<PAGE> 1
FORM 10-Q/A
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, 1998
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)
10 BURTON HILLS BOULEVARD
NASHVILLE, TENNESSEE 37215
- ---------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
(615) 263-3000
- -------------------------------------------------------------------------------
(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
--- ---
80,445,898
- -------------------------------------------------------------------------------
(Outstanding shares of the issuer's common stock as of June 1, 1998.)
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CORRECTIONS CORPORATION OF AMERICA
FORM 10-Q/A FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 (Unaudited) and December 31, 1997 3
Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997
(Unaudited) 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997
(Unaudited) 5-6
Notes to Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS (Unaudited)
- ------
Current assets:
Cash, cash equivalents and restricted cash $ 123,947 $ 136,147
Accounts receivable, net of allowances 100,083 89,822
Prepaid expenses 4,326 4,868
Other 3,231 2,585
--------- ---------
Total current assets 231,587 233,422
Property and equipment, net 298,321 266,493
Other long-term assets:
Notes receivable 58,095 59,264
Investment in direct financing leases 89,169 90,184
Deferred tax assets 10,569 10,195
Other assets 39,994 38,382
--------- ---------
$ 727,735 $ 697,940
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 19,683 $ 32,094
Accrued salaries and wages 9,219 9,778
Income taxes payable 4,608 14,128
Deferred tax liabilities 364 1,229
Other accrued expenses 24,835 20,361
Current portion of long-term debt 5,840 5,847
Current portion of deferred gain on real estate 13,223 13,223
--------- ---------
Total current liabilities 77,772 96,660
Long-term debt, net of current portion 165,671 127,075
Deferred gain on real estate transactions 119,278 122,529
Other noncurrent liabilities 0 3,600
--------- ---------
Total liabilities 362,721 349,864
--------- ---------
Stockholders' equity:
Preferred stock 380 380
Common stock 80,668 80,230
Additional paid-in capital 223,325 215,833
Retained earnings 78,583 92,475
Treasury stock, at cost (17,942) (40,842)
--------- ---------
Total stockholders' equity 365,014 348,076
--------- ---------
$ 727,735 $ 697,940
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31
--------------------
1998 1997
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<S> <C> <C>
Revenues $ 141,298 $91,838
Expenses:
Operating 99,719 63,014
Lease 11,095 1,102
General and administrative 4,953 3,398
Depreciation and amortization 3,388 3,923
--------- -------
Total expenses 119,155 71,437
--------- -------
Operating income 22,143 20,401
Interest (income) expense, net (2,791) 498
--------- -------
Income before income taxes 24,934 19,903
Provision for income taxes 6,491 7,908
--------- -------
Net income $ 18,443 $11,995
========= =======
Net income per common share:
Basic $ 0.23 $ 0.16
========= =======
Diluted $ 0.21 $ 0.14
========= =======
Weighted average common shares outstanding:
Basic 79,488 75,601
========= =======
Diluted 90,436 89,659
========= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
----------------------
1998 1997
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 18,443 $ 11,995
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,388 3,923
Deferred and other noncash income taxes 2,612 2,329
Other noncash items 122 92
Gain on disposal of assets -- (20)
Equity in earnings of unconsolidated entities (350) (252)
Recognized gain on real estate transactions (3,251) --
Changes in assets and liabilities:
Accounts receivable (9,334) 30,830
Prepaid expenses 542 (1,204)
Other current assets (646) (795)
Accounts payable (12,411) 2,990
Income taxes payable (9,520) 4,615
Accrued expenses and other liabilities 315 4,759
--------- ---------
Net cash provided by (used in) operating activities (10,090) 59,262
--------- ---------
Cash Flows from Investing Activities:
Additions of property and equipment (69,918) (70,919)
Decrease in restricted cash -- 1,365
Increase in other assets (2,697) (6,165)
Proceeds from disposals of assets 36,132 8
Increase in direct financing leases -- (55,850)
Payments received on direct financing leases and notes
receivable 1,257 215
--------- ---------
Net cash used in investing activities (35,226) (131,346)
--------- ---------
Cash Flows from Financing Activities:
Payments on long-term debt (11) (2,476)
Proceeds from line of credit, net 40,000 74,000
Payment of debt issuance costs -- (248)
Proceeds from exercise of stock options and warrants 727 992
Purchase of treasury stock (7,600) --
--------- ---------
Net cash provided by financing activities 33,116 72,268
--------- ---------
Net increase (decrease) in cash (12,200) 184
CASH AND CASH EQUIVALENTS, beginning of period 136,147 4,832
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 123,947 $ 5,016
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
-----------------
1998 1997
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<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 167 $ 840
======== =====
Income taxes $ 13,403 $ 609
======== =====
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 374 $ 134
Additional paid-in capital 3,073 411
Retained earnings (114) --
Treasury stock, at cost (3,333) (545)
-------- -----
$ -- $ --
======== =====
Long term debt was converted into common stock:
Other assets $ 5 $ 15
Long-term debt (1,400) (900)
Common stock 51 531
Additional paid-in capital 32 354
Retained earnings (31,500) --
Treasury stock 32,812 --
-------- -----
$ -- $ --
======== =====
</TABLE>
6
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1998, and the
consolidated statements of operations and cash flows for the three
month periods ended March 31, 1998 and 1997, have been prepared by the
Company in accordance with the accounting policies described in its
1997 Annual Report 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,
1998 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, 1998, are not necessarily
indicative of the operating results for the full year.
