SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
March 31, 2000 0-23038
---------------- ----------------
CORRECTIONAL SERVICES CORPORATION
---------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 11-3182580
----------- --------------
(State of Incorporation) (I.R.S. Employer Identification Number)
1819 MAIN STREET, SUITE 1000, SARASOTA, FLORIDA 34236
-----------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code:
(941) 953-9199
------------------
Not Applicable
----------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Number of shares of common stock outstanding on May 11, 2000: 11,373,064
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 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
--- ---
<PAGE> 1
CORRECTIONAL SERVICES CORPORATION
INDEX
PAGE NO.
PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets March 31, 2000 (unaudited)
and December 31, 1999
Condensed Consolidated Statements of Operations (unaudited)
for the Three Months Ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
ITEM 3. Quantitiate and Qualitative Disclosures About Market Risk
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, 2000 DECEMBER 31
2000 (unaudited) 1999
--------------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,068 $ 7,070
Restricted cash 92 192
Accounts receivable, net 38,108 35,768
Deferred tax asset 3,227 3,227
Prepaid expenses and other current assets 3,526 2,987
------- -------
Total current assets 47,021 49,244
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 47,047 47,972
OTHER ASSETS
Deferred tax asset 6,253 7,060
Goodwill, net 1,334 1,428
Other 5,301 5,494
-------- --------
$106,956 $111,198
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 870 $ 3,124
Accrued liabilities 18,271 18,836
Current portion of subordinated debt 475 3,797
Current portion of long-term senior debt 6,669 1,206
-------- --------
Total current liabilities 26,285 26,963
COMMITMENTS AND CONTINGENCIES - -
LONG-TERM SENIOR DEBT 27,647 22,551
SUBORDINATED DEBENTURES - 10,393
LONG-TERM PORTION OF FACILITY LOSS RESERVE 496 553
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares
authorized none issued and outstanding - -
Common stock, $.01 par value, 30,000,000 shares
authorized 11,373,064 shares issued and outstanding 114 114
Additional paid-in capital 82,797 82,807
Accumulated deficit (30,383) (32,183)
-------- --------
52,528 50,738
-------- --------
$106,956 $111,198
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 3
<TABLE>
<CAPTION>
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31
---------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues $53,709 $58,934
-------- --------
Facility expenses:
Operating 46,711 52,329
Startup costs 6 729
-------- --------
46,717 53,058
-------- --------
Contribution from operations 6,992 5,876
Other operating expenses:
General and administrative 3,172 3,708
Merger costs and related restructuring charges - 13,813
-------- --------
Operating income (loss) 3,820 (11,645)
Interest and other expense, net (844) (756)
-------- --------
Income (loss) before income taxes 2,976 (12,401)
Income tax (expense) benefit (1,176) 2,976
-------- --------
Net income (loss) $1,800 $(9,425)
-------- --------
-------- --------
Basic earnings (loss) per share:
Net income (loss) per share $0.16 $(0.86)
-------- --------
-------- --------
Diluted earnings (loss) per share:
Net income (loss) per share $0.16 $ (0.86)
Number of shares used to compute EPS:
Basic 11,373 11,018
Diluted 11,391 11,018
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,800 $ (9,425)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,292 1,526
Merger related asset writedown 357 5,245
Deferred income tax expense (benefit) 807 (2,877)
Gain on disposal of fixed assets, net (93) -
Changes in operating assets and liabilities:
Restricted cash 101 (10)
Accounts receivable (2,340) 1,925
Prepaid expenses and other current assets (539) 951
Accounts payable, accrued liabilities and
facility loss reserve (2,876) 3,712
-------- --------
Net cash provided by(used in)operating activities: (1,491) 1,047
-------- --------
Cash flows from investing activities:
Capital expenditures (509) (1,289)
Proceeds from the sale of property, equipment and
improvements 98 -
Other assets (32) -
-------- --------
Net cash used in investing activities: (443) (1,289)
-------- --------
Cash flows from financing activities:
Proceeds (Payment) on short-term and long-term borrowings
and capital lease obligations 10,557 (2,568)
Payment of subordinated debt (13,715) -
Proceeds from sale of equipment of leasehold improvements - 115
Proceeds from exercise of stock options and warrants - 1,737
Long-term portion of prepaid lease 100 100
Adjustment to paid-in capital (10) -
Dividend distribution - (54)
-------- --------
Net cash used in financing activities: (3,068) (670)
-------- --------
Net decrease in cash and cash equivalents (5,002) (912)
Cash and cash equivalents at beginning of period 7,070 7,639
-------- --------
Cash and cash equivalents at end of period $ 2,068 $ 6,727
-------- --------
-------- --------
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest $ 1,434 $ 1,366
-------- --------
-------- --------
Income taxes $ 620 $ 7
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts
of Correctional Services Corporation and its wholly owned subsidiaries.
