26,583 |
) |
|
|
(40,930 |
) |
|
|
52,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
132,515 |
|
|
|
104,661 |
|
|
|
50,003 |
|
|
|
60,788 |
|
|
|
139,053 |
|
Income from discontinued operations, net of
taxes |
|
|
858 |
|
|
|
578 |
|
|
|
119 |
|
|
|
1,755 |
|
|
|
2,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
133,373 |
|
|
|
105,239 |
|
|
|
50,122 |
|
|
|
62,543 |
|
|
|
141,783 |
|
Distributions to preferred stockholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,462 |
) |
|
|
(15,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
133,373 |
|
|
$ |
105,239 |
|
|
$ |
50,122 |
|
|
$ |
61,081 |
|
|
$ |
126,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
34
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL INFORMATION
(in thousands, except per share data)
(continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.08 |
|
|
$ |
0.88 |
|
|
$ |
0.43 |
|
|
$ |
0.56 |
|
|
$ |
1.28 |
|
Income from discontinued operations, net
of taxes |
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
|
|
0.02 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders |
|
$ |
1.09 |
|
|
$ |
0.88 |
|
|
$ |
0.43 |
|
|
$ |
0.58 |
|
|
$ |
1.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.05 |
|
|
$ |
0.86 |
|
|
$ |
0.42 |
|
|
$ |
0.51 |
|
|
$ |
1.13 |
|
Income from discontinued operations, net
of taxes |
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
stockholders |
|
$ |
1.06 |
|
|
$ |
0.86 |
|
|
$ |
0.42 |
|
|
$ |
0.52 |
|
|
$ |
1.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
122,553 |
|
|
|
119,714 |
|
|
|
115,426 |
|
|
|
105,178 |
|
|
|
96,736 |
|
Diluted |
|
|
125,381 |
|
|
|
123,058 |
|
|
|
120,846 |
|
|
|
119,342 |
|
|
|
114,148 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| BALANCE SHEET DATA: |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Total assets |
|
$ |
2,485,740 |
|
|
$ |
2,250,860 |
|
|
$ |
2,086,313 |
|
|
$ |
2,023,078 |
|
|
$ |
1,959,028 |
|
Total debt |
|
$ |
975,967 |
|
|
$ |
976,258 |
|
|
$ |
975,636 |
|
|
$ |
1,002,295 |
|
|
$ |
1,003,428 |
|
Total liabilities |
|
$ |
1,263,765 |
|
|
$ |
1,201,179 |
|
|
$ |
1,169,682 |
|
|
$ |
1,207,084 |
|
|
$ |
1,183,563 |
|
Stockholders’ equity |
|
$ |
1,221,975 |
|
|
$ |
1,049,681 |
|
|
$ |
916,631 |
|
|
$ |
815,994 |
|
|
$ |
775,465 |
|
35
| |
|
ITEM 7. 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 discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors, including, but not
limited to, those described under “Risk Factors” and included in other portions of this report.
OVERVIEW
As of December 31, 2007, we owned 44 correctional, detention and juvenile facilities, three of
which we leased to other operators. We currently operate 65 facilities, with a total design
capacity of approximately 78,000 beds in 19 states and the District of Columbia. We are the
nation’s largest owner and operator of privatized correctional and detention facilities and one of
the largest prison operators in the United States behind only the federal government and three
states. Our size and experience provide us with significant credibility with our current and
prospective customers, and enable us to generate economies of scale in purchasing power for food
services, health care and other supplies and services we offer to our customers.
We are compensated for operating and managing prisons and correctional facilities at an inmate per
diem rate based upon actual or minimum guaranteed occupancy levels. The significant expansion of
the prison population in the United States has led to overcrowding in the federal and state prison
systems, providing us with opportunities for growth. Federal, state, and local governments are
constantly under budgetary constraints putting pressure on governments to control correctional
budgets, including per diem rates our customers pay to us. Governments continue to experience many
significant spending demands which have constrained correctional budgets limiting their ability to
expand existing facilities or construct new facilities. We believe the outsourcing of prison
management services to private operators allows governments to manage increasing inmate populations
while simultaneously controlling correctional costs and improving correctional services. We
believe our customers discover that partnering with private operators to provide residential
services to their inmates introduces competition to their prison system, resulting in improvements
to the quality and cost of corrections services throughout their correctional system. Further, the
use of facilities owned and managed by private operators allows governments to expand prison
capacity without incurring large capital commitments required to increase correctional capacity.
We also believe that having beds immediately available to our customers provides us with a distinct
competitive advantage when bidding on new contracts. While we have been successful in winning
contract awards to provide management services for facilities we do not own, and will continue to
pursue such management contracts, we believe the most significant opportunities for growth are in
providing our government partners with available beds within facilities we currently own or that we
develop. We also believe that owning the facilities in which we provide management services
enables us to more rapidly replace business lost compared with managed-only facilities, since we
can offer the same beds to new and existing customers and, with customer consent, may have more
flexibility in moving our existing inmate populations to facilities with available capacity. Our
management contracts generally provide our customers with the right to terminate our management
contracts at any time without cause.
As a result of recently completed bed development, we had three facilities, our Red Rock
Correctional Center located in Eloy, Arizona, our North Fork Correctional Facility in Sayre,
Oklahoma, and our Tallahatchie County Correctional Facility in Tutwiler, Mississippi, that provided
us with approximately 1,900 available beds as of December 31, 2007. We recently completed
expansions at the North Fork and Tallahatchie facilities. We expect both of these expansions, as
well as the
36
substantial portion of the remaining beds available at the Red Rock Correctional Center, to be
completely utilized by the State of California Department of Corrections and Rehabilitation, or
CDCR, during the first half of 2008.
As a result of persistent demand from both our federal and state customers, the utilization of a
significant portion of our available beds, and the expectation of an environment that continues to
be constrained with a limited supply of available prison beds, we have intensified our efforts to
deliver new bed capacity through the development of new prison facilities and the expansion of
certain of our existing facilities.
In order to maintain an adequate supply of available beds to meet anticipated demand, while
offering the state of Hawaii the opportunity to consolidate its inmates into fewer facilities, we
commenced construction during 2005 of the 1,896-bed Saguaro Correctional Facility located in Eloy,
Arizona. The Saguaro Correctional Facility was completed in June 2007 at an estimated cost of
approximately $102.6 million. As of December 31, 2007, we housed 1,732 inmates from the state of
Hawaii at the Saguaro facility. We expect the facility to be substantially full with Hawaiian
inmates by the end of the first quarter of 2008.
We have recently commenced construction of two new facilities to address the demand for prison
beds. The Adams County Correctional Center is a 1,668-bed correctional facility in Adams County,
Mississippi expected to be completed during the fourth quarter of 2008 that we will market to
various existing and potential customers. The La Palma Correctional Center will be a 3,060-bed
correctional facility located in Eloy, Arizona that we expect to be fully utilized by the state of
California. We expect to open portions of the La Palma facility beginning in the third quarter of
2008, with continued receipt of California inmates through the completion of construction, as
phases of the facility become available. We are also actively pursuing a number of additional
sites for new prison development.
We also currently have bed expansions ongoing at seven facilities we own for an aggregate increase
of approximately 4,000 beds. We expect these expansions to be complete at various times throughout
2008. Although we have identified potential customers for a substantial portion of these new beds,
we can provide no assurance that these beds will be utilized. Further, none of the customers that
we expect to fill the expansion beds has provided a guarantee of occupancy.
We also remain steadfast in our efforts to contain costs. Approximately 63% of our operating
expenses consist of salaries and benefits. Containing these expenses will continue to be
challenging. The turnover rate for correctional officers for our company, and for the corrections
industry in general, remains high. Although we believe we have been successful in reducing workers’
compensation costs and containing medical benefits costs for our employees, such costs continue to
increase primarily as a result of continued rising healthcare costs throughout the country.
Reducing these staffing costs requires a long-term strategy to control such costs, and we continue
to dedicate resources to enhance our benefits, provide training and career development
opportunities to our staff and attract and retain quality personnel. Finally, we constantly seek
to identify ways to reduce the cost of the basic goods and services we purchase, such as utilities
management programs and innovative purchasing arrangements.
Through the combination of our initiatives to increase our revenues by taking advantage of our
available beds as well as delivering new bed capacity through new facility construction and
expansion opportunities, and our strategies to generate savings and to contain our operating
expenses, we believe we will be able to maintain our competitive advantage and continue to improve
the quality services we provide to our customers at an economical price, thereby producing value to
our stockholders.
37
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements are prepared in conformity with accounting principles
generally accepted in the United States. As such, we are required to make certain estimates,
judgments and assumptions that we believe are reasonable based upon the information available.
These estimates and assumptions affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses during the reporting
period. A summary of our significant accounting policies is described in Note 2 to our audited
financial statements. The significant accounting policies and estimates which we believe are the
most critical to aid in fully understanding and evaluating our reported financial results include
the following:
Asset impairments. As of December 31, 2007, we had $2.1 billion in long-lived assets. We evaluate
the recoverability of the carrying values of our long-lived assets, other than goodwill, when
events suggest that an impairment may have occurred. In these circumstances, we utilize estimates
of undiscounted cash flows to determine if an impairment exists. If an impairment exists, it is
measured as the amount by which the carrying amount of the asset exceeds the estimated fair value
of the asset.
Goodwill impairments. Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets,” or SFAS 142, establishes accounting and reporting requirements for goodwill and
other intangible assets. Under SFAS 142, goodwill attributable to each of our reporting units is
tested for impairment by comparing the fair value of each reporting unit with its carrying value.
Fair value is determined using a collaboration of various common valuation techniques, including
market multiples, discounted cash flows, and replacement cost methods. These impairment tests are
required to be performed at least annually. We perform our impairment tests during the fourth
quarter, in connection with our annual budgeting process, and whenever circumstances indicate the
carrying value of goodwill may not be recoverable.
Income taxes. Income taxes are accounted for under the provisions of Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 generally
requires us to record deferred income taxes for the tax effect of differences between book and tax
bases of our assets and liabilities.
Deferred income taxes reflect the available net operating losses and the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Realization of the future tax
benefits related to deferred tax assets is dependent on many factors, including our past earnings
history, expected future earnings, the character and jurisdiction of such earnings, unsettled
circumstances that, if unfavorably resolved, would adversely affect utilization of our deferred tax
assets, carryback and carryforward periods, and tax strategies that could potentially enhance the
likelihood of realization of a deferred tax asset.
Although we utilized our remaining federal net operating losses in 2006, we have approximately $8.2
million in net operating losses applicable to various states that we expect to carry forward in
future years to offset taxable income in such states. These net operating losses have begun to
expire. Accordingly, we have a valuation allowance of $1.9 million for the estimated amount of the
net operating losses that will expire unused, in addition to a $5.6 million valuation allowance
related to state tax credits that are also expected to expire unused. Although our estimate of
future taxable income is based on current assumptions we believe to be reasonable, our assumptions
may prove inaccurate and could change in the future, which could result in the expiration of
additional net operating losses or credits. We would be required to establish a valuation
allowance at such time that we no longer expected to utilize these net operating losses or credits,
which could result in a material impact on our results of operations in the future.
38
Self-funded insurance reserves. As of December 31, 2007 and 2006, we had $34.2 million and $33.2
million, respectively, in accrued liabilities for employee health, workers’ compensation, and
automobile insurance claims. We are significantly self-insured for employee health, workers’
compensation, and automobile liability insurance claims. As such, our insurance expense is largely
dependent on claims experience and our ability to control our claims. We have consistently accrued
the estimated liability for employee health insurance claims based on our history of claims
experience and the time lag between the incident date and the date the cost is paid by us. We have
accrued the estimated liability for workers’ compensation and automobile insurance claims based on
a third-party actuarial valuation of the outstanding liabilities, discounted to the net present
value of the outstanding liabilities. These estimates could change in the future. It is possible
that future cash flows and results of operations could be materially affected by changes in our
assumptions, new developments, or by the effectiveness of our strategies.
Legal reserves. As of December 31, 2007 and 2006, we had $13.1 million and $13.3 million,
respectively, in accrued liabilities related to certain legal proceedings in which we are involved.
We have accrued our estimate of the probable costs for the resolution of these claims based on a
range of potential outcomes. In addition, we are subject to current and potential future legal
proceedings for which little or no accrual has been reflected because our current assessment of the
potential exposure is nominal. These estimates have been developed in consultation with our
General Counsel’s office and, as appropriate, outside counsel handling these matters, and are based
upon an analysis of potential results, assuming a combination of litigation and settlement
strategies. It is possible that future cash flows and results of operations could be materially
affected by changes in our assumptions, new developments, or by the effectiveness of our
strategies.
RESULTS OF OPERATIONS
The following table sets forth for the years ended December 31, 2007, 2006, and 2005, the number of
facilities we owned and managed, the number of facilities we managed but did not own, the number of
facilities we leased to other operators, and the facilities we owned that were not yet in
operation.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Effective |
|
|
and |
|
|
Managed |
|
|
|
|
|
|
|
|
|
|
| |
|
Date |
|
|
Managed |
|
|
Only |
|
|
Leased |
|
|
Incomplete |
|
|
Total |
|
Facilities as of December 31, 2005 |
|
|
|
|
|
|
39 |
|
|
|
24 |
|
|
|
3 |
|
|
|
— |
|
|
|
66 |
|
Completion of construction of the Red
Rock Correctional Center |
|
July 1, 2006 |
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Management contract awarded for Camino
Nuevo Female Correctional Facility |
|
July 1, 2006 |
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities as of December 31, 2006 |
|
|
|
|
|
|
40 |
|
|
|
25 |
|
|
|
3 |
|
|
|
— |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of the management contract
for the Liberty County Jail/Juvenile
Center |
|
January 1, 2007 |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
Completion of construction of the
Saguaro
Correctional Facility |
|
June 6, 2007 |
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities as of December 31, 2007 |
|
|
|
|
|
|
41 |
|
|
|
24 |
|
|
|
3 |
|
|
|
— |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We also have two additional facilities that are under construction. These facilities are not
counted in the foregoing table because they currently have no impact on our results of operations.
39
Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
During the year ended December 31, 2007, we generated net income of $133.4 million, or $1.06 per
diluted share, compared with net income of $105.2 million, or $0.86 per diluted share, for the
previous year. Contributing to the net income for 2007 compared to the previous year was an
increase in operating income of $41.3 million, from $225.0 million during 2006 to $266.3 million
during 2007 as a result of an increase in occupancy levels and new management contracts, partially
offset by an increase in general and administrative expenses and depreciation and amortization.
Facility Operations
A key performance indicator we use to measure the revenue and expenses associated with the
operation of the facilities we own or manage is expressed in terms of a compensated man-day, and
represents the revenue we generate and expenses we incur for one inmate for one calendar day.
Revenue and expenses per compensated man-day are computed by dividing facility revenue and expenses
by the total number of compensated man-days during the period. A compensated man-day represents a
calendar day for which we are paid for the occupancy of an inmate. We believe the measurement is
useful because we are compensated for operating and managing facilities at an inmate per-diem rate
based upon actual or minimum guaranteed occupancy levels. We also measure our ability to contain
costs on a per-compensated man-day basis, which is largely dependent upon the number of inmates we
accommodate. Further, per man-day measurements are also used to estimate our potential
profitability based on certain occupancy levels relative to design capacity. Revenue and expenses
per compensated man-day for all of the facilities we owned or managed, exclusive of those
discontinued (see further discussion below regarding discontinued operations), were as follows for
the years ended December 31, 2007 and 2006:
| |
|
|
|
|
|
|
|
|
| |
|
For the Years Ended |
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
Revenue per compensated man-day |
|
$ |
54.66 |
|
|
$ |
52.75 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
28.76 |
|
|
|
28.37 |
|
Variable expense |
|
|
10.01 |
|
|
|
9.90 |
|
|
|
|
|
|
|
|
Total |
|
|
38.77 |
|
|
|
38.27 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
15.89 |
|
|
$ |
14.48 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
29.1 |
% |
|
|
27.5 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
98.3 |
% |
|
|
95.0 |
% |
|
|
|
|
|
|
|
Average compensated population |
|
|
73,197 |
|
|
|
67,833 |
|
|
|
|
|
|
|
|
Average compensated occupancy for the year ended December 31, 2007 increased to 98.3% from
95.0% in the prior year despite placing into service approximately 6,200 additional beds during
2006 and 2007 as a result of the completion of several expansion and development projects. The
increase in occupancy resulted from the commencement of a new management contract with the U.S.
Immigration and Customs Enforcement, or ICE, at our Stewart Detention Center in Lumpkin, Georgia in
the fourth quarter of 2006, the re-opening of our North Fork Correctional Facility in the first
quarter of 2006, and the commencement of operations at our Red Rock Correctional Center during the
third quarter of 2006.
Business from our federal customers, including the Federal Bureau of Prisons, or the BOP, the
United States Marshals Service, or the USMS, and ICE, continues to be a significant component of
our business, increasing $67.6 million, or 12.8% from $526.8 million in 2006 to $594.4 million in
2007. Our federal customers generated 40% of our total revenue for both the years ended December
31, 2007
40
and 2006. In addition to the aforementioned contract with ICE at our Stewart Detention Center, a
modified contract with ICE at our T. Don Hutto Residential Center in Taylor, Texas that commenced
in May 2006 also contributed to an increase in federal revenue during 2007.
State revenues increased $74.5 million, or 11.6%, from $645.1 million in 2006 to $719.6 million in
2007, as certain states, such as the state of California, turned to the private sector to help
alleviate their overcrowding situations, while other states utilized additional bed capacity we
constructed for them or contracted to utilize additional beds at our facilities. We were also
successful in achieving certain per diem increases caused by a strong demand for prison beds.
Operating expenses totaled $1,058.1 million and $968.3 million for the years ended December 31,
2007 and 2006, respectively. Operating expenses consist of those expenses incurred in the
operation and management of adult and juvenile correctional and detention facilities, and for our
inmate transportation subsidiary.
Salaries and benefits represent the most significant component of fixed operating expenses with
approximately 63% of our operating expenses consisting of salaries and benefits. During 2007,
salaries and benefits expense at our correctional and detention facilities increased $56.9 million
from 2006, most notably as a result of an increase in staffing levels at our Red Rock Correctional
Center and Stewart Detention Center resulting from the commencement of new management contracts
during 2006. However, salaries and benefits expense for the year ended December 31, 2007
experienced only a modest increase on a per compensated man-day basis of 1.5% compared with the
prior year, as we were able to leverage our salaries and benefits over a larger inmate population
across the portfolio, where the additional inmates utilized existing space within our facilities
that did not require us to hire additional staff. We will be limited in our ability to leverage our
fixed costs over a higher inmate population in the future now that our facilities are substantially
occupied, particularly as we hire additional staff at new or expanded facilities where we
anticipate additional inmate populations. The marginal changes in per man-day costs were also net
of increased staffing levels at our newly constructed 1,896-bed Saguaro Correctional Facility
resulting from commencement of operations in June 2007.
Facility variable expenses increased 1.1% from $9.90 per compensated man-day during 2006 to $10.01
per compensated man-day during 2007. The increase in facility variable expenses per compensated
man-day was primarily the result of general inflationary increases in the costs of services.
Facility variable expenses also increased during 2007 compared with the prior year at our Saguaro
Correctional Facility as a result of the commencement of operations in June 2007 and at our Stewart
Detention Center as a result of the commencement of the new ICE management contract at this
facility during the fourth quarter of 2006.
The operation of the facilities we own carries a higher degree of risk associated with a management
contract than the operation of the facilities we manage but do not own because we incur significant
capital expenditures to construct or acquire facilities we own. Additionally, correctional and
detention facilities have a limited or no alternative use. Therefore, if a management contract is
terminated at a facility we own, we continue to incur certain operating expenses, such as real
estate taxes, utilities, and insurance, that we would not incur if a management contract was
terminated for a managed-only facility. As a result, revenue per compensated man-day is typically
higher for facilities we own and manage than for managed-only facilities. Because we incur higher
expenses, such as repairs and maintenance, real estate taxes, and insurance, on the facilities we
own and manage, our cost structure for facilities we own and manage is also higher than the cost
structure for the managed-only facilities. The following tables display the revenue and expenses
per compensated man-day for the facilities we own and manage and for the facilities we manage but
do not own:
41
| |
|
|
|
|
|
|
|
|
| |
|
For the Years Ended |
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
Owned and Managed Facilities: |
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
63.16 |
|
|
$ |
61.03 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
30.85 |
|
|
|
30.72 |
|
Variable expense |
|
|
10.80 |
|
|
|
10.75 |
|
|
|
|
|
|
|
|
Total |
|
|
41.65 |
|
|
|
41.47 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
21.51 |
|
|
$ |
19.56 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
34.1 |
% |
|
|
32.1 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
98.6 |
% |
|
|
93.9 |
% |
|
|
|
|
|
|
|
Average compensated population |
|
|
47,625 |
|
|
|
43,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Only Facilities: |
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
38.83 |
|
|
$ |
38.30 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
24.86 |
|
|
|
24.27 |
|
Variable expense |
|
|
8.53 |
|
|
|
8.41 |
|
|
|
|
|
|
|
|
Total |
|
|
33.39 |
|
|
|
32.68 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
5.44 |
|
|
$ |
5.62 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
14.0 |
% |
|
|
14.7 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
97.6 |
% |
|
|
97.0 |
% |
|
|
|
|
|
|
|
Average compensated population |
|
|
25,572 |
|
|
|
24,714 |
|
|
|
|
|
|
|
|
Owned and Managed Facilities
Our operating margins at owned and managed facilities for the year ended December 31, 2007
increased to 34.1% compared with 32.1% for the same period in 2006. The increase in operating
margins at our owned and managed facilities is largely the result of the increase in the average
compensated occupancy during 2007 to 98.6% compared to 93.9% in 2006. Our total compensated
population at owned and managed facilities increased by 10.4% during 2007 as compared to the prior
year. The increase in average compensated occupancy was achieved despite the completion of
construction and placing into service our 1,596-bed Red Rock Correctional Center in July 2006, our
1,896-bed Saguaro Correctional Facility in June 2007, and the completion of approximately 1,800
expansion beds at our Crossroads Correctional Center, North Fork Correctional Facility, and
Tallahatchie County Correctional Facility. Further, the aforementioned demand experienced with our
federal and state customers has resulted in an increase in the overall average revenue per
compensated man-day resulting from new contracts at higher than average per diems on existing
contracts and from annual per diem increases.
The most notable increases in compensated occupancy during 2007 occurred at the Stewart Detention
Center due to the ICE contract that began in October 2006 and for the re-opening of the North Fork
Correctional Facility in anticipation of inmate population needs from various existing state and
federal customers. Further, the opening of our Red Rock Correctional Center located in Eloy,
Arizona in July 2006 also positively impacted our compensated occupancy during 2007. As a result
of the commencement of operations at these three facilities our total revenues increased by $68.9
million during the year ended December 31, 2007 as compared to the prior year. The North Fork and
Red
42
Rock facilities had a combined 1,500 available beds as of December 31, 2007 that are expected to be
used to house CDCR inmates, as further described hereafter.
On May 2, 2007, we were awarded a contract to house up to 2,160 inmates at our Diamondback
Correctional Facility in Watonga, Oklahoma by the Arizona Department of Corrections. The contract
provides for a guaranteed 95% occupancy that becomes effective upon reaching 95% capacity following
an agreed ramp-up period. As of December 31, 2007, we housed 2,120 Arizona inmates at this
facility. During the third quarter of 2007, we completed the relocation of the Hawaiian inmates
from our Diamondback facility to our newly completed 1,896-bed Saguaro Correctional Facility.
During the year ended December 31, 2007, we incurred approximately $1.6 million in transportation
expenses to transition existing Arizona inmate populations in exchange for a larger Arizona
population.
In order to maintain an adequate supply of available beds to meet anticipated demand, while
offering the state of Hawaii the opportunity to consolidate its inmates into fewer facilities, we
commenced construction during 2005 of the Saguaro Correctional Facility. The Saguaro Correctional
Facility was completed in June 2007 at an estimated cost of approximately $102.6 million. As of
December 31, 2007, we housed 1,732 inmates from the state of Hawaii at the Saguaro facility. Our
results of operations during 2007 at the Saguaro facility were negatively impacted by the increased
staffing and other expenses associated with the ramp-up of operations at this new facility. We
expect the results of operations at the Saguaro facility to improve in 2008 as the population
stabilizes. We expect the facility to be substantially full with inmates from the state of Hawaii
by the end of the first quarter of 2008.
Additionally, facility contribution at our 1,824-bed Tallahatchie County Correctional Facility
deteriorated by approximately $1.8 million during 2007 from 2006 as a result of the movement of
Hawaiian inmates from the Tallahatchie facility to the Saguaro facility. We have increased
staffing levels at this facility because we expect the beds made available at the Tallahatchie
facility to be used to satisfy anticipated demand from the state of California. Accordingly, the
decline in occupancy at this facility from an average of 91% in 2006 to an average of 78% in 2007
resulted in a temporary reduction in operating margin until such time as the beds are filled with
replacement inmates.
On October 5, 2007, we announced that we had entered into a new agreement with the CDCR for the
housing of up to 7,772 inmates from the state of California. The new contract replaced and
superseded the previous contract we had with the CDCR, which provided housing for up to 5,670
inmates. In January 2008, this agreement was further amended to allow for an additional 360 CDCR
inmates. As a result, we now have a contract that provides the CDCR with the ability to house up
to 8,132 inmates in six of the facilities we own. The new agreement, which is subject to
appropriations by the California legislature, expires June 30, 2011, and provides for a minimum
payment based on the greater of the actual occupancy or 90% of the capacity made available to the
CDCR at each facility in which inmates are housed. The minimum payments are subject to specific
terms and conditions in the new contract at each facility that houses CDCR inmates.
