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
June 30, 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 August 4, 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>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 2000 DECEMBER 31, 1999
ASSETS (UNAUDITED)
------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 310 $ 7,070
Restricted cash 92 192
Accounts receivable, net 35,494 35,768
Deferred tax asset 3,227 3,227
Prepaid expenses and other current assets 2,570 2,987
------------- ------------------
Total current assets 41,693 49,244
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 46,655 47,972
OTHER ASSETS
Deferred tax asset 6,702 7,060
Goodwill, net 1,241 1,428
Other 5,330 5,494
------------- ------------------
$101,621 $111,198
============= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,026 $ 3,124
Accrued liabilities 15,577 18,836
Current portion of subordinated debt 10 3,797
Current portion of senior debt 6,669 1,206
----------- ------------------
Total current liabilities 23,282 26,963
COMMITMENTS AND CONTINGENCIES - -
LONG-TERM SENIOR DEBT 23,980 22,551
SUBORDINATED DEBENTURES - 10,393
LONG-TERM PORTION OF FACILITY LOSS RESERVE 495 553
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 (29,047) (32,183)
----------- ------------------
53,864 50,738
----------- ------------------
$101,621 $111,198
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
-------- ---------
Revenues $106,066 $119,813
-------- ---------
Facility expenses:
Operating 92,976 106,058
Startup costs 16 757
-------- ---------
92,992 106,815
-------- ---------
Contribution from operations 13,074 12,998
Other operating expenses:
General and administrative 6,234 6,745
Merger costs and related restructuring charges - 13,813
--------- ---------
Operating income (loss) (7,560)
---------
6,840
Interest and other expense, net (1,654) (1,482)
--------- ---------
Income (loss) before income taxes 5,186 (9,042)
Income tax (expense) benefit (2,049) 1,649
--------- ---------
Net income (loss) $3,137 $ (7,393)
========= =========
Basic earnings (loss) per share $0.28 $ (0.67)
========= =========
Diluted earnings (loss) per share $0.28 $ (0.67)
Number of shares used to compute EPS:
Basic 11,373 11,098
Diluted 11,378 11,098
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C>
THREE MONTHS ENDED JUNE 30,
---------------------------
2000 1999
------------- -----------
Revenues $52,357 $60,878
Facility expenses:
Operating 46,265 53,730
Startup costs 11 28
------------- -----------
46,276 53,758
------------- -----------
Contribution from operations 6,081 7,120
Other operating expenses:
General and administrative 3,062 3,037
------------- -----------
Operating income 3,019 4,083
Interest and other expense, net (810) (725)
------------- -----------
Income before income taxes 2,209 3,358
Income tax expense (872) (1,326)
------------- -----------
Net income $1,337 $2,032
============= ===========
Basic earnings per share $0.12 $0.18
============= ===========
Diluted earnings per share $0.12 $0.18
============= ===========
Number of shares used to compute EPS:
Basic 11,373 11,176
Diluted 11,382 11,218
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
SIX MONTHS ENDED JUNE 30,
------------------------
2000 1999
<CAPTION> -------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,137 $ (7,393)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,523 2,977
Merger related asset writedown 357 4,895
Deferred income tax expense (benefit) 358 (2,878)
Gain on disposal of fixed assets, net (81) -
Changes in operating assets and liabilities:
Restricted cash 100 (129)
Accounts receivable 274 (3,214)
Prepaid expenses and other current assets 417 1,468
Accounts payable, accrued liabilities and facility loss reserve (5,242) 2,619
------- -------
Net cash provided by (used in) operating activities: 1,843 (1,655)
------- -------
Cash flows from investing activities:
Capital expenditures (1,374) (2,273)
Proceeds from the sale of property, equipment and improvements 96 -
Other assets (225) 44
------- -------
Net cash used in investing activities: (1,503) (2,229)
------- -------
Cash flows from financing activities:
Proceeds (repayments) on senior debt, net 6,890 (2,502)
Payment of subordinated debt (14,180) (1,796)
Proceeds from sale of equipment of leasehold improvements - 460
Proceeds from exercise of stock options and warrants - 1,736
Debt issuance costs - (125)
Long-term portion of prepaid lease 200 200
Adjustment to paid-in capital (10) -
-------- -------
Net cash used in financing activities: (7,100) (2,027)
-------- -------
Net decrease in cash and cash equivalents (6,760) (5,911)
Cash and cash equivalents at beginning of period 7,070 7,639
-------- --------
Cash and cash equivalents at end of period $ 310 $ 1,728
======== ========
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest $ 2,207 $ 1,536
======= =======
Income taxes $ 1,167 $ 146
======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts
of Correctional Services Corporation and its wholly owned subsidiaries.
