Quarter Ended
September 30,
Metric 2006 2005 % Change
------------------------------------------ --------- --------- ---------
Average Available Beds 72,639 69,236 4.9%
Average Compensated Occupancy 94.5% 92.7% 1.9%
Total Compensated Man-Days 6,316,621 5,902,426 7.0%
Revenue per Compensated Man-Day $ 52.81 $ 50.82 3.9%
Operating Expense per Compensated Man-Day:
Fixed 28.63 28.17 1.6%
Variable 9.90 9.27 6.8%
--------- ---------
Total 38.53 37.44 2.9%
--------- ---------
Operating Margin per Compensated Man-Day $ 14.28 $ 13.38 6.7%
========= =========
Operating Margin 27.0% 26.3% 2.7%
Operating margins increased to 27.0% during the third quarter of 2006 from
26.3% during the third quarter of 2005. The increase in operating margins
from the prior year period was substantially the result of the
aforementioned commencement of management contracts at the T. Don Hutto and
Northeast Ohio facilities as well as higher inmate populations across the
portfolio. These margin improvements were net of approximately $1.0
million of start-up expenses at the Company's Stewart Detention Center,
which began receiving ICE detainees in October 2006, as well as the margin
deterioration associated with the aforementioned relocation of a
substantial number of Alaskan inmates from the Florence Correctional Center
to the Red Rock Correctional Center, which opened in July 2006. The
Company expects margins to improve at these facilities as they become more
fully utilized.
Total revenue for the third quarter of 2006 increased 11.5% to $339.3
million from $304.4 million during the same period in 2005, as total
compensated man-days increased to 6.3 million from 5.9 million, and as
revenue per compensated man-day increased to $52.81 from $50.82, an
increase of 3.9%. Average compensated occupancy for the three months ended
September 30, 2006 increased to 94.5% from 92.7% for the three months ended
September 30, 2005.
Fixed expenses per compensated man-day increased to $28.63 compared with
$28.17 per compensated man-day during the same period in 2005, an increase
of $0.46 per compensated man-day, largely caused by an increase in salaries
and benefits, as well as by an increase in staffing expenses incurred at
the Stewart Detention Center in preparation for the receipt of ICE
detainees. Fixed expenses also increased as a result of modest increases
in workers compensation, employee medical insurance and utilities.
Variable expenses increased to $9.90 per compensated man-day during the
third quarter of 2006 from $9.27 per compensated man-day during the third
quarter of 2005, an increase of $0.63 per compensated man-day. The
increase in variable expenses per compensated man-day was primarily
attributable to an increase in expenses related to legal proceedings in
which the Company is involved. Legal expense in the prior year quarter was
favorably affected by the successful resolution of a number of legal
matters.
Business Development Update
In July 2006 the Company was notified by the state of Colorado that the
State had accepted the Company's proposal to expand its 700-bed Bent County
Correctional Facility in Las Animas, Colorado by 720 beds to fulfill part
of a 2,250-bed request for proposal issued by the state of Colorado in
December 2005. As a result of the award, the Company has now entered into
an Implementation Agreement with the state of Colorado for the expansion of
the Company's Bent County Correctional Facility by 720 beds. In addition,
during November 2006 the Company entered into another Implementation
Agreement to also expand its 768-bed Kit Carson Correctional Center in
Burlington, Colorado by 720 beds.
The Company expects to commence construction on the expansion of the Bent
and Kit Carson facilities during the first half of 2007. Construction of
the Bent and Kit Carson facilities is estimated to cost approximately $44.0
million for each facility. Both expansions are anticipated to be completed
during the second quarter of 2008.