Due to the pooling of interests business combination consummated on March
31, 1999, described in Note 2, the condensed consolidated financial
statements also include the accounts of Youth Services International, Inc.
and its subsidiaries ("YSI") for the 1999 period presented.
In the opinion of management of Correctional Services Corporation and
its subsidiaries (the "Company"), the accompanying unaudited condensed
consolidated financial statements as of March 31, 2000, and for the three
months ended March 31, 2000 and 1999, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation.
The statements herein are presented in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the financial statements on
Form 10-K for the Company have been omitted from these statements, as
permitted under the applicable rules and regulations. The statements
should be read in conjunction with the consolidated financial statements
and the related notes included in the Company's Annual Report and Form 10-K
for the year ended December 31, 1999.
The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results to be expected for the full
year.
NOTE 2 - POOLING OF INTERESTS BUSINESS COMBINATION
On March 31, 1999, the Company exchanged 3,114,614 shares of the
Company's common stock for all of the common stock of YSI. YSI operates
juvenile justice facilities and also provides aftercare services to
adjudicated youth. The above transaction has been accounted for as a
pooling of interests and, accordingly the condensed consolidated financial
statements for the 1999 period presented have been restated to include the
accounts of YSI.
In connection with the merger, during the first quarter of 1999, the
Company recorded a charge to operating expenses of approximately
$13,813,000 ($10,279,000, after taxes) for direct costs related to the
merger and certain other costs resulting from the restructuring of the
newly combined operations.
Direct merger costs consisted primarily of fees to investment bankers,
attorneys, accountants, financial advisors and printing and other direct
costs. Restructuring charges included severance and change in control
payments made to certain former officers and employees of YSI and costs
associated with the consolidation of administrative functions and the
expected closure of certain facilities. Exit costs include charges
resulting from the cancellation of lease agreements and other long-term
commitments, the write-down of underutilized assets or assets to be
disposed of and miscellaneous other costs.
<PAGE> 6
Merger costs and related restructuring charges are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Direct merger costs $ 6,111
Restructuring charges:
Employee severance and change in control payments 2,339
Exit costs 4,410
Other 953
--------
Total $13,813
--------
--------
</TABLE>
In addition, in connection with the merger, the Company assumed
$32,200,000 of 7% convertible subordinated debentures originally issued by
YSI during the year ended June 30, 1996. Under the terms of the indenture
pursuant to which YSI issued the debentures, the acquisition of YSI by
the Company constituted a "change of control" thereby enabling the
holders of the debentures to demand redemption by the Company. The
applicable portion of the unamortized costs related to the issuance of
these debentures have been appropriately written of and are included in the
direct merger costs.
NOTE 3-DEBT
On August 31, 1999, the Company finalized a new $95 million financing
arrangement with Summit Bank, N.A. Borrowings under the line are subject to
compliance with various financial covenants and borrowing base criteria.
The Company is currently in compliance with all debt covenants. This
financing arrangement is secured by all of the assets of the Company and
consists of the following components:
- $30 million revolving line of credit to be used by the Company and
its subsidiaries for working capital and general corporate purposes and to
finance the acquisition of facilities, properties and other businesses. At
March 31, 2000 the Company had $14 million outstanding under the revolving
line of credit and had an available borrowing base of $15.1 million due to
borrowing base limitations.
- $20 million delayed drawdown credit facility which provides the
Company with additional financing to be used to fund the redemption of the
outstanding 7% convertible subordinated debentures due March 31, 2000 that
were issued by Youth Services International, Inc., a subsidiary of the
Company (the "debentures"). At March 31, 2000 the Company has fully
utilized the credit available under the delayed drawdown facility.