Additionally, we announced that we would begin construction of our new 3,060-bed La Palma
Correctional Center, which we expect to be fully utilized by the CDCR. We expect to complete
construction of the new La Palma Correctional Center during the second quarter of 2009 at an
estimated total cost of $205.0 million. However, we expect to open a portion of the new facility
to begin receiving inmates from the state of California during the third quarter of 2008, with the
continued receipt of California inmates through completion of construction, as phases of the
facility become available. As a condition of undertaking the substantial cost required to construct
the La Palma Correctional Center, the CDCR agreed to occupy the beds allocated to it in accordance
with a Phase-In Schedule, and to make a minimum payment based on the greater of the actual
occupancy or 90% of the capacity available to CDCR according to the Phase-In Schedule.
43
We currently expect that we will ultimately provide the CDCR up to 960 beds at our Florence
Correctional Center, 80 beds at our West Tennessee Detention Facility, 2,592 beds at our
Tallahatchie facility, 1,080 beds at our North Fork facility, 360 beds at our Red Rock facility,
and 3,060 beds at the new La Palma facility, with the final transfer from California occurring
during the second quarter of 2009. As of December 31, 2007, we held 2,055 California inmates.
We remain optimistic that the state of California will continue to utilize out-of-state beds to
alleviate its severe overcrowding situation. However, several legal proceedings have challenged the
State’s ability to send inmates out-of-state. The Governor of California has announced an intention
to transfer up to 8,000 inmates out of state to both public and private institutions under
authority granted to him by “The Public Safety and Offender Rehabilitation Services Act of 2007”.
However, legislative enactments or additional legal proceedings, including a proceeding under
federal jurisdiction that could potentially reduce the number of inmates in the California prison
system, may prohibit the out-of-state transfer of inmates or could result in the return of inmates
we currently house for the CDCR. If transfers from California are limited as a result of one or
more of these proceedings, we would market the beds designated for the CDCR, including those that
will be provided at our new La Palma Correctional Center, to other federal and state customers.
While we currently believe we would ultimately be able to fill a substantial portion of such beds,
the utilization would likely be at a much slower pace.
Managed-Only Facilities
Our operating margins decreased slightly at managed-only facilities during the year ended December
31, 2007 to 14.0% from 14.7% during the year ended December 31, 2006. The managed-only business
remains very competitive which continues to put pressure on per diems resulting in only marginal
increases in the managed-only revenue per compensated man-day. Compensated occupancy at
managed-only facilities increased from 97.0% during 2006 to 97.6% during 2007 despite placing 360
beds into service in January 2007 at the Citrus County Detention Facility located in Lecanto,
Florida, 384 beds into service in June 2007 at the Gadsden Correctional Institution located in
Quincy, Florida, and 235 beds into service in July 2007 at the Bay Correctional Facility located in
Panama City, Florida.
During September 2005, we announced that Citrus County renewed our contract for the continued
management of the Citrus County Detention Facility. The terms of the new agreement included a
360-bed expansion that was substantially completed during the first quarter of 2007 for a cost of
approximately $18.5 million, funded by utilizing cash on hand. The facility, which now has a design
capacity of 760 beds, has experienced an increase in inmate populations during 2007. During 2007,
the facility maintained an average daily inmate population of 646 inmates compared with an average
daily inmate population of 426 inmates during 2006, which resulted in an increase in revenue and
operating margin at this facility.
Increases in occupancy during 2007 compared with 2006 at the Metro-Davidson County Detention
Facility in Nashville, Tennessee and the Idaho Correctional Center in Boise, Idaho also contributed
to the overall increase in our operating margins for managed-only facilities.
The operating margin at managed-only facilities was negatively affected during the year ended
December 31, 2007 as a result of a new contract at the Lake City Correctional Facility located in
Lake City, Florida. During November 2005, the Florida Department of Management Services, or
Florida DMS, solicited proposals for the management of the Lake City Correctional Facility
beginning July 1, 2006. We responded to the proposal and were notified in April 2006 of the Florida
DMS’s intent to award a contract to us. We negotiated a three-year contract in exchange for a
reduced per diem effective July 1, 2006, which resulted in a reduction in revenue and operating
margin at this facility during the second half of 2006 and for the full year ended December 31,
2007. The per diem reduction
44
also took into consideration an increase in inmate populations resulting from a 543-bed expansion
completed in March 2005.
Although the managed-only business is attractive because it requires little or no upfront
investment and relatively modest ongoing capital expenditures, we expect the managed-only business
to remain competitive. During the years ended December 31, 2007 and 2006, managed-only facilities
generated 11.9% and 14.1%, respectively, of our total facility contribution. We define facility
contribution as a facility’s operating income or loss before interest, taxes, goodwill impairment,
depreciation, and amortization.
General and administrative expense
For the years ended December 31, 2007 and 2006, general and administrative expenses totaled $74.4
million and $63.6 million, respectively. General and administrative expenses consist primarily of
corporate management salaries and benefits, professional fees and other administrative expenses.
General and administrative expenses increased from 2006 primarily as a result of an increase in
salaries and benefits resulting from an increase in corporate staffing levels to help ensure the
quality and effectiveness of our facility operations, to intensify our efforts on developing new
bed capacity, and to implement and support numerous technology initiatives. As a result of our
intensified efforts to develop new capacity, we have capitalized certain pre-acquisition costs
directly associated with a number of development projects. General and administrative expenses
could increase in the future for the write-off of such costs in the event we decide to abandon any
of these projects.
General and administrative expenses were also higher as a result of an increase of $0.8 million of
restricted stock-based compensation awarded to employees who have historically been awarded stock
options and an increase of $0.8 million in stock option expense in 2007 compared with 2006. For
the year ended December 31, 2007, we recognized approximately $4.1 million of general and
administrative expense for the amortization of restricted stock granted to these employees in 2005,
2006, and 2007 since the amortization period spans the three-year vesting period of each restricted
share award.
Further, on January 1, 2006, consistent with Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment,” or SFAS 123R, we began recognizing general and administrative expenses for
the amortization of employee stock options granted after January 1, 2006 to employees whose
compensation is charged to general and administrative expense. Until January 1, 2006, we had not
recognized stock option expense in our income statement, except for a compensation charge of $1.0
million reported in the fourth quarter of 2005 for the acceleration of vesting of outstanding
options as further described hereafter. For the year ended December 31, 2007, we recognized $2.4
million of general and administrative expense for the amortization of employee stock options
granted after January 1, 2006. As of December 31, 2007, we had $3.9 million of total unrecognized
compensation cost related to stock options that is expected to be recognized over a remaining
weighted-average period of 1.5 years.
Depreciation and amortization
For the years ended December 31, 2007 and 2006, depreciation and amortization expense totaled $78.5
million and $67.2 million, respectively. The increase in depreciation and amortization from 2006
resulted from the combination of additional depreciation expense recorded on various completed
facility expansion and development projects, most notably our Red Rock Correctional Center placed
into service in July 2006, and our Saguaro Correctional Center placed into service in June 2007,
and the additional depreciation on our investments in technology and other capital expenditures.
We currently expect depreciation and amortization to increase in the future as we complete
additional facility expansion and development projects.
45
Goodwill impairment
During the fourth quarter of 2007, in connection with our annual budgeting process and annual
goodwill impairment analysis, we recognized a goodwill impairment charge of $1.5 million related to
the management of two of our managed-only facilities. This impairment charge resulted from recent
poor operating performance combined with an unfavorable forecast of future cash flows under the
current management contracts at these facilities. The impairment charge was computed using a
discounted cash flow method.
Interest expense, net
Interest expense was reported net of interest income and capitalized interest for the years ended
December 31, 2007 and 2006. Gross interest expense, net of capitalized interest, was $64.5 million
and $67.9 million, respectively, for the years ended December 31, 2007 and 2006. Gross interest
expense during these periods was based on outstanding borrowings under our senior bank credit
facility, our outstanding senior notes, and amortization of loan costs and unused facility fees.
Gross interest income was $10.8 million and $9.1 million, respectively, for the years ended
December 31, 2007 and 2006. Gross interest income is earned on cash collateral requirements, a
direct financing lease, notes receivable, investments, and cash and cash equivalents, and increased
due to a higher average cash and investment balance during 2007 compared with 2006 generated from
operating cash flows.
Capitalized interest was $7.6 million and $4.7 million during 2007 and 2006, respectively, and was
associated with various construction and expansion projects further described under “Liquidity and
Capital Resources” hereafter.
Expenses associated with debt refinancing and recapitalization transactions
For the year ended December 31, 2006, expenses associated with debt refinancing and
recapitalization transactions were $1.0 million. Charges of $1.0 million in the first quarter of
2006 consisted of the write-off of existing deferred loan costs associated with the pay-off and
retirement of the old senior bank credit facility.
Income tax expense
During the years ended December 31, 2007 and 2006, our financial statements reflected an income tax
provision of $80.3 million and $60.8 million, respectively.
Our effective tax rate was approximately 37.7% during the year ended December 31, 2007 compared to
approximately 36.8% during the year ended December 31, 2006. Our annual effective tax rate
increased for 2007 as a result of an increase in our taxable income in states with higher statutory
tax rates, the negative impact of a change in Texas tax law, and interest associated with uncertain
tax positions required pursuant to FASB’s Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes —an interpretation of FASB Statement No. 109” (“FIN 48”).
Upon adoption of FIN 48 on January 1, 2007, we recognized a $2.2 million increase in the liability
for uncertain tax positions net of certain benefits associated with state net operating losses,
which was recorded as an adjustment to the January 1, 2007 balance of retained earnings. We had a
$5.0 million liability recorded for uncertain tax positions as of December 31, 2007. The total
amount of unrecognized tax positions that, if recognized, would affect the effective tax rate is
$4.8 million. We do not currently anticipate that the total amount of unrecognized tax positions
will significantly increase or decrease in the next twelve months.
46
We currently expect our effective tax rate to increase slightly in 2008 as a result of an increase
in our projected taxable income in states with higher statutory tax rates. Our overall effective
tax rate is estimated based on our current projection of taxable income and could change in the
future as a result of changes in these estimates, the implementation of additional tax strategies,
changes in federal or state tax rates, changes in estimates related to uncertain tax positions, or
changes in state apportionment factors, as well as changes in the valuation allowance applied to
our deferred tax assets that are based primarily on the amount of state net operating losses and
tax credits that could expire unused.
Discontinued operations
During September 2006, we received notification from the Liberty County Commission in Liberty
County, Texas that, as a result of a contract bidding process, the County elected to transfer
management of the 380-bed Liberty County Jail/Juvenile Center to another operator. Accordingly, we
transferred operation of the facility to the other operator upon expiration of the management
contract in January 2007. Total revenue for this facility during the year ended December 31, 2006
was $5.5 million and total operating expenses were $5.6 million.
In November 2007, we accepted an unsolicited offer to sell a facility located in Houston, Texas and
leased to a third-party operator. In accordance with Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, or SFAS 144, we
reclassified the results of operations of the facility to discontinued operations. During February
2008, at the request of the operator we agreed to extend the proposed closing date and fix the
sales price through June 30, 2008. We would recognize any gain on sale of this property in the
period the sale closes, which would also be reported as discontinued operations. Rental revenue
earned on this property was $1.5 million for both the years ended December 31, 2007 and 2006.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
During the year ended December 31, 2006, we generated net income of $105.2 million, or $0.86 per
diluted share, compared with net income of $50.1 million, or $0.42 per diluted share, for the
previous year. Contributing to the net income for 2006 compared to the previous year was an
increase in operating income of $49.0 million, from $176.0 million during 2005 to $225.0 million
during 2006 as a result of an increase in occupancy levels and new management contracts, partially
offset by an increase in general and administrative expenses and depreciation and amortization.
Net income during 2005 was negatively impacted by a $35.3 million pre-tax charge, or $0.19 per
diluted share net of taxes, associated with debt refinancing transactions completed during the
first and second quarters, as further described hereafter. The charge consisted of a tender
premium paid to the holders of the 9.875% senior notes (who tendered their notes to us at a price
of 111% of par pursuant to a tender offer we made for the 9.875% senior notes in March 2005),
estimated fees and expenses associated with the tender offer, and the write-off of (i) existing
deferred loan costs associated with the purchase of the 9.875% senior notes, (ii) existing deferred
loan costs associated with a lump sum pay-down of our senior bank credit facility, and (iii)
existing deferred loan costs and third-party fees incurred in connection with obtaining an
amendment to our old senior bank credit facility.
Facility Operations
Revenue and expenses per compensated man-day for all of the facilities we owned or managed,
exclusive of those discontinued (see further discussion below regarding discontinued operations),
were as follows for the years ended December 31, 2006 and 2005:
47
| |
|
|
|
|
|
|
|
|
| |
|
For the Years Ended |
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Revenue per compensated man-day |
|
$ |
52.75 |
|
|
$ |
50.73 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
28.37 |
|
|
|
28.46 |
|
Variable expense |
|
|
9.90 |
|
|
|
9.40 |
|
|
|
|
|
|
|
|
Total |
|
|
38.27 |
|
|
|
37.86 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
14.48 |
|
|
$ |
12.87 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
27.5 |
% |
|
|
25.4 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
95.0 |
% |
|
|
91.4 |
% |
|
|
|
|
|
|
|
Average compensated population |
|
|
67,833 |
|
|
|
63,105 |
|
|
|
|
|
|
|
|
Average compensated occupancy for the year ended December 31, 2006 increased from the prior
year primarily as a result of increases in inmate populations across our portfolio, and also as a
result of a full year’s impact from a contract with the BOP that commenced in June 2005 at our
Northeast Ohio Correctional Center. Compensated occupancy also increased as a result of an increase
in the population at our Prairie Correctional Facility largely as a result of additional inmates
from the states of Minnesota, Washington and Idaho, an increase in the population at our Crowley
County Correctional Facility, as well as an increase in population at our North Fork Correctional
Facility as a result of a new management contract with the state of Wyoming, which commenced in
June 2006. Further, inmate populations increased notably at our Otter Creek Correctional Facility
as a result of contracts with the states of Kentucky and Hawaii to house female inmates to replace
the inmates from the state of Indiana that were removed during the second quarter of 2005.
Our federal customers generated 40% and 39% of our total revenue for the years ended December 31,
2006 and 2005, respectively. In addition to the aforementioned contract with the BOP at our
Northeast Ohio facility, a modified contract with ICE at our T. Don Hutto Residential Center in
Taylor, Texas that commenced in May 2006 also contributed to an increase in federal revenue during
2006.
Operating expenses totaled $968.3 million and $893.3 million for the years ended December 31, 2006
and 2005, respectively. Operating expenses consist of those expenses incurred in the operation and
management of adult and juvenile correctional and detention facilities, and for our inmate
transportation subsidiary.
Salaries and benefits represent the most significant component of fixed operating expenses with
approximately 63% of our operating expenses consisting of salaries and benefits. During 2006,
salaries and benefits expense at our correctional and detention facilities increased $37.1 million
from 2005. However, salaries and benefits expense for the year ended December 31, 2006 decreased
by $0.20 per compensated man-day compared with the same period in the prior year, as we were able
to leverage our salaries and benefits over a larger inmate population and achieve savings in
workers compensation. Additionally, the decrease in salaries and benefits per compensated man-day
was caused by increased staffing levels in the prior year in anticipation of increased inmate
populations at our Northeast Ohio Correctional Center due to the commencement of the new BOP
contract on June 1, 2005, and at our Otter Creek Correctional Center as a result of the
aforementioned transition of state inmate populations, partially offset by increased staffing
levels at our Stewart Detention Center, North Fork Correctional Facility, and the Red Rock
Correctional Center as a result of the opening of each of these facilities during 2006.
48
Facility variable expenses increased 5.3% from $9.40 per compensated man-day during 2005 to $9.90
per compensated man-day during 2006. The increase in facility variable expenses was primarily the
result of an increase in legal expenses resulting from the successful negotiation of a number of
outstanding legal matters in the prior year and general inflationary increases in the costs of
services such as our inmate medical and food service expenses.
With regard to legal expenses during 2005, we settled a number of outstanding legal matters for
amounts less than reserves previously established for such matters which, on a net basis, reduced
our expenses during 2005. As a result, operating expenses associated with legal settlements
increased by $5.8 million during 2006 compared with the prior year. Expenses associated with legal
proceedings may fluctuate from quarter to quarter based on new lawsuits, changes in our
assumptions, new developments, or the effectiveness of our litigation and settlement strategies.
The following tables display the revenue and expenses per compensated man-day for the facilities we
own and manage and for the facilities we manage but do not own:
| |
|
|
|
|
|
|
|
|
| |
|
For the Years Ended |
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Owned and Managed Facilities: |
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
61.03 |
|
|
$ |
58.95 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
30.72 |
|
|
|
31.79 |
|
Variable expense |
|
|
10.75 |
|
|
|
10.19 |
|
|
|
|
|
|
|
|
Total |
|
|
41.47 |
|
|
|
41.98 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
19.56 |
|
|
$ |
16.97 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
32.1 |
% |
|
|
28.8 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
93.9 |
% |
|
|
88.3 |
% |
|
|
|
|
|
|
|
Average compensated population |
|
|
43,119 |
|
|
|
39,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Only Facilities: |
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
38.30 |
|
|
$ |
37.37 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
24.27 |
|
|
|
23.04 |
|
Variable expense |
|
|
8.41 |
|
|
|
8.11 |
|
|
|
|
|
|
|
|
Total |
|
|
32.68 |
|
|
|
31.15 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
5.62 |
|
|
$ |
6.22 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
14.7 |
% |
|
|
16.6 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
97.0 |
% |
|
|
96.9 |
% |
|
|
|
|
|
|
|
Average compensated population |
|
|
24,714 |
|
|
|
24,026 |
|
|
|
|
|
|
|
|
Owned and Managed Facilities
During April 2006, we modified an agreement with Williamson County, Texas to house non-criminal
detainees from ICE under an inter-governmental service agreement between Williamson County and ICE.
The agreement enables ICE to accommodate non-criminal aliens being detained for deportation at our
T. Don Hutto Residential Center. We originally announced an agreement in December 2005 to house up
to 600 male detainees for ICE. However, for various reasons, the initial intake of detainees
originally scheduled to occur in February 2006 was delayed. The modified agreement, which was
49
effective beginning May 8, 2006, provides for an indefinite term. This new agreement contributed
to increased revenue and operating margins in 2006 compared with 2005. Further, the increase in the
operating margin was positively affected during 2006 because the agreement provides for a fixed
monthly payment based on the 512-bed capacity of the facility, even though detainee populations
were continuing to increase during the second half of 2006.
On December 23, 2004, we received a contract award from the BOP to house approximately 1,195
federal inmates at our 2,016-bed Northeast Ohio Correctional Center. The contract, awarded as part
of the Criminal Alien Requirement Phase 4 Solicitation (“CAR 4”), provides for an initial four-year
term with three two-year renewal options. The terms of the contract provide for a 50% guaranteed
rate of occupancy for 90 days following a Notice to Proceed, and a 90% guaranteed rate of occupancy
thereafter. The contract commenced June 1, 2005. As of December 31, 2006, we housed 1,334 BOP
inmates at this facility. Total revenue at this facility increased by $22.9 million during 2006
compared with the prior year. This increase in revenue was also attributable to an increase in
USMS inmates held at this facility during 2006 compared with 2005.
During 2006, our 1,600-bed Prairie Correctional Facility in Appleton, Minnesota housed a daily
average of approximately 1,500 inmates as a result of new contract awards in mid-2004 and
subsequent increasing demand for beds from the states of Minnesota and Washington, and under a new
contract with the state of Idaho, compared with a daily average of approximately 867 inmates during
2005. As a result, total revenue increased by $13.9 million at this facility during 2006 compared
with the prior year. In early 2006, we were notified by the state of Idaho of their intention to
withdraw their inmates from the Prairie facility. The state of Idaho completed this withdrawal
during the fourth quarter of 2006. As of December 31, 2006, we housed 1,417 inmates from the
states of Washington and Minnesota.
Due to a combination of rate increases and/or an increase in population at our Crowley County
Correctional Facility, Central Arizona Detention Center, Houston Processing Center, and Otter Creek
Correctional Center, primarily from the state of Colorado, the USMS and ICE, the state of Hawaii,
and the state of Kentucky, respectively, total management and other revenue at these facilities
increased during 2006 from 2005 by $18.8 million.
Effective July 1, 2005, ICE awarded us a three-year contract for the continued management of ICE
detainees and USMS inmates at the 1,154-bed San Diego Correctional Facility located in San Diego,
California. The contract, which contains five three-year renewal options, provided for an increase
in the fixed monthly payment. Total revenue increased by $3.5 million during 2006 from 2005 as a
result of the increased rate and an increase in populations from ICE and USMS at this facility.
During January 2006, we received notification from the BOP of its intent not to exercise its
renewal option at our 1,500-bed Eloy Detention Center in Eloy, Arizona. At December 31, 2005, the
Eloy facility housed approximately 500 inmates from the BOP and approximately 800 detainees from
ICE, pursuant to a subcontract between the BOP and ICE. The BOP completed the transfer of its
inmates from the Eloy facility to other BOP facilities by February 28, 2006. During February 2006,
we reached an agreement with the City of Eloy to manage detainees from ICE at this facility under
an inter-governmental service agreement between the City of Eloy and ICE, effectively providing ICE
the ability to fully utilize the Eloy Detention Center for existing and potential future
requirements. Under our agreement with the City of Eloy, we are eligible for periodic rate
increases that were not provided in the previous contract with the BOP. As of December 31, 2006,
this facility housed 1,495 ICE detainees.
During the first quarter of 2006, we re-opened our North Fork Correctional Facility, with a small
population of inmates from the state of Vermont. The facility was also re-opened in anticipation
of additional inmate population needs from various existing state and federal customers. Prior to
its re-
50
opening, this facility had been vacant since the third quarter of 2003, when all of the
Wisconsin inmates housed at the facility were transferred out of the facility in order to satisfy a
contractual provision mandated by the state of Wisconsin.
In June 2006, we entered into a new agreement with the state of Wyoming to house up to 600 of the
state’s male medium-security inmates at our North Fork Correctional Facility. The terms of the
contract include an initial two-year period and may be renewed upon mutual agreement.
During December 2006, we also entered into an agreement with Bent County, Colorado to house
Colorado male inmates under an inter-governmental service agreement between the County and State of
Colorado Department of Corrections. Under the agreement we may house up to 720 Colorado inmates,
subject to bed availability, at our North Fork Correctional Facility. The term of the contract
includes an initial term which commenced December 28, 2006 and ran through June 30, 2007, and
provides for mutually agreed extensions for a total contract term of up to five years. We initially
received approximately 240 Colorado inmates at the North Fork facility during December 2006.
As of December 31, 2006, the North Fork facility housed 796 inmates from the states of Vermont,
Wyoming, and Colorado. Based on our expectation of increased demand from a number of existing
state and federal customers, we expanded our North Fork Correctional Facility by 960 beds. We
began construction during the third quarter of 2006 and construction was completed during the
fourth quarter of 2007 at an estimated cost of $53.0 million.
During October 2005, construction was completed on the Stewart Detention Center in Stewart County,
Georgia and the facility became available for occupancy. Accordingly, we began depreciating the
facility in the fourth quarter of 2005 and ceased capitalizing interest on this project. During
2005, we capitalized $2.8 million in interest costs incurred on this facility. The book value of
the facility was approximately $72.5 million upon completion of construction. In June 2006, we
entered into a new agreement with Stewart County, Georgia to house detainees from ICE under an
inter-governmental service agreement between Stewart County and ICE. The agreement enables ICE to
accommodate detainees at our Stewart Detention Center. The agreement with Stewart County is
effective through December 31, 2011, and provides for an indefinite number of renewal options. We
began receiving ICE detainees at the Stewart facility in October 2006. As of December 31, 2006, we
held 1,013 detainees at this facility.
During February 2005, we commenced construction of the Red Rock Correctional Center, a new
1,596-bed correctional facility located in Eloy, Arizona. The facility was completed during July
2006 for an aggregate cost of approximately $81.0 million. We relocated all of the Alaskan inmates
from our Florence Correctional Center into this new facility during the third quarter of 2006. The
beds made available at the Florence facility are expected to be used to satisfy anticipated state
and federal demand for detention beds in the Arizona area, including inmates from the state of
California. As of December 31, 2006, the Red Rock facility housed 993 Alaskan inmates and 222
Hawaiian inmates.
While start-up activities and staffing expenses incurred in preparation for the arrival of
detainees at the Stewart Detention Center and inmates at the Red Rock and North Fork facilities had
an adverse impact on our results of operations during the second half of 2006, the utilization of
this increased bed capacity contributed to an increase in revenue and profitability in 2007.
Managed-Only Facilities
Our operating margins decreased at managed-only facilities during 2006 to 14.7% from 16.6% during
2005 primarily as a result of an increase in salaries and benefits caused in part by an increase in
employee medical insurance. The deterioration of operating margins at managed-only facilities was
also as a result of a new contract at the expanded Lake City Correctional Facility. During
November
51
2005, the Florida DMS solicited proposals for the management of the Lake City Correctional Facility
beginning July 1, 2006. We responded to the proposal and were notified in April 2006 of the Florida
DMS’s intent to award a contract to us. We negotiated a three-year contract in exchange for a
reduced per diem effective July 1, 2006, which resulted in a reduction in revenue and operating
margin at this facility from the prior year. The Lake City Correctional Facility was expanded from
350 beds to 893 beds late in the first quarter of 2005. The average daily inmate population at the
Lake City Correctional Facility during 2006 was 889 inmates compared with 689 inmates during 2005.
During June 2005, Bay County, Florida solicited proposals for the management of the Bay County Jail
beginning October 1, 2006. During April 2006, we were selected for the continued management and
construction of both new and replacement beds at the facility. During May 2006, we signed a new
contract for the continued management of the Bay County Jail for a base term of six years with one
six-year renewal option. The construction of the new and replacement beds at the facility will be
paid by Bay County at a fixed price, and is expected to be complete during the second quarter of
2008. We do not expect a material change in inmate populations resulting from these new
agreements.
