e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
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o |
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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)
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MARYLAND |
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62-1763875 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
10 BURTON HILLS BLVD., NASHVILLE, TENNESSEE 37215
(Address and zip code of principal executive office)
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 263-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of each class |
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Name of each exchange on which registered |
Common Stock, $.01 par value per share |
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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 whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o 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 registrants 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, a non-accelerated filer, or a smaller reporting company. See the definitions
of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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 registrants Common Stock held by non-affiliates
was approximately $1,886,384,426 as of June 30, 2009, based on the closing price of such shares on
the New York Stock Exchange on that day. The number of shares of the registrants Common Stock
outstanding on February 18, 2010 was 115,985,414.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrants definitive Proxy Statement for the 2010 Annual Meeting of
Stockholders, currently scheduled to be held on May 13, 2010, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
CORRECTIONS CORPORATION OF AMERICA
FORM 10-K
For the fiscal year ended December 31, 2009
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:
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general economic and market conditions, including the impact governmental budgets can
have on our per diem rates and occupancy; |
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fluctuations in our operating results because of, among other things, changes in
occupancy levels, competition, increases in costs of operations, fluctuations in interest
rates and risks of operations; |
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changes in the privatization of the corrections and detention industry and the public
acceptance of our services; |
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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; |
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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; |
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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; and |
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the availability of debt and equity financing on terms that are favorable to us. |
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
3
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 report, including in Managements 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 nations 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 and detention facilities, including 44
facilities that we own, with a total design capacity of approximately 87,000 beds in 19 states and
the District of Columbia. We are also constructing an additional 1,072-bed correctional facility
under a contract awarded by the Office of Federal Detention Trustee (OFDT) in Pahrump, Nevada,
which is currently expected to be completed during the third quarter of 2010. We also own two
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 amendments to those 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, 2009, 2008, and 2007, federal correctional and detention authorities
represented 39%, 40%, and 41%, 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 immediately following an expansion. However, beyond the
start-up period, which typically ranges from 90 to 180 days, the occupancy rate tends to stabilize.
For the years 2009, 2008, and 2007, the average compensated occupancy of our facilities, based on
rated capacity, was
90.7%, 95.5%, and 98.2%, respectively, for all of the facilities we owned or managed, exclusive of
facilities where operations have been discontinued.
5
As of December 31, 2009, we had approximately 9,900 unoccupied beds in inventory at facilities that
had availability of 100 or more beds, and almost 2,600 additional beds under development. Of those,
6,000 beds are under guaranteed contracts with existing customers, leaving us with 6,500 beds
available. Although the demand for prison beds in the short term has been, and could continue to
be, affected by the severe budget challenges many of our customers currently face, these challenges
put further pressure on our customers ability to construct new prison beds of their own, which we
believe could result in further reliance on the private sector for providing the capacity we
believe our customers will need in the long term.
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 of our operations and, in certain cases, to maintain performance
bonds and other collateral requirements. Approximately 91% of the facilities we operated at
December 31, 2009 were accredited by the American Correctional Association Commission on
Accreditation. The American Correctional Association, or 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 industrys most widely accepted
operational guidelines. Our facilities not only operate under these established standards (we have
sought and received accreditation for 59 of the facilities we operated as of December 31, 2009) 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.
6
Our Quality Assurance Department independently operates under the auspices of, and reports directly
to, the Companys 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. Routinely, these two audit teams conduct rigorous, on site annual
evaluations of each facility we operate with no advance notice. Highly specialized, discipline
specific audit tools, containing over 1,700 audited items across eleven major operational areas,
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, 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. During the years ended December 31, 2009, 2008,
and 2007, TransCor generated total consolidated revenue of $4.0 million, $6.9 million, and $14.2
million, respectively, comprising 0.2%, 0.4%, and 1.0% of our total consolidated revenue in each
respective year. We believe TransCor provides a complementary service to our core business that
enables us to respond quickly 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:
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Correctional Facilities. Correctional facilities house and provide contractually agreed
upon programs and services to sentenced adult prisoners, typically prisoners on whom a
sentence in excess of one year has been imposed. |
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Detention Facilities. Detention facilities house and provide contractually agreed upon
programs and services to (i) prisoners being detained by 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 |
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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. |
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Leased Facilities. Leased facilities are facilities that are within one of the above
categories and that we own but do not manage. These facilities are leased to third-party
operators. |
Facilities and Facility Management Contracts
We own 46 correctional and detention facilities in 14 states and the District of Columbia, two of
which we lease to third-party operators. We also own two corporate office buildings. Additionally,
we currently manage 21 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 that 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 2010 (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.
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Design |
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Facility |
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Remaining Renewal |
Facility Name |
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Customer |
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Capacity (A) |
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Security Level |
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Type (B) |
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Term |
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Options (C) |
Owned and Managed Facilities: |
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Central Arizona Detention Center
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USMS |
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2,304 |
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Multi |
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Detention |
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September 2013 |
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(3) 5 year |
Florence, Arizona |
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Eloy Detention Center
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ICE |
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1,500 |
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Medium |
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Detention |
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Indefinite |
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Eloy, Arizona |
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Florence Correctional Center
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State of California |
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1,824 |
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Multi |
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Correctional |
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June 2011 |
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Indefinite |
Florence, Arizona |
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La Palma Correctional Center
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State of California |
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3,060 |
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Medium |
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Correctional |
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June 2011 |
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Indefinite |
Eloy, Arizona |
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Red Rock Correctional Center
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State of California |
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1,596 |
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Medium |
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Correctional |
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June 2011 |
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Indefinite |
Eloy, Arizona |
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Saguaro Correctional Facility
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State of Hawaii |
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1,896 |
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Medium |
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Correctional |
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June 2011 |
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Eloy, Arizona |
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California City Correctional Center (D) |
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BOP |
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2,304 |
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Medium |
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Correctional |
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September 2010 |
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California City, California |
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San Diego Correctional Facility (E) |
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ICE |
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1,154 |
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Minimum/ |
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Detention |
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June 2011 |
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(4) 3 year |
San Diego, California |
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Medium |
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Bent County Correctional Facility
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State of Colorado |
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1,420 |
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Medium |
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Correctional |
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June 2010 |
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Las Animas, Colorado |
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Crowley County Correctional Facility |
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State of Colorado |
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1,794 |
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Medium |
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Correctional |
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June 2010 |
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Olney Springs, Colorado |
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Huerfano County Correctional Center (F) |
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State of Arizona |
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752 |
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Medium |
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Correctional |
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March 2010 |
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Walsenburg, Colorado |
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Primary |
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Design |
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Facility |
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Remaining Renewal |
Facility Name |
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Customer |
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Capacity (A) |
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Security Level |
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Type (B) |
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Term |
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Options (C) |
Kit Carson Correctional Center
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State of Colorado |
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1,488 |
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Medium |
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Correctional |
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June 2010 |
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Burlington, Colorado |
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Coffee Correctional Facility (G)
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State of |
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1,524 |
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Medium |
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Correctional |
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June 2010 |
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(24) 1 year |
Nicholls, Georgia |
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Georgia |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McRae Correctional Facility
|
|
BOP |
|
|
1,524 |
|
|
Medium |
|
Correctional |
|
November 2010 |
|
(2) 1 year |
McRae, Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stewart Detention Center
|
|
ICE |
|
|
1,752 |
|
|
Medium |
|
Detention |
|
Indefinite |
|
|
|
|
Lumpkin, Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wheeler Correctional Facility (G)
|
|
State of |
|
|
1,524 |
|
|
Medium |
|
Correctional |
|
June 2010 |
|
(24) 1 year |
Alamo, Georgia |
|
Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leavenworth Detention Center
|
|
USMS |
|
|
1,033 |
|
|
Maximum |
|
Detention |
|
December 2011 |
|
(3) 5 year |
Leavenworth, Kansas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lee Adjustment Center
|
|
State of Vermont |
|
|
816 |
|
|
Minimum/ |
|
Correctional |
|
June 2011 |
|
|
|
|
Beattyville, Kentucky |
|
|
|
|
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marion Adjustment Center
|
|
Commonwealth of |
|
|
826 |
|
|
Minimum/ |
|
Correctional |
|
June 2011 |
|
(1) 2 year |
St. Mary, Kentucky |
|
Kentucky |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Otter Creek Correctional Center (H) |
|
Commonwealth of |
|
|
656 |
|
|
Minimum/ |
|
Correctional |
|
June 2010 |
|
(1) 1 year |
Wheelwright, Kentucky |
|
Kentucky |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
(2) 2 year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prairie Correctional Facility (I)
|
|
State of Minnesota |
|
|
1,600 |
|
|
Medium |
|
Correctional |
|
March 2010 |
|
|
|
|
Appleton, Minnesota |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adams County Correctional Center
|
|
BOP |
|
|
2,232 |
|
|
Medium |
|
Correctional |
|
July 2013 |
|
(3) 2 year |
Adams County, Mississippi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tallahatchie County Correctional |
|
State of |
|
|
2,672 |
|
|
Medium |
|
Correctional |
|
June 2011 |
|
Indefinite |
Facility (J) |
|
California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tutwiler, Mississippi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossroads Correctional Center (K) |
|
State of Montana |
|
|
664 |
|
|
Multi |
|
Correctional |
|
August 2009 |
|
(5) 2 year |
Shelby, Montana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cibola County Corrections Center |
|
BOP |
|
|
1,129 |
|
|
Medium |
|
Correctional |
|
September 2014 |
|
(3) 2 year |
Milan, New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Mexico Womens Correctional |
|
State of |
|
|
596 |
|
|
Multi |
|
Correctional |
|
June 2010 |
|
|
|
|
Facility |
|
New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants, New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Torrance County Detention Facility |
|
USMS |
|
|
910 |
|
|
Multi |
|
Detention |
|
Indefinite |
|
|
|
|
Estancia, New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast Ohio Correctional Center |
|
BOP |
|
|
2,016 |
|
|
Medium |
|
Correctional |
|
May 2011 |
|
(2) 2 year |
Youngstown, Ohio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Queensgate Correctional Facility (L) |
|
|
|
|
|
|
850 |
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
Cincinnati, Ohio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cimarron Correctional Facility (M) |
|
State of Oklahoma |
|
|
1,692 |
|
|
Medium |
|
Correctional |
|
June 2010 |
|
(4) 1 year |
Cushing, Oklahoma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Davis Correctional Facility (M) |
|
State of Oklahoma |
|
|
1,670 |
|
|
Medium |
|
Correctional |
|
June 2010 |
|
(4) 1 year |
Holdenville, Oklahoma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary |
|
Design |
|
|
|
Facility |
|
|
|
|
|
Remaining Renewal |
Facility Name |
|
Customer |
|
Capacity (A) |
|
Security Level |
|
Type (B) |
|
Term |
|
Options (C) |
Diamondback Correctional Facility |
|
State of |
|
|
2,160 |
|
|
Medium |
|
Correctional |
|
May 2010 |
|
(2) 1 year |
Watonga, Oklahoma |
|
Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Fork Correctional Facility |
|
State of California |
|
|
2,400 |
|
|
Medium |
|
Correctional |
|
June 2011 |
|
Indefinite |
Sayre, Oklahoma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Tennessee Detention Facility |
|
USMS |
|
|
600 |
|
|
Multi |
|
Detention |
|
February 2010 |
|
|
|
|
Mason, Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shelby Training Center |
|
|
|
|
|
|
200 |
|
|
Secure |
|
|
|
|
|
|
|
|
|
|
|
|
Memphis, Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Whiteville Correctional Facility (N) |
|
State of |
|
|
1,536 |
|
|
Medium |
|
Correctional |
|
September 2010 |
|
(1) 1 year |
Whiteville, Tennessee |
|
Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeport Pre-Parole Transfer Facility |
|
State of
Texas |
|
|
200 |
|
|
Medium |
|
Correctional |
|
February 2011 |
|
|
|
|
Bridgeport, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eden Detention Center |
|
BOP |
|
|
1,422 |
|
|
Medium |
|
Correctional |
|
April 2011 |
|
(3) 2 year |
Eden, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Processing Center |
|
ICE |
|
|
1,000 |
|
|
Medium |
|
Detention |
|
March 2010 |
|
(4) 1 year |
Houston, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laredo Processing Center |
|
ICE |
|
|
258 |
|
|
Minimum/ |
|
Detention |
|
Indefinite |
|
|
|
|
Laredo, Texas |
|
|
|
|
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Webb County Detention Center |
|
USMS |
|
|
480 |
|
|
Medium |
|
Detention |
|
November 2012 |
|
(1) 5 year |
Laredo, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral Wells Pre-Parole Transfer |
|
State of |
|
|
2,103 |
|
|
Minimum |
|
Correctional |
|
February 2011 |
|
|
|
|
Facility |
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral Wells, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T. Don Hutto Residential Center |
|
ICE |
|
|
512 |
|
|
Minimum |
|
Detention |
|
January 2015 |
|
|
|
|
Taylor, Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D.C.
Correctional Treatment Facility (O) |
|
District of Columbia |
|
|
1,500 |
|
|
Medium |
|
Detention |
|
March 2017 |
|
|
|
|
Washington, D.C. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Only Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bay Correctional Facility |
|
State of |
|
|
985 |
|
|
Medium |
|
Correctional |
|
July 2010 |
|
Indefinite |
Panama City, Florida |
|
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 |
|
July 2010 |
|
Indefinite |
Quincy, Florida |
|
Florida |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hernando County Jail |
|
Hernando County, |
|
|
876 |
|
|
Multi |
|
Detention |
|
October 2012 |
|
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|
Brooksville, Florida |
|
Florida |
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10
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Primary |
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Design |
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Facility |
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Remaining Renewal |
Facility Name |
|
Customer |
|
Capacity (A) |
|
Security Level |
|
Type (B) |
|
Term |
|
Options (C) |
Lake City Correctional Facility |
|
State of |
|
|
893 |
|
|
Secure |
|
Correctional |
|
June 2012 |
|
Indefinite |
Lake City, Florida |
|
Florida |
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|
North Georgia Detention Center |
|
ICE |
|
|
502 |
|
|
Medium |
|
Detention |
|
May 2014 |
|
Indefinite |
Hall County, Georgia |
|
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|
Idaho Correctional Center |
|
State of |
|
|
2,016 |
|
|
Multi |
|
Correctional |
|
June 2014 |
|
(2) 2 year |
Boise, Idaho |
|
Idaho |
|
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|
Marion County Jail |
|
Marion County, |
|
|
1,030 |
|
|
Multi |
|
Detention |
|
December 2017 |
|
(1) 10 year |
Indianapolis, Indiana |
|
Indiana |
|
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|
Winn Correctional Center |
|
State of |
|
|
1,538 |
|
|
Medium/ |
|
Correctional |
|
March 2011 |
|
|
|
|
Winnfield, Louisiana |
|
Louisiana |
|
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|
Maximum |
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|
Delta Correctional Facility |
|
State of |
|
|
1,172 |
|
|
Minimum/ |
|
Correctional |
|
July 2010 |
|
|
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|
Greenwood, Mississippi |
|
Mississippi |
|
|
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Medium |
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|
Wilkinson County Correctional |
|
State of |
|
|
1,000 |
|
|
Medium |
|
Correctional |
|
July 2010 |
|
|
|
|
Facility
Woodville, Mississippi |
|
Mississippi |
|
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|
Elizabeth Detention Center |
|
ICE |
|
|
300 |
|
|
Minimum |
|
Detention |
|
September 2011 |
|
(4) 3 year |
Elizabeth, New Jersey |
|
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|
|
|
Silverdale Facilities |
|
Hamilton |
|
|
1,046 |
|
|
Multi |
|
Detention |
|
December 2010 |
|
|
|
|
Chattanooga, Tennessee |
|
County,
Tennessee |
|
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|
South Central Correctional Center |
|
State of |
|
|
1,676 |
|
|
Medium |
|
Correctional |
|
June 2010 |
|
(1) 2 year |
Clifton, Tennessee |
|
Tennessee |
|
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|
|
|
|
Metro-Davidson County Detention |
|
Davidson |
|
|
1,092 |
|
|
Multi |
|
Detention |
|
July 2014 |
|
|
|
|
Facility |
|
County, |
|
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|
Nashville, Tennessee |
|
Tennessee |
|
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|
|
|
|
Hardeman County Correctional |
|
State of |
|
|
2,016 |
|
|
Medium |
|
Correctional |
|
May 2012 |
|
(2) 3 year |
Facility
Whiteville, Tennessee |
|
Tennessee |
|
|
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|
|
|
|
Bartlett State Jail |
|
State of |
|
|
1,049 |
|
|
Minimum/ |
|
Correctional |
|
January 2011 |
|
|
|
|
Bartlett, Texas |
|
Texas |
|
|
|
|
|
Medium |
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|
|
|
|
Bradshaw State Jail |
|
State of |
|
|
1,980 |
|
|
Minimum/ |
|
Correctional |
|
January 2011 |
|
|
|
|
Henderson, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
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|
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|
|
|
|
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|
|
|
|
|
|
|
Dawson State Jail |
|
State of |
|
|
2,216 |
|
|
Minimum/ |
|
Correctional |
|
January 2011 |
|
|
|
|
Dallas, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindsey State Jail |
|
State of |
|
|
1,031 |
|
|
Minimum/ |
|
Correctional |
|
January 2011 |
|
|
|
|
Jacksboro, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Willacy State Jail |
|
State of |
|
|
1,069 |
|
|
Minimum/ |
|
Correctional |
|
January 2011 |
|
|
|
|
Raymondville, Texas |
|
Texas |
|
|
|
|
|
Medium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Leo Chesney Correctional Center |
|
Cornell |
|
|
240 |
|
|
Minimum |
|
Owned/Leased |
|
September 2010 |
|
|
|
|
Live Oak, California |
|
Corrections |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Education Partners (P) |
|
Community |
|
|
|
|
|
Non-secure |
|
Owned/Leased |
|
June 2011 |
|
(2) 1 year |
Houston, Texas |
|
Education 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 |
11
|
|
|
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, 2009. 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. |
|
|
(D) |
|
During January 2010, we were notified by the BOP of their decision not to renew the
management contract at the California City Correctional Center upon its expiration in
September 30, 2010. |
|
|
(E) |
|
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. For additional information, see Note 4 of
the Notes to the Financial Statements and the Liquidity section of Managements Discussion
and Analysis of Financial Condition and Results of Operations. |
|
|
(F) |
|
During January 2010, we were notified by the state of Arizona of their decision not to
renew the management contract at the Huerfano County Correctional Center upon its
expiration on March 8, 2010. |
|
|
(G) |
|
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 facilitys depreciated book value or fair market value at any time during the
term of the contract between the GDOC and us. |
|
|
(H) |
|
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. |
|
|
(I) |
|
During December 2009, we announced our decision to cease operations at our Prairie
Correctional Facility on or about February 1, 2010 due to low inmate populations at the
facility. During 2009, the Prairie facility housed offenders from the states of Minnesota
and Washington. However, due to excess capacity in the states systems, both states have
been reducing the populations held at Prairie. |
|
|
(J) |
|
The facility is subject to a purchase option held by the Tallahatchie County
Correctional Authority that 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.
The amortization period was extended through 2050 in connection with an expansion completed
during the fourth quarter of 2007. |
|
|
(K) |
|
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. |
|
|
(L) |
|
During December 2008, we were notified by Hamilton County, Ohio of its intent to
terminate the lease for the 850-bed Queensgate Correctional Facility. We believe the
County elected to terminate the lease effective January 1, 2009, due to funding issues
experienced by the County. |
|
|
(M) |
|
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. |
|
|
(N) |
|
The state of Tennessee has the option to purchase the facility in the event of our
bankruptcy, or upon an operational breach, as defined, at a price equal to the book value
of the facility, as defined. |
|
|
(O) |
|
The District of Columbia has the right to purchase the facility at any time during the
term of the contract at a price generally equal to the present value of the remaining lease
payments for the premises. Upon expiration of the lease in 2017, ownership of the facility
automatically reverts to the District of Columbia. |
|
|
(P) |
|
The alternative educational facility is currently configured to accommodate 900 at-risk
juveniles and may be expanded to accommodate a total of 1,400 at-risk juveniles. |
Facilities Under Construction or Development
In May 2008, we announced that we were awarded a contract by the OFDT, the federal agency
responsible for managing and regulating federal detention programs, to design, build, and operate a
new correctional facility located in Pahrump, Nevada, approximately 65 miles outside of Las Vegas,
Nevada. Our new 1,072-bed Nevada Southern Detention Center is expected to house approximately 1,000
federal prisoners. The contract provides for a guarantee of up to 750 inmates or detainees and
includes an initial term of five years with three five-year renewal options. We currently expect
construction to be completed during the third quarter of 2010, at an estimated total cost of $83.5
million.
12
In July 2009, we announced that we had been awarded an amendment to our existing contracts with the
Georgia Department of Corrections to expand two of our existing facilities by 1,500 beds. The
award satisfied a competitive Request for Proposal of 1,500 beds from the state of Georgia that was
issued in October of 2008. As of December 31, 2009, we housed approximately 3,400 inmates from the
state of Georgia. As a result of the award, we will expand our 1,524-bed Coffee Correctional
Facility by 788 beds and our 1,524 bed Wheeler Correctional Facility by 712 beds. The expansions
are estimated to cost approximately $65.0 million and are currently anticipated to be completed
during the third quarter of 2010, at which point we expect to begin receiving the incremental
inmates.
In early 2008, we also announced our intention to construct a new 2,040-bed correctional facility
in Trousdale County, Tennessee. However, we have temporarily suspended the construction of this
facility until we have greater clarity around the timing of future bed absorption by our customers.
We will continue to monitor our customers needs, and could promptly resume construction of the
facility.
Business Development
We are currently the nations largest provider of outsourced correctional management services. We
believe we manage approximately 45% 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 39%, 40%, and 41% of total revenue in 2009,
2008, and 2007, respectively. The BOP, USMS, and ICE, along with the State of California Department
of Corrections and Rehabilitation (CDCR), were our only customers that accounted for 10% or more
of our total revenue during these years. The BOP accounted for 13% of total revenue for each of
these years 2009, 2008, and 2007. The USMS accounted for 14%, 14%, and 15% of total revenue for
2009, 2008, and 2007, respectively. ICE accounted for 12%, 13%, and 13% of total revenue for 2009,
2008, and 2007, 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 52%, 52%, and 49% of total
revenue during 2009, 2008, and 2007, respectively, and increased 6.8% from $820.1 million during
2008 to $875.6 million during 2009, as we experienced an increase in demand from the state of
California. The CDCR accounted for 11%, 6%, and 1% of total revenue for 2009, 2008, and 2007,
respectively.
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 a
private
13
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.
Frequently, government agencies responsible for correctional and detention services procure goods
and services through solicitations or competitive procurements. As part of our process of
responding to such requests, members of our management team meet with the appropriate personnel
from the agency making the request to best determine the agencys needs. If the project fits
within our strategy, we submit a written response. A typical solicitation or competitive
procurement 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).
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 industrys leading
private prison operator provides us with significant credibility with our current and prospective
clients. We believe we manage approximately 45% 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 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, 2009, we had approximately 9,900
unoccupied beds in inventory that had availability of 100 or more beds, and almost 2,600 additional
beds under development, including 1,500 expansion beds at two facilities we own in Georgia and a
new 1,072-bed correctional facility we are constructing in Nevada. Of these, 6,000 beds are under
guaranteed contracts with existing customers, leaving us with 6,500 beds available. We have staff
throughout the organization actively engaged in marketing this available capacity to existing and
prospective customers. Historically, we have been successful in substantially filling our inventory
of available beds and the beds that we have constructed. However, we can provide no assurance that
we will be able to obtain new or existing customers to fill our available beds.
Development and Expansion Opportunities. Although the demand for prison beds in the short term
could be affected by the severe budget challenges many of our customers currently face, these
challenges put further pressure on our customers ability to construct new prison beds of their
own, which we believe could result in further reliance on the private sector for providing the
capacity we believe our customers will need in the long term. We will continue to pursue
build-to-suit opportunities like the aforementioned 1,500-bed expansions for the state of Georgia
and the 1,072-bed facility we are
constructing in Nevada for the OFDT. In the long-term, we would like to see continued and
meaningful utilization of our remaining capacity and better visibility from our customers before we
add any additional capacity on a speculative basis.