- $45 million in financing which may be used to purchase land and
property and to finance the construction of new facilities through an
operating lease arrangement. The Company currently has approximately $23
million available for additional property acquisition and construction
under this operating lease financing facility.
Upon maturity on March 31, 2000, the Company redeemed $13.7 million of
the 7% Convertible Subordinated Debentures at face value plus accrued but
unpaid interest. The Company used the balance available on its Delayed
Drawdown credit facility of $5.6 million and an additional $8.0 million
from the revolving credit agreement to redeem these debentures. The
balance ($475,000) of the 7% Convertible Subordinated Debentures plus
accrued but unpaid interest was redeemed on April 5, 2000 upon receipt
of original debentures from the debenture holders.
<PAGE> 7
NOTE 4 - INCOME TAXES
Deferred tax assets consisting of a current portion of $3,227,000 and
a long-term portion of $6,253,000 reflect the tax effected impact of
temporary differences between the amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations. The Company, after considering its pattern of profitability
and its anticipated future taxable income, believes it is more likely than
not that the deferred tax assets will be realized.
NOTE 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share in accordance with SFAS No. 128:
Three Months Ended March 31, 1999
The effect of dilutive securities is anti-dilutive therefore; the
reconciliation has not been presented
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Numerator:
<S> <C>
Net Income $ 1,800
-------
-------
Denominator:
Basic earnings per share:
Weighted average shares outstanding 11,373
Effect of dilutive securities - stock options and warrants 18
-------
Denominator for diluted earnings per share 11,391
-------
-------
</TABLE>
The effect of additional dilutive securities of 906,643 for the three
months ended March 31, 2000 were not included in the calculation of diluted
net income per common share as the effect would have been anti-dilutive.
NOTE 6 - STOCKHOLDER RIGHTS PLAN
On January 5, 2000, the Company declared a dividend of one preferred
share purchase right for each outstanding share of Common Stock, par value
$.01 per share of the Company. The dividend is payable to the stockholders
of record on January 11, 2000 and is payable with respect to Common Shares
issued thereafter until the Distribution Date. The Distribution Date is
defined as the first date of public announcement that a person or group of
affiliated or associated persons has acquired beneficial ownership of 10%
or more of the outstanding Common Shares or ten business days (or such
later date as the Board of Directors of the Company may determine)
following the commencement or announcement of an intention to commence,
a tender offer or exchange offer, the consummation of which would result
in a person or group becoming an Acquiring Person.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
This document contains forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934 which are not historical facts and involve risks and
uncertainties. These include statements regarding the expectations,
beliefs, intentions or strategies regarding the future. The Company intends
that all forward-looking statements be subject to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect the Company's views as of the date they
are made with respect to future events and financial performance, but are
subject to many uncertainties and risks which could cause the actual
results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties and risks include, but are not limited to: occupancy levels;
the renewal of contracts, the ability to secure new contracts; and public
resistance to privatization. Additional risk factors include those dis-
cussed in the Company's Annual Report and Form 10K for the year ended
December 31, 1999. The Company does not undertake any obligation to
update any forward-looking statements.
<PAGE> 8
General
The Company (defined as Correctional Services Corporation and all of
its wholly owned subsidiaries) is one of the largest and most comprehensive
providers of juvenile rehabilitative services with 36 facilities and
over 4,400 juveniles in its care. In addition, the Company is a leading
developer and operator of adult correctional facilities operating
18 facilities representing approximately 7,100 beds. On a combined basis,
as of March 31, 2000, the Company provided services in 20 states and
Puerto Rico, representing approximately 11,500 beds including aftercare
services.
The Company's primary source of revenue is generated from the
operation of its facilities pursuant to contracts with federal, state and
local governmental agencies, and management agreements with third parties
that contract directly with governmental agencies. Generally, the Company's
contracts are based on a daily rate per resident, some of which have
guaranteed minimum payments; others provide for fixed monthly payments
irrespective of the number of residents housed. In addition, the Company
receives revenue for educational and aftercare services. The Company
recognizes revenue at the time the Company performs the services pursuant
to its contracts.
