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Corrections Corporation of America Announces First Quarter Results
NASHVILLE, Tenn., May 2 /PRNewswire-FirstCall/ -- Corrections Corporation of America (NYSE: CXW) today announced its operating results for the three months ended March 31, 2002.
The Company reported a net loss of $46.3 million, or $1.23 per diluted share, for the first quarter of 2002 compared with a net loss of $10.1 million, or $0.43 per diluted share, for the first quarter of 2001. Results for the first quarter of 2002 include the effect of a non-cash charge of $80.3 million, or $2.25 per diluted share, for the cumulative effect of a change in accounting for goodwill in accordance with Statement of Financial Accounting Standards No. 142 ("SFAS 142") and a one-time cash income tax benefit of $32.2 million, or $0.91 per diluted share, resulting from an income tax change that was signed into law in March 2002, both as further discussed below.
Excluding these non-recurring items, net income available to common stockholders would have been $1.7 million, or $0.06 per diluted share. Operating results for the quarter also include the effects of a non-cash gain of $3.4 million associated with the accounting for an interest rate swap in accordance with Statement of Financial Accounting Standards No. 133.
Cash flow from operations continued to improve, with the Company generating adjusted free cash flow of $16.4 million, or $0.53 per diluted share, during the first quarter of 2002, compared with $14.3 million, or $0.47 per diluted share, during the first quarter of 2001, representing a 12.8% increase.
Consolidated revenues for the first quarter of 2002 amounted to $241.2 million, compared with $240.4 million for the first quarter of 2001. Consolidated EBITDA for the first quarter of 2002 was $45.1 million, compared with $47.1 million for the first quarter of 2001. Average compensated occupancy for the first quarter of 2002 was 87.4%, compared with 88.3% for the first quarter of 2001.
Debt Refinancing
As part of a comprehensive refinancing of the Company's existing senior debt, which includes the early extinguishment of the Company's existing secured bank credit facility and the purchase of substantially all of the Company's existing $100 million 12% senior notes, the Company recently announced the pricing of $250 million of seven-year senior notes at 9.875%. In addition, the Company also expects to obtain a new senior secured credit facility in the aggregate amount of $715 million which will consist of a revolving credit facility of up to $75 million with a term of four years, a $75 million term loan A with a maturity of four years and a $565 million term loan B with a maturity of six years. All borrowings under the new senior secured credit facility are expected to initially bear interest at a base rate or LIBOR plus 3.5%. The entire refinancing is expected to close on May 3, 2002. The Company intends to file a Current Report on Form 8-K with the Securities and Exchange Commission including the material terms of the new senior secured credit facility and other information regarding the refinancing promptly after closing.
As a result of the early extinguishment of the existing secured bank credit facility and the purchase of substantially all of the Company's existing $100 million 12% senior notes, the Company will record an extraordinary loss during its second quarter, representing the write-off of existing deferred loan costs, certain bank fees, premiums paid and certain other costs associated with the refinancing.
Commenting on the refinancing, Chief Financial Officer Irving E. Lingo, Jr. stated, "It has consistently been our objective to achieve a refinancing that significantly lengthened our debt maturities while enabling us to continue to pursue our deleveraging strategy. We believe this refinancing achieves each of these objectives while at the same time meaningfully lowers our interest costs."
Impairment of Goodwill
Effective January 1, 2002 the Company adopted SFAS 142, which establishes new accounting and reporting requirements for goodwill and other intangible assets. Under SFAS 142, all goodwill amortization ceased effective January 1, 2002, and goodwill attributable to each of the Company's reporting segments was tested for impairment by comparing the fair value of each reporting segment with its carrying value. Based on the requirements of SFAS 142, the Company recognized an impairment of approximately $80.3 million to write-off the carrying value of goodwill associated with its owned and managed facilities. Amortization expense of goodwill and other intangible assets that will no longer be recorded under SFAS 142 totaled $8.8 million during 2001.