During December 2008, we completed construction of a new 2,232-bed correctional facility in Adams
County, Mississippi and during 2008 and early 2009 placed into service 3,060 beds at our new La
14
Palma Correctional Center in Eloy, Arizona. The La Palma Correctional Center is being fully
utilized by the state of California. We have recently increased the number of beds under contract
with the State of California at other facilities we own. We commenced receiving federal inmates
from the BOP during the third quarter of 2009 at our Adams County Correctional Center, and expect
the BOP to substantially fill this facility in 2010.
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 teams 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, 2009, we had cash on hand of $45.9 million and $236.2
million available (net of $11.6 million of unfunded borrowings and $1.1 million of letters of
credit issued by Lehman Brothers Commercial Bank, which committed $15.0 million under our revolving
credit facility, declared bankruptcy in 2008, and is no longer funding borrowing requests) under
our $450.0 million revolving credit facility, and no debt maturities until December 2012. During
the year ended December 31, 2009, we generated $314.7 million in cash through operating activities,
and as of December 31, 2009, we had net working capital of $130.7 million. As a well-known
seasoned issuer, as currently defined by the SEC, we have the ability to file a shelf
registration statement that automatically becomes effective enabling us to issue debt and equity
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, 2009, the interest rates on all our outstanding indebtedness were fixed, with the
exception of the interest rate applicable to $171.8 million outstanding under our revolving credit
facility, with a total weighted average effective interest rate of 6.6%, while our total weighted
average debt maturity was 4.9 years. Standard & Poors Ratings Services currently rates our
unsecured debt and corporate credit as BB, while Moodys Investors Service currently rates our
unsecured debt as Ba2. On September 17, 2009, Moodys improved its outlook on our debt rating to
positive from stable.
Business Strategy
Our primary business strategy is to provide quality corrections services, offer a compelling value,
and increase 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 91% of the facilities we operated as of December
31, 2009 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
15
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 25 years of corrections experience and an average tenure of 13 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 and
allowing them to avoid making large capital investments in new prison beds. We attempt to improve
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. Recognizing the challenges we faced as a result of the economic downturn, our efforts to
contain costs were intensified during 2009, as we implemented a company-wide initiative to improve
operating efficiencies, and established a framework for accelerating the process and ensuring
continuous delivery over the long-term. Further, certain states have requested, and additional
state customers could request, reductions in per diem rates or request that we forego prospective
rate increases in the future as methods of addressing the budget shortfalls they may be
experiencing. Accordingly, we established a customer response team to create unique solutions for
our government partners to help them manage their correctional costs while minimizing the financial
impact to us.
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 the number of residents in our care and continue to pursue a number of
initiatives intended to further increase our occupancy and revenue. Our competitive cost structure
offers prospective customers a compelling option for incarceration. The unique budgetary
challenges states are facing may cause states to further rely on us to help reduce their costs, and
also cause those states that have not previously utilized the private sector to turn to the private
sector to help reduce their overall costs of incarceration. We are actively pursuing these
opportunities. We are also focused on renewing and enhancing the terms of our existing contracts.
However, we recognize that the budgetary constraints our state customers are experiencing will
present challenges in obtaining per diem increases and additional inmate populations in the
short-term. Nonetheless, we believe the long-term growth opportunities of our business remain very
attractive as insufficient bed development by our customers should result in a return to the supply
and demand imbalance that has been benefiting the private prison industry.
Capital Strategy
We believe the success of our business strategy and recent financing transactions have provided us
with the financial flexibility to take advantage of various opportunities as they arise. During
2009, 2008, and 2007, we generated cash flow from operating activities of $314.7 million, $273.6
million, and $250.9 million, respectively. During December 2007, we entered into a $450.0 million
senior secured revolving credit facility which, based on our current leverage ratio, currently
bears interest at a base rate or LIBOR plus a margin of 0.75%, and matures in December 2012.
16
During June 2009, we completed the sale and issuance of $465.0 million aggregate principal amount
of 7.75% unsecured senior notes pursuant to a prospectus supplement under an automatically
effective shelf registration statement that we filed with the SEC on May 19, 2009. The 7.75%
senior notes were issued at a price of 97.116%, resulting in a yield to maturity of 8.25%. We used
the net proceeds from the sale of the 7.75% senior notes to purchase, redeem, or otherwise acquire
our 7.5% senior notes, to pay fees and expenses, and for general corporate purposes. Replacing the
7.5% senior notes, which were scheduled to mature on May 1, 2011, with the 7.75% senior notes,
which are scheduled to mature on June 1, 2017, extended our nearest debt maturity to December 2012.
As of December 31, 2009, we had $73.9 million in estimated costs remaining to complete the
aforementioned 1,500-bed expansions of two correctional facilities we own in Georgia, and on
construction of our new 1,072-bed Nevada Southern Detention Center. Further, certain of our
customers have expressed an interest in pursuing additional bed capacity from third parties despite
their budgetary challenges. We believe our debt refinancing provides us with more financial
flexibility to take advantage of opportunities that may require additional capital.
As of December 31, 2009, we had cash on hand of $45.9 million and $236.2 million available under
our revolving credit facility. None of our outstanding debt requires scheduled principal payments,
and we have no debt maturities until December 2012.
In November 2008, our Board of Directors approved a program to repurchase up to $150.0 million of
our common stock through purchases from time to time in the open market or through privately
negotiated transactions, in accordance with SEC requirements. During 2008 and 2009, we purchased
10.7 million shares of common stock under the repurchase program for $125.0 million at an average
price of $11.72 per share. The Boards authorization expired December 31, 2009.
During February 2010, our Board of Directors approved another program to repurchase up to $250.0
million of our common stock through June 30, 2011. Given current market conditions and available
bed capacity within our portfolio, we believe that it is appropriate to use our capital resources
to repurchase common stock at prices that would equal or exceed the rates of return we require when
we invest in new beds. Funds for the repurchase of shares are expected to come primarily from cash
on hand, borrowings under our revolving credit facility, and cash from operating activities. We
believe we have the ability to fund the stock repurchase program as well as our capital expenditure
requirements, including the construction projects under development, maintenance and information
technology capital expenditures, working capital, and debt service requirements with cash on hand,
cash from operating activities, and borrowings available under our revolving credit facility, while
maintaining liquidity.
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, business strategy, and financial
flexibility. Notwithstanding the effects the current economy could have on our customers demand
for prison beds in the short term, we believe the long-term trends favor an increase in the
outsourcing of correctional
management services. The key reasons for this outsourcing trend include (unless otherwise noted,
statistical references were obtained from the Bureau of Justice Statistics Bulletin issued by the
U.S. Department of Justice in December 2009):
Growing United States Prison Population. At year-end 2008, federal and state correctional
authorities had jurisdiction over 1.6 million prisoners. The annual growth rate of the federal and
state prison population increased 0.8% for the year ended December 31, 2008, which was less than
the average annual growth rate of 1.8% from 2000 to 2008. During 2008, the total number of
prisoners under federal jurisdiction increased 0.8%, while state prison populations also increased
0.8%. Federal
17
agencies are collectively our largest customer and accounted for 39% of our total
revenues (when aggregating all of our federal contracts) for the year ended December 31, 2009. The
imprisonment ratethe number of sentenced prisoners per 100,000 residentsdecreased slightly from
506 prisoners per 100,000 U.S. residents in 2007 to 504 prisoners per 100,000 U.S. residents in
2008. About one in every 198 persons in the U.S. resident population was incarcerated in state or
federal prison at year end 2008.
Prison Overcrowding. The significant growth of the prison population in the United States over the
past decade, combined with a lack of new prison capacity constructed by the public sector, has led
to overcrowding in the state and federal prison systems. In 2008, at least 18 states and the
federal prison system reported operating at or above their highest capacity measure. The federal
prison system was operating at 35% above capacity at December 31, 2008.
Acceptance of Privatization. The prisoner population housed in privately managed facilities in the
United States as of December 31, 2008 was approximately 129,000. At December 31, 2008, 16.5% of
federal inmates and 6.8% of state inmates were held in private facilities. Since December 31,
2000, the number of federal inmates held in private facilities has increased approximately 114%,
while the number of state inmates held in private facilities has increased approximately 33%.
Twenty states had at least 5% of their prison population held in private facilities at December 31,
2008. Six states housed at least 25% of their prison population in private facilities as of
December 31, 2008 New Mexico (46%), Montana (36%), Hawaii (35%), Vermont (34%), Alaska (29%),
and Idaho (29%).
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 or debt required to increase correctional capacity. We believe these
advantages translate into significant cost savings for government agencies.
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 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.
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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. We are not aware of any
environmental matters that are expected to materially affect our financial condition or results of
operations; however, if such matters are detected in the future, the costs of complying with
environmental laws may adversely affect our financial condition and results of operations.
Health Insurance Portability and Accountability Act of 1996 and Privacy and Security Requirements
In 1996, Congress enacted the Health Insurance Portability and Accountability Act of 1996,
or HIPAA. HIPAA was 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. These privacy and security 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. Further, as required by the American Recovery and Reinvestment
Act of 2009 (the ARRA), the Department of Health and Human Services (DHHS) issued interim
breach notification regulations requiring HIPAA covered entities and their business associates to
provide notification to affected individuals without unreasonable delay but not to exceed 60 days
of discovery of a breach of unsecured protected health information. Notification must also be made
to DHHS and, in certain situations involving large breaches, to the media.
Violations of the HIPAA regulations could result in significant civil and criminal penalties.
Further, the ARRA provides for minimum penalties as well as increased maximum penalties and
authorizes state
attorneys general to bring civil actions for injunctions or damages in response to violations that
threaten the privacy of state residents.
In addition, there are numerous legislative and regulatory initiatives at the federal and state
levels addressing the privacy and security of patient health information and other identifying
information. For example, various state laws and regulations require providers and other entities
to notify affected individuals in the event of a data breach involving certain types of
individually identifiable health or financial information. Further, health care providers are
subject to many state laws that relate to privacy or the reporting of security breaches that are
more restrictive than the regulations issued under HIPAA and the requirements of the ARRA. These
statutes vary and could impose additional penalties.
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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 lessees 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. We 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, 2009, we employed approximately 17,425 employees. Of such employees,
approximately 360 were employed at our corporate offices and approximately 17,065 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 775
employees at three 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
20
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. The 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.
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 is 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 2009, 2008, and 2007 was 90.7%, 95.5%,
and 98.2%, respectively. Occupancy rates may, however, decrease below these levels in the future.
We are dependent on government appropriations and our results of operations may be negatively
affected by governmental budgetary challenges. 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. During 2009, the state of California delayed payments of cash to us by
issuing interest bearing warrants, also known as IOUs.
Although the state of California ultimately redeemed the warrants for cash, if California were to
resume issuing warrants or if several additional major customers substantially delayed their cash
payments to us, our liquidity could be materially affected. In addition, federal, state and local
governments are constantly under pressure to control additional spending or reduce current levels
of spending. These pressures have been compounded by the current economic downturn. Accordingly,
we have been requested and may be requested in the future to reduce our existing per diem contract
rates or forego prospective increases to those rates. Further, our customers could reduce inmate
population levels in facilities we manage to contain their correctional costs. In addition, it may
become more difficult to renew our existing contracts on favorable terms or otherwise.
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
21
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, 24 of our facility management
contracts with the customers listed under Business Facility Portfolio Facilities and
Facility Management Contracts have expired (1) or are currently scheduled to expire (23) on or
before December 31, 2010. See Business Facility Portfolio Facilities and Facility
Management contracts. Although we generally expect these customers to exercise renewal options or
negotiate new contracts with us, 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.
During January 2010, we were notified by the BOP of their decision not to renew the management
contract at our 2,304-bed California City Correctional Center in California City, California upon
expiration of the management contract on September 30, 2010. During January 2010, the Governor and
Legislature in the state of Arizona proposed budgets that would phase-out the utilization of
private out-of-state beds. As of December 31, 2009, we managed approximately 2,100 inmates at our
Diamondback Correctional
Facility in Oklahoma and 675 inmates at our Huerfano County Correctional Center in Colorado under
management contracts with the state of Arizona. We have since received formal notification from
the state of Arizona that they will not renew the management contract at the Huerfano facility upon
termination of the contract on March 8, 2010. Our contract with Arizona at Diamondback expires on
May 1, 2010.
Governmental agencies typically may terminate a facility contract at any time without cause or use
the possibility of termination to negotiate a lower per diem rate. 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 affect our financial condition,
results of operations and liquidity, including our ability to secure new facility management
contracts from others.
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
22
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 or parole standards 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. A prolonged downturn in the financial credit
markets could make it more difficult to obtain capital resources at favorable rates of return or
obtain capital resources at all.
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
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, some
are unique to government contractors 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 are
customarily required to meet certain training standards and, in some instances, facility personnel
are required to be
23
licensed and subject to background investigation. Certain jurisdictions also
require us to award subcontracts on a competitive basis or to subcontract with certain types of
businesses, such as small businesses and 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. New federal regulations also require federal government contractors like
us to self-report evidence of certain forms of misconduct. We may not always successfully comply
with these regulations, and failure to comply can result in material penalties, including financial
penalties, non-renewal or termination of facility management contracts, and suspension or debarment
from contracting with certain government entities.
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 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
24
responsibilities, the BOP, ICE, and USMS, accounted for 39% of our total revenues for the
fiscal year ended December 31, 2009 ($659.5 million). The USMS accounted for 14% of our total
revenues for the fiscal year ended December 31, 2009 ($237.3 million), BOP accounted for 13% of our
total revenues for the fiscal year ended December 31, 2009 ($218.5 million), and ICE accounted for
12% of our total revenues for the fiscal year ended December 31, 2009 ($203.7 million). Although
the revenue generated from each of these agencies is derived from numerous management contracts,
the loss of one or more of such contracts could have a material adverse impact in our financial
condition and results of operations. 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.
The CDCR accounted for 11% of our total revenues for the fiscal year ended December 31, 2009
($177.1 million). We have a contract with the CDCR providing the CDCR the ability to house up to
10,468 inmates in five of the facilities we own. As of December 31, 2009, we housed 7,970 inmates
from the state of California. Several legal proceedings have challenged the States ability to send
inmates out-of-state. 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 impact the out-of-state transfer of inmates or could result in the
return of inmates we currently house for the CDCR. Further, the expiration of the statutory
authority to transfer California inmates to out-of-state private correctional facilities coincides
with the expiration of our management contract on June 30, 2011. If transfers from California are
limited as a result of one or more of these proceedings, or if the authority to transfer inmates
out-of-state to our facilities is not extended upon expiration, we would market the beds housed by
the CDCR inmates to other federal and state customers. The return of the California inmates to the
state of California would have a significant adverse impact on our financial position, results of
operations, and cash flows.
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.
The success of our business depends in large part on the ability and experience of our senior
management. The unexpected loss of any of these persons could materially adversely affect our
business and operations.
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.
Adverse developments in our relationship with our employees could adversely affect our business, financial condition or results of operations.
As of December 31, 2009, we employed approximately 17,425 employees. Approximately 775 of our
employees at three of our facilities, or less than 5% of our workforce, are represented by labor
unions.
25
We have not experienced a strike or work stoppage at any of our facilities and in the
opinion of management overall employee relations are good. Proposed legislation, such as the
Employee Free Choice Act (EFCA), if enacted, could increase organizational activity at locations
where employees are currently not represented by a labor organization. Increases in organizational
activity or any future work stoppages could have a material adverse effect on our business,
financial condition, or results of 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 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 Managements 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 prisoners
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
26
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 focus on facility development and expansion poses additional risks, 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 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, 2009, the
facilities subject to these options generated $281.4 million in revenue (16.9% of total revenue)
and incurred $200.0 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, the ownership of two of our facilities (that are also subject to options to purchase)
will, upon the expiration of certain ground leases with remaining terms generally ranging from 7 to
9 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, 2009, the facilities subject to reversion
generated $73.7 million in revenue (4.4% of total revenue) and incurred $53.7 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
27
subject to general market and industry conditions, among other factors. Increases in surety costs
could adversely affect our operating results if we are unable to effectively pass along such
increases to our customers. 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 could 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.
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:
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authorize us to issue blank check preferred stock, which is preferred stock that
can be created and issued by our board of directors, without stockholder approval, with
rights senior to those of common stock; |
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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 |
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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 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.
28
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.
As of December 31, 2009, we had total indebtedness of $1,149.1 million. Our indebtedness could
have important consequences. For example, it could:
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make it more difficult for us to satisfy our obligations with respect to our
indebtedness; |
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increase our vulnerability to general adverse economic and industry conditions; |
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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; |
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limit our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate; |
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place us at a competitive disadvantage compared to our competitors that have less
debt; and |
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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 $375.0 million 6.25% senior notes due
2013, the indenture related to our aggregate principal amount of $150.0 million 6.75% senior notes
due 2014, and the indenture related to our aggregate principal amount of $465.0 million 7.75%
senior notes due 2017, 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:
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limitations on incurring additional indebtedness; |
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limitations on the sale of assets; |
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limitations on the declaration and payment of dividends or other restricted
payments; |
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limitations on transactions with affiliates; and |
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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
29
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 our indebtedness, 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.
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 holders 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, 2009, we had $236.2 million of
additional borrowing capacity available under our $450.0 million revolving credit facility. In
addition, 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.
30
Our access to capital may be affected by general macroeconomic conditions.
As a result of current economic conditions, credit markets have tightened significantly such that
the ability to obtain new capital has become more challenging and more expensive. In addition,
several large financial institutions have either recently failed or been dependent on the
assistance of the federal government to continue to operate as a going concern. Lehman Brothers
Commercial Bank, which holds a $15.0 million share in our revolving credit facility, is a
defaulting lender under the terms of the credit agreement. To date, Lehman has funded $2.3 million
that remains outstanding as of December 31, 2009 and $1.1 million in letters of credit. The loan
balance will be repaid on a pro-rata basis whenever we repay any LIBOR-based loans on tranches
Lehman previously funded. To the extent that their funding is reduced, it will not be replaced.
Going forward, we do not expect to have access to incremental funding from Lehman. Further, to the
extent we obtain additional letters of credit under the facility, we will be required to provide
cash collateral on a pro-rata basis to reflect the inability of Lehman to fulfill its commitments.
We can provide no assurance that the remaining banks that have made commitments under our revolving
credit facility will continue to operate as a going concern in the future. If any of the remaining
banks in the lending group were to fail, it is possible that the capacity under the revolving
credit facility would be further reduced. In the event that the availability under the revolving
credit facility was reduced significantly, we could be required to obtain capital from alternate
sources in order to continue with our business and capital strategies. Our options for addressing
such capital constraints would include, but not be limited to (i) delaying certain capital
expenditure projects, (ii) obtaining commitments from the remaining banks in the lending group or
from new banks to fund increased amounts under the terms of the revolving credit facility, or (iii)
accessing the public capital markets. Such alternatives in the current market would likely be on
terms less favorable than under existing
terms, which could have a material effect on our consolidated financial position, results of
operations, or cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
The properties we owned at December 31, 2009 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.
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 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 inmates 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 managements review of the
potential claims and outstanding litigation and based upon managements experience and history of
31
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 REGISTRANTS 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 16, 2010 the last reported sale price of our common stock was $20.00 per share and there
were approximately 4,700 registered holders and approximately 68,300 beneficial holders,
respectively, of our common stock.
The following table sets forth, for the fiscal quarters indicated, the range of high and low sales
prices of the common stock.
Common Stock
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SALES PRICE |
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HIGH |
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LOW |
FISCAL YEAR 2009 |
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First Quarter |
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$ |
17.66 |
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$ |
9.50 |
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Second Quarter |
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$ |
17.30 |
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$ |
12.64 |
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Third Quarter |
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$ |
23.15 |
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$ |
15.74 |
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Fourth Quarter |
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$ |
26.25 |
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$ |
22.48 |
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SALES PRICE |
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HIGH |
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LOW |
FISCAL YEAR 2008 |
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First Quarter |
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$ |
29.65 |
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$ |
22.92 |
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Second Quarter |
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$ |
28.82 |
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$ |
24.35 |
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Third Quarter |
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$ |
29.40 |
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$ |
23.00 |
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Fourth Quarter |
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$ |
24.99 |
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$ |
11.86 |
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32
Dividend Policy
During the years ended December 31, 2009 and 2008, 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.
Issuer Purchases of Equity Securities
None.
33
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the five years ended December 31, 2009, 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
Managements Discussion and Analysis of Financial Condition and Results of Operations. Our
audited consolidated financial statements, including the related notes, as of December 31, 2009 and
2008, and for the years ended December 31, 2009, 2008, and 2007 are included in this annual report.
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL INFORMATION
(in thousands, except per share data)
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For the Years Ended December 31, |
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STATEMENT OF OPERATIONS: |
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2009 |
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2008 |
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2007 |
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2006 |
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2005 |
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Revenue: |
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Management and other |
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$ |
1,667,798 |
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$ |
1,581,593 |
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$ |
1,439,826 |
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$ |
1,287,297 |
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$ |
1,150,470 |
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Rental |
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2,165 |
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2,576 |
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2,399 |
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2,218 |
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2,041 |
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Total revenue |
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1,669,963 |
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1,584,169 |
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1,442,225 |
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1,289,515 |
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1,152,511 |
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|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
1,168,672 |
|
|
|
1,112,679 |
|
|
|
1,025,040 |
|
|
|
937,491 |
|
|
|
863,439 |
|
General and administrative |
|
|
86,537 |
|
|
|
80,308 |
|
|
|
74,399 |
|
|
|
63,593 |
|
|
|
57,053 |
|
Depreciation and amortization |
|
|
100,799 |
|
|
|
90,555 |
|
|
|
78,396 |
|
|
|
67,150 |
|
|
|
59,415 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,356,008 |
|
|
|
1,283,542 |
|
|
|
1,178,389 |
|
|
|
1,068,234 |
|
|
|
979,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
313,955 |
|
|
|
300,627 |
|
|
|
263,836 |
|
|
|
221,281 |
|
|
|
172,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
72,780 |
|
|
|
59,404 |
|
|
|
53,776 |
|
|
|
58,783 |
|
|
|
63,928 |
|
Expenses associated with debt
refinancing and
recapitalization transactions |
|
|
3,838 |
|
|
|
|
|
|
|
|
|
|
|
982 |
|
|
|
35,269 |
|
Other (income) expense |
|
|
(151 |
) |
|
|
292 |
|
|
|
(308 |
) |
|
|
(260 |
) |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,467 |
|
|
|
59,696 |
|
|
|
53,468 |
|
|
|
59,505 |
|
|
|
99,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes |
|
|
237,488 |
|
|
|
240,931 |
|
|
|
210,368 |
|
|
|
161,776 |
|
|
|
73,144 |
|
Income tax expense |
|
|
(81,745 |
) |
|
|
(90,933 |
) |
|
|
(79,367 |
) |
|
|
(59,455 |
) |
|
|
(25,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
155,743 |
|
|
|
149,998 |
|
|
|
131,001 |
|
|
|
102,321 |
|
|
|
47,755 |
|
Income (loss) from discontinued
operations, net of taxes |
|
|
(789 |
) |
|
|
943 |
|
|
|
2,372 |
|
|
|
2,918 |
|
|
|
2,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
154,954 |
|
|
$ |
150,941 |
|
|
$ |
133,373 |
|
|
$ |
105,239 |
|
|
$ |
50,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.34 |
|
|
$ |
1.20 |
|
|
$ |
1.07 |
|
|
$ |
0.86 |
|
|
$ |
0.41 |
|
Income (loss) from discontinued
operations, net of taxes |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.33 |
|
|
$ |
1.21 |
|
|
$ |
1.09 |
|
|
$ |
0.88 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.33 |
|
|
$ |
1.19 |
|
|
$ |
1.04 |
|
|
$ |
0.84 |
|
|
$ |
0.40 |
|
Income (loss) from discontinued
operations, net of taxes |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.32 |
|
|
$ |
1.20 |
|
|
$ |
1.06 |
|
|
$ |
0.86 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
116,088 |
|
|
|
124,464 |
|
|
|
122,553 |
|
|
|
119,714 |
|
|
|
115,426 |
|
Diluted |
|
|
117,290 |
|
|
|
126,250 |
|
|
|
125,381 |
|
|
|
123,058 |
|
|
|
120,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
BALANCE SHEET DATA: |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Total assets |
|
$ |
2,905,743 |
|
|
$ |
2,871,374 |
|
|
$ |
2,485,740 |
|
|
$ |
2,250,860 |
|
|
$ |
2,086,313 |
|
Total debt |
|
$ |
1,149,099 |
|
|
$ |
1,192,922 |
|
|
$ |
975,967 |
|
|
$ |
976,258 |
|
|
$ |
975,636 |
|
Total liabilities |
|
$ |
1,463,197 |
|
|
$ |
1,491,015 |
|
|
$ |
1,263,765 |
|
|
$ |
1,201,179 |
|
|
$ |
1,169,682 |
|
Stockholders equity |
|
$ |
1,442,546 |
|
|
$ |
1,380,359 |
|
|
$ |
1,221,975 |
|
|
$ |
1,049,681 |
|
|
$ |
916,631 |
|
35
ITEM 7. MANAGEMENTS 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
We currently operate 65 facilities, including 44 facilities that we own, with a total design
capacity of approximately 87,000 beds in 19 states and the District of Columbia. We also own two
additional correctional facilities that we lease to third-party operators. We are the nations
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. These pressures have been compounded by
the recent economic downturn. Although we are encouraged by recent economic data indicating that
the worst of the economic downturn may be over, government agencies continue to experience revenue
shortfalls in their fiscal year 2010 budgets. Our governmental partners may be forced to take
further actions to address revenue shortfalls in their fiscal year 2010 budgets such as reductions
in inmate populations through early release programs, alternative sentencing, or inmate transfers
from facilities managed by private operators to facilities operated by the respective
jurisdictions. Further, certain states have requested, and additional state customers could
request, reductions in per diem rates or request that we forego prospective rate increases in the
future as methods of addressing the budget shortfalls they may be experiencing. We believe we have
been successful in working with our government partners to help them manage their correctional
costs while minimizing the financial impact to us, and will continue to provide unique solutions to
their correctional needs. We believe the long-term growth opportunities of our business remain
very attractive as insufficient bed development by our customers should result in a return to the
supply and demand imbalance that has been benefiting the private prison industry.
