<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM TO .
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COMMISSION FILE NUMBER: 1-13560
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CORRECTIONS CORPORATION OF AMERICA
----------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 62-1156308
- ------------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
102 WOODMONT BLVD., SUITE 800
NASHVILLE, TENNESSEE 37205
- ------------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
(615) 292-3100
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(Registrant's telephone number, including area code)
NONE
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(Former name, address and fiscal year if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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76,111,394
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(Outstanding shares of the issuer's common stock as of May 1, 1997.)
THERE IS NO EXHIBIT INDEX
Total number of sequentially numbered pages is 10.
<PAGE> 2
CORRECTIONS CORPORATION OF AMERICA
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996 3
Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996
(Unaudited) 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996
(Unaudited) 5-6
Notes to Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Default Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE> 3
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and restricted cash $ 7,101 $ 8,282
Accounts receivable, net of allowances 69,743 100,551
Prepaid expenses 4,144 2,940
Deferred tax assets 22 1,026
Other 2,438 1,643
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Total current assets 83,448 114,442
Restricted investments 587 587
Other assets 34,787 29,405
Property and equipment, net 356,725 288,697
Notes receivable 22,748 22,859
Investment in direct financing leases 68,622 12,898
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$566,917 $468,888
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $42,214 $ 39,224
Accrued salaries and wages 6,410 5,487
Accrued property taxes 605 1,675
Other accrued expenses 18,748 9,227
Current portion of long-term debt 7,249 8,281
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Total current liabilities 75,226 63,894
Long-term debt, net of current portion 189,191 117,535
Deferred tax liabilities 4,812 4,717
Other noncurrent liabilities 742 990
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Total liabilities 269,971 187,136
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Stockholders' equity:
Common stock 75,945 75,029
Additional paid-in capital 167,082 165,317
Retained earnings 54,127 42,132
Treasury stock, at cost (208) (726)
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Total stockholders' equity 296,946 281,752
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$566,917 $468,888
======== ==========
</TABLE>
3
<PAGE> 4
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31
------------------------------
1997 1996
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<S> <C> <C>
Revenues $91,838 $63,277
Expenses:
Operating 63,919 47,184
General and administrative 3,595 2,925
Depreciation and amortization 3,923 2,277
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71,437 52,386
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Operating income 20,401 10,891
Interest expense, net 498 1,350
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Income before income taxes 19,903 9,541
Provision for income taxes 7,908 3,835
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Net income $11,995 $ 5,706
======= =======
Net income per common share:
Primary $ 0.14 $ 0.07
======= =======
Fully diluted $ 0.14 $ 0.07
======= =======
Weighted average common shares outstanding:
Primary $83,942 $80,502
======= =======
Fully diluted $89,659 $87,168
======= =======
</TABLE>
4
<PAGE> 5
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
-------------------------
1997 1996
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 11,995 $ 5,706
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,923 2,277
Deferred and other noncash income taxes 2,329 6,077
Other noncash items 92 -
Loss (gain) on disposal of assets (20) 11
Equity in earnings of unconsolidated entities (252) (150)
Changes in assets and liabilities:
Accounts receivable 30,830 (8,034)
Prepaid expenses (1,204) 62
Other current assets (795) (309)
Accounts payable 2,990 2,250
Accrued expenses 9,374 (3,823)
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Net cash provided by operating activities 59,262 4,067
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Cash Flows from Investing Activities:
Decrease (increase) in restricted and escrow cash 1,365 (402)
Increase in other assets (6,165) (2,771)
Additions of property and equipment (70,919) (9,602)
Proceeds from disposals of assets 8 6
Increase in direct financing leases (55,850) -
Payments received on direct financing leases and notes
receivable 215 91
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Net cash used in investing activities (131,346) (12,678)
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Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt - 30,000
Payments on long-term debt (2,476) (15,444)
Proceeds from (payments on) line of credit, net 74,000 (9,723)
Payment of debt issuance cost (248) (496)
Proceeds from exercise of stock options and warrants 992 3,044
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Net cash provided by financing activities 72,268 7,381
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Net increase (decrease) in cash 184 (1,230)
CASH AND CASH EQUIVALENTS, beginning of period 4,832 2,145
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CASH AND CASH EQUIVALENTS, end of period $ 5,016 $ 915
======== =======
</TABLE>
5
<PAGE> 6
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
-------------------------
1997 1996
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<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 840 $ 1,986
===== =======
Income taxes $ 609 $ 1,565
===== =======
Supplemental Schedule of Noncash Investing and Financing
Activities:
The Company acquired treasury stock and issued common
stock through the exercise of stock options:
Common stock $ 134 $ 911
Additional paid-in capital 411 2,885
Retained earnings - (2,847)
Treasury stock, at cost (545) (949)
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$ - $ -
===== =======
Long term debt was converted into common stock:
Other assets $ 15 $ -
Long-term debt (900) -
Common Stock 531 -
Additional paid-in capital 354 -
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$ - $ -
===== =======
</TABLE>
6
<PAGE> 7
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1997, and the consolidated
statements of operations and cash flows for the three month periods ended
March 31, 1997 and 1996, have been prepared by the Company in accordance
with the accounting policies described in its Annual Report to
Stockholders for the year ended December 31, 1996 and should be read in
conjunction with the notes thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
positions, results of operations and changes in cash flows at March 31,
1997 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The results of
operations for the period ended March 31, 1997, are not necessarily
indicative of the operating results for the full year.
