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CORRECTIONS CORPORATION OF AMERICA - FORM 8-K
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 7, 2008

Corrections Corporation of America

(Exact name of registrant as specified in its charter)
         
Maryland   001-16109   62-1763875
 
 
(State or Other Jurisdiction of Incorporation)   (Commission File Number)   (I.R.S. Employer
        Identification No.)

10 Burton Hills Boulevard, Nashville, Tennessee 37215

(Address of principal executive offices) (Zip Code)

(615) 263-3000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

      Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

TABLE OF CONTENTS

Item 2.02. Results of Operations and Financial Condition
Item 9.01. Financial Statements and Exhibits
SIGNATURE
EXHIBIT INDEX
EX-99.1 PRESS RELEASE

Table of Contents

Item 2.02. Results of Operations and Financial Condition

     On August 7, 2008, Corrections Corporation of America, a Maryland corporation (the “Company”), issued a press release announcing its 2008 second quarter financial results. A copy of the release is furnished as a part of this Current Report as Exhibit 99.1 and is incorporated herein in its entirety by this reference. The release contains certain financial information calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles, or GAAP, which the Company believes is useful to investors and other interested parties. The Company has included information concerning this non-GAAP information in the release, including a reconciliation of such information to the most comparable GAAP measures, the reasons why the Company believes such information is useful, and the Company’s use of such information for additional purposes.

     The information furnished pursuant to this Item 2.02 of Form 8-K shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and Section 11 of the Securities Act of 1933, as amended, or otherwise subject to the liabilities of those sections. This Current Report will not be deemed an admission by the Company as to the materiality of any information in this report that is required to be disclosed solely by Item 2.02. The Company does not undertake a duty to update the information in this Current Report and cautions that the information included in this Current Report is current only as of August 7, 2008 and may change thereafter.

Item 9.01. Financial Statements and Exhibits

     (d)  The following exhibit is furnished as part of this Current Report pursuant to Item 2.02:

       Exhibit 99.1 - Press Release dated August 7, 2008

 

Table of Contents

SIGNATURE

     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, hereunto duly authorized.

     
Date: August 7, 2008   CORRECTIONS CORPORATION OF AMERICA
 
    By: /s/ Todd J Mullenger
       Todd J Mullenger
       Executive Vice President and
       Chief Financial Officer

 

Table of Contents

EXHIBIT INDEX

     
Exhibit No.   Description
 
99.1   Press Release dated August 7, 2008

 

EX-99.1 PRESS RELEASE
Exhibit 99.1
     
News Release   (CCA LOGO)
Contact:   Investors and Analysts: Karin Demler, CCA at (615) 263-3005
Financial Media: David Guiterrez, Dresner Corporate Services at (312) 782-7204
 
Corrections Corporation of America Announces
Second Quarter 2008 Financial Results
§ Q2 Earnings Per Diluted Share Up 15.4%
§ Updates Earnings Guidance for 2008; Now Expects Earnings Per Diluted
Share of $1.21 to $1.24 Compared with Previous Range of $1.21 to $1.28
NASHVILLE, Tenn. – August 7, 2008 — Corrections Corporation of America (NYSE: CXW) (the “Company” or “CCA”), the nation’s largest provider of corrections management services to government agencies, today announced its financial results for the three- and six-month periods ended June 30, 2008.
Financial Review
Second Quarter of 2008 Compared with Second Quarter of 2007
  §   Net income increased 15.0% to $37.5 million from $32.6 million
 