During September 2005, we announced that Citrus County renewed our contract for the continued
management of the Citrus County Detention Facility located in Lecanto, Florida. The terms of the
new agreement included a 360-bed expansion that commenced during the fourth quarter of 2005 and was
substantially completed during the first quarter of 2007 for a cost of approximately $18.5 million
funded by utilizing cash on hand. The facility experienced an increase in operating expenses during
2006, primarily in the fourth quarter, as a result of the increase in staffing levels to support
the new inmate population in the expansion beds.
During 2006, our 1,270-bed Idaho Correctional Center experienced an increase in revenue of
approximately $1.4 million compared with the prior year primarily as a result of an increase in the
inmate population. The average daily inmate population during 2006 was 1,328 compared with an
average daily inmate population of 1,276 during 2006. This increase in population served to
partially offset the decreased operating margins experienced in 2006 at the facilities we manage
but do not own.
General and administrative expense
For the years ended December 31, 2006 and 2005, general and administrative expenses totaled $63.6
million and $57.1 million, respectively. General and administrative expenses consist primarily of
corporate management salaries and benefits, professional fees and other administrative expenses,
and increased from 2005 primarily as a result of an increase in salaries and benefits, including an
increase of $1.6 million of restricted stock-based compensation awarded to employees who have
historically been awarded stock options and $1.6 million of stock option expense, which represents
an increase of $0.6 million over the $1.0 million of stock option expense in 2005. The stock option
expense in 2005 was recorded in the fourth quarter as a result of the acceleration of vesting of
all outstanding options as further described hereafter.
In 2005, the Company made changes to its historical business practices with respect to awarding
stock-based employee compensation as a result of, among other reasons, the issuance of SFAS 123R.
During the year ended December 31, 2005, we recognized $1.7 million of general and administrative
expense for the amortization of restricted stock issued during 2005 to employees whose compensation
is charged to general and administrative expense. For the year ended December 31, 2006, we
recognized approximately $3.3 million of general and administrative expense for the amortization of
restricted stock granted to these employees in both 2005 and 2006, since the amortization period
spans the three-year vesting period of each restricted share award.
Further, on January 1, 2006, consistent with SFAS 123R we began recognizing general and
administrative expenses for the amortization of employee stock options granted after January 1,
2006
52
to employees whose compensation is charged to general and administrative expense, which heretofore
have not been recognized in our income statement, except with respect to the aforementioned
compensation charge of $1.0 million reported in the fourth quarter of 2005 for the acceleration of
vesting of outstanding options as further described hereafter. For the year ended December 31,
2006, we recognized $1.6 million of general and administrative expense for the amortization of
employee stock options granted after January 1, 2006. As of December 31, 2006, we had $2.5 million
of total unrecognized compensation cost related to stock options that is expected to be recognized
over a remaining weighted-average period of 2.5 years.
Effective December 30, 2005, our board of directors approved the acceleration of the vesting of
outstanding options previously awarded to executive officers and employees under our Amended and
Restated 1997 Employee Share Incentive Plan and our Amended and Restated 2000 Stock Incentive Plan.
As a result of the acceleration, approximately 3.0 million unvested options became exercisable, 45%
of which were otherwise scheduled to vest in February 2006. The purpose of the accelerated vesting
of stock options was to enable us to avoid recognizing compensation expense associated with these
options in future periods as required by SFAS 123R, estimated at the date of acceleration to be
$3.8 million in 2006, $2.0 million in 2007, and $0.5 million in 2008. In order to prevent
unintended benefits to the holders of these stock options, we imposed resale restrictions to
prevent the sale of any shares acquired from the exercise of an accelerated option prior to the
original vesting date of the option. The resale restrictions automatically expire upon the
individual’s termination of employment. All other terms and conditions applicable to such options,
including the exercise prices, remained unchanged. As a result of the acceleration, we recognized a
non-cash, pre-tax charge of $1.0 million in the fourth quarter of 2005 for the estimated value of
the stock options that would have otherwise been forfeited.
Our general and administrative expenses were also higher as a result of an increase in corporate
staffing levels. We continued to re-evaluate our organizational structure in 2005 and 2006 and
expanded our infrastructure to help ensure the quality and effectiveness of our facility
operations. This intensified focus contributed to the increase in salaries and benefits expense,
as well as a number of other general and administrative expense categories. We have also
experienced increasing expenses to implement and support numerous technology initiatives. We
believe these strategies have contributed to the increase in facility operating margins.
Depreciation and amortization
For the years ended December 31, 2006 and 2005, depreciation and amortization expense totaled $67.2
million and $59.5 million, respectively. The increase in depreciation and amortization from 2005
resulted from the combination of additional depreciation expense recorded on various completed
facility expansion and development projects, most notably our Stewart Detention Center and Red Rock
Correctional Center, and the additional depreciation on our investments in technology.
Interest expense, net
Interest expense was reported net of interest income and capitalized interest for the years ended
December 31, 2006 and 2005. Gross interest expense, net of capitalized interest, was $67.9 million
and $69.3 million, respectively, for the years ended December 31, 2006 and 2005. Gross interest
expense during these periods was based on outstanding borrowings under our senior bank credit
facility, our outstanding senior notes, convertible subordinated notes payable balances (until
converted), and amortization of loan costs and unused facility fees. The decrease in gross
interest expense from the prior year was primarily attributable to the recapitalization and
refinancing transactions completed during the first half of 2005 and additional refinancing
transactions completed during the first quarter of 2006, as further described hereafter.
53
Gross interest income was $9.1 million and $5.4 million, respectively, for the years ended December
31, 2006 and 2005. Gross interest income is earned on cash collateral requirements, a direct
financing lease, notes receivable, investments, and cash and cash equivalents, and increased due to
the accumulation of higher cash and investment balances generated from operating cash flows.
Capitalized interest was $4.7 million and $4.5 million during 2006 and 2005, respectively, and was
associated with various construction and expansion projects.
Expenses associated with debt refinancing and recapitalization transactions
For the years ended December 31, 2006 and 2005, expenses associated with debt refinancing and
recapitalization transactions were $1.0 million and $35.3 million, respectively. Charges of $1.0
million in the first quarter of 2006 consisted of the write-off of existing deferred loan costs
associated with the pay-off and retirement of the old senior bank credit facility. Charges of
$35.0 million in the first quarter of 2005 consisted of a tender premium paid to the holders of the
$250.0 million 9.875% senior notes who tendered their notes to us at a price of 111% of par
pursuant to a tender offer we made for their notes in March 2005, the write-off of existing
deferred loan costs associated with the purchase of the $250.0 million 9.875% senior notes and the
lump sum pay-down of the term portion of our old senior bank credit facility made with the proceeds
from the issuance of $375.0 million of 6.25% senior notes, and estimated fees and expenses
associated with each of the foregoing transactions. The remaining charges in 2005 consisted of the
write-off of existing deferred loan costs and third-party fees and expenses associated with an
amendment to the senior bank credit facility obtained during the second quarter of 2005, whereby we
reduced the interest rate margins associated with the facility and prepaid $20.0 million of the
term portion of the facility with proceeds from a draw of a like amount on the revolving portion of
the facility.
Income tax expense
During the years ended December 31, 2006 and 2005, our financial statements reflected an income tax
provision of $60.8 million and $26.6 million, respectively.
Our effective tax rate was approximately 36.8% during the year ended December 31, 2006 compared to
approximately 34.7% during the year ended December 31, 2005. The lower effective tax rate during
2005 resulted from certain tax planning strategies implemented during the fourth quarter of 2004,
that were magnified by the recognition of deductible expenses associated with our debt refinancing
transactions completed during the first half of 2005. In addition, we also successfully pursued
and recognized investment tax credits of $0.7 million in 2005. The effective tax rate during 2006
was also favorably impacted by an increase in the income tax benefits of equity compensation during
2006.
Discontinued operations
On March 21, 2005, the Tulsa County Commission in Oklahoma provided us notice that, as a result of
a contract bidding process, the County elected to have the Tulsa County Sheriff’s Office assume
management of the David L. Moss Criminal Justice Center upon expiration of the contract on June 30,
2005. Operations were transferred to the Sheriff’s Office on July 1, 2005. Total revenue and
operating expenses during 2005 were $10.7 million and $11.2 million, respectively. After
depreciation expense and income taxes, the facility experienced a loss of $0.4 million for the year
ended December 31, 2005.
During September 2006, we received notification from the Liberty County Commission in Liberty
County, Texas that, as a result of a contract bidding process, the County elected to transfer
management of the 380-bed Liberty County Jail/Juvenile Center to another operator. Accordingly, we
transferred operation of the facility to the other operator upon expiration of the management
contract in January 2007. During the year ended December 31, 2006 total revenue was $5.5 million
and total
54
operating expenses were $5.6 million. During the year ended December 31, 2005 total revenue during
the year ended December 31, 2005 was $5.3 million and total operating expenses were $5.5 million.
In November 2007, we accepted an unsolicited offer to sell a facility located in Houston, Texas and
leased to a third-party operator. In accordance with SFAS 144, we reclassified the results of
operations of the facility to discontinued operations. During February 2008, at the request of the
operator we agreed to extend the closing date and fix the sales price through June 30, 2008. We
would recognize any gain on sale of this property in the period the sale closes, which would also
be reported as discontinued operations. Rental revenue earned on this property was $1.5 million
and $1.4 million for the years ended December 31, 2006 and 2005, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are for working capital, capital expenditures, and debt service
payments. Capital requirements may also include cash expenditures associated with our outstanding
commitments and contingencies, as further discussed in the notes to our financial statements.
Additionally, we may incur capital expenditures to expand the design capacity of certain of our
facilities (in order to retain management contracts) and to increase our inmate bed capacity for
anticipated demand from current and future customers. We may acquire additional correctional
facilities that we believe have favorable investment returns and increase value to our
stockholders. We will also consider opportunities for growth, including potential acquisitions of
businesses within our line of business and those that provide complementary services, provided we
believe such opportunities will broaden our market share and/or increase the services we can
provide to our customers.
As a result of increasing demand from both our federal and state customers and the utilization of a
significant portion of our existing available beds, we have intensified our efforts to deliver new
capacity to address the lack of available beds that our existing and potential customers are
experiencing. We can provide no assurance, however, that the increased capacity that we construct
will be utilized. The following addresses certain significant projects that are currently in
process:
In July 2006, we were notified by the state of Colorado that the State had accepted our proposal to
expand our 700-bed Bent County Correctional Facility in Las Animas, Colorado by 720 beds to fulfill
part of a 2,250-bed request for proposal issued by the state of Colorado in December 2005. As a
result of the award, we have now entered into an Implementation Agreement with the state of
Colorado for the expansion of our Bent County Correctional Facility by 720 beds. In addition,
during November 2006 we entered into another Implementation Agreement to also expand our 768-bed
Kit Carson Correctional Center in Burlington, Colorado by 720 beds. Construction of the Bent and
Kit Carson facilities is estimated to cost approximately $88.0 million. The Kit Carson expansion is
anticipated to be completed during the first quarter of 2008 while the Bent expansion is
anticipated to be completed during the second quarter of 2008.
In August 2006, we also announced our intention to expand our Tallahatchie County Correctional
Facility in Tutwiler, Mississippi by 360 beds. Based on anticipated demand, we announced in March
2007 that we expected to complete an additional 360-bed expansion at this facility. Both of these
expansions were completed during the fourth quarter of 2007. In order to satisfy demand for prison
beds for the state of California and/or other state customers, during July 2007 we announced our
intention to further expand our Tallahatchie facility by an additional 848 beds to ultimately bring
the design capacity at this facility to a total of 2,672 beds and expect to complete this expansion
during the second quarter of 2008. We currently estimate these expansions to cost approximately
$96.0 million in the aggregate. As previously described herein, we expect to house up to 2,592
inmates from the state of California at the Tallahatchie facility pursuant to the newest contract
with the CDCR.
55
During January 2007, we announced that we received a contract award from the BOP to house up to
1,558 federal inmates at our Eden Detention Center in Eden, Texas. As of December 31, 2007, we
housed 1,353 BOP inmates at the Eden facility. The contract requires a renovation and expansion of
the Eden facility, which will increase the rated capacity of the facility by 129 beds to an
aggregate capacity of 1,422 beds. Renovation of the Eden facility is expected to be completed in
the first quarter of 2008 at an estimated cost of approximately $20.0 million.
In March 2007, we announced our intention to expand our 767-bed Leavenworth Detention Center in
Leavenworth, Kansas by 266 beds. We anticipate that construction will be completed during the
second quarter of 2008, at an estimated cost of approximately $22.5 million. This expansion will
also include a renovation of the existing building infrastructure to accommodate higher detainee
populations. The Leavenworth facility housed approximately 925 USMS detainees as of December 31,
2007.
In May 2007, we announced our intention to expand two of our owned facilities located in Oklahoma
based on our expectation of increased demand from the state of Oklahoma and a number of other
existing state customers. We are expanding our 1,032-bed Cimarron Correctional Facility in Cushing,
Oklahoma and our 1,010-bed Davis Correctional Facility in Holdenville, Oklahoma by 660 beds each.
Currently, the state of Oklahoma occupies both facilities which are running at or near full
capacity. Both expansions are expected to be completed by the end of the third quarter of 2008 at
an estimated total cost of approximately $90.0 million.
In July 2007, we announced the commencement of construction of a new 1,668-bed correctional
facility in Adams County, Mississippi. Construction of the new facility is estimated to be
completed during the fourth quarter of 2008 at an estimated cost of approximately $105.0 million.
We do not currently have a management contract to utilize these new beds, but will market the new
beds to various existing and potential customers.
In October 2007, we announced that we expect to begin construction of our new 3,060-bed La Palma
Correctional Center located in Eloy, Arizona, which we expect to be fully utilized by the CDCR. We
expect to complete construction of the new La Palma Correctional Center during the second quarter
of 2009 at an estimated total cost of $205.0 million. However, we expect to open a portion of the
new facility to begin receiving inmates from the state of California during the third quarter of
2008, with the continued receipt of California inmates through completion of construction, as
phases of the facility become available.
The following table summarizes the aforementioned construction and expansion projects that we have
previously announced:
56
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Estimated remaining |
|
| |
|
|
|
|
|
|
|
|
|
cost to complete as |
|
| |
|
No. of |
|
|
Estimated |
|
|
of Dec. 31, 2007 |
|
| Facility |
|
beds |
|
|
completion date |
|
|
(in thousands) |
|
Eden Detention Center
Eden, TX |
|
|
129 |
|
|
First quarter 2008 |
|
$ |
6,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kit Carson Correctional Center
Burlington, CO |
|
|
720 |
|
|
First quarter 2008 |
|
|
7,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bent County Correctional Facility
Las Animas, CO |
|
|
720 |
|
|
Second quarter 2008 |
|
|
9,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leavenworth Detention Center
Leavenworth, KS |
|
|
266 |
|
|
Second quarter 2008 |
|
|
8,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tallahatchie County Correctional Facility
Tutwiler, MS |
|
|
848 |
|
|
Second quarter 2008 |
|
|
49,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cimarron Correctional Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
Cushing, OK |
|
|
660 |
|
|
Third quarter 2008 |
|
|
36,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Davis Correctional Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdenville, OK |
|
|
660 |
|
|
Third quarter 2008 |
|
|
26,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
La Palma Correctional Center |
|
|
|
|
|
Third quarter 2008 - |
|
|
|
|
Eloy, AZ |
|
|
3,060 |
|
|
Second quarter 2009 |
|
|
177,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adams County Correctional Center
Adams County, MS |
|
|
1,668 |
|
|
Fourth quarter 2008 |
|
|
69,372 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8,731 |
|
|
|
|
|
|
$ |
391,853 |
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, in February 2008, we announced that we expect to commence construction of the
new 2,040-bed Trousdale Correctional Center in Trousdale County, Tennessee. Pending final
negotiations with the local community, we expect to begin construction of our new Trousdale
Correctional Center in mid-2008 and expect to complete construction of the facility during the
fourth quarter of 2009 at an estimated cost of approximately $143.0 million.
In addition to the foregoing, the following expansions and development projects were completed
during 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Cost |
|
| Facility |
|
No. of beds |
|
|
Completion date |
|
|
(in thousands) |
|
Citrus County Detention Facility
Lecanto, FL |
|
|
360 |
|
|
First quarter 2007 |
|
$ |
18,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossroads Correctional Center
Shelby, MT |
|
|
96 |
|
|
First quarter 2007 |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saguaro Correctional Center
Eloy, AZ |
|
|
1,896 |
|
|
Second quarter 2007 |
|
|
102,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tallahatchie County Correctional Facility
Tutwiler, MS |
|
|
720 |
|
|
Fourth quarter 2007 |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Fork Correctional Facility
Sayre, OK |
|
|
960 |
|
|
Fourth quarter 2007 |
|
|
53,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,032 |
|
|
|
|
|
|
$ |
219,100 |
|
|
|
|
|
|
|
|
|
|
|
|
57
We continue to pursue additional expansion and development opportunities to satisfy
increasing demand from existing and potential customers. In order to help ensure the timely
completion of pre-fabricated housing units and to help avoid potential increases in costs
associated with constructing new bed capacity, during the fourth quarter of 2007, we entered into
an agreement with a company to design, fabricate, and install pre-finished concrete modular housing
structures for an aggregate cost of $32.7 million. We may terminate the agreement at any time for
any reason, including our convenience, without substantial penalty. We have not designated any of
the housing structures that may be developed under this agreement to any of the expansion and
development projects currently under construction. However, we are likely to designate a number of
housing structures to the Trousdale Correctional Center.
In order to retain federal inmate populations we currently manage in the San Diego Correctional
Facility, we may be required to construct a new facility in the future. The San Diego Correctional
Facility is subject to a ground lease with the County of San Diego. Under the provisions of the
lease, the facility is divided into three different properties (Initial, Existing and Expansion
Premises), all of which have separate terms ranging from June 2006 to December 2015.
Ownership of the Initial portion of the facility containing approximately 950 beds reverts to the
County upon expiration of the lease on December 31, 2015. The County has the right to purchase the
Initial portion of the facility, but no sooner than December 31, 2011, at a price generally equal
to the cost of the premises, less an allowance for the amortization over a 20-year period. The
lease for the Expansion portion of the facility containing approximately 200 beds expires December
31, 2011. However, the County may terminate the lease for the Expansion portion of the facility by
providing us with 270 days notice after March 31, 2008. The third portion of the lease (Existing
Premises) included 200 beds that expired in June 2006 and was not renewed.
Upon expiration of the lease for the Initial Premises, or should the County exercise its right to
purchase the Initial Premises or terminate our lease for the Expansion Premises, we may be required
to relocate a portion of the existing federal inmate population to other available beds within or
outside the San Diego Correctional Facility, which could include the acquisition of an alternate
site for the construction of a new facility. However, we can provide no assurance that we will be
able to retain these inmate populations.
During 2007 and 2006, we capitalized $16.2 million and $15.1 million, respectively, of expenditures
related to technology. These investments in technology are expected to provide long-term benefits
enabling us to provide enhanced quality service to our customers while creating scalable operating
efficiencies. We expect to incur approximately $13.4 million in information technology
expenditures during 2008.
We have the ability to fund our capital expenditure requirements including our construction
projects, as well as our information technology expenditures, working capital, and debt service
requirements, with cash on hand, net cash provided by operations, and borrowings available under
our revolving credit facility.
During January 2006, we completed the sale and issuance of $150.0 million aggregate principal
amount of 6.75% senior notes due 2014, the proceeds of which were used in part to completely
pay-off the outstanding balance of the term loan portion of our old senior bank credit facility
after repaying the $10.0 million balance on the revolving portion of the old facility with cash on
hand. Further, during February 2006, we closed on a revolving credit facility with various lenders
providing for a new $150.0 million revolving credit facility to replace the revolving portion of
the old credit facility. In September 2007, we exercised our option to increase the borrowing
capacity under the revolving credit facility by $100.0 million, from $150.0 million to $250.0
million.
58
During December 2007, we entered into a new $450.0 million senior secured revolving credit facility
arranged by Banc of America Securities LLC and Wachovia Capital Markets, LLC. The new senior
secured revolving credit facility replaces our previous $250.0 million revolving credit facility.
The new revolving credit facility will be utilized to fund development projects in anticipation of
increasing demand by existing and potential new customers, as well as for working capital, capital
expenditures and general corporate purposes. At our option, interest on outstanding borrowings
will be based on either a base rate plus a margin ranging from 0.00% to 0.50% or a London Interbank
Offered Rate, or LIBOR, plus a margin ranging from 0.75% to 1.50%. The applicable margins are
subject to adjustments based on our leverage ratio. The revolving credit facility currently bears
interest at a base rate or a LIBOR plus a margin of 0.75%.
During 2006, we generated sufficient taxable income to utilize our remaining federal net operating
loss carryforwards. As a result, we began paying federal income taxes during 2006, with an
obligation to pay a full year’s taxes in 2007. We paid $51.3 million in federal and state income
taxes during 2007 compared with $13.7 million during 2006. We currently expect to pay
approximately $60.0 million to $65.0 million during 2008.
As of December 31, 2007, our liquidity was provided by cash on hand of $58.0 million and $415.1
million available under our $450.0 million revolving credit facility. During the years ended
December 31, 2007 and 2006, we generated $250.9 million and $172.0 million, respectively, in cash
provided by operating activities, and as of December 31, 2007 and 2006, we had net working capital
of $125.9 million and $215.0 million, respectively. We currently expect to be able to meet our
cash expenditure requirements for the next year utilizing these resources. In addition, we have an
effective “shelf” registration statement under which we may issue an indeterminate amount of
securities from time to time when we determine that market conditions and the opportunity to
utilize the proceeds from the issuance of such securities are favorable.
At December 31, 2007, the interest rates on all our outstanding indebtedness are fixed, with a
weighted average stated interest rate of 6.9%, while our total weighted average maturity was 4.5
years. Standard & Poor’s Ratings Services currently rates our unsecured debt and corporate credit
as “BB”, while Moody’s Investors Service currently rates our unsecured debt as “Ba2”.
Operating Activities
Our net cash provided by operating activities for the year ended December 31, 2007 was $250.9
million compared with $172.0 million in 2006 and $153.4 million in 2005. Cash provided by
operating activities represents the year to date net income plus depreciation and amortization,
changes in various components of working capital, and adjustments for expenses associated with debt
refinancing and recapitalization transactions and various non-cash charges, including primarily
deferred income taxes. The increase in cash provided by operating activities during 2007 was
primarily the result of an increase in higher operating income as well as positive fluctuations in
working capital.
Investing Activities
Our cash flow used in investing activities was $253.7 million for the year ended December 31, 2007,
and was primarily attributable to capital expenditures during the year of $343.1 million, including
$296.4 million for the expansion and development activities previously discussed herein, and $46.7
million for facility maintenance and information technology capital expenditures. Cash flow used in
investing activities was partially offset by the proceeds from the sale of investments of $86.7
million. Our cash flow used in investing activities was $226.3 million for the year ended December
31, 2006, and was primarily attributable to capital expenditures during the year of $163.1 million,
including $112.8 million for expansion and development activities and $50.3 million for facility
maintenance and information technology capital expenditures. During the year ended December 31,
2005, our cash flow
59
used in investing activities was $116.3 million, primarily resulting from capital expenditures of
$110.3 million, including $73.9 million for expansion and development activities and $36.4 million
for facility maintenance and information technology capital expenditures.
Financing Activities
Our cash flow provided by financing activities was $31.7 million for the year ended December 31,
2007 and was primarily attributable to the cash flows associated with the exercise of stock
options, including the related income tax benefit of equity compensation, net of the purchase and
retirement of common stock.
Our cash flow provided by financing activities was $18.6 million for the year ended December 31,
2006 and was primarily attributable to the aforementioned refinancing and recapitalization
transactions completed during 2006, combined with proceeds received from the exercise of stock
options and the income tax benefit of equity compensation. The income tax benefit of equity
compensation was reported as a financing activity in 2006 and 2007 pursuant to SFAS 123R, and as an
operating activity in 2005.
Our cash flow used in financing activities was $23.1 million for the year ended December 31, 2005
and was primarily attributable to the aforementioned refinancing and recapitalization transactions
completed during the first half of 2005. Proceeds from the issuance of the $375 million 6.25%
senior notes along with cash on hand were used to purchase all of the outstanding $250 million
9.875% senior notes, make a lump sum prepayment on the senior bank credit facility of $110 million,
and pay fees and expenses related thereto. These transactions, combined with the second quarter
amendment to the senior bank credit facility, resulted in fees and expenses of $36.2 million paid
during 2005.
Contractual Obligations
The following schedule summarizes our contractual obligations by the indicated period as of
December 31, 2007 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due By Year Ended December 31, |
|
| |
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
Thereafter |
|
|
Total |
|
Long-term debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
450,000 |
|
|
$ |
— |
|
|
$ |
525,000 |
|
|
$ |
975,000 |
|
Contractual facility
expansions |
|
|
24,124 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24,124 |
|
Operating leases |
|
|
3,386 |
|
|
|
3,505 |
|
|
|
3,626 |
|
|
|
3,063 |
|
|
|
2,080 |
|
|
|
6,281 |
|
|
|
21,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual
Cash Obligations |
|
$ |
27,510 |
|
|
$ |
3,505 |
|
|
$ |
3,626 |
|
|
$ |
453,063 |
|
|
$ |
2,080 |
|
|
$ |
531,281 |
|
|
$ |
1,021,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cash obligations in the table above do not include future cash obligations for interest
associated with our outstanding indebtedness. Further, the cash obligations in the table above also
do not include future cash obligations for uncertain tax positions recorded pursuant to FIN 48 as
we are unable to make reliable estimates of the timing of such payments, if any, to the taxing
authorities. During 2007, we paid $68.2 million in interest, including capitalized interest. We
had $34.9 million of letters of credit outstanding at December 31, 2007 primarily to support our
requirement to repay fees and claims under our workers’ compensation plan in the event we do not
repay the fees and claims due in accordance with the terms of the plan. The letters of credit are
renewable annually. We did not have any draws under any outstanding letters of credit during 2007,
2006, or 2005.