(the "Company"). 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 the Company's management, the accompanying
unaudited condensed consolidated financial statements as of June 30,
2000, and for the three and six months ended June 30, 2000 and 1999,
include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation. The statements here-
in 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 on Form
10-K for the year ended December 31, 1999.
The results of operations for the three and six months ended June 30,
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 issued 3,114,614 shares of the
Company's common stock in eschange 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 paid to investment
bankers, attorneys, accountants and financial advisors as well as
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>
Merger costs and related restructuring charges are comprised of the
following (in thousands):
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
=======
In addition, in connection with the merger, the Company assumed $32,200,000
of 7% convertible subordinated debentures (the "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 off 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. This financing arrangement is 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 for
working capital and general corporate purposes and to finance the
acquisition of facilities, properties and other businesses. At June 30,
2000 the Company had $12 million outstanding under the revolving line of
credit and had an available borrowing base of $14.4 million due to
borrowing base limitations.
- $20 million delayed drawdown credit facility which provides the
Company with additional financing used to fund the redemption of the
outstanding Debentures. Principal payments of $1,667,000 are due quarterly
beginning the earlier of August 31, 2000 or the date on which the
outstanding balance under the credit facilty is equal to $20 million. On
June 30, 2000 the Company made its first principal payment and the
remaining balance outstanding was $18.3 million. As of June 30, 2000,
the Company has classified $6.7 million of the outstanding balance as a
current obligation.
- $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 $21
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 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
line of credit to redeem the Debentures. On April 5, 2000 the Company
redeemed $465,000 of the 7% Convertible Subordinated Debentures plus
accrued but unpaid interest. As of June 30, 2000 $10,000 remains
outstanding, pending receipt of the original Debentures from the
debenture holders.
<PAGE>
NOTE 4 - INCOME TAXES
Deferred tax assets consisting of a current portion of $3,227,000 and
a long-term portion of $6,702,000 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:
Six Months Ended June 30, 2000
Numerator:
Net Income $3,137
Denominator: ======
Basic earnings per share:
Weighted average shares outstanding 11,373
Effect of dilutive securities - stock options and warrants 5
------
Denominator for diluted earnings per share 11,378
======
Six Months Ended June 30, 1999
The effect of dilutive securities is anti-dilutive and, therefore,
the reconciliation has not been presented.
Three Months Ended June 30, 2000
Numerator:
Net Income $1,337
Denominator: ======
Basic earnings per share:
Weighted average shares outstanding 11,373
Effect of dilutive securities - stock options and warrants 9
------
Denominator for diluted earnings per share 11,382
======
Three Months Ended June 30, 1999
Numerator:
Net Income $2,032
Denominator: ======
Basic earnings per share:
Weighted average shares outstanding 11,173
Effect of dilutive securities - stock options and warrants 45
------
Denominator for diluted earnings per share 11,218
======
NOTE 6 - DISPUTED RECEIVABLE
In April 1999, immediately following the merger with YSI, a non-profit
entity chose to exercise their right under the change in control clause of
their contract with YSI and elected to discontinue all contracted services.