2. NEW PRONOUNCEMENT
In April 1998, the AICPA issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities", effective for fiscal
years beginning after December 15, 1998. SOP 98-5 requires the costs of
start-up activities to be expensed as incurred. In accordance with the
provisions of SOP 98-5, the Company will adopt the new accounting
method as of January 1, 1999 by recording a cumulative effect of a
change in accounting principle. As of March 31, 1998, the Company's
deferred start-up costs totaled $20,859,000.
3. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", effective for fiscal years
beginning after December 15, 1997. SFAS No.130 requires that changes in
the amounts of certain items, including gains and losses on certain
securities, be shown in the financial statements. The Company adopted
the provisions of SFAS No. 130 on January 1, 1998. The Company's
comprehensive income is substantially equivalent to net income for the
three months ended March 31, 1998 and 1997.
4. SUBSEQUENT EVENTS
On April 17, 1998, the Company acquired all of the outstanding capital
stock of eight subsidiaries of U.S. Corrections Corporation ("USCC")
(the "USCC Acquisition"). By virtue of the USCC Acquisition, the
Company acquired contracts to manage four currently operating
facilities in Kentucky, each of which is owned by CCA Prison Realty
Trust ("Prison Realty"), as well as one each in Florida and Texas, each
of which is owned by governmental entities of Florida and Texas,
respectively. The Company, or one of its affiliates, currently leases
the four Kentucky facilities from Prison Realty, or one of its
affiliates, pursuant to the terms of that certain Master Agreement to
Lease dated July 18, 1997, between the Company and Prison Realty (the
"Master Lease"). The Company also acquired by virtue of the USCC
Acquisition the right to enter into contracts to manage two facilities
currently under construction that are located in North Carolina and
owned by Prison Realty. The Company expects to lease these two
facilities from Prison Realty pursuant to the terms and conditions of
the Master Lease. The total number of beds currently operating or under
construction under all of such management contracts hereinbefore
discussed equals 5,743.
On April 18, 1998, the Company signed a definitive agreement to merge
with Prison Realty in a transaction that will give the shareholders of
the Company the right to receive 0.875 Prison Realty common shares for
every share of Company common stock. Prison Realty will operate as a
real estate investment trust and the merger is expected to be
consummated on or about January 1, 1999, subject to customary
conditions, including approvals by regulatory and governmental agencies
and the shareholders of both companies.
7
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this
report.
Management's Discussion and Analysis of Financial Condition and Results
of Operations includes certain forward-looking statements about the
Company's business, revenues, prospects, expenditures and operating and
capital requirements. In addition, forward-looking statements may be
included in various other Company documents to be issued in the future
and in various oral statements by Company representatives to securities
analysts and potential investors from time to time. Any such statements
are subject to risks that could cause the actual results to vary
materially. The risks and uncertainties associated with the
forward-looking information include the strength of the markets in
which the Company operates, competitive market conditions, general
economic growth, interest rates and capital market conditions.
Reference is hereby made to the more detailed discussion of such risks
in the Company's Annual Report on Form 10-K.
RESULTS OF OPERATIONS
REVENUES AND OPERATING EXPENSES
Revenues for the first quarter of 1998 increased 54% over the
comparable period of 1997. Management revenues increased $48.9 million
or 55%, and transportation revenues increased $531,000 or 19%, in the
first three months of 1998 as compared to the same period in 1997. The
increase in management revenues was primarily due to a 53% increase in
compensated mandays. During the first quarter of 1998, the Company
opened two new facilities totaling 2,000 beds and also realized the
full period effect of 14,800 beds brought on line over the course of
1997. Transportation revenues increased as a result of continued
expansion of the customer base and increased utilization of three new
hubs opened in 1997.
