<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: JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM__________TO __________.
COMMISSION FILE NUMBER: 1-13560
---------
CORRECTIONS CORPORATION OF AMERICA
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
TENNESSEE 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
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NONE
- --------------------------------------------------------------------------------
(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
----- -----
76,642,980
- --------------------------------------------------------------------------------
(Outstanding shares of the issuer's common stock as of August 1, 1997.)
EXHIBIT INDEX ON PAGE 11
Total number of sequentially numbered pages is 12.
<PAGE> 2
CORRECTIONS CORPORATION OF AMERICA
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: Number
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1997 (Unaudited) and December 31, 1996 3
Consolidated Statements of Operations
Three months ended June 30, 1997 and 1996
(Unaudited) 4
Consolidated Statements of Operations
Six months ended June 30, 1997 and 1996
(Unaudited) 5
Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996
(Unaudited) 6-7
Notes to Consolidated Financial Statements
(Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
<PAGE> 3
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash, cash equivalents and restricted cash $ 9,935 $ 8,282
Accounts receivable, less allowance 83,991 100,551
Prepaid expenses 6,913 2,940
Deferred taxes 1,627 1,026
Other 2,977 1,643
--------- ---------
Total current assets 105,443 114,442
--------- ---------
Restricted investments 587 587
Other assets 38,419 29,405
Property and equipment, net 431,003 288,697
Notes receivable 22,635 22,859
Investment in direct financing leases 67,794 12,898
--------- ---------
$ 665,881 $ 468,888
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 73,610 $ 39,224
Accrued salaries and wages 7,569 5,487
Accrued property taxes 1,454 1,675
Other accrued expenses 27,375 9,227
Current portion of long-term debt 7,875 8,281
--------- ---------
Total current liabilities 117,883 63,894
--------- ---------
Long-term debt, net of current portion 231,886 117,535
Deferred taxes 3,692 4,717
Other long-term liabilities 495 990
--------- ---------
Total liabilities 353,956 187,136
--------- ---------
Stockholders' equity:
Common stock - $1 par value 76,560 75,029
Additional paid-in capital 171,525 165,317
Retained earnings 64,910 42,132
Treasury stock, at cost (1,070) (726)
--------- ---------
Total stockholders' equity 311,925 281,752
--------- ---------
$ 665,881 $ 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
June 30
-------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues $107,024 $ 67,453
Expenses:
Operating 78,934 49,325
General and administrative 4,112 3,369
Depreciation and amortization 4,007 2,264
-------- --------
Total expenses 87,053 54,958
-------- --------
Operating income 19,971 12,495
Interest expense, net 854 1,180
-------- --------
Income before income taxes 19,117 11,315
Provision for income taxes 7,505 4,308
-------- --------
Net income $ 11,612 $ 7,007
======== ========
Net income per share:
Primary $ .14 $ .09
======== ========
Fully diluted $ .13 $ .08
======== ========
Weighted average shares outstanding:
Primary 84,411 82,001
======== ========
Fully diluted 90,318 86,361
======== ========
</TABLE>
4
<PAGE> 5
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
June 30
-------
1997 1996
-------- --------
<S> <C> <C>
Revenues $198,862 $130,730
Expenses:
Operating 142,853 96,509
General and administrative 7,707 6,294
Depreciation and amortization 7,930 4,541
-------- --------
Total expenses 158,490 107,344
-------- --------
Operating income 40,372 23,386
Interest expense, net 1,352 2,530
-------- --------
Income before income taxes 39,020 20,856
Provision for income taxes 15,413 8,143
-------- --------
Net income $ 23,607 $ 12,713
======== ========
Net income per share:
Primary $ .28 $ .16
======== ========
Fully diluted $ .27 $ .15
======== ========
Weighted average shares outstanding:
Primary 84,197 81,065
======== ========
Fully diluted 90,199 85,671
======== ========
</TABLE>
5
<PAGE> 6
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30
-------
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 23,607 $ 12,713
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,930 4,541
Deferred and other noncash income taxes 2,029 7,041
Other noncash items 183 --
Loss on disposal of assets 86 29
Equity in earnings of unconsolidated entities (313) (530)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 16,605 (17,473)