The Company typically pays all facility operating expenses, except for
rent or lease payments in the case of certain government-provided
facilities or for facilities for which the Company has only a management
contract. Operating expenses are principally comprised of costs directly
attributable to the management of the facility and care of the residents
which include salaries and benefits of administrative and direct
supervision personnel, food, clothing, medical services and personal
hygiene supplies. Other operating expenses are comprised of fixed costs,
which consist of rent and lease payments, utilities, insurance,
depreciation and professional fees.
The Company also incurs costs as it relates to the start-up of new
facilities. Such costs are principally comprised of expenses associated
with the recruitment, hiring and training of staff, travel of personnel,
certain legal and other costs incurred after a contract has been awarded.
Contribution from operations consists of revenues minus operating
expenses and start-up costs. Contribution from operations, in general, is
lower in the initial stages of a facility's operations. This is due to the
need to incur a significant portion of the facility's operating expenses
while the facility is in the process of attaining full occupancy.
General and administrative costs primarily consist of salaries and
benefits of non-facility based personnel, insurance, professional fees,
rent and utilities associated with the operation of the Company's corporate
offices. In addition, general and administrative costs consist of
development costs principally comprised of travel, proposal development,
legal fees, and various consulting and other fees incurred prior to the
award of a contract.
Recent Developments
On December 15, 1999 the Company announced that it had engaged
Wasserstein Perella & Co. to assist the Company in exploring a broad range
of business alternatives and financial strategies to enhance shareholder
value.
On January 5, 2000 the Company declared a dividend of one preferred
share purchase right for each outstanding share of Common Stock of the
Company.
On February 12, 2000 the Company received a two year renewal for its
Management and Operation Agreement for the 64 bed Judge Roger Hashem
Juvenile Center.
On March 31, 2000 the Company redeemed $13.7 million of the 7%
Convertible Subordinated Debentures at face value plus accrued, but unpaid
interest. The balance ($475,000) of the 7% Convertible Subordinated
Debentures plus accrued but unpaid interest was redeemed on April 5, 2000.
<PAGE> 9
Results of Operation
The following table sets forth certain operating data as a percentage
of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------- -------
<S> <C> <C>
REVENUES 100.0% 100.0%
------- -------
FACILITY EXPENSES:
OPERATING 87.0% 88.8%
STARTUP COSTS 0.0% 1.2%
------- -------
CONTRIBUTION FROM OPERATIONS 13.0% 10.0%
OTHER OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 5.9% 6.3%
MERGER COSTS AND RELATED RESTRUCTURING CHARGES 0.0% 23.4%
------- -------
OPERATING INCOME (LOSS) 7.1% -19.7%
INTEREST AND OTHER EXPENSE, NET -1.6% - 1.3%
------- -------
INCOME (LOSS) BEFORE INCOME TAXES 5.5% -21.0%
INCOME TAX (PROVISION) BENEFIT -2.2% 5.0%
------- -------
NET INCOME (LOSS) 3.3% -16.0%
------- -------
------- -------
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenue decreased by $5.2 million or 8.9% for the year ended March
31, 2000 to $53.7 million compared to the same period in 1999 primarily due
to:
- A decrease of $10.6 million from the discontinuance of 10 facilities
(2,000 beds) offset by an;
- Increase of $2.1 million generated from a full quarter of revenues
from the South Fulton, Georgia facility, 300-bed expansion of the
Crowley, Colorado facility and the 45-bed expansion of the
Bayamon, Puerto Rico treatment facility; and
- A net increase of $3.3 million generated from per diem rate and
occupancy level increases in existing facilities and other
income of $600,000 representing additional program funding received
related to the Company's New York Department of Corrections Program.
Operating expenses decreased $5.6 million or 10.7% for the three
months ended March 31, 2000 to $46.7 million compared to the same period in
1999 primarily due to the closing of the 10 facilities mentioned above.
As a percentage of revenues, operating expenses decreased to 87.0% for
the three months ended March 31, 2000 from 88.8% for the three months ended
March 31, 1999 primarily due to a number of facilities that were in their
early stages of operations during the first quarter of 1999 and were
experiencing less than optimal utilization rates. In addition, operating
costs as a percentage of revenue were reduced due to the implementation of
enhanced financial controls and oversight of the facilities acquired in the
merger.
