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
-- 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 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.
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.
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 Estimated
Facilities Under Capacity Total
Expansion or Additional Following Estimated Cost (in Potential
Development Beds Expansion Completion millions) Customer(s)
------------------- ---------- ---------- ---------- ---------- ---------
Tallahatchie County
Correctional
Facility, California
Mississippi 128 2,672 Q3 2008 $ 8.0 (1)
Cimarron
Correctional
Facility, Various
Oklahoma 660 1,692 Q3 2008 40.0 States
Davis Correctional
Facility, Various
Oklahoma 660 1,670 Q3 2008 40.0 States
Adams County Federal or
Correctional Various
Center, Mississippi 2,232 2,232 Q4 2008 135.0 States
---------- ---------- ---------- ----------
La Palma
Correctional Q3 2008 - California
Center, Arizona 3,060 3,060 Q1 2009 205.0 (1)
Trousdale Various
Correctional States
Center, and
Tennessee 2,040 2,040 Q4 2009 143.0 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.
Expansions or Developments Completed During 2007 and During the First Half
of 2008
Expansions or New Facilities Additional
Completed Beds Completed Customer(s)
--------------------------------- ------------ ------------ ---------------
2007
----
Citrus County Detention Facility,
Florida 360 Q1 2007 Citrus County
State of
Crossroads Correctional Center, Montana and
Montana 96 Q1 2007 USMS
Saguaro Correctional Facility,
Arizona 1,896 Q2 2007 State of Hawaii
Gadsden Correctional Institution, State of
Florida 384 Q3 2007 Florida
Bay Correctional Facility, State of
Florida 235 Q3 2007 Florida
Tallahatchie County Correctional State of
Facility, Mississippi 720 Q4 2007 California
North Fork Correctional Facility, State of
Oklahoma 960 Q4 2007 California
------------
Total 2007 Additional Beds
Completed 4,651
------------
2008
----
Eden Detention Center, Texas 129 Q1 2008 BOP
------------
Kit Carson Correctional Center, State of
Colorado 720 Q1 2008 Colorado
Bent County Correctional State of
Facility, Colorado 720 Q2 2008 Colorado
Leavenworth Detention Center,
Kansas 266 Q2 2008 USMS
------------
Tallahatchie County Correctional State of
Facility, Mississippi 720 Q2 2008 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."
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 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.
CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
June 30, December 31,
ASSETS 2008 2007
------------ ------------
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
============ ============
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
========= ========= ========= =========
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.
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.
Contact Information: Contact: Investors and Analysts: Karin Demler CCA (615) 263-3005 Financial Media: David Guiterrez Dresner Corporate Services (312) 782-7204