e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2010
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 |
FOR THE TRANSITION PERIOD FROM TO
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 Identification Number) |
incorporation or organization) |
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10 BURTON HILLS BLVD., NASHVILLE, TENNESSEE 37215
(Address and zip code of principal executive offices)
(615) 263-3000
(Registrants telephone number, including area code)
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 þ 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 þ No 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 | |
Accelerated filer
o | |
Non-accelerated filer o | |
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
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each class of Common Stock as of August 2, 2010:
Shares
of Common Stock, $0.01 par value per share: 110,481,747 shares outstanding.
CORRECTIONS CORPORATION OF AMERICA
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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June 30, |
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December 31, |
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2010 |
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2009 |
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ASSETS |
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Cash and cash equivalents |
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$ |
22,740 |
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$ |
45,908 |
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Accounts receivable, net of allowance of $2,172 and $1,563, respectively |
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265,499 |
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241,185 |
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Deferred tax assets |
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9,472 |
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11,842 |
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Prepaid expenses and other current assets |
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26,327 |
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26,254 |
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Current assets of discontinued operations |
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69 |
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66 |
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Total current assets |
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324,107 |
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325,255 |
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Property and equipment, net |
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2,548,883 |
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2,520,503 |
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Restricted cash |
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6,750 |
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6,747 |
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Investment in direct financing lease |
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11,512 |
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12,185 |
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Goodwill |
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11,988 |
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13,672 |
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Other assets |
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26,442 |
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27,381 |
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Total assets |
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$ |
2,929,682 |
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$ |
2,905,743 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Accounts payable and accrued expenses |
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$ |
180,544 |
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$ |
193,429 |
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Income taxes payable |
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471 |
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481 |
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Current liabilities of discontinued operations |
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718 |
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673 |
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Total current liabilities |
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181,733 |
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194,583 |
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Long-term debt |
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1,186,571 |
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1,149,099 |
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Deferred tax liabilities |
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95,268 |
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88,260 |
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Other liabilities |
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32,175 |
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31,255 |
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Total liabilities |
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1,495,747 |
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1,463,197 |
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Commitments and contingencies |
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Common stock $0.01 par value; 300,000 shares authorized; 112,123 and
115,962 shares issued and outstanding at June 30, 2010 and
December 31, 2009, respectively |
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1,121 |
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1,160 |
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Additional paid-in capital |
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1,403,401 |
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1,483,497 |
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Retained earnings (deficit) |
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29,413 |
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(42,111 |
) |
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Total stockholders equity |
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1,433,935 |
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1,442,546 |
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Total liabilities and stockholders equity |
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$ |
2,929,682 |
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$ |
2,905,743 |
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The accompanying notes are an integral part of these consolidated financial statements.
1
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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REVENUE: |
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Management and other |
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$ |
418,690 |
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$ |
412,246 |
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$ |
832,844 |
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$ |
815,818 |
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Rental |
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692 |
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447 |
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1,485 |
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1,029 |
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419,382 |
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412,693 |
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834,329 |
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816,847 |
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EXPENSES: |
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Operating |
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294,023 |
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289,283 |
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591,442 |
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574,080 |
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General and administrative |
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19,867 |
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23,540 |
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38,481 |
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43,311 |
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Depreciation and amortization |
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27,165 |
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24,948 |
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52,363 |
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49,592 |
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Goodwill impairment |
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1,684 |
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1,684 |
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342,739 |
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337,771 |
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683,970 |
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666,983 |
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OPERATING INCOME |
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76,643 |
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74,922 |
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150,359 |
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149,864 |
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OTHER EXPENSES (INCOME): |
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Interest expense, net |
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17,303 |
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18,661 |
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34,574 |
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36,596 |
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Expenses associated with debt refinancing transactions |
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3,838 |
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3,838 |
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Other (income) expense |
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(16 |
) |
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(317 |
) |
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56 |
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(291 |
) |
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17,287 |
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22,182 |
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34,630 |
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40,143 |
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INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES |
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59,356 |
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52,740 |
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115,729 |
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109,721 |
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Income tax expense |
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(22,738 |
) |
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(20,126 |
) |
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(44,205 |
) |
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(41,721 |
) |
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INCOME FROM CONTINUING OPERATIONS |
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36,618 |
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32,614 |
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71,524 |
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68,000 |
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Loss from discontinued operations, net of tax |
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(789 |
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NET INCOME |
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$ |
36,618 |
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$ |
32,614 |
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$ |
71,524 |
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$ |
67,211 |
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BASIC EARNINGS PER SHARE: |
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Income from continuing operations |
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$ |
0.32 |
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$ |
0.28 |
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$ |
0.63 |
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$ |
0.58 |
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Loss from discontinued operations, net of taxes |
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(0.01 |
) |
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Net income |
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$ |
0.32 |
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$ |
0.28 |
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$ |
0.63 |
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$ |
0.57 |
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DILUTED EARNINGS PER SHARE: |
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Income from continuing operations |
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$ |
0.32 |
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$ |
0.28 |
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$ |
0.62 |
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$ |
0.58 |
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Loss from discontinued operations, net of taxes |
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(0.01 |
) |
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Net income |
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$ |
0.32 |
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$ |
0.28 |
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$ |
0.62 |
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$ |
0.57 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND AMOUNTS IN THOUSANDS)
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For the Six Months |
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Ended June 30, |
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2010 |
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2009 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
71,524 |
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$ |
67,211 |
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Adjustments to reconcile net income to net cash provided by operating
activities: |
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Depreciation and amortization |
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52,363 |
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49,596 |
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Goodwill impairment |
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1,684 |
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Amortization of debt issuance costs and other non-cash interest |
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2,136 |
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1,847 |
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Expenses associated with debt refinancing transactions |
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3,838 |
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Deferred income taxes |
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8,350 |
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7,376 |
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Income tax benefit of equity compensation |
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(2,239 |
) |
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(236 |
) |
Other non-cash items |
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125 |
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142 |
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Non-cash equity compensation |
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4,841 |
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4,879 |
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Changes in assets and liabilities, net: |
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Accounts receivable, prepaid expenses and other assets |
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(24,329 |
) |
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2,787 |
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Accounts payable, accrued expenses and other liabilities |
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(6,890 |
) |
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(5,617 |
) |
Income taxes payable |
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2,229 |
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|
241 |
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Net cash provided by operating activities |
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109,794 |
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|
132,064 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Expenditures for facility development and expansions |
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(74,858 |
) |
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(35,165 |
) |
Expenditures for other capital improvements |
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(15,004 |
) |
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(18,969 |
) |
Proceeds from sale of assets |
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48 |
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|
130 |
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Increase in other assets |
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(967 |
) |
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(1,762 |
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Payments received on direct financing leases and notes receivable |
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596 |
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528 |
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Net cash used in investing activities |
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(90,185 |
) |
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(55,238 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of debt |
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41,834 |
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|
523,978 |
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Principal repayments of debt |
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(5,000 |
) |
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(439,966 |
) |
Payment of debt issuance and other refinancing costs |
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(10,984 |
) |
Income tax benefit of equity compensation |
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|
2,239 |
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|
236 |
|
Purchase and retirement of common stock |
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(86,580 |
) |
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(111,500 |
) |
Proceeds from exercise of stock options |
|
|
4,730 |
|
|
|
721 |
|
|
|
|
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|
|
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Net cash used in financing activities |
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|
(42,777 |
) |
|
|
(37,515 |
) |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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(23,168 |
) |
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|
39,311 |
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CASH AND CASH EQUIVALENTS, beginning of period |
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45,908 |
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|
34,077 |
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CASH AND CASH EQUIVALENTS, end of period |
|
$ |
22,740 |
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$ |
73,388 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Cash paid during the period for: |
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Interest (net of amounts capitalized of $2,792 and $527
in 2010 and 2009, respectively) |
|
$ |
33,555 |
|
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$ |
38,211 |
|
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|
|
|
|
|
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Income taxes |
|
$ |
26,987 |
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$ |
40,839 |
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|
|
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|
The accompanying notes are an integral part of these consolidated financial statements.