Upon this determination, the non-profit entity claimed that it has been
billed incorrectly for years prior to 1997. The Company is currently
investigating this claim and based on currently available information has
reserved approximately $700,000 at June 30, 2000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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. These forward-looking statements may be
affected by a number of factors, including the risk factors contained
in the Company's Annual Report on Form 10K for the year ended
December 31, 1999. The Company does not undertake any obligation to update
any forward-looking statements.
GENERAL
Correctional Services Corporation and its wholly owned subsidiaries
(the "Company") is one of the largest and most comprehensive providers of
juvenile rehabilitative services with 35 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 June 30, 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. 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 which include salaries
and benefits of administrative and direct supervision personnel and
costs associated with the care of the residents, which include 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 relating 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 expenses 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.
<PAGE>
RECENT DEVELOPMENTS
On May 15, 2000 the Company received a notice of re-award from the
Federal Bureau of Prisons for the Community Corrections Center services in
the Borough of Manhattan, New York for a two-year 60 bed contract effective
September 1, 2000.
On May 31, 2000 the Company closed its 64 bed La Salle County Juvenile
Justice Center in Cotulla, Texas and relocated the majority of its
residents to the Company's Colorado County Boot Camp in Eagle Lake, Texas.
On May 31, 2000 the Company discontinued operations at the 102 bed
Everglades Academy located in Florida City, Florida.
On June 1, 2000 the Company commenced operations at the 100 bed Summit
View Youth Correctional Center located in Las Vegas, Nevada.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a
percentage of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
SIX MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
<S> <C> <C>
REVENUES 100.0% 100.0%
EXPENSES:
OPERATING 87.7% 88.5%
STARTUP COSTS 0.0% 0.7%
------ ------
87.7% 89.2%
------ ------
CONTRIBUTION FROM OPERATIONS 12.3% 10.8%
------ ------
OTHER OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 5.9% 5.6%
MERGER COSTS AND RELATED RESTRUCTURING CHARGES 0.0% 11.5%
------ ------
5.9% 17.1%
------ ------
OPERATING INCOME (LOSS) 6.4% -6.3%
INTEREST INCOME (EXPENSE), NET -1.5% -1.2%
------ ------
INCOME (LOSS) BEFORE INCOME 4.9% -7.5%
INCOME TAX (PROVISION) BENEFIT -1.9% 1.4%
------ ------
NET INCOME (LOSS) 3.0% -6.1%
</TABLE>
<PAGE>
The following table sets forth certain operating data as a percentage
of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
THREE MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
<S> <C> <C>
REVENUES 100.0% 100.0%
EXPENSES:
OPERATING 88.4% 88.3%
STARTUP COSTS 0.0% 0.0%
---------- ------
88.4% 88.3%
---------- ------
CONTRIBUTION FROM OPERATIONS 11.6% 11.7%
OTHER OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 5.8% 5.0%
---------- ------
OPERATING INCOME 5.8% 6.7%
INTEREST INCOME (EXPENSE), NET -1.6% -1.2%
---------- ------
INCOME BEFORE INCOME TAXES 4.2% 5.5%
INCOME TAX PROVISION -1.6% -2.2%
---------- ------
NET INCOME 2.6% 3.3%
========== ======
</TABLE>
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
<PAGE>
Revenue decreased by $13.7 million or 11.5% for the six months ended
June 30, 2000 to $106.1 million compared to the same period in 1999 due
primarily to:
- A decrease of $20.3 million generated from the discontinuance of
operations at 12 facilities (2,167 beds) offset by an:
- Increase of $3 million generated from a full six months 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 $3.6 million generated from per diem rate and
occupancy level increases in existing facilities and other income
which includes $600,000 representing additional program funding
received related to the Company's New York Department of Corrections
program. Also included is $677,000 representing monthly installment
payments of $123,000 received by the Company related to the sale of
assets in December 1995, at its Elizabeth, New Jersey facility.
Operating expenses decreased $13.1 million or 12.3% for the six months
ended June 30, 2000 to $93.0 million compared to the same period in 1999 due
primarily to the closing of the twelve facilities mentioned above.