Prepaid expenses (3,973) (1,759)
Other current assets (1,334) (435)
Accounts payable 34,386 12,281
Accrued expenses 20,009 399
--------- ---------
Net cash provided by operating activities 99,215 16,807
--------- ---------
Cash Flows from Investing Activities:
(Increase) decrease in restricted and escrow cash 2,851 (407)
Increase in other assets (10,864) (5,145)
Additions of property and equipment (148,188) (44,302)
Proceeds from disposals of assets 14 22
Increase in direct financing lease (55,850) (3,590)
Payments received on direct financing leases and notes
receivable 1,133 234
--------- ---------
Net cash used in investing activities (210,904) (53,188)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt -- 50,000
Payments on long-term debt (4,655) (17,831)
Proceeds from (payments on) line of credit, net 119,500 (14,464)
Payment of debt issuance cost (495) (496)
Issuance of common stock -- 138,750
Payments of stock issuance costs -- (6,939)
Proceeds from exercise of stock options and warrants 1,843 8,861
--------- ---------
Net cash provided by financing activities 116,193 157,881
--------- ---------
</TABLE>
6
<PAGE> 7
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30
----------------
1997 1996
--------- ---------
<S> <C> <C>
Net increase in cash $ 4,504 $ 121,500
CASH AND CASH EQUIVALENTS, beginning of period 4,832 2,145
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 9,336 $ 123,645
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 3,102 $ 2,431
========= =========
Income taxes $ 1,492 $ 1,877
========= =========
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 $ 494 $ 717
Additional paid-in capital 2,736 1,673
Retained earnings (829) (3,042)
Treasury stock, at cost (2,401) 652
--------- ---------
$ 0 $ 0
========= =========
Long-term debt was converted into common stock:
Other assets $ 15 $ 0
Long-term debt (900) --
Common stock 531 --
Additional paid-in capital 354 --
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
7
<PAGE> 8
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of June 30, 1997 and December 31,
1996, the consolidated statements of operations and cash flows for
the six month periods ended June 30, 1997 and 1996, and the
consolidated statement of operations for the quarters ended June 30,
1997 and 1996 have been prepared by the Company in accordance with the
accounting policies described in its 1996 Annual Report on Form 10-K
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
position, results of operations and changes in cash flows at June 30,
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 June 30, 1997, are not necessarily
indicative of the operating results for the full year.
2. 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) (Unaudited Pro Forma)
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings
per share $ .15 $ .10 $ .31 $ .19
============ ============= ============= =============
Diluted earnings
per share $ .13 $ .08 $ .27 $ .15
============ ============= ============= =============
</TABLE>
8
<PAGE> 9
3. SUBSEQUENT EVENT:
In July 1997 CCA Prison Realty Trust (Prison Realty), a Maryland
real estate investment trust, sold 18,500,000 common shares at $21 per
share in an initial public offering. In addition, as a result of the
exercise of the Underwriter's overallotment option, 2,775,000 common
shares were also sold at $21 per share resulting in gross proceeds
to Prison Realty of approximately $446,000,000. In accordance with
applicable Securities and Exchange Commission guidelines the
Company was deemed to be a co-registrant with respect to these offered
securities.
Immediately following the initial public offering for Prison Realty the
Company sold ten of its facilities to Prison Realty for approximately
$378,000,000 as described in the Form 8-K filed on August 1, 1997.
Simultaneously with the sale of the facilities to Prison Realty, the
Company entered into agreements to lease the facilities from Prison
Realty pursuant to long-term, non-cancelable, triple net leases which
require the Company to pay all operating expenses, taxes, insurance and
other costs.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RISK FACTORS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company hereby makes
reference to items set forth under the heading "Risk Factors" in the
Company's Registration Statement on Form S-3, as amended (Registration
No. 333-03009). Such cautionary statements identify important facts
that could cause the Company's actual results to differ materially from
those projected in forward looking statements made by or on behalf of
the Company.