60
INFLATION
We do not believe that inflation has had a direct adverse effect on our operations. Many of our
management contracts include provisions for inflationary indexing, which mitigates an adverse
impact of inflation on net income. However, a substantial increase in personnel costs, workers’
compensation or food and medical expenses could have an adverse impact on our results of operations
in the future to the extent that these expenses increase at a faster pace than the per diem or
fixed rates we receive for our management services.
SEASONALITY AND QUARTERLY RESULTS
Our business is somewhat subject to seasonal fluctuations. Because we are generally compensated
for operating and managing facilities at an inmate per diem rate, our financial results are
impacted by the number of calendar days in a fiscal quarter. Our fiscal year follows the calendar
year and therefore, our daily profits for the third and fourth quarters include two more days than
the first quarter (except in leap years) and one more day than the second quarter. Further,
salaries and benefits represent the most significant component of operating expenses. Significant
portions of the Company’s unemployment taxes are recognized during the first quarter, when base
wage rates reset for state unemployment tax purposes. Finally, quarterly results are affected by
government funding initiatives, the timing of the opening of new facilities, or the commencement of
new management contracts and related start-up expenses which may mitigate or exacerbate the impact
of other seasonal influences. Because of these seasonality factors, results for any quarter are
not necessarily indicative of the results that may be achieved for the full fiscal year.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our primary market risk exposure is to changes in U.S. interest rates. In the event we have an
outstanding balance under our revolving credit facility, we would be exposed to market risk because
the interest rate on our revolving credit facility is subject to fluctuations in the market. As of
December 31, 2007, there were no amounts outstanding under our revolving credit facility (other
than $34.9 million in outstanding letters of credit). Therefore, a hypothetical 100 basis point
increase or decrease in market interest rates would not have a material impact on our financial
statements.
As of December 31, 2007, we had outstanding $450.0 million of senior notes with a fixed interest
rate of 7.5%, $375.0 million of senior notes with a fixed interest rate of 6.25%, and $150.0
million of senior notes with a fixed interest rate of 6.75%. Because the interest rates with
respect to these instruments are fixed, a hypothetical 100 basis point increase or decrease in
market interest rates would not have a material impact on our financial statements.
We may, from time to time, invest our 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 of three months or less. While these investments are subject to interest rate risk and
will decline in value if market interest rates increase, a hypothetical 100 basis point increase or
decrease in market interest rates would not materially affect the value of these instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by Regulation S-X are included in this
annual report on Form 10-K commencing on Page F-1.
61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Management’s Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our senior
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered
by this annual report. Based on that evaluation, our senior management, including our Chief
Executive Officer and Chief Financial Officer, concluded that as of the end of the period covered
by this annual report our disclosure controls and procedures are effective in causing material
information relating to us (including our consolidated subsidiaries) to be recorded, processed,
summarized and reported by management on a timely basis and to ensure that the quality and
timeliness of our public disclosures complies with SEC disclosure obligations.
Management’s Report On Internal Control Over Financial Reporting
Management of Corrections Corporation of America (the “Company”) is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over
financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. The Company’s internal control over financial
reporting includes those policies and procedures that:
| |
(i) |
|
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company; |
| |
| |
(ii) |
|
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and |
| |
| |
(iii) |
|
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2007. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
62
Based on management’s assessment and those criteria, management believes that, as of December 31,
2007, the Company’s internal control over financial reporting was effective.
The Company’s independent registered public accounting firm, Ernst & Young LLP, have issued an
attestation report on the Company’s internal control over financial reporting. That report begins
on page 64.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during
the period covered by this report that have materially affected, or are likely to materially
affect, our internal control over financial reporting.
63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Corrections Corporation of America
We have audited Corrections Corporation of America and Subsidiaries’ internal control over
financial reporting as of December 31, 2007, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Corrections Corporation of America and Subsidiaries’ management is
responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Corrections Corporation of America and Subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2007, based on the
COSO criteria.
64
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Corrections Corporation of America and
Subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of
operations, stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2007 of Corrections Corporation of America and Subsidiaries and our report dated
February 21, 2008 expressed an unqualified opinion thereon.
| |
|
|
|
|
| |
|
|
| |
/s/ Ernst & Young LLP
|
|
| |
Ernst & Young LLP |
|
| |
|
|
| |
Nashville, Tennessee
February 21, 2008
65
ITEM 9B. OTHER INFORMATION.
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item 10 will appear in, and is hereby incorporated by reference
from, the information under the headings “Proposal I — Election of Directors-Directors Standing
for Election,” “Executive Officers-Information Concerning Executive Officers Who Are Not
Directors,” “Corporate Governance — Board of Directors Meetings and Committees,” and “Security
Ownership of Certain Beneficial Owners and Management — Section 16(a) Beneficial Ownership
Reporting Compliance” in our definitive proxy statement for the 2008 annual meeting of
stockholders.
Our Board of Directors has adopted a Code of Ethics and Business Conduct applicable to the members
of our Board of Directors and our officers, including our Chief Executive Officer and Chief
Financial Officer. In addition, the Board of Directors has adopted Corporate Governance Guidelines
and charters for our Audit Committee, Compensation Committee, Nominating and Governance Committee
and Executive Committee. You can access our Code of Ethics and Business Conduct, Corporate
Governance Guidelines and current committee charters on our website at www.correctionscorp.com or
request a copy of any of the foregoing by writing to the following address — Corrections
Corporation of America, Attention: Secretary, 10 Burton Hills Boulevard, Nashville, Tennessee
37215.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 will appear in, and is hereby incorporated by reference
from, the information under the headings “Executive and Director Compensation” and “Compensation
Committee Interlocks and Insider Participation” in our definitive proxy statement for the 2008
annual meeting of stockholders.
| ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information required by this Item 12 will appear in, and is hereby incorporated by reference
from, the information under the heading “Security Ownership of Certain Beneficial Owners and
Management” in our definitive proxy statement for the 2008 annual meeting of stockholders.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information as of December 31, 2007 regarding compensation
plans under which our equity securities are authorized for issuance.
66
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(a) |
|
|
(b) |
|
|
(c) |
|
| |
|
|
|
|
|
|
|
|
|
Number of Securities |
|
| |
|
|
|
|
|
|
|
|
|
Remaining Available |
|
| |
|
|
|
|
|
|
|
|
|
for Future Issuance |
|
| |
|
|
|
|
|
|
|
|
|
Under Equity |
|
| |
|
Number of Securities |
|
|
Weighted-Average |
|
|
Compensation Plan |
|
| |
|
to be Issued Upon |
|
|
Exercise Price of |
|
|
(Excluding Securities |
|
| |
|
Exercise of Outstanding |
|
|
Outstanding |
|
|
Reflected in Column |
|
| Plan Category |
|
Options |
|
|
Options |
|
|
(a)) |
|
Equity compensation
plans approved by
stockholders |
|
|
5,292,149 |
|
|
$ |
12.38 |
|
|
|
3,256,542 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by stockholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,292,149 |
|
|
$ |
12.38 |
|
|
|
3,256,542 |
|
|
|
|
|
|
|
|
|
|
|
| |
(1) |
|
Reflects shares of common stock available for issuance under our Amended and Restated
2000 Stock Incentive Plan, our 2008 Stock Incentive Plan, and the Non-Employee Directors’
Compensation Plan, the only equity compensation plans approved by our stockholders under
which we continue to grant awards. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item 13 will appear in, and is hereby incorporated by reference
from, the information under the heading “Corporate Governance — Certain Relationships and Related
Transactions” and “Corporate Governance — Director Independence” in our definitive proxy statement
for the 2008 annual meeting of stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item 14 will appear in, and is hereby incorporated by reference
from, the information under the heading “Proposal II — Ratification of Appointment of Independent
Registered Public Accounting Firm — Audit and Non-Audit Fees” in our definitive proxy statement for
the 2008 annual meeting of stockholders.
67
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as part of this report:
| |
(1) |
|
Financial Statements. |
The financial statements as set forth under Item 8 of this annual report on Form
10-K have been filed herewith, beginning on page F-1 of this report.
| |
(2) |
|
Financial Statement Schedules. |
Schedules for which provision is made in Regulation S-X are either not required to
be included herein under the related instructions or are inapplicable or the related
information is included in the footnotes to the applicable financial statements and,
therefore, have been omitted.
| |
(3) |
|
The Exhibits required by Item 601 of Regulation S-K are listed in the Index of
Exhibits included herewith. |
68
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
|
|
|
| |
CORRECTIONS CORPORATION OF AMERICA
|
|
| Date: February 27, 2008 |
By: |
/s/ John D. Ferguson
|
|
| |
|
John D. Ferguson, President and Chief Executive Officer |
|
| |
|
|
|
| |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by
the following persons on behalf of the registrant and in the capabilities and on the dates
indicated.
| |
|
|
| /s/ John D. Ferguson
John D. Ferguson, President and Chief Executive Officer and Director
(Principal Executive Officer) |
|
February 27, 2008 |
| /s/ Todd J Mullenger
Todd J Mullenger, Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
February 27, 2008 |
| /s/ William F. Andrews
William F. Andrews, Chairman of the Board and Director |
|
February 27, 2008 |
| /s/ Donna M. Alvarado
Donna M. Alvarado, Director |
|
February 27, 2008 |
| /s/ Lucius E. Burch, III
Lucius E. Burch, III, Director |
|
February 27, 2008 |
| /s/ John D. Correnti
John D. Correnti, Director |
|
February 27, 2008 |
| /s/ John R. Horne
John R. Horne, Director |
|
February 27, 2008 |
| /s/ C. Michael Jacobi
C. Michael Jacobi, Director |
|
February 27, 2008 |
| /s/ Thurgood Marshall, Jr.
Thurgood Marshall, Jr., Director |
|
February 27, 2008 |
| /s/ Charles L. Overby
Charles L. Overby, Director |
|
February 27, 2008 |
| /s/ John R. Prann, Jr.
John R. Prann, Jr., Director |
|
February 27, 2008 |
| /s/ Joseph V. Russell
Joseph V. Russell, Director |
|
February 27, 2008 |
| /s/ Henri L. Wedell
Henri L. Wedell, Director |
|
February 27, 2008 |
|
Dennis W. DeConcini, Director |
|
|
69
INDEX OF EXHIBITS
Exhibits marked with an * are filed herewith. Other exhibits have previously been filed with the
Securities and Exchange Commission (the “Commission”) and are incorporated herein by reference.
| |
|
|
|
|
| Exhibit Number |
|
Description of Exhibits |
| |
3.1 |
* |
|
Amended and Restated Charter of the Company (restated for
Commission filing purposes only). |
| |
|
|
|
|
| |
3.2 |
|
|
Fourth Amended and Restated Bylaws of the Company
(previously filed as Exhibit 3.1 to the Company’s Current
Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on December 13, 2007 and incorporated
herein by this reference). |
| |
|
|
|
|
| |
4.1 |
|
|
Provisions defining the rights of stockholders of the
Company are found in Article V of the Amended and Restated
Charter of the Company, as amended (included as Exhibits
3.1 and 3.2 hereto), and Article II of the Third Amended
and Restated Bylaws of the Company (included as Exhibit 3.3
hereto). |
| |
|
|
|
|
| |
4.2 |
|
|
Specimen of certificate representing shares of the
Company’s Common Stock (previously filed as Exhibit 4.2 to
the Company’s Annual Report on Form 10-K (Commission File
no. 001-16109), filed with the Commission on March 22, 2002
and incorporated herein by this reference). |
| |
|
|
|
|
| |
4.3 |
|
|
Indenture, dated as of May 7, 2003, by and among the
Company, certain of its subsidiaries and U.S. Bank National
Association, as Trustee (previously filed as Exhibit 4.1 to
the Company’s Current Report on Form 8-K (Commission File
no. 001-16109), filed with the Commission on May 7, 2003
and incorporated herein by this reference). |
| |
|
|
|
|
| |
4.4 |
|
|
Supplemental Indenture, dated as of May 7, 2003, by and
among the Company, certain of its subsidiaries and U.S.
Bank National Association, as Trustee, providing for the
Company’s 7.5% Senior Notes due 2011 (“7.5% Notes”), with
form of note attached (previously filed as Exhibit 4.2 to
the Company’s Current Report on Form 8-K (Commission File
no. 001-16109), filed with the Commission on May 7, 2003
and incorporated herein by this reference). |
| |
|
|
|
|
| |
4.5 |
|
|
First Supplement, dated as of August 8, 2003, to the
Supplemental Indenture, dated as of May 7, 2003, by and
among the Company, certain of its subsidiaries and U.S.
Bank National Association, as Trustee, providing for the
Company’s 7.5% Notes due 2011 (previously filed as Exhibit
4.2 to the Company’s Quarterly Report on Form 10-Q
(Commission File no. 001-16109), filed with the Commission
on August 12, 2003 and incorporated herein by this
reference). |
70
| |
|
|
|
|
| Exhibit Number |
|
Description of Exhibits |
| |
4.6 |
|
|
Second Supplement, dated as of August 8, 2003, to the
Supplemental Indenture, dated as of May 7, 2003, by and
among the Company, certain of its subsidiaries and U.S.
Bank National Association, as Trustee, providing for the
Company’s 7.5% Notes due 2011 (previously filed as Exhibit
4.3 to the Company’s Quarterly Report on Form 10-Q
(Commission File no. 001-16109), filed with the Commission
on August 12, 2003 and incorporated herein by this
reference). |
| |
|
|
|
|
| |
4.7 |
|
|
Indenture, dated as of March 23, 2005, by and among the
Company, certain of its subsidiaries and U.S. Bank National
Association, as Trustee, providing for the Company’s 6.25%
Senior Notes due 2013 with form of note attached
(previously filed as Exhibit 4.1 to the Company’s Current
Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on March 24, 2005 and incorporated
herein by this reference). |
| |
|
|
|
|
| |
4.8 |
|
|
Indenture, dated as of January 23, 2006, by and among the
Company, certain of its subsidiaries and U.S. Bank National
Association, as Trustee (previously filed as Exhibit 4.1 to
the Company’s Current Report on Form 8-K (Commission File
no. 001-16109), filed with the Commission on January 24,
2006 and incorporated herein by this reference). |
| |
|
|
|
|
| |
4.9 |
|
|
Supplemental Indenture, dated as of January 23, 2006, by
and among the Company, certain of its subsidiaries and U.S.
Bank National Association, as Trustee, providing for the
Company’s 6.75% Senior Notes due 2014, with form of note
attached (previously filed as Exhibit 4.2 to the Company’s
Current Report on Form 8-K (Commission File no. 001-16109),
filed with the Commission on January 24, 2006 and
incorporated herein by this reference). |
| |
|
|
|
|
| |
10.1 |
|
|
Credit Agreement, dated as of December 21, 2007, by and
among the Company, as Borrower, certain lenders and Bank of
America, N.A., as Administrative Agent for the lenders
(previously filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on December 21, 2007 and incorporated
herein by this reference). |
| |
|
|
|
|
| |
10.2 |
|
|
Note Purchase Agreement, dated as of December 31, 1998 by
and between the Company and PMI Mezzanine Fund, L.P.,
including, as Exhibit R-1 thereto, Registration Rights
Agreement, dated as of December 31, 1998, by and between
the Company and PMI Mezzanine Fund, L.P. (previously filed
as Exhibit 10.22 to the Company’s Current Report on Form
8-K (Commission File no. 000-25245), filed with the
Commission on January 6, 1999 and incorporated herein by
this reference). |
71
| |
|
|
|
|
| Exhibit Number |
|
Description of Exhibits |
| |
10.3 |
|
|
Amendment to Note Purchase Agreement and Note by and
between the Company and PMI Mezzanine Fund, L.P., dated
April 28, 2003 (previously filed as Exhibit 10.2 to
Amendment No. 2 to the Company’s Registration Statement on
Form S-3 (Commission File no. 333-104240), filed with the
Commission on April 28, 2003 and incorporated herein by
this reference). |
| |
|
|
|
|
| |
10.4 |
|
|
Waiver and Amendment, dated as of June 30, 2000, by and
between the Company and PMI Mezzanine Fund, L.P., with form
of replacement note attached thereto as Exhibit B
(previously filed as Exhibit 10.5 to the Company’s Current
Report on Form 8-K (File no. 000-25245), filed with the
Commission on July 3, 2000 and incorporated herein by this
reference). |
| |
|
|
|
|
| |
10.5 |
|
|
Waiver and Amendment, dated as of March 5, 2001, by and
between the Company and PMI Mezzanine Fund, L.P.,
including, as an exhibit thereto, Amendment to Registration
Rights Agreement (previously filed as Exhibit 10.10 to the
Company’s Annual Report on Form 10-K (Commission File no.
001-16109), filed with the Commission on April 17, 2001 and
incorporated herein by this reference). |
| |
|
|
|
|
| |
10.6 |
|
|
Form of Amendment No. 2 to Registration Rights Agreement by
and between the Company and PMI Mezzanine Fund, L.P.
(previously filed as Exhibit 10.3 to Amendment No. 2 to the
Company’s Registration Statement on Form S-3 (Commission
File no. 333-104240), filed with the Commission on April
28, 2003 and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.7 |
|
|
Registration Rights Agreement, dated as of December 31,
1998, by and between Correctional Management Services
Corporation, a predecessor of the Company, and CFE, Inc.
(previously filed as Exhibit 10.7 to the Company’s Annual
Report on Form 10-K (Commission File no. 001-16109), filed
with the Commission on March 7, 2006 and incorporated
herein by this reference). |
| |
|
|
|
|
| |
10.8 |
|
|
The Company’s Amended and Restated 1997 Employee Share
Incentive Plan (previously filed as Exhibit 10.15 to the
Company’s Annual Report on Form 10-K (Commission File no.
001-16109), filed with the Commission on March 12, 2004 and
incorporated herein by this reference). |
| |
|
|
|
|
| |
10.9 |
|
|
Form of Non-qualified Stock Option Agreement for the
Company’s Amended and Restated 1997 Employee Share
Incentive Plan (previously filed as Exhibit 10.17 to the
Company’s Annual Report on Form 10-K (Commission File no.
001-16109), filed with the Commission on March 7, 2005 and
incorporated herein by this reference). |
72
| |
|
|
|
|
| Exhibit Number |
|
Description of Exhibits |
| |
10.10 |
|
|
Old Prison Realty’s Non-Employee Trustees’ Compensation
Plan (previously filed as Exhibit 4.3 to Old Prison
Realty’s Registration Statement on Form S-8 (Commission
File no. 333-58339), filed with the Commission on July 1,
1998 and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.11 |
|
|
Old CCA’s 1995 Employee Stock Incentive Plan, effective as
of March 20, 1995 (previously filed as Exhibit 4.3 to Old
CCA’s Registration Statement on Form S-8 (Commission File
no. 33-61173), filed with the Commission on July 20, 1995
and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.12 |
|
|
Old CCA’s Non-Employee Directors’ Compensation Plan
(previously filed as Appendix A to Old CCA’s definitive
Proxy Statement relating to Old CCA’s 1998 Annual Meeting
of Shareholders (Commission File no. 001-13560), filed with
the Commission on March 31, 1998 and incorporated herein by
this reference). |
| |
|
|
|
|
| |
10.13 |
|
|
The Company’s Amended and Restated 2000 Stock Incentive
Plan (previously filed as Exhibit 10.20 to the Company’s
Annual Report on Form 10-K (Commission File no. 001-16109),
filed with the Commission on March 12, 2004 and
incorporated herein by this reference). |
| |
|
|
|
|
| |
10.14 |
|
|
Amendment No. 1 to the Company’s Amended and Restated 2000
Stock Incentive Plan (previously filed as Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q (Commission
File no. 001-16109), filed with the Commission on November
5, 2004 and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.15 |
|
|
The Company’s Non-Employee Directors’ Compensation Plan
(previously filed as Appendix C to the Company’s definitive
Proxy Statement relating to its Annual Meeting of
Stockholders (Commission File no. 001-16109), filed with
the Commission on April 11, 2003 and incorporated herein by
this reference). |
| |
|
|
|
|
| |
10.16 |
|
|
Form of Employee Non-qualified Stock Option Agreement for
the Company’s Amended and Restated 2000 Stock Incentive
Plan (previously filed as Exhibit 10.15 to the Company’s
Annual Report on Form 10-K (Commission File no. 001-16109),
filed with the Commission on March 7, 2006 and incorporated
herein by this reference). |
| |
|
|
|
|
| |
10.17 |
|
|
Form of Director Non-qualified Stock Option Agreement for
the Company’s Amended and Restated 2000 Stock Incentive
Plan (previously filed as Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q (Commission File no.
001-16109), filed with the Commission on August 7, 2007 and
incorporated herein by this reference). |
73
| |
|
|
|
|
| Exhibit Number |
|
Description of Exhibits |
| |
10.18 |
|
|
Form of Restricted Stock Agreement for the Company’s
Amended and Restated 2000 Stock Incentive Plan (previously
filed as Exhibit 10.16 to the Company’s Annual Report on
Form 10-K (Commission File no. 001-16109), filed with the
Commission on March 7, 2006 and incorporated herein by this
reference). |
| |
|
|
|
|
| |
10.19 |
|
|
Form of Resale Restriction Agreement for certain stock
option award agreements issued under the Company’s Amended
and Restated 1997 Employee Share Incentive Plan and the
Company’s Amended and Restated 2000 Stock Incentive Plan
(previously filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on December 14, 2005 and incorporated
herein by this reference). |
| |
|
|
|
|
| |
10.20 |
|
|
Form of Resale Restriction Agreement for key employees for
certain stock option award agreements issued under the
Company’s Amended and Restated 1997 Employee Share
Incentive Plan and the Company’s Amended and Restated 2000
Stock Incentive Plan (previously filed as Exhibit 10.2 to
the Company’s Current Report on Form 8-K (Commission File
no. 001-16109), filed with the Commission on December 14,
2005 and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.21 |
|
|
The Company’s 2008 Stock Incentive Plan (previously filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K
(Commission File no. 001-16109), filed with the Commission
on May 11, 2007 and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.22 |
|
|
Form of Executive Non-qualified Stock Option Agreement for
the Company’s 2008 Stock Incentive Plan (previously filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K
(Commission File no. 001-16109), filed with the Commission
on February 21, 2008 and incorporated herein by this
reference). |
| |
|
|
|
|
| |
10.23 |
|
|
Form of Non-Executive Employee Non-qualified Stock Option
Agreement for the Company’s 2008 Stock Incentive Plan
(previously filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on February 21, 2008 and incorporated
herein by this reference). |
| |
|
|
|
|
| |
10.24 |
|
|
Form of Director Non-qualified Stock Option Agreement for
the Company’s Amended and Restated 2008 Stock Incentive
Plan (previously filed as Exhibit 10.3 to the Company’s
Current Report on Form 8-K (Commission File no. 001-16109),
filed with the Commission on February 21, 2008 and
incorporated herein by this reference). |
74
| |
|
|
|
|
| Exhibit Number |
|
Description of Exhibits |
| |
10.25 |
|
|
Form of Restricted Stock Agreement for the Company’s
Amended and Restated 2008 Stock Incentive Plan (previously
filed as Exhibit 10.4 to the Company’s Current Report on
Form 8-K (Commission File no. 001-16109), filed with the
Commission on February 21, 2008 and incorporated herein by
this reference). |
| |
|
|
|
|
| |
10.26 |
|
|
Second Amended and Restated Employment Agreement, dated as
of August 15, 2007, by and between the Company and John D.
Ferguson. (previously filed as Exhibit 10.3 to the
Company’s Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on August 16, 2007
and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.27 |
|
|
Employment Agreement, dated as of January 3, 2005, by and
between the Company and Irving E. Lingo, Jr. (previously
filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K (Commission File no. 001-16109), filed with the
Commission on January 6, 2005 and incorporated herein by
this reference). |
| |
|
|
|
|
| |
10.28 |
|
|
First Amendment to Employment Agreement and General
Release, dated as of March 13, 2007, by and between the
Company and Irving E. Lingo, Jr. (previously filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K
(Commission File no. 001-16109), filed with the Commission
on March 13, 2007 and incorporated herein by this
reference). |
| |
|
|
|
|
| |
10.29 |
|
|
First Amended and Restated Employment Agreement, dated as
of August 15, 2007, by and between the Company and Todd J.
Mullenger (previously filed as Exhibit 10.4 to the
Company’s Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on August 16, 2007
and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.30 |
|
|
Employment Agreement, dated as of March 13, 2007, by and
between the Company and Kenneth A. Bouldin (previously
filed as Exhibit 10.3 to the Company’s Current Report on
Form 8-K (Commission File no. 001-16109), filed with the
Commission on March 13, 2007 and incorporated herein by
this reference). |
| |
|
|
|
|
| |
10.31 |
|
|
First Amendment to Employment Agreement and General
Release, dated as of August 15, 2007, by and between the
Company and Kenneth A. Bouldin (previously
filed as Exhibit 10.8 to the Company’s Current Report on
Form 8-K (Commission File no. 001-16109), filed with the
Commission on August 16, 2007 and incorporated herein by
this reference). |
75
| |
|
|
|
|
| Exhibit Number |
|
Description of Exhibits |
| |
10.32 |
|
|
First Amended and Restated Employment Agreement, dated as
of August 15, 2007, by and between the Company and G.A.