  §   Net income per diluted share increased 15.4% to $0.30 from $0.26
 
  §   EBITDA increased 14.0% to $96.7 million from $84.8 million
 
  §   Adjusted Free Cash Flow increased 33.0% to $56.4 million from $42.4 million
 
  §   1,706 expansion beds placed into service during the second quarter of 2008
Financial results for the second quarter of 2008 were positively impacted by an increase in average daily inmate populations facilitated by the placement of 6,750 new beds placed into service since the end of the first quarter 2007, combined with rate increases achieved since the second quarter of 2007. Financial results for the second quarter of 2008 included $2.9 million of start-up expenses incurred at our La Palma Correctional Center, compared with $1.9 million of start-up expenses incurred at our Saguaro Correctional Facility during the second quarter of 2007.
Management revenue from federal customers increased 4.5% to $156.7 million during the second quarter of 2008 from $150.0 million during the second quarter of 2007. The increase in federal revenue from the second quarter of 2007 resulted primarily from rate increases achieved since the second quarter of 2007 on certain federal management contracts.
Management revenue from state customers increased 18.4% to $203.3 million during the second quarter of 2008 from $171.7 million for the same period in 2007. The increase in state revenue from the prior year quarter resulted from a 9.9% increase in average daily inmate populations to 49,411 during the second quarter of 2008 from 44,963 during the prior year period, combined
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10 Burton Hills Boulevard, Nashville, Tennessee 37215, Phone: 615-263-3000

 

 

CCA Second Quarter 2008 Financial Results
Page 2
with per diem increases achieved since the second quarter of 2007. Higher inmate populations came primarily from the state of California as well as from the state of Arizona as result of a new management contract received in May of 2007. State revenue also increased from the state of Florida as a result of the expansions completed during the third quarter of 2007 at Gadsden Correctional Institution and Bay Correctional Facility.
Our total average daily compensated population increased 5.8% to 76,936 during the second quarter of 2008 from 72,715 during the second quarter of 2007. However, total portfolio occupancy decreased to 97.0% during the second quarter of 2008 from 99.0% during the second quarter of 2007 as a result of a 7.9% increase in the average number of beds available from the second quarter of 2007 due to placing over 4,800 new expansion beds into service since the end of the second quarter of 2007.
Adjusted Free Cash Flow increased 33.0% to $56.4 million during the second quarter of 2008 from $42.4 million generated during the same period in 2007. The increase in Adjusted Free Cash Flow was primarily attributable to an improvement in operating performance driven by new management contracts and a decrease in maintenance and technology capital expenditures.
Commenting on the financial results, Chairman and Chief Executive Officer John Ferguson stated, “We are very pleased with our second quarter financial results. Total revenue increased approximately 10% and earnings per share increased 15.4% as we benefited from the additional inmates we received from the state of California, which is now our fourth largest state customer.”
Ferguson continued, “We continue to effectively execute our development program as we have now placed over 7,200 beds into service during 2007 and through the first half of 2008. We also remain optimistic about our ongoing development efforts as we prepare to develop nearly 10,000 additional beds through the remainder of 2008 and throughout 2009.”
First Six Months of 2008 Compared with First Six Months of 2007
  §   Net income increased to $72.5 million from $65.2 million
 
  §   Net income per diluted share increased to $0.57 from $0.52
 
  §   EBITDA increased to $188.5 million from $169.3 million
 
  §   Adjusted Free Cash Flow increased to $129.1 million from $103.9 million
 
  §   2,555 expansion beds placed into service during the first half of 2008
The improvement in our financial results for the six months ended June 30, 2008 resulted essentially from an increase in the total number of compensated man-days as we continue to fill beds that have been added to our total portfolio, combined with new management contracts and an increase in per diems from several federal and state customers since the prior year six-month period.
EBITDA and Adjusted Free Cash Flow are non-GAAP financial measures. Please refer to the Supplemental Financial Information and related note following the financial statements herein for further discussion and reconciliations of these measures to GAAP financial measures.
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CCA Second Quarter 2008 Financial Results
Page 3
Operations Highlights
For the quarters ended June 30, 2008 and 2007, key operating statistics for the continuing operations of the Company were as follows:

                         
    Quarter Ended June 30,        
Metric   2008     2007     % Change  
Average Available Beds
     79,275       73,450       7.9 %
Average Compensated Occupancy
     97.0 %     99.0 %     -2.0 %
Total Compensated Man-Days
     7,001,172       6,617,046       5.8 %
Average Daily Compensated Population
     76,936       72,715       5.8 %
 
                        
Revenue per Compensated Man-Day
   $ 56.69     $ 54.08       4.8 %
 
                        
Operating Expense per Compensated Man-Day:
                        
Fixed
     29.23       28.10       4.0 %
Variable
     10.23       10.25       -0.2 %
 
                    
Total
     39.46       38.35       2.9 %
 
                    
Operating Margin per Compensated Man-Day
   $ 17.23     $ 15.73       9.5 %
 
                    
 