RESULTS OF OPERATIONS
REVENUES AND EXPENSES FROM OPERATIONS
Revenues for the second quarter and first half of 1997 increased 59%
and 52%, respectively, over the comparable periods of 1996. Management
revenues increased $39,143,000 and $67,446,000 for the second quarter
and first half of 1997, respectively, as compared to the same periods
of 1996, while transportation revenues increased $428,000 and
$686,000, respectively, for the same relative time periods. The
increase in management revenues was due to compensated mandays
increasing by 44% and 41% for the second quarter and first half of
1997, respectively, over the comparable periods of 1996. During the
second quarter of 1997, the Company opened three new facilities
representing 3,968 beds and expanded two facilities representing 411
beds. These beds were in addition to the 3,752 beds brought on line in
the first quarter of 1997 which resulted in the Company cumulatively
adding 8,131 beds through the first half of 1997. Transportation
revenues increased 17% and 13% for the second quarter and first half
of 1997, respectively, over the comparable periods of 1996, primarily
as a result of an expanded customer base and increased 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 related to a contract to design, construct and
equip a facility of $766,000 and $2,107,000 for the second quarter and
first half of 1997, respectively.
9
<PAGE> 10
Operating expenses for the second quarter and first half of 1997
increased 60% and 48%, respectively, over the comparable periods of
1996. This increase was due to the increased compensated mandays and
compensated mileage that the Company realized in the second quarter and
first half of 1997 as previously mentioned.
General and administrative expenses for the second quarter and first
half of 1997 increased 22% for both respective periods, over the
comparable periods of 1996. However, as a percentage of revenues,
general and administrative expenses for the second quarter and first
half of 1997 declined to 3.8% and 3.9% as compared with 5.0% and 4.8%
for the comparable periods of 1996. As the Company continues to grow,
general and administrative expenses should grow in volume but continue
to decrease as a percentage of revenues.
Depreciation and amortization for the second quarter and first half of
1997 increased 77% and 75%, respectively, over the comparable periods
of 1996. The increases are due to the growth in total beds in
facilities owned by the Company.
The Company discontinued operations at two facilities, totaling 601
beds, effective June 30, 1997. Accordingly, the Company incurred a
$1,400,000 after-tax loss for the second quarter of 1997, as a result
of decreasing populations and increased personnel costs to maintain the
operations through the contract expiration date.
OTHER EXPENSES
Interest expense, net, decreased 28% and 47% for the second quarter and
first half of 1997, respectively, as compared to the same periods in
1996. These decreases are primarily due to the fact that several
facilities were under construction and the associated interest expense
was capitalized.
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, by assisting governmental
agencies in the issuance of municipal bonds and most recently through
the sale and leaseback of certain correctional facilities to Prison
Realty.
Cash flow from operations for the first six months of 1997 was
$99,215,000 as compared to $16,807,000 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 .75% 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 June 30, 1997,
there was $106,000,000 borrowed under this facility. Letters of credit
totaling $63,519,000 have been issued leaving the total unused
commitment at $481,000.
10
<PAGE> 11
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 June 30, 1997 there were $1,615,000 in letters
of credit issued, leaving the unused commitment at $885,000.
During the second quarter of 1997 the Company entered into a short-term
credit facility with a bank which matures in September 1997. This
credit facility provides for borrowings of up to $25,000,000 for
general corporate purposes under terms similar to the Company's
$170,000,000 revolving credit facility. As of June 30, 1997, there was
$17,500,000 borrowed under this facility leaving $7,500,000 in unused
commitments.