Puryear IV (previously filed as Exhibit 10.7 to the
Company’s Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on August 16, 2007
and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.33 |
|
|
Second Amended and Restated Employment Agreement, dated as
of August 15, 2007, by and between the Company and Richard
P. Seiter (previously filed as Exhibit 10.6 to the
Company’s Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on August 16, 2007
and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.34 |
|
|
First Amended and Restated Employment Agreement, dated as
of August 15, 2007, by and between the Company and William
K. Rusak (previously filed as Exhibit 10.5 to the Company’s
Current Report on Form 8-K (Commission File no. 001-16109),
filed with the Commission on August 16, 2007 and
incorporated herein by this reference). |
| |
|
|
|
|
| |
10.35* |
|
|
Employment Agreement, dated as of August 15, 2007, by and
between the Company and Damon T. Hininger. |
| |
|
|
|
|
| |
10.36* |
|
|
Employment Agreement, dated as of August 15, 2007, by and
between the Company and Anthony L. Grande. |
| |
|
|
|
|
| |
10.37 |
|
|
Amended and Restated Non-Employee Director Deferred
Compensation Plan (previously filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on August 16, 2007
and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.38 |
|
|
Amended and Restated Executive Deferred Compensation
Plan (previously filed as Exhibit 10.2 to the
Company’s Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on August 16, 2007
and incorporated herein by this reference). |
| |
|
|
|
|
| |
10.39* |
|
|
Summary of Director and Executive Officer Compensation. |
| |
|
|
|
|
| |
21* |
|
|
Subsidiaries of the Company. |
| |
|
|
|
|
| |
23.1* |
|
|
Consent of Ernst & Young LLP. |
| |
|
|
|
|
| |
31.1* |
|
|
Certification of the Company’s Chief Executive Officer
pursuant to Securities and Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
76
| |
|
|
|
|
| Exhibit Number |
|
Description of Exhibits |
| |
31.2* |
|
|
Certification of the Company’s Chief Financial Officer
pursuant to Securities and Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
| |
|
|
|
|
| |
32.1* |
|
|
Certification of the Company’s Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
|
|
|
|
| |
32.2* |
|
|
Certification of the Company’s Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
77
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of Corrections Corporation of America and Subsidiaries
| |
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
F-2 |
|
Consolidated Balance Sheets as of December 31, 2007 and 2006 |
|
|
F-3 |
|
Consolidated Statements of Operations for the years ended
December 31, 2007, 2006 and 2005 |
|
|
F-4 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005 |
|
|
F-5 |
|
Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2007, 2006 and 2005 |
|
|
F-7 |
|
Notes to Consolidated Financial Statements |
|
|
F-10 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Corrections Corporation of America
We have audited the accompanying consolidated balance sheets of Corrections Corporation of America
and Subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of
operations, stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2007. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Corrections Corporation of America and
Subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective January 1, 2006,
Corrections Corporation of America changed its accounting for stock-based compensation in
connection with the adoption of Statement of Financial Standards No. 123R, “Share-Based Payment”.
As discussed in Note 12 to the consolidated financial statements, effective January 1, 2007,
Corrections Corporation of America changed its accounting for income tax contingencies in
connection with the adoption of Financial Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Corrections Corporation of America’s internal control
over financial reporting as of December 31, 2007, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 21, 2008 expressed an unqualified opinion thereon.
| |
|
|
|
|
| |
|
|
| |
/s/ Ernst & Young LLP
|
|
| |
Ernst & Young LLP |
|
| |
|
|
| |
Nashville, Tennessee
February 21, 2008
F-2
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
57,968 |
|
|
$ |
29,029 |
|
Investments |
|
|
— |
|
|
|
82,830 |
|
Accounts receivable, net of allowance of $3,914 and $2,261, respectively |
|
|
241,722 |
|
|
|
237,382 |
|
Deferred tax assets |
|
|
12,250 |
|
|
|
11,655 |
|
Prepaid expenses and other current assets |
|
|
21,142 |
|
|
|
17,554 |
|
Current assets of discontinued operations |
|
|
— |
|
|
|
966 |
|
Assets held for sale |
|
|
7,581 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total current assets |
|
|
340,663 |
|
|
|
379,416 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
2,086,980 |
|
|
|
1,805,052 |
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
6,511 |
|
|
|
11,826 |
|
Investment in direct financing lease |
|
|
14,503 |
|
|
|
15,467 |
|
Goodwill |
|
|
13,672 |
|
|
|
15,246 |
|
Other assets |
|
|
23,411 |
|
|
|
23,807 |
|
Non-current assets of discontinued operations |
|
|
— |
|
|
|
46 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,485,740 |
|
|
$ |
2,250,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
213,240 |
|
|
$ |
160,522 |
|
Income taxes payable |
|
|
964 |
|
|
|
2,810 |
|
Current portion of long-term debt |
|
|
290 |
|
|
|
290 |
|
Current liabilities of discontinued operations |
|
|
237 |
|
|
|
760 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
214,731 |
|
|
|
164,382 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
|
975,677 |
|
|
|
975,968 |
|
Deferred tax liabilities |
|
|
34,271 |
|
|
|
23,755 |
|
Other liabilities |
|
|
39,086 |
|
|
|
37,074 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,263,765 |
|
|
|
1,201,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock — $0.01 par value; 300,000 shares authorized; 124,472 and 122,084
shares issued and outstanding at December 31, 2007 and 2006, respectively |
|
|
1,245 |
|
|
|
1,221 |
|
Additional paid-in capital |
|
|
1,568,736 |
|
|
|
1,527,608 |
|
Retained deficit |
|
|
(348,006 |
) |
|
|
(479,148 |
) |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
1,221,975 |
|
|
|
1,049,681 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
2,485,740 |
|
|
$ |
2,250,860 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
Management and other |
|
$ |
1,475,821 |
|
|
$ |
1,321,420 |
|
|
$ |
1,183,338 |
|
Rental |
|
|
3,016 |
|
|
|
2,721 |
|
|
|
2,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,478,837 |
|
|
|
1,324,141 |
|
|
|
1,185,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
1,058,050 |
|
|
|
968,327 |
|
|
|
893,342 |
|
General and administrative |
|
|
74,399 |
|
|
|
63,593 |
|
|
|
57,053 |
|
Depreciation and amortization |
|
|
78,514 |
|
|
|
67,236 |
|
|
|
59,460 |
|
Goodwill impairment |
|
|
1,574 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,212,537 |
|
|
|
1,099,156 |
|
|
|
1,009,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
266,300 |
|
|
|
224,985 |
|
|
|
176,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
53,776 |
|
|
|
58,783 |
|
|
|
63,928 |
|
Expenses associated with debt refinancing and
recapitalization transactions |
|
|
— |
|
|
|
982 |
|
|
|
35,269 |
|
Other (income) expense |
|
|
(303 |
) |
|
|
(254 |
) |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,473 |
|
|
|
59,511 |
|
|
|
99,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
|
|
212,827 |
|
|
|
165,474 |
|
|
|
76,586 |
|
Income tax expense |
|
|
(80,312 |
) |
|
|
(60,813 |
) |
|
|
(26,583 |
) |
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS |
|
|
132,515 |
|
|
|
104,661 |
|
|
|
50,003 |
|
Income from discontinued operations, net of taxes |
|
|
858 |
|
|
|
578 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
133,373 |
|
|
$ |
105,239 |
|
|
$ |
50,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.08 |
|
|
$ |
0.88 |
|
|
$ |
0.43 |
|
Income from discontinued operations, net of taxes |
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.09 |
|
|
$ |
0.88 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.05 |
|
|
$ |
0.86 |
|
|
$ |
0.42 |
|
Income from discontinued operations, net of taxes |
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.06 |
|
|
$ |
0.86 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
133,373 |
|
|
$ |
105,239 |
|
|
$ |
50,122 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
78,682 |
|
|
|
67,673 |
|
|
|
60,068 |
|
Goodwill impairment |
|
|
1,574 |
|
|
|
— |
|
|
|
— |
|
Amortization of debt issuance costs and other non-cash interest |
|
|
3,931 |
|
|
|
4,433 |
|
|
|
5,341 |
|
Expenses associated with debt refinancing and recapitalization
transactions |
|
|
— |
|
|
|
982 |
|
|
|
35,269 |
|
Deferred income taxes |
|
|
9,576 |
|
|
|
31,141 |
|
|
|
21,255 |
|
Other (income) expense |
|
|
(303 |
) |
|
|
(228 |
) |
|
|
248 |
|
Other non-cash items |
|
|
307 |
|
|
|
458 |
|
|
|
1,097 |
|
Income tax benefit of equity compensation |
|
|
(21,225 |
) |
|
|
(18,161 |
) |
|
|
6,900 |
|
Non-cash equity compensation |
|
|
7,500 |
|
|
|
6,175 |
|
|
|
4,084 |
|
Changes in assets and liabilities, net: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, prepaid expenses and other assets |
|
|
(6,950 |
) |
|
|
(63,716 |
) |
|
|
(20,193 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
25,649 |
|
|
|
18,423 |
|
|
|
9,947 |
|
Income taxes payable |
|
|
18,766 |
|
|
|
19,536 |
|
|
|
(20,772 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
250,880 |
|
|
|
171,955 |
|
|
|
153,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for facility development and expansions |
|
|
(296,453 |
) |
|
|
(112,791 |
) |
|
|
(73,895 |
) |
Expenditures for other capital improvements |
|
|
(46,688 |
) |
|
|
(50,331 |
) |
|
|
(36,410 |
) |
Proceeds from sale of investments |
|
|
86,716 |
|
|
|
— |
|
|
|
— |
|
Purchases of investments |
|
|
(3,886 |
) |
|
|
(63,816 |
) |
|
|
(10,328 |
) |
(Increase) decrease in restricted cash |
|
|
5,641 |
|
|
|
(255 |
) |
|
|
1,848 |
|
Proceeds from sale of assets |
|
|
737 |
|
|
|
71 |
|
|
|
1,046 |
|
Decrease in other assets |
|
|
(610 |
) |
|
|
57 |
|
|
|
726 |
|
Payments received on direct financing lease and notes receivable |
|
|
855 |
|
|
|
758 |
|
|
|
665 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(253,688 |
) |
|
|
(226,307 |
) |
|
|
(116,348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt |
|
|
— |
|
|
|
150,000 |
|
|
|
375,000 |
|
Scheduled principal repayments |
|
|
— |
|
|
|
(138 |
) |
|
|
(1,233 |
) |
Other principal repayments |
|
|
— |
|
|
|
(148,950 |
) |
|
|
(370,135 |
) |
Payment of debt issuance and other refinancing and related costs |
|
|
(1,997 |
) |
|
|
(3,976 |
) |
|
|
(36,240 |
) |
Proceeds from exercise of stock options and warrants |
|
|
16,006 |
|
|
|
15,765 |
|
|
|
9,586 |
|
Purchase and retirement of common stock |
|
|
(3,579 |
) |
|
|
(12,290 |
) |
|
|
(33 |
) |
Income tax benefit of equity compensation |
|
|
21,225 |
|
|
|
18,161 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
31,655 |
|
|
|
18,572 |
|
|
|
(23,055 |
) |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
28,847 |
|
|
|
(35,780 |
) |
|
|
13,963 |
|
CASH AND CASH EQUIVALENTS, beginning of year |
|
|
29,121 |
|
|
|
64,901 |
|
|
|
50,938 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year |
|
$ |
57,968 |
|
|
$ |
29,121 |
|
|
$ |
64,901 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-5
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
(net of amounts capitalized of $7,613, $4,658, and $4,543 in 2007,
2006 and 2005, respectively) |
|
$ |
60,595 |
|
|
$ |
60,575 |
|
|
$ |
61,877 |
|
|
|
|
|
|
|
|
|
|
|
$4,658, and $4,543
in 2007, 2006, and 2005, respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
51,255 |
|
|
$ |
13,690 |
|
|
$ |
15,776 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated notes were converted to common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(30,000 |
) |
Common stock |
|
|
— |
|
|
|
— |
|
|
|
101 |
|
Additional paid-in capital |
|
|
— |
|
|
|
— |
|
|
|
29,877 |
|
Other assets |
|
|
— |
|
|
|
— |
|
|
|
12 |
|
Accounts payable and accrued expenses |
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
Retained |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
Paid-In |
|
|
Deferred |
|
|
Earnings |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Compensation |
|
|
(Deficit) |
|
|
Equity |
|
BALANCE, December 31, 2004 |
|
|
106,244 |
|
|
$ |
1,062 |
|
|
$ |
1,451,177 |
|
|
$ |
(1,736 |
) |
|
$ |
(634,509 |
) |
|
$ |
815,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,122 |
|
|
|
50,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,122 |
|
|
|
50,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of subordinated notes |
|
|
10,086 |
|
|
|
101 |
|
|
|
29,877 |
|
|
|
— |
|
|
|
— |
|
|
|
29,978 |
|
Income tax benefit of equity compensation |
|
|
— |
|
|
|
— |
|
|
|
6,900 |
|
|
|
— |
|
|
|
— |
|
|
|
6,900 |
|
Retirement of common stock |
|
|
(2 |
) |
|
|
— |
|
|
|
(33 |
) |
|
|
— |
|
|
|
— |
|
|
|
(33 |
) |
Issuance of common stock |
|
|
4 |
|
|
|
— |
|
|
|
68 |
|
|
|
— |
|
|
|
|
|
|
|
68 |
|
Amortization of deferred compensation, net of
forfeitures |
|
|
(46 |
) |
|
|
— |
|
|
|
(142 |
) |
|
|
3,169 |
|
|
|
— |
|
|
|
3,027 |
|
Stock option compensation expense |
|
|
— |
|
|
|
— |
|
|
|
989 |
|
|
|
— |
|
|
|
— |
|
|
|
989 |
|
Restricted stock grant |
|
|
592 |
|
|
|
6 |
|
|
|
6,990 |
|
|
|
(6,996 |
) |
|
|
— |
|
|
|
— |
|
Warrants exercised |
|
|
212 |
|
|
|
2 |
|
|
|
998 |
|
|
|
— |
|
|
|
|
|
|
|
1,000 |
|
Stock options exercised |
|
|
1,992 |
|
|
|
20 |
|
|
|
8,566 |
|
|
|
— |
|
|
|
— |
|
|
|
8,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2005 |
|
|
119,082 |
|
|
$ |
1,191 |
|
|
$ |
1,505,390 |
|
|
$ |
(5,563 |
) |
|
$ |
(584,387 |
) |
|
$ |
916,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-7
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
(in thousands)
(Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
Retained |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
Paid-In |
|
|
Deferred |
|
|
Earnings |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Compensation |
|
|
(Deficit) |
|
|
Equity |
|
BALANCE, December 31, 2005 |
|
|
119,082 |
|
|
$ |
1,191 |
|
|
$ |
1,505,390 |
|
|
$ |
(5,563 |
) |
|
$ |
(584,387 |
) |
|
$ |
916,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
105,239 |
|
|
|
105,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
105,239 |
|
|
|
105,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
50 |
|
|
|
— |
|
|
|
— |
|
|
|
50 |
|
Retirement of common stock |
|
|
(728 |
) |
|
|
(7 |
) |
|
|
(12,283 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12,290 |
) |
Amortization of deferred compensation, net of
forfeitures |
|
|
(112 |
) |
|
|
(1 |
) |
|
|
4,565 |
|
|
|
— |
|
|
|
— |
|
|
|
4,564 |
|
Stock option compensation expense |
|
|
— |
|
|
|
— |
|
|
|
1,561 |
|
|
|
— |
|
|
|
— |
|
|
|
1,561 |
|
Income tax benefit of equity compensation |
|
|
— |
|
|
|
— |
|
|
|
18,161 |
|
|
|
— |
|
|
|
— |
|
|
|
18,161 |
|
Restricted stock grant |
|
|
512 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Reclassification of deferred compensation on
nonvested
stock upon adoption of SFAS 123R |
|
|
— |
|
|
|
— |
|
|
|
(5,563 |
) |
|
|
5,563 |
|
|
|
— |
|
|
|
— |
|
Stock options exercised |
|
|
3,330 |
|
|
|
33 |
|
|
|
15,732 |
|
|
|
— |
|
|
|
— |
|
|
|
15,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2006 |
|
|
122,084 |
|
|
$ |
1,221 |
|
|
$ |
1,527,608 |
|
|
$ |
— |
|
|
$ |
(479,148 |
) |
|
$ |
1,049,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-8
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
(in thousands)
(Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
Retained |
|
|
Total |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Paid-In |
|
|
Deferred |
|
|
Earnings |
|
|
Stockholders’ |
|
|
|
|
|
| |
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Compensation |
|
|
(Deficit) |
|
|
Equity |
|
|
|
|
|
BALANCE, December 31, 2006 |
|
|
122,084 |
|
|
$ |
1,221 |
|
|
$ |
1,527,608 |
|
|
$ |
— |
|
|
$ |
(479,148 |
) |
|
$ |
1,049,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
133,373 |
|
|
|
133,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
133,373 |
|
|
|
133,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
1 |
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
Retirement of common stock |
|
|
(130 |
) |
|
|
(1 |
) |
|
|
(3,578 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,579 |
) |
Amortization of deferred compensation,
net of forfeitures |
|
|
(134 |
) |
|
|
(1 |
) |
|
|
5,101 |
|
|
|
— |
|
|
|
— |
|
|
|
5,100 |
|
Stock option compensation expense |
|
|
— |
|
|
|
— |
|
|
|
2,375 |
|
|
|
— |
|
|
|
— |
|
|
|
2,375 |
|
Income tax benefit of equity compensation |
|
|
— |
|
|
|
— |
|
|
|
21,225 |
|
|
|
— |
|
|
|
— |
|
|
|
21,225 |
|
Warrants exercised |
|
|
75 |
|
|
|
1 |
|
|
|
832 |
|
|
|
— |
|
|
|
— |
|
|
|
833 |
|
Restricted stock grant |
|
|
312 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock options exercised |
|
|
2,264 |
|
|
|
22 |
|
|
|
15,151 |
|
|
|
— |
|
|
|
— |
|
|
|
15,173 |
|
Cumulative effect of accounting change |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,231 |
) |
|
|
(2,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2007 |
|
|
124,472 |
|
|
$ |
1,245 |
|
|
$ |
1,568,736 |
|
|
|
— |
|
|
$ |
(348,006 |
) |
|
$ |
1,221,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-9
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
1. ORGANIZATION AND OPERATIONS
Corrections Corporation of America (together with its subsidiaries, the “Company”) is the
nation’s largest owner and operator of privatized correctional and detention facilities and
one of the largest prison operators in the United States, behind only the federal government
and three states. As of December 31, 2007, the Company owned 44 correctional, detention and
juvenile facilities, three of which the Company leases to other operators. At December 31,
2007, the Company operated 65 facilities, including 41 facilities that it owned, located in 19
states and the District of Columbia. The Company is also constructing an additional 1,668-bed
correctional facility in Adams County, Mississippi that is expected to be completed in the
fourth quarter of 2008 as well as a 3,060-bed facility in Eloy, Arizona that is expected to be
completed in the second quarter of 2009.
The Company specializes in owning, operating and managing prisons and other correctional
facilities and providing inmate residential and prisoner transportation services for
governmental agencies. In addition to providing the fundamental residential services relating
to inmates, the Company’s facilities offer a variety of rehabilitation and educational
programs, including basic education, religious services, life skills and employment training
and substance abuse treatment. These services are intended to help reduce recidivism and to
prepare inmates for their successful reentry into society upon their release. The Company
also provides health care (including medical, dental and psychiatric services), food services,
and work and recreational programs.
The Company’s website address is www.correctionscorp.com. The Company makes its Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Currents Reports on Form 8-K, and
Section 16 reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
available on its website, free of charge, as soon as reasonably practicable after these
reports are filed with or furnished to the Securities and Exchange Commission (the “SEC”).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company on a consolidated
basis with its wholly-owned subsidiaries. All intercompany balances and transactions have
been eliminated.
Restricted cash as of December 31, 2006 has been reclassified to long-term to conform to the
2007 presentation.
Stock Splits
On June 7, 2007, the Company announced that its Board of Directors had declared a 2-for-1
stock split in the form of a 100% stock dividend on its common stock. The stock dividend was
paid on July 6, 2007, to stockholders of record as of June 29, 2007. Each shareholder of
record at the close of business on the record date received one additional share of the
Company’s common stock for every one share of common stock held on that date. Additionally, a
3-for-2 stock split was paid on
F-10
September 13, 2006 in the form of a 50% stock dividend. The number of common shares and per
share amounts have been retroactively restated in the accompanying financial statements and
these notes to the financial statements to reflect the increase in common shares and
corresponding decrease in the per share amounts resulting from both the 3-for-2 and the
2-for-1 stock splits.
Cash and Cash Equivalents
The Company considers all liquid debt instruments with a maturity of three months or less at
the time of purchase to be cash equivalents.
Restricted Cash
Restricted cash at December 31, 2007 was $6.5 million for a capital improvements,
replacements, and repairs reserve. Restricted cash at December 31, 2006 was $11.8 million, of
which $5.6 million represented cash collateral for a guarantee agreement as described in Note
16 and $6.2 million represented cash for the capital improvements, replacements, and repairs
reserve.
Accounts Receivable and Allowance for Doubtful Accounts
At December 31, 2007 and 2006, accounts receivable of $241.7 million and $237.4 million were
net of allowances for doubtful accounts totaling $3.9 million and $2.3 million, respectively.
Accounts receivable consist primarily of amounts due from federal, state, and local government
agencies for operating and managing prisons and other correctional facilities and providing
inmate residential and prisoner transportation services.
Accounts receivable are stated at estimated net realizable value. The Company recognizes
allowances for doubtful accounts to ensure receivables are not overstated due to
uncollectibility. Bad debt reserves are maintained for customers in the aggregate based on a
variety of factors, including the length of time receivables are past due, significant
one-time events and historical experience. If circumstances related to customers change,
estimates of the recoverability of receivables would be further adjusted.
Investments
Investments at December 31, 2006 consist of cash invested in auction rate securities held by a
large financial institution. Auction rate securities have legal maturities that typically are
at least twenty years, but have their interest rates reset approximately every 28-35 days
under an auction system. Because liquidity in these instruments is provided from third
parties (the buyers and sellers in the auction) and not the issuer, auctions may fail. In
those cases, the auction rate securities remain outstanding, with their interest rate set at
the maximum rate which is established in the securities. Despite the fact that auctions
rarely fail, the only time the issuer must redeem an auction rate security for cash is at its
maturity. Because auction rate securities are frequently re-priced, they trade in the market
like short-term investments. These investments are carried at fair value, and are classified
as current assets because they are generally available to support the Company’s current
operations. Investment income earned on auction rate securities is classified net of interest
expense on the consolidated statement of operations and was $3.9 million, $3.2 million, and
$0.3 million for the years ended December 31, 2007, 2006, and 2005, respectively.
Property and Equipment
Property and equipment are carried at cost. Assets acquired by the Company in conjunction
with acquisitions are recorded at estimated fair market value in accordance with the purchase
method of
F-11
accounting. Betterments, renewals and significant repairs that extend the life of an asset
are capitalized; other repair and maintenance costs are expensed. Interest is capitalized to
the asset to which it relates in connection with the construction or expansion of facilities.
Preacquisition costs directly associated with the development of a correctional facility are
capitalized as part of the cost of the development project. Preacquisition costs are
written-off to general and administrative expense whenever a project is abandoned. The cost
and accumulated depreciation applicable to assets retired are removed from the accounts and
the gain or loss on disposition is recognized in income. Depreciation is computed over the
estimated useful lives of depreciable assets using the straight-line method. Useful lives for
property and equipment are as follows:
| |
|
|
Land improvements
|
|
5 — 20 years |
Buildings and improvements
|
|
5 — 50 years |
Equipment
|
|
3 — 5 years |
Office furniture and fixtures
|
|
5 years |
Intangible Assets Other Than Goodwill
Intangible assets other than goodwill include contract acquisition costs, a customer list, and
contract values established in connection with certain business combinations. Contract
acquisition costs (included in other non-current assets in the accompanying consolidated
balance sheets) and contract values (included in other non-current liabilities in the
accompanying consolidated balance sheets) represent the estimated fair values of the
identifiable intangibles acquired in connection with mergers and acquisitions completed during
2000. Contract acquisition costs and contract values are generally amortized into
amortization expense using the interest method over the lives of the related management
contracts acquired, which range from three months to approximately 19 years. The customer
list (included in other non-current assets in the accompanying consolidated balance sheet as
of December 31, 2006), which was acquired in connection with the acquisition of a prisoner
extradition company on December 31, 2002.
Accounting for the Impairment of Long-Lived Assets Other Than Goodwill
Long-lived assets other than goodwill are reviewed for impairment when circumstances indicate
the carrying value of an asset may not be recoverable. For assets that are to be held and
used, impairment is recognized when the estimated undiscounted cash flows associated with the
asset or group of assets is less than their carrying value. If impairment exists, an
adjustment is made to write the asset down to its fair value, and a loss is recorded as the
difference between the carrying value and fair value. Fair values are determined based on
quoted market values, discounted cash flows or internal and external appraisals, as
applicable.
Goodwill
Goodwill represents the cost in excess of the net assets of businesses acquired in the
Company’s managed-only segment. As further discussed in Note 3, goodwill is tested for
impairment at least annually using a fair-value based approach.
Investment in Direct Financing Lease
Investment in direct financing lease represents the portion of the Company’s management
contract with a governmental agency that represents capitalized lease payments on buildings
and equipment. The lease is accounted for using the financing method and, accordingly, the
minimum lease payments to be received over the term of the lease less unearned income are
capitalized as the
F-12
Company’s investment in the lease. Unearned income is recognized as income over the term of
the lease using the interest method.
Investment in Affiliates
Investments in affiliates that are equal to or less than 50%-owned over which the Company can
exercise significant influence are accounted for using the equity method of accounting.