Startup costs were approximately $6,000 for the three months ended
March 31, 2000 compared to $729,000 for the three months ended March 31,
1999. Startup for the three months ended March 31, 1999 related to the
startup of the South Fulton, Georgia facility (288 beds), 300-bed expansion
of the Crowley, Colorado facility and the 45 bed expansion of the Bayamon,
Puerto Rico treatment facility.
General and administrative expenses decreased from $3.7 million for
the three months ended March 31, 1999 to $3.2 million for the three months
ended March 31, 2000. The decrease of $0.5 million in general and
administrative expenses was primarily attributable to:
- The reduction of the administrative staff of the YSI subsidiary and
corporate overhead expenses; and
<PAGE> 10
- The synergies realized from the merger including costs for
insurance, office expenses and travel.
As a percentage of revenues, general and administrative expenses
decreased to 5.9% for the three months ended March 31, 2000 from 6.3% for
the three months ended March 31, 1999. The decrease in general and
administrative expenses as a percentage of revenue is a result of the items
noted above.
During the first quarter of 1999, the Company recorded merger costs
and related restructuring charges of approximately $13.8 million ($10.3
million, after taxes or $0.92 per share) for direct costs related to the
merger with YSI and certain other costs resulting from the restructuring of
the newly combined operations. Direct merger costs consisted primarily of
fees to investment bankers, attorneys, accountants, financial advisors and
printing and other direct costs. Restructuring charges included severance
and change in control payments made to certain former officers and
employees of YSI and costs associated with the consolidation of
administrative functions and the expected closure of certain facilities.
Exit costs include charges resulting from the cancellation of lease
agreements and other long-term commitments, the write-down of underutilized
assets or assets to be disposed of and miscellaneous other costs.
Interest expense, net of interest income, was $844,000 for the three
months ended March 31, 2000 compared to $756,000 for the three months ended
March 31, 1999, a net increase in interest expense of $88,000. This
increase resulted from borrowings on the Company's credit facility to
finance the growth of the Company.
For the three months ended March 31, 2000 the Company recognized an
income tax provision of $1.2 million. For the three months ended March 31,
1999 the Company recognized a benefit for income taxes of $3.0 million.
The reduction in the effective tax rate was a result of expensing certain
merger costs that are non-deductible for tax purposes.
As a result of the foregoing factors, for the three months ended March
31, 2000 the Company had a net income of $1.8 million or $0.16 per diluted
share. For the three months ended March 31, 1999 the Company had a net
loss of $9.4 million or ($0.86) per diluted share.
Liquidity and Capital Resources
At March 31, 2000 the Company had $2.1 million of cash and working
capital of $20.7 million compared to December 31, 1999 when the Company
had $7.1 million in cash and working capital of $22.3 million. The
decrease in cash was primarily a result of paying down the Company's
revolving line of credit.
Net cash used in operating activities was $1.5 million for the three
months ended March 31, 2000 compared to net cash provided by operating
activities of $1.0 million for the three months ended March 31, 1999. The
decrease in cash provided by operations was attributed primarily to:
- An increase in accounts receivable resulting from the timing of
collections. During the first two weeks subsequent to the
quarter ended March 31, 2000, the Company collected approximately
$8.8 million in cash related to accounts receivable included in
the March 31, 2000 balance; and
- A decrease in accounts payable resulting from the timing of
payments.
Net cash of $0.4 million was used in investing activities during the
three months ended March 31, 2000 as compared to $1.3 million being used in
the three months ended March 31, 1999. In the three months ended March
31, 2000 such cash was used primarily for:
- The purchase of property and equipment at existing facilities; and
- Expenditures for leasehold improvements in existing facilities.
In the comparable period for 1999, the principal investing activities
of the Company were:
- Capital expenditures related to the opening of new facilities; and
<PAGE> 11
- The purchase of land and land improvements for future development.
Net cash of $3.1 million was used in financing activities for the
three months ended March 31, 2000 as compared to $0.7 million used in
financing activities for the three months ended March 31, 1999. In the
three months ended March 31, 2000 such cash was used primarily to pay down
$3 million on the Company's revolving credit agreement. During the 1999
period the Company's primary uses of funds were net repayments of $2.5
million on the Company's revolving credit agreement offset by proceeds of
$1.7 million from the exercise of stock options and warrants.