3
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED AND AMOUNTS IN THOUSANDS)
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Additional |
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Retained |
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Common Stock |
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Paid-in |
|
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Earnings |
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Shares |
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Par Value |
|
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Capital |
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(Deficit) |
|
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Total |
|
Balance as of
December 31, 2009 |
|
|
115,962 |
|
|
$ |
1,160 |
|
|
$ |
1,483,497 |
|
|
$ |
(42,111 |
) |
|
$ |
1,442,546 |
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,524 |
|
|
|
71,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,524 |
|
|
|
71,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
1 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
22 |
|
Retirement of common stock |
|
|
(4,514 |
) |
|
|
(46 |
) |
|
|
(91,373 |
) |
|
|
|
|
|
|
(91,419 |
) |
Amortization of
restricted stock
compensation, net of
forfeitures |
|
|
(14 |
) |
|
|
|
|
|
|
2,835 |
|
|
|
|
|
|
|
2,835 |
|
Income tax benefit of
equity compensation |
|
|
|
|
|
|
|
|
|
|
1,713 |
|
|
|
|
|
|
|
1,713 |
|
Stock option compensation
expense |
|
|
|
|
|
|
|
|
|
|
1,984 |
|
|
|
|
|
|
|
1,984 |
|
Restricted stock grant |
|
|
179 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
509 |
|
|
|
5 |
|
|
|
4,725 |
|
|
|
|
|
|
|
4,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
June 30, 2010 |
|
|
112,123 |
|
|
$ |
1,121 |
|
|
$ |
1,403,401 |
|
|
$ |
29,413 |
|
|
$ |
1,433,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED AND AMOUNTS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
|
|
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
Balance as of
December 31, 2008 |
|
|
124,673 |
|
|
$ |
1,247 |
|
|
$ |
1,576,177 |
|
|
$ |
(197,065 |
) |
|
$ |
1,380,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,211 |
|
|
|
67,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,211 |
|
|
|
67,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
2 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
Retirement of common stock |
|
|
(9,701 |
) |
|
|
(97 |
) |
|
|
(109,437 |
) |
|
|
|
|
|
|
(109,534 |
) |
Amortization of restricted stock
compensation, net of
forfeitures |
|
|
(24 |
) |
|
|
|
|
|
|
2,763 |
|
|
|
|
|
|
|
2,763 |
|
Income tax charge of equity
compensation |
|
|
|
|
|
|
|
|
|
|
(743 |
) |
|
|
|
|
|
|
(743 |
) |
Stock option compensation
expense |
|
|
|
|
|
|
|
|
|
|
2,091 |
|
|
|
|
|
|
|
2,091 |
|
Restricted stock grant |
|
|
135 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
96 |
|
|
|
1 |
|
|
|
720 |
|
|
|
|
|
|
|
721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
June 30, 2009 |
|
|
115,181 |
|
|
$ |
1,152 |
|
|
$ |
1,471,595 |
|
|
$ |
(129,854 |
) |
|
$ |
1,342,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
1. ORGANIZATION AND OPERATIONS
As of June 30, 2010, Corrections Corporation of America, a Maryland corporation
(together with its subsidiaries, the Company or CCA), owned 46 correctional and detention
facilities, two of which are leased to other operators. As of June 30, 2010 CCA operated 65
facilities, located in 19 states and the District of Columbia. CCA 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 expected to be completed in the third quarter of
2010.
CCA 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,
CCAs facilities offer a variety of rehabilitation and educational programs, including basic
education, religious services, life skills and employment training, and substance abuse
treatment. These services are intended to reduce recidivism and to prepare inmates for their
successful re-entry into society upon their release. CCA also provides health care
(including medical, dental and psychiatric services), food services, and work and
recreational programs.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements have been prepared by
the Company and, in the opinion of management, reflect all normal recurring adjustments
necessary for a fair presentation of results for the unaudited interim periods presented.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have been condensed
or omitted. The results of operations for the interim period are not necessarily indicative
of the results to be obtained for the full fiscal year. Reference is made to the audited
financial statements of CCA included in its Annual Report on Form 10-K as of and for the year
ended December 31, 2009 (the 2009 Form 10-K) with respect to certain significant accounting
and financial reporting policies as well as other pertinent information of the Company.
Fair Value of Financial Instruments
On April 9, 2009, the Financial Accounting Standards Board (FASB) modified Accounting
Standard Codification (ASC) 825, Financial Instruments, and ASC 270, Interim Reporting, to
extend the disclosure requirements related to fair value of financial instruments to interim
financial statements of publicly traded companies. To meet the reporting requirements of ASC
825 regarding fair value of financial instruments, CCA calculates the estimated fair value of
financial instruments using
6
quoted market prices of similar instruments or discounted cash flow techniques. At June 30,
2010 and December 31, 2009, there were no material differences between the carrying amounts
and the estimated fair values of CCAs financial instruments, other than as follows (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
December 31, 2009 |
|
|
Carrying |
|
|
|
|
|
Carrying |
|
|
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
Investment in direct financing lease |
|
$ |
12,818 |
|
|
$ |
15,468 |
|
|
$ |
13,414 |
|
|
$ |
16,329 |
|
Note receivable from APM |
|
$ |
4,754 |
|
|
$ |
7,966 |
|
|
$ |
5,025 |
|
|
$ |
8,497 |
|
Debt |
|
$ |
(1,186,571 |
) |
|
$ |
(1,227,245 |
) |
|
$ |
(1,149,099 |
) |
|
$ |
(1,187,768 |
) |
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill was $12.0 million and $13.7 million as of June 30, 2010 and December 31, 2009,
respectively, and was associated with fourteen facilities CCA manages but does not own.
During the second quarter of 2010, a goodwill impairment charge of $1.7 million was recorded
as a result of the pending contract terminations at the 1,520-bed Gadsden Correctional
Institution and the 876-bed Hernando County Jail as further described in Note 4. The
operations of these two facilities are expected to be transferred to other operators during
the third quarter of 2010.
The components of CCAs amortizable intangible assets and liabilities are as follows
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Contract acquisition costs |
|
$ |
873 |
|
|
$ |
(863 |
) |
|
$ |
873 |
|
|
$ |
(862 |
) |
Contract values |
|
|
(35,688 |
) |
|
|
33,822 |
|
|
|
(35,688 |
) |
|
|
32,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(34,815 |
) |
|
$ |
32,959 |
|
|
$ |
(34,815 |
) |
|
$ |
31,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 both the three months ended June 30, 2010 and 2009 was $0.7 million while amortization
income, net of amortization expense, for intangible assets and liabilities during the six
months ended June 30, 2010 and 2009 was $1.3 million and $1.7 million, respectively.
Interest expense associated with the amortization of contract values for the three months
ended June 30, 2010 and 2009 was $37,000 and $0.1 million, respectively, while interest
expense associated with the amortization of contract values for the six months ended June 30,
2010 and 2009 was $0.1 million and $0.2 million, respectively. Estimated amortization income,
net of amortization expense, for the remainder of 2010 and the five succeeding fiscal years
is as follows (in thousands):
7
|
|
|
|
|
2010 (remainder) |
|
$ |
998 |
|
2011 |
|
|
134 |
|
2012 |
|
|
134 |
|
2013 |
|
|
134 |
|
2014 |
|
|
134 |
|
2015 |
|
|
134 |
|
4. FACILITY ACTIVATION AND DEVELOPMENTS
In February 2008, CCA announced its intention to construct a new correctional facility in
Trousdale County, Tennessee. However, during the first quarter of 2009 CCA temporarily
suspended the construction of this facility until there is greater clarity around the timing
of future bed absorption by its customers. CCA will continue to monitor its customers needs,
and could promptly resume construction of the facility. As of June 30, 2010, CCA has
capitalized $27.5 million related to the Trousdale facility, a portion of which consists of
pre-fabricated concrete cells that are generally transferable to other potential CCA
development projects.
In
May 2008, CCA was awarded a contract by the Office of Federal
Detention Trustee to deliver services at 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 detainees and
includes an initial term of five years with three five-year renewal options.
During December 2009, CCA announced its decision to idle its 1,600-bed Prairie Correctional
Facility in Minnesota 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 reduced the populations held at
Prairie throughout 2009. The state of Washington removed all of its offenders from the
Prairie facility by the end of 2009, and during January 2010, the final transfer of offenders
from the Prairie facility to the state of Minnesota was completed.
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 CCA that it elected not to renew the contract at CCAs 752-bed Huerfano County
Correctional Center in Colorado upon expiration of the contract in March 2010. As a result,
the Arizona Department of Corrections removed all of the inmates from the Huerfano facility
during March 2010. Further, during March 2010, the Arizona Department of Corrections
notified CCA that it elected not to renew its contract at CCAs 2,160-bed Diamondback
Correctional Facility in Oklahoma, which was scheduled to expire on May 1, 2010. The Arizona
Department of Corrections completed the transfer of offenders from the Diamondback facility
during May 2010. As a result, CCA has idled the Huerfano and Diamondback facilities. The Diamondback facility previously
housed inmates from the states of Wisconsin, Hawaii, and
8
Oklahoma, while the Huerfano facility recently housed inmates from the state of Colorado. CCA
continues to manage inmate populations from the states of Oklahoma,
Hawaii, and Colorado at other
facilities it owns and operates.
During January 2010, CCA 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. CCA currently expects that all inmates will be transferred out of the
facility by the end of the third quarter of 2010.
The Company is currently pursuing new management contracts to take advantage of the beds that
have or will become available at the Huerfano, Diamondback, Prairie, and California City
facilities but can provide no assurance that it will be successful in doing so. The carrying
values of these four facilities totaled $196.2 million and $198.6 million as of June 30, 2010
and December 31, 2009, respectively, excluding equipment and other assets that could
generally be transferred and used at other facilities CCA owns without significant cost.
In April 2010, CCA announced that pursuant to a re-bid of the management contracts at four
Florida facilities, two of which were managed by CCA at the time, the Florida Department of
Management Services (Florida DMS) indicated its intent to award CCA the continued
management of the 985-bed Bay Correctional Facility, in Panama City, Florida. Additionally,
the Florida DMS indicated its intent to award CCA management of the 985-bed Moore Haven
Correctional Facility in Moore Haven, Florida and the 1,884-bed Graceville Correctional
Facility in Graceville, Florida, facilities which were not previously managed by CCA.