                        
Operating Margin
     30.4 %     29.1 %     4.5 %
Total revenue for the second quarter of 2008 increased 10.2% to $399.6 million from $362.8 million during the same period in 2007, as total compensated man-days increased to 7.0 million from 6.6 million, and as revenue per compensated man-day increased to $56.69 from $54.08. The increase in revenue from the prior year period was predominately due to higher inmate populations from the states of California and Arizona. As of June 30, 2008, we housed approximately 4,300 inmates from the state of California at five of our facilities.
Total operating expenses per compensated man-day increased 2.9% to $39.46 during the second quarter of 2008 compared with $38.35 during the same period in 2007. The 4.0% increase in fixed expenses per compensated man-day was primarily due to inflationary increases, and reflected operating inefficiencies at certain facilities where expansions have occurred but inmate populations have not yet reached stabilized occupancy levels.
Business Development Update
On May 19, 2008, we announced we had been awarded a contract by the Office of the Federal Detention Trustee (OFDT) to design, build and operate a new correctional facility located in Pahrump, Nevada, approximately 65 miles outside of Las Vegas, Nevada. Our new 1,072-bed Nevada Southern Detention Center is expected to house approximately 1,000 federal inmates and detainees from the United States Marshals Service as well as potential populations from U.S. Immigration and Customs Enforcement and the Federal Bureau of Prisons. The contract provides for a guarantee of up to 750 inmates or detainees and includes an initial term of five years with three five-year renewal options. Construction of our Nevada Southern Detention Center is expected to be completed during the fourth quarter of 2009, at an estimated cost of $83.5 million.
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CCA Second Quarter 2008 Financial Results
Page 4
In May 2008, we notified the Bay County Commission of our intention to exercise our option to terminate the operational management contract for the 1,150-bed Bay County Jail and Annex in Panama City, Florida, effective October 9, 2008. The termination of the management contract is not expected to have a material effect on our results of operations.
In July 2008, construction of the first phase of our new 3,060-bed La Palma Correctional Center in Eloy, Arizona was completed and the first inmates from the state of California were received. The La Palma facility has a nine-phase build-out program, with the first 360 beds coming online at the beginning of July. Approximately every 30 days following, another 360 beds are projected to be completed, with overall project completion expected in the first quarter of 2009.
Facility Development Update
Facilities Currently Under Development or Expansion
Based upon our expectation of increased demand for bed capacity on behalf of a number of state and federal agencies, we expect to complete the following expansion and development projects:
                                         
            Total Bed                      
            Capacity             Estimated        
Facilities Under Expansion or   Additional     Following     Estimated     Total Cost     Potential  
Development   Beds     Expansion     Completion     (in millions)     Customer(s)  
Tallahatchie County Correctional Facility, Mississippi
     128       2,672       Q3 2008     $ 8.0     California (1)
Cimarron Correctional Facility, Oklahoma
     660       1,692       Q3 2008       40.0     Various States
Davis Correctional Facility, Oklahoma
     660       1,670       Q3 2008       40.0     Various States
Adams County Correctional Center, Mississippi
     2,232       2,232       Q4 2008       135.0     Federal or Various States
La Palma Correctional Center, Arizona
     3,060       3,060       Q3 2008 -Q1 2009       205.0     California (1)
Trousdale Correctional Center, Tennessee
     2,040       2,040       Q4 2009       143.0     Various States and Federal
Nevada Southern Detention Center, Nevada
     1,072       1,072       Q4 2009       83.5     OFDT(1)
 
                                    
 
                                        
Total
     9,852                     $ 654.5          
 
                                    
 
(1)   The management contract in place with the stated customer at this facility provides for a limited guaranteed inmate population.
In addition to the above listed projects, we continue to pursue additional development and expansion opportunities in order to satisfy increasing demand from existing and potential customers. We believe we have the ability to fund our current development activity with cash on hand, availability under our $450.0 million revolving credit facility, and cash generated from operations.
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CCA Second Quarter 2008 Financial Results
Page 5
Expansions or Developments Completed During 2007 and During the First Half of 2008
                         
    Additional        
Expansions or New Facilities Completed   Beds   Completed   Customer(s)
2007
                        
