Correctional Services (NASDAQ:CSCQ)
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The GEO Group, Inc. to Acquire Correctional Services Corporation;
Plans to Divest Juvenile Services Division
* All cash transaction for $6.00 per share * Expected to be approximately 15%
accretive in 2006 * Investor Conference Call scheduled for 2:00 PM (Eastern
Time) * Investor Conference Call Participant Pass-code: 76556483
BOCA RATON, Fla., July 14 /PRNewswire-FirstCall/ -- The GEO Group, Inc.
(NYSE:GGI) ("GEO"), a world leader in the delivery of correctional and mental
health services, announced today the signing of a definitive merger agreement
(the "definitive agreement") to acquire Sarasota-based Correctional Services
Corporation (NASDAQ:CSCQ) ("CSC"), a leading developer and manager of
privatized correctional and detention facilities. CSC has contracts and awards
for the operation of 15 adult correctional facilities with a design capacity of
approximately 7,500 beds. In addition, CSC provides juvenile programs for
adjudicated youths at 17 facilities with an approximate capacity of 1,300 beds
through its subsidiary, Youth Services International, Inc. ("YSI").
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Under the terms of the definitive agreement approved by the boards of directors
of both GEO and CSC, shareholders of CSC will receive $6.00 cash per common
share or approximately $62 million, and GEO will assume $124 million of CSC
debt. The closing of the acquisition, which is subject to the approval of
CSC's shareholders, federal regulatory agencies and other customary conditions,
is targeted for the beginning of the fourth quarter of 2005.
GEO also announced that it plans to divest CSC's juvenile services division
(the "juvenile business") following the closing of the acquisition. Although
GEO believes that the future growth prospects of the juvenile business are
positive, the business is outside of GEO's core focus. GEO has entered into
discussions with James F. Slattery, the present Chief Executive Officer of CSC,
to sell Mr. Slattery the juvenile business. These discussions commenced
recently and are progressing well. As a result, GEO is optimistic that a deal
with Mr. Slattery can be reached in the near future. In the event that GEO
cannot reach an agreement with Mr. Slattery, GEO would seek alternative buyers
for the juvenile business.
Upon the closing of the CSC acquisition and assuming the divestiture of the
juvenile business, GEO will have 55 facilities with a total design capacity of
approximately 43,500 beds.
George C. Zoley, Chairman and Chief Executive Officer of GEO, said, "We have
been exploring acquisition opportunities since we became an independent company
in July 2003, and we are very pleased with the fact that we were able to find a
quality company in our core business of correctional and detention services.
This acquisition is an excellent strategic fit for our company that will have a
positive impact on our financial performance and will increase our ability to
pursue new business opportunities while continuing to enhance shareholder
value. We are also excited about the community correctional services offered by
CSC, which will broaden our service offerings and expand our relationships with
existing clients. Furthermore, our existing regional operating structure will
enable us to integrate CSC's facilities on a cost- efficient basis. Assuming
the acquisition is completed in the beginning of the fourth quarter of 2005, we
expect to fully integrate CSC's operations by year- end 2005."
Committed Financing
GEO plans to finance the acquisition of CSC through the use of $42 million in
cash, supplemented by a committed senior credit facility underwritten by BNP
Paribas for $175 million. This senior credit facility will be comprised of a
$75 million term-loan and a $100 million revolver and, in addition to funding
the acquisition, will refinance GEO's existing $41 million term-loan and
provide liquidity for general corporate purposes. GEO will assume $124 million
of CSC debt.
Financial and Legal Advisers
Lehman Brothers acted as GEO's financial adviser and provided the GEO board of
directors with a fairness opinion. Akerman Senterfitt served as GEO's legal
advisor.
Updated 2005 Guidance
GEO is re-affirming its second quarter 2005 revenue guidance in the range of
$148 million to $154 million and its second quarter 2005 earnings guidance in
the range of $0.40 to $0.42 per share, inclusive of a $0.17 per share tax
benefit related to the repatriation of foreign earnings in the fourth quarter
of 2004 as a result of the American Jobs Creation Act of 2004.
On a standalone basis, GEO is revising its third and fourth quarter 2005 as
well as its full-year 2005 guidance:
* GEO expects third quarter 2005 revenues to be in the range of $140 million to
$147 million and third quarter 2005 earnings to be in the range of $0.33 to
$0.36 per share. This revision in projected earnings from operations for the
third quarter of 2005 is based upon an expectation of continued lower occupancy
at GEO's San Diego, California Detention Facility for the U.S. Marshals
Service; reduced revenues for the month of July related to the transition of
GEO's Queens, New York Detention Facility from the Bureau of Immigration and
Customs Enforcement to the U.S. Marshals Service; and additional employee
healthcare insurance costs.
* GEO expects fourth quarter 2005 revenues to be in the range of $140 million
to $147 million and fourth quarter 2005 earnings to be in the range of $0.36 to
$0.39 per share. This revision in projected earnings from operations for the
fourth quarter of 2005 is based upon a modest occupancy improvement at GEO's
San Diego, California Detention Facility for the U.S. Marshals Service; reduced
profitability under the new U.S. Marshals Service contract for the Queens, New
York Detention Facility; and one month of additional employee healthcare
insurance costs.
* GEO expects full-year 2005 revenues to be in the range of $582 million to
$602 million and full-year 2005 earnings to be in the range of $1.38 to $1.46
per share. These amounts exclude the impact of the CSC acquisition.
2006 Guidance
On a standalone basis, GEO expects full-year 2006 revenues to be in the range
of $630 million to $650 million and full-year 2006 earnings to be in the range
of $1.76 to $1.88 per share. This guidance includes the assumption of full
operational responsibility at GEO's 200-bed South Florida Evaluation and
Treatment Center on January 1, 2006, with annual revenues of approximately $24
million. GEO is also assuming the activation of a new mental health facility in
early 2006, with annual revenues of approximately $15 million; and the
establishment of a new employee healthcare insurance program which is expected
to reduce employee healthcare insurance costs from the elevated levels in 2005.
CSC Acquisition Impact on Guidance
Assuming the acquisition of CSC is completed in the beginning of the fourth
quarter of 2005:
* GEO expects third quarter 2005 revenues to be in the range of $140 million to
$147 million and third quarter 2005 earnings to be in the range of $0.21 to
$0.24 per share. This guidance includes a third quarter 2005 write-off of
approximately $2.0 million in deferred financing costs, or $0.12 per share.
* GEO expects fourth quarter 2005 revenues to be in the range of $167 million
to $174 million and fourth quarter 2005 earnings to be in the range of $0.36 to
$0.39 per share. During the transition period in the fourth quarter of 2005,
GEO expects the impact of CSC's operations to be neutral to earnings.
* GEO expects full-year 2005 revenues to be in the range of $609 million to
$629 million and full-year 2005 earnings to be in the range of $1.26 to $1.34
per share, which includes the impact of the $2.0 million deferred financing
charge.
* In 2006, GEO expects CSC's operations to add approximately $95 million to
$105 million of revenue and to result in earnings in the range of $2.03 to
$2.15 per share, exclusive of approximately $2.0 to $3.0 million in costs
associated with the start-up and phase-in of CSC's 1,000-bed expansion of its
Florence, Arizona State Prison.
Conference Call Information
GEO has scheduled an investor conference call and simultaneous webcast at 2:00
PM (Eastern Time) today to discuss the planned acquisition. Hosting the call
will be George C. Zoley, Chairman and Chief Executive Officer, accompanied by
Wayne H. Calabrese, Vice Chairman, President and Chief Operating Officer; John
G. O'Rourke, Senior Vice President and Chief Financial Officer; and David
Watson, Treasurer and Vice President of Finance.
The call-in number for the U.S. and Canada is 1-800-706-7741 and the
international call-in number is 1-617-614-3471. The participant pass-code for
the conference call is 76556483. In addition, a live webcast of the conference
call may be accessed on GEO's investor relations home page at
http://www.thegeogroupinc.com/ . A replay of the webcast will be available on
the website for one year. A telephonic replay of the conference call will be
available until August 14, 2005 at 1-888-286-8010 (U.S. and Canada) and
1-617-801-6888 (International). The participant pass-code for the telephonic
replay is 28905846.
About The GEO Group, Inc.
The GEO Group, Inc. ("GEO") is a world leader in the delivery of correctional
and detention management, health and mental health, and other diversified
services to federal, state, and local government agencies around the globe. GEO
offers a turnkey approach that includes design, construction, financing, and
operations. GEO represents government clients in the United States, Australia,
South Africa, and Canada managing 41 facilities with a total design capacity of
approximately 36,000 beds.
About Correctional Services Corporation
Correctional Services Corporation ("CSC") is a leading developer and operator
of adult correctional facilities, with contracts and awards for the operation
of 15 facilities with approximately 7,500 beds. In addition, through its Youth
Services International ("YSI") subsidiary, CSC is a leading private provider of
juvenile programs for adjudicated youths with 17 facilities and 1,300 juveniles
in its care.
Forward-Looking Statements
This press release contains forward-looking statements regarding future events
and future performance of the Company that involve risks and uncertainties that
could materially affect actual results, including statements regarding
estimated earnings, revenues and costs and our ability to maintain growth and
strengthen contract relationships. Factors that could cause actual results to
vary from current expectations and forward-looking statements contained in this
press release include, but are not limited to: (1) GEO's ability to complete
the acquisition of Correctional Services Corporation; (2) GEO's ability to
successfully pursue further growth and continue to enhance shareholder value;
(3) GEO's ability to access the capital markets in the future on satisfactory
terms or at all; (4) risks associated with GEO's ability to control operating
costs associated with contract start- ups; (5) GEO's ability to timely open
facilities as planned, profitably manage such facilities and successfully
integrate such facilities into GEO's operations without substantial costs; (6)
GEO's ability to win management contracts for which it has submitted proposals
and to retain existing management contracts; (7) GEO's ability to obtain future
financing on acceptable terms; (8) GEO's ability to sustain company-wide
occupancy rates at its facilities; and (9) other factors contained in GEO's
Securities and Exchange Commission filings, including the forms 10-K, 10-Q and
8-K reports.
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DATASOURCE: The GEO Group, Inc.
CONTACT: Pablo E. Paez, Director, Corporate Relations of The GEO Group,
+1-866-301-4436
Web site: http://www.thegeogroupinc.com/