However, CCA was not selected for the continued management of the 1,520-bed Gadsden
Correctional Institution in Quincy, Florida. All of the facilities are owned by the state of
Florida. The contracts contain an initial term of three years and two two-year renewal
options. CCA expects to assume management of the Moore Haven and Graceville facilities and to
transition management at the Gadsden facility during the third quarter of 2010. In April
2010, CCA also provided notice to Hernando County, Florida of its intent to terminate the
management contract at the 876-bed Hernando County Jail during the third quarter of 2010.
CCA incurred non-cash charges totaling approximately $3.1 million during the second quarter
of 2010 for the write-off of goodwill and other costs associated with the termination of the
management contracts for the Gadsden and Hernando County facilities.
5. DISCONTINUED OPERATIONS
In May 2008, CCA 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. The jail is owned
by the County. During 2009, the Company reported expenses related to negative developments in
outstanding legal matters which are reported as discontinued operations.
9
Pursuant to a re-bid of the management contracts, during September 2008, CCA 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 have been reported as discontinued operations since the termination of
operations in the first quarter of 2009, for all periods presented.
The following table summarizes the results of operations for these facilities for the six
months ended June 30, 2010 and 2009 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
REVENUE: |
|
|
|
|
|
|
|
|
Managed-only |
|
$ |
|
|
|
$ |
510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
Managed-only |
|
|
|
|
|
|
1,782 |
|
Depreciation and amortization |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS |
|
|
|
|
|
|
(1,276 |
) |
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED
OPERATIONS BEFORE INCOME TAXES |
|
|
|
|
|
|
(1,270 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED
OPERATIONS, NET OF TAXES |
|
$ |
|
|
|
$ |
(789 |
) |
|
|
|
|
|
|
|
The assets and liabilities of the discontinued operations presented in the
accompanying consolidated balance sheets are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
|
|
|
$ |
23 |
|
Other current assets |
|
|
69 |
|
|
|
43 |
|
|
|
|
|
|
|
|
Total current assets |
|
$ |
69 |
|
|
$ |
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
718 |
|
|
$ |
673 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
718 |
|
|
$ |
673 |
|
|
|
|
|
|
|
|
As previously described in Note 4, in April 2010, CCA announced that pursuant to a
re-bid of the management contract at the 1,520-bed Gadsden Correctional Institution in
10
Quincy, Florida, the Florida DMS indicated its intent to award the management of the Gadsden
facility to another operator. CCA expects to transition management at the Gadsden facility
during the third quarter of 2010 to the new operator. Additionally, in April 2010, CCA also
provided notice to Hernando County, Florida of its intent to terminate the management
contract at the 876-bed Hernando County Jail during the third quarter of 2010. CCA currently
expects to reclassify the results of operations, net of taxes, and the assets and liabilities
of these two facilities as discontinued operations upon termination of operations in the
third quarter of 2010 for all periods presented.
6. DEBT
Debt outstanding as of June 30, 2010 and December 31, 2009 consists of the following
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Revolving Credit Facility, principal due at maturity in December
2012; interest payable periodically at variable interest rates. The
weighted average rate at June 30, 2010 was 1.2%. |
|
$ |
208,633 |
|
|
$ |
171,799 |
|
|
|
|
|
|
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 $12.1
million and $12.7 million was unamortized at June 30, 2010 and
December 31, 2009, respectively. |
|
|
452,938 |
|
|
|
452,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,186,571 |
|
|
$ |
1,149,099 |
|
|
|
|
|
|
|
|
Revolving Credit Facility. During December 2007, CCA 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 and the stock repurchase program as
further described in Note 7, 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 CCAs 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 CCAs leverage ratio. Based on CCAs 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 June 30, 2010, the Company had $208.6
million of outstanding borrowings under the Revolving Credit Facility as well as $30.4
million in
11
letters of credit outstanding resulting in $199.3 million available under the Revolving
Credit Facility.
Lehman Brothers Commercial Bank (Lehman), which holds a $15.0 million share in the
Revolving Credit Facility, is a defaulting lender under the terms of the credit agreement. At
June 30, 2010, 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 CCAs expectation that going forward it will not have access to additional
incremental funding from Lehman, and to the extent Lehmans funding is reduced, it will not
be replaced. CCA does not believe that this reduction of credit has a material effect on
its liquidity and capital resources. None of the other banks providing commitments under the
Revolving Credit Facility have failed to fund borrowings CCA 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 which enables
CCA 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. CCA 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 CCAs
domestic subsidiaries, 65% of the capital stock of CCAs foreign subsidiaries, all of CCAs
accounts receivable, and all of CCAs deposit accounts.
The Revolving Credit Facility requires CCA 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 June 30, 2010, CCA was in compliance with all such
covenants. In addition, the Revolving Credit Facility contains certain covenants which,
among other things, limit 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 CCAs other indebtedness.
$375 Million 6.25% Senior Notes. Interest on the $375.0 million aggregate principal amount
of CCAs 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. CCA may redeem all or a portion of
the notes at redemption prices set forth in the indenture governing the 6.25% Senior Notes.
12
$150 Million 6.75% Senior Notes. Interest on the $150.0 million aggregate principal amount
of CCAs 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. CCA may redeem all or a portion of
the notes at redemption prices set forth in the indenture governing the 6.75% Senior Notes.
$465 Million 7.75% Senior Notes. Interest on the $465.0 million aggregate principal amount
of CCAs 7.75% unsecured senior notes issued in June 2009 (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. The 7.75% Senior Notes were issued at a price
of 97.116%, resulting in a yield to maturity of 8.25%. At any time on or before June 1,
2012, CCA 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. CCA 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.
7. STOCKHOLDERS EQUITY
Stock Repurchase Program
In February 2010, the Companys Board of Directors approved a stock repurchase
program to purchase up to $250.0 million of CCAs common stock through June 30, 2011.
Through June 30, 2010, CCA completed the purchase of 4.4 million shares at a total cost
of $88.6 million. CCA has utilized cash on hand, net cash provided by operations, and
borrowings available under the Revolving Credit Facility to fund the repurchases.
Restricted Stock
During the first six months of 2010, CCA issued 322,000 shares of restricted common
stock and common stock units to certain of its employees, with an aggregate fair value of
$6.7 million, including 275,000 restricted shares or units to employees whose compensation is
charged to general and administrative expense and 47,000 restricted shares to employees whose
compensation is charged to operating expense. During 2009, CCA issued 333,000 shares of
restricted common stock and common stock units to certain of its employees, with an aggregate
fair 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.
CCA established performance-based vesting conditions on the shares of restricted common stock
and common stock units awarded to its 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
13
of the agreements, the shares of restricted stock issued to the other employees vest after
three years of continuous service.
During the three months ended June 30, 2010, CCA expensed $1.5 million, net of forfeitures,
relating to restricted common stock and common stock units ($0.3 million of which was
recorded in operating expenses and $1.2 million of which was recorded in general and
administrative expenses). During the three months ended June 30, 2009, CCA expensed $1.3
million, net of forfeitures, relating to restricted common stock and common stock units ($0.3
million of which was recorded in operating expenses and $1.0 million of which was recorded in
general and administrative expenses).
During the six months ended June 30, 2010, CCA expensed $2.8 million, net of forfeitures,
relating to restricted common stock and common stock units ($0.5 million of which was
recorded in operating expenses and $2.3 million of which was recorded in general and
administrative expenses). During the six months ended June 30, 2009, CCA expensed $2.8
million, net of forfeitures, relating to restricted common stock and common stock units ($0.5
million of which was recorded in operating expenses and $2.3 million of which was recorded in
general and administrative expenses). As of June 30, 2010, 708,000 shares of restricted
common stock and common stock units remained outstanding and subject to vesting.
Stock Options
During the six months ended June 30, 2010, CCA issued to its directors, officers, and
executive officers options to purchase 687,000 shares of common stock with an aggregate fair
value of $5.3 million, with a weighted average exercise price of $20.67 per share. During
2009, CCA issued to its officers, executive officers, and non-employee directors options to
purchase 826,000 shares of common stock with an aggregate fair value of $3.4 million, with a
weighted average exercise price of $11.93 per share. CCA estimates the fair value of stock
options using the Black-Scholes option pricing model. Unless earlier vested under their
terms, one third of the stock options issued to CCAs executive officers vest on the
anniversary of the grant date over a three-year period while one fourth of the stock options
issued to CCAs other officers vest on the anniversary of the grant date over a four-year
period. Options granted to non-employee directors vest on the one-year anniversary of the
grant date.
During the three months ended June 30, 2010 and 2009, CCA expensed $1.1 million and $1.0
million, respectively, net of forfeitures, relating to its outstanding stock options. During
the six months ended June 30, 2010 and 2009, CCA expensed $2.0 million and $2.1 million, net
of forfeitures, relating to its outstanding stock options. As of June 30, 2010, options to
purchase 4.0 million shares of common stock were outstanding with a weighted average exercise
price of $16.62.
8. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the
period. 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
14
issuance of common stock that then shared in the earnings of the entity. For CCA diluted
earnings per share is computed by dividing net income by the weighted average number of
common shares after considering the additional dilution related to restricted stock-based
compensation and stock options and warrants.
A reconciliation of the numerator and denominator of the basic earnings per share computation
to the numerator and denominator of the diluted earnings per share computation is as follows
(in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
NUMERATOR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
36,618 |
|
|
$ |
32,614 |
|
|
$ |
71,524 |
|
|
$ |
68,000 |
|
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
36,618 |
|
|
$ |
32,614 |
|
|
$ |
71,524 |
|
|
$ |
67,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
36,618 |
|
|
$ |
32,614 |
|
|
$ |
71,524 |
|
|
$ |
68,000 |
|
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income |
|
$ |
36,618 |
|
|
$ |
32,614 |
|
|
$ |
71,524 |
|
|
$ |
67,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
112,980 |
|
|
|
114,661 |
|
|
|
114,163 |
|
|
|
117,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
112,980 |
|
|
|
114,661 |
|
|
|
114,163 |
|
|
|
117,215 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants |
|
|
770 |
|
|
|
847 |
|
|
|
804 |
|
|
|
729 |
|
Restricted stock-based compensation |
|
|
123 |
|
|
|
179 |
|
|
|
139 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and assumed conversions |
|
|
113,873 |
|
|
|
115,687 |
|
|
|
115,106 |
|
|
|
118,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.32 |
|
|
$ |
0.28 |
|
|
$ |
0.63 |
|
|
$ |
0.58 |
|
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.32 |
|
|
$ |
0.28 |
|
|
$ |
0.63 |
|
|
$ |
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.32 |
|
|
$ |
0.28 |
|
|
$ |
0.62 |
|
|
$ |
0.58 |
|
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.32 |
|
|
$ |
0.28 |
|
|
$ |
0.62 |
|
|
$ |
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The nature of CCAs 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 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 CCAs facilities, personnel or inmates,
including damages arising from an inmates escape or from a disturbance or riot at a
facility. CCA maintains insurance to cover many of
15
these claims, which may mitigate the risk that any single claim would have a material effect
on CCAs 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, CCA is subject to substantial self-insurance
risk.
CCA 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, and taking into consideration CCAs self-insured
retention amounts, management believes a loss in excess of amounts already recognized would
not be material to CCAs financial statements. In the opinion of management, there are no
pending legal proceedings that would have a material effect on CCAs 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 CCAs 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 CCAs assumptions, new developments, or by the effectiveness of CCAs
litigation and settlement strategies.
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 CCA 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
CCA for the correctional facility.
In connection with the issuance of the revenue bonds, CCA 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 June 30, 2010 plus future interest
payments). In the event the state of Tennessee, which is currently utilizing the facility to
house certain inmates, exercises its option to purchase
16
the correctional facility, CCA 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, CCA does not currently believe the state of
Tennessee will exercise its option to purchase the facility. At June 30, 2010, the
outstanding principal balance of the bonds exceeded the purchase price option by $13.2
million.
10. INCOME TAXES
Income taxes are accounted for under the provisions of ASC 740 Income Taxes. ASC 740
generally requires CCA to record deferred income taxes for the tax effect of differences
between book and tax bases of its assets and liabilities.
Deferred income taxes reflect the available net operating losses and the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Realization
of the future tax benefits related to deferred tax assets is dependent on many factors,
including CCAs 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.
CCAs effective tax rate was approximately 38.3% and 38.2% during the three and six
months ended June 30, 2010, respectively, compared with approximately 38.2% and 38.0% during
the same periods in the prior year. CCAs overall effective tax rate is estimated based on
its current projection of taxable income and could change in the future as a result of
changes in these estimates, the implementation of tax strategies, changes in federal or state
tax rates or laws affecting tax credits available to CCA, changes in other 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 CCAs deferred tax assets that are
based primarily on the amount of state net operating losses and tax credits that could expire
unused.
Income Tax Contingencies
In July 2006, the 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 prescribed 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% likely of being realized upon ultimate settlement.
CCA has a $0.2 million liability recorded for uncertain tax positions as of June 30, 2010,
included in other non-current liabilities in the accompanying consolidated
17
balance sheet. CCA recognizes interest and penalties related to unrecognized tax positions
in income tax expense. The total amount of unrecognized tax positions that, if recognized,
would affect the effective tax rate is $0.1 million. CCA does not currently anticipate that
the total amount of unrecognized tax positions will significantly increase or decrease in the
next twelve months.
11. SEGMENT REPORTING
As of June 30, 2010, CCA owned and managed 44 correctional and
detention facilities, and managed 21 correctional and detention
facilities it did not own. Management views CCAs operating results
in two reportable segments: (1) owned and managed correctional and
detention facilities and (2) managed-only correctional and detention
facilities. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting
policies in the notes to consolidated financial statements included in
CCAs 2009 Form 10-K. Owned and managed facilities include the
operating results of those facilities placed into service that were
owned and managed by CCA. Managed-only facilities include the
operating results of those facilities owned by a third party and
managed by CCA. CCA measures the operating performance of each
facility within the above two reportable segments, without
differentiation, based on facility contribution. CCA defines facility
contribution as a facilitys operating income or loss from operations
before interest, taxes, depreciation and amortization. Since each of
CCAs 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 CCAs operating income is as follows for the three
and six months ended June 30, 2010 and 2009 (amounts in thousands):
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
$ |
327,248 |
|
|
$ |
324,667 |
|
|
$ |
653,266 |
|
|
$ |
642,327 |
|
Managed-only |
|
|
89,973 |
|
|
|
86,102 |
|
|
|
177,504 |
|
|
|
170,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total management revenue |
|
|
417,221 |
|
|
|
410,769 |
|
|
|
830,770 |
|
|
|
813,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
|
211,103 |
|
|
|
210,749 |
|
|
|
427,034 |
|
|
|
418,452 |
|
Managed-only |
|
|
78,459 |
|
|
|
73,982 |
|
|
|
156,581 |
|
|
|
147,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
289,562 |
|
|
|
284,731 |
|
|
|
583,615 |
|
|
|
566,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
|
116,145 |
|
|
|
113,918 |
|
|
|
226,232 |
|
|
|
223,875 |
|
Managed-only |
|
|
11,514 |
|
|
|
12,120 |
|
|
|
20,923 |
|
|
|
23,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total facility contribution |
|
|
127,659 |
|
|
|
126,038 |
|
|
|
247,155 |
|
|
|
246,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other revenue |
|
|
2,161 |
|
|
|
1,924 |
|
|
|
3,559 |
|
|
|
3,675 |
|
Other operating expense |
|
|
(4,461 |
) |
|
|
(4,552 |
) |
|
|
(7,827 |
) |
|
|
(7,841 |
) |
General and administrative |
|
|
(19,867 |
) |
|
|
(23,540 |
) |
|
|
(38,481 |
) |
|
|
(43,311 |
) |
Depreciation and amortization |
|
|
(27,165 |
) |
|
|
(24,948 |
) |
|
|
(52,363 |
) |
|
|
(49,592 |
) |
Goodwill impairment |
|
|
(1,684 |
) |
|
|
|
|
|
|
(1,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
76,643 |
|
|
$ |
74,922 |
|
|
$ |
150,359 |
|
|
$ |
149,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes capital expenditures for the reportable segments for
the three and six months ended June 30, 2010 and 2009 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and managed |
|
$ |
37,271 |
|
|
$ |
18,803 |
|
|
$ |
76,107 |
|
|
$ |
35,062 |
|
Managed-only |
|
|
1,385 |
|
|
|
3,093 |
|
|
|
2,410 |
|
|
|
6,737 |
|
Corporate and other |
|
|
2,434 |
|
|
|
1,639 |
|
|
|
3,484 |
|
|
|
7,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
41,090 |
|
|
$ |
23,535 |
|
|
$ |
82,001 |
|
|
$ |
49,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assets for the reportable segments are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
Assets: |
|
|
|
|
|
|
|
|
Owned and managed |
|
$ |
2,661,544 |
|
|
$ |
2,605,023 |
|
Managed-only |
|
|
111,506 |
|
|
|
116,460 |
|
Corporate and other |
|
|
156,563 |
|
|
|
184,194 |
|
Discontinued operations |
|
|
69 |
|
|
|
66 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,929,682 |
|
|
$ |
2,905,743 |
|
|
|
|
|
|
|
|
19
ITEM 2. 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 quarterly report on Form 10-Q contains statements as to our beliefs and expectations of the
outcome of future events that are forward-looking statements as defined within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements other than statements of current
or historical fact contained herein, 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 forward-looking
statements are subject to risks and uncertainties that could cause actual results to differ
materially from the statements made. These include, but are not limited to, the risks and
uncertainties associated with:
|
|
|
general economic and market conditions, including the impact governmental budgets can
have on our per diem rates and occupancy; |
|
|
|
|
fluctuations in operating results because of, among other things, changes in occupancy
levels, competition, increases in cost of operations, fluctuations in interest rates, and
risks of operations; |
|
|
|
|
changes in the privatization of the corrections and detention industry and the public
acceptance of our services; |
|
|
|
|
our ability to obtain and maintain correctional facility management contracts,
including as the result of sufficient governmental appropriations, inmate disturbances,
and the timing of the opening of new facilities and the commencement of new management
contracts as well as our ability to utilize current available beds and new capacity as
development and expansion projects are completed; |
|
|
|
|
increases in costs to develop or expand correctional facilities that exceed original
estimates, or the inability to complete such projects on schedule as a result of various
factors, many of which are beyond our control, such as weather, labor conditions, and
material shortages, resulting in increased construction costs; |
|
|
|
|
changes in governmental 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 |
|
|
|
|
the availability of debt and equity financing on terms that are favorable to us. |
Any or all of our forward-looking statements in this quarterly 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 disclosed in detail
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the
Securities and Exchange Commission (the SEC) on February 24, 2010 (File No. 001-16109) (the 2009
Form 10-K) and in other
20
reports we file with the SEC from time to time. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof. We undertake no
obligation to publicly revise these forward-looking statements to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated events. 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
report and in the 2009 Form 10-K.