Operating expenses for the first quarter of 1998 increased 58% over the
comparable quarter in 1997. This increase was due to the increased
compensated mandays and compensated mileage that the Company realized
in 1998 as previously mentioned. As a percentage of revenues, operating
expenses increased to 70.6% for the first quarter of 1998 from 68.6%
for the same period in 1997. The operating expense percentage was lower
for the first quarter of 1997 due to revenues being higher for certain
new facilities with guaranteed minimums. Operating expenses in the
first quarter of 1998 were more in line with the fourth quarter of
1997, or 70.7%, which is reflective of normalized operations.
Lease expense increased significantly as a result of the lease
agreements that the Company entered into with Prison Realty in 1997 and
1998. As of the first quarter 1998, the Company had entered into
sale/leaseback agreements with Prison Realty on 13 facilities.
General and administrative expenses increased 46% for the first quarter
of 1998 as compared to the first quarter of 1997. The increase was due
to the expanded activity and staffing necessary to administer the
increased beds under management. Even though they increased in amount,
general and administrative expenses decreased as a percentage of
revenues to 3.5% in the first quarter of 1998 from 3.7% during the
comparable period in 1997.
8
<PAGE> 9
Depreciation and amortization for the first quarter of 1998 decreased
14% as compared to the first quarter of 1997. This decrease was
primarily due to the sale of the 13 facilities to Prison Realty during
1997 and early 1998.
OTHER EXPENSES
Interest expense, net for the first quarter of 1998 was actually
interest income of $2.8 million. This change to interest income was
primarily the result of the sale of facilities to Prison Realty which
allowed the Company to benefit from interest earnings on its increased
cash balances.
INCOME TAXES
The Company's effective tax rate decreased from 39.7% in the first
quarter of 1997 to 26.0% in the first quarter of 1998. The decrease is
due to the recognition of certain tax strategies implemented in
conjunction with the sale/leaseback of facilities to Prison Realty in
1997 and 1998. The Company is recognizing these benefits over the next
four years which should result in maintaining a consistent effective
tax rate.
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 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 flows from operations, calculated on an EBITDA basis, for the
first quarter of 1998 was $25,531,000 as compared to $24,324,000 in
the first quarter of 1997. 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 certain
leverage and debt service coverage ratios. The facility also limits
certain payments and distributions. As of March 31, 1998, there was
$110,000,000 borrowed under this facility. Letters of credit totaling
$1,600,000 had been issued leaving the total unused commitment at
$58,400,000.
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, 1998 there were $1,625,000 in letters
of credit issued, leaving the unused commitment at $875,000.
9
<PAGE> 10
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, 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults 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
10.1 Lease Agreement between the Company and CCA
Prison Realty Trust with respect to the Davis
Correctional Facility (previously filed as
Exhibit 10.30 to the Company's Registration
Statement on Form S-3 (Commission File Number
333-43935-01) filed January 9, 1998 and
incorporated herein by reference).
10.2 Exercise Agreement, dated as of December 11,
1997, by and between the Company and CCA
Prison Realty Trust with respect to the
Cimarron Correctional Facility (previously
filed as Exhibit 10(ee) to CCA Prison Realty
Trust's Annual Report on Form 10-K for the
period ended December 31, 1997 and
incorporated herein by reference).
10.3 Exercise Agreement, dated as of January 5,
1998, by and between the Company and CCA
Prison Realty Trust with respect to the Davis
Correctional Facility (previously filed as
Exhibit 10(ff) to CCA Prison Realty Trust's
Annual Report on Form 10-K for the period
ended December 31, 1997 and incorporated
herein by reference).
*27 Financial Data Schedule (for SEC use only)
27.1 Restated Financial Data Schedule for the
quarter ended March 31, 1997 (for SEC use only)
---------
* Previously filed
B. Reports on Form 8-K
None
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORRECTIONS CORPORATION OF AMERICA
Registrant
June 5, 1998 /s/ Darrell K. Massengale
- ---------------------------- --------------------------------------
Date Darrell K. Massengale
Chief Financial Officer
Secretary, Treasurer
Principal Accounting Officer
12
<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>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<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> .16
<EPS-DILUTED> .14
</TABLE>