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 correctional capacity without incurring large capital commitments.
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
36
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 of December 31, 2009, we had approximately 9,900 unoccupied beds in inventory that had
availability of 100 or more beds, and almost 2,600 additional beds under development, including
1,500 expansion beds at two facilities we own in Georgia and a new 1,072-bed correctional facility
we are constructing in Nevada. Of these, 6,000 beds are under guaranteed contracts with existing
customers, leaving us with 6,500 beds available. We have staff throughout the organization actively
engaged in marketing this available capacity to existing and prospective customers. Historically,
we have been successful in substantially filling our inventory of available beds and the beds that
we have constructed. However, we can provide no assurance that we will be able to obtain new or
existing customers to fill our available beds.
Although the demand for prison beds in the short term has been affected by the severe budget
challenges many of our customers currently face, these challenges put further pressure on our
customers ability to construct new prison beds of their own, which we believe could result in
further reliance on the private sector for providing the capacity we believe our customers will
need in the long term. We will continue to pursue build-to-suit opportunities like the
aforementioned 1,500-bed expansions for the state of Georgia and the 1,072-bed facility we are
constructing in Nevada for the OFDT. In the long-term, we would like to see continued and
meaningful utilization of our remaining capacity and better visibility from our customers before we
add any additional capacity on a speculative basis.
We also remain steadfast in our efforts to contain costs. Approximately 64% of our operating
expenses consist of salaries and benefits. The turnover rate for correctional officers for our
company, and for the corrections industry in general, remains high. Although 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.
Recognizing the challenges we faced as a result of the economic downturn, our efforts to contain
costs were intensified during 2009, as we implemented a company-wide initiative to improve
operating efficiencies, and established a framework for accelerating the process and ensuring
continuous delivery over the long-term.
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 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, 2009, we had $2.5 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. Such events primarily include, but are not
limited to, the termination of a management contract or a significant decrease in inmate
populations within a correctional facility we own or manage. 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. 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 and discounted cash flows. Each of these techniques requires considerable judgment and
estimations that could change in the future. 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. 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.
We have approximately $5.3 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. We have a
valuation allowance of $0.9 million for the estimated amount of the net operating losses that will
expire unused, in addition to a $3.3 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.
Self-funded insurance reserves. As of December 31, 2009 and 2008, we had $34.0 million and $34.3
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
38
estimated liability for workers compensation and automobile insurance claims based on an actuarial
valuation of the outstanding liabilities, discounted to the net present value of the outstanding
liabilities, using a combination of actuarial methods used to project ultimate losses. The
liability for employee health, workers compensation, and automobile insurance includes estimates
for both claims incurred and for claims incurred but not reported. 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, 2009 and 2008, we had $11.4 million and $15.3 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 Counsels 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, 2009, 2008, and 2007, 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 |
|
|
Total |
|
Facilities as of December 31, 2007 |
|
|
|
|
|
|
41 |
|
|
|
24 |
|
|
|
3 |
|
|
|
68 |
|
Activation of the La Palma
Correctional Center |
|
July & October 2008 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Expiration of the management contract
for
the Camino Nuevo Correctional
Center |
|
August 2008 |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Expiration of the management contract
for the Bay County Jail and Annex |
|
October 2008 |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Completion of construction of the
Adams County Correctional Center |
|
December 2008 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities as of December 31, 2008 |
|
|
|
|
|
|
43 |
|
|
|
22 |
|
|
|
3 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of the lease at our owned
Queensgate Correctional Facility |
|
January 2009 |
|
|
1 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
Expiration of the management contract
for
the B.M. Moore Correctional Center |
|
January 2009 |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Expiration of the management contract
for
the Diboll Correctional Center |
|
January 2009 |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Activation of the North Georgia
Detention
Center |
|
July 2009 |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities as of December 31, 2009 |
|
|
|
|
|
|
44 |
|
|
|
21 |
|
|
|
2 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our results of operations are also impacted by the number of beds created as a result of
expansion and development projects completed at facilities we own or at facilities we manage but do
not own. The following table sets forth the number of beds placed into service since January 1,
2008 as a result of facility expansion and development projects:
39
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion |
|
|
Owned or |
Facility |
|
Quarter Completed |
|
Beds |
|
|
Managed-Only |
Kit Carson Correctional Center |
|
First quarter 2008 |
|
|
720 |
|
|
Owned |
Eden Detention Center |
|
First quarter 2008 |
|
|
129 |
|
|
Owned |
Tallahatchie County Correctional Facility |
|
Second quarter 2008 |
|
|
720 |
|
|
Owned |
|
|
Fourth quarter 2008 |
|
|
128 |
|
|
Owned |
Bent County Correctional Facility |
|
Second quarter 2008 |
|
|
720 |
|
|
Owned |
Leavenworth Detention Center |
|
Second quarter 2008 |
|
|
266 |
|
|
Owned |
La Palma Correctional Center |
|
Third quarter 2008 |
|
|
1,020 |
|
|
Owned |
|
|
Fourth quarter 2008 |
|
|
1,020 |
|
|
Owned |
|
|
First quarter 2009 |
|
|
1,020 |
|
|
Owned |
Davis Correctional Facility |
|
Third quarter 2008 |
|
|
660 |
|
|
Owned |
Cimarron Correctional Facility |
|
Fourth quarter 2008 |
|
|
660 |
|
|
Owned |
Silverdale Facilities |
|
Fourth quarter 2008 |
|
|
128 |
|
|
Managed-Only |
Adams County Correctional Center |
|
Fourth quarter 2008 |
|
|
2,232 |
|
|
Owned |
Idaho Correctional Center |
|
Third quarter 2009 |
|
|
540 |
|
|
Managed-Only |
North Georgia Detention Center |
|
Third quarter 2009 |
|
|
502 |
|
|
Managed-Only |
|
|
|
|
|
|
|
|
|
|
|
|
|
10,465 |
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
During the year ended December 31, 2009, we generated net income of $155.0 million, or $1.32 per
diluted share, compared with net income of $150.9 million, or $1.20 per diluted share, for the
previous year. Contributing to the increase in net income for 2009 compared to the previous year
was an increase in operating income of $13.3 million, from $300.6 million during 2008 to $314.0
million during 2009 as a result of an increase in average daily inmate populations and new
management contracts, partially offset by an increase in general and administrative expenses and
depreciation and amortization.
Net income during 2009 was favorably impacted by an income tax benefit of $5.7 million, or $0.05
per diluted share, reflecting the reversal of an estimated liability for uncertain tax positions
that were effectively settled during the third quarter of 2009 upon completion of an audit
performed by the Internal Revenue Service of our 2006 and 2007 federal income tax returns. Net
income during 2009 was negatively impacted by a $3.8 million charge, or $0.02 per diluted share
after taxes, associated with debt refinancing transactions completed during the second quarter of
2009, as further described hereafter, which consisted of a tender premium paid to the holders of
the 7.5% senior notes who tendered their notes to us at par pursuant to our tender offer, estimated
fees and expenses associated with the tender offer, and the write-off of the debt premium and
existing deferred loan costs associated with the purchase of the 7.5% senior notes. Additionally,
net income during 2009 was negatively impacted by $4.2 million, or $0.02 per diluted share after
taxes, of general and administrative expenses associated with a company-wide initiative to improve
operating efficiency.
40
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, which
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. 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 compensated 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 placed into service that we owned or managed,
exclusive of those discontinued (see further discussion below regarding discontinued operations),
were as follows for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Revenue per compensated man-day |
|
$ |
58.33 |
|
|
$ |
57.39 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
30.54 |
|
|
|
29.76 |
|
Variable expense |
|
|
9.95 |
|
|
|
10.08 |
|
|
|
|
|
|
|
|
Total |
|
|
40.49 |
|
|
|
39.84 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
17.84 |
|
|
$ |
17.55 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
30.6 |
% |
|
|
30.6 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
90.7 |
% |
|
|
95.5 |
% |
|
|
|
|
|
|
|
Average available beds |
|
|
86,152 |
|
|
|
78,512 |
|
|
|
|
|
|
|
|
Average compensated population |
|
|
78,131 |
|
|
|
74,970 |
|
|
|
|
|
|
|
|
Our operating margins for both the years ended December 31, 2009 and 2008 were 30.6%. Our
revenue per compensated man-day increased 1.6% to $58.33 during 2009 from $57.39 during 2008
positively impacting our operating margins during 2009. This increase in revenue per compensated
man-day resulted from new contracts at higher average per diems than on existing contracts and from
per diem increases we received on existing contracts. Additionally, the increase in operating
expenses per compensated man-day of 1.6% to $40.49 during 2009 from $39.84 during 2008 partially
offset the increases in revenue.
Average compensated population increased 3,161 from 74,970 during the year ended December 31, 2008
to 78,131 during the year ended December 31, 2009. The increase in average compensated population
resulted primarily from the placement of approximately 10,500 beds into service since January 2008.
These new beds were largely the result of the opening of our 3,060-bed La Palma Correctional Center
in the second half of 2008 and the first quarter of 2009, the opening of our 2,232-bed Adams County
Correctional Center completed in the fourth quarter of 2008 (which began housing inmates during the
third quarter of 2009 as further described hereafter), the opening of the 502-bed North Georgia
Detention Center in the third quarter of 2009, as well as the completion of approximately 4,700
expansion beds placed into service during 2008 and 2009.
Our total facility management revenue increased by $88.8 million, or 5.6%, during 2009 compared
with 2008 resulting primarily from an increase in revenue of approximately $66.2 million generated
by
41
an increase in the average daily compensated population during 2009. The remaining increase in
facility management revenue was primarily driven by the rate increase of 1.6% in the average
revenue per compensated man-day resulting from per diem increases as well as new contracts at
higher than average per diem rates than existing contracts.
State revenues increased $55.5 million, or 6.8%, from $820.1 million for the year ended December
31, 2008 to $875.6 million for the year ended December 31, 2009. State revenues increased 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. Although we are encouraged by
recent economic data indicating that the worst of the economic downturn may be over, state
government agencies continue to experience revenue shortfalls in their fiscal year 2010 budgets.
States may be forced to take further actions to address revenue shortfalls in their fiscal year
2010 budgets such as reductions in inmate populations through early release programs, alternative
sentencing, or inmate transfers from facilities managed by private operators to facilities operated
by the state or other local jurisdictions. Further, certain states have requested, and additional
state customers could request, reductions in per diem rates or request that we forego prospective
rate increases in the future as methods of addressing the budget shortfalls they may be
experiencing.
Business from our federal customers, including the Federal Bureau of Prisons, or the BOP, the
United States Marshals Service, or the USMS, and U.S. Immigration and Customs Enforcement, or ICE,
continues to be a significant component of our business, increasing $30.7 million, or 4.9% from
$628.9 million in 2008 to $659.5 million in 2009. Our federal customers generated 39% and 40% of
our total revenue for the years ended December 31, 2009 and 2008, respectively.
Operating expenses totaled $1,168.7 million and $1,112.7 million for the years ended December 31,
2009 and 2008, respectively. Operating expenses consist of those expenses incurred in the
operation and management of adult correctional and detention facilities, and for our inmate
transportation subsidiary.
Fixed expenses per compensated man-day during the year ended December 31, 2009 increased 2.6% from
$29.76 in 2008 to $30.54 in 2009 primarily as a result of an increase in salaries and benefits.
Salaries and benefits represent the most significant component of fixed operating expenses,
representing approximately 64% of our operating expenses. During 2009, salaries and benefits
expense at our correctional and detention facilities increased $46.6 million from 2008, most
notably as a result of an increase in staffing levels in anticipation of receiving inmates at our
newly opened North Georgia facility from ICE, at our Adams County facility from the BOP, and at our
La Palma and Tallahatchie facilities as a result of an increase in beds utilized from the state of
California at these two facilities. Operating expenses per compensated man-day were also negatively
impacted by operational inefficiencies associated with our inventory of available beds.
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 placed into service that we own and manage and for the
facilities we manage but do not own:
42
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Owned and Managed Facilities: |
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
66.79 |
|
|
$ |
65.85 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
32.79 |
|
|
|
31.96 |
|
Variable expense |
|
|
10.46 |
|
|
|
10.79 |
|
|
|
|
|
|
|
|
Total |
|
|
43.25 |
|
|
|
42.75 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
23.54 |
|
|
$ |
23.10 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
35.2 |
% |
|
|
35.1 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
88.3 |
% |
|
|
94.5 |
% |
|
|
|
|
|
|
|
Average available beds |
|
|
61,051 |
|
|
|
53,990 |
|
|
|
|
|
|
|
|
Average compensated population |
|
|
53,893 |
|
|
|
51,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Only Facilities: |
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
39.52 |
|
|
$ |
39.36 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
25.55 |
|
|
|
25.07 |
|
Variable expense |
|
|
8.80 |
|
|
|
8.58 |
|
|
|
|
|
|
|
|
Total |
|
|
34.35 |
|
|
|
33.65 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
5.17 |
|
|
$ |
5.71 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
13.1 |
% |
|
|
14.5 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
96.6 |
% |
|
|
97.7 |
% |
|
|
|
|
|
|
|
Average available beds |
|
|
25,101 |
|
|
|
24,522 |
|
|
|
|
|
|
|
|
Average compensated population |
|
|
24,238 |
|
|
|
23,965 |
|
|
|
|
|
|
|
|
Owned and Managed Facilities
Our operating margins at owned and managed facilities for the year ended December 31, 2009
increased slightly to 35.2% compared with 35.1% for 2008. Facility contribution, or the operating
income before interest, taxes, depreciation and amortization, at our owned and managed facilities
increased $31.8 million, from $431.2 million during the year ended December 31, 2008 to $463.0
million during the year ended December 31, 2009, an increase of 7.4%. The increase in facility
contribution at our owned and managed facilities is largely the result of the increase in the
average compensated population during 2009 of 5.7% over 2008. The increase in average compensated
population was largely the result of placing into service our La Palma Correctional Center during
the second half of 2008 and the completion of approximately 1,500 expansion beds at our
Tallahatchie County Correctional Facility where the state of California transferred inmates under
the contract described hereafter to each of those facilities. The commencement of operations during
the third quarter of 2009 at our newly constructed Adams County facility also contributed to the
increase in average compensated population.
The most notable increases in compensated population during the year ended December 31, 2009
occurred at the La Palma Correctional Center which opened during 2008 and the Tallahatchie facility
resulting from the receipt of additional inmate populations from the state of California. Our
total
43
revenues increased by $72.7 million at these two facilities during the year ended December 31, 2009
compared to the same period in the prior year.
In November 2009, we announced that we entered into an amendment of our agreement with the State of
California Department of Corrections and Rehabilitation (the CDCR) providing the CDCR the ability
to house up to 10,468 inmates in five of the facilities we own, an increase from 8,132 inmates
under our previous agreement. The agreement, which is subject to appropriations by the California
legislature, expires June 30, 2011. As of December 31, 2009, we held approximately 8,000 inmates
from the state of California. We began receiving additional inmates pursuant to the amendment
during the first quarter of 2010, with a gradual ramp-up estimated to be completed during the first
quarter of 2011.
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
States ability to send inmates out-of-state. 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 impact the out-of-state transfer of inmates
or could result in the return of inmates we currently house for the CDCR. Further, the expiration
of the statutory authority to transfer California inmates to out-of-state private correctional
facilities coincides with the expiration of our management contract on June 30, 2011. If transfers
from California are limited as a result of one or more of these proceedings, or if the authority to
transfer inmates out-of-state to our facilities is not extended upon expiration, we would market
the beds housed by the CDCR to other federal and state customers. The return of the California
inmates to the state of California would have a significant adverse impact on our financial
position, results of operations, and cash flows.
In March 2009, we announced that the state of Arizona awarded us a contract to manage up to 752
Arizona inmates at our 752-bed Huerfano County Correctional Center in Colorado. The contract
includes an initial term ending March 9, 2010. During the second quarter of 2009, we completed the
relocation of approximately 600 Colorado inmates previously housed at the Huerfano facility to our
three other Colorado facilities and also completed the process of receiving the new inmates from
Arizona. On January 15, 2010, the Arizona Governor and Legislature proposed budgets that would
phase out the utilization of private out-of-state beds due to in-state capacity coming on-line and
severe budget conditions. During January 2010, the Arizona Department of Corrections notified us of
its election not to renew its contract at our Huerfano facility. Arizona expects to begin
transferring offenders from the Huerfano facility beginning on March 10, 2010 and expects to
complete the transfer on March 22, 2010. As a result of this notification, we intend to idle the
Huerfano facility shortly thereafter, but will continue marketing the facility to other customers.
We also have a management contract with the state of Arizona at our 2,160-bed Diamondback
Correctional Facility in Oklahoma, which is scheduled to expire May 1, 2010. We have not received
any updates from Arizona regarding its contract at our Diamondback facility, but the risk remains
that Arizona may return the offenders housed at the Diamondback facility to the state of Arizona.
If Arizona does not renew its contract at the Diamondback facility, we would likely idle the
facility. During 2009, we generated $56.5 million in management revenue from the state of Arizona
under both of these contracts.
In April 2009, we announced that we had been awarded a contract with the BOP to house up to 2,567
federal inmates at our recently completed 2,232-bed Adams County Correctional Center in
Mississippi. The four-year contract, awarded as part of the Criminal Alien Requirement 8
Solicitation (CAR 8), also provides for up to three two-year renewal options and includes
contract provisions that are materially comparable to our other contracts with the BOP, including a
50% guarantee of occupancy during the activation period and a 90% guarantee once the average
monthly population at the facility
44
exceeds 50%. During the first half of 2009, we incurred start-up costs of $2.8 million in
preparation for the commencement of operations. We received a Notice to Proceed in July 2009 and
began receiving inmates during the third quarter of 2009, which is expected to have a favorable
impact on our operating margins in future quarters.
During the third quarter of 2009, we were notified by the Alaska Department of Corrections that we
were not selected in Alaskas competitive solicitation to house up to 1,000 inmates from the state
of Alaska. During the fourth quarter of 2009, the state of Alaska completed the transfer of their
inmate population out of the Red Rock facility. As of December 31, 2009, we housed 880 inmates
from the states of California, Washington, and Hawaii at the Red Rock facility. We expect the state
of California to utilize the beds that will be vacated by Alaska pursuant to the aforementioned
amended agreement with the CDCR.
We have been housing non-criminal families, along with a small population of females, at our T. Don
Hutto Residential Center located in Taylor, Texas, since May 2006. Based on a change in ICE policy
of detaining families at the T. Don Hutto facility, during the third quarter of 2009 we
renegotiated a short-term agreement with ICE effective September 1, 2009 to house low custody
female detainees rather than families at this facility resulting in a lower per diem rate, as well
as other terms and conditions that are more representative of the requirements of this new
population, which has negatively impacted our results of operations since the effective date. The
term of this agreement expired December 31, 2009. In January 2010, we received an Intergovernmental
Service Agreement between ICE and Williamson County, Texas to manage up to 512 female detainees at
our T. Don Hutto Residential Center. The new agreement contains an initial term of up to five
years that is renewable upon mutual agreement and contains a 90% guarantee of occupancy. As of
December 31, 2009, we housed approximately 500 detainees at this facility.
During December 2009, we announced our decision to cease operations at our 1,600-bed Prairie
Correctional Facility on or about February 1, 2010 due to low inmate populations at the facility.
During 2009, our Prairie facility housed offenders from the states of Minnesota and Washington.
However, due to excess capacity in the states systems, both states have been reducing the
populations held at Prairie. The final transfer of offenders back to the state of Minnesota from
the Prairie facility was completed on January 26, 2010. The state of Washington has removed all of
its offenders from the Prairie facility, but maintains a population of approximately 125 inmates in
two other facilities we own in Arizona. Total revenues at the Prairie facility were $15.9 million
and $34.0 million during the years ended December 31, 2009 and 2008, respectively. We are
currently pursuing new management contracts to take advantage of the beds that became available at
the Prairie facility but can provide no assurance that we will be successful in doing so.
During January 2010, we announced that pursuant to the Criminal Alien Requirement 10 Solicitation
(CAR 10) our 2,304-bed California City Correctional Center in California was not selected for the
continued management of the federal offenders currently located at this facility. The current
contract with the BOP at the California City facility expires on September 30, 2010. We currently
expect the BOP to transfer all inmates out of the facility by the end of the third quarter of 2010.
We are also pursuing other opportunities for our California City facility. Total revenues at the
California City facility were $68.7 million and $67.7 million during the years ended December 31,
2009 and 2008, respectively.
Managed-Only Facilities
Our operating margins decreased at managed-only facilities during the year ended December 31, 2009
to 13.1% from 14.5% during the year ended December 31, 2008. The managed-only business remains very
competitive which continues to put pressure on per diems resulting in only marginal increases in
45
the managed-only revenue per compensated man-day. Revenue per compensated man-day increased 0.4%
during the year ended December 31, 2009 compared with the prior year.
Operating expenses per compensated man-day increased 2.1% to $34.35 during the year ended December
31, 2009 from $33.65 during the prior year. The increase in operating expenses per compensated
man-day was caused in part by an increase in salaries and benefits largely due to salary increases
mid-2008. Operating expenses per compensated man-day also increased as a result of rent and
start-up expenses incurred at the North Georgia Detention Center during the second half of 2009 in
anticipation of receiving detainees from ICE during the fourth quarter of 2009, pursuant to a new
management contract as further described hereafter. Additionally, we experienced an increase in
legal expenses at managed-only facilities during 2009 compared with 2008. Expenses associated with
legal proceedings may fluctuate from quarter to quarter based on new or threatened litigation,
changes in our assumptions, new developments, or the effectiveness of our litigation and settlement
strategies. These increases were partially offset by reductions in other operating expenses such as
utility expense resulting from a reduction in energy rates across our portfolio of managed-only
facilities in the current year compared with the same period in 2008.
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. Any reductions to our per diem rates or the lack of per diem increases at
managed-only facilities would likely result in a further deterioration in our operating margins.
During the years ended December 31, 2009 and 2008, managed-only facilities generated 9.0% and
10.4%, respectively, of our total facility contribution. We define facility contribution as a
facilitys operating income or loss before interest, taxes, goodwill impairment, depreciation, and
amortization.