Debt Issuance Costs
Generally, debt issuance costs, which are included in other assets in the consolidated balance
sheets, are capitalized and amortized into interest expense on a straight-line basis, which is
not materially different than the interest method, over the term of the related debt.
However, certain debt issuance costs incurred in connection with debt refinancings are charged
to expense in accordance with Emerging Issues Task Force Issue No. 96-19, “Debtor’s Accounting
for a Modification or Exchange of Debt Instruments.”
Management and Other Revenue
The Company maintains contracts with certain governmental entities to manage their facilities
for fixed per diem rates. The Company also maintains contracts with various federal, state,
and local governmental entities for the housing of inmates in company-owned facilities at
fixed per diem rates or monthly fixed rates. These contracts usually contain expiration dates
with renewal options ranging from annual to multi-year renewals. Most of these contracts have
current terms that require renewal every two to five years. Additionally, most facility
management contracts contain clauses that allow the government agency to terminate a contract
without cause, and are generally subject to legislative appropriations. The Company generally
expects to renew these contracts for periods consistent with the remaining renewal options
allowed by the contracts or other reasonable extensions; however, no assurance can be given
that such renewals will be obtained. Fixed monthly rate revenue is recorded in the month
earned and fixed per diem revenue is recorded based on the per diem rate multiplied by the
number of inmates housed during the respective period. The Company recognizes any additional
management service revenues when earned. Certain of the government agencies also have the
authority to audit and investigate the Company’s contracts with them. For contracts that
actually or effectively provide for certain reimbursement of expenses, if the agency
determines that the Company has improperly allocated costs to a specific contract, the Company
may not be reimbursed for those costs and could be required to refund the amount of any such
costs that have been reimbursed.
Other revenue consists primarily of ancillary revenues associated with operating correctional
and detention facilities, such as commissary, phone, and vending sales; revenues generated
from prisoner transportation services for governmental agencies; and design and construction
management fees earned from governmental agencies for certain expansion and development
projects at managed-only facilities operated by the Company.
Rental Revenue
Rental revenue is recognized based on the terms of the Company’s leases.
Self-Funded Insurance Reserves
The Company is significantly self-insured for employee health, workers’ compensation,
automobile liability insurance claims, and general liability claims. As such, the Company’s
insurance expense
F-13
is largely dependent on claims experience and the Company’s ability to control its claims
experience. The Company has consistently accrued the estimated liability for employee health
insurance based on its history of claims experience and time lag between the incident date and
the date the cost is paid by the Company. The Company has accrued the estimated liability for
workers’ compensation and automobile insurance based on a third-party actuarial valuation of
the outstanding liabilities, discounted to the net present value of the outstanding
liabilities. The Company records litigation reserves related to general liability matters for
which it is probable that a loss has been incurred and the range of such loss can be
estimated. These estimates could change in the future.
Income Taxes
Income taxes are accounted for under the provisions of Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 generally requires
the Company to record deferred income taxes for the tax effect of differences between book and
tax bases of its assets and liabilities.
Deferred income taxes reflect the available net operating losses and the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Realization of the future
tax benefits related to deferred tax assets is dependent on many factors, including the
Company’s past earnings history, expected future earnings, the character and jurisdiction of
such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect
utilization of its deferred tax assets, carryback and carryforward periods, and tax strategies
that could potentially enhance the likelihood of realization of a deferred tax asset.
Income tax contingencies are accounted for under the provisions of the Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes -
an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return.
Foreign Currency Transactions
The Company has extended a working capital loan to Agecroft Prison Management, Ltd. (“APM”),
the operator of a correctional facility in Sanford, England previously owned by a subsidiary
of the Company. The working capital loan is denominated in British pounds; consequently, the
Company adjusts these receivables to the current exchange rate at each balance sheet date and
recognizes the unrealized currency gain or loss in current period earnings. See Note 6 for
further discussion of the Company’s relationship with APM.
Fair Value of Financial Instruments
To meet the reporting requirements of Statement of Financial Accounting Standards No. 107,
“Disclosures About Fair Value of Financial Instruments,” the Company calculates the estimated
fair value of financial instruments using quoted market prices of similar instruments or
discounted cash flow techniques. At December 31, 2007 and 2006, there were no material
differences between the carrying amounts and the estimated fair values of the Company’s
financial instruments, other than as follows (in thousands):
F-14
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
| |
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
| |
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
Investment in direct financing lease |
|
$ |
15,468 |
|
|
$ |
19,054 |
|
|
$ |
16,322 |
|
|
$ |
20,475 |
|
Note receivable from APM |
|
$ |
6,301 |
|
|
$ |
10,210 |
|
|
$ |
6,180 |
|
|
$ |
10,140 |
|
Debt |
|
$ |
(975,967 |
) |
|
$ |
(982,688 |
) |
|
$ |
(976,258 |
) |
|
$ |
(982,500 |
) |
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of contingent assets and
liabilities, at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those estimates and
those differences could be material.
Concentration of Credit Risks
The Company’s credit risks relate primarily to cash and cash equivalents, restricted cash,
investments, accounts receivable, and an investment in a direct financing lease. Cash and
cash equivalents and restricted cash are primarily held in bank accounts and overnight
investments. The Company’s investments at December 31, 2006 consist of cash invested in
auction rate securities held by a large financial institution. The Company’s accounts
receivable and investment in direct financing lease represent amounts due primarily from
governmental agencies. The Company’s financial instruments are subject to the possibility of
loss in carrying value as a result of either the failure of other parties to perform according
to their contractual obligations or changes in market prices that make the instruments less
valuable.
The Company derives its revenues primarily from amounts earned under federal, state, and local
government management contracts. For the years ended December 31, 2007, 2006, and 2005,
federal correctional and detention authorities represented 40%, 40%, and 39%, respectively, of
the Company’s total revenue. Federal correctional and detention authorities consist primarily
of the Federal Bureau of Prisons, or BOP, the United States Marshals Service, or USMS, and the
U.S. Immigration and Customs Enforcement, or ICE. The BOP accounted for 13%, 14%, and 17% of
total revenue for 2007, 2006, and 2005, respectively. The USMS accounted for 14%, 15%, and
15% of total revenue for 2007, 2006, and 2005, respectively. The ICE accounted for 13%, 11%,
and 8% of total revenue for 2007, 2006, and 2005, respectively. These federal customers have
management contracts at facilities the Company owns and at facilities the Company manages but
does not own. No other customer generated more than 10% of total revenue during 2007, 2006,
or 2005.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
establishes standards for reporting and displaying comprehensive income and its components in
a full set of general purpose financial statements. Comprehensive income encompasses all
changes in stockholders’ equity except those arising from transactions with stockholders.
The Company reports comprehensive income in the consolidated statements of stockholders’
equity.
F-15
Accounting for Stock-Based Compensation
Restricted Stock
The Company amortizes the fair market value of restricted stock awards over the vesting period
using the straight-line method. The fair market value of performance-based restricted stock is
amortized over the vesting period as long as the Company expects to meet the performance
criteria. If achievement of the performance criteria becomes improbable, an adjustment is made
to reverse the expense previously incurred.
Other Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), which is a
revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”). SFAS 123R supersedes Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”) and amends Statement of Financial
Accounting Standards No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123R
is similar to the fair value method of accounting for stock-based employee compensation
described in SFAS 123. However, SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on
their fair values. Pro forma disclosure is no longer an alternative, which was permitted
under SFAS 123.
The Company adopted the fair value recognition provisions of SFAS 123R on January 1, 2006
using the “modified prospective” method. The “modified prospective” method requires
compensation cost to be recognized beginning with the effective date (a) based on the
requirements of SFAS 123R for all share-based payments granted after the effective date and
(b) based on the requirements of SFAS 123 for all awards granted to employees prior to the
effective date of SFAS 123R that remained unvested on the effective date.
At December 31, 2007, the Company had equity incentive plans, which are described more fully
in Note 14. The Company accounts for those plans under the recognition and measurement
principles of SFAS 123R. All options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant.
Effective December 30, 2005, the Company’s board of directors approved the acceleration of the
vesting of outstanding options previously awarded to executive officers and employees under
its Amended and Restated 1997 Employee Share Incentive Plan and its Amended and Restated 2000
Stock Incentive Plan. As a result of the acceleration, approximately 3.0 million unvested
options became exercisable, 45% of which were otherwise scheduled to vest in February 2006.
All of the unvested options were “in-the-money” on the effective date of acceleration.
The purpose of the accelerated vesting of stock options was to enable the Company to avoid
recognizing compensation expense associated with these options in future periods as required
by SFAS 123R, estimated at the date of acceleration to be $3.8 million in 2006, $2.0 million
in 2007, and $0.5 million in 2008. In order to prevent unintended benefits to the holders of
these stock options, the Company imposed resale restrictions to prevent the sale of any shares
acquired from the exercise of an accelerated option prior to the original vesting date of the
option. The resale restrictions automatically expire upon the individual’s termination of
employment. All other terms and conditions applicable to such options, including the exercise
prices, remained unchanged. As a result of the acceleration, the Company recognized a
non-cash, pre-tax charge of $1.0 million in the
F-16
fourth quarter of 2005 for the estimated value of the stock options that would have otherwise
been forfeited.
Prior to adoption of SFAS 123R on January 1, 2006, the Company accounted for equity
incentive plans under the recognition and measurement principles of APB 25. As such, no
employee compensation cost for the Company’s stock options is reflected in net income prior to
January 1, 2006, except for the aforementioned $1.0 million recognized in the fourth quarter
of 2005 as a result of the accelerated vesting of outstanding options on December 30, 2005.
The following table illustrates the effect on net income and earnings per share for the year
ended December 31, 2005 if the Company had applied the fair value recognition provisions of
SFAS 123 to stock-based employee compensation as well as $6.3 million of unrecognized
compensation expense associated with the accelerated vesting of all stock options in 2005 (in
thousands, except per share data).
| |
|
|
|
|
| |
|
For the Year Ended |
|
| |
|
December 31, 2005 |
|
As Reported: |
|
|
|
|
Income from continuing operations |
|
$ |
50,003 |
|
Income from discontinued operations, net of taxes |
|
|
119 |
|
|
|
|
|
Net income |
|
$ |
50,122 |
|
|
|
|
|
|
|
|
|
|
Pro Forma: |
|
|
|
|
Income from continuing operations |
|
$ |
41,958 |
|
Income from discontinued operations, net of taxes |
|
|
119 |
|
|
|
|
|
Net income |
|
$ |
42,077 |
|
|
|
|
|
|
|
|
|
|
As Reported: |
|
|
|
|
Basic earnings per share: |
|
|
|
|
Income from continuing operations |
|
$ |
0.43 |
|
Income from discontinued operations, net of taxes |
|
|
— |
|
|
|
|
|
Net income |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
As Reported: |
|
|
|
|
Diluted earnings per share: |
|
|
|
|
Income from continuing operations |
|
$ |
0.42 |
|
Income from discontinued operations, net of taxes |
|
|
— |
|
|
|
|
|
Net income |
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
Pro Forma: |
|
|
|
|
Basic earnings per share: |
|
|
|
|
Income from continuing operations |
|
$ |
0.36 |
|
Income from discontinued operations, net of taxes |
|
|
— |
|
|
|
|
|
Net income |
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
Pro Forma: |
|
|
|
|
Diluted earnings per share: |
|
|
|
|
Income from continuing operations |
|
$ |
0.35 |
|
Income from discontinued operations, net of taxes |
|
|
— |
|
|
|
|
|
Net income |
|
$ |
0.35 |
|
|
|
|
|
The effect of applying SFAS 123 for disclosing compensation costs under such
pronouncement may not be representative of the effects on reported net income for future
years.
F-17
3. GOODWILL AND INTANGIBLES
Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142”), establishes accounting and reporting requirements for goodwill and other
intangible assets. Under SFAS 142, goodwill attributable to each of the Company’s reporting
units is tested for impairment by comparing the fair value of each reporting unit with its
carrying value. Fair value is determined using a collaboration of various common valuation
techniques, including market multiples, discounted cash flows, and replacement cost methods.
These impairment tests are required to be performed at least annually. The Company performs
its impairment tests during the fourth quarter, in connection with the Company’s annual
budgeting process, and whenever circumstances indicate the carrying value of goodwill may not
be recoverable.
As a result of the transfer of operations of the David L. Moss Criminal Justice Center to the
Tulsa County Sheriff’s Office on July 1, 2005, as further described in 13, the Company
recognized a goodwill impairment charge of $0.1 million. The charge for the David L. Moss
facility is included in loss from discontinued operations, net of taxes, in the accompanying
statement of operations for the year ended December 31, 2005.
During the fourth quarter of 2005, in connection with the Company’s annual budgeting
process and annual goodwill impairment analysis, the Company recognized a goodwill impairment
charge of $0.2 million related to the management of the 380-bed Liberty County Jail/Juvenile
Center. This impairment charge resulted from recent poor operating performance combined with
an unfavorable forecast of future cash flows under the current management contract. This
charge was computed using a discounted cash flow method. During September 2006, the Company
received notification from the Liberty County Commission in Liberty County, Texas that, as a
result of a contract bidding process, the County elected to transfer management of the Liberty
County Jail/Juvenile Center to another operator which occurred in January 2007. The results
of operations including the goodwill impairment charge, net of taxes, and the assets and
liabilities of this facility are reported as discontinued operations for all periods
presented.
During the fourth quarter of 2007, in connection with the Company’s annual budgeting process
and annual goodwill impairment analysis, the Company recognized a goodwill impairment charge
of $1.5 million related to the management of two of the Company’s managed-only facilities.
This impairment charge resulted from recent poor operating performance combined with an
unfavorable forecast of future cash flows under the current management contracts at these
facilities. The impairment charge was computed using a discounted cash flow method.
The components of the Company’s other identifiable intangible assets and liabilities are as
follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2007 |
|
|
December 31, 2006 |
|
| |
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
| |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Contract acquisition costs |
|
$ |
873 |
|
|
$ |
(859 |
) |
|
$ |
873 |
|
|
$ |
(857 |
) |
Customer list |
|
|
— |
|
|
|
— |
|
|
|
765 |
|
|
|
(437 |
) |
Contract values |
|
|
(35,688 |
) |
|
|
25,977 |
|
|
|
(35,688 |
) |
|
|
22,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(34,815 |
) |
|
$ |
25,118 |
|
|
$ |
(34,050 |
) |
|
$ |
21,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract acquisition costs and the customer list are included in other non-current
assets, and contract values are included in other non-current liabilities in the accompanying
consolidated balance sheets. Contract values are amortized using the interest method.
Amortization income, net
F-18
of amortization expense, for intangible assets and liabilities during the years ended December
31, 2007, 2006, and 2005 was $4.3 million, $4.6 million and $4.2 million, respectively.
Interest expense associated with the amortization of contract values for the years ended
December 31, 2007, 2006, and 2005 was $1.1 million, $1.5 million, and $1.8 million,
respectively. Estimated amortization income, net of amortization expense, for the five
succeeding fiscal years is as follows (in thousands):
| |
|
|
|
|
2008 |
|
$ |
4,661 |
|
2009 |
|
|
3,204 |
|
2010 |
|
|
2,534 |
|
2011 |
|
|
134 |
|
2012 |
|
|
134 |
|
4. PROPERTY AND EQUIPMENT
At December 31, 2007, the Company owned 46 real estate properties, including 44 correctional,
detention and juvenile facilities, three of which the Company leases to other operators, and
two corporate office buildings. At December 31, 2007, the Company also managed 24
correctional and detention facilities owned by government agencies.
Property and equipment, at cost, consists of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
Land and improvements |
|
$ |
61,429 |
|
|
$ |
40,625 |
|
Buildings and improvements |
|
|
2,111,765 |
|
|
|
1,899,700 |
|
Equipment |
|
|
199,830 |
|
|
|
157,705 |
|
Office furniture and fixtures |
|
|
26,940 |
|
|
|
25,680 |
|
Construction in progress |
|
|
195,712 |
|
|
|
110,124 |
|
|
|
|
|
|
|
|
|
|
|
2,595,676 |
|
|
|
2,233,834 |
|
Less: Accumulated depreciation |
|
|
(508,696 |
) |
|
|
(428,782 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,086,980 |
|
|
$ |
1,805,052 |
|
|
|
|
|
|
|
|
Construction in progress primarily consists of correctional facilities under
construction or expansion. Interest is capitalized on construction in progress in accordance
with Statement of Financial Accounting Standards No. 34, “Capitalization of Interest Cost” and
amounted to $7.6 million, $4.7 million, and $4.5 million in 2007, 2006, and 2005,
respectively.
Depreciation expense was $82.8 million, $71.8 million, and $63.5 million for the years ended
December 31, 2007, 2006, and 2005, respectively.
As of December 31, 2006, ten of the facilities owned by the Company are subject to options
that allow various governmental agencies to purchase those facilities. Certain of these
options to purchase are based on a depreciated book value while others are based on a fair
market value calculation. In addition, three facilities, including two that are also subject
to purchase options, are constructed on land that the Company leases from governmental
agencies under ground leases. Under the terms of those ground leases, the facilities become
the property of the governmental agencies upon expiration of the ground leases. The Company
depreciates these properties over the shorter of the term of the applicable ground lease or
the estimated useful life of the property.
The Company leases portions of the land and building of the San Diego Correctional Facility
under an operating lease with varying lease terms ranging from December 2011 through December
2015.
F-19
The Company also leases land and building at the Elizabeth Detention Center under operating
leases that expire June 2015. The rental expense incurred for these leases was $3.4 million,
$2.3 million, and $2.9 million for the years ended December 31, 2007, 2006, and 2005,
respectively. Future minimum lease payments as of December 31, 2007 under these operating
leases are as follows:
| |
|
|
|
|
2008 |
|
$ |
3,386 |
|
2009 |
|
|
3,505 |
|
2010 |
|
|
3,626 |
|
2011 |
|
|
3,063 |
|
2012 |
|
|
2,080 |
|
Assets Held for Sale
During November 2007, the Company accepted a unsolicited purchase offer from Community
Education Partners (“CEP”), a third party lessee, to purchase during the first quarter of 2008
one of the Company’s owned and leased properties located in Houston, Texas. As of December
31, 2007, in accordance with Statement of Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the Company classified the
net book value of the facility of $7.6 million as held for sale, and reclassified the results
of operations for this facility to discontinued operations for all periods presented. During
February 2008, at the request of CEP, the Company agreed to extend the proposed closing date
and fix the sales price through June 30, 2008. The Company would recognize any gain on the
sale of this property in the period the sale closes, which would also be included in
discontinued operations.
5. FACILITY ACTIVATIONS AND DEVELOPMENTS
The Saguaro Correctional Facility, a new correctional facility located in Eloy, Arizona, was
completed during June 2007 for an aggregate cost of approximately $102.6 million. The Saguaro
facility began receiving inmates from the state of Hawaii on June 28, 2007 and as of December
31, 2007 housed 1,732 inmates from the state of Hawaii. The beds available at the Saguaro
Correctional Facility are expected to be utilized to consolidate inmates from the state of
Hawaii from several of the Company’s other facilities. Although the Company has contracts
with customers that are expected to fill the beds vacated by Hawaii, the Company can provide
no assurance that all of the beds will ultimately be utilized.
On July 2, 2007, the Company announced the commencement of construction of a new correctional
facility in Adams County, Mississippi. Construction of the Adams County Correctional Center is
expected to be completed during the fourth quarter of 2008 at an estimated cost of
approximately $105.0 million. The Company does not currently have a management contract to
utilize these new beds, but will market the new beds to various existing and potential
customers.
On October 5, 2007, the Company announced that it entered into a new agreement with the State
of California Department of Corrections and Rehabilitation (“CDCR”) for the housing of up to
7,772 inmates from the state of California. The new contract replaces and supersedes the
previous contract the Company had with the CDCR, which provided housing for up to 5,670
inmates. In January 2008, this agreement was further amended to allow for an additional 360
CDCR inmates. As a result, the Company now has a contract that provides the CDCR with the
ability to house up to 8,132 inmates in six of the facilities the Company owns. The agreement,
which is subject to appropriations by the California legislature, expires June 30, 2011, and
provides for a minimum payment based on the greater of the actual occupancy or 90% of the
capacity made available to the CDCR at each facility in which inmates are housed. The minimum
payments are subject to specific terms and conditions in the contract at each facility that
houses CDCR inmates. As of December 31, 2007 the Company housed 2,055 CDCR inmates.
F-20
Additionally, the Company announced that it expects to begin construction of a new
correctional facility located in Eloy, Arizona, which it expects to be fully utilized by the
CDCR. The Company expects to complete construction of the new La Palma Correctional Center
during the second quarter of 2009 at an estimated total cost of $205.0 million. However, the
Company expects to open a portion of the new facility to begin receiving inmates from the
state of California during the third quarter of 2008, with the continued receipt of California
inmates through completion of construction, as phases of the facility become available. As a
condition of undertaking the substantial cost required to construct the La Palma Correctional
Center, the CDCR agreed to occupy the beds allocated to it in accordance with a Phase-In
Schedule, and to make a minimum payment based on the greater of the actual occupancy or 90% of
the capacity available to CDCR according to the Phase-In Schedule.
In addition to the new prisons being developed in Adams County, Mississippi and Eloy, Arizona,
the Company has commenced numerous expansion projects at seven owned facilities that are
expected to add over 4,000 beds upon completion over the next year at an aggregate cost of
approximately $276.5 million.
6. INVESTMENT IN AFFILIATE
The Company has determined that its joint venture in APM is a variable interest entity (“VIE”)
in accordance with FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,
an Interpretation of Accounting Research Bulletin No. 51” (“FIN 46”), of which the Company is
not the primary beneficiary. The Company has a 50% ownership interest in APM, an entity
holding the management contract for a correctional facility, HM Prison Forest Bank, under a
25-year prison management contract with an agency of the United Kingdom government. The
Forest Bank facility, located in Sanford, England, was previously constructed and owned by a
wholly-owned subsidiary of the Company, which was sold in April 2001. All gains and losses
under the joint venture are accounted for using the equity method of accounting. During 2000,
the Company extended a working capital loan to APM, which totaled $6.5 million, including
accrued interest, as of December 31, 2007. The outstanding working capital loan represents
the Company’s maximum exposure to loss in connection with APM.
For the years ended December 31, 2007 and 2006, equity in earnings of joint venture was $0.2
million and $0.1 million, respectively, while for the year ended December 31, 2005, equity in
loss of joint venture was $0.3 million, which is included in other (income) expense in the
consolidated statements of operations. Because the Company’s investment in APM has no
carrying value, equity in losses of APM are applied as a reduction to the net carrying value
of the note receivable balance, which is included in other assets in the accompanying
consolidated balance sheets.
7. INVESTMENT IN DIRECT FINANCING LEASE
At December 31, 2007, the Company’s investment in a direct financing lease represents net
receivables under a building and equipment lease between the Company and the District of
Columbia for the D.C. Correctional Treatment Facility.
A schedule of minimum rentals to be received under the direct financing lease in future years
is as follows (in thousands):
F-21
| |
|
|
|
|
2008 |
|
$ |
2,793 |
|
2009 |
|
|
2,793 |
|
2010 |
|
|
2,793 |
|
2011 |
|
|
2,793 |
|
2012 |
|
|
2,793 |
|
Thereafter |
|
|
11,866 |
|
|
|
|
|
Total minimum obligation |
|
|
25,831 |
|
Less unearned interest income |
|
|
(10,363 |
) |
Less current portion of direct financing lease |
|
|
(965 |
) |
|
|
|
|
Investment in direct financing lease |
|
$ |
14,503 |
|
|
|
|
|
During the years ended December 31, 2007, 2006, and 2005, the Company recorded interest
income of $1.9 million, $2.0 million, and $2.1 million, respectively, under this direct
financing lease.
8. OTHER ASSETS
Other assets consist of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
Debt issuance costs, less accumulated amortization
of $10,898 and $7,820, respectively |
|
$ |
15,026 |
|
|
$ |
15,920 |
|
Notes receivable, net |
|
|
4,519 |
|
|
|
4,248 |
|
Cash surrender value of life insurance |
|
|
2,881 |
|
|
|
2,040 |
|
Deposits |
|
|
971 |
|
|
|
1,232 |
|
Customer list, less accumulated amortization of $437
as of December 31, 2006 |
|
|
— |
|
|
|
328 |
|
Contract acquisition costs, less accumulated amortization
of $859 and $857, respectively |
|
|
14 |
|
|
|
16 |
|
Other |
|
|
— |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
$ |
23,411 |
|
|
$ |
23,807 |
|
|
|
|
|
|
|
|
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
Trade accounts payable |
|
$ |
89,256 |
|
|
$ |
48,285 |
|
Accrued salaries and wages |
|
|
31,787 |
|
|
|
28,587 |
|
Accrued workers’ compensation and auto liability |
|
|
9,362 |
|
|
|
8,422 |
|
Accrued litigation |
|
|
13,082 |
|
|
|
13,262 |
|
Accrued employee medical insurance |
|
|
9,860 |
|
|
|
8,602 |
|
Accrued property taxes |
|
|
14,775 |
|
|
|
13,055 |
|
Accrued interest |
|
|
16,772 |
|
|
|
16,750 |
|
Other |
|
|
28,346 |
|
|
|
23,559 |
|
|
|
|
|
|
|
|
|
|
$ |
213,240 |
|
|
$ |
160,522 |
|
|
|
|
|
|
|
|
F-22
The total liability for workers’ compensation and auto liability was $24.3 million and
$24.6 million as of December 31, 2007 and 2006, respectively, with the long-term portion
included in other long-term liabilities in the accompanying consolidated balance sheets.
These liabilities were discounted to the net present value of the outstanding liabilities
using a 5.0% annual rate of return in each year. These liabilities amounted to $29.7 million
and $29.9 million on an undiscounted basis as of December 31, 2007 and 2006, respectively.