Non-Recurring Cash Income Tax Benefit
On March 9, 2002, the "Job Creation and Worker Assistance Act of 2002" was signed into law. Among other changes, the law extends the net operating loss carryback period to five years from two years for net operating losses arising in tax years ending in 2001 and 2002. Under terms of the new law, the Company utilized net operating losses from 2001 to offset taxable income generated in 1997 and 1996. As a result of this tax law change, the Company recorded an income tax benefit of approximately $32.2 million during the first quarter, which was collected in April.
Operating EBITDA/Liquidity
EBITDA for the quarter amounted to $45.1 million, while debt service cost for the quarter, excluding non-cash items, amounted to approximately $24.8 million. At March 31, 2002, the Company had cash on hand of approximately $52.3 million and had $50.0 million available under its working capital line of credit. The existing $50 million credit facility will be replaced by the new $75 million revolving credit facility under the Company's new senior secured credit facility.
Operations Update
At March 31, 2002, key operating statistics for the Company were as
follows:
Quarter Ended March 31,
Metric 2002 2001
Average Available Beds 61,208 61,462
Average Compensated Occupancy 87.4% 88.3%
Total Compensated Man-Days 4,812,776 4,883,865
Revenue per Compensated Man-Day $49.08 $47.91
Operating Expense per Compensated Man-Day:
Fixed $28.42 $26.98
Variable 9.89 10.08
Total $38.31 $37.06
Operating Margin per Compensated Man-Day $10.77 $10.85
Operating Margin Rate 21.9% 22.6%
Consolidated EBITDA for the first quarter of 2002 was $45.1 million, compared with $47.1 million for the first quarter of 2001. The primary reason for the reduction in EBITDA for the first quarter of 2002 was lower occupancy of 87.4% as compared to 88.3% one year earlier. Occupancy was negatively impacted by the State of Wisconsin's decision in the third quarter of 2001 to relocate inmates from the Company's facilities to state operated facilities. In addition, inmate levels at the Company's Oklahoma facilities also declined from the prior year.
Operating margins declined slightly to $10.77 per compensated man-day in the first quarter of 2002 from $10.85 per compensated man-day in the prior year comparable quarter. The primary reason for the decline was higher salaries and benefit cost per man-day resulting from the aforementioned lower occupancy levels and annual salary increases.
Beginning late in the first quarter of 2002, the Company began receiving new inmates from Wisconsin as well as from a number of additional customers. On April 30, 2002 the Company received confirmation from the Commonwealth of Puerto Rico of its previously announced intent to assume management of the Ponce Adult Correctional Facility and the Ponce Young Adult Correctional Facility located in Ponce, Puerto Rico, which the Company currently manages. The Commonwealth is scheduled to assume management of the facilities beginning May 4, 2002. For the calendar year 2001, the Company generated combined EBITDA from the two facilities of approximately $2.2 million after taxes. Both facilities are owned by the Commonwealth of Puerto Rico, with a combined capacity of 1,500 beds, of which 1,371 beds were utilized at April 30, 2002. Company occupancy was approximately 89.5% as of April 30, 2002.
Commenting on the first quarter results, President and CEO John Ferguson stated, "Despite a drop in occupancy beginning late in the fourth quarter of 2001 and into our first quarter of 2002, the Company's adjusted free cash flow per diluted share increased 12.8% over the first quarter of 2001. The closing of our refinancing will serve as another step in the process of rationalizing our capital structure and will increase our available cash flow as a result of substantially lower interest expense in the future."
Ferguson continued, "From an operational perspective, we were able to hold our operating margin substantially in line with the first quarter of 2001 despite the decline in occupancy. We continue to make control of operating costs a major priority. While disappointed in the recent decision of the Commonwealth of Puerto Rico, we are nevertheless encouraged that since December 31, 2001, the Company has added approximately 1,470 inmates, raising our occupancy level to approximately 89.5%. We continue to pursue a number of viable occupancy initiatives which we believe will serve to increase profitability going forward."