OVERVIEW
The Company
As of June 30, 2010, we owned 46 correctional and detention facilities, two of which we leased to
other operators. As of June 30, 2010, we operated 65 facilities, including 44 facilities that we
owned, with a total design capacity of approximately 88,000 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 that is expected to
be completed during the third quarter of 2010.
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 reduce recidivism and to prepare inmates for their successful re-entry 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
SEC. Information on our website is not part of this report.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements in this report are prepared in conformity with U.S. generally
accepted accounting principles. 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 our 2009 Form 10-K. 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 June 30, 2010, we had $2.5 billion in property and equipment. We
evaluate the recoverability of the carrying values of our long-lived assets, other than
21
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. As of June 30, 2010, we had $12.0 million of goodwill. We evaluate the
carrying value of goodwill during the fourth quarter of each year, in connection with our annual
budgeting process, and whenever circumstances indicate the carrying value of goodwill may not be
recoverable. Such circumstances primarily include, but are not limited to, the termination of a
management contract or a significant decrease in inmate populations within a reporting unit. We
test 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 which could change in the future.
Income taxes. 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 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 $5.0 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, we have $6.9 million of state tax credits applicable to various states
that we expect to carry forward in future years to offset taxable income in such states. We have a
$3.3 million valuation allowance related to state tax credits that are expected to expire unused.
Although our estimate of future taxable income is based on current assumptions that 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 June 30, 2010, we had $35.2 million 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 we pay the claims. We have accrued the estimated liability for workers compensation and
automobile insurance
22
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 June 30, 2010, we had $14.4 million in accrued liabilities related to
certain legal proceedings in which we are involved. We have accrued our best 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
Our results of operations are impacted by 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 in operation. The following table sets forth the changes
in the number of facilities operated for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned |
|
|
|
|
|
|
|
|
Effective |
|
and |
|
Managed |
|
|
|
|
|
|
Date |
|
Managed |
|
Only |
|
Leased |
|
Total |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities as of June 30, 2010 |
|
|
|
|
44 |
|
|
|
21 |
|
|
|
2 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and six months ended June 30, 2009, we incurred $1.1 million and $1.8
million, respectively, of operating expenses at the North Georgia Detention Center in preparation
for the receipt of detainees under the new contract with the U.S. Immigration and Customs
Enforcement, or ICE, as discussed further under Facility Operations. These expenses were not
included in segment results or per man-day statistics prior to being placed into service.
23
Three and Six Months Ended June 30, 2010 Compared to the Three and Six Months Ended June 30, 2009
Net income was $36.6 million, or $0.32 per diluted share, for the three months ended June 30, 2010,
compared with net income of $32.6 million, or $0.28 per diluted share, for the three months ended
June 30, 2009. During the six months ended June 30, 2010, we generated net income of $71.5
million, or $0.62 per diluted share, compared with net income of $67.2 million, or $0.57 per
diluted share, for the six months ended June 30, 2009.
Net income during the three and six months ended June 30, 2010 was negatively impacted by
approximately $3.1 million of non-cash charges for the write-off of goodwill and other costs
associated with the termination of the management contracts at the Gadsden and Hernando County
facilities as further described hereafter. Net income during the six months ended June 30, 2010
also included $4.1 million of bonuses paid to non-management level staff in-lieu of wage increases.
For the three and six months ended June 30, 2010, these charges amounted to $0.02 and $0.04 per
diluted share, after taxes, respectively.
Net income during the three and six months ended June 30, 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. Net income during the three and six months ended June 30, 2009
also reflected $4.1 million of consulting fees, or $0.02 per diluted share after taxes, in
connection with a company-wide initiative to improve operational efficiencies.
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 three and six months ended June 30, 2010 and 2009:
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue per compensated man-day |
|
$ |
58.05 |
|
|
$ |
58.31 |
|
|
$ |
58.28 |
|
|
$ |
58.38 |
|
Operating expenses per compensated
man-day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed expense |
|
|
30.36 |
|
|
|
30.37 |
|
|
|
31.20 |
|
|
|
30.66 |
|
Variable expense |
|
|
9.93 |
|
|
|
10.05 |
|
|
|
9.75 |
|
|
|
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
40.29 |
|
|
|
40.42 |
|
|
|
40.95 |
|
|
|
40.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin per compensated man-day |
|
$ |
17.76 |
|
|
$ |
17.89 |
|
|
$ |
17.33 |
|
|
$ |
17.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
30.6 |
% |
|
|
30.7 |
% |
|
|
29.7 |
% |
|
|
30.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
90.0 |
% |
|
|
90.5 |
% |
|
|
90.2 |
% |
|
|
89.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average available beds |
|
|
87,782 |
|
|
|
85,575 |
|
|
|
87,352 |
|
|
|
85,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average compensated population |
|
|
78,975 |
|
|
|
77,408 |
|
|
|
78,750 |
|
|
|
76,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average compensated population for the quarter ended June 30, 2010 increased 1,567 from
77,408 in the second quarter of 2009 to 78,975 in the second quarter of 2010. The increase in
average compensated population resulted primarily from increases in average compensated population
from the 2,232-bed Adams County Correctional Center which began receiving inmates during the third
quarter of 2009 pursuant to a new management contract with the Federal Bureau of Prisons (BOP) as
well as increases in average compensated populations from the state of California. These increases
in average compensated population were partially offset by declines in compensated population
resulting from the loss of Arizona inmates at our Diamondback Correctional Facility and Huerfano
County Correctional Center.
Our total facility management revenue increased by $6.5 million, or 1.6%, during the second quarter
of 2010 compared with the same period in the prior year resulting primarily from an increase in
revenue of approximately $8.3 million generated by an increase in the average daily compensated
population during the second quarter of 2010. Partially offsetting the increase in facility
management revenue resulting from an increase in compensated population was a slight decrease of
0.5% in the average revenue per compensated man-day.
Business from our federal customers, including primarily the BOP, the U.S. Marshals Service, or the
USMS, and U.S. Immigration and Customs Enforcement, or ICE, continues to be a significant component
of our business. Our federal customers generated approximately 42% and 39% of our total revenue
for the six months ended June 30, 2010 and 2009, respectively, increasing 8.5%, from $322.3 million
during the six months ended June 30, 2009 to $349.7 million during the six months ended June 30,
2010.
State revenues decreased $7.7 million, or 3.6%, from $216.8 million for the three months ended June
30, 2009 to $209.1 million for the three months ended June 30, 2010, and $8.3 million, or 1.9%,
from $428.6 million for the six months ended June 30, 2009 to $420.3 million for the six months
ended June 30, 2010.
State revenues declined as certain states, such as the states of Arizona, Washington, and
Minnesota, have recently opened new correctional facilities within their respective states and
reduced the number of inmates housed in facilities we operate, while other states have reduced inmate populations in an effort to
25
control their costs and alleviate their extraordinary budget challenges. Additionally, we were
notified by the Alaska Department of Corrections during the third quarter of 2009 that we were not
selected in Alaskas competitive solicitation to house up to 1,000 inmates from the state of
Alaska. The state of Alaska completed the transfer of their inmate population out of our Red Rock
facility during the fourth quarter of 2009. Partially offsetting these reductions in state
revenues, we continued to receive additional inmates from the state of California throughout 2009
and into the first six months of 2010 as they have turned to the private sector to help alleviate
their overcrowded correctional system. We housed approximately 8,900 inmates from the state of
California as of June 30, 2010, compared with approximately 7,900 California inmates as of June 30,
2009.
Economic conditions remain very challenging, putting continued pressure on
state budgets. States may be forced to further reduce their expenses if their tax revenues, which
typically lag the overall economy, do not meet their expectations. Actions to control their
expenses could include 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.
As of June 30, 2010, we had approximately 11,100 unoccupied beds at facilities that had
availability of 100 or more beds and an additional 1,072 beds under construction in Nevada. Of
these, 2,300 beds are under guaranteed contracts with existing customers, leaving us with 9,900
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.