On October 20, 2006, the Company announced that as a result of an emergency
proclamation declared by the Governor of California, it entered into a new
agreement with the State of California Department of Corrections and
Rehabilitation ("CDCR") to house California male inmates at the following
company-owned facilities:
Florence Correctional Center, Eloy, Arizona Diamondback Correctional Facility, Watonga, Oklahoma North Fork Correctional Facility, Sayre, Oklahoma West Tennessee Detention Facility, Mason, Tennessee Tallahatchie County Correctional Facility, Tutwiler, MississippiThe terms of the agreement include an initial three-year term and may be extended for successive two-year terms by mutual agreement. In addition, the contract provides for a 90% guarantee of the capacity allocated to CDCR offenders. The 90% guarantee applies to beds allocated to the CDCR at each facility on the earlier of achieving 90% of the capacity designated for CDCR offenders at each facility or 120 days after the first inmate arrives at the facility. Based on the current ramp-up schedule the Company expects the CDCR to utilize approximately 1,000 beds by the end of first quarter 2007. Several employee unions and advocacy groups in California filed lawsuits against California officials seeking to halt the out-of-state inmate transfers. Although California courts so far have not blocked the transfers, and the Company began receiving CDCR inmates on November 3, 2006, we cannot predict the ultimate outcome of these lawsuits. During September 2006, the Company received notification from the Liberty County Commission in Liberty County, Texas that, as a result of a contract bidding process, the County elected to transfer management of the 380-bed Liberty County Jail/Juvenile Center to another operator. The Company's current contract expires in January 2007. The termination is not expected to have a material impact on the Company's financial statements. Facility Inventory and Development Update Current Inventory At October 31, 2006, the Company had available in inventory approximately 4,100 beds. Most of these beds are contractually committed to existing customers; however none of these contracts provide for guarantees of occupancy. The Company expects that a significant portion of these beds will be occupied over the next twelve months. Facilities Currently Under Development or Expansion Based upon the Company's expectation of increased demand for bed capacity on behalf of a number of state and federal agencies, the Company expects to complete the following expansion and development projects over the course of the next 18 months:
Total Bed
Facilities Capacity Estimated
Under Expansion Following Estimated Cost Potential
Expansion Beds Expansion Completion (in millions) Customer(s)
---------- --------- --------- ---------- ------------- -----------
Gadsden
Correctional
Institution, State of
Florida 384 1,520 Q3 2007 (1) Florida
Bay
Correctional
Facility, State of
Florida 235 985 Q3 2007 (1) Florida
Citrus County
Detention
Facility, Citrus
Florida 360 760 Q1 2007 $ 18.5 County(2)
Crossroads
Correctional State of
Center, Montana
Montana 96 664 Q1 2007 5.5 and USMS(2)
North Fork
Correctional
Facility, Various
Oklahoma 960 2,400 Q4 2007 55.0 States
Tallahatchie
County Federal
Correctional and/or
Facility, Various
Mississippi 360 1,464 Q4 2007 20.5 States
Bent County
Correctional
Facility,
Colorado 720 1,420 Q2 2008 44.0 Colorado(2)
Kit Carson
Correctional
Center,
Colorado 720 1,488 Q2 2008 44.0 Colorado(2)
--------- -------------
Total 3,835 $ 187.5
========= =============
(1) The expansion costs of the Gadsden Correctional Institution and the
Bay Correctional Facility will be funded by the state of Florida.
(2) The Company currently has contracts in place with the stated customers
to occupy these facilities; however the contracts do not provide a
guarantee of occupancy.
Facilities Estimated
Under Beds Under Total Bed Estimated Cost Potential
Development Development Capacity Completion (in millions) Customer(s)
----------- ----------- --------- ---------- ------------- -----------
Saguaro
Correctional
Facility, State of
Arizona 1,896 1,896 Mid-2007 $ 100.0 Hawaii
In addition to the above listed projects, the Company is actively pursuing
a number of additional sites for new prison development. The Company
believes it is feasible to begin development of an additional 4,000 to
6,000 new prison beds during the course of 2007.
Commenting on the Company's financial results, President and CEO John
Ferguson stated, "We are very pleased with our third quarter financial
results as our earnings benefited from higher inmate populations at a
number of facilities. During the quarter, we began the process of ramping
up our Stewart Detention Center in anticipation of receiving detainees
under our agreement with ICE, and also began the process of relocating
inmates to our recently completed Red Rock facility. Despite the negative
financial impact of these activities, margins during the quarter
nonetheless improved."
Ferguson continued, "Subsequent to quarter-end we entered into several new
agreements. Our agreement to house up to 1,000 California inmates at
several facilities represents a significant milestone. California operates
the largest state prison system in the nation, and represents the 20th
state served by CCA. In addition, we are expanding our services to the
state of Colorado. During the second quarter we opened our Stewart
facility and began receiving ICE detainees in early October. All of these
contracts should contribute to our earnings growth in 2007. Further, as a
result of increasing demand from both our state and federal customers, and
the impending utilization of most of our available beds, we continue to
focus on identifying new sites to bring on additional capacity. This new
capacity should position the Company for sustained earnings growth in
future years."
Guidance
The Company expects diluted earnings per share ("EPS") for the fourth
quarter of 2006 to be in the range of $0.42 to $0.45, resulting in full
year EPS to be in the range of $1.62 to $1.65, excluding $0.01 per diluted
share, net of taxes, for expenses associated with debt refinancing
transactions completed in the first quarter of 2006. The full year
guidance includes expenses totaling $0.05 per diluted share, net of taxes,
for stock-based compensation, compared with $0.02 per diluted share, net of
taxes, during 2005.