About the Company
The Company is the nation's largest owner and operator of privatized correctional and detention facilities and one of the largest prison operators in the United States, behind only the federal government and four states. The Company currently owns 39 correctional, detention and juvenile facilities, three of which are leased to other operators, and two additional facilities which are not yet in operation. The Company also has a leasehold interest in a juvenile facility. Following the aforementioned termination of the contracts with the Commonwealth of Puerto Rico, the Company will operate 61 facilities, including 36 company owned facilities, with a total design capacity of approximately 60,000 beds in 21 states, the District of Columbia and Puerto Rico. The Company specializes in owning, operating and managing prisons and other correctional facilities and providing inmate residential and prisoner transportation services for governmental agencies. In addition to providing the fundamental residential services relating to inmates, the Company's facilities offer a variety of rehabilitation and educational programs, including basic education, life skills and employment training and substance abuse treatment. These services are intended to reduce recidivism and to prepare inmates for their successful re-entry into society upon their release. The Company also provides health care (including medical, dental and psychiatric services), food services and work and recreational programs.
Forward-Looking Statements
This press release contains statements that are forward-looking statements as defined within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's current plans and actual future activities, and the Company's results of operations may be materially different from those set forth in the forward-looking statements. Investors should refer to documents that the Company files from time to time with the Commission for a description of certain factors that could cause actual results to vary from current expectations and from the forward-looking statements contained in this press release. Such factors include, but are not limited to: (i) the growth in the privatization of the corrections and detention industry and the public acceptance of our services; (ii) the Company's ability to obtain and maintain correctional facility management contracts; (iii) changes in government policy and in legislation and regulation of the corrections and detention industry that adversely affect the Company's business; (iv) the successful refinancing of the Company's existing indebtedness; (v) fluctuations in operating results because of changes in occupancy levels, competition, increases in cost of operations, fluctuations in interest rates and risks of operations; (vi) general economic and market conditions; and (vii) other factors contained in the Company's filings with the Commission, including the Company's reports on Forms 10-K, 10-Q and 8-K.
The Company takes no responsibility for updating the information contained in this press release following the date hereof or for any changes or modifications made to this press release or the information contained herein by any third-parties, including, but not limited to, any wire or internet services.
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS March 31, December 31,
2002 2001
Cash and cash equivalents $52,257 $46,307
Restricted cash 12,630 12,537
Accounts receivable, net of allowance of $715
and $729, respectively 134,155 144,078
Income tax receivable 32,599 568
Prepaid expenses and other current assets 12,174 12,841
Total current assets 243,815 216,331
Property and equipment, net 1,584,409 1,573,152
Investment in direct financing lease 18,747 18,873
Assets held for sale 1,758 22,312
Goodwill 24,432 104,019
Other assets 30,079 36,593
Total assets $1,903,240 $1,971,280
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $136,795 $145,157
Income tax payable 11,369 10,137
Distributions payable 5,132 15,853
Fair value of interest rate swap agreement 9,525 13,564
Current portion of long-term debt 789,838 792,009
Total current liabilities 952,659 976,720
Long-term debt, net of current portion 170,449 171,591
Deferred tax liabilities 55,301 56,511
Other liabilities 19,041 19,297
Total liabilities 1,197,450 1,224,119
Commitments and contingencies
Preferred stock - $0.01 par value;
50,000 shares authorized:
Series A - 4,300 shares issued and
outstanding; stated at liquidation
preference of $25.00 per share 107,500 107,500
Series B - 4,064 and 3,948 shares
issued and outstanding at March 31,
2002 and December 31, 2001, respectively;
stated at liquidation preference of
$24.46 per share 99,400 96,566
Common stock - $0.01 par value; 80,000 shares
authorized; 27,979 and 27,921 shares issued and
27,978 and 27,920 shares outstanding at March 31,
2002 and December 31, 2001, respectively 280 279
Additional paid-in capital 1,342,896 1,341,958
Deferred compensation (2,596) (3,153)