10. DIVIDENDS TO STOCKHOLDERS
Common Stock
No dividends for common stock were declared for the years ended December 31, 2007, 2006, and
2005. The indentures governing the Company’s senior unsecured notes limit the amount of
dividends the Company can declare or pay on outstanding shares of its common stock. Taking
into consideration these limitations, the Company’s management and its board of directors
regularly evaluate the merits of declaring and paying a dividend. Future dividends, if any,
will depend on the Company’s future earnings, capital requirements, financial condition,
alternative uses of capital, and on such other factors as the board of directors of the
Company considers relevant.
11. DEBT
Debt consists of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
Revolving Credit Facility, principal due at maturity in December 2012;
interest payable periodically at variable interest rates. |
|
$ |
— |
|
|
$ |
— |
|
7.5% Senior Notes, principal due at maturity in May 2011; interest
payable semi-annually in May and November at 7.5%. |
|
|
250,000 |
|
|
|
250,000 |
|
7.5% Senior Notes, principal due at maturity in May 2011; interest
payable semi-annually in May and November at 7.5%. These notes were
issued with a $2.3 million premium, of which $1.0 million and $1.3
million was unamortized at December 31, 2007 and 2006, respectively. |
|
|
200,967 |
|
|
|
201,258 |
|
6.25% Senior Notes, principal due at maturity in March 2013; interest
payable semi-annually in March and September at 6.25%. |
|
|
375,000 |
|
|
|
375,000 |
|
6.75% Senior Notes, principal due at maturity in January 2014; interest
payable semi-annually in January and July at 6.75%. |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
975,967 |
|
|
|
976,258 |
|
Less: Current portion of long-term debt |
|
|
(290 |
) |
|
|
(290 |
) |
|
|
|
|
|
|
|
|
|
$ |
975,677 |
|
|
$ |
975,968 |
|
|
|
|
|
|
|
|
Senior Indebtedness
During January 2006, in connection with the sale and issuance of the 6.75% Senior Notes (as
defined hereafter), the Company used the net proceeds to completely pay-off the outstanding
balance of the then outstanding term loan portion of the senior secured bank credit facility
(the “Senior Bank Credit Facility”). Additionally, in February 2006, the Company reached an
agreement with a group of lenders to enter into a $150.0 million senior secured revolving
credit facility with a five-year term (the “Revolving Credit Facility”). The Revolving Credit
Facility was used to replace the existing revolving loan under the Senior Bank Credit
Facility, including any outstanding letters of credit issued thereunder. The Company incurred
a pre-tax charge of approximately $1.0 million during the first quarter of 2006 for the
write-off of existing deferred loan costs associated with the retirement of the revolving loan
and pay-off of the term loan portion of the Senior Bank Credit
F-23
Facility. In September 2007, the Company exercised its option to increase the borrowing
capacity under its Revolving Credit Facility by $100.0 million, from $150.0 million to $250.0
million.
During December 2007, the Company entered into a new $450.0 million senior secured revolving
credit facility (the “New Revolving Credit Facility”) arranged by Banc of America Securities
LLC and Wachovia Capital Markets, LLC. The New Revolving Credit Facility replaced the
Company’s previous $250.0 million senior secured Revolving Credit Facility. The New Revolving
Credit Facility will be utilized to fund development projects in anticipation of increasing
demand by existing and potential new customers, as well as for working capital, capital
expenditures and general corporate purposes. The Company capitalized approximately $1.9
million during the fourth quarter of 2007 for the costs related to the issuance of the New
Revolving Credit Facility in accordance with EITF 98-14, “Debtors Accounting for Changes in
Line-of-Credit or Revolving-Debt Arrangements.”
The New Revolving Credit Facility has an aggregate principal capacity of $450.0 million and
matures in December 2012. At the Company’s option, interest on outstanding borrowings will be
based on either a base rate plus a margin ranging from 0.00% to 0.50% or a London Interbank
Offered Rate (“LIBOR”) plus a margin ranging from 0.75% to 1.50%. The applicable margins are
subject to adjustments based on the Company’s leverage ratio. Based on the Company’s current
leverage ratio, loans under the New Revolving Credit Facility would currently bear interest at
the base rate plus a margin of 0.00% or at LIBOR plus a margin of 0.75%. As of December 31,
2007, the Company had no outstanding borrowings under the New Revolving Credit Facility;
however the Company had $34.9 million in letters of credit outstanding.
The New Revolving Credit Facility has a $20.0 million sublimit for swing line loans and a
$100.0 million sublimit for the issuance of standby letters of credit. The Company has an
option to increase the availability under the New Revolving Credit Facility by up to $300.0
million (consisting of revolving credit, term loans, or a combination of the two) subject to,
among other things, the receipt of commitments for the increased amount.
The New Revolving Credit Facility is secured by a pledge of all of the capital stock of the
Company’s domestic subsidiaries, 65% of the capital stock of the Company’s foreign
subsidiaries, all of the Company’s accounts receivable, and all of the Company’s deposit
accounts.
The New Revolving Credit Facility requires the Company to meet certain financial covenants,
including, without limitation, a maximum total leverage ratio, a maximum secured leverage
ratio, and a minimum interest coverage ratio. As of December 31, 2007, the Company was in
compliance with all such covenants. In addition, the New Revolving Credit Facility contains
certain covenants which, among other things, limits both the incurrence of additional
indebtedness, investments, payment of dividends, transactions with affiliates, asset sales,
acquisitions, capital expenditures, mergers and consolidations, prepayments and modifications
of other indebtedness, liens and encumbrances and other matters customarily restricted in such
agreements. In addition, the New Revolving Credit Facility is subject to certain
cross-default provisions with terms of the Company’s other indebtedness.
$250 Million 7.5% Senior Notes. Interest on the $250.0 million aggregate principal amount of
the Company’s 7.5% unsecured senior notes issued in May 2003 (the “$250 Million 7.5% Senior
Notes”) accrues at the stated rate and is payable semi-annually on May 1 and November 1 of
each year. The $250 Million 7.5% Senior Notes are scheduled to mature on May 1, 2011. The
Company may currently redeem all or a portion of the notes at redemption prices as set forth
in the indenture governing the $250 Million 7.5% Senior Notes. The $250 Million 7.5% Senior
Notes are guaranteed on an unsecured basis by all of the Company’s domestic subsidiaries.
F-24
$200 Million 7.5% Senior Notes. Interest on the $200.0 million aggregate principal amount of
the Company’s 7.5% unsecured senior notes issued in August 2003 (the “$200 Million 7.5% Senior
Notes”) accrues at the stated rate and is payable on May 1 and November 1 of each year.
However, the notes were issued at a price of 101.125% of the principal amount of the notes,
resulting in a premium of $2.25 million, which is amortized as a reduction to interest expense
over the term of the notes. The $200 Million 7.5% Senior Notes were issued under the existing
indenture and supplemental indenture governing the $250 Million 7.5% Senior Notes.
$375 Million 6.25% Senior Notes. Interest on $375.0 million aggregate principal amount of the
Company’s 6.25% unsecured senior notes issued in March 2005 (the “6.25% Senior Notes”) accrues
at the stated rate and is payable on March 15 and September 15 of each year. The 6.25% Senior
Notes are scheduled to mature on March 15, 2013. At any time on or before March 15, 2008, the
Company may redeem up to 35% of the notes with the net proceeds of certain equity offerings,
as long as 65% of the aggregate principal amount of the notes remains outstanding after the
redemption. The Company may redeem all or a portion of the notes on or after March 15, 2009.
Redemption prices are set forth in the indenture governing the 6.25% Senior Notes.
$150 Million 6.75% Senior Notes. During January 2006, the Company completed the sale and
issuance of $150.0 million aggregate principal amount of its 6.75% unsecured senior notes (the
“6.75% Senior Notes”) pursuant to a prospectus supplement under an automatically effective
shelf registration statement that was filed by the Company with the SEC on January 17, 2006.
The Company used the net proceeds from the sale of the 6.75% Senior Notes to prepay the $139.0
million balance outstanding on the term loan indebtedness under the Company’s Senior Bank
Credit Facility, to pay fees and expenses, and for general corporate purposes. The Company
reported a charge of $0.9 million during the first quarter of 2006 in connection with the
prepayment of the term portion of the Senior Bank Credit Facility.
Interest on the 6.75% Senior Notes accrues at the stated rate and is payable on January 31 and
July 31 of each year. The 6.75% Senior Notes are scheduled to mature on January 31, 2014. At
any time on or before January 31, 2009, the Company may redeem up to 35% of the notes with the
net proceeds of certain equity offerings, as long as 65% of the aggregate principal amount of
the notes remains outstanding after the redemption. The Company may redeem all or a portion
of the notes on or after January 31, 2010. Redemption prices are set forth in the indenture
governing the 6.75% Senior Notes.
Guarantees and Covenants. In connection with the registration with the SEC of the Company’s
then outstanding 9.875% Senior Notes pursuant to the terms and conditions of a Registration
Rights Agreement, after obtaining consent of the lenders under a previously outstanding senior
bank credit facility, the Company transferred the real property and related assets of the
Company (as the parent corporation) to certain of its subsidiaries effective December 27,
2002. Accordingly, the Company (as the parent corporation to its subsidiaries) has no
independent assets or operations (as defined under Rule 3-10(f) of Regulation S-X). As a
result of this transfer, assets with an aggregate net book value of $2.1 billion are no longer
directly available to the parent corporation to satisfy the obligations under the $250 Million
7.5% Senior Notes, the $200 Million 7.5% Senior Notes, the 6.25% Senior Notes, or the 6.75%
Senior Notes (collectively, “the Senior Notes”). Instead, the parent corporation must rely on
distributions of the subsidiaries to satisfy its obligations under the Senior Notes. All of
the parent corporation’s domestic subsidiaries, including the subsidiaries to which the assets
were transferred, have provided full and unconditional guarantees of the Senior Notes. Each
of the Company’s subsidiaries guaranteeing the Senior Notes are wholly-owned subsidiaries of
the Company; the subsidiary guarantees are full and unconditional and are joint and
F-25
several obligations of the guarantors; and all non-guarantor subsidiaries are minor (as
defined in Rule 3-10(h)(6) of Regulation S-X).
As of December 31, 2007, neither the Company nor any of its subsidiary guarantors had any
material or significant restrictions on the Company’s ability to obtain funds from its
subsidiaries by dividend or loan or to transfer assets from such subsidiaries.
The indentures governing the Senior Notes contain certain customary covenants that, subject to
certain exceptions and qualifications, restrict the Company’s ability to, among other things,
make restricted payments; incur additional debt or issue certain types of preferred stock;
create or permit to exist certain liens; consolidate, merge or transfer all or substantially
all of the Company’s assets; and enter into transactions with affiliates. In addition, if the
Company sells certain assets (and generally does not use the proceeds of such sales for
certain specified purposes) or experiences specific kinds of changes in control, the Company
must offer to repurchase all or a portion of the Senior Notes. The offer price for the Senior
Notes in connection with an asset sale would be equal to 100% of the aggregate principal
amount of the notes repurchased plus accrued and unpaid interest and liquidated damages, if
any, on the notes repurchased to the date of purchase. The offer price for the Senior Notes
in connection with a change in control would be 101% of the aggregate principal amount of the
notes repurchased plus accrued and unpaid interest and liquidated damages, if any, on the
notes repurchased to the date of purchase. The Senior Notes are also subject to certain
cross-default provisions with the terms of the Company’s Revolving Credit Facility, as more
fully described hereafter.
$30 Million Convertible Subordinated Notes
The Company previously had outstanding an aggregate of $30.0 million of convertible
subordinated notes due February 28, 2007 (the “$30.0 Million Convertible Subordinated Notes”).
On February 10, 2005, the Company provided notice to the holders of the $30 Million
Convertible Subordinated Notes that the Company would require the holders to convert all of
the notes into shares of the Company’s common stock on March 1, 2005. The conversion of the
$30 Million Convertible Subordinated Notes resulted in the issuance of approximately 10.1
million shares of the Company’s common stock.
Other Debt Transactions
Letters of Credit. At December 31, 2007 and 2006, the Company had $34.9 million and $37.9
million, respectively, in outstanding letters of credit. The letters of credit were issued to
secure the Company’s workers’ compensation and general liability insurance policies,
performance bonds and utility deposits. The letters of credit outstanding at December 31,
2007 were provided by a sub-facility under the New Revolving Credit Facility.
Debt Maturities
Scheduled principal payments as of December 31, 2007 for the next five years and thereafter
are as follows (in thousands):
F-26
| |
|
|
|
|
2008 |
|
$ |
— |
|
2009 |
|
|
— |
|
2010 |
|
|
— |
|
2011 |
|
|
450,000 |
|
2012 |
|
|
— |
|
Thereafter |
|
|
525,000 |
|
|
|
|
|
Total principal payments |
|
|
975,000 |
|
Unamortized bond premium |
|
|
967 |
|
|
|
|
|
Total debt |
|
$ |
975,967 |
|
|
|
|
|
Cross-Default Provisions
The provisions of the Company’s debt agreements relating to the
New Revolving Credit Facility and the Senior Notes contain certain
cross-default provisions. Any events of default under the New
Revolving Credit Facility that results in the lenders’ actual
acceleration of amounts outstanding hereunder also result in an
event of default under the Senior Notes. Additionally, any events
of default under the Senior Notes which give rise to the ability
of the holders of such indebtedness to exercise their acceleration
rights also result in an event of default under the New Revolving
Credit Facility.
If the Company were to be in default under the New Revolving
Credit Facility, and if the lenders under the New Revolving Credit
Facility elected to exercise their rights to accelerate the
Company’s obligations under the New Revolving Credit Facility,
such events could result in the acceleration of all or a portion
of the Company’s Senior Notes, which would have a material adverse
effect on the Company’s liquidity and financial position. The
Company does not have sufficient working capital to satisfy its
debt obligations in the event of an acceleration of all or a
substantial portion of the Company’s outstanding indebtedness.
12. INCOME TAXES
The income tax expense is comprised of the following components (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Current provision (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
65,190 |
|
|
$ |
28,104 |
|
|
$ |
58 |
|
State |
|
|
5,546 |
|
|
|
1,568 |
|
|
|
(485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
70,736 |
|
|
|
29,672 |
|
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
8,972 |
|
|
|
29,247 |
|
|
|
27,286 |
|
State |
|
|
604 |
|
|
|
1,894 |
|
|
|
(276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
9,576 |
|
|
|
31,141 |
|
|
|
27,010 |
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
80,312 |
|
|
$ |
60,813 |
|
|
$ |
26,583 |
|
|
|
|
|
|
|
|
|
|
|
The current income tax provisions for 2007, 2006, and 2005 are net of $1.4 million, $16.0
million, and $22.2 million, respectively, of tax benefits of operating loss carry forwards.
F-27
Significant components of the Company’s deferred tax assets and liabilities as of December 31,
2007 and 2006, are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
Current deferred tax assets: |
|
|
|
|
|
|
|
|
Asset reserves and liabilities not yet deductible for tax |
|
$ |
14,806 |
|
|
$ |
11,760 |
|
Net operating loss and tax credit carry forwards |
|
|
— |
|
|
|
1,690 |
|
|
|
|
|
|
|
|
Net current deferred tax assets |
|
|
14,806 |
|
|
|
13,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities: |
|
|
|
|
|
|
|
|
Other |
|
|
(2,556 |
) |
|
|
(1,795 |
) |
|
|
|
|
|
|
|
Net total current deferred tax assets |
|
$ |
12,250 |
|
|
$ |
11,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets: |
|
|
|
|
|
|
|
|
Asset reserves and liabilities not yet deductible for tax |
|
$ |
14,554 |
|
|
$ |
14,030 |
|
Tax over book basis of certain assets |
|
|
24,235 |
|
|
|
26,995 |
|
Net operating loss and tax credit carry forwards |
|
|
18,627 |
|
|
|
16,999 |
|
Other |
|
|
5,339 |
|
|
|
8,221 |
|
|
|
|
|
|
|
|
Total noncurrent deferred tax assets |
|
|
62,755 |
|
|
|
66,245 |
|
Less valuation allowance |
|
|
(7,546 |
) |
|
|
(8,292 |
) |
|
|
|
|
|
|
|
Net noncurrent deferred tax assets |
|
|
55,209 |
|
|
|
57,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax liabilities: |
|
|
|
|
|
|
|
|
Book over tax basis of certain assets |
|
|
(89,363 |
) |
|
|
(81,001 |
) |
Other |
|
|
(117 |
) |
|
|
(707 |
) |
|
|
|
|
|
|
|
Total noncurrent deferred tax liabilities |
|
|
(89,480 |
) |
|
|
(81,708 |
) |
|
|
|
|
|
|
|
Net total noncurrent deferred tax liabilities |
|
$ |
(34,271 |
) |
|
$ |
(23,755 |
) |
|
|
|
|
|
|
|
Deferred income taxes reflect the available net operating losses and the net tax
effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Realization of the
future tax benefits related to deferred tax assets is dependent on many factors, including the
Company’s past earnings history, expected future earnings, the character and jurisdiction of
such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect
utilization of its deferred tax assets, carryback and carryforward periods, and tax strategies
that could potentially enhance the likelihood of realization of a deferred tax asset.
The tax benefits associated with equity-based compensation reduced income taxes payable by
$21.2 million and $18.2 million during 2007 and 2006, respectively, and increased current
deferred tax assets by $6.9 million during 2005. Such benefits were recorded as increases to
stockholders’ equity.
A reconciliation of the income tax provision at the statutory income tax rate and the
effective tax rate as a percentage of income from continuing operations before income taxes
for the years ended December 31, 2007, 2006, and 2005 is as follows:
F-28
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Statutory federal rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State taxes, net of federal tax benefit |
|
|
2.7 |
|
|
|
2.2 |
|
|
|
0.7 |
|
Permanent differences |
|
|
0.9 |
|
|
|
0.8 |
|
|
|
1.9 |
|
Change in valuation allowance |
|
|
(0.3 |
) |
|
|
0.0 |
|
|
|
2.3 |
|
Other items, net |
|
|
(0.6 |
) |
|
|
(1.2 |
) |
|
|
(5.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
37.7 |
% |
|
|
36.8 |
% |
|
|
34.7 |
% |
|
|
|
|
|
|
|
|
|
|
Although the Company utilized its remaining federal net operating losses in 2006,
the Company has approximately $8.2 million in net operating losses applicable to various
states that it expects to carry forward in future years to offset taxable income in such
states. These net operating losses have begun to expire. Accordingly, the Company has a
valuation allowance of $1.9 million for the estimated amount of the net operating losses that
will expire unused, in addition to a $5.6 million valuation allowance related to state tax
credits that are also expected to expire unused. Although the Company’s estimate of future
taxable income is based on current assumptions that it believes to be reasonable, the
Company’s assumptions may prove inaccurate and could change in the future, which could result
in the expiration of additional net operating losses or credits. The Company would be
required to establish a valuation allowance at such time that it no longer expected to utilize
these net operating losses or credits, which could result in a material impact on its results
of operations in the future.
The Company’s effective tax rate was 37.7%, 36.8%, and 34.7% during 2007, 2006, and 2005,
respectively. The Company’s annual effective tax rate increased for 2007 as a result of an
increase in taxable income in states with higher statutory tax rates, the negative impact of a
change in Texas tax law, and interest associated with uncertain tax positions required
pursuant to FIN 48. The lower effective tax rate during 2005 resulted from certain tax
planning strategies implemented during the fourth quarter of 2004 that were magnified by the
recognition of deductible expenses associated with the Company’s debt refinancing transactions
completed during the first and second quarters of 2005. The Company’s overall effective tax
rate is estimated based on the Company’s current projection of taxable income and could change
in the future as a result of changes in these estimates, the implementation of additional tax
strategies, changes in federal or state tax rates, changes in estimates related to uncertain
tax positions, or changes in state apportionment factors, as well as changes in the valuation
allowance applied to the Company’s deferred tax assets that are based primarily on the amount
of state net operating losses and tax credits that could expire unused.
In July 2006, the FASB issued FIN 48, which prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The guidance prescribed in FIN 48 establishes a
recognition threshold of more likely than not that a tax position will be sustained upon
examination. The measurement attribute of FIN 48 requires that a tax position be measured at
the largest amount of benefit that is greater than 50 percent likely of being realized upon
ultimate settlement. FIN 48 was effective for fiscal years beginning after December 15, 2006.
Upon adoption of FIN 48 on January 1, 2007, the Company recognized a $2.2 million increase in
the liability for uncertain tax positions net of certain benefits associated with state net
operating losses, which was recorded as an adjustment to the January 1, 2007 balance of
retained earnings. The Company has a $5.0 million liability recorded for uncertain tax
positions as of December 31, 2007, included in other non-current liabilities in the
accompanying balance sheet. The Company recognizes interest and penalties related to
unrecognized tax positions in income tax expense. During the year ended December 31, 2007,
the Company recognized $0.4 million in interest and penalties and as of December 31, 2007 the
Company had approximately $0.4 million for the
F-29
payment of interest and penalties accrued in other liabilities. The total amount of
unrecognized tax positions that, if recognized, would affect the effective tax rate is $4.8
million. The Company does not currently anticipate that the total amount of unrecognized tax
positions will significantly increase or decrease in the next twelve months. The Company’s
U.S. federal and state income tax returns for tax years 2003 and beyond remain subject to
examination by the Internal Revenue Service (“IRS”). All states in which the company files
income tax returns follow the same statute of limitations as federal, with the exception of
the following states whose tax years include December 31, 2002 through December 31, 2006:
Arizona, California, Colorado, Kentucky, Michigan, Minnesota, New Jersey, Texas, and
Wisconsin.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows:
| |
|
|
|
|
Unrecognized Benefit January 1, 2007 |
|
$ |
4,772 |
|
Decreases from Prior Period Tax Positions |
|
|
(111 |
) |
Increases from Current Period Tax Positions |
|
|
771 |
|
Decreases Related to Settlements of Tax Positions |
|
|
(396 |
) |
Decreases Due to Lapse of Statute of Limitations |
|
|
— |
|
|
|
|
|
Unrecognized Benefit December 31, 2007 |
|
$ |
5,036 |
|
|
|
|
|
13. DISCONTINUED OPERATIONS
Under the provisions of SFAS 144, the identification and classification of a facility as held
for sale, or the termination of any of the Company’s management contracts by expiration or
otherwise, may result in the classification of the operating results of such facility, net of
taxes, as a discontinued operation, so long as the financial results can be clearly
identified, and so long as the Company does not have any significant continuing involvement in
the operations of the component after the disposal or termination transaction.
The results of operations, net of taxes, and the assets and liabilities of two correctional
facilities and one leased facility, each as further described below, have been reflected in
the accompanying consolidated financial statements as discontinued operations in accordance
with SFAS 144 for the years ended December 31, 2007, 2006, and 2005.
During March 2005, the Company received notification from the Tulsa County Commission in
Oklahoma that, as a result of a contract bidding process, the County elected to have the Tulsa
County Sheriff’s Office manage the 1,440-bed David L. Moss Criminal Justice Center, located in
Tulsa. The Company’s contract expired on June 30, 2005. Accordingly, the Company transferred
operation of the facility to the Tulsa County Sheriff’s Office on July 1, 2005.
During September 2006, the Company received notification from the Liberty County Commission in
Liberty County, Texas that, as a result of a contract bidding process, the County elected to
transfer management of the 380-bed Liberty County Jail/Juvenile Center to another operator.
Accordingly, the Company’s contract with the County expired in January 2007 and the results of
operations, net of taxes, and the assets and liabilities of this facility are being reported
as discontinued operations for all periods presented.
As further described in Note 4, in November 2007, the Company accepted an unsolicited offer to
sell a facility located in Houston, Texas and leased to a third-party operator. In accordance
with
F-30
SFAS 144, the Company classified the $7.6 million net book value of the facility as held for
sale as of December 31, 2007, and reclassified the results of operations of the facility to
discontinued operations for all periods presented.
The following table summarizes the results of operations for these facilities for the years
ended December 31, 2007, 2006, and 2005 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
Managed-only |
|
$ |
— |
|
|
$ |
5,461 |
|
|
$ |
15,992 |
|
Rental |
|
|
1,546 |
|
|
|
1,486 |
|
|
|
1,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,546 |
|
|
|
6,947 |
|
|
|
17,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Managed-only |
|
|
— |
|
|
|
5,566 |
|
|
|
16,620 |
|
Depreciation and amortization |
|
|
168 |
|
|
|
437 |
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
6,003 |
|
|
|
17,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
1,378 |
|
|
|
944 |
|
|
|
192 |
|
Other income (loss) |
|
|
— |
|
|
|
(30 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
1,378 |
|
|
|
914 |
|
|
|
207 |
|
Income tax expense |
|
|
(520 |
) |
|
|
(336 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
INCOME FROM DISCONTINUED
OPERATIONS, NET OF TAXES |
|
$ |
858 |
|
|
$ |
578 |
|
|
$ |
119 |
|
|
|
|
|
|
|
|
|
|
|
The assets and liabilities of the discontinued operations presented in the accompanying
consolidated balance sheets are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
92 |
|
Accounts receivable |
|
|
— |
|
|
|
874 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
— |
|
|
|
966 |
|
Property and equipment, net |
|
|
— |
|
|
|
46 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
— |
|
|
$ |
1,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
237 |
|
|
$ |
760 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
237 |
|
|
$ |
760 |
|
|
|
|
|
|
|
|
14. STOCKHOLDERS’ EQUITY
Common Stock
Restricted shares. During 2007, the Company issued approximately 312,000 shares of restricted
common stock to certain of the Company’s employees, with an aggregate value of $8.3 million,
including 254,000 restricted shares to employees whose compensation is charged to general and
administrative expense and 58,000 restricted shares to employees whose compensation is charged
to operating expense. During 2006, the Company issued approximately 512,000 shares of
restricted
F-31
common stock to certain of the Company’s employees, with an aggregate value of $7.4 million,
including 404,000 restricted shares to employees whose compensation is charged to general and
administrative expense and 108,000 shares to employees whose compensation is charged to
operating expense.
