Corrections Corp. (CXW) Announces Corp. Restructuring; Plans Workforce Reduction
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Corrections Corporation of America (NYSE: CXW) announced a restructuring of the Company's corporate operations and implementation of a cost reduction plan. CCA expects that 50 to 55 full time positions will be eliminated as a result of the restructuring, or approximately 12% of the corporate workforce at its headquarters. The restructuring realigns the corporate structure to more effectively serve facility operations and support the progression of CCA's business diversification strategy.
CCA expects to report a charge in the third quarter of 2016 of approximately $4.0 million associated with this restructuring. This charge primarily consists of cash payments for severance and related benefits to terminated employees and a non-cash charge associated with the voluntary forfeiture by CCA's chief executive officer of a restricted stock unit award, as further described hereafter. The impact of these staffing reductions, together with the implementation of the cost reduction plan, are expected to result in expense savings of approximately $9.0 million in 2017, most of which are general and administrative expenses. A substantial portion of these expense savings will commence in the fourth quarter of 2016.
"Recognizing the continuing evolution of our core corrections and detention businesses, and our strategy to grow our reentry and real estate platforms, we conducted a thorough review of our corporate structure to optimize our support of both existing and future operations," said Damon T. Hininger, CCA's President and Chief Executive Officer. "Proactively addressing the challenges and opportunities of our business means very difficult decisions must be made, and our most immediate concern is for the welfare of the employees affected by the restructuring," continued Hininger. "Together with the ongoing initiatives that are diversifying our business model, I am confident this restructuring and cost reduction plan will better position CCA for long-term value creation for our shareholders."
In support of the cost reduction plan, Mr. Hininger volunteered to forfeit restricted stock units awarded to him on February 19, 2016, and requested CCA's compensation committee to not award him any equity-based compensation in 2017. This includes the forfeiture of all accrued dividend equivalents that would have been paid to Mr. Hininger thereunder. The fair value of the forfeited restricted stock unit award on the grant date of February 19, 2016 was $2.0 million. Unrecognized compensation expense on this award of approximately $1.7 million is included in the estimated restructuring charge.
"This entirely voluntary gesture by Damon regarding his compensation demonstrates the serious and personal way the team is working to ensure CCA is poised for long-term success," said Mark A. Emkes, Non-Executive Chairman of CCA's Board of Directors. "In my experience, this type of gesture is rare but it is a testament to Damon's leadership and character, and he has the Board's gratitude and full support. We are confident the company will be well positioned for the future under his guidance."
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