2. INVESTMENT IN DIRECT FINANCING LEASES
In January 1997, the Company purchased the fixed and movable assets of a
correctional treatment facility in Washington, D.C. for $52,000,000, and
agreed to make certain renovations totaling $3,850,000. The Company has
entered into additional agreements to manage this facility and lease it
back to Washington, D.C. over a period of twenty years.
3. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), has been issued effective for fiscal periods ending after
December 15, 1997. SFAS 128 establishes standards for computing and
presenting earnings per share. The Company is required to adopt the
provisions of SFAS 128 in the fourth quarter of 1997. Under the
standards established by SFAS 128, earnings per share is measured at two
levels: basic earnings per share and diluted earnings per share. Basic
earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the year. Diluted
earnings per share is computed by dividing net income by the weighted
average number of common shares after considering the additional dilution
related to preferred stock, convertible debt, options and warrants.
The following pro forma amounts represent the basic earnings per share and
diluted earnings per share as if the Company had adopted SFAS 128 for the
quarters presented:
<TABLE>
<CAPTION>
(Unaudited Pro Forma)
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Basic earnings per share $.16 $.09
==== ====
Diluted earnings per share $.14 $.07
==== ====
</TABLE>
7
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RISK FACTORS
This report, press releases and other public statements by the Company
contain "forward-looking statements," within the meaning of various
provisions of the federal securities laws, that address activities, events
or developments that will or may occur in the future. These statements are
based on assumptions and analyses made by the Company in light of its
experience and perception of historical trends, current conditions and
expected future developments, and other factors believed appropriate in
the circumstances. Actual results and developments are subject to a number
of risks and uncertainties, including general economic, market or business
conditions; opportunities (or lack thereof) that may be presented to and
pursued by the Company; competitive actions by other companies; changes in
laws or regulations; and other factors as may be discussed from time to
time in the Company's SEC reports and other filings, many of which are
beyond the control of the Company. Accordingly, readers are cautioned not
to place undue reliance on such forward looking statements, which speak
only as of the date made and which the Company undertakes no obligation
to revise to reflect events after the date made.
RESULTS OF OPERATIONS
REVENUES AND OPERATING EXPENSES
Revenues for the first quarter of 1997 increased 45% over the comparable
period of 1996. Management revenues increased $28,302,000 or 47%, and
transportation revenues increased $259,000 or 10%, in the first three
months of 1997 as compared to the same period in 1996. The increase in
management revenues was due to a 37% increase in compensated mandays.
During the first quarter of 1997, the Company opened six new facilities
totaling 3,496 beds and expanded one existing facility representing 256
beds. The Company also realized the full period effect in the first
quarter of 1997 of 3,835 beds brought on line over the course of 1996.
Transportation revenues increased due to an expanded customer base and
compensated mileage realized through the opening of two new transportation
hubs. In the first quarter of 1997 the Company recognized after-tax,
development-fee income of $1,341,000 related to a contract to design,
construct and equip a facility.
Operating expenses for the first quarter of 1997 increased 35% over the
comparable quarter in 1996. This increase was due to the increased
compensated mandays and compensated mileage that the Company realized in
1997 as previously mentioned. As a percentage of revenues, however,
operating expenses declined to 70% in 1997 from 75% in 1996 as the Company
continues to benefit from economies of scale and cost containment.