The Company established performance-based vesting conditions on the restricted stock awarded
to the Company’s officers and executive officers. Unless earlier vested under the terms of
the restricted stock, shares issued to officers and executive officers are subject to vesting
over a three-year period based upon the satisfaction of certain performance criteria. No more
than one-third of such shares may vest in the first performance period; however, the
performance criteria are cumulative for the three-year period. Unless earlier vested under
the terms of the restricted stock, the shares of restricted stock issued to other employees of
the Company vest after three years of continuous service.
Nonvested restricted common stock transactions as of December 31, 2007 and for the year then
ended are summarized below (in thousands, except per share amounts).
| |
|
|
|
|
|
|
|
|
| |
|
Shares of |
|
|
Weighted |
|
| |
|
restricted |
|
|
average grant date |
|
| |
|
common stock |
|
|
fair value |
|
Nonvested at December 31, 2006 |
|
|
995 |
|
|
$ |
13.30 |
|
Granted |
|
|
312 |
|
|
$ |
26.54 |
|
Cancelled |
|
|
(134 |
) |
|
$ |
17.16 |
|
Vested |
|
|
(309 |
) |
|
$ |
12.22 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007 |
|
|
864 |
|
|
$ |
17.87 |
|
|
|
|
|
|
|
|
|
During 2007, 2006, and 2005, the Company expensed $5.1 million ($1.0 million of which
was recorded in operating expenses and $4.1 million of which was recorded in general and
administrative expenses), $4.6 million ($1.3 million of which was recorded in operating
expenses and $3.3 million of which was recorded in general and administrative expenses), and
$3.0 million ($1.3 million of which was recorded in operating expenses and $1.7 million of
which was recorded in general and administrative expenses), net of forfeitures, relating to
the restricted common stock, respectively. As of December 31, 2007, the Company had $7.4
million of total unrecognized compensation cost related to restricted common stock that is
expected to be recognized over a remaining weighted-average period of 1.8 years.
Preferred Stock
The Company has the authority to issue 50.0 million shares of $0.01 par value per share
preferred stock (the “Preferred Stock”). The Preferred Stock may be issued from time to time
upon authorization by the Board of Directors, in such series and with such preferences,
conversion or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or other provisions as may be fixed by the Company’s board of directors.
Stock Warrants
In connection with a merger completed during 2000, the Company issued warrants for the
purchase of approximately 225,000 shares of its common stock, at an exercise price of $11.10
per share. On August 8, 2007, 75,000 warrants were exercised at a price of $11.10 per share.
The holder of such warrants elected to satisfy the cost of the warrants using a net share
F-32
settlement method, resulting in the issuance of 48,000 shares of common stock by the Company.
As of December 31, 2007, warrants to purchase approximately 150,000 shares of the Company’s
common stock at a price of $11.10 per share remained outstanding and expire on December 31,
2008.
Stock Option Plans
The Company has equity incentive plans under which, among other things, incentive and
non-qualified stock options are granted to certain employees and non-employee directors of the
Company by the compensation committee of the Company’s board of directors. The options are
granted with exercise prices equal to the fair market value on the date of grant. Vesting
periods for options granted to employees generally range from one to four years. Options
granted to non-employee directors prior to 2007 vested on the date of grant. Options granted
to non-employee directors during 2007 vest on the first anniversary of the grant date. The
term of such options is ten years from the date of grant.
Stock option transactions relating to the Company’s non-qualified stock option plans are
summarized below (in thousands, except exercise prices):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
| |
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
| |
|
No. of |
|
|
Exercise Price |
|
|
Contractual |
|
|
Intrinsic |
|
| |
|
options |
|
|
of options |
|
|
Term |
|
|
Value |
|
Outstanding at
December 31, 2006 |
|
|
7,253 |
|
|
$ |
10.13 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
567 |
|
|
|
27.28 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,264 |
) |
|
|
6.71 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
(264 |
) |
|
|
31.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2007 |
|
|
5,292 |
|
|
$ |
12.38 |
|
|
|
5.7 |
|
|
$ |
85,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
December 31, 2007 |
|
|
4,323 |
|
|
$ |
10.43 |
|
|
|
5.0 |
|
|
$ |
78,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value (the difference between the Company’s average stock price during 2007 and the
exercise price, multiplied by the number of in-the-money options) that would have been
received by the option holders had all option holders exercised their options on December 31,
2007. This amount changes based on the fair market value of the Company’s stock. The total
intrinsic value of options exercised during the years ended December 31, 2007, 2006, and 2005
was $49.1 million, $44.8 million, and $17.5 million, respectively.
The weighted average fair value of options granted during 2007, 2006, and 2005 was $8.70,
$5.09, and $4.45 per option, respectively, based on the estimated fair value using the
Black-Scholes option-pricing model. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following weighted average
assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Expected dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected stock price volatility |
|
|
25.4 |
% |
|
|
25.2 |
% |
|
|
26.9 |
% |
Risk-free interest rate |
|
|
4.7 |
% |
|
|
4.7 |
% |
|
|
4.1 |
% |
Expected life of options |
|
5 years |
|
6 years |
|
6 years |
The Company estimates expected stock price volatility based on actual historical
changes in the market value of the Company’s stock. The risk-free interest rate is based on
the U.S. Treasury yield
F-33
with a term that is consistent with the expected life of the stock options. The expected life
of stock options is based on the Company’s historical experience and is calculated separately
for groups of employees that have similar historical exercise behavior.
Nonvested stock option transactions relating to the Company’s non-qualified stock option plans
as of December 31, 2007 and changes during the year ended December 31, 2007 are summarized
below (in thousands, except exercise prices):
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
| |
|
Number of |
|
|
average grant |
|
| |
|
options |
|
|
date fair value |
|
Nonvested at December 31, 2006 |
|
|
701 |
|
|
$ |
4.94 |
|
Granted |
|
|
567 |
|
|
$ |
8.70 |
|
Cancelled |
|
|
(88 |
) |
|
$ |
7.97 |
|
Vested |
|
|
(211 |
) |
|
$ |
4.98 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007 |
|
|
969 |
|
|
$ |
6.86 |
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the Company had $3.9 million of total unrecognized
compensation cost related to stock options that is expected to be recognized over a remaining
weighted-average period of 1.5 years. The pro forma effects on net income and earnings per
share as if compensation cost for the stock option plans had been determined based on the fair
value of the options at the grant date for 2005 consistent with the provisions of SFAS 123R
are disclosed in Note 2.
At the Company’s 2007 annual meeting of stockholders held in May 2007, the Company’s
stockholders approved the 2008 Stock Incentive Plan that authorizes the issuance of new awards
in respect of an aggregate of up to 3.0 million shares. In addition, during the 2003 annual
meeting the stockholders approved the adoption of the Company’s Non-Employee Directors’
Compensation Plan, authorizing the Company to issue up to 225,000 shares of common stock
pursuant to the plan. These changes were made in order to provide the Company with adequate
means to retain and attract quality directors, officers and key employees through the granting
of equity incentives. As of December 31, 2007, the Company had 3.0 million shares available
for issuance under the 2008 Stock Incentive Plan and 0.2 million shares available for issuance
under the Non-Employee Directors’ Compensation Plan.
15. EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share”
(“SFAS 128”), basic earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding during the year.
Diluted earnings per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the entity. For
the Company, diluted earnings per share is computed by dividing net income available to common
stockholders as adjusted, by the weighted average number of common shares after considering
the additional dilution related to convertible subordinated notes, restricted common stock
plans, and stock options and warrants.
A reconciliation of the numerator and denominator of the basic earnings per share computation
to the numerator and denominator of the diluted earnings per share computation is as follows
(in thousands, except per share data):
F-34
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
NUMERATOR
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
132,515 |
|
|
$ |
104,661 |
|
|
$ |
50,003 |
|
Income from discontinued operations, net of taxes |
|
|
858 |
|
|
|
578 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
133,373 |
|
|
$ |
105,239 |
|
|
$ |
50,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
132,515 |
|
|
$ |
104,661 |
|
|
$ |
50,003 |
|
Interest expense applicable to convertible notes, net
of taxes |
|
|
— |
|
|
|
— |
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
Diluted income from continuing operations |
|
|
132,515 |
|
|
|
104,661 |
|
|
|
50,132 |
|
Income from discontinued operations, net of taxes |
|
|
858 |
|
|
|
578 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income |
|
$ |
133,373 |
|
|
$ |
105,239 |
|
|
$ |
50,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
122,553 |
|
|
|
119,714 |
|
|
|
115,426 |
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
122,553 |
|
|
|
119,714 |
|
|
|
115,426 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants |
|
|
2,480 |
|
|
|
3,018 |
|
|
|
3,448 |
|
Convertible notes |
|
|
— |
|
|
|
— |
|
|
|
1,632 |
|
Restricted stock-based compensation |
|
|
348 |
|
|
|
326 |
|
|
|
340 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and assumed conversions |
|
|
125,381 |
|
|
|
123,058 |
|
|
|
120,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.08 |
|
|
$ |
0.88 |
|
|
$ |
0.43 |
|
Income from discontinued operations, net of taxes |
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.09 |
|
|
$ |
0.88 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.05 |
|
|
$ |
0.86 |
|
|
$ |
0.42 |
|
Income from discontinued operations, net of taxes |
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.06 |
|
|
$ |
0.86 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
16. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
General. The nature of the Company’s business results in claims and litigation alleging
that it is liable for damages arising from the conduct of its employees, inmates, or others.
The nature of such claims include, but is not limited to, claims arising from employee or
inmate misconduct, medical malpractice, employment matters, property loss, contractual claims,
and personal injury or other damages resulting from contact with the Company’s facilities,
personnel or prisoners, including damages arising from a prisoner’s escape or from a
disturbance or riot at a facility. The Company maintains insurance to cover many of these
claims, which may mitigate the risk that any single claim would have a material effect on the
Company’s consolidated financial position, results of operations, or cash flows, provided the
claim is one for which coverage is available. The combination of self-insured retentions and
deductible amounts means that, in the aggregate, the Company is subject to substantial
self-insurance risk.
The Company records litigation reserves related to certain matters for which it is
probable that a loss has been incurred and the range of such loss can be estimated. Based
upon management’s review of the potential claims and outstanding litigation and based upon
management’s experience and history of estimating losses, management believes a loss in excess
of amounts already
F-35
recognized would not be material to the Company’s financial statements. In the opinion of
management, there are no pending legal proceedings that would have a material effect on the
Company’s consolidated financial position, results of operations, or cash flows. Any
receivable for insurance recoveries is recorded separately from the corresponding litigation
reserve, and only if recovery is determined to be probable. Adversarial proceedings and
litigation are, however, subject to inherent uncertainties, and unfavorable decisions and
rulings could occur which could have a material adverse impact on the Company’s consolidated
financial position, results of operations, or cash flows for the period in which such
decisions or rulings occur, or future periods. Expenses associated with legal proceedings may
also fluctuate from quarter to quarter based on changes in the Company’s assumptions, new
developments, or by the effectiveness of the Company’s litigation and settlement strategies.
Insurance Contingencies
Each of the Company’s management contracts and the statutes of certain states require the
maintenance of insurance. The Company maintains various insurance policies including employee
health, workers’ compensation, automobile liability, and general liability insurance. These
policies are fixed premium policies with various deductible amounts that are self-funded by
the Company. Reserves are provided for estimated incurred claims for which it is probable
that a loss has been incurred and the range of such loss can be estimated.
Guarantees
Hardeman County Correctional Facilities Corporation (“HCCFC”) is a nonprofit, mutual benefit
corporation organized under the Tennessee Nonprofit Corporation Act to purchase, construct,
improve, equip, finance, own and manage a detention facility located in Hardeman County,
Tennessee. HCCFC was created as an instrumentality of Hardeman County to implement the
County’s incarceration agreement with the state of Tennessee to house certain inmates.
During 1997, HCCFC issued $72.7 million of revenue bonds, which were primarily used for the
construction of a 2,016-bed medium security correctional facility. In addition, HCCFC entered
into a construction and management agreement with the Company in order to assure the timely
and coordinated acquisition, construction, development, marketing and operation of the
correctional facility.
HCCFC leases the correctional facility to Hardeman County in exchange for all revenue from the
operation of the facility. HCCFC has, in turn, entered into a management agreement with the
Company for the correctional facility.
In connection with the issuance of the revenue bonds, the Company is obligated, under a debt
service deficit agreement, to pay the trustee of the bond’s trust indenture (the “Trustee”)
amounts necessary to pay any debt service deficits consisting of principal and interest
requirements (outstanding principal balance of $48.8 million at December 31, 2007 plus future
interest payments), if there is any default. In addition, in the event the state of
Tennessee, which is currently utilizing the facility to house certain inmates, exercises its
option to purchase the correctional facility, the Company is also obligated to pay the
difference between principal and interest owed on the bonds on the date set for the redemption
of the bonds and amounts paid by the state of Tennessee for the facility plus all other funds
on deposit with the Trustee and available for redemption of the bonds. Ownership of the
facility reverts to the state of Tennessee in 2017 at no cost. Therefore, the Company does
not currently believe the state of Tennessee will exercise its option to purchase the
facility. At December 31, 2007, the outstanding principal balance of the bonds exceeded the
purchase price option by $12.5 million. During June 2007, the Company’s
F-36
restricted cash account previously held as collateral for the forward purchase agreement was
released and the Company was able to transfer the restricted cash balance to operating cash.
Retirement Plan
All employees of the Company are eligible to participate in the Corrections Corporation of
America 401(k) Savings and Retirement Plan (the “Plan”) upon reaching age 18 and completing
one year of qualified service. Eligible employees may contribute up to 90% of their eligible
compensation subject to IRS limitations. For the years ended December 31, 2007, 2006, and
2005, the Company provided a discretionary matching contribution equal to 100% of the
employee’s contributions up to 5% of the employee’s eligible compensation to employees with at
least one thousand hours of employment in the plan year, and who were employed by the Company
on the last day of the plan year. Employer contributions and investment earnings or losses
thereon become vested 20% after two years of service, 40% after three years of service, 80%
after four years of service, and 100% after five or more years of service.
During the years ended December 31, 2007, 2006, and 2005, the Company’s discretionary
contributions to the Plan, net of forfeitures, were $8.2 million, $7.5 million, and $6.8
million, respectively.
Deferred Compensation Plans
During 2002, the compensation committee of the board of directors approved the Company’s
adoption of two non-qualified deferred compensation plans (the “Deferred Compensation Plans”)
for non-employee directors and for certain senior executives. The Deferred Compensation Plans
are unfunded plans maintained for the purpose of providing the Company’s directors and certain
of its senior executives the opportunity to defer a portion of their compensation. Under the
terms of the Deferred Compensation Plans, certain senior executives may elect to contribute on
a pre-tax basis up to 50% of their base salary and up to 100% of their cash bonus, and
non-employee directors may elect to contribute on a pre-tax basis up to 100% of their director
retainer and meeting fees. The Company matches 100% of employee contributions up to 5% of
total cash compensation. The Company also contributes a fixed rate of return on balances in
the Deferred Compensation Plans, determined at the beginning of each plan year. Matching
contributions and investment earnings thereon vest over a three-year period from the date of
each contribution. Vesting provisions of the Plan were amended effective January 1, 2005 to
conform with the vesting provisions of the Company’s 401(k) Plan for all matching
contributions beginning in 2005. Distributions are generally payable no earlier than five
years subsequent to the date an individual becomes a participant in the Plan, or upon
termination of employment (or the date a director ceases to serve as a director of the
Company), at the election of the participant, but not later than the fifteenth day of the
month following the month the individual attains age 65.
During 2007, 2006 and 2005, the Company provided a fixed return of 7.5% for each year to
participants in the Deferred Compensation Plans. The Company has purchased life insurance
policies on the lives of certain employees of the Company, which are intended to fund
distributions from the Deferred Compensation Plans. The Company is the sole beneficiary of
such policies. At the inception of the Deferred Compensation Plans, the Company established
an irrevocable Rabbi Trust to secure the plans’ obligations. However, assets in the Deferred
Compensation Plans are subject to creditor claims in the event of bankruptcy. During 2007,
2006 and 2005, the Company recorded $365,000, $256,000 and $194,000, respectively, of matching
contributions as general and administrative expense associated with the Deferred Compensation
Plans. As of December 31, 2007 and 2006, the Company’s liability related to the Deferred
Compensation Plans was $5.1
F-37
million and $3.6 million, respectively, which was reflected in accounts payable and accrued
expenses and other liabilities in the accompanying balance sheets.
Employment and Severance Agreements
The Company currently has employment agreements with several of its executive officers, which
provide for the payment of certain severance amounts upon termination of employment under
certain circumstances or a change of control, as defined in the agreements.
17. SEGMENT REPORTING
As of December 31, 2007, the Company owned and managed 41 correctional and detention
facilities, and managed 24 correctional and detention facilities it does not own. Management
views the Company’s operating results in two reportable segments: owned and managed
correctional and detention facilities and managed-only correctional and detention facilities.
The accounting policies of the reportable segments are the same as those described in Note 2.
Owned and managed facilities include the operating results of those facilities owned and
managed by the Company. Managed-only facilities include the operating results of those
facilities owned by a third party and managed by the Company. The Company measures the
operating performance of each facility within the above two reportable segments, without
differentiation, based on facility contribution. The Company defines facility contribution as
a facility’s operating income or loss from operations before interest, taxes, goodwill
impairment, depreciation and amortization. Since each of the Company’s facilities within the
two reportable segments exhibit similar economic characteristics, provide similar services to
governmental agencies, and operate under a similar set of operating procedures and regulatory
guidelines, the facilities within the identified segments have been aggregated and reported as
one reportable segment.
The revenue and facility contribution for the reportable segments and a reconciliation to the
Company’s operating income is as follows for the three years ended December 31, 2007, 2006,
and 2005 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
$ |
1,097,948 |
|
|
$ |
960,543 |
|
|
$ |
840,800 |
|
Managed-only |
|
|
362,407 |
|
|
|
345,507 |
|
|
|
327,740 |
|
|
|
|
|
|
|
|
|
|
|
Total management revenue |
|
|
1,460,355 |
|
|
|
1,306,050 |
|
|
|
1,168,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
|
723,995 |
|
|
|
652,740 |
|
|
|
598,786 |
|
Managed-only |
|
|
311,659 |
|
|
|
294,790 |
|
|
|
273,199 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,035,654 |
|
|
|
947,530 |
|
|
|
871,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
|
373,953 |
|
|
|
307,803 |
|
|
|
242,014 |
|
Managed-only |
|
|
50,748 |
|
|
|
50,717 |
|
|
|
54,541 |
|
|
|
|
|
|
|
|
|
|
|
Total facility contribution |
|
|
424,701 |
|
|
|
358,520 |
|
|
|
296,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other revenue |
|
|
18,482 |
|
|
|
18,091 |
|
|
|
17,361 |
|
Other operating expense |
|
|
(22,396 |
) |
|
|
(20,797 |
) |
|
|
(21,357 |
) |
General and administrative expense |
|
|
(74,399 |
) |
|
|
(63,593 |
) |
|
|
(57,053 |
) |
Depreciation and amortization |
|
|
(78,514 |
) |
|
|
(67,236 |
) |
|
|
(59,460 |
) |
Goodwill impairment |
|
|
(1,574 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
266,300 |
|
|
$ |
224,985 |
|
|
$ |
176,046 |
|
|
|
|
|
|
|
|
|
|
|
F-38
The following table summarizes capital expenditures for the reportable segments for the
years ended December 31, 2007, 2006, and 2005 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
$ |
344,284 |
|
|
$ |
126,819 |
|
|
$ |
90,515 |
|
Managed-only |
|
|
11,037 |
|
|
|
19,836 |
|
|
|
5,082 |
|
Corporate and other |
|
|
17,838 |
|
|
|
19,656 |
|
|
|
19,292 |
|
Discontinued operations |
|
|
3 |
|
|
|
100 |
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
373,162 |
|
|
$ |
166,411 |
|
|
$ |
115,095 |
|
|
|
|
|
|
|
|
|
|
|
The assets for the reportable segments are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
Assets: |
|
|
|
|
|
|
|
|
Owned and managed |
|
$ |
2,105,857 |
|
|
$ |
1,792,348 |
|
Managed-only |
|
|
121,599 |
|
|
|
118,032 |
|
Corporate and other |
|
|
258,284 |
|
|
|
339,468 |
|
Discontinued operations |
|
|
— |
|
|
|
1,012 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,485,740 |
|
|
$ |
2,250,860 |
|
|
|
|
|
|
|
|
18. SUBSEQUENT EVENTS
During
February 2008, the Company issued 265,000 shares of restricted common stock to the
Company’s employees, with an aggregate value of $7.1 million. Unless earlier vested under the
terms of the restricted stock, 136,000 shares issued to officers and executive officers are
subject to vesting over a three year period based upon satisfaction of certain performance
criteria for the fiscal years ending December 31, 2008, 2009 and 2010. No more than one third
of such shares may vest in the first performance period; however, the performance criteria are
cumulative for the three year period. Unless earlier vested under the terms of the restricted
stock, the remaining 129,000 shares of restricted stock issued to certain other employees of
the Company vest during 2011.
19. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly financial information for each of the quarters in the years ended December
31, 2007 and 2006 is as follows (in thousands, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
| |
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
Revenue (1) |
|
$ |
350,536 |
|
|
$ |
362,391 |
|
|
$ |
379,526 |
|
|
$ |
386,384 |
|
Operating income (1) |
|
|
65,863 |
|
|
|
65,453 |
|
|
|
66,190 |
|
|
|
68,794 |
|
Income from discontinued
operations, net of taxes (1) |
|
|
208 |
|
|
|
208 |
|
|
|
216 |
|
|
|
226 |
|
Net income |
|
|
32,570 |
|
|
|
32,602 |
|
|
|
33,255 |
|
|
|
34,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.27 |
|
|
$ |
0.27 |
|
|
$ |
0.27 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.26 |
|
|
$ |
0.26 |
|
|
$ |
0.26 |
|
|
$ |
0.28 |
|
(1) The amounts presented for the first three quarters of 2007 are not equal to the same
amounts previously reported in Form 10-Q for each period as a result of discontinued
operations. Below is reconciliation to the amounts previously reported in Form 10-Q:
F-39
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
|
|
| |
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
|
|
Total revenue previously reported |
|
$ |
350,915 |
|
|
$ |
362,770 |
|
|
$ |
379,920 |
|
|
|
|
|
Discontinued operations |
|
|
(379 |
) |
|
|
(379 |
) |
|
|
(394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised total revenue |
|
$ |
350,536 |
|
|
$ |
362,391 |
|
|
$ |
379,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income previously reported |
|
$ |
66,197 |
|
|
$ |
65,786 |
|
|
$ |
66,538 |
|
|
|
|
|
Discontinued operations |
|
|
(334 |
) |
|
|
(333 |
) |
|
|
(348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised operating income |
|
$ |
65,863 |
|
|
$ |
65,453 |
|
|
$ |
66,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
Additional
discontinued operations subsequent to the respective reporting period |
|
|
208 |
|
|
|
208 |
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the respective reporting period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised income from discontinued
operations, net of taxes |
|
$ |
208 |
|
|
$ |
208 |
|
|
$ |
216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
| |
|
2006 |
|
|
2006 |
|
|
2006 |
|
|
2006 |
|
Revenue (2) |
|
$ |
314,264 |
|
|
$ |
324,528 |
|
|
$ |
337,556 |
|
|
$ |
347,793 |
|
Operating income (2) |
|
|
49,604 |
|
|
|
54,880 |
|
|
|
56,084 |
|
|
|
64,417 |
|
Income from discontinued
operations, net of taxes (2) |
|
|
186 |
|
|
|
151 |
|
|
|
91 |
|
|
|
150 |
|
Net income |
|
|
21,329 |
|
|
|
25,628 |
|
|
|
26,130 |
|
|
|
32,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.18 |
|
|
$ |
0.21 |
|
|
$ |
0.22 |
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.17 |
|
|
$ |
0.21 |
|
|
$ |
0.21 |
|
|
$ |
0.26 |
|
(2) The amounts presented for the four quarters of 2006 are not equal to the same amounts
previously reported in the respective reports on Form 10-Q and Form 10-K for each period as
a result of discontinued operations. Below is reconciliation to the amounts previously
reported:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
| |
|
2006 |
|
|
2006 |
|
|
2006 |
|
|
2006 |
|
Total revenue previously reported |
|
$ |
314,628 |
|
|
$ |
324,892 |
|
|
$ |
337,935 |
|
|
$ |
349,587 |
|
Discontinued operations |
|
|
(364 |
) |
|
|
(364 |
) |
|
|
(379 |
) |
|
|
(1,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised total revenue |
|
$ |
314,264 |
|
|
$ |
324,528 |
|
|
$ |
337,556 |
|
|
$ |
347,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income previously reported |
|
$ |
49,923 |
|
|
$ |
55,198 |
|
|
$ |
56,417 |
|
|
$ |
64,681 |
|
Discontinued operations |
|
|
(319 |
) |
|
|
(318 |
) |
|
|
(333 |
) |
|
|
(264 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised operating income |
|
$ |
49,604 |
|
|
$ |
54,880 |
|
|
$ |
56,084 |
|
|
$ |
64,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
$ |
(15 |
) |
|
$ |
(50 |
) |
|
$ |
(118 |
) |
|
$ |
— |
|
Additional discontinued operations subsequent
to the respective reporting period |
|
|
201 |
|
|
|
201 |
|
|
|
209 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revised income from discontinued
operations, net of taxes |
|
$ |
186 |
|
|
$ |
151 |
|
|
$ |
91 |
|
|
$ |
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40