During 2006, the Company expects to invest approximately $163.8 million in
capital expenditures, consisting of approximately $120.1 million in prison
construction and expansions, $28.6 million in maintenance capital
expenditures and $15.1 million in information technology.
Supplemental Financial Information and Investor Presentations
The Company has made available on its website supplemental financial
information and other data for the third quarter of 2006. The Company does
not undertake any obligation, and disclaims any duty, to update any of the
information disclosed in this report. Interested parties may access this
information through the Company's website at www.correctionscorp.com under
"Financial Information" of the Investor section.
The Company's management may meet with investors from time to time during
the fourth quarter of 2006. Written materials used in the investor
presentations will also be available on the Company's website beginning on
or about November 14, 2006. Interested parties may access this information
through the Company's website at www.correctionscorp.com under "Webcasts"
of the Investor section.
Webcast and Replay Information
The Company will host a webcast conference call at 2:00 p.m. Central Time
(3:00 p.m. Eastern Time) today to discuss its 2006 third quarter and nine
month 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 the Company's website following the completion of
the call. In addition, a telephonic replay will begin today at 5:00 p.m.
Central Time through 11:59 p.m. Central Time on November 13, 2006, by
dialing 877-519-4471, pass code 7985423.
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
three states. The Company currently operates 65 facilities, including 40
company-owned facilities, with a total design capacity of approximately
72,500 beds in 19 states and the District of Columbia. 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, 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. 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 as to the Company's 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 include, but are not
limited to, the risks and uncertainties associated with: (i) fluctuations
in the Company's 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 the Company's services, the timing of the opening of and
demand for new prison facilities and the commencement of new management
contracts; (iii) the Company's ability to obtain and maintain correctional
facility management contracts, including as a result of sufficient
governmental appropriations and as a result of inmate disturbances; (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 the
Company's control, such as weather, labor conditions and material
shortages, resulting in increased construction costs; and (v) 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 the Company with the Securities and Exchange Commission.
The Company 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.
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 30, December 31,
ASSETS 2006 2005
----------- -----------
Cash and cash equivalents $ 58,066 $ 64,901
Restricted cash 11,676 11,284
Investments 71,728 19,014
Accounts receivable, net of allowance of $2,053
and $2,258, respectively 211,185 176,560
Deferred tax assets 18,198 32,488
Prepaid expenses and other current assets 19,965 15,884
----------- -----------
Total current assets 390,818 320,131
Property and equipment, net 1,772,634 1,710,794
Investment in direct financing lease 15,691 16,322
Goodwill 15,246 15,246
Other assets 24,755 23,820
----------- -----------
Total assets $ 2,219,144 $ 2,086,313
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 165,733 $ 141,090
Income taxes payable 2,660 1,435
Current portion of long-term debt 296 11,836
Current liabilities of discontinued operations 506 1,774
----------- -----------
Total current liabilities 169,195 156,135
Long-term debt, net of current portion 976,040 963,800
Deferred tax liabilities 27,203 12,087
Other liabilities 38,357 37,660
----------- -----------
Total liabilities 1,210,795 1,169,682
----------- -----------
Commitments and contingencies
Common stock - $0.01 par value; 80,000 shares
authorized; 60,670 and 59,541 shares issued
and outstanding at September 30, 2006 and
December 31, 2005, respectively 607 595
Additional paid-in capital 1,519,042 1,505,986
Deferred compensation - (5,563)
Retained deficit (511,300) (584,387)
----------- -----------
Total stockholders' equity 1,008,349 916,631
----------- -----------
Total liabilities and stockholders' equity $ 2,219,144 $ 2,086,313
=========== ===========
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 Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2006 2005 2006 2005
--------- --------- --------- ---------
REVENUE:
Management and other $ 338,206 $ 303,368 $ 978,355 $ 872,488
Rental 1,061 999 3,146 2,955
--------- --------- --------- ---------
339,267 304,367 981,501 875,443
--------- --------- --------- ---------
EXPENSES:
Operating 249,121 226,006 723,969 664,353
General and administrative 16,379 14,352 46,717 40,477
Depreciation and amortization 17,538 15,315 49,567 44,132
--------- --------- --------- ---------
283,038 255,673 820,253 748,962
--------- --------- --------- ---------
OPERATING INCOME 56,229 48,694 161,248 126,481
--------- --------- --------- ---------