Filling these beds would provide substantial growth in revenues, cash flow, and earnings per share.
However, we can provide no assurance that we will be able to obtain new or existing customers to
fill our available beds.
Operating expenses totaled $294.0 million and $289.3 million for the three months ended June 30,
2010 and 2009, respectively, while operating expenses for the six months ended June 30, 2010 and
2009 totaled $591.4 million and $574.1 million, 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 three months ended June 30, 2010 remained
essentially unchanged at $30.36 compared to $30.37 during the three months ended June 30, 2009.
Fixed expenses per compensated man-day during the six-month periods increased 1.8% from $30.66 in
2009 to $31.20 in 2010. Salaries and benefits represent the most significant component of fixed
operating expenses and represented approximately 63% and 64% of total operating expenses during the
three and six months ended June 30, 2010, respectively. During the three and six months ended June
30, 2010, facility salaries and benefits expense increased $1.5 million and $13.0 million,
respectively. Although we did not provide annual wage increases during 2009 to the majority of our
employees, our salaries expense during 2010 included $4.1 million, or $0.29 per compensated man-day
during the six months ended June 30, 2010, of bonuses paid to non-management level staff in-lieu of
wage
26
increases. Like many companies suffering the effects of the current economy, we have monitored our
compensation levels very closely and believe these adjustments to our compensation strategy were
necessary to help ensure the long-term success of our business.
Notwithstanding these bonus payments, salaries and benefits increased most notably at our Adams
County facility that opened in the third quarter of 2009, at our newly opened North Georgia
facility as a result of a new contract with ICE, and at our North Fork and La Palma facilities as a
result of an increase in beds utilized from the state of California.
We typically enter into facility management contracts with governmental entities for terms
typically from three to five years, with additional renewal periods at the option of the
contracting governmental agency. Accordingly, a substantial portion of our facility management
contracts are scheduled to expire each year, notwithstanding contractual renewal options that a
government agency may exercise. 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.
As disclosed further hereafter under the Owned and Managed Facilities and Managed Only
Facilities, we were notified by the state of Arizona of its intent to not renew management
contracts at our Huerfano County Correctional Center and our Diamondback Correctional Facility
expiring in March 2010 and May 2010, respectively. We also were notified by the BOP that our
California City Correctional Center in California was not selected for the continued management of
the federal offenders currently located at this facility upon expiration of the contract on
September 30, 2010. In April 2010, we were notified that we were not awarded a new contract at the
Gadsden Correctional Institution as a result of a competitive procurement process. Accordingly, we
ceased operations at the Gadsden facility on July 31, 2010 upon expiration of the existing
contract. Additionally, we decided to temporarily cease operations at our Prairie Correctional
Facility during the first quarter of 2010 due to low inmate populations at the facility. Due to
excess capacity in the states systems, both the states of Minnesota and Washington have removed
the populations held at our Prairie facility. During April 2010, we also provided notice of our
intent to terminate the management contract at the Hernando County Jail during the third quarter of
2010.
In addition to these known pending contract terminations, we manage five facilities in Texas that
we do not own pursuant to management contracts that expire in January 2011, which are currently
subject to a competitive procurement process. We have competitively bid on the continued
management of these five facilities but cannot provide assurance that we will be successful in
maintaining contracts at any of these five facilities.
Other than the specific contracts discussed above that have either terminated or which we believe
are reasonably possible to terminate, we believe we will renew all contracts that have expired or
are scheduled to expire within the next twelve months. We believe our renewal rate on existing
contracts remains high as a result of a variety of reasons including, but not limited to, the
constrained supply of available beds within the U.S. correctional system, our ownership of the
majority of the beds we operate, and the quality of our operations. We generated total revenues of
$49.8 million and $109.1 million at the Huerfano, Diamondback, California City, Gadsden, Prairie,
Hernando County, and five Texas managed-only facilities during the three and six months ended June
30, 2010, respectively, compared with total
27
revenues of $65.1 million and $130.4 million during the three and six months ended June 30, 2009,
respectively. Carrying amounts of the property and equipment at these eleven facilities were $201.8
million and $207.1 million as of June 30, 2010 and December 31, 2009, respectively.
Facility variable expenses per compensated man-day decreased $0.12, or 1.2%, and $0.25, or 2.5%,
during the three and six months ended June 30, 2010, respectively, compared with the same periods
in the prior year. The favorable performance in facility variable operating expenses during the
three- and six-month periods was largely due to efforts to contain costs through a company-wide
initiative to improve operating efficiencies.
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 on 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 were
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Owned and Managed Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
65.97 |
|
|
$ |
66.88 |
|
|
$ |
66.36 |
|
|
$ |
67.04 |
|
Operating expenses per
compensated man-day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed expense |
|
|
32.27 |
|
|
|
32.74 |
|
|
|
33.17 |
|
|
|
33.12 |
|
Variable expense |
|
|
10.28 |
|
|
|
10.68 |
|
|
|
10.21 |
|
|
|
10.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
42.55 |
|
|
|
43.42 |
|
|
|
43.38 |
|
|
|
43.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin per
compensated man-day |
|
$ |
23.42 |
|
|
$ |
23.46 |
|
|
$ |
22.98 |
|
|
$ |
23.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
35.5 |
% |
|
|
35.1 |
% |
|
|
34.6 |
% |
|
|
34.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
87.9 |
% |
|
|
87.4 |
% |
|
|
88.3 |
% |
|
|
86.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average available beds |
|
|
62,015 |
|
|
|
61,054 |
|
|
|
61,585 |
|
|
|
61,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average compensated population |
|
|
54,516 |
|
|
|
53,347 |
|
|
|
54,386 |
|
|
|
52,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Managed Only Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per compensated man-day |
|
$ |
40.42 |
|
|
$ |
39.32 |
|
|
$ |
40.25 |
|
|
$ |
39.30 |
|
Operating expenses per
compensated man-day: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed expense |
|
|
26.10 |
|
|
|
25.11 |
|
|
|
26.79 |
|
|
|
25.24 |
|
Variable expense |
|
|
9.15 |
|
|
|
8.67 |
|
|
|
8.71 |
|
|
|
8.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
35.25 |
|
|
|
33.78 |
|
|
|
35.50 |
|
|
|
33.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin per
compensated man-day |
|
$ |
5.17 |
|
|
$ |
5.54 |
|
|
$ |
4.75 |
|
|
$ |
5.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
12.8 |
% |
|
|
14.1 |
% |
|
|
11.8 |
% |
|
|
13.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average compensated occupancy |
|
|
94.9 |
% |
|
|
98.1 |
% |
|
|
94.6 |
% |
|
|
97.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average available beds |
|
|
25,767 |
|
|
|
24,521 |
|
|
|
25,767 |
|
|
|
24,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average compensated population |
|
|
24,459 |
|
|
|
24,061 |
|
|
|
24,364 |
|
|
|
24,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and Managed Facilities
Our operating margins at owned and managed facilities for the three months ended June 30, 2010
increased to 35.5% compared with 35.1% for the same three-month period in 2009. However, operating
margins at our owned and managed facilities for the six months ended June 30, 2010 decreased to
34.6% compared with 34.8% for the same six-month period in 2009.
A change in mission at our T. Don Hutto facility from housing families to female detainees since
the end of the second quarter of 2009 contributed to the reductions in both revenue and expenses
per compensated man-day, as the per diem and operating requirements are both lower under the
revised management contract. Salaries per compensated man-day were also negatively affected during
the second quarter of 2009 due to hiring staff in anticipation of receiving inmates from the BOP at
our Adams County facility during the third quarter of 2009, and inefficiencies due to the
transition of certain inmate populations at our Huerfano facility in the prior year quarter. These
expense reductions were partially offset by an increase in expenses associated with legal matters
in which we are involved.
Facility contribution or the operating income before interest, taxes, depreciation and
amortization, at our owned and managed facilities increased by $2.2 million, from $113.9 million
during the second quarter of 2009 to $116.1 million during the second quarter of 2010, an increase
of 2.0%. Facility contribution at our owned and managed facilities increased $2.4 million, from
$223.9 million during the six months ended June 30, 2009 to $226.2 million during the six months
ended June 30, 2010, an increase of 1.1%. The increase in facility contribution at our owned and
managed facilities is largely the result of the increase in the average compensated population
during the three and six months ended June 30, 2010 of 2.2% and 2.7%, respectively, over the same
periods in the prior year.
The most notable increases in compensated population during the three and six months ended June 30,
2010 occurred at the Adams County facility which commenced operations with the
29
BOP in the third quarter of 2009. Additionally, we experienced increases in compensated population
from the state of California at the La Palma, Tallahatchie, and North Fork facilities. Our total
revenues increased by $21.3 million and $41.3 million at these four facilities during the three and
six months ended June 30, 2010, respectively, compared to the same periods 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, as amended, which is subject to appropriations by the
California legislature, expires June 30, 2011. As of June 30, 2010, we held approximately 8,900
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. Legislative enactments or 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. Approximately 11.8% of our management revenue for the six months ended
June 30, 2010 was generated from the CDCR.