General and administrative expenses increased 23% for the first quarter of
1997 as compared to the comparable quarter of 1996. The increase was due
to the expanded activity and staffing necessary to administer the
increased beds under management. Even though increasing in amount,
general and administrative expenses decreased as a percentage of revenues
to 3.9% in 1997 from 4.6% in 1996 during the comparable period.
Depreciation and amortization for the first quarter of 1997 increased 72%
as compared to the comparable quarter of 1996. This increase was due to
the growth in total beds in facilities owned by the Company.
Interest expense, net, decreased 63% for the first quarter of 1997 over
the first quarter of 1996 primarily due to the fact that several
facilities were under construction and the associated interest expense was
capitalized during this phase of operation.
8
<PAGE> 9
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's business is capital intensive in relation to the development
of a correctional facility. The Company's efforts to obtain contracts,
construct additional facilities and maintain its day-to-day operations
have required the continued acquisition of funds through borrowings and
equity offerings. The Company has financed these activities through the
sale of capital stock, subordinated convertible notes and senior secured
debt, through the issuance of taxable and tax-exempt bonds, by bank
borrowings, and by assisting governmental agencies in the issuance of
municipal bonds.
Cash flow from operations for the first quarter of 1997 was $59,262,000 as
compared to $4,067,000 in the comparable period in 1996. The Company has
strengthened its cash flow through its expanded business, additional focus
on larger, more profitable facilities, the expansion of existing
facilities where economies of scale can be realized, and the continuing
effort of cost containment.
The Company has a revolving credit facility with a group of banks which
matures in September, 1999. The credit facility provides for borrowings
of up to $170,000,000 for general corporate purposes and letters of
credit. The credit facility bears interest, at the election of the
Company, at either the bank's prime rate or a rate which is .5% above the
applicable 30, 60, or 90 day LIBOR rate. Interest is payable quarterly
with respect to prime rate loans and at the expiration of the applicable
LIBOR period with respect to LIBOR based loans. There are no prepayment
penalties associated with the credit facility. The credit facility
requires the Company, among other things, to maintain maximum leverage
ratios and a minimum debt service coverage ratio. The facility also
limits certain payments and distributions. As of March 31, 1997, there was
$78,000,000 borrowed under this facility. Letters of credit totaling
$63,519,000 have been issued leaving the total unused commitment at
$28,481,000.
The Company also has a $2,500,000 credit facility with a bank that
provides for the issuance of letters of credit and matures in September,
1999. As of March 31, 1997 there were $1,568,000 in letters of credit
issued, leaving the unused commitment at $932,000.
The Company anticipates making cash investments in connection with
future acquisitions and expansions. In addition, in accordance with the
developing trend of private prison managers toward making strategic
financial investments in facilities, the Company plans to use a portion of
its cash to finance start-up costs, leasehold improvements and equity
investments in facilities, if appropriate in connection with undertaking
new contracts. The Company believes that the cash flow from operations and
amounts available under its credit facility will be sufficient to meet its
capital requirements for the foreseeable future. Furthermore, management
believes that additional resources may be available to the Company through
a variety of other financing methods.
9
<PAGE> 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
i) 27 - Financial Data Schedule (for SEC use only)
B. Reports on Form 8-K
None.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORRECTIONS CORPORATION OF AMERICA
-----------------------------------
Registrant
May 15, 1997 /s/Darrell K. Massengale
- ---------------------- ----------------------------
Date Darrell K. Massengale
Chief Financial Officer
Secretary, Treasurer
Principal Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CORRECTIONS CORPORATION OF AMERICA FOR THE THREE-MONTH
PERIOD ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 7,101
<SECURITIES> 0
<RECEIVABLES> 69,743
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 83,448
<PP&E> 356,725
<DEPRECIATION> 0
<TOTAL-ASSETS> 566,917
<CURRENT-LIABILITIES> 75,226
<BONDS> 189,191
0
0
<COMMON> 75,945
<OTHER-SE> 221,001
<TOTAL-LIABILITY-AND-EQUITY> 566,917
<SALES> 0
<TOTAL-REVENUES> 91,838
<CGS> 0
<TOTAL-COSTS> 71,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 498
<INCOME-PRETAX> 19,903
<INCOME-TAX> 7,908
<INCOME-CONTINUING> 11,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,995
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