Citrus County Detention Facility, Florida
     360       Q1 2007     Citrus County
 
                        
Crossroads Correctional Center, Montana
     96       Q1 2007     State of Montana and USMS
 
                        
Saguaro Correctional Facility, Arizona
     1,896       Q2 2007     State of Hawaii
Gadsden Correctional Institution, Florida
     384       Q3 2007     State of Florida
Bay Correctional Facility, Florida
     235       Q3 2007     State of Florida
Tallahatchie County Correctional Facility, Mississippi
     720       Q4 2007     State of California
North Fork Correctional Facility, Oklahoma
     960       Q4 2007     State of California
 
                        
Total 2007 Additional Beds Completed
     4,651                  
 
                        
 
                        
2008
                        
Eden Detention Center, Texas
     129       Q1 2008     BOP
Kit Carson Correctional Center, Colorado
     720       Q1 2008     State of Colorado
Bent County Correctional Facility, Colorado
     720       Q2 2008     State of Colorado
Leavenworth Detention Center, Kansas
     266       Q2 2008     USMS
Tallahatchie County Correctional Facility, Mississippi
     720       Q2 2008     State of California
 
                        
Total 2008 Additional Beds Completed
     2,555                  
 
                        
 
                        
Total
     7,206                  
 
                        
Guidance
We expect diluted earnings per share (“EPS”) for the third quarter of 2008 to be in the range of $0.29 to $0.31, and fourth quarter of 2008 to be in the range of $0.33 to $0.35, resulting in full year 2008 EPS to be in the range of $1.21 to $1.24.
Commenting on the outlook, Chairman and CEO John Ferguson said, “While we are excited about the growth prospects offered by our contract with the California Department of Corrections and Rehabilitation (“CDCR”), we have experienced delays in the intake of inmates under our contract, compared to our previous expectations. These delays have been necessary to ensure that we are in compliance with certain medical requirements as set forth by a federal medical receiver appointed to oversee the healthcare delivery within the California correctional system. Unfortunately, we have lowered our occupancy and revenue forecast for the remainder of 2008 primarily as a result of these delays. However, our relationship with the CDCR remains strong and the CDCR continues to express its intention to fully utilize all of the 8,132 beds available to it under our contract.”
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CCA Second Quarter 2008 Financial Results
Page 6
During 2008, we expect to invest approximately $524.6 million in capital expenditures, consisting of approximately $479.8 million in prison construction and expansions that have been previously announced, $31.7 million in maintenance capital expenditures and $13.1 million in information technology. We also currently expect to pay approximately $50.0 million to $55.0 million in federal and state income taxes during 2008.
Supplemental Financial Information and Investor Presentations
We have made available on our website supplemental financial information and other data for the second quarter of 2008. We do not undertake any obligation, and disclaim any duty, to update any of the information disclosed in this report. Interested parties may access this information through our website at www.correctionscorp.com under “Financial Information” of the Investor section.
Management may meet with investors from time to time during the third quarter of 2008. Written materials used in the investor presentations will also be available on our website beginning on or about August 20, 2008. Interested parties may access this information through our website at www.correctionscorp.com under “Webcasts” of the Investor section.
Webcast and Replay Information
We will host a webcast conference call at 10:00 a.m. central time (11:00 a.m. eastern time) today, to discuss our second quarter 2008 financial results. To listen to this discussion, please access “Webcasts” on the Investor page at www.correctionscorp.com. The conference call will be archived on our website following the completion of the call. In addition, a telephonic replay will be available today at 2:00 p.m. eastern time through 11:59 p.m. eastern time on August 14, 2008, by dialing 888-203-1112, pass code 4072919.
About CCA
CCA 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 three states. We currently operate 66 facilities, including 42 company-owned facilities, with a total design capacity of approximately 81,000 beds in 19 states and the District of Columbia. We specialize 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, our facilities offer a variety of rehabilitation and educational programs, including basic education, religious services, 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. We also provide health care (including medical, dental and psychiatric services), food services and work and recreational programs.
Forward-Looking Statements
This press release contains statements as to our beliefs and expectations of the outcome of future events that are forward-looking statements as defined within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These
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CCA Second Quarter 2008 Financial Results
Page 7
include, but are not limited to, the risks and uncertainties associated with: (i) fluctuations in our operating results because of, among other things, changes in occupancy levels, competition, increases in cost of operations, fluctuations in interest rates and risks of operations; (ii) changes in the privatization of the corrections and detention industry, the public acceptance of our services, the timing of the opening of and demand for new prison facilities and the commencement of new management contracts; (iii) our ability to obtain and maintain correctional facility management contracts, including as the result of sufficient governmental appropriations, inmate disturbances, and the timing of the opening of new facilities and the commencement of new management contracts as well as our ability to utilize current available beds and new capacity as development and expansion projects are completed; (iv) increases in costs to construct or expand correctional facilities that exceed original estimates, or the inability to complete such projects on schedule as a result of various factors, many of which are beyond our control, such as weather, labor conditions and material shortages, resulting in increased construction costs; (v) changes in governmental policy and in legislation and regulation of the corrections and detention industry including, but not limited to, judicial challenges regarding the transfer of California inmates to out-of-state private correctional facilities; (vi) the availability of debt and equity financing on terms that are favorable to us; and (vii) general economic and market conditions. Other factors that could cause operating and financial results to differ are described in the filings made from time to time by us with the Securities and Exchange Commission.
CCA takes no responsibility for updating the information contained in this press release following the date hereof to reflect events or circumstances occurring after the date hereof or the occurrence of unanticipated events or for any changes or modifications made to this press release.
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CCA Second Quarter 2008 Financial Results
Page 8
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                 
    June 30,     December 31,  
    2008     2007  
ASSETS
                