In March 2009, we announced a new contract to manage detainee populations for ICE at the North
Georgia Detention Center in Hall County, Georgia, which has a total design capacity of 502 beds.
Under a five-year Intergovernmental Service Agreement between Hall County, Georgia and ICE, we will
house up to 500 ICE detainees at the facility. We have entered into a lease for the former Hall
County Jail from Hall County, Georgia. The lease has an initial term of 20 years with two five-year
renewal options and provides us the ability to cancel the lease if we do not have a management
contract. We placed the beds into service during the third quarter of 2009 and began receiving
detainees during the fourth quarter of 2009. Although this facility contributed to the reduction in
operating margins during 2009 compared with the same period in 2008, the commencement of operations
is expected to have a favorable impact on our operating margins in the managed-only segment once
full occupancy is reached.
General and administrative expense
For the years ended December 31, 2009 and 2008, general and administrative expenses totaled $86.5
million and $80.3 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 2008 primarily as a result of a $4.2 million
consulting fee associated with a company-wide initiative to improve operational efficiency.
General and administrative expenses during 2009 also included a $1.5 million accrual for the
contractual severance benefit for our former Chief Executive Officer who announced his decision to
step down in August 2009.
46
Depreciation and amortization
For the years ended December 31, 2009 and 2008, depreciation and amortization expense totaled
$100.8 million and $90.6 million, respectively. The increase in depreciation and amortization from
2008 resulted primarily from additional depreciation expense recorded on various completed facility
expansion and development projects, most notably our La Palma Correctional Center and our Adams
County Correctional Center, and the additional depreciation on our expansion projects and other
capital expenditures.
Interest expense, net
Interest expense was reported net of interest income and capitalized interest for the years ended
December 31, 2009 and 2008. Gross interest expense, net of capitalized interest, was $75.5 million
and $62.8 million, respectively, for the years ended December 31, 2009 and 2008. Gross interest
expense during these periods was based on outstanding borrowings under our revolving credit
facility, our outstanding senior notes, and amortization of loan costs and unused facility fees.
We expect gross interest expense to increase in the future as we utilize our revolving credit
facility to fund our stock repurchase program and/or additional expansion and development projects.
Additionally, the repayment of our $450.0 million 7.5% senior notes with the net proceeds from the
issuance in June 2009 of our $465.0 million 7.75% senior notes, which were issued at a discount to
par resulting in a yield to maturity of 8.25%, will result in an increase in interest expense
compared with prior periods. However, as further described hereafter, this refinancing extended
our debt maturities and provides us with more financial flexibility to take advantage of
opportunities that may require additional capital. Further, we have benefited from relatively low
interest rates on our revolving credit facility, which is largely based on the London Interbank
Offered Rate (LIBOR). It is possible that LIBOR could increase in the future.
Gross interest income was $2.7 million and $3.4 million, respectively, for the years ended December
31, 2009 and 2008. Gross interest income is earned on cash collateral requirements, a direct
financing lease, notes receivable, investments, and cash and cash equivalents, and decreased due to
lower interest rates on cash and investment balances, which were used to fund our stock repurchase
program as well as our expansion and development projects.
Capitalized interest was $1.6 million and $13.5 million during 2009 and 2008, respectively, and was
associated with various construction and expansion projects further described under Liquidity and
Capital Resources hereafter.
Expenses associated with debt refinancing transactions
As further described hereafter, in June 2009, we used the net proceeds from the sale and issuance
of our new $465.0 million 7.75% senior notes to purchase, redeem, or otherwise acquire our $450.0
million 7.5% senior notes. A substantial portion of the notes were repaid in connection with a
tender offer for such notes announced in May 2009. In connection with the refinancing, we incurred
a charge of $3.8 million, consisting of the tender premium paid to the note holders who validly
tendered their notes, fees, along with expenses associated with the tender offer, and write-off of
loan coast and debt premium associated with the 7.5% senior notes.
Income tax expense
During the years ended December 31, 2009 and 2008, our financial statements reflected an income tax
provision of $81.7 million and $90.9 million, respectively, and our effective tax rate was
approximately 34.4% and 37.7% during the years ended December 31, 2009 and 2008, respectively.
47
Income tax expense during the year ended December 31, 2009 includes an income tax benefit of $5.7
million for the reversal of a liability for uncertain tax positions that were effectively settled
upon the completion of an audit by the Internal Revenue Service during the third quarter of 2009.
Our effective tax rate is estimated based on our current projection of taxable income and could
fluctuate based on changes in these estimates, the implementation of tax strategies, changes in
federal or state tax rates, changes in tax laws, 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
As a result of Shelby Countys evolving relationship with the Tennessee Department of Childrens
Services (DCS) whereby DCS prefers to oversee the juveniles at facilities under DCS control, we
ceased operations of the 200-bed Shelby Training Center located in Memphis, Tennessee in August
2008. We reclassified the results of operations, net of taxes, and the assets and liabilities of
this facility, excluding property and equipment, as discontinued operations upon termination of the
management contract during the third quarter of 2008. The property and equipment of this facility
will continue to be reported as continuing operations, as we retained ownership of the building and
equipment and completed the purchase of the land during the fourth quarter of 2008 from Shelby
County, Tennessee for $150,000. The Shelby Training Center operated at break-even during the year
ended December 31, 2008.
In May 2008, we notified the Bay County Commission of our intention to exercise our option to
terminate the operational management contract for the 1,150-bed Bay County Jail and Annex in Panama
City, Florida, effective October 9, 2008. The Bay County Jail and Annex incurred a loss of $0.7
million (primarily pertaining to negative developments in outstanding legal matters) and $1.0
million, net of taxes, during the years ended December 31, 2009 and 2008, respectively.
Pursuant to a re-bid of the management contracts, during September 2008, we were notified by the
Texas Department of Criminal Justice (TDCJ) of its intent to transfer the management of the
500-bed B.M. Moore Correctional Center in Overton, Texas and the 518-bed Diboll Correctional Center
in Diboll, Texas to another operator, upon the expiration of the management contracts on January
16, 2009. Both of these facilities are owned by the TDCJ. Accordingly, the results of operations,
net of taxes, and the assets and liabilities of these two facilities are reported as discontinued
operations upon termination of operations in the first quarter of 2009 for all periods presented.
These two facilities operated at a loss of $0.1 million, net of taxes, for the year ended December
31, 2009. These two facilities operated at a profit of $0.6 million, net of taxes, for the year
ended December 31, 2008.
During December 2008, we were notified by Hamilton County, Ohio of its intent to terminate the
lease for the 850-bed Queensgate Correctional Facility located in Cincinnati, Ohio. The County
elected to terminate the lease due to funding issues being experienced by the County. Accordingly,
upon termination of the lease in the first quarter of 2009, we reclassified the results of
operations, net of taxes, of this facility as discontinued operations for all periods presented.
The property and equipment of this facility will continue to be reported as continuing operations,
as the Company retained ownership of the land, building, and equipment. The lease with Hamilton
County generated a profit of $1.4 million, net of taxes, for the year ended December 31, 2008.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
During the year ended December 31, 2008, we generated net income of $150.9 million, or $1.20 per
diluted share, compared with net income of $133.4 million, or $1.06 per diluted share, for the
previous
48
year. Contributing to the increase in net income for 2008 compared to the previous year was an
increase in operating income of $36.8 million, from $263.8 million during 2007 to $300.6 million
during 2008 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
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, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Revenue per compensated man-day |
|
$ |
57.39 |
|
|
$ |
54.94 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
29.76 |
|
|
|
28.61 |
|
Variable expense |
|
|
10.08 |
|
|
|
10.06 |
|
|
|
|
|
|
|
|
Total |
|
|
39.84 |
|
|
|
38.67 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
17.55 |
|
|
$ |
16.27 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
30.6 |
% |
|
|
29.6 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
95.5 |
% |
|
|
98.2 |
% |
|
|
|
|
|
|
|
Average available beds |
|
|
78,512 |
|
|
|
72,326 |
|
|
|
|
|
|
|
|
Average compensated population |
|
|
74,970 |
|
|
|
71,034 |
|
|
|
|
|
|
|
|
Our operating margins for the year ended December 31, 2008 increased to 30.6% compared with
29.6% for the prior year. The increase in operating margins is largely the result of the increase
in the average compensated population during the year ended December 31, 2008 as compared to the
prior year. Also contributing to the increased operating margin during 2008, our revenue per
compensated man-day increased 4.5% from $54.94 during 2007 to $57.39 during 2008. This increase in
revenue per compensated man-day resulted from new contracts at higher average per diems than on
existing contracts and from per diem increases we received on existing contracts.
Average compensated population increased 3,936 from 71,034 during the year ended December 31, 2007
to 74,970 during the year ended December 31, 2008. The increase in average compensated population
resulted primarily from the placement of 6,886 expansion beds into service since January 2007, and
the opening and subsequent ramp-up in populations at our 1,896-bed Saguaro Correctional Facility in
June 2007. Further, we also commenced operation at our La Palma Correctional Center by placing
2,040 beds into service during the third and fourth quarters of 2008 and substantially filled those
beds with inmates from the state of California.
Our total facility management revenue increased by $150.2 million, or 10.5%, during 2008 compared
with 2007 resulting primarily from an increase in revenue of approximately $78.9 million generated
by an increase in the average daily compensated population during 2008. The remaining increase in
facility management revenue was primarily driven by the rate increase of 4.5% in the average
revenue per compensated man-day resulting from per diem increases as well as new contracts at
higher than average per diem rates than existing contracts.
49
State revenues increased $111.9 million, or 15.8%, from $708.3 million for the year ended December
31, 2007 to $820.1 million for the year ended December 31, 2008. State revenues increased 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.
Business from our federal customers, including the BOP, the USMS, and ICE, continues to be a
significant component of our business, increasing $35.3 million, or 5.9% from $593.6 million in
2007 to $628.9 million in 2008. Our federal customers generated 40% and 41% of our total revenue
for the years ended December 31, 2008 and 2007, respectively. Similar to business from our state
customers, we were successful in achieving per diem increases under several of our federal
management contracts as a result of a strong demand for prison beds.
Operating expenses totaled $1,112.7 million and $1,025.0 million for the years ended December 31,
2008 and 2007, respectively. Operating expenses consist of those expenses incurred in the
operation and management of adult correctional and detention facilities, and for our inmate
transportation subsidiary.
Fixed expenses per compensated man-day during the year ended December 31, 2008 increased 4.0% from
$28.61 in 2007 to $29.76 in 2008 primarily as a result of an increase in salaries and benefits.
Salaries and benefits represent the most significant component of fixed operating expenses,
representing approximately 64% of our operating expenses. During 2008, salaries and benefits
expense at our correctional and detention facilities increased $65.0 million from 2007, most
notably as a result of an increase in staffing levels at the aforementioned facilities such as our
Saguaro facility that opened in June 2007, our La Palma facility that opened in July 2008, and at
our North Fork and Tallahatchie facilities where expansion beds were placed into service.
The following tables display the revenue and expenses per compensated man-day for the facilities
placed into service that we own and manage and for the facilities we manage but do not own:
50
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Owned and Managed Facilities: |
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
65.85 |
|
|
$ |
63.01 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
31.96 |
|
|
|
30.67 |
|
Variable expense |
|
|
10.79 |
|
|
|
10.79 |
|
|
|
|
|
|
|
|
Total |
|
|
42.75 |
|
|
|
41.46 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
23.10 |
|
|
$ |
21.55 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
35.1 |
% |
|
|
34.2 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
94.5 |
% |
|
|
98.3 |
% |
|
|
|
|
|
|
|
Average available beds |
|
|
53,990 |
|
|
|
48,292 |
|
|
|
|
|
|
|
|
Average compensated population |
|
|
51,005 |
|
|
|
47,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Only Facilities: |
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
39.36 |
|
|
$ |
38.70 |
|
Operating expenses per compensated man-day: |
|
|
|
|
|
|
|
|
Fixed expense |
|
|
25.07 |
|
|
|
24.47 |
|
Variable expense |
|
|
8.58 |
|
|
|
8.59 |
|
|
|
|
|
|
|
|
Total |
|
|
33.65 |
|
|
|
33.06 |
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
5.71 |
|
|
$ |
5.64 |
|
|
|
|
|
|
|
|
Operating margin |
|
|
14.5 |
% |
|
|
14.6 |
% |
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
97.7 |
% |
|
|
98.1 |
% |
|
|
|
|
|
|
|
Average available beds |
|
|
24,522 |
|
|
|
24,034 |
|
|
|
|
|
|
|
|
Average compensated population |
|
|
23,965 |
|
|
|
23,584 |
|
|
|
|
|
|
|
|
Owned and Managed Facilities
Our operating margins at owned and managed facilities for the year ended December 31, 2008
increased to 35.1% compared with 34.2% for 2007. The increase in operating margins at our owned
and managed facilities is primarily attributable to the increase in the average compensated
population during the year ended December 31, 2008 as compared to the prior year. The increase in
average compensated population was largely the result of placing into service our 1,896-bed Saguaro
Correctional Facility in June 2007, placing 2,040 beds into service at our La Palma Correctional
Center during July and October 2008, and the completion of approximately 2,500 expansion beds at
our 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
average per diem rates than on existing contracts and from annual per diem increases.
The most notable increases in inmate populations during 2008 occurred at the Saguaro Correctional
Facility, which opened in 2007, the La Palma Correctional Center, which opened during 2008, and the
North Fork facility resulting from higher inmate populations from various existing state customers,
and the Tallahatchie facility resulting from the receipt of inmate populations from the state of
California.
51
Our total revenues increased by $78.0 million at these four facilities during the year ended
December 31, 2008 compared to the prior year.
The Saguaro Correctional Facility was constructed to provide the state of Hawaii the opportunity to
consolidate its inmate populations into fewer facilities, while providing us with an additional
supply of beds to meet anticipated demand. We completed construction of the Saguaro Correctional
Facility in June 2007. While the consolidation of inmates from Hawaii did not result in a
significant increase in total inmate populations, the consolidation created additional capacity at
our Diamondback and Tallahatchie facilities, which was substantially utilized by additional inmate
populations from the states of Arizona and California, respectively, pursuant to new management
contracts. The consolidation also created additional capacity at our Red Rock Correctional Center,
which was substantially utilized with additional inmate populations from the state of California
during the second quarter of 2008.
On October 5, 2007, we announced that we had entered into a new agreement with the State of
California Department of Corrections and Rehabilitation, or CDCR, for the housing of up to 7,772
inmates from the state of California. In January 2008 and in November 2009, this agreement was
further amended to allow for an additional 360 and 2,336 CDCR inmates, respectively. As a result,
we now have a contract that provides the CDCR with the ability to house up to 10,468 inmates in
five of the facilities we own. The new agreement, which is subject to appropriations by the
California legislature, expires June 30, 2011. As of December 31, 2008, we held approximately
6,200 inmates from the state of California.
In October 2007, we announced that we would begin construction of our new 3,060-bed La Palma
Correctional Center, which is currently being fully utilized by the CDCR. We completed
construction of the new La Palma Correctional Center during the first quarter of 2009 at an
estimated total cost of $200.0 million. However, we opened a portion of the new facility and began
receiving inmates from the state of California during the third quarter of 2008.
As a result of weakness in inmate populations from the District of Columbia, the 1,500-bed D.C.
Correctional Treatment Facility experienced a decline in occupancy from 72% during 2007 to 62%
during 2008, negatively impacting margins on our owned and managed business. The 1,600-bed Prairie
Correctional Facility also experienced a reduction in inmate populations resulting from the state
of Minnesota opening a new state facility which resulted in the transfer of approximately 300
Minnesota inmates back to the state facility since August 2008. These inmate transfers resulted in
a decline in revenue and operating margin at the Prairie facility.
Managed-Only Facilities
Our operating margins decreased slightly at managed-only facilities during the year ended December
31, 2008 to 14.5% from 14.6% during the year ended December 31, 2007. 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. Revenue per compensated man-day
increased 1.7% during the year ended December 31, 2008 compared with the prior year.
Operating expenses per compensated man-day increased 1.8% to $33.65 during the year ended December
31, 2008 from $33.06 during the prior year. The increase in operating expenses per compensated
man-day was caused in part by an increase in salaries and benefits largely due to annual salary
increases. Additionally, we experienced an increase in legal expenses at managed-only facilities
during 2008 compared with 2007. Expenses associated with legal proceedings may fluctuate from
quarter to quarter based on new or threatened litigation, changes in our assumptions, new
developments, or the effectiveness of our litigation and settlement strategies.
52
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. Any reductions to our per diem rates or the lack of per diem increases at
managed-only facilities would likely result in a further deterioration in our operating margins.
During the years ended December 31, 2008 and 2007, managed-only facilities generated 10.4% and
11.5%, respectively, of our total facility contribution. We define facility contribution as a
facilitys operating income or loss before interest, taxes, goodwill impairment, depreciation, and
amortization.
In April 2008, we agreed with the New Mexico Department of Corrections to suspend operations of the
192-bed Camino Nuevo Correctional Center in Albuquerque, New Mexico, and transfer existing
populations to our New Mexico Womens Correctional Facility in Grants, New Mexico. Operations were
suspended due to consistently low inmate populations that were not adequate to maintain efficient
operations. During the third quarter of 2008, we mutually agreed with the New Mexico Department of
Corrections to terminate the management contract for the Camino Nuevo Correctional Center. The
Camino Nuevo facility operated at a loss of $0.6 million and an operating profit $0.1 million
during the years ended December 31, 2008 and 2007, respectively, inclusive of depreciation expense.
General and administrative expense
For the years ended December 31, 2008 and 2007, general and administrative expenses totaled $80.3
million and $74.4 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 2007 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 and to intensify our efforts on developing new
bed capacity. Also as a result of our intensified efforts to develop new capacity, we incurred
charges of $1.7 million during 2008 in connection with the abandonment of certain development
projects. We incurred $0.3 million of such expenses in 2007.
General and administrative expenses were also higher as a result of an increase of $2.0 million of
stock-based compensation awarded to employees. For the year ended December 31, 2008, we recognized
approximately $8.5 million of general and administrative expense for stock-based compensation
compared with $6.5 million of stock-based compensation expense recognized during the year ended
December 31, 2007.
Depreciation and amortization
For the years ended December 31, 2008 and 2007, depreciation and amortization expense totaled $90.6
million and $78.4 million, respectively. The increase in depreciation and amortization from 2007
resulted primarily from additional depreciation expense recorded on various completed facility
expansion and development projects, most notably our Saguaro Correctional Facility placed into
service in June 2007 and our La Palma Correctional Center where we activated 1,020 beds in July
2008 and another 1,020 beds in October 2008.
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 $1.6 million related to
the management of two of our managed-only facilities. This impairment charge resulted from 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
53
cash flow method. During 2008, we exercised our option to terminate one of the management
contracts upon expiration of the contract in the fourth quarter of 2008, and thus the goodwill
impairment charge was reported as discontinued operations as discussed further hereafter.
Interest expense, net
Interest expense was reported net of interest income and capitalized interest for the years ended
December 31, 2008 and 2007. Gross interest expense, net of capitalized interest, was $62.8 million
and $64.5 million, respectively, for the years ended December 31, 2008 and 2007. Gross interest
expense during these periods was based on outstanding borrowings under our revolving credit
facility, our outstanding senior notes, and amortization of loan costs and unused facility fees.
Gross interest income was $3.4 million and $10.8 million, respectively, for the years ended
December 31, 2008 and 2007. Gross interest income is earned on cash collateral requirements, a
direct financing lease, notes receivable, investments, and cash and cash equivalents, and decreased
due to lower cash and investment balances during 2008 compared with 2007 which were used to fund
our expansion and development projects.
Capitalized interest was $13.5 million and $7.6 million during 2008 and 2007, respectively, and was
associated with various construction and expansion projects further described under Liquidity and
Capital Resources hereafter.
Income tax expense
During the years ended December 31, 2008 and 2007, our financial statements reflected an income tax
provision of $90.9 million and $79.4 million, respectively, and our effective tax rate was
approximately 37.7% during both the years. Our annual effective tax rate in 2008 was consistent
with the effective tax rate in 2007, as increases in our projected taxable income in states with
higher statutory tax rates and the full year impact of an adverse change in Texas tax law were
substantially offset by an increase in state tax credits resulting from certain tax planning
strategies. Our effective tax rate is estimated based on our current projection of taxable income
and could fluctuate based on changes in these estimates, the implementation of tax strategies,
changes in federal or state tax rates, changes in tax laws, 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
As a result of Shelby Countys evolving relationship with the Tennessee Department of Childrens
Services (DCS) whereby DCS prefers to oversee the juveniles at facilities under DCS control, we
ceased operations of the 200-bed Shelby Training Center located in Memphis, Tennessee in August
2008. We reclassified the results of operations, net of taxes, and the assets and liabilities of
this facility, excluding property and equipment, as discontinued operations upon termination of the
management contract during the third quarter of 2008. The property and equipment of this facility
will continue to be reported as continuing operations, as we retained ownership of the building and
equipment and completed the purchase of the land during the fourth quarter of 2008 from Shelby
County, Tennessee for $150,000. The Shelby Training Center operated at break-even and generated a
profit of $0.5 million, net of taxes, during the years ended December 31, 2008 and 2007,
respectively.
In May 2008, we notified the Bay County Commission of our intention to exercise our option to
terminate the operational management contract for the 1,150-bed Bay County Jail and Annex in Panama
City, Florida, effective October 9, 2008. The Bay County Jail and Annex incurred a loss of
54
$1.0 million and a profit of $0.1 million, net of taxes, during the years ended December 31, 2008
and 2007, respectively.
Pursuant to a re-bid of the management contracts, during September 2008, we were notified by the
Texas Department of Criminal Justice (TDCJ) of its intent to transfer the management of the
500-bed B.M. Moore Correctional Center in Overton, Texas and the 518-bed Diboll Correctional Center
in Diboll, Texas to another operator, upon the expiration of the management contracts on January
16, 2009. Both of these facilities are owned by the TDCJ. Accordingly, the results of operations,
net of taxes, and the assets and liabilities of these two facilities are reported as discontinued
operations upon termination of operations in the first quarter of 2009 for all periods presented.
These two facilities operated at a profit of $0.6 million and $0.5 million, net of taxes, for the
years ended December 31, 2008 and 2007, respectively.
During December 2008, we were notified by Hamilton County, Ohio of its intent to terminate the
lease for the 850-bed Queensgate Correctional Facility located in Cincinnati, Ohio. The County
elected to terminate the lease due to funding issues being experienced by the County. Accordingly,
upon termination of the lease in the first quarter of 2009, we reclassified the results of
operations, net of taxes, of this facility as discontinued operations for all periods presented.
The property and equipment of this facility will continue to be reported as continuing operations,
as we retained ownership of the land, building, and equipment. The lease with Hamilton County
generated a profit of $1.4 million and $1.3 million, net of taxes, for the years ended December 31,
2008 and 2007, 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 also regularly evaluate the most efficient use of our capital resources and
respond to changes in market conditions, by taking advantage of opportunities to use our capital
resources to repurchase our common stock at prices which would equal or exceed the rates of return
when we invest in new beds. 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.
In May 2008, we announced that we were awarded a contract by the OFDT to design, build, and operate
a new correctional facility located in Pahrump, Nevada, approximately 65 miles outside of Las
Vegas, Nevada. Our new 1,072-bed Nevada Southern Detention Center is expected to house
approximately 1,000 federal prisoners. The contract provides for a guarantee of up to 750
prisoners and includes an initial term of five years with three five-year renewal options. In order
to expedite completion of the development, we purchased the land and began to incur design and
other pre-construction costs associated with this development. During April 2009, the OFDT
authorized us to commence construction of the new Nevada Southern Detention Center. We currently
expect construction to be complete during the third quarter of 2010, at an estimated cost of $83.5
million. As of December 31, 2009, the remaining costs to complete construction totaled
approximately $33.7 million.