As a percentage of revenues, operating expenses decreased to 87.7% for
the six months ended June 30, 2000 from 88.5% for the six months ended June
30, 1999. The decrease was primarily due to the number of facilities that
were in their early stages of operations during 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
with YSI.
Startup costs were $16,000 for the six months ended June 30, 2000
compared to $757,000 for the six months ended June 30 1999. Startup costs
for the six months ended June 30, 1999, related to the startup of the
South Fulton, Georgia facility and 300-bed expansion of the Crowley,
Colorado facility.
<PAGE>
General and administrative expenses decreased from $6.7 million for the
period ended June 30, 1999 to $6.2 million for the six months ended June
30, 2000. The decrease was primarily attributable to:
- The reduction of the administrative staff of YSI.
- The reduction of YSI corporate overhead expenses.
- The synergies realized from the merger resulting in the reduction of
insurance, office and travel expenses.
As a percentage of revenues, general and administrative expenses
increased to 5.9% for the six months ended June 30, 2000 from 5.6% for the
six months ended June 30, 1999. The decrease in general and administrative
expenses as a percentage of revenue is a result of the decrease in revenues
from the closure of the twelve facilities mentioned above.
For the six months ended June 30, 2000 the Company incurred no merger
or related structuring charges, compared to $13.8 million incurred during
the six months ended June 30, 1999. The costs incurred during 1999 were
associated with the YSI merger, which was completed on March 31, 1999.
Interest expense, net of interest income, was $1.7 million for the six
months ended June 30, 2000 compared to interest expense, net of interest
income of $1.5 million for the six months ended June 30, 1999, a net
increase in interest expense of $172,000. This increase resulted from
borrowings on the Company's credit facility to redeem the Debentures
which became due on March 31, 2000.
For the six months ended June 30, 2000 the Company recognized an
income tax expense of $2.0 million representing an effective tax rate of
39.5%. For the six months ended June 30, 1999 the Company recognized a
benefit for income taxes of $1.6 million representing an effective tax rate
of 18.2%. The increase 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 six months ended June 30,
2000 the Company had net income of $3,137,000 or $0.28 per share. For the
six months ended June 30, 1999 the Company had a net loss of ($7,393,000)
or ($0.67) per share.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Revenue decreased by $8.5 million or 14.0% for the three months ended
June 30, 2000 to $52.4 million compared to the same period in 1999 due
primarily due to:
- A decrease of $9.7 million from the discontinuance of operations at
12 facilities (2,167 beds) offset by an;
- Increase of $977,000 from a full quarter of revenues from the 300
bed expansion of the Crowley, Colorado facility and the 45-bed
expansion of the Bayamon, Puerto Rico treatment facility and;
- An increase of $343,000 representing monthly installment payments of
$123,000 received by the Company related to the sale of assets in
December 1995, at its Elizabeth, New Jersey facility.
Operating expenses decreased $7.5 million or 13.9% for the three months
ended June 30, 2000 to $46.3 million compared to the same period in 1999 due
primarily to the closing of the twelve facilities mentioned above.
As a percentage of revenues, operating expenses remained consistent at
88.4% for the three months ended June 30, 2000 compared to 88.3% for the
three months ended June 30, 1999.
Startup costs were $11,000 for the three months ended June 30, 2000
compared to $28,000 for the three months ended June 30, 1999.
General and administrative expenses remained consistent at $3.1 million
for the period ended June 30, 2000 compared to $3.0 million for the three
months ended June 30, 1999.
<PAGE>
As a percentage of revenues, general and administrative expenses
increased to 5.9% for the three months ended June 30, 2000 from 5.0% for
the three months ended June 30, 1999. The increase in general and
administrative expenses as a percentage of revenue resulted from decreased
revenues from the closure of the twelve facilities mentioned above.