 
                
Cash and cash equivalents
   $ 14,287     $ 57,968  
Accounts receivable, net of allowance of $3,750 and $3,914, respectively
     246,618       241,722  
Deferred tax assets
     12,843       12,250  
Prepaid expenses and other current assets
     24,423       21,142  
Assets held for sale
     —       7,581  
 
            
Total current assets
     298,171       340,663  
 
                
Property and equipment, net
     2,370,892       2,086,980  
 
                
Restricted cash
     6,628       6,511  
Investment in direct financing lease
     13,975       14,503  
Goodwill
     13,672       13,672  
Other assets
     22,850       23,411  
 
            
 
                
Total assets
   $ 2,726,188     $ 2,485,740  
 
            
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
 
                
Accounts payable and accrued expenses
   $ 244,370     $ 213,240  
Income taxes payable
     6,632       964  
Current portion of long-term debt
     290       290  
Current liabilities of discontinued operations
     147       237  
 
            
Total current liabilities
     251,439       214,731  
 
                
Long-term debt, net of current portion
     1,085,532       975,677  
Deferred tax liabilities
     41,703       34,271  
Other liabilities
     39,018       39,086  
 
            
 
                
Total liabilities
     1,417,692       1,263,765  
 
            
 
                
Commitments and contingencies
                
 
                
Common stock - $0.01 par value; 300,000 shares authorized; 125,302 and 124,472 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively
     1,253       1,245  
Additional paid-in capital
     1,582,724       1,568,736  
Retained deficit
     (275,481 )     (348,006 )
 
            
 
                
Total stockholders’ equity
     1,308,496       1,221,975  
 
            
 
                
Total liabilities and stockholders’ equity
   $ 2,726,188     $ 2,485,740  
 
            
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CCA Second Quarter 2008 Financial Results
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2008     2007     2008     2007  
REVENUE:
                                
Management and other
   $ 398,407     $ 361,659     $ 785,974     $ 711,497  
Rental
     1,209       1,111       2,396       2,188  
 
                        
 
     399,616       362,770       788,370       713,685  
 
                        
 
                                
EXPENSES:
                                
Operating
     283,201       259,239       560,499       508,369  
General and administrative
     19,803       18,817       39,356       36,135  
Depreciation and amortization
     22,176       18,928       43,588       37,198  
 
                        
 
     325,180       296,984       643,443       581,702  
 
                        
 
                                
OPERATING INCOME
     74,436       65,786       144,927       131,983  
 
                        
 
                                
OTHER EXPENSES (INCOME):
                                
Interest expense, net
     13,934       13,655       27,584       27,589  
Other (income) expenses
     (91 )     (70 )     2       (81 )
 
                        
 