In July 2009, we announced that we had been awarded an amendment to our existing contracts with the
Georgia Department of Corrections to expand two of our existing facilities by 1,500 beds. The
award
55
satisfied a competitive Request for Proposal of 1,500 beds from the state of Georgia that was
issued in October of 2008. As of December 31, 2009, we housed approximately 3,400 inmates from the
state of Georgia. As a result of the award, we will expand our 1,524-bed Coffee Correctional
Facility by 788 beds and our 1,524 bed Wheeler Correctional Facility by 712 beds. The expansions
are estimated to cost approximately $65.0 million and are currently anticipated to be completed
during the third quarter of 2010, at which point we expect to begin receiving the incremental
inmates. As of December 31, 2009, the remaining costs to complete construction totaled
approximately $40.2 million. The amended contracts expire June 30, 2010 and include twenty-four
one-year remaining renewal options. In addition to the guarantee on the existing beds at both
facilities, the amended contracts contain a 90% guarantee on the expansion beds.
In addition, during February 2008, we announced our intention to construct our new 2,040-bed
Trousdale Correctional Center in Trousdale County, Tennessee. However, we have temporarily
suspended the construction of this facility until we have greater clarity around the timing of
future bed absorption by our customers. We will continue to monitor our customers needs, and
could promptly resume construction of the facility.
In addition to the foregoing, the following expansions and development projects were completed
during 2008 and 2009. Costs include pre-acquisition costs (as applicable), land acquisition costs,
design and construction costs, capitalized interest, as well as furniture, fixtures, and equipment
required to operate the beds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
Facility |
|
No. of beds |
|
|
Completion date |
|
(in thousands) |
|
Eden Detention Center
Eden, TX |
|
|
129 |
|
|
First quarter 2008 |
|
$ |
19,500 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
Kit Carson Correctional Center
Burlington, CO |
|
|
720 |
|
|
First quarter 2008 |
|
|
42,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Tallahatchie County Correctional Facility |
|
|
720 |
|
|
Second quarter 2008 |
|
|
45,500 |
|
Tutwiler, MS |
|
|
128 |
|
|
Fourth quarter 2008 |
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Bent County Correctional Facility
Las Animas, CO |
|
|
720 |
|
|
Second quarter 2008 |
|
|
45,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Leavenworth Detention Center
Leavenworth, KS |
|
|
266 |
|
|
Second quarter 2008 |
|
|
21,000 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
Davis Correctional Facility
Holdenville, OK |
|
|
660 |
|
|
Third quarter 2008 |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Cimarron Correctional Facility
Cushing, OK |
|
|
660 |
|
|
Fourth quarter 2008 |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Adams County Correctional Center
Adams County, MS |
|
|
2,232 |
|
|
Fourth quarter 2008 |
|
|
126,000 |
|
|
|
|
|
|
|
|
|
|
|
|
La Palma Correctional Center
Eloy, AZ |
|
|
3,060 |
|
|
First quarter 2009 |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
9,295 |
|
|
|
|
$ |
587,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The cost included a renovation of the facility pursuant to a new contract award from
the BOP to house up to 1,558 federal inmates. |
|
(2) |
|
The cost for this expansion included a renovation of the existing building
infrastructure to accommodate higher inmate populations. |
56
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 previously had separate terms ranging from June 2006 to December 2015.
During January 2010, we entered into an amendment to the ground lease with the County of San Diego
whereby the terms of the different properties are now scheduled to expire at the same date on
December 31, 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. Under the terms of the original ground
lease, the County had 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 was scheduled to expire December 31, 2011. Pursuant to the
amendment to the ground lease signed in January 2010, the Countys right to purchase the Initial
portion of the facility was removed and the lease term for the 200-bed Expansion portion of the
facility was extended through December 31, 2015. 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 and Expansion Premises, we will likely 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 construction of a new facility
at a site we are currently developing. However, we can provide no assurance that we will be able to
retain these inmate populations.
During the year ended December 31, 2009, we capitalized $48.9 million of facility maintenance and
technology related expenditures, compared with $35.3 million during the year ended December 31,
2008. We currently expect to incur approximately $52.5 million to $57.5 million in facility
maintenance and information technology capital expenditures during 2010, and approximately $91.0
million to $111.0 million on prison development and expansions. We also currently expect to pay
approximately $68.0 million to $74.0 million in federal and state income taxes during 2010,
compared with $63.5 million during 2009 and $54.9 million in 2008. Income taxes paid in 2008
reflect the favorable tax depreciation provisions on qualified assets under the Economic Stimulus
Act of 2008, as well as on our Adams County Correctional Center, which is in a location that
qualifies for accelerated depreciation under the Gulf Opportunity Zone Act of 2005. Income taxes
paid in 2009 reflect the favorable tax depreciation provisions on qualified assets under the
American Recovery and Reinvestment Act of 2009 signed into law in February 2009.
In November 2008, our Board of Directors approved a program to repurchase up to $150.0 million of
our common stock. Through the expiration of this stock repurchase plan on December 31, 2009, we
completed the purchase of 10.7 million shares at a total cost of $125.0 million, or an average
price of $11.72 per share. We utilized cash on hand, net cash provided by operations and borrowings
available under our revolving credit facility to fund the repurchases. Our last purchase under the
$150.0 million stock repurchase plan was in March 2009. In February 2010, our Board of Directors
approved a new program to repurchase up to $250.0 million of our common stock through June 30,
2011. The program is intended to be implemented essentially the same as the previous repurchase
program, through purchases made from time to time in the open market or in privately negotiated
transactions, in accordance with Securities and Exchange Commission requirements. Given current
market conditions and available bed capacity within our portfolio, we believe that it is
appropriate to use our capital resources to repurchase common stock at prices which would equal or
exceed the rates of return we require when we invest in new beds.
57
On May 19, 2009, we announced a cash tender offer for any and all of our outstanding $450.0 million
7.5% senior notes. In conjunction with the tender offer, we solicited consents from holders of the
7.5% senior notes to effect certain proposed amendments to the indenture governing the 7.5% senior
notes. Holders who validly tendered their 7.5% senior notes and provided their consents to the
proposed amendments to the indenture governing the 7.5% senior notes prior to the consent payment
deadline on June 2, 2009 (the Consent Date) were entitled to receive total consideration equal to
$1,001.25 per $1,000 principal amount of the 7.5% senior notes, which included a consent payment of
$1.25 per $1,000 principal amount of the 7.5% senior notes, plus any accrued and unpaid interest on
the 7.5% senior notes up to, but not including, the payment date. Holders who validly tendered
their 7.5% senior notes and provided their consents to the proposed amendments to the indenture
governing the 7.5% senior notes after the Consent Date but on or prior to June 16, 2009 (the
Expiration Date) were entitled to $1,000 per $1,000 principal amount of the 7.5% senior notes
plus accrued and unpaid interest up to, but not including, the payment date. However, holders of
the 7.5% senior notes who tendered after the Consent Date did not receive the consent payment.
On June 3, 2009, we completed the sale and issuance of $465.0 million aggregate principal amount of
7.75% unsecured senior notes pursuant to a prospectus supplement under an automatically effective
shelf registration statement that we filed with the SEC on May 19, 2009. The 7.75% senior notes
were issued at a price of 97.116%, resulting in a yield to maturity of 8.25%. We used the net
proceeds from the sale of the 7.75% senior notes to purchase (through the previously described cash
tender offer), redeem, or otherwise acquire our 7.5% senior notes, to pay fees and expenses, and
for general corporate purposes. As of June 30, 2009, holders of $372.1 million of the 7.5% senior
notes validly tendered their notes pursuant to the tender offer and consent solicitation. On July
3, 2009, we redeemed the remaining $77.9 million aggregate principal amount of the 7.5% senior
notes outstanding as of June 30, 2009. We reported a charge of $3.8 million during the second
quarter of 2009 in connection with the purchase and redemption of the 7.5% senior notes. We
capitalized approximately $10.5 million of costs associated with the issuance of the 7.75% senior
notes.
Replacing the 7.5% senior notes, which were scheduled to mature on May 1, 2011, with the 7.75%
senior notes, which are scheduled to mature on June 1, 2017, extended our nearest debt maturity to
December 2012. Although the current downturn in the economy has increased the level of uncertainty
in the demand for prison beds in the short-term, we believe the long-term implications are very
positive as states defer or cancel plans for adding new prison bed capacity. Further, certain of
our customers have expressed an interest in pursuing additional bed capacity from third parties
despite their budgetary challenges. We believe our debt refinancing provides us with more
financial flexibility to take advantage of opportunities that may require additional capital. These
opportunities also include stock repurchases.
We have the ability to fund our capital expenditure requirements, including the aforementioned
construction projects, as well as our facility maintenance and information technology expenditures,
working capital, debt service requirements, and the stock repurchase program, with cash on hand,
net cash provided by operations, and borrowings available under our revolving credit facility.
As of December 31, 2009, our liquidity was provided by cash on hand of $45.9 million, and $236.2
million available under our $450.0 million revolving credit facility. During the year ended
December 31, 2009 and 2008, we generated $314.7 million and $273.6 million, respectively, in cash
through operating activities, and as of December 31, 2009, we had net working capital of $130.7
million. We currently expect to be able to meet our cash expenditure requirements for the next year
utilizing these resources. None of our outstanding debt requires scheduled principal repayments,
and with the June 2009 issuance of $465.0 million 7.75% unsecured senior notes and subsequent
tender and redemption of all of the $450.0 million 7.5% senior notes, we currently have no debt
maturities until December
58
2012. We also have an option to increase the availability under our revolving credit facility by up
to $300.0 million subject to, among other things, the receipt of commitments for the increased
amount. In addition, we may issue debt or equity 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.
Lehman Brothers Commercial Bank (Lehman), which had a $15.0 million credit commitment under our
revolving credit facility, is a defaulting lender under the terms of the credit agreement. At
December 31, 2009, Lehman had funded $2.3 million in borrowings and $1.1 million in letters of
credit that remained outstanding on the facility. The loan balance will be repaid on a pro-rata
basis to the extent that LIBOR-based loans are repaid on tranches Lehman previously funded. It
is our expectation that going forward we will not have access to additional incremental funding
from Lehman, and to the extent Lehmans funding is reduced, it will not be replaced. We do not
believe that this reduction of credit has had a material effect on our liquidity and capital
resources. None of the other banks providing commitments under our revolving credit facility have
failed to fund borrowings we have requested. However, no assurance can be provided that all of the
banks in the lending group will continue to operate as a going concern in the future. If any of
the banks in the lending group were to fail, it is possible that the capacity under our revolving
credit facility would be reduced further.
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 July 2009, we began receiving
warrants, also known as IOUs, from the state of California for payment of services with a maturity
date of October 2, 2009 and a fixed interest rate of 3.75%. During September 2009, the state of
California redeemed the warrants we had previously received inclusive of accrued interest. As of
December 31, 2009, we had no outstanding warrants. However, if California were to resume issuing
warrants or if several additional major customers substantially delayed their cash payments to us,
our liquidity could be materially affected.
As of December 31, 2009, the interest rates on all our outstanding indebtedness are fixed, with the
exception of the interest rate applicable to $171.8 million outstanding under our revolving credit
facility, with a total weighted average effective interest rate of 6.6%, while our total weighted
average maturity was 4.9 years. Standard & Poors Ratings Services currently rates our unsecured
debt and corporate credit as BB, while Moodys Investors Service currently rates our unsecured
debt as Ba2. On September 17, 2009, Moodys improved its outlook on our debt rating to positive
from stable.
Operating Activities
Our net cash provided by operating activities for the year ended December 31, 2009 was $314.7
million compared with $273.6 million in 2008 and $250.9 million in 2007. 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 each year was
primarily the result of an increase in higher operating income and favorable fluctuations in
working capital balances during 2009, partially offset by an increase in income tax payments as a
result of the aforementioned favorable depreciation provisions in 2008.
59
Investing Activities
Our cash flow used in investing activities was $143.9 million for the year ended December 31, 2009,
and was primarily attributable to capital expenditures during the year of $143.0 million, including
$94.3 million for the expansion and development activities previously discussed herein, and $48.6
million for facility maintenance and information technology capital expenditures. Our cash flow
used in investing activities was $514.4 million for the year ended December 31, 2008, and was
primarily attributable to capital expenditures during the year of $515.6 million, including $480.5
million for expansion and development activities and $35.1 million for facility maintenance and
information technology capital expenditures. During the year ended December 31, 2007, our cash flow
used in investing activities was $253.7 million, primarily resulting from capital expenditures of
$343.1 million, including $296.4 million for expansion and development activities and $46.7 million
for facility maintenance and information technology capital expenditures. Cash flow used in
investing activities during 2007 was partially offset by the proceeds from the sale of investments
of $86.7 million.
Financing Activities
Our cash flow used in financing activities was $159.0 million for the year ended December 31, 2009
and was primarily attributable to paying $125.7 million to purchase common stock, including $110.4
million in connection with the aforementioned stock repurchase program and $15.3 million for the
purchase and retirement of common stock that was issued in connection with equity-based
compensation. These cash outflows were partially offset by cash flows associated with the
exercising of stock options, including the related income tax benefit of equity compensation. Our
cash flow used in financing activities also included $45.4 million in net repayments on our
revolving credit facility.
Our cash flow provided by financing activities was $216.9 million for the year ended December 31,
2008 and was primarily attributable to $217.2 million of net borrowings from our revolving credit
facility, as well as the cash flows associated with the exercising 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 $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 related income tax benefit of equity compensation, net of the purchase and
retirement of common stock.
Contractual Obligations
The following schedule summarizes our contractual obligations by the indicated period as of
December 31, 2009 (in thousands):
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Year Ended December 31, |
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
Long-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
171,799 |
|
|
$ |
375,000 |
|
|
$ |
150,000 |
|
|
$ |
465,000 |
|
|
$ |
1,161,799 |
|
Interest on senior notes |
|
|
69,600 |
|
|
|
69,600 |
|
|
|
69,600 |
|
|
|
57,881 |
|
|
|
41,100 |
|
|
|
90,094 |
|
|
|
397,875 |
|
Contractual facility
expansions |
|
|
75,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,309 |
|
Operating leases |
|
|
5,576 |
|
|
|
4,960 |
|
|
|
3,945 |
|
|
|
3,965 |
|
|
|
3,986 |
|
|
|
31,934 |
|
|
|
54,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual
Cash Obligations |
|
$ |
150,485 |
|
|
$ |
74,560 |
|
|
$ |
245,344 |
|
|
$ |
436,846 |
|
|
$ |
195,086 |
|
|
$ |
587,028 |
|
|
$ |
1,689,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cash obligations in the table above do not include future cash obligations for variable
interest associated with our outstanding revolving credit facility as projections would be based on
future outstanding balances as well as future variable interest rates, as we are unable to make
reliable estimates of either. Further, the cash obligations in the table above also do not include
future cash obligations for uncertain tax positions as we are unable to make reliable estimates of
the timing of such payments, if any, to the taxing authorities. We had $30.4 million of letters of
credit outstanding at December 31, 2009 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 2009, 2008, or 2007. The contractual
facility expansions included in the table above represent expansion or development projects for
which we have already entered into a contract with a customer that obligates us to complete the
expansion or development project. Certain of our other ongoing construction and expansion projects
are not currently under contract and thus are not included as a contractual obligation above as we
may generally suspend or terminate such projects without substantial penalty.
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 Companys 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.
61
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our primary market risk exposure is to changes in U.S. interest rates. We are exposed to market
risk related to our revolving credit facility because the interest rate on our revolving credit
facility is subject to fluctuations in the market. If the interest rate for our outstanding
indebtedness under the revolving credit facility was 100 basis points higher or lower during the
years ended December 31, 2009 and 2008, our interest expense, net of amounts capitalized, would
have been increased or decreased by $2.4 million and $1.2 million, respectively. We had no amounts
outstanding under the revolving credit facility during the year ended December 31, 2007.
As of December 31, 2009, we had outstanding $375.0 million of senior notes with a fixed interest
rate of 6.25%, $150.0 million of senior notes with a fixed interest rate of 6.75%, and $465.0
million of senior notes with a fixed interest rate of 7.75%. 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Managements 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 our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the
Exchange Act as of the end of the period covered by this annual report. Based on that evaluation,
our officers, 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 to ensure that information required to be disclosed in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Commissions rules and forms and information required to be disclosed in the
reports we file or submit under the Exchange Act is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, to allow timely decisions
regarding required disclosure.
62
Managements 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 Exchange Act. The Companys 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 Companys 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 Companys 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 Companys internal control over financial reporting as
of December 31, 2009. 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.
Based on managements assessment and those criteria, management believes that, as of December 31,
2009, the Companys internal control over financial reporting was effective.
The Companys independent registered public accounting firm, Ernst & Young LLP, have issued an
attestation report on the Companys 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, 2009, 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 Managements Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Companys 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 companys 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
companys 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 companys 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, 2009, 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, 2009 and 2008, and the related consolidated statements of
operations, stockholders equity and cash flows for each of the three years in the period ended
December 31, 2009 and our report dated
February 24, 2010 expressed an unqualified opinion thereon.
|
|
|
|
|
|
|
|
|
|
/s/ Ernst & Young LLP
|
|
|
|
Ernst & Young LLP |
|
|
|
|
|
|
Nashville, Tennessee
February 24, 2010
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 1 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, Corporate
Governance Independence and Financial Literacy of Audit Committee Members, and Security
Ownership of Certain Beneficial Owners and Management Section 16(a) Beneficial Ownership
Reporting Compliance in our definitive proxy statement for the 2010 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.
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 2010
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 Ownership of Common Stock in our definitive proxy statement for the 2010 annual
meeting of stockholders.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information as of December 31, 2009 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 |
|
|
3,908,765 |
|
|
$ |
15.00 |
|
|
|
3,134,532 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,908,765 |
|
|
$ |
15.00 |
|
|
|
3,134,532 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects shares of common stock available for issuance under our Amended and Restated
2000 Stock Incentive Plan, as amended, 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 2010 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 2 Ratification of Appointment of Independent
Registered Public Accounting Firm in our definitive proxy statement for the 2010 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
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of Corrections Corporation of America and Subsidiaries
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Corrections Corporation of America and Subsidiaries
We have audited the accompanying consolidated balance sheets of Corrections Corporation of America
and Subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements of
operations, stockholders equity and cash flows for each of the three years in the period ended
December 31, 2009. These financial statements are the responsibility of the Companys 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, 2009 and 2008, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Corrections Corporation of Americas internal control over financial
reporting as of December 31, 2009, 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 24, 2010 expressed an unqualified opinion thereon.
|
|
|
|
|
|
|
|
|
|
/s/ Ernst & Young LLP
|
|
|
|
Ernst & Young LLP |
|
|
|
|
|
|
Nashville, Tennessee
February 24, 2010
F-2
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
45,908 |
|
|
$ |
34,077 |
|
Accounts receivable, net of allowance of $1,563 and $2,689, respectively |
|
|
241,185 |
|
|
|
261,101 |
|
Deferred tax assets |
|
|
11,842 |
|
|
|
16,108 |
|
Prepaid expenses and other current assets |
|
|
26,254 |
|
|
|
23,472 |
|
Current assets of discontinued operations |
|
|
66 |
|
|
|
3,541 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
325,255 |
|
|
|
338,299 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
2,520,503 |
|
|
|
2,478,670 |
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
6,747 |
|
|
|
6,710 |
|
Investment in direct financing lease |
|
|
12,185 |
|
|
|
13,414 |
|
Goodwill |
|
|
13,672 |
|
|
|
13,672 |
|
Other assets |
|
|
27,381 |
|
|
|
20,455 |
|
Non-current assets of discontinued operations |
|
|
|
|
|
|
154 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,905,743 |
|
|
$ |
2,871,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
193,429 |
|
|
$ |
189,049 |
|
Income taxes payable |
|
|
481 |
|
|
|
450 |
|
Current portion of long-term debt |
|
|
|
|
|
|
290 |
|
Current liabilities of discontinued operations |
|
|
673 |
|
|
|
2,034 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
194,583 |
|
|
|
191,823 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
|
1,149,099 |
|
|
|
1,192,632 |
|
Deferred tax liabilities |
|
|
88,260 |
|
|
|
68,349 |
|
Other liabilities |
|
|
31,255 |
|
|
|
38,211 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,463,197 |
|
|
|
1,491,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock $0.01 par value; 300,000 shares authorized; 115,962 and 124,673 shares
issued and outstanding at December 31, 2009 and 2008, respectively |
|
|
1,160 |
|
|
|
1,247 |
|
Additional paid-in capital |
|
|
1,483,497 |
|
|
|
1,576,177 |
|
Retained deficit |
|
|
(42,111 |
) |
|
|
(197,065 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,442,546 |
|
|
|
1,380,359 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
2,905,743 |
|
|
$ |
2,871,374 |
|
|
|
|
|
|
|
|
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, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
Management and other |
|
$ |
1,667,798 |
|
|
$ |
1,581,593 |
|
|
$ |
1,439,826 |
|
Rental |
|
|
2,165 |
|
|
|
2,576 |
|
|
|
2,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,669,963 |
|
|
|
1,584,169 |
|
|
|
1,442,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
1,168,672 |
|
|
|
1,112,679 |
|
|
|
1,025,040 |
|
General and administrative |
|
|
86,537 |
|
|
|
80,308 |
|
|
|
74,399 |
|
Depreciation and amortization |
|
|
100,799 |
|
|
|
90,555 |
|
|
|
78,396 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,356,008 |
|
|
|
1,283,542 |
|
|
|
1,178,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
313,955 |
|
|
|
300,627 |
|
|
|
263,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
72,780 |
|
|
|
59,404 |
|
|
|
53,776 |
|
Expenses associated with debt refinancing transactions |
|
|
3,838 |
|
|
|
|
|
|
|
|
|
Other (income) expense |
|
|
(151 |
) |
|
|
292 |
|
|
|
(308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
76,467 |
|
|
|
59,696 |
|
|
|
53,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
|
|
237,488 |
|
|
|
240,931 |
|
|
|
210,368 |
|
|
Income tax expense |
|
|
(81,745 |
) |
|
|
(90,933 |
) |
|
|
(79,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS |
|
|
155,743 |
|
|
|
149,998 |
|
|
|
131,001 |
|
|
Income (loss) from discontinued operations, net of taxes |
|
|
(789 |
) |
|
|
943 |
|
|
|
2,372 |
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
154,954 |
|
|
$ |
150,941 |
|
|
$ |
133,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.34 |
|
|
$ |
1.20 |
|
|
$ |
1.07 |
|
Income (loss) from discontinued operations, net of taxes |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.33 |
|
|
$ |
1.21 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.33 |
|
|
$ |
1.19 |
|
|
$ |
1.04 |
|
Income (loss) from discontinued operations, net of taxes |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.32 |
|
|
$ |
1.20 |
|
|
$ |
1.06 |
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
154,954 |
|
|
$ |
150,941 |
|
|
$ |
133,373 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
100,803 |
|
|
|
91,461 |
|
|
|
78,682 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
1,574 |
|
Amortization of debt issuance costs and other non-cash interest |
|
|
4,017 |
|
|
|
3,812 |
|
|
|
3,931 |
|
Expenses associated with debt refinancing transactions |
|
|
3,838 |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
22,622 |
|
|
|
29,813 |
|
|
|
9,576 |
|
Other (income) expense |
|
|
(158 |
) |
|
|
253 |
|
|
|
(303 |
) |
Other non-cash items |
|
|
661 |
|
|
|
983 |
|
|
|
307 |
|
Income tax benefit of equity compensation |
|
|
(6,896 |
) |
|
|
(9,044 |
) |
|
|
(21,225 |
) |
Non-cash equity compensation |
|
|
9,828 |
|
|
|
9,679 |
|
|
|
7,500 |
|
Changes in assets and liabilities, net: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, prepaid expenses and other assets |
|
|
20,767 |
|
|
|
(25,150 |
) |
|
|
(6,950 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
(2,672 |
) |
|
|
12,307 |
|
|
|
25,649 |
|
Income taxes payable |
|
|
6,927 |
|
|
|
8,530 |
|
|
|
18,766 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
314,691 |
|
|
|
273,585 |
|
|
|
250,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for facility development and expansions |
|
|
(94,313 |
) |
|
|
(480,511 |
) |
|
|
(296,453 |
) |
Expenditures for other capital improvements |
|
|
(48,644 |
) |
|
|
(35,135 |
) |
|
|
(46,688 |
) |
Proceeds from sale of investments |
|
|
|
|
|
|
|
|
|
|
86,716 |
|
Purchases of investments |
|
|
|
|
|
|
|
|
|
|
(3,886 |
) |
Decrease in restricted cash |
|
|
|
|
|
|
|
|
|
|
5,641 |
|
Proceeds from sale of assets |
|
|
273 |
|
|
|
1,002 |
|
|
|
737 |
|
Increase in other assets |
|
|
(2,285 |
) |
|
|
(684 |
) |
|
|
(610 |
) |
Payments received on direct financing lease and notes receivable |
|
|
1,089 |
|
|
|
965 |
|
|
|
855 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(143,880 |
) |
|
|
(514,363 |
) |
|
|
(253,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt |
|
|
587,478 |
|
|
|
293,800 |
|
|
|
|
|
Principal repayments of debt |
|
|
(631,334 |
) |
|
|
(76,555 |
) |
|
|
|
|
Payment of debt issuance and other refinancing and related costs |
|
|
(11,485 |
) |
|
|
(89 |
) |
|
|
(1,997 |
) |
Proceeds from exercise of stock options and warrants |
|
|
15,166 |
|
|
|
10,308 |
|
|
|
16,006 |
|
Purchase and retirement of common stock |
|
|
(125,701 |
) |
|
|
(19,621 |
) |
|
|
(3,579 |
) |
Income tax benefit of equity compensation |
|
|
6,896 |
|
|
|
9,044 |
|
|
|
21,225 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(158,980 |
) |
|
|
216,887 |
|
|
|
31,655 |
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
11,831 |
|
|
|
(23,891 |
) |
|
|
28,847 |
|
CASH AND CASH EQUIVALENTS, beginning of year |
|
|
34,077 |
|
|
|
57,968 |
|
|
|
29,121 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year |
|
$ |
45,908 |
|
|
$ |
34,077 |
|
|
$ |
57,968 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-5
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of amounts capitalized of
$1,582, $13,526, and $7,613
in 2009, 2008, and 2007, respectively) |
|
$ |
74,466 |
|
|
$ |
58,531 |
|
|
$ |
60,595 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
63,534 |
|
|
$ |
54,914 |
|
|
$ |
51,255 |
|
|
|
|
|
|
|
|
|
|
|
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, 2009, 2008, AND 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Paid-In |
|
|
Earnings |
|
|
Stockholders |
|
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-7
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
Retained |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Earnings |
|
|
Stockholders |
|
|
|
Shares |
|
|
Par value |
|
|
Paid-In Capital |
|
|
(Deficit) |
|
|
Equity |
|
BALANCE, December 31, 2007 |
|
|
124,472 |
|
|
$ |
1,245 |
|
|
$ |
1,568,736 |
|
|
$ |
(348,006 |
) |
|
$ |
1,221,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,941 |
|
|
|
150,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,941 |
|
|
|
150,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
1 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
Retirement of common stock |
|
|
(1,263 |
) |
|
|
(13 |
) |
|
|
(21,575 |
) |
|
|
|
|
|
|
(21,588 |
) |
Amortization of deferred compensation,
net of forfeitures |
|
|
(41 |
) |
|
|
|
|
|
|
5,865 |
|
|
|
|
|
|
|
5,865 |
|
Stock option compensation expense |
|
|
|
|
|
|
|
|
|
|
3,789 |
|
|
|
|
|
|
|
3,789 |
|
Income tax benefit of equity compensation |
|
|
|
|
|
|
|
|
|
|
9,044 |
|
|
|
|
|
|
|
9,044 |
|
Warrants exercised |
|
|
150 |
|
|
|
2 |
|
|
|
1,665 |
|
|
|
|
|
|
|
1,667 |
|
Restricted stock grant |
|
|
279 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
1,075 |
|
|
|
11 |
|
|
|
8,630 |
|
|
|
|
|
|
|
8,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2008 |
|
|
124,673 |
|
|
$ |
1,247 |
|
|
$ |
1,576,177 |
|
|
$ |
(197,065 |
) |
|
$ |
1,380,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-8
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
(in thousands)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Paid- |
|
|
Earnings |
|
|
Stockholders |
|
|
|
Shares |
|
|
Par value |
|
|
In Capital |
|
|
(Deficit) |
|
|
Equity |
|
BALANCE, December 31, 2008 |
|
|
124,673 |
|
|
$ |
1,247 |
|
|
$ |
1,576,177 |
|
|
$ |
(197,065 |
) |
|
$ |
1,380,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,954 |
|
|
|
154,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,954 |
|
|
|
154,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
3 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
50 |
|
Retirement of common stock |
|
|
(10,314 |
) |
|
|
(103 |
) |
|
|
(123,631 |
) |
|
|
|
|
|
|
(123,734 |
) |
Amortization of deferred compensation,
net of forfeitures |
|
|
(30 |
) |
|
|
|
|
|
|
5,719 |
|
|
|
|
|
|
|
5,719 |
|
Stock option compensation expense |
|
|
|
|
|
|
|
|
|
|
4,059 |
|
|
|
|
|
|
|
4,059 |
|
Income tax benefit of equity compensation |
|
|
|
|
|
|
|
|
|
|
5,973 |
|
|
|
|
|
|
|
5,973 |
|
Restricted stock grant |
|
|
135 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
1,495 |
|
|
|
15 |
|
|
|
15,151 |
|
|
|
|
|
|
|
15,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2009 |
|
|
115,962 |
|
|
$ |
1,160 |
|
|
$ |
1,483,497 |
|
|
$ |
(42,111 |
) |
|
$ |
1,442,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2009, 2008 AND 2007
1. ORGANIZATION AND OPERATIONS
Corrections Corporation of America (together with its subsidiaries, the Company) is the
nations 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, 2009, the Company owned 46 correctional and detention
facilities, two of which the Company leased to other operators. At December 31, 2009, the
Company operated 65 facilities, including 44 facilities that it owned, located in 19 states
and the District of Columbia. The Company is also constructing an additional 1,072-bed
correctional facility under a contract awarded by the Office of Federal Detention Trustee in
Pahrump, Nevada that is currently expected to be completed during the third quarter of 2010.