Subsequent to the end of the second quarter, in July 1997, the Company
sold ten of its facilities to CCA Prison Realty Trust for approximately
$378,000,000. The proceeds were used to pay off $131,000,000 of credit
facility debt, $42,206,000 of first mortgage debt and $9,442,000 of
senior secured notes. The remaining proceeds will be used to fund
existing construction projects and for general working capital
purposes.
The Company anticipates making cash investments in connection with
future acquisitions and expansions. In addition, in accordance with the
developing trend of private prison manages 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, the availability of future capital from Prison Realty 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.
11
<PAGE> 12
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
At the Annual Meeting of Stockholders of the Company held
on May 13, 1997, the nominees for election as Directors of
the Company were elected without opposition. The amendments
to the Company's Non-Employee Directors' Stock Option Plan
to: (i) increase the amount of authorized common stock
reserved for issuance from 600,000 shares to 900,000
shares, (ii) extend the term for which non-employee
directors are to receive stock options by six years and
(iii) provide for future amendments to the Plan at the sole
discretion of the board of directors, were approved. The
Agreement and Plan of Merger whereby the Company changed
its state of incorporation from Delaware to Tennessee
pursuant to a "migratory merger" that merged the Company
with and into a newly-formed Tennessee corporation was
approved.
Item 5. Other Information
None
12
<PAGE> 13
Item 6. Exhibits and Current Reports on Form 8-K.
(a) Exhibits.
EXHIBIT NO
----------
2.1 Agreement and Plan of Merger, dated May 12, 1997,
between CCA of Tennessee, Inc., a Tennessee
corporation (the "Company"), and Corrections
Corporation of America, a Delaware corporation.
(Incorporated by reference to the Company's
Definitive Proxy Statement for the Annual Meeting of
Stockholders held May 13, 1997).
2.2 Articles of Merger of Corrections Corporation of
America, a Delaware corporation, with and into the
Company, dated May 13, 1997. (Incorporated by
reference to Exhibit 2.2 of the Company's
Registration Statement on Form 8-B filed with the
Commission on July 10, 1997 (the "Form 8-B")).
2.3 Agreement of Sale and Purchase between CCA Prison
Realty Trust and the Company. (Incorporated by
reference to the Company's Registration Statement on
Form S-11 and S-3, as amended, originally filed with
the Commission on April 24, 1997, Registration No.
333-25727-01. (the "Form S-11/S-3")).
3.1 Charter of the Company, as amended. (Incorporated by
reference to Exhibit 3.1 of the Company's Form 8-B).
3.2 Bylaws of the Company. (Incorporated by reference to
Exhibit 3.2 of the Company's Form 8-B).
10.1 Option Agreement between CCA Prison Realty Trust and
the Company with respect to the Northeast Ohio
Correctional Center. (Incorporated by reference to
Exhibit 10.1(a) of the Company's Form S-11/S-3).
10.2 Option Agreement between CCA Prison Realty Trust and
the Company with respect to the Torrance County
Detention Facility. (Incorporated by reference to
Exhibit 10.1(b) of the Company's Form S-11/S-3).
10.3 Option Agreement between CCA Prison Realty Trust and
the Company with respect to the Southern Colorado
Correctional Facility. (Incorporated by reference to
Exhibit 10.1(c) of the Company's Form S-11/S-3).
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CORRECTIONS CORPORATION OF AMERICA FOR THE PERIOD ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,935
<SECURITIES> 0
<RECEIVABLES> 83,991
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 105,443
<PP&E> 431,003
<DEPRECIATION> 0
<TOTAL-ASSETS> 665,881
<CURRENT-LIABILITIES> 117,883
<BONDS> 231,886
0
0
<COMMON> 76,560
<OTHER-SE> 235,365
<TOTAL-LIABILITY-AND-EQUITY> 665,881
<SALES> 0
<TOTAL-REVENUES> 198,862
<CGS> 0
<TOTAL-COSTS> 158,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,352
<INCOME-PRETAX> 39,020
<INCOME-TAX> 15,413
<INCOME-CONTINUING> 23,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,607
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