     13,843       13,585       27,586       27,508  
 
                        
 
                                
INCOME BEFORE INCOME TAXES
     60,593       52,201       117,341       104,475  
 
                                
Income tax expense
     (23,066 )     (19,599 )     (44,816 )     (39,303 )
 
                        
 
                                
NET INCOME
   $ 37,527     $ 32,602     $ 72,525     $ 65,172  
 
                        
 
                                
EARNINGS PER SHARE:
                                
Basic
   $ 0.30     $ 0.27     $ 0.58     $ 0.53  
 
                        
Diluted
   $ 0.30     $ 0.26     $ 0.57     $ 0.52  
 
                        
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CCA Second Quarter 2008 Financial Results
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CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED AND AMOUNTS IN THOUSANDS)
CALCULATION OF ADJUSTED FREE CASH FLOW
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2008     2007     2008     2007  
Income before income taxes
   $ 60,593     $ 52,201     $ 117,341     $ 104,475  
Income taxes paid
     (22,396 )     (20,878 )     (22,772 )     (21,676 )
Depreciation and amortization
     22,176       18,928       43,588       37,198  
Stock-based compensation reflected in G&A expenses
     2,118       1,809       4,138       3,039  
Amortization of debt costs and other non-cash interest
     967       988       1,960       2,003  
Maintenance and technology capital expenditures
     (7,054 )     (10,649 )     (15,192 )     (21,105 )
 
                        
 
                                
Adjusted Free Cash Flow
   $ 56,404     $ 42,399     $ 129,063     $ 103,934  
 
                        
CALCULATION OF EBITDA
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
    2008     2007     2008     2007  
Net income
   $ 37,527     $ 32,602     $ 72,525     $ 65,172  
Interest expense, net
     13,934       13,655       27,584       27,589  
Depreciation and amortization
     22,176       18,928       43,588       37,198  
Income tax expense
     23,066       19,599       44,816       39,303  
 
                        
 
                                
EBITDA
   $ 96,703     $ 84,784     $ 188,513     $ 169,262  
 
                        
NOTE TO SUPPLEMENTAL FINANCIAL INFORMATION
EBITDA and Adjusted Free Cash Flow are non-GAAP financial measures. The Company believes that these measures are important operating measures that supplement discussion and analysis of the Company’s results of operations and are used to review and assess operating performance of the Company and its correctional facilities and their management teams. The Company believes that it is useful to provide investors, lenders and security analysts disclosures of its results of operations on the same basis as that used by management.
Management and investors review both the Company’s overall performance (including GAAP EPS, net income, and Adjusted Free Cash Flow) and the operating performance of the Company’s correctional facilities (EBITDA). EBITDA is a useful supplemental measure of the performance of the Company’s correctional facilities because it does not take into account depreciation and amortization, tax provisions, or with respect to EBITDA, the impact of the Company’s financing strategies. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), this accounting presentation assumes that the value of real estate assets diminishes at a level rate over time. Because of the unique structure, design and use of the Company’s correctional facilities, management believes that assessing performance of the Company’s correctional facilities without the impact of depreciation or amortization is useful. The calculation of Adjusted Free Cash Flow substitutes capital expenditures incurred to maintain the functionality and condition of the Company’s correctional facilities in lieu of a provision for depreciation; Adjusted Free Cash Flow also excludes certain other non-cash expenses that do not affect the Company’s ability to service debt.
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CCA Second Quarter 2008 Financial Results
Page 11
The Company may make adjustments to GAAP net income, EBITDA and Adjusted Free Cash Flow from time to time for certain other income and expenses that it considers non-recurring, infrequent or unusual, even though such items may require cash settlement, because such items do not reflect a necessary component of the ongoing operations of the Company. Other companies may calculate EBITDA and Adjusted Free Cash Flow differently than the Company does, or adjust for other items, and therefore comparability may be limited. EBITDA and Adjusted Free Cash Flow are not measures of performance under GAAP, and should not be considered as an alternative to cash flows from operating activities, a measure of liquidity or an alternative to net income as indicators of the Company’s operating performance or any other measure of performance derived in accordance with GAAP. This data should be read in conjunction with the Company’s consolidated financial statements and related notes included in its filings with the Securities and Exchange Commission.
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