Retained deficit (839,565) (793,236)
Treasury stock, one share, at cost (242) (242)
Accumulated other comprehensive loss (1,883) (2,511)
Total stockholders' equity 705,790 747,161
Total liabilities and stockholders'
equity $1,903,240 $1,971,280
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Three Months Ended
March 31,
2002 2001
REVENUE:
Management and other $240,059 $237,972
Rental 1,127 2,410
241,186 240,382
EXPENSES:
Operating 188,922 184,655
General and administrative 7,191 8,600
Depreciation and amortization 12,458 12,701
208,571 205,956
OPERATING INCOME 32,615 34,426
OTHER (INCOME) EXPENSE:
Equity in (earnings) loss of joint venture (117) 85
Interest expense, net 28,760 34,069
Change in fair value of interest rate
swap agreement (3,411) 5,969
Gain on sale of assets (3) --
Unrealized foreign currency transaction loss 95 385
25,324 40,508
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 7,291 (6,082)
Income tax benefit 31,733 775
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 39,024 (5,307)
Cumulative effect of accounting change (80,276) --
NET LOSS (41,252) (5,307)
Distributions to preferred stockholders (5,077) (4,821)
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $(46,329) $(10,128)
BASIC EARNINGS (LOSS) PER SHARE:
Before cumulative effect of accounting change $1.23 $(0.43)
Cumulative effect of accounting change (2.91) --
Net loss available to common stockholders $(1.68) $(0.43)
DILUTED EARNINGS (LOSS) PER SHARE:
Before cumulative effect of accounting change $1.02 $(0.43)
Cumulative effect of accounting change (2.25) --
Net loss available to common stockholders $(1.23) $(0.43)
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
CALCULATION OF EARNINGS (LOSS) PER SHARE
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Three Months Ended March 31,
2002 2001
NUMERATOR
Basic:
Income before cumulative effect of
accounting change $33,947 $(10,128)
Cumulative effect of accounting change (80,276) --
Net loss available to common stockholders $(46,329) $(10,128)
Diluted:
Income before cumulative effect of
accounting change $33,947 $(10,128)
Interest expense applicable to
convertible notes * 2,485 --
Diluted income (loss) before cumulative
effect of accounting change 36,432 (10,128)
Cumulative effect of accounting change (80,276) --
Diluted net loss available to common
stockholders $(43,844) $(10,128)
DENOMINATOR
Basic:
Weighted average common shares outstanding 27,641 23,603
Diluted:
Weighted average common shares outstanding 27,641 23,603
Effect of dilutive securities: *
Stock options and warrants 656 --
Stockholder litigation 310 --
Convertible notes 6,747 --
Restricted stock-based compensation 248 --
Weighted average shares and assumed conversions 35,602 23,603
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) before cumulative effect
of accounting change $1.23 $(0.43)
Cumulative effect of accounting change (2.91) --
Net loss available to common stockholders $(1.68) $(0.43)
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) before cumulative effect of
accounting change $1.02 $(0.43)
Cumulative effect of accounting change (2.25) --
Net loss available to common stockholders $(1.23) $(0.43)
* Amounts are not included for the 2001 period presented, as the effects
are anti-dilutive.
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
CALCULATION OF ADJUSTED FREE CASH FLOW
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Three Months Ended March 31,
2002 2001
Pre-tax net loss available to common
stockholders $(78,062) $(10,903)
Cumulative effect of accounting change 80,276 --
Income taxes paid (30) (1,412)
Depreciation and amortization 12,458 12,701
Amortization of debt costs and other
non-cash interest 6,186 5,600
Change in fair value of derivative instrument (3,411) 5,969
Series B preferred stock dividend satisfied
with series B preferred stock 2,927 2,671
Capital expenditures (3,902) (311)
Adjusted free cash flow $16,442 $14,315
ADJUSTED FREE CASH FLOW PER SHARE - BASIC $0.59 $0.61
ADJUSTED FREE CASH FLOW PER SHARE - DILUTED $0.53 $0.47
Note (1) EBITDA is computed by adding depreciation and amortization to operating income, as presented in the accompanying Statements of Operations. EBITDA and adjusted free cash flow are presented because we believe they are frequently used by securities analysts, investors and other interested parties as a supplemental measure of company performance. However, other companies may calculate EBITDA and adjusted free cash flow differently than we do. EBITDA and adjusted free cash flow are not measures of performance under generally accepted accounting principles and should not be considered as an alternative to cash flows from operating activities or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measure of performance derived in accordance with generally accepted accounting principles. This data should be read in conjunction with our combined and consolidated financial statements and related notes included in our filings with the Securities and Exchange Commission.