Interest expense, net of interest income, was $810,000 for the three
months ended June 30, 2000 compared to interest expense, net of interest
income of $725,000 for the three months ended June 30, 1999, a net increase
in interest expense of $85,000. This increase resulted from borrowings on
the Company's credit facility to redeem the Debentures, which became due
on March 31, 2000.
For the three months ended June 30, 2000 the Company recognized an
income tax provision of $872,000 representing an effective tax rate of
39.5%. For the three months ended June 30, 1999 the Company recognized an
income tax expense of $1,326,000 representing an effective tax rate of 39.5%
As a result of the foregoing factors, for the three months ended June
30, 2000 the Company had net income of $1,337,000 or $0.12 per share. For
the three months ended June 30, 1999 the Company had net income of
$2,032,000 or $0.18 per share.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000 the Company had $310,000 of cash and working capital
of $18.4 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 subordinated debt.
Net cash provided by operating activities was $1.8 million for the six
months ended June 30, 2000 compared to net cash used in operating activities
of $1.7 million for the six months ended June 30, 1999. The change was
attributed primarily to:
- An increase in net income due to the recognition of cash expenses
related to the merger with YSI for the six months ended June 30, 1999.
- A decrease in accounts receivable due to improved receivables
turnover.
- A decrease in accounts payable and accrued liabilities resulting
from the timing of payments.
Net cash of $1.5 million was used in investing activities during the six
months ended June 30, 2000 as compared to $2.2 million used in investing
activities in the six months ended June 30, 1999. In the 2000 period such
cash was used principally for:
- The purchase of property and equipment and expenditures for
leasehold improvements at existing facilities.
- Deposits on land purchases for future development.
- Costs associated with exploring business alternatives and financial
strategies to enhance shareholder value.
In the comparable period for 1999, the principal investing activities
of the Company were:
- Capital expenditures related to the opening of new facilities.
- Leasehold improvements on existing facilities.
- Merger related computer technology and upgrades.
- Land improvement for future development.
Net cash of $7.1 million was used in financing activities for the six
months ended June 30, 2000 as compared to $2.0 million used in financing
activities for the six months ended June 30, 1999. During the 2000 period
the Company's primary uses of funds were:
<PAGE>
- Repayment of subordinated debt of $14.2 million offset by;
- Net proceeds of $6.9 million from the Company's revolver and
delayed drawdown credit facilities.
In the comparable period for 1999, the primary uses of funds were net
repayments of $4.3 million on senior and subordinated debt 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% 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. On April 5, 2000
the Company redeemed $465,000 of the Debentures plus accrued but unpaid
interest. As of June 30, 2000, $10,000 remains outstanding pending receipt
of the 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 June 30, 2000 was $30.3 million
of which $18.3 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 June
30, 2000 approximately $14.4 million is available under the revolving
credit agreement.
At June 30, 2000 the Company had $24.0 million outstanding on its
available credit under the lease credit facility. As a result, the Company
currently has approximately $21.0 million available for additional property
acquisition and construction under this operating lease financing facility.
At June 30, 2000 the Company had construction commitments of approximately
$500,000.
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 are
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 as
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION> 2000 2001 2002 2003 2004 THERE TOTAL FAIR
---- ---- ---- ---- ---- ----- ----- -----
AFTER VALUE
----- -----
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 June 30, 2000 11.48%
======
Variable rate LIBOR debt - - 12,000,000 - - - 12,000,000 12,000,000
========= ======== ========== ========= ======== ======= ========== ==========
Weighted average interest
Rate at June 30, 2000 8.49%
======
</TABLE>
<PAGE>
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 AND USER PROCEEDS
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
second 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
None
<PAGE>
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.
CORRECTIONAL SERVICES CORPORATION
Registrant
By: /S/ Ira M. Cotler
Ira M. Cotler, Executive Vice President
Chief Financial Officer
Dated: August 11, 2000
Exhibit Index
Exhibit Number Exhibit Description Page Number
-------------- ------------------- -----------
27 Financial Data Schedule -