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
included an initial term ending March 9, 2010. During the first 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 completed the transfer of
offenders from the Huerfano facility during March 2010. As a result, we have decided to idle the
Huerfano facility, but will continue marketing the facility to other customers.
We also had a management contract with the state of Arizona at our 2,160-bed Diamondback
Correctional Facility in Oklahoma, which expired May 1, 2010. During March 2010, the Arizona
Department of Corrections further notified us of its election not to renew its contract at our
Diamondback facility. Arizona completed the transfer of offenders from the
30
Diamondback facility in May 2010. As a result, we have idled the Diamondback facility, but will
continue marketing the facility to other customers.
During December 2009, we announced our decision to idle 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 reduced the populations held at Prairie
throughout 2009. 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. 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 Huerfano, Diamondback, Prairie, and California City facilities were $22.7
million and $55.7 million during the three and six months ended June 30, 2010, respectively,
compared with $37.7 million and $76.0 million during the three and six months ended June 30, 2009,
respectively.
Managed-Only Facilities
Our operating margins decreased at managed-only facilities during the three months ended June 30,
2010 to 12.8% from 14.1% during the three months ended June 30, 2009. Similarly, our managed-only
operating margins decreased during the six months ended June 30, 2010 to 11.8% from 13.5% during
the six months ended June 30, 2009. The managed-only business remains very competitive and
continues to put pressure on per diem rates resulting in only marginal increases in the
managed-only revenue per compensated man-day.
Fixed operating expenses per compensated man-day increased to $35.25 during the three months ended
June 30, 2010 compared with $33.78 during the same period in the prior year. Operating expenses
per compensated man-day also increased to $35.50 during the six months ended June 30, 2010 compared
with $33.99 during the same period in the prior year. Fixed operating expenses per compensated
man-day were affected by increases in personnel costs caused largely from the aforementioned
bonuses reflected in the first quarter of 2010 to non-management level staff in lieu of wage
increases, and due to staffing in anticipation of the receipt of additional ICE detainees at the
North Georgia Detention Center. Additionally, during the three and six months ended June 30, 2010
reserves for pending litigation increased by $1.9 million and $2.2 million, respectively, compared
to the same periods in the prior year within the managed-only segment, contributing to increases in
variable operating expenses per compensated man-day. Although we believe the reserves for these legal matters are the best
estimate of the ultimate
31
outcome, it is reasonably possible that the reserves on one or more of these legal matters could
increase in the future.
Partially offsetting the aforementioned increases in managed-only operating expenses, operating
expenses were reduced by reductions in other variable expenses resulting from efforts to contain
costs through a company-wide initiative to improve operating efficiencies. Further, in certain
instances, in order to assist our customers in meeting their budgetary challenges, we agreed to
contract modifications that curtailed per diem rates and operating expenses.
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 Inter-Governmental 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. The commencement of operations at this
facility resulted in an increase in revenue of $2.4 million and $3.9 million for the three and six
months ended June 30, 2010, respectively.
During the three and six months ended June 30, 2010, managed-only facilities generated 9.0% and
8.5%, respectively, of our total facility contribution compared with 9.6% and 9.3% during the three
and six months ended June 30, 2009, respectively. We define facility contribution as a facilitys
operating income or loss before interest, taxes, goodwill impairment, depreciation, and
amortization.
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.
In April 2010, we announced that pursuant to a re-bid of the management contracts at four Florida
facilities, two of which we managed at that time, the Florida Department of Management Services
(Florida DMS) indicated its intent to award us the continued management of the 985-bed Bay
Correctional Facility, in Panama City, Florida. Additionally, the Florida DMS indicated its intent
to award us management of the 985-bed Moore Haven Correctional Facility in Moore Haven, Florida and
the 1,884-bed Graceville Correctional Facility in Graceville, Florida, facilities we did not
previously manage. However, we were not selected for the continued management of the 1,520-bed
Gadsden Correctional Institution in Quincy, Florida. All of the facilities are owned by the state
of Florida. The contracts contain an initial term of three years and two two-year renewal options.
We expect to assume management of the Moore Haven and Graceville facilities and to transition
management at the Gadsden facility during the third quarter of 2010. In April 2010, we also
provided notice to Hernando County, Florida of our intent to terminate the management contract at
the 876-bed Hernando County Jail during the third quarter of 2010 due to inadequate financial
performance. We incurred non-cash charges totaling approximately $3.1 million during the second
quarter of 2010, which impacted net income but not facility contribution of the
32
managed-only segment by our definition, for the write-off of goodwill and other costs associated
with the termination of the management contracts at the Gadsden and Hernando County facilities. We
currently expect to reclassify the results of operations, net of taxes, and the assets and
liabilities of these two facilities as discontinued operations upon termination of operations in
the third quarter of 2010 for all periods presented.
We do not
expect the changes to our Florida managed-only contracts, including the successful
award of two additional management contracts for the Moore Haven Correctional Facility and the
Graceville Correctional Facility and the loss of the management contracts for our Gadsden
Correctional Institution and the Hernando County Jail, to have a material effect on the operating
margin percentages of our managed-only segment. As previously described herein, five of the
facilities we manage in Texas pursuant to management contracts that expire in January 2011 are
subject to a competitive procurement process. We can provide no assurance that we will be
successful in being awarded the continued management for any of these facilities. Our operating
margins could be affected in 2011 based on our bidding strategy and the ultimate outcome of the
awards. Total revenues at the Gadsden, Hernando County, and the five facilities we manage in Texas
were $27.1 million and $53.4 million during the three and six months ended June 30, 2010,
respectively, compared with $27.4 million and $54.4 million during the three and six months ended
June 30, 2009, respectively.
General and administrative expense
For the three months ended June 30, 2010 and 2009, general and administrative expenses totaled
$19.9 million and $23.5 million, respectively, while general and administrative expenses totaled
$38.5 million and $43.3 million, respectively, during the six months ended June 30, 2010 and 2009.
General and administrative expenses consist primarily of corporate management salaries and
benefits, professional fees and other administrative expenses. General and administrative expenses
decreased from the three and six months ended June 30, 2009 primarily as a result of a $4.1 million
consulting fee reflected during the second quarter of 2009 associated with a company-wide
initiative to improve operational efficiency.
Depreciation and amortization
For the three months ended June 30, 2010 and 2009, depreciation and amortization expense totaled
$27.2 million and $24.9 million, respectively. For the six months ended June 30, 2010 and 2009,
depreciation and amortization expense totaled $52.4 million and $49.6 million, respectively. The
increase in depreciation and amortization from the comparable periods in 2009 resulted from the
combination of additional depreciation expense recorded on various completed facility expansion and
development projects and on our other capital expenditures.
Goodwill
As previously described herein, during April 2010, we were notified by the Florida DMS of their
decision to not renew the management contract at the Gadsden Correctional Institution, which we
transferred to another operator on August 1, 2010. Also during April 2010, we provided notice to
Hernando County, Florida, of our intention to terminate the management contract at the Hernando
County Jail during the third quarter of 2010 due to inadequate financial performance. Accordingly,
during the second quarter of 2010 we wrote-off
33
goodwill associated with the Gadsden and Hernando facilities of $1.3 million and $0.4 million,
respectively.
Interest expense, net
Interest expense is reported net of interest income and capitalized interest for the three and six
months ended June 30, 2010 and 2009. Gross interest expense, net of capitalized interest, was
$17.8 million and $19.3 million, respectively, for the three months ended June 30, 2010 and 2009
and was $35.7 million and $37.8 million, respectively, for the six months ended June 30, 2010 and
2009. Gross interest expense is based on outstanding borrowings under our revolving credit
facility, our outstanding senior notes, as well as the 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 the prior year-to-date period. 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 the LIBOR could
increase in the future.
Gross interest income was $0.5 million and $0.6 million for the three months ended June 30, 2010
and 2009, respectively. Gross interest income was $1.1 million and $1.3 million for the six months
ended June 30, 2010 and 2009, respectively. Gross interest income is earned on cash collateral
requirements, a direct financing lease, notes receivable, investments, and cash and cash
equivalents.
Capitalized interest was $1.5 million and $0.2 million during the three months ended June 30, 2010
and 2009, respectively, and was $2.8 million and $0.5 million during the six months ended June 30,
2010 and 2009, respectively. Capitalized interest 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 costs and debt premium associated with the 7.5% senior notes.
34
Income tax expense
We incurred income tax expense of $22.7 million and $44.2 million for the three and six months
ended June 30, 2010, respectively, while we incurred income tax expense of $20.1 million and $41.7
million for the three and six months ended June 30, 2009, respectively.
Our effective tax rate was 38.3% and 38.2% during the three and six months ended June 30, 2010
compared with 38.2% and 38.0% during the three- and six-month periods in the prior year. 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 additional tax strategies,
changes in federal or state tax rates or laws affecting tax credits available to us, changes in
other 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
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. Accordingly, our 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, which is owned by the county, are being reported as discontinued operations for
all periods presented. The Bay County Jail and Annex incurred a loss of $0.7 million (primarily
pertaining to negative developments in outstanding legal matters) net of taxes, for the six months
ended June 30, 2009.
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 have been reported as
discontinued operations since the 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
six months ended June 30, 2009.