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 Companys 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.
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.
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 both December 31, 2009 and 2008 was $6.7 million for a capital
improvements, replacements, and repairs reserve.
Accounts Receivable and Allowance for Doubtful Accounts
At December 31, 2009 and 2008, accounts receivable of $241.2 million and $261.1 million were
net of allowances for doubtful accounts totaling $1.6 million and $2.7 million, respectively.
Accounts receivable consist primarily of amounts due from federal, state, and local government
agencies for
F-10
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.
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. 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 and software |
|
3 5 years |
Office furniture and fixtures |
|
5 years |
Intangible Assets Other Than Goodwill
Intangible assets other than goodwill include contract acquisition costs 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.
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.
F-11
Goodwill
Goodwill represents the cost in excess of the net assets of businesses acquired in the
Companys 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 Companys 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 Companys 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 using the interest method, or on a
straight-line basis over the term of the related debt, if not materially different than the
interest method. However, certain debt issuance costs incurred in connection with debt
refinancings are charged to expense in accordance with Accounting Standards Codification
(ASC) 470-50, Modifications and Extinguishments.
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, including revenue under those contracts that include
guaranteed minimum populations, is recorded based on the per diem rate multiplied by the
number of inmates housed or guaranteed during the respective period.
The Company recognizes any additional management service revenues upon completion of services
provided to the customer. Certain of the government agencies also have the authority to audit
and investigate the Companys 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.
The reimbursement
F-12
of expenses is recognized as a reduction to expense in the period the expenses are incurred by
the Company. There were no material adverse audit findings during any of the periods
presented.
Other revenue consists primarily of ancillary revenues associated with operating correctional
and detention facilities, such as commissary, phone, and vending sales, and are recorded in
the period the goods and services are provided to the inmates. Revenues generated from
prisoner transportation services for governmental agencies are recorded in the period the
inmates have been transported to their destination. Design and construction management fees
earned from governmental agencies for certain expansion and development projects at
managed-only facilities operated by the Company are recorded based on a percentage of
completion of the construction project.
Rental Revenue
Rental revenue is recognized based on the terms of the Companys 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 Companys
insurance expense is largely dependent on claims experience and the Companys 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 an actuarially
determined liability, discounted to the net present value of the outstanding liabilities,
using a combination of actuarial methods used to project ultimate losses. The liability for
employee health, workers compensation, and automobile insurance includes estimates for both
claims incurred and for claims incurred but not reported. 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 ASC 740 Income Taxes. ASC 740
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 tax credit carryforwards
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 Companys 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 ASC 740, Income Taxes.
ASC 740 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.
F-13
Foreign Currency Transactions
The Company has extended a working capital loan to Agecroft Prison Management, Ltd. (APM),
the operator of a correctional facility in Salford, 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 Companys relationship with APM.
Fair Value of Financial Instruments
To meet the reporting requirements of ASC 825, 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, 2009 and 2008, there were no
material differences between the carrying amounts and the estimated fair values of the
Companys financial instruments, other than as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2009 |
|
2008 |
|
|
Carrying |
|
|
|
|
|
Carrying |
|
|
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
Investment in direct financing lease |
|
$ |
13,414 |
|
|
$ |
16,329 |
|
|
$ |
14,503 |
|
|
$ |
17,999 |
|
Note receivable from APM |
|
$ |
5,025 |
|
|
$ |
8,497 |
|
|
$ |
4,567 |
|
|
$ |
7,734 |
|
Debt |
|
$ |
(1,149,099 |
) |
|
$ |
(1,187,768 |
) |
|
$ |
(1,192,922 |
) |
|
$ |
(1,163,744 |
) |
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 Companys credit risks relate primarily to cash and cash equivalents, restricted cash,
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 maintains deposits of cash in excess of federally insured limits with certain
financial institutions. The Companys accounts receivable and investment in direct financing
lease represent amounts due primarily from governmental agencies. The Companys 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, 2009, 2008, and 2007,
federal correctional and detention authorities represented 39%, 40%, and 41%, respectively, of
the Companys total revenue. Federal correctional and detention authorities consist primarily
of the Federal Bureau of Prisons (BOP), the United States Marshals Service (USMS), and the
U.S. Immigration and Customs Enforcement (ICE). The BOP accounted for 13% of total revenue
for each of the years 2009, 2008, and 2007. The USMS accounted for 14%, 14%, and 15% of total
F-14
revenue for 2009, 2008, and 2007, respectively. The ICE accounted for 12%, 13%, and 13% of
total revenue for 2009, 2008, and 2007, respectively. These federal customers have management
contracts at facilities the Company owns and at facilities the Company manages but does not
own. Additionally, the Companys management contracts with state correctional authorities
represented 52%, 52%, and 49% of total revenue during the years ended December 31, 2009, 2008,
and 2007, respectively. The State of California Department of Corrections and Rehabilitation
(the CDCR) accounted for 11%, 6%, and 1% of total revenue for the years ended December 31,
2009, 2008, and 2007, respectively. No other customer generated more than 10% of total
revenue during 2009, 2008, or 2007. Although the revenue generated from each of these agencies
is derived from numerous management contracts, the loss of one or more of such contracts could
have a material adverse impact on our financial condition and results of operations.
Comprehensive Income
ASC 220, 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.
Accounting for Stock-Based Compensation
Restricted Stock
The Company amortizes the fair market value as of the grant date 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
At December 31, 2009, 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 ASC 718, Compensation-Stock Compensation. 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 Companys 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, 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
F-15
upon the individuals 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 fourth
quarter of 2005 for the estimated value of the stock options that would have otherwise been
forfeited.
3. GOODWILL AND INTANGIBLES
Goodwill was $13.7 million as of December 31, 2009 and 2008, and was associated with fourteen
facilities the Company manages but does not own. This goodwill was established in connection
with the acquisitions of two service companies during 2000. ASC 350, Intangibles-Goodwill
and Other, establishes accounting and reporting requirements for goodwill and other
intangible assets. Under ASC 350, goodwill attributable to each of the Companys 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 and discounted cash flows. 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 Companys annual budgeting process, and whenever
circumstances indicate the carrying value of goodwill may not be recoverable.
During the fourth quarter of 2007, in connection with the Companys annual budgeting process
and annual goodwill impairment analysis, the Company recognized a goodwill impairment charge
of $1.6 million related to the management of two of the Companys 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. During
2008, the Company exercised its option to terminate one of the management contracts upon
expiration of the contract in the fourth quarter of 2008. Since the operations of this
facility were reclassified and reported as discontinued operations, the goodwill impairment
charge associated with this facility of $1.0 million is included in income from discontinued
operations in 2007. See Note 13.
The components of the Companys other identifiable intangible assets and liabilities are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Contract acquisition costs |
|
$ |
873 |
|
|
$ |
(862 |
) |
|
$ |
873 |
|
|
$ |
(860 |
) |
Contract values |
|
|
(35,688 |
) |
|
|
32,571 |
|
|
|
(35,688 |
) |
|
|
29,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(34,815 |
) |
|
$ |
31,709 |
|
|
$ |
(34,815 |
) |
|
$ |
29,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract acquisition costs are included in other non-current assets and contract values
are included in other non-current liabilities in the accompanying consolidated balance sheets.
Contract values are amortized using the interest method. Amortization income, net of
amortization expense, for intangible assets and liabilities during the years ended December
31, 2009, 2008, and 2007 was $3.0 million, $4.7 million and $4.3 million, respectively.
Interest expense associated with the amortization of contract values for the years ended
December 31, 2009, 2008, and 2007 was $0.4 million, $0.7 million, and $1.1 million,
respectively. Estimated amortization income, net of amortization expense, for the five
succeeding fiscal years is as follows (in thousands):
F-16
|
|
|
|
|
2010 |
|
$ |
2,338 |
|
2011 |
|
|
134 |
|
2012 |
|
|
134 |
|
2013 |
|
|
134 |
|
2014 |
|
|
134 |
|
4. PROPERTY AND EQUIPMENT
At December 31, 2009, the Company owned 48 real estate properties, including 46 correctional
and detention facilities, two of which the Company leased to other operators, and two
corporate office buildings. At December 31, 2009, the Company also managed 21 correctional
and detention facilities owned by government agencies.
Property and equipment, at cost, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Land and improvements |
|
$ |
75,374 |
|
|
$ |
71,346 |
|
Buildings and improvements |
|
|
2,732,185 |
|
|
|
2,666,103 |
|
Equipment and software |
|
|
256,329 |
|
|
|
226,645 |
|
Office furniture and fixtures |
|
|
28,846 |
|
|
|
27,913 |
|
Construction in progress |
|
|
125,556 |
|
|
|
85,206 |
|
|
|
|
|
|
|
|
|
|
|
3,218,290 |
|
|
|
3,077,213 |
|
Less: Accumulated depreciation |
|
|
(697,787 |
) |
|
|
(598,543 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,520,503 |
|
|
$ |
2,478,670 |
|
|
|
|
|
|
|
|
Construction in progress primarily consists of correctional facilities under
construction or expansion. Interest is capitalized on construction in progress and amounted to
$1.6 million, $13.5 million, and $7.6 million in 2009, 2008, and 2007, respectively.
Depreciation expense was $103.8 million, $95.2 million, and $82.7 million for the years ended
December 31, 2009, 2008, and 2007, respectively.
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, two facilities, which 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 that expires December 2015 pursuant to amended lease terms executed
between the Company and the County of San Diego in January 2010. The Company also leases land
and building at the Elizabeth Detention Center under operating leases that expire June 2015.
During January 2009, the Company commenced a new lease for land and building at the North
Georgia Detention Center under an operating lease that expires in 2029. The rental expense
incurred for these leases was $5.6 million, $3.5 million, and $3.4 million for the years ended
December 31, 2009, 2008, and 2007, respectively. Future minimum lease payments as of December
31, 2009 under these operating leases are as follows:
F-17
|
|
|
|
|
2010 |
|
$ |
5,576 |
|
2011 |
|
|
4,960 |
|
2012 |
|
|
3,945 |
|
2013 |
|
|
3,965 |
|
2014 |
|
|
3,986 |
|
In December 2009, the Company entered into an Economic Development Agreement with the
Wheeler County Development Authority (Wheeler County) in Wheeler County, Georgia to
implement a tax abatement plan related to our bed expansion project at our Wheeler
Correctional Facility. The tax abatement plan provides for 50% abatement of real property
taxes for six years. Under the plan, legal title of the Companys real property was
transferred to Wheeler County. In December 2009, Wheeler County issued bonds in a maximum
principal amount of $30.0 million. The bonds were issued to the Company, so no cash exchanged
hands. Wheeler County then leased the real property back to the Company. The lease payments
are equal to the amount of the payments on the bonds. At any time, the Company has the option
to purchase the real property by paying off the bonds, plus $100. Due to the form of the
transaction, the Company has not recorded the bond or the capital lease associated with sale
lease-back transaction. The original cost of the Companys property and equipment is being
recorded on the balance sheet and will be depreciated once placed into service upon completion
of construction.
In December 2009, the Company also entered into an Economic Development Agreement with the
Douglas-Coffee County Industrial Authority (Coffee County) in Coffee County, Georgia to
implement a tax abatement plan related to our bed expansion project at our Coffee Correctional
Facility. The tax abatement plan provides for 100% abatement of real property taxes for five
years. Under the plan, legal title of the Companys real property was transferred to Coffee
County. In December 2009, Coffee County issued bonds in a maximum principal amount of $33.0
million. The bonds were issued to the Company, so no cash exchanged hands. Coffee County then
leased the real property back to the Company. The lease payments are equal to the amount of
the payments on the bonds. At any time, the Company has the option to purchase the real
property by paying off the bonds, plus $100. Due to the form of the transaction, the Company
has not recorded the bond or the capital lease associated with sale lease-back transaction.
The original cost of the Companys property and equipment is being recorded on the balance
sheet and will be depreciated once placed into service upon completion of construction.
5. FACILITY ACTIVATIONS, DEVELOPMENTS, AND CLOSURES
In July 2007, the Company announced the commencement of construction of a new correctional
facility in Adams County, Mississippi. During the second quarter of 2008, the Company
announced that it would increase the size of the Adams County Correctional Center.
Construction of the Adams County Correctional Center was completed during the fourth quarter
of 2008 at a cost of approximately $126.0 million. In April 2009, the Company announced that
it had been awarded a contract with the BOP to house up to 2,567 federal inmates at the Adams
County Correctional Center. The four-year contract, awarded as part of the Criminal Alien
Requirement 8 Solicitation (CAR 8), also provides for up to three two-year renewal options
and includes contract provisions that are materially comparable to the Companys other
contracts with the BOP, including a 50% guarantee of occupancy during the activation period
and a 90% guarantee thereafter. The Company began receiving inmates during the third quarter
of 2009.
In February 2008, the Company announced its intention to construct a new correctional facility
in Trousdale County, Tennessee. However, during the first quarter of 2009 the Company
temporarily suspended the construction of this facility until it has greater clarity around
the timing of future bed absorption by its customers. The Company will continue to monitor its
customers needs, and could promptly resume construction of the facility.
F-18
In May 2008, the Company was awarded a contract by the Office of Federal Detention Trustee to
design, build, and operate a new correctional facility in Pahrump, Nevada, which is currently
expected to be completed during the third quarter of 2010 for approximately $83.5 million.
The new Nevada Southern Detention Center is expected to house approximately 1,000 federal
prisoners. The contract provides for a guarantee of up to 750 inmates or detainees and
includes an initial term of five years with three five-year renewal options.
In March 2009, the Company announced a new contract to manage detainee populations for ICE at
the North Georgia Detention Center in Hall County, Georgia, which has a total design capacity
of 502 beds. Under a five-year Inter-Governmental Service Agreement between Hall County,
Georgia and ICE, the Company will house up to 500 ICE detainees at the facility. The Company
leases the former Hall County Jail from Hall County, Georgia. The lease has an initial term of
20 years with two five-year renewal options and provides the Company the ability to cancel the
lease if it does not have a management contract. The Company placed the beds into service
during the third quarter of 2009 and began receiving detainees during October 2009.
In March 2009, the Company announced that it was awarded a contract with the state of Arizona
to manage up to 752 Arizona inmates at its 752-bed Huerfano County Correctional Center in
Colorado. The contract includes an initial term ending March 9, 2010, with four one-year
renewal options by mutual agreement. Additionally, the contract includes a guaranteed 90%
occupancy level effective upon initially reaching 90% occupancy. During the second quarter of
2009, the Company completed the relocation of approximately 600 Colorado inmates previously
housed at the Huerfano facility to the Companys three other facilities located in Colorado
and also completed the receipt of transferring Arizona inmates into the facility. During
January 2010, the Arizona Department of Corrections notified the Company that it elected not
to renew the contract at the Huerfano facility upon expiration of the contract. As a result,
the Company currently expects to idle the facility at the end of the first quarter of 2010.
During December 2009, the Company announced its decision to cease operations at its 1,600-bed
Prairie Correctional Facility in Minnesota on or about February 1, 2010 due to low inmate
populations at the facility. During 2009, the Prairie facility housed offenders from the
states of Minnesota and Washington. However, due to excess capacity in the states systems,
both states have been reducing the populations held at Prairie. During January 2010, the
final transfer of offenders from the Prairie facility to the state of Minnesota were
completed. The state of Washington has removed all of its offenders from the Prairie
facility, but maintains a modest inmate population in two other facilities in Arizona owned by
the Company.
During January 2010, the Company announced that pursuant to the BOP Criminal Alien Requirement
10 Solicitation (CAR 10) its 2,304-bed California City Correctional Center in California was
not selected for the continued management of the federal offenders currently located at this
facility. The current contract with the BOP at the California City facility expires on
September 30, 2010. The Company is working with the BOP to establish a transition plan for
these inmates.
The Company is currently pursuing new management contracts to take advantage of the beds that
have or will become available at the Huerfano, Prairie, and California City facilities but can
provide no assurance that it will be successful in doing so.
F-19
6. INVESTMENT IN AFFILIATE
The Company has determined that its joint venture in APM is a variable interest entity (VIE)
in accordance with ASC 810, Consolidation 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 Salford, 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 $5.0 million as of December 31, 2009.
The outstanding working capital loan represents the Companys maximum exposure to loss in
connection with APM.
For the years ended December 31, 2009, 2008, and 2007, equity in earnings of joint venture was
$27,000, $0.2 million, $0.2 million, respectively, which is included in other (income) expense
in the consolidated statements of operations. Because the Companys investment in APM has no
carrying value, equity in the net deficit of APM is 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, 2009, the Companys 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):
|
|
|
|
|
2010 |
|
$ |
2,793 |
|
2011 |
|
|
2,793 |
|
2012 |
|
|
2,793 |
|
2013 |
|
|
2,793 |
|
2014 |
|
|
2,793 |
|
Thereafter |
|
|
6,280 |
|
|
|
|
|
Total minimum obligation |
|
|
20,245 |
|
Less unearned interest income |
|
|
(6,831 |
) |
Less current portion of direct financing lease |
|
|
(1,229 |
) |
|
|
|
|
Investment in direct financing lease |
|
$ |
12,185 |
|
|
|
|
|
During the years ended December 31, 2009, 2008, and 2007, the Company recorded interest
income of $1.7 million, $1.8 million, and $1.9 million, respectively, under this direct
financing lease.
F-20
8. OTHER ASSETS
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Debt issuance costs, less accumulated amortization
of $8,024 and $14,255, respectively |
|
$ |
16,173 |
|
|
$ |
11,681 |
|
Notes receivable, net |
|
|
4,263 |
|
|
|
4,052 |
|
Cash surrender value of life insurance |
|
|
5,422 |
|
|
|
3,753 |
|
Deposits |
|
|
1,512 |
|
|
|
956 |
|
Contract acquisition costs, less accumulated amortization
of $862 and $860, respectively |
|
|
11 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
$ |
27,381 |
|
|
$ |
20,455 |
|
|
|
|
|
|
|
|
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Trade accounts payable |
|
$ |
50,049 |
|
|
$ |
52,911 |
|
Accrued salaries and wages |
|
|
41,680 |
|
|
|
37,063 |
|
Accrued workers compensation and auto liability |
|
|
8,660 |
|
|
|
9,180 |
|
Accrued litigation |
|
|
11,405 |
|
|
|
15,332 |
|
Accrued employee medical insurance |
|
|
10,265 |
|
|
|
10,180 |
|
Accrued property taxes |
|
|
22,809 |
|
|
|
17,760 |
|
Accrued interest |
|
|
14,226 |
|
|
|
17,207 |
|
Other |
|
|
34,335 |
|
|
|
29,416 |
|
|
|
|
|
|
|
|
|
|
$ |
193,429 |
|
|
$ |
189,049 |
|
|
|
|
|
|
|
|
The total liability for workers compensation and auto liability was $23.8 million and
$24.1 million as of December 31, 2009 and 2008, 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 3.0% annual rate of return in 2009 and a 5.0% annual rate of return in 2008. These
liabilities amounted to $26.5 million and $29.3 million on an undiscounted basis as of
December 31, 2009 and 2008, respectively.