Upon maturity on March 31, 2000, the Company redeemed $13.7 million of
the 7% Convertible Subordinated Debentures at face value plus accrued but
unpaid interest. The Company used the balance available on its Delayed
Drawdown credit facility of $5.6 million and an additional $8 million from
the revolving credit agreement to redeem these debentures. The balance
of the 7% Convertible Subordinated Debentures plus accrued but
unpaid interest was redeemed on April 5, 2000 upon receipt of original
debentures from the debenture holders.
As a result of the above note redemption, the balance outstanding on
the Company's revolving credit agreement at March 31, 2000 was $34 million
of which $20 million was on the Delayed Drawdown line. The Company is
required to pay the outstanding principal balance on the Delayed Drawdown
line in twelve equal quarterly installments beginning on June 30, 2000.
Consequently $6.7 million has been classified as current portion. At
March 31, 2000 approximately $14.8 million is available under the revolving
credit agreement.
At March 31, 2000 the Company had $21.9 million outstanding on its
available credit under the lease credit facility. As a result, the Company
currently has approximately $23.1 million available for additional property
acquisition and construction under this operating lease financing facility.
At March 31, 2000 the Company had construction commitments of approximately
$1.8 million.
The Company continues to make cash investments in the acquisition and
construction of new facilities and the expansion of existing facilities. In
addition, the Company expects to continue to have cash needs as it relates
to financing start-up costs in connection with new contracts. In addition
the Company is continuing to evaluate opportunities, which could require
significant outlays of cash. If such opportunities were pursued, the
Company would require additional financing resources. Management believes
these additional resources may be available through alternative financing
methods.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's current financing is subject to variable rates of
interest and is therefore exposed to fluctuations in interest rates. The
Company's subordinated debt and mortgage on property accrues interest at
fixed rates of interest.
The table below presents the principal amounts, weighted average
interest rates, fair value and other terms, by year of expected maturity,
required to evaluate the expected cash flows and sensitivity to interest
rate changes. Actual maturities may differ because of prepayment rights.
EXPECTED MATURITY DATES
-----------------------
<TABLE>
<CAPTION> THERE FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt 5,476,117 6,669,071 6,669,318 1,669,590 3,222 303,779 20,791,096 20,791,096
--------- ---------- --------- --------- ----- ------- ---------- ----------
--------- ---------- --------- --------- ----- ------- ----------
Weighted average
Interest Rate at
March 31, 2000 11.48%
------
------
Variable rate - - 14,000,000 - - - 14,000,000 14,000,000
====== ------ ---------- ------ ----- ------ ---------- ----------
------ ---------- ------ ----- ------ ----------
LIBOR debt
Weighted average
interest Rate at
March 31, 2000 8.49%
------
------
</TABLE>
<PAGE> 12
PART II - - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not party to any legal proceedings, other than ordinary
and routine litigation incidental to its business, which in the opinion of
the Company are material to the Company, either individually or in the
aggregate.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote during the
first quarter of 2000.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed on January 11, 2000 relating to the Board of
Director's Adoption of a Stockholder Rights Plan.
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CORRECTIONAL SERVICES CORPORATION
Registrant
By: /s/Ira M. Cotler
Ira M. Cotler, Executive Vice President
Chief Financial Officer
Dated: May 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000914670
<NAME> Correctional Services Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,068
<SECURITIES> 0
<RECEIVABLES> 38,108
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 47,021
<PP&E> 61,606
<DEPRECIATION> 14,559
<TOTAL-ASSETS> 106,956
<CURRENT-LIABILITIES> 26,285
<BONDS> 0
0
0
<COMMON> 114
<OTHER-SE> 82,797
<TOTAL-LIABILITY-AND-EQUITY> 106,956
<SALES> 53,709
<TOTAL-REVENUES> 53,709
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 844
<INCOME-PRETAX> 2,976
<INCOME-TAX> 1,176
<INCOME-CONTINUING> 1,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,800
<EPS-BASIC> $0.16
<EPS-DILUTED> $0.16
</TABLE>