OTHER EXPENSES:
Interest expense, net 14,825 15,273 44,503 48,245
Expenses associated with debt
refinancing and
recapitalization transactions - - 982 35,269
Other (income) expenses (299) 191 (413) 240
--------- --------- --------- ---------
14,526 15,464 45,072 83,754
--------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES 41,703 33,230 116,176 42,727
Income tax expense (15,573) (12,437) (43,089) (15,817)
--------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS 26,130 20,793 73,087 26,910
Loss from discontinued
operations, net of taxes - - - (193)
--------- --------- --------- ---------
NET INCOME $ 26,130 $ 20,793 $ 73,087 $ 26,717
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Income from continuing
operations $ 0.44 $ 0.35 $ 1.22 $ 0.47
Loss from discontinued
operations, net of taxes - - - -
--------- --------- --------- ---------
Net income $ 0.44 $ 0.35 $ 1.22 $ 0.47
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER
SHARE:
Income from continuing
operations $ 0.42 $ 0.34 $ 1.19 $ 0.45
Loss from discontinued
operations, net of taxes - - - -
--------- --------- --------- ---------
Net income $ 0.42 $ 0.34 $ 1.19 $ 0.45
========= ========= ========= =========
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 Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Pre-tax income $ 41,703 $ 33,230 $ 116,176 $ 42,534
Expenses associated with debt
refinancing and
recapitalization
transactions - - 982 35,269
Income taxes paid (3,746) (171) (6,790) (15,636)
Depreciation and amortization 17,538 15,315 49,567 44,132
Depreciation and amortization
for discontinued operations - - - 186
Income tax benefit for
discontinued operations - - - (101)
Stock-based compensation
reflected in G&A expenses 1,135 510 3,704 1,174
Amortization of debt costs and
other non-cash interest 1,070 1,329 3,396 4,034
Maintenance and technology
capital expenditures (13,111) (6,628) (35,478) (24,879)
--------- --------- --------- ---------
Adjusted Free Cash Flow $ 44,589 $ 43,585 $ 131,557 $ 86,713
========= ========= ========= =========
CALCULATION OF ADJUSTED EBITDA
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Net income $ 26,130 $ 20,793 $ 73,087 $ 26,717
Interest expense, net 14,825 15,273 44,503 48,245
Depreciation and amortization 17,538 15,315 49,567 44,132
Income tax expense 15,573 12,437 43,089 15,817
Loss from discontinued
operations, net of taxes - - - 193
--------- --------- --------- ---------
EBITDA $ 74,066 $ 63,818 $ 210,246 $ 135,104
Expenses associated with debt
refinancing and
recapitalization transactions - - 982 35,269
--------- --------- --------- ---------
Adjusted EBITDA $ 74,066 $ 63,818 $ 211,228 $ 170,373
========= ========= ========= =========
CALCULATION OF ADJUSTED DILUTED EARNINGS PER SHARE
For the Nine Months For the Nine Months
Ended September 30, Ended September 30,
2006 2005
------------------- -------------------
Net income $ 73,087 $ 26,717
Expenses associated with debt
refinancing and
recapitalization transactions 982 35,269
Income tax benefit for expenses
associated with debt
refinancing transactions (364) (13,056)
------------------- -------------------
Adjusted net income available
to common stockholders 73,705 48,930
Interest expense applicable to
convertible notes, net of
taxes - 124
------------------- -------------------
Diluted adjusted net income
available to common
stockholders $ 73,705 $ 49,054
=================== ===================
Weighted average common shares
outstanding – basic 59,693 57,291
Effect of dilutive securities:
Stock options and warrants 1,500 1,761
Convertible notes - 1,091
Restricted stock-based
compensation 166 153
------------------- -------------------
Weighted average shares and
assumed conversions – diluted 61,359 60,296
=================== ===================
Adjusted Diluted Earnings Per
Share $ 1.20 $ 0.81
=================== ===================
NOTE TO SUPPLEMENTAL FINANCIAL INFORMATION
Net income excluding special charges (Adjusted Diluted Earnings Per Share),
EBITDA, Adjusted 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, Adjusted Diluted Earnings Per Share and
Adjusted free cash flow) and the operating performance of the Company's
correctional facilities (EBITDA and Adjusted EBITDA). EBITDA and Adjusted
EBITDA are useful as supplemental measures of the performance of the
Company's correctional facilities because they do not take into account
depreciation and amortization, tax provisions, or with respect to Adjusted
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.
The Company may make adjustments to GAAP net income, Adjusted EBITDA and
Adjusted free cash flow from time to time for certain other income and
expenses that it considers non-recurring, infrequent or unusual, such as
the special charges in the preceding calculation of earnings per diluted
share excluding special charges (Adjusted Diluted Earnings Per Share), 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 Adjusted Diluted Earnings Per Share, EBITDA,
Adjusted EBITDA and Adjusted free cash flow differently than the Company
does, or adjust for other items, and therefore comparability may be
limited. EPS excluding special charges (Adjusted Diluted Earnings Per
Share), EBITDA, Adjusted 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.
Contact Information: Contact: Karin Demler (615) 263-3005