10. DIVIDENDS TO STOCKHOLDERS
Common Stock
No dividends for common stock were declared for the years ended December 31, 2009, 2008, and
2007. The indentures governing the Companys 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 Companys management and its board of directors
regularly evaluate the merits of declaring and paying a dividend. Future dividends, if any,
will depend on the Companys 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.
F-21
11. DEBT
Debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Revolving Credit Facility, principal due at maturity in December 2012;
interest
payable periodically at variable interest rates. The weighted average
rate at
December 31, 2009 was 1.0%. |
|
$ |
171,799 |
|
|
$ |
217,245 |
|
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 tendered and
redeemed as further described hereafter. |
|
|
|
|
|
|
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 $0.7 million was unamortized at
December 31, 2008. These notes were tendered and redeemed as further
described hereafter. |
|
|
|
|
|
|
200,677 |
|
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 |
|
7.75% Senior Notes, principal due at maturity in June 2017; interest payable
semi-annually in June and December at 7.75%. These notes were issued with
a $13.4 million discount, of which $12.7 million was unamortized at
December 31, 2009. |
|
|
452,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,149,099 |
|
|
|
1,192,922 |
|
Less: Current portion of long-term debt |
|
|
|
|
|
|
(290 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,149,099 |
|
|
$ |
1,192,632 |
|
|
|
|
|
|
|
|
Revolving Credit Facility. During December 2007, the Company entered into a $450.0
million senior secured revolving credit facility (the Revolving Credit Facility) arranged by
Banc of America Securities LLC and Wachovia Capital Markets, LLC. The Revolving Credit
Facility is utilized to fund expansion and development projects, the stock repurchase program
as further described in Note 14, as well as for working capital, capital expenditures, and
general corporate purposes.
The Revolving Credit Facility has an aggregate principal capacity of $450.0 million and
matures in December 2012. At the Companys 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 Companys leverage ratio. Based on the Companys current
leverage ratio, loans under the Revolving Credit Facility 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, 2009, the
Company had $171.8 million in borrowings under the Revolving Credit Facility as well as $30.4
million in letters of credit outstanding.
Lehman Brothers Commercial Bank (Lehman), which holds a $15.0 million share in the Companys
Revolving Credit Facility, is a defaulting lender under the terms of the credit agreement. At
December 31, 2009, Lehman had funded $2.3 million in borrowings and $1.1 million in letters of
credit that remained outstanding on the facility. The loan balance will be repaid on a
pro-rata basis to the extent that LIBOR-based loans are repaid on tranches Lehman previously
funded. It is the Companys expectation that going forward it will not have access to
additional incremental funding from Lehman, and to the extent that their funding is reduced,
it will not be
F-22
replaced. The Company does not
believe that this reduction of credit has a material effect on the Companys
liquidity and capital resources. None of the other banks providing commitments under the
Revolving Credit Facility have failed to fund borrowings the Company has requested. However,
no assurance can be provided that all of the banks in the lending group will continue to
operate as a going concern in the future. If any of the banks in the lending group were to
fail, it is possible that the capacity under the Revolving Credit Facility would be reduced
further.
The Revolving Credit Facility has a $20.0 million sublimit for swing line loans that enables
the Company to borrow from Banc of America Securities LLC without advance notice at the base
rate. The Revolving Credit Facility also has a $100.0 million sublimit for the issuance of
standby letters of credit. The Company has an option to increase the availability under the
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 Revolving Credit Facility is secured by a pledge of all of the capital stock of the
Companys domestic subsidiaries, 65% of the capital stock of the Companys foreign
subsidiaries, all of the Companys accounts receivable, and all of the Companys deposit
accounts.
The 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, 2009, the Company was in
compliance with all such covenants. In addition, the 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 Revolving Credit Facility is subject to certain cross-default
provisions with terms of the Companys other indebtedness.
$375 Million 6.25% Senior Notes. Interest on the $375.0 million aggregate principal amount of
the Companys 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. The Company may redeem all or a
portion of the notes at redemption prices set forth in the indenture governing the 6.25%
Senior Notes.
$150 Million 6.75% Senior Notes. Interest on the $150.0 million aggregate principal amount of
the Companys 6.75% unsecured senior notes issued in January 2006 (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. The Company may redeem all or a
portion of the notes at redemption prices set forth in the indenture governing the 6.75%
Senior Notes.
Refinancing Transaction. In May 2003, the Company completed the issuance of $250.0 million
aggregate principal amount of 7.5% unsecured senior notes (the $250 Million 7.5% Senior
Notes). In August 2003, the Company completed the issuance of $200.0 million aggregate
principal amount of 7.5% unsecured senior notes (the $200 Million 7.5% Senior 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. Together, the $250 Million 7.5%
Senior Notes and the $200 Million 7.5% Senior Notes are referred to herein as the 7.5% Senior
Notes. Interest on the 7.5% Senior Notes accrued at the stated rate and was payable
semi-annually on May 1 and November 1 of each year. However, the $200 Million 7.5% Senior
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 was amortized as a
F-23
reduction to interest expense over the term of the notes. The 7.5% Senior Notes were
scheduled to mature on May 1, 2011.
On May 19, 2009, the Company announced a cash tender offer for any and all of its outstanding
7.5% Senior Notes. In conjunction with the tender offer, the Company solicited consents from
holders of the 7.5% Senior Notes to effect certain proposed amendments to the indenture
governing the 7.5% Senior Notes. Holders who validly tendered their 7.5% Senior Notes and
provided their consents to the proposed amendments to the indenture governing the 7.5% Senior
Notes prior to the consent payment deadline on June 2, 2009 (the Consent Date) were entitled
to receive total consideration equal to $1,001.25 per $1,000 principal amount of the 7.5%
Senior Notes, which included a consent payment of $1.25 per $1,000 principal amount of the
7.5% Senior Notes, plus any accrued and unpaid interest on the 7.5% Senior Notes up to, but
not including, the payment date. Holders who validly tendered their 7.5% Senior Notes and
provided their consents to the proposed amendments to the indenture governing the 7.5% Senior
Notes after the Consent Date but on or prior to June 16, 2009 (the Expiration Date) were
entitled to $1,000 per $1,000 principal amount of the 7.5% Senior Notes plus accrued and
unpaid interest up to, but not including, the payment date. However, holders of the 7.5%
Senior Notes who tendered after the Consent Date did not receive the consent payment.
On June 3, 2009, the Company completed the sale and issuance of $465.0 million aggregate
principal amount of its 7.75% Senior Notes (the 7.75% Senior Notes) pursuant to a prospectus
supplement under an automatically effective shelf registration statement that was filed by the
Company with the SEC on May 19, 2009. The 7.75% Senior Notes were issued at a price of
97.116%, resulting in a yield to maturity of 8.25%. The Company used the net proceeds from the
sale of the 7.75% Senior Notes to purchase (through the previously described tender offer),
redeem, or otherwise acquire the Companys 7.5% Senior Notes, to pay fees and expenses, and
for general corporate purposes. The Company reported a charge of $3.8 million during the
second quarter of 2009 in connection with the purchase and redemption of the 7.5% Senior
Notes. The Company capitalized approximately $10.5 million of costs associated with the
issuance of the 7.75% Senior Notes.
Interest on the 7.75% Senior Notes accrues at the stated rate and is payable on June 1 and
December 1 of each year. The 7.75% Senior Notes are scheduled to mature on June 1, 2017. At
any time on or before June 1, 2012, 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 June 1, 2013. Redemption prices are set forth in the indenture
governing the 7.75% Senior Notes.
Guarantees and Covenants. In connection with the registration with the SEC of the Companys
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 $2.5 billion are no longer
directly available to the parent corporation to satisfy the obligations under the 6.25% Senior
Notes, the 6.75% Senior Notes, or the 7.75% 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 corporations domestic subsidiaries,
including the subsidiaries to which the assets were transferred, have provided full and
unconditional guarantees of the Senior Notes. Each of the Companys subsidiaries guaranteeing
the Senior Notes are 100% owned subsidiaries of the Company; the subsidiary
F-24
guarantees are full and unconditional and are joint and 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, 2009, neither the Company nor any of its subsidiary guarantors had any
material or significant restrictions on the Companys 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 Companys 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 Companys 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 Companys Revolving Credit Facility, as more
fully described hereafter.
Other Debt Transactions
Letters of Credit. At December 31, 2009 and 2008, the Company had $30.4 million and $32.2
million, respectively, in outstanding letters of credit. The letters of credit were issued to
secure the Companys workers compensation and general liability insurance policies,
performance bonds, and utility deposits. The letters of credit outstanding at December 31,
2009 were provided by a sub-facility under the Revolving Credit Facility.
Debt Maturities
Scheduled principal payments as of December 31, 2009 for the next five years and thereafter
are as follows (in thousands):
|
|
|
|
|
2010 |
|
$ |
|
|
2011 |
|
|
|
|
2012 |
|
|
171,799 |
|
2013 |
|
|
375,000 |
|
2014 |
|
|
150,000 |
|
Thereafter |
|
|
465,000 |
|
|
|
|
|
Total principal payments |
|
|
1,161,799 |
|
Unamortized bond discount |
|
|
(12,700 |
) |
|
|
|
|
Total debt |
|
$ |
1,149,099 |
|
|
|
|
|
Cross-Default Provisions
The provisions of the Companys debt agreements relating to the
Revolving Credit Facility and the Senior Notes contain certain
cross-default provisions. Any events of default under the
Revolving
F-25
Credit Facility that results in the lenders actual acceleration of amounts outstanding
thereunder also result in an event of default under the Senior Notes. Additionally, any
events of default under the Senior Notes that 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 Revolving Credit Facility.
If the Company were to be in default under the Revolving Credit Facility, and if the lenders
under the Revolving Credit Facility elected to exercise their rights to accelerate the
Companys obligations under the Revolving Credit Facility, such events could result in the
acceleration of all or a portion of the Companys Senior Notes, which would have a material
adverse effect on the Companys 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 Companys outstanding indebtedness.
12. INCOME TAXES
Income tax expense is comprised of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current provision |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
52,914 |
|
|
$ |
55,258 |
|
|
$ |
64,245 |
|
State |
|
|
6,209 |
|
|
|
5,862 |
|
|
|
5,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,123 |
|
|
|
61,120 |
|
|
|
69,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
19,803 |
|
|
|
25,609 |
|
|
|
8,972 |
|
State |
|
|
2,819 |
|
|
|
4,204 |
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,622 |
|
|
|
29,813 |
|
|
|
9,576 |
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
81,745 |
|
|
$ |
90,933 |
|
|
$ |
79,367 |
|
|
|
|
|
|
|
|
|
|
|
The current income tax provisions for 2009, 2008, and 2007 are net of $0.5 million, $0.7
million, and $1.4 million, respectively, of tax benefits of operating loss carryforwards.
Significant components of the Companys deferred tax assets and liabilities as of December 31,
2009 and 2008, are as follows (in thousands):
F-26
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Current deferred tax assets: |
|
|
|
|
|
|
|
|
Asset reserves and liabilities not yet deductible for tax |
|
$ |
14,654 |
|
|
$ |
20,082 |
|
|
|
|
|
|
|
|
Net current deferred tax assets |
|
|
14,654 |
|
|
|
20,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities: |
|
|
|
|
|
|
|
|
Other |
|
|
(2,812 |
) |
|
|
(3,974 |
) |
|
|
|
|
|
|
|
Net total current deferred tax assets |
|
$ |
11,842 |
|
|
$ |
16,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets: |
|
|
|
|
|
|
|
|
Asset reserves and liabilities not yet deductible for tax |
|
$ |
17,763 |
|
|
$ |
16,158 |
|
Tax over book basis of certain assets |
|
|
21,339 |
|
|
|
21,480 |
|
Net operating loss and tax credit carryforwards |
|
|
12,854 |
|
|
|
17,114 |
|
Other |
|
|
2,797 |
|
|
|
4,978 |
|
|
|
|
|
|
|
|
Total noncurrent deferred tax assets |
|
|
54,753 |
|
|
|
59,730 |
|
Less valuation allowance |
|
|
(4,129 |
) |
|
|
(6,533 |
) |
|
|
|
|
|
|
|
Net noncurrent deferred tax assets |
|
|
50,624 |
|
|
|
53,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax liabilities: |
|
|
|
|
|
|
|
|
Book over tax basis of certain assets |
|
|
(138,010 |
) |
|
|
(120,523 |
) |
Other |
|
|
(874 |
) |
|
|
(1,023 |
) |
|
|
|
|
|
|
|
Total noncurrent deferred tax liabilities |
|
|
(138,884 |
) |
|
|
(121,546 |
) |
|
|
|
|
|
|
|
Net total noncurrent deferred tax liabilities |
|
$ |
(88,260 |
) |
|
$ |
(68,349 |
) |
|
|
|
|
|
|
|
Deferred income taxes reflect the available net operating losses and tax credit
carryforwards 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 Companys 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
$6.0 million, $9.0 million, and $21.2 million during 2009, 2008, and 2007, respectively. 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, 2009, 2008, and 2007 is as follows:
F-27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Statutory federal rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State taxes, net of federal tax benefit |
|
|
2.9 |
|
|
|
3.1 |
|
|
|
2.7 |
|
Permanent differences |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
0.9 |
|
Change in valuation allowance |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
Changes in tax contingencies |
|
|
(2.4 |
) |
|
|
0.4 |
|
|
|
|
|
Other items, net |
|
|
(1.4 |
) |
|
|
(1.3 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
34.4 |
% |
|
|
37.7 |
% |
|
|
37.7 |
% |
|
|
|
|
|
|
|
|
|
|
The Company has approximately $5.3 million in net operating losses applicable to
various states that it expects to carryforward in future years to offset taxable income in
such states. The Company has a valuation allowance of $0.9 million for the estimated amount of
the net operating losses that will expire unused, in addition to a $3.3 million valuation
allowance related to state tax credits that are also expected to expire unused. These net
operating losses and state tax credits expire at various dates through 2025. Although the
Companys estimate of future taxable income is based on current assumptions that it believes
to be reasonable, the Companys 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 Companys effective tax rate was 34.4%, 37.7%, and 37.7% during 2009, 2008, and 2007,
respectively. The Companys annual effective tax rate is lower in 2009 compared with 2008 and
2007 primarily as a result of an income tax benefit of $5.7 million for the reversal of a
liability for uncertain tax positions, as further described hereafter. The Companys overall
effective tax rate is estimated based on the Companys 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 Companys 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 Financial Accounting Standards Board (FASB) issued new guidance related to
accounting for tax contingencies, 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 in ASC 740 establishes a recognition
threshold of more likely than not that a tax position will be sustained upon examination. The
measurement attribute 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.
Upon adoption of the new guidance 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 $0.2 million liability recorded for uncertain tax
positions as of December 31, 2009, 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 and as of December 31, 2009 and 2008, the
Company had approximately $34,000 and $0.9 million, respectively, for the 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 $0.1 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.
F-28
The Companys U.S. federal and state income tax returns for tax years 2005 and beyond remain
subject to examination by the Internal Revenue Service (IRS). During 2008, the Company was
notified that the IRS would commence an audit of the Companys federal income tax returns for
the years ended December 31, 2007 and 2006. The Company received a closing agreement from the
IRS for the audits of its federal income tax returns for such years. During the third quarter
of 2009, the Company recognized $5.7 million in income tax benefits associated with uncertain
tax positions effectively settled upon completion of the audit. These uncertain tax positions
were primarily associated with tax positions pertaining to refinancing transaction costs that
were included on federal tax returns in earlier years, but contributed to net operating losses
utilized in 2006. 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, 2003 through December 31, 2008: Arizona, California, Colorado, Kentucky,
Michigan, Minnesota, New Jersey, Texas, and Wisconsin.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding
interest and penalties, is as follows:
|
|
|
|
|
Unrecognized Benefit January 1, 2008 |
|
$ |
5,036 |
|
Decreases from Prior Period Tax Positions |
|
|
(111 |
) |
Increases from Current Period Tax Positions |
|
|
774 |
|
Decreases Related to Settlements of Tax Positions |
|
|
|
|
Decreases Due to Lapse of Statute of Limitations |
|
|
|
|
|
|
|
|
Unrecognized Benefit December 31, 2008 |
|
$ |
5,699 |
|
|
Decreases from Prior Period Tax Positions |
|
|
(45 |
) |
Increases from Current Period Tax Positions |
|
|
|
|
Decreases Related to Settlements of Tax Positions |
|
|
(5,466 |
) |
Decreases Due to Lapse of Statute of Limitations |
|
|
|
|
|
|
|
|
Unrecognized Benefit December 31, 2009 |
|
$ |
188 |
|
|
|
|
|
13. DISCONTINUED OPERATIONS
Under the provisions of ASC 205-20, Discontinued Operations, the identification and
classification of a facility as held for sale, or the termination of any of the Companys
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 five correctional
facilities each as further described below, have been reflected in the accompanying
consolidated financial statements as discontinued operations in accordance with ASC 205-20 for
the years ended December 31, 2009, 2008, and 2007.
As a result of Shelby Countys evolving relationship with the Tennessee Department of
Childrens Services (DCS) whereby the DCS prefers to oversee the juveniles at facilities
under DCS control, the Company ceased operations of the 200-bed Shelby Training Center located
in Memphis, Tennessee in August 2008. The Company reclassified the results of operations, net
of taxes, and the assets and liabilities of this facility, excluding property and equipment,
as discontinued operations upon termination of the management contract during the third
quarter of 2008. The property and equipment of this facility will continue to be reported as
continuing operations, as the Company retained ownership of the building and equipment and
completed the purchase of the land during the fourth quarter of 2008 from Shelby County,
Tennessee for $150,000.
F-29
In May 2008, the Company notified the Bay County Commission of its intention to exercise
the Companys option to terminate the operational management contract for the 1,150-bed Bay
County Jail and Annex in Panama City, Florida, effective October 9, 2008. Accordingly, the
Companys contract with the Bay County Commission expired in October 2008 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.
Pursuant to a re-bid of the management contracts, during September 2008, the Company was
notified by the Texas Department of Criminal Justice (TDCJ) of its intent to transfer the
management of the 500-bed B.M. Moore Correctional Center in Overton, Texas and the 518-bed
Diboll Correctional Center in Diboll, Texas to another operator, upon the expiration of the
management contracts on January 16, 2009. Both of these facilities are owned by the TDCJ.
Accordingly, the results of operations, net of taxes, and the assets and liabilities of these
two facilities are reported as discontinued operations upon termination of operations in the
first quarter of 2009 for all periods presented.
During December 2008, the Company was notified by Hamilton County, Ohio of its intent to
terminate the lease for the 850-bed Queensgate Correctional Facility located in Cincinnati,
Ohio. The County elected to terminate the lease due to funding issues being experienced by
the County. Accordingly, upon termination of the lease in the first quarter of 2009, the
Company reclassified the results of operations, net of taxes, of this facility as discontinued
operations for all periods presented. The property and equipment of this facility will
continue to be reported as continuing operations, as the Company retained ownership of the
land, building, and equipment.
The following table summarizes the results of operations for these facilities for the years
ended December 31, 2009, 2008, and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned |
|
$ |
|
|
|
$ |
3,269 |
|
|
$ |
6,715 |
|
Managed-only |
|
|
510 |
|
|
|
25,457 |
|
|
|
29,280 |
|
Rental |
|
|
|
|
|
|
2,262 |
|
|
|
2,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510 |
|
|
|
30,988 |
|
|
|
38,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned |
|
|
|
|
|
|
3,354 |
|
|
|
5,840 |
|
Managed-only |
|
|
1,782 |
|
|
|
25,288 |
|
|
|
27,125 |
|
Other |
|
|
|
|
|
|
|
|
|
|
45 |
|
Depreciation and amortization |
|
|
4 |
|
|
|
906 |
|
|
|
286 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
1,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,786 |
|
|
|
29,548 |
|
|
|
34,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(1,276 |
) |
|
|
1,440 |
|
|
|
3,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
6 |
|
|
|
49 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
(1,270 |
) |
|
|
1,489 |
|
|
|
3,837 |
|
Income tax (expense) benefit |
|
|
481 |
|
|
|
(546 |
) |
|
|
(1,465 |
) |
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF TAXES |
|
$ |
(789 |
) |
|
$ |
943 |
|
|
$ |
2,372 |
|
|
|
|
|
|
|
|
|
|
|
F-30
The assets and liabilities of the discontinued operations presented in the accompanying
consolidated balance sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
23 |
|
|
$ |
3,235 |
|
Prepaid expenses and other current assets |
|
|
43 |
|
|
|
306 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
66 |
|
|
|
3,541 |
|
Property and equipment, net |
|
|
|
|
|
|
154 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
66 |
|
|
$ |
3,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
673 |
|
|
$ |
2,034 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
673 |
|
|
$ |
2,034 |
|
|
|
|
|
|
|
|
14. STOCKHOLDERS EQUITY
Common Stock
Restricted shares. During 2009, the Company issued approximately 333,000 shares of restricted
common stock and common stock units to certain of the Companys employees, with an aggregate
value of $3.7 million, including 242,000 restricted shares or units to employees whose
compensation is charged to general and administrative expense and 91,000 restricted shares to
employees whose compensation is charged to operating expense. During 2008, the Company issued
approximately 279,000 shares of restricted common stock to certain of the Companys employees,
with an aggregate value of $7.5 million, including 218,000 restricted shares to employees
whose compensation is charged to general and administrative expense and 61,000 shares to
employees whose compensation is charged to operating expense.
The Company established performance-based vesting conditions on the shares of restricted
common stock and common stock units awarded to the Companys officers and executive officers.
Unless earlier vested under the terms of the agreements, shares or units 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 or units
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 agreements 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, 2009 and for the year then
ended are summarized below (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
Shares of
restricted |
|
|
Weighted |
|
|
|
common stock |
|
|
average grant date |
|
|
|
and units |
|
|
fair value |
|
Nonvested at December 31, 2008 |
|
|
729 |
|
|
$ |
22.64 |
|
Granted |
|
|
333 |
|
|
$ |
11.07 |
|
Cancelled |
|
|
(30 |
) |
|
$ |
23.92 |
|
Vested |
|
|
(330 |
) |
|
$ |
17.72 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009 |
|
|
702 |
|
|
$ |
19.41 |
|
|
|
|
|
|
|
|
|
F-31
During 2009, 2008, and 2007, the Company expensed $5.7 million ($1.1 million of which
was recorded in operating expenses and $4.6 million of which was recorded in general and
administrative expenses), $5.9 million ($1.1 million of which was recorded in operating
expenses and $4.8 million of which was recorded in general and administrative expenses), and
$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), net of forfeitures, relating to
the restricted common stock and common stock units, respectively. As of December 31, 2009,
the Company had $5.3 million of total unrecognized compensation cost related to restricted
common stock and common stock units that is expected to be recognized over a remaining
weighted-average period of 1.5 years.
Stock Repurchase Program. In November 2008 the Companys Board of Directors approved a stock
repurchase program to purchase up to $150.0 million of the Companys common stock through
December 31, 2009. During 2008 and 2009, the Company completed the purchase of 10.7 million
shares at a total cost of $125.0 million at an average price of $11.72 per share. In February
2010, the Companys Board of Directors approved a new program to repurchase up to $250.0
million of our common stock through June 30, 2011. The program is intended to be implemented
essentially the same as the previous repurchase program, through purchases made from time to
time in the open market or in privately negotiated transactions, in accordance with Securities
and Exchange Commission requirements.
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 Companys 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
settlement method, resulting in the issuance of 48,000 shares of common stock by the Company.
