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Corrections Corporation of America Message Board

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  • newMK newMK Jul 12, 1999 10:15 AM Flag

    Please Post in a perspicacious manner

    "Since PZN isn't coming close to making the $2.20
    dividend..."

    This is where the accounting games come in. Both tax
    rules and financial reporting rules require
    capitalization of the fees being paid by PZN to OPCO. As Doc
    said in the CC - which analysts have rejected out of
    hand, but which is nevertheless true - there is little
    if any impact on projected FFO. Even though we'ere
    losing a nickel here and a nickel there on financing
    costs, 1999 FFO should be pretty much on target, and 95%
    of 1999 taxable income should be pretty close to the
    scheduled dividends. By virtue of another accounting fluke,
    any shortfall in taxable income would decrease the
    12/31 special dividend, assuming they keep paying
    .60/share.

    On the OPCO side, things aren't quite as "simple".
    The book accounting mirrors PZN's - fees are also
    capitalized (deferrred revenue). This creates a mismatch. The
    expenses being reimbursed are NOT capitalized on OPCO's
    books, so they show huge losses. As badly as Doc handled
    the CC, he was right about all this accounting stuff.
    But for tax purposes, the income is not deferred, not
    that it matters to OPCO.

    If PZN and OPCO were
    combined, all the capitlization disappears. Under prior
    accounting rules, the start-up costs would be capitalized,
    but that changed and they would now be expensed, so
    at that point the combined operation would show
    perhaps half of what PZN now shows. I think maybe that is
    how the analysts are now viewing it.

 
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