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 the financial statements and as
further described in our 2009 Form 10-K. 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
35
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 deliver services at 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. 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 June 30, 2010, the remaining costs to complete construction
totaled approximately $3.2 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 satisfied a competitive Request for Proposal of 1,500 beds from the state of Georgia that was
issued in October of 2008. As of June 30, 2010, we housed approximately 4,300 inmates from the
state of Georgia at these facilities. As a result of the award, we expanded our 1,524-bed Coffee
Correctional Facility by 788 beds and our 1,524 bed Wheeler Correctional Facility by 712 beds. The
expansions are substantially complete at a total cost of approximately $60.0 million. In addition
to the guarantee on the existing beds at both facilities, the amended contracts contain a 90%
guarantee on the expansion beds.
During the
third quarter of 2010, we further amended our contract with the Georgia
Department of Corrections to house up to 2,628 inmates at each
facility. The latest
increase required no additional capital expenditures.
In addition, during February 2008, we announced our intention to construct our new 2,040-bed
Trousdale Correctional Center in Trousdale County, Tennessee. However, during the first quarter of
2009, we 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. During 2010, we expect to
incur approximately $0.1 million in operating expenses, primarily property taxes and insurance,
associated with this facility.
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.
Pursuant to an amendment to the ground lease executed in January 2010, 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. Also pursuant to the amendment, the lease for
36
the Expansion portion of the facility containing approximately 200 beds expires 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 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 first six months of 2010, we capitalized $14.6 million of facility maintenance and
technology related expenditures, compared with $18.2 million during the first six months of 2009.
We expect to incur approximately $45.8 million to $50.8 million in facility maintenance and
information technology expenditures during 2010, and approximately $91.7 million to $106.7 million
on prison development and expansions. During the year ended December 31, 2009, we capitalized
$48.9 million of facility maintenance and technology related expenditures. We also currently
expect to pay approximately $68.6 million to $71.3 million in federal and state income taxes during
2010, compared with $63.5 million during 2009. 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.
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 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.
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 SEC 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. Through June 30, 2010, we have completed the purchase of 4.4 million
shares under the $250.0 million stock repurchase plan at a total cost of $88.6 million, or an
average price of $20.20 per share.
37
On May 19, 2009, we announced a cash tender offer for any and all of our outstanding $450.0 million
7.5% senior notes. 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. 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 through our stock repurchase plans as described above.
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 June 30, 2010, our liquidity was provided by cash on hand of $22.7 million and $199.3 million
available under our $450.0 million revolving credit facility. During the six months ended June 30,
2010 and 2009, we generated $109.8 million and $132.1 million, respectively, in cash through
operating activities, and as of June 30, 2010, we had net working capital of $142.4 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 we have
no debt maturities until December 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 June
30, 2010, 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
38
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. Delays in payment from our major customers or the termination of a number of
contracts from our major customers could have an adverse effect on our cash flow and financial
condition.
As of June 30, 2010, the interest rates on our outstanding indebtedness were fixed, with the
exception of the interest rate applicable to $208.6 million outstanding under our revolving credit
facility, with a total weighted average effective interest rate of 6.5%, while our total weighted
average maturity was 4.4 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 six months ended June 30, 2010 was $109.8
million, compared with $132.1 million for the same period in the prior year. Cash provided by
operating activities represents the year to date net income plus depreciation and amortization,
changes in various components of working capital, and various non-cash charges, including primarily
deferred income taxes, goodwill impairment, and expenses associated with debt refinancing
activities. The decrease in cash provided by operating activities for the six months ended June
30, 2010 was primarily due to unfavorable fluctuations in working capital balances during the first
six months of 2010 compared to the same period in 2009.
Investing Activities
Our cash flow used in investing activities was $90.2 million for the six months ended June 30, 2010
and was primarily attributable to capital expenditures during the six-month period of $89.9
million, including expenditures for facility development and expansions of $74.9 million primarily
related to the aforementioned facility expansion and development projects during the period. Our
cash flow used in investing activities was $55.2 million for the six months ended June 30, 2009 and
was primarily attributable to capital expenditures during the six-month period of $54.1 million,
including expenditures for facility development and expansions of $35.2 million.
39
Financing Activities
Cash flow used in financing activities was $42.8 million for the six months ended June 30, 2010 and
was primarily attributable to paying $86.6 million to purchase common stock, including $83.8
million in connection with the aforementioned stock repurchase program and $2.8 million from
employees who elected to satisfy their tax withholding obligations with a portion of their vested
restricted shares. These payments were partially offset by $36.8 million of net proceeds from net
borrowings on our revolving credit facility and by the cash flows associated with exercising stock
options, including the related income tax benefit of equity compensation, totaling $7.0 million.
Our cash flow used in financing activities was $37.5 million for the six months ended June 30, 2009
and was primarily attributable to $111.5 million to purchase common stock, including $110.4 million
in connection with the aforementioned stock repurchase program and $1.1 million from employees who
elected to satisfy their tax withholding obligations with a portion of their vested restricted
shares.
Contractual Obligations
The following schedule summarizes our contractual cash obligations by the indicated period as of
June 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Year Ended December 31, |
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(remainder) |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
Long-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
208,633 |
|
|
$ |
375,000 |
|
|
$ |
150,000 |
|
|
$ |
465,000 |
|
|
$ |
1,198,633 |
|
Interest on senior
notes |
|
|
34,800 |
|
|
|
69,600 |
|
|
|
69,600 |
|
|
|
57,881 |
|
|
|
41,100 |
|
|
|
90,094 |
|
|
|
363,075 |
|
Contractual facility
expansions |
|
|
9,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,851 |
|
Operating leases |
|
|
2,990 |
|
|
|
6,045 |
|
|
|
6,065 |
|
|
|
6,085 |
|
|
|
6,105 |
|
|
|
33,043 |
|
|
|
60,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash
obligations |
|
$ |
47,641 |
|
|
$ |
75,645 |
|
|
$ |
284,298 |
|
|
$ |
438,966 |
|
|
$ |
197,205 |
|
|
$ |
588,137 |
|
|
$ |
1,631,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, and 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 June 30, 2010 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 the six months ended June 30, 2010 or
2009. 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.
40
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.
ITEM 3. 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
three and six months ended June 30, 2010, our interest expense, net of amounts capitalized, would
have been increased or decreased by $0.5 million and $0.9 million, respectively.
As of June 30, 2010, 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 investments.
41
ITEM 4. 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 quarterly 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 quarterly 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 SECs 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. 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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See the information reported in Note 9 to the financial statements included in Part I, which
information is incorporated hereunder by this reference.
ITEM 1A. RISK FACTORS.
There have been no material changes in our Risk Factors as previously disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2009.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Issuer Purchases of Equity Securities
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
|
|
Total |
|
|
|
|
|
Part of Publicly |
|
Approximate Dollar Value |
|
|
Number of |
|
|
|
|
|
Announced |
|
of Shares that May Yet Be |
|
|
Shares |
|
Average Price |
|
Plans or |
|
Purchased Under the |
Period |
|
Purchased |
|
Paid per Share |
|
Programs |
|
Plans or Programs (1) |
April 1, 2010
April 30, 2010 |
|
|
837,970 |
|
|
$ |
20.21 |
|
|
|
837,970 |
|
|
$ |
201,175,851 |
|
May 1, 2010
May 31, 2010 |
|
|
1,043,456 |
|
|
$ |
20.16 |
|
|
|
1,043,456 |
|
|
$ |
180,135,543 |
|
June 1, 2010
June 30, 2010 |
|
|
935,832 |
|
|
$ |
19.99 |
|
|
|
935,832 |
|
|
$ |
161,431,510 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,817,258 |
|
|
$ |
20.20 |
|
|
|
2,817,258 |
|
|
$ |
161,431,510 |
|
|
|
|
|
|
|
|
|
|
42
|
|
|
(1) |
|
On February 9, 2010, the Company announced that its Board of Directors had approved a stock
repurchase program to repurchase up to $250.0 million of the Companys common stock in the open
market or through privately negotiated transactions (in accordance with SEC requirements) through
June 30, 2011. As of June 30, 2010, the Company had repurchased a total of 4.4 million common
shares at an aggregate cost of approximately $88.6 million. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. (REMOVED AND RESERVED).
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
The following exhibits are filed herewith:
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibits |
|
|
|
31.1
|
|
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. |
|
|
|
31.2
|
|
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. |
|
|
|
32.1
|
|
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. |
|
|
|
32.2
|
|
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. |
|
|
|
101.INS*
|
|
XBRL Instance Document |
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema |
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase |
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase |
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase |
43
|
|
|
* |
|
As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for
purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the
Securities Exchange Act of 1934, as amended. |
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
CORRECTIONS CORPORATION OF
AMERICA
|
|
|
|
|
|
|
Date: August 5, 2010 |
|
|
|
|
|
|
|
|
/s/ Damon T. Hininger
|
|
|
Damon T. Hininger |
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
/s/ Todd J Mullenger
|
|
|
Todd J Mullenger |
|
|
Executive Vice President, Chief Financial Officer, and
Principal Accounting Officer |
|
|
45