On October 23, 2008, the holder of the remaining 150,000 warrants elected to exercise the
warrants using a net share settlement method, resulting in the issuance of 77,000 shares of
stock by the Company.
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 Companys 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 three to four years. Options
granted to non-employee directors vest on the first anniversary of the grant date. The term of
such options is ten years from the date of grant.
F-32
Stock option transactions relating to the Companys 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, 2008 |
|
|
4,688 |
|
|
$ |
14.22 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
826 |
|
|
|
11.93 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(1,497 |
) |
|
|
10.13 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
(108 |
) |
|
|
24.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2009 |
|
|
3,909 |
|
|
$ |
15.00 |
|
|
|
6.2 |
|
|
$ |
22,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
December 31, 2009 |
|
|
2,541 |
|
|
$ |
13.79 |
|
|
|
4.9 |
|
|
$ |
16,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value (the difference between the Companys average stock price during 2009 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,
2009. This amount changes based on the fair market value of the Companys stock. The total
intrinsic value of options exercised during the years ended December 31, 2009, 2008, and 2007
was $18.8 million, $19.1 million, and $49.1 million, respectively.
The weighted average fair value of options granted during 2009, 2008, and 2007 was $4.17,
$7.68, and $8.70 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Expected dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected stock price volatility |
|
|
36.4 |
% |
|
|
26.1 |
% |
|
|
25.4 |
% |
Risk-free interest rate |
|
|
1.8 |
% |
|
|
3.0 |
% |
|
|
4.7 |
% |
Expected life of options |
|
5 years |
|
5 years |
|
5 years |
The Company estimates expected stock price volatility based on actual historical
changes in the market value of the Companys stock. The risk-free interest rate is based on
the U.S. Treasury yield with a term that is consistent with the expected life of the stock
options. The expected life of stock options is based on the Companys historical experience
and is calculated separately for groups of employees that have similar historical exercise
behavior.
Nonvested stock option transactions relating to the Companys non-qualified stock option plans
as of December 31, 2009 and changes during the year ended December 31, 2009 are summarized
below (in thousands, except exercise prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
average grant |
|
|
|
options |
|
|
date fair value |
|
Nonvested at December 31, 2008 |
|
|
1,160 |
|
|
$ |
7.30 |
|
Granted |
|
|
826 |
|
|
$ |
4.17 |
|
Cancelled |
|
|
(50 |
) |
|
$ |
7.58 |
|
Vested |
|
|
(569 |
) |
|
$ |
7.00 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009 |
|
|
1,367 |
|
|
$ |
5.53 |
|
|
|
|
|
|
|
|
|
F-33
As of December 31, 2009, the Company had $4.1 million of total unrecognized
compensation cost related to stock options that is expected to be recognized over a remaining
weighted-average period of 1.8 years.
At the Companys 2007 annual meeting of stockholders held in May 2007, the Companys
stockholders approved the 2008 Stock Incentive Plan that authorized the issuance of new awards
in respect of an aggregate of up to 6.0 million shares. In addition, during the 2003 annual
meeting the stockholders approved the adoption of the Companys 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, 2009, the Company had 2.8 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. The Company also had 0.1 million shares
available for issuance under its Amended and Restated 2000 Stock Incentive Plan.
15. EARNINGS PER SHARE
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 as adjusted, by the weighted average
number of common shares after considering the additional dilution related to restricted common
stock plans, 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, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
NUMERATOR |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
155,743 |
|
|
$ |
149,998 |
|
|
$ |
131,001 |
|
Income (loss) from discontinued operations, net of taxes |
|
|
(789 |
) |
|
|
943 |
|
|
|
2,372 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
154,954 |
|
|
$ |
150,941 |
|
|
$ |
133,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
155,743 |
|
|
$ |
149,998 |
|
|
$ |
131,001 |
|
Income (loss) from discontinued operations, net of taxes |
|
|
(789 |
) |
|
|
943 |
|
|
|
2,372 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income |
|
$ |
154,954 |
|
|
$ |
150,941 |
|
|
$ |
133,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
116,088 |
|
|
|
124,464 |
|
|
|
122,553 |
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
116,088 |
|
|
|
124,464 |
|
|
|
122,553 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants |
|
|
976 |
|
|
|
1,536 |
|
|
|
2,480 |
|
Restricted stock-based compensation |
|
|
226 |
|
|
|
250 |
|
|
|
348 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and assumed conversions |
|
|
117,290 |
|
|
|
126,250 |
|
|
|
125,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.34 |
|
|
$ |
1.20 |
|
|
$ |
1.07 |
|
Income (loss) from discontinued operations, net of taxes |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.33 |
|
|
$ |
1.21 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.33 |
|
|
$ |
1.19 |
|
|
$ |
1.04 |
|
Income (loss) from discontinued operations, net of taxes |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.32 |
|
|
$ |
1.20 |
|
|
$ |
1.06 |
|
|
|
|
|
|
|
|
|
|
|
16. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
General. The nature of the Companys 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 Companys facilities,
personnel or prisoners, including damages arising from a prisoners 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
Companys 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 managements review of the potential claims and outstanding litigation and based upon
managements experience and history of estimating losses, management believes a loss in excess
of amounts already recognized would not be material to the Companys financial statements. In
the opinion of management, there are no pending legal proceedings that would have a material
effect on the
F-35
Companys 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 Companys 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 Companys assumptions, new
developments, or by the effectiveness of the Companys litigation and settlement strategies.
Insurance Contingencies
Each of the Companys 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
Countys 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 bonds trust indenture (the Trustee)
amounts necessary to pay any debt service deficits consisting of principal and interest
requirements (outstanding principal balance of $41.7 million at December 31, 2009 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, 2009, the outstanding principal balance of the bonds exceeded the
purchase price option by $11.5 million.
F-36
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, 2009, 2008, and
2007, the Company provided a discretionary matching contribution equal to 100% of the
employees contributions up to 5% of the employees 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, 2009, 2008, and 2007, the Companys discretionary
contributions to the Plan, net of forfeitures, were $8.5 million, $8.3 million, and $8.2
million, respectively.
Deferred Compensation Plans
During 2002, the compensation committee of the board of directors approved the Companys
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 Companys 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. During the years ended December 31, 2009, 2008, and 2007, the
Company matched 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 to the vesting
provisions of the Companys 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.
Distributions to senior executives must commence on or before the later of 60 days after the
participants separation from service or the fifteenth day of the month following the month
the individual attains age 65.
During 2009, 2008, and 2007, the Company provided a fixed return of 6.5%, 7.5%, and 7.5% to
participants in the Deferred Compensation Plans, respectively. 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 2009, 2008, and 2007, the Company recorded $360,000, $385,000 and $365,000,
respectively, of matching contributions as general and administrative expense associated with
the Deferred Compensation Plans. As of December 31, 2009 and 2008, the Companys liability
related to the Deferred
F-37
Compensation Plans was $8.3 million and $7.0 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, 2009, the Company owned and managed 44 correctional and detention
facilities, and managed 21 correctional and detention facilities it does not own. Management
views the Companys 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 facilitys operating income or loss from operations before interest, taxes, goodwill
impairment, depreciation and amortization. Since each of the Companys 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
Companys operating income is as follows for the three years ended December 31, 2009, 2008,
and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
$ |
1,313,734 |
|
|
$ |
1,229,339 |
|
|
$ |
1,091,233 |
|
Managed-only |
|
|
349,611 |
|
|
|
345,248 |
|
|
|
333,127 |
|
|
|
|
|
|
|
|
|
|
|
Total management revenue |
|
|
1,663,345 |
|
|
|
1,574,587 |
|
|
|
1,424,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
|
850,760 |
|
|
|
798,147 |
|
|
|
718,155 |
|
Managed-only |
|
|
303,882 |
|
|
|
295,126 |
|
|
|
284,534 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,154,642 |
|
|
|
1,093,273 |
|
|
|
1,002,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
|
462,974 |
|
|
|
431,192 |
|
|
|
373,078 |
|
Managed-only |
|
|
45,729 |
|
|
|
50,122 |
|
|
|
48,593 |
|
|
|
|
|
|
|
|
|
|
|
Total facility contribution |
|
|
508,703 |
|
|
|
481,314 |
|
|
|
421,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other revenue |
|
|
6,618 |
|
|
|
9,582 |
|
|
|
17,865 |
|
Other operating expense |
|
|
(14,030 |
) |
|
|
(19,406 |
) |
|
|
(22,351 |
) |
General and administrative expense |
|
|
(86,537 |
) |
|
|
(80,308 |
) |
|
|
(74,399 |
) |
Depreciation and amortization |
|
|
(100,799 |
) |
|
|
(90,555 |
) |
|
|
(78,396 |
) |
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
(554 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
313,955 |
|
|
$ |
300,627 |
|
|
$ |
263,836 |
|
|
|
|
|
|
|
|
|
|
|
F-38
The following table summarizes capital expenditures for the reportable segments for the
years ended December 31, 2009, 2008, and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
$ |
118,191 |
|
|
$ |
465,235 |
|
|
$ |
344,287 |
|
Managed-only |
|
|
12,713 |
|
|
|
4,508 |
|
|
|
10,771 |
|
Corporate and other |
|
|
15,332 |
|
|
|
12,239 |
|
|
|
17,838 |
|
Discontinued operations |
|
|
|
|
|
|
231 |
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
146,236 |
|
|
$ |
482,213 |
|
|
$ |
373,162 |
|
|
|
|
|
|
|
|
|
|
|
The assets for the reportable segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Assets: |
|
|
|
|
|
|
|
|
Owned and managed |
|
$ |
2,605,023 |
|
|
$ |
2,582,485 |
|
Managed-only |
|
|
116,460 |
|
|
|
113,092 |
|
Corporate and other |
|
|
184,194 |
|
|
|
172,102 |
|
Discontinued operations |
|
|
66 |
|
|
|
3,695 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,905,743 |
|
|
$ |
2,871,374 |
|
|
|
|
|
|
|
|
18. SUBSEQUENT EVENTS
In May 2009, the FASB issued ASC 855, Subsequent Events, effective for interim or annual
periods ending after June 15, 2009. ASC 855 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. Although, there is new terminology, the
standard is based on the same principles as those that currently existed in practice. The new
ASC does require companies to disclose the date through which the entity has evaluated
subsequent events. The Company has evaluated subsequent events through the date of filing
this annual report on February 24, 2010.
During
February 2010, the Company issued approximately 254,000 shares of restricted common stock and common
stock units to certain of the Companys employees, with an
aggregate value of $5.2 million.
Unless earlier vested under the terms of the restricted stock unit
agreement, approximately 209,000 restricted
stock units were issued to officers and executive officers and are subject to vesting over a
three-year period based upon satisfaction of certain performance criteria for the fiscal years
ending December 31, 2010, 2011, and 2012. No more than one third of such restricted stock
units may vest in the first performance period; however, the performance criteria are
cumulative for the three-year period. Any restricted stock units that become vested will be
settled in shares of the Companys common stock. Unless earlier vested under the terms of the
restricted stock agreements, approximately 45,000 shares of restricted stock issued to certain other employees
of the Company vest during 2013.
F-39
19. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly financial information for each of the quarters in the years ended December
31, 2009 and 2008 is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
Revenue |
|
$ |
404,154 |
|
|
$ |
412,693 |
|
|
$ |
426,018 |
|
|
$ |
427,098 |
|
Operating income |
|
|
74,942 |
|
|
|
74,922 |
|
|
|
79,341 |
|
|
|
84,750 |
|
Loss from discontinued operations, net of taxes |
|
|
(789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
34,597 |
|
|
|
32,614 |
|
|
|
45,252 |
|
|
|
42,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.29 |
|
|
$ |
0.28 |
|
|
$ |
0.39 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.29 |
|
|
$ |
0.28 |
|
|
$ |
0.39 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
Revenue |
|
$ |
379,411 |
|
|
$ |
390,348 |
|
|
$ |
403,757 |
|
|
$ |
410,653 |
|
Operating income |
|
|
69,650 |
|
|
|
74,035 |
|
|
|
74,397 |
|
|
|
82,545 |
|
Income from discontinued operations, net of taxes |
|
|
522 |
|
|
|
259 |
|
|
|
129 |
|
|
|
33 |
|
Net income |
|
|
34,998 |
|
|
|
37,527 |
|
|
|
37,891 |
|
|
|
40,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.28 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.28 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
|
$ |
0.32 |
|
F-40
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 24, 2010 |
By: |
/s/ Damon T. Hininger
|
|
|
|
Damon T. Hininger, 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/ Damon T. Hininger
Damon T. Hininger, President and Chief Executive Officer
(Principal Executive Officer)
|
|
February 24, 2010 |
|
|
|
/s/ Todd J Mullenger
Todd J Mullenger, Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
February 24, 2010 |
|
|
|
/s/ John D. Ferguson
John D. Ferguson, Chairman of the Board of Directors
|
|
February 24, 2010 |
|
|
|
/s/ William F. Andrews
William F. Andrews, Director
|
|
February 24, 2010 |
|
|
|
/s/ Donna M. Alvarado
Donna M. Alvarado, Director
|
|
February 24, 2010 |
|
|
|
/s/ John D. Correnti
John D. Correnti, Director
|
|
February 24, 2010 |
|
|
|
/s/ Dennis W. DeConcini
Dennis W. DeConcini, Director
|
|
February 24, 2010 |
|
|
|
/s/ John R. Horne
John R. Horne, Director
|
|
February 24, 2010 |
|
|
|
/s/ C. Michael Jacobi
C. Michael Jacobi, Director
|
|
February 24, 2010 |
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/s/ Thurgood Marshall, Jr.
Thurgood Marshall, Jr., Director
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February 24, 2010 |
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/s/ Charles L. Overby
Charles L. Overby, Director
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February 24, 2010 |
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/s/ John R. Prann, Jr.
John R. Prann, Jr., Director
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February 24, 2010 |
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/s/ Joseph V. Russell
Joseph V. Russell, Director
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February 24, 2010 |
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/s/ Henri L. Wedell
Henri L. Wedell, Director
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February 24, 2010 |
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.
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Exhibit Number |
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Description of Exhibits |
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3.1 |
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Amended and Restated Charter of the Company (restated for
Commission filing purposes only) (previously filed as
Exhibit 3.1 to the Companys Annual Report on Form 10-K
(Commission File no. 001-16109), filed with the Commission
on February 27, 2008 and incorporated herein by this
reference). |
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3.2 |
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Fifth Amended and Restated Bylaws of the Company
(previously filed as Exhibit 3.1 to the Companys Current
Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on August 18, 2009 and incorporated
herein by this reference). |
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4.1 |
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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 Exhibit 3.1
hereto), and Article II of the Fifth Amended and Restated
Bylaws of the Company (included as Exhibit 3.2 hereto). |
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4.2 |
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Specimen of certificate representing shares of the
Companys Common Stock (previously filed as Exhibit 4.2 to
the Companys 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). |
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4.3 |
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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 Companys 6 1/4 %
Senior Notes due 2013 with form of note attached
(previously filed as Exhibit 4.1 to the Companys 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). |
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4.4 |
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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 Companys 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). |
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Exhibit Number |
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Description of Exhibits |
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4.5 |
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First 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 Companys 6.75% Senior Notes due 2014, with form of
note attached (previously filed as Exhibit 4.2 to the
Companys 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). |
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4.6 |
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First Supplement, dated as of May 14, 2009, to the First
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 (previously filed as
Exhibit 4.1 to the Companys Current Report on Form 8-K
(Commission File no. 001-16109), filed with the Commission
on May 20, 2009 and incorporated herein by this reference). |
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4.7 |
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First Supplemental Indenture, dated as of May 14, 2009, to
the 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 Companys 6 1/4%
Senior Notes due 2013 (previously filed as Exhibit 4.2 to
the Companys Current Report on Form 8-K (Commission File
no. 001-16109), filed with the Commission on May 20, 2009
and incorporated herein by this reference). |
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4.8 |
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Second Supplemental Indenture, dated as of June 3, 2009, by
and among the Company, certain of its subsidiaries and U.S.
Bank National Association, as Trustee, providing for the
Companys 7 3/4 % Senior Notes due 2017, with form of note
attached (previously filed as Exhibit 4.2 to the Companys
Current Report on Form 8-K (Commission File no. 001-16109),
filed with the Commission on June 3, 2009 and incorporated
herein by this reference). |
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10.1 |
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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 Companys 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). |
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10.2 |
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Amendment No. 1 to Credit Agreement, dated as of May 19,
2009, by and among the Company, Bank of America, N.A., as
administrative agent, and each of the lenders signatory
thereto (previously filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K (Commission File no. 001-16109),
filed with the Commission on May 20, 2009 and incorporated
herein by this reference). |
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Exhibit Number |
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Description of Exhibits |
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10.3 |
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The Companys Amended and Restated 1997 Employee Share
Incentive Plan (previously filed as Exhibit 10.15 to the
Companys 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). |
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10.4 |
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Form of Non-qualified Stock Option Agreement for the
Companys Amended and Restated 1997 Employee Share
Incentive Plan (previously filed as Exhibit 10.17 to the
Companys Annual Report on Form 10-K (Commission File no.
001-16109), filed with the Commission on March 7, 2005 and
incorporated herein by this reference). |
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10.5 |
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Old Prison Realtys Non-Employee Trustees Compensation
Plan (previously filed as Exhibit 4.3 to Old Prison
Realtys 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). |
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10.6 |
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The Companys Amended and Restated 2000 Stock Incentive
Plan (previously filed as Exhibit 10.20 to the Companys
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). |
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10.7 |
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Amendment No. 1 to the Companys Amended and Restated 2000
Stock Incentive Plan (previously filed as Exhibit 10.1 to
the Companys 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). |
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10.8 |
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First Amendment to Amended and Restated 2000 Stock
Incentive Plan of the Company (previously filed as Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q
(Commission File no. 001-16109), filed with the Commission
on August 7, 2008 and incorporated herein by this
reference). |
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10.9 |
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Second Amendment to Amended and Restated 2000 Stock
Incentive Plan of the Company (previously filed as Exhibit
10.3 to the Companys Current Report on Form 8-K
(Commission File no. 001-16109), filed with the Commission
on August 18, 2009 and incorporated herein by this
reference). |
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10.10 |
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The Companys Non-Employee Directors Compensation Plan
(previously filed as Appendix C to the Companys 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). |
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Exhibit Number |
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Description of Exhibits |
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10.11 |
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Form of Employee Non-qualified Stock Option Agreement for
the Companys Amended and Restated 2000 Stock Incentive
Plan (previously filed as Exhibit 10.15 to the Companys
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). |
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10.12 |
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Form of Director Non-qualified Stock Option Agreement for
the Companys Amended and Restated 2000 Stock Incentive
Plan (previously filed as Exhibit 10.1 to the Companys
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). |
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10.13 |
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Form of Restricted Stock Agreement for the Companys
Amended and Restated 2000 Stock Incentive Plan (previously
filed as Exhibit 10.16 to the Companys 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). |
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10.14 |
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Form of Resale Restriction Agreement for certain stock
option award agreements issued under the Companys Amended
and Restated 1997 Employee Share Incentive Plan and the
Companys Amended and Restated 2000 Stock Incentive Plan
(previously filed as Exhibit 10.1 to the Companys 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). |
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10.15 |
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Form of Resale Restriction Agreement for key employees for
certain stock option award agreements issued under the
Companys Amended and Restated 1997 Employee Share
Incentive Plan and the Companys Amended and Restated 2000
Stock Incentive Plan (previously filed as Exhibit 10.2 to
the Companys 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). |
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10.16 |
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The Companys 2008 Stock Incentive Plan (previously filed
as Exhibit 10.1 to the Companys 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). |
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10.17 |
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Form of Executive Non-qualified Stock Option Agreement for
the Companys 2008 Stock Incentive Plan (previously filed
as Exhibit 10.2 to the Companys 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). |
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Exhibit Number |
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Description of Exhibits |
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10.18 |
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Amended Form of Executive Non-qualified Stock Option
Agreement for the Companys 2008 Stock Incentive Plan
(previously filed as Exhibit 10.2 to the Companys Current
Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on February 23, 2009 and incorporated
herein by this reference). |
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10.19 |
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Form of Director Non-qualified Stock Option Agreement for
the Companys 2008 Stock Incentive Plan (previously filed
as Exhibit 10.3 to the Companys 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). |
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10.20 |
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Form of Restricted Stock Agreement for the Companys 2008
Stock Incentive Plan (previously filed as Exhibit 10.4 to
the Companys 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). |
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10.21 |
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Form of Executive Restricted Stock Unit Agreement for the
Companys 2008 Stock Incentive Plan (previously filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K
(Commission File no. 001-16109), filed with the Commission
on February 23, 2009 and incorporated herein by this
reference). |
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10.22 |
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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 Companys
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). |
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10.23 |
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First Amendment to Second Amended and Restated Employment
Agreement, dated as of August 21, 2008, by and between the
Company and John D. Ferguson (previously filed as Exhibit
10.1 to the Companys Current Report on Form 8-K
(Commission File no. 001-16109), filed with the Commission
on August 22, 2008 and incorporated herein by this
reference). |
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10.24 |
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Second Amendment to Second Amended and Restated
Employment Agreement, dated as of December 11, 2008, with
John D. Ferguson (previously filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on December 12, 2008
and incorporated herein by this reference). |
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Exhibit Number |
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Description of Exhibits |
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10.25 |
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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
Companys 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). |
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10.26 |
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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
Companys 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). |
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10.27 |
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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
Companys 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). |
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10.28 |
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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 Companys
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). |
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10.29 |
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First Amendment to First Amended and Restated Employment
Agreement, dated as of December 11, 2008, with William K.
Rusak (previously filed as Exhibit 10.2 to the Companys
Current Report on Form 8-K (Commission File no. 001-16109),
filed with the Commission on December 12, 2008 and
incorporated herein by this reference). |
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10.30 |
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First Amended and Restated Employment Agreement, dated as
of August 21, 2008, by and between the Company and
Damon T. Hininger (previously filed as Exhibit 10.2
to the Companys Current Report on Form 8-K (Commission
File no. 001-16109), filed with the Commission on August
22, 2008 and incorporated herein by this reference). |
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10.31 |
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First Amendment to First Amended and Restated Employment
Agreement, dated as of October 15, 2009, with Damon T.
Hininger (previously filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K (Commission File no. 001-16109),
filed with the Commission on October 15, 2009 and
incorporated herein by this reference). |
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Exhibit Number |
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Description of Exhibits |
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10.32 |
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First Amended and Restated Employment Agreement, dated as
of August 21, 2008, by and between the Company and
Anthony L. Grande (previously filed as Exhibit 10.3
to the Companys Current Report on Form 8-K (Commission
File no. 001-16109), filed with the Commission on August
22, 2008 and incorporated herein by this reference). |
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10.33 |
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Employment Agreement, dated as of September 9, 2009, with
Brian D. Collins (previously filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on September 10, 2009
and incorporated herein by this reference). |
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10.34 |
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Amended and Restated Non-Employee Director Deferred
Compensation Plan (previously filed as Exhibit 10.1 to the
Companys 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). |
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10.35* |
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Amendment to the Amended and Restated Non-Employee Director
Deferred Compensation Plan. |
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10.36 |
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Amended and Restated Executive Deferred Compensation
Plan (previously filed as Exhibit 10.2 to the
Companys 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). |
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10.37 |
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Form of Indemnification Agreement (previously filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K
(Commission File no. 001-16109), filed with the Commission
on August 18, 2009 and incorporated herein by this
reference). |
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10.38 |
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Notice Letter from John D. Ferguson to the Company
(previously filed as Exhibit 10.2 to the Companys Current
Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on August 18, 2009 and incorporated
herein by this reference). |
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10.39 |
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Letter Agreement, dated as of October 15, 2009, with John
D. Ferguson (previously filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on October 15, 2009
and incorporated herein by this reference). |
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10.40* |
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Summary of Director and Executive Officer Compensation. |
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21* |
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Subsidiaries of the Company. |
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23.1* |
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Consent of Independent Registered Public Accounting Firm. |
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Exhibit Number |
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Description of Exhibits |
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31.1* |
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Certification of the Companys 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. |
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31.2* |
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Certification of the Companys 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. |
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32.1* |
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Certification of the Companys Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2* |
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Certification of the Companys Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |