cxw-10q_20180930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:  SEPTEMBER 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM            TO           

COMMISSION FILE NUMBER: 001-16109

 

CORECIVIC, INC.

(Exact name of registrant as specified in its charter)

 

 

MARYLAND

62-1763875

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

10 BURTON HILLS BLVD., NASHVILLE, TENNESSEE  37215

(Address and zip code of principal executive offices)

(615) 263-3000

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

                          Accelerated filer

 

 

 

 

 

Non-accelerated filer

  

                          Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  

Indicate the number of shares outstanding of each class of Common Stock as of November 1, 2018:

Shares of Common Stock, $0.01 par value per share: 118,681,329 shares outstanding.

 

 

 

 


CORECIVIC, INC.

 

FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

 

INDEX

 

 

 

PAGE

PART 1 – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

    a)

 

Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and December 31, 2017

 

1

    b)

 

Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2018 and 2017

 

2

    c)

 

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2018 and 2017

 

3

    d)

 

Consolidated Statement of Stockholders' Equity (Unaudited) for the quarterly periods ended September 30, 2018

 

4

    e)

 

Consolidated Statement of Stockholders' Equity (Unaudited) for the quarterly periods ended September 30, 2017

 

5

    f)

 

Notes to Consolidated Financial Statements (Unaudited)

 

6

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

46

Item 4.

 

Controls and Procedures

 

47

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

48

Item 1A.

 

Risk Factors

 

48

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

Item 3.

 

Defaults Upon Senior Securities

 

48

Item 4.

 

Mine Safety Disclosures

 

48

Item 5.

 

Other Information

 

49

Item 6.

 

Exhibits

 

49

 

 

 

 

 

SIGNATURES

 

50

 

 

 

 


PART I – FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS.

CORECIVIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

ASSETS

 

September 30, 2018

 

 

December 31, 2017

 

Cash and cash equivalents

 

$

93,625

 

 

$

52,183

 

Restricted cash

 

 

11,103

 

 

 

 

Accounts receivable, net of allowance of $919 and $782, respectively

 

 

234,162

 

 

 

254,188

 

Prepaid expenses and other current assets

 

 

27,965

 

 

 

21,119

 

Total current assets

 

 

366,855

 

 

 

327,490

 

Property and equipment, net of accumulated depreciation of $1,576,128 and $1,475,951,

   respectively

 

 

3,023,963

 

 

 

2,802,449

 

Goodwill

 

 

43,996

 

 

 

40,927

 

Non-current deferred tax assets

 

 

14,309

 

 

 

12,814

 

Other assets

 

 

134,909

 

 

 

88,718

 

Total assets

 

$

3,584,032

 

 

$

3,272,398

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

307,689

 

 

$

277,804

 

Income taxes payable

 

 

1,375

 

 

 

3,034

 

Current portion of long-term debt

 

 

12,795

 

 

 

10,000

 

Total current liabilities

 

 

321,859

 

 

 

290,838

 

Long-term debt, net

 

 

1,752,185

 

 

 

1,437,187

 

Deferred revenue

 

 

29,510

 

 

 

39,735

 

Other liabilities

 

 

58,403

 

 

 

53,030

 

Total liabilities

 

 

2,161,957

 

 

 

1,820,790

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Preferred stock – $0.01 par value; 50,000 shares authorized; none issued and outstanding

   at September 30, 2018 and December 31, 2017, respectively

 

 

 

 

 

 

Common stock – $0.01 par value; 300,000 shares authorized; 118,670 and 118,204 shares

   issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

1,187

 

 

 

1,182

 

Additional paid-in capital

 

 

1,803,903

 

 

 

1,794,713

 

Accumulated deficit

 

 

(383,015

)

 

 

(344,287

)

Total stockholders' equity

 

 

1,422,075

 

 

 

1,451,608

 

Total liabilities and stockholders' equity

 

$

3,584,032

 

 

$

3,272,398

 

 

The accompanying notes are an integral part of these consolidated financial statements.

1


CORECIVIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

REVENUES

 

$

462,728

 

 

$

442,845

 

 

$

1,353,573

 

 

$

1,324,922

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

 

333,759

 

 

 

316,865

 

 

 

973,449

 

 

 

940,065

 

General and administrative

 

 

25,085

 

 

 

28,303

 

 

 

77,594

 

 

 

79,546

 

Depreciation and amortization

 

 

39,465

 

 

 

36,507

 

 

 

116,114

 

 

 

109,564

 

Asset impairments

 

 

 

 

 

355

 

 

 

1,580

 

 

 

614

 

 

 

 

398,309

 

 

 

382,030

 

 

 

1,168,737

 

 

 

1,129,789

 

OPERATING INCOME

 

 

64,419

 

 

 

60,815

 

 

 

184,836

 

 

 

195,133

 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

20,534

 

 

 

17,029

 

 

 

58,608

 

 

 

50,141

 

Expenses associated with debt refinancing transactions

 

 

 

 

 

 

 

 

1,016

 

 

 

 

Other (income) expense

 

 

49

 

 

 

(65

)

 

 

39

 

 

 

(108

)

 

 

 

20,583

 

 

 

16,964

 

 

 

59,663

 

 

 

50,033

 

INCOME BEFORE INCOME TAXES

 

 

43,836

 

 

 

43,851

 

 

 

125,173

 

 

 

145,100

 

Income tax expense

 

 

(2,842

)

 

 

(2,673

)

 

 

(7,205

)

 

 

(8,400

)

NET INCOME

 

$

40,994

 

 

$

41,178

 

 

$

117,968

 

 

$

136,700

 

BASIC EARNINGS PER SHARE

 

$

0.35

 

 

$

0.35

 

 

$

1.00

 

 

$

1.16

 

DILUTED EARNINGS PER SHARE

 

$

0.34

 

 

$

0.35

 

 

$

0.99

 

 

$

1.15

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2


CORECIVIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED AND AMOUNTS IN THOUSANDS)

 

 

 

For the Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

117,968

 

 

$

136,700

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

116,114

 

 

 

109,564

 

Asset impairments

 

 

1,580

 

 

 

614

 

Amortization of debt issuance costs and other non-cash interest

 

 

2,562

 

 

 

2,349

 

Expenses associated with debt refinancing transactions

 

 

1,016

 

 

 

 

Deferred income taxes

 

 

(1,495

)

 

 

(1,725

)

Non-cash revenue and other income

 

 

(11,571

)

 

 

(10,210

)

Non-cash equity compensation

 

 

9,758

 

 

 

12,203

 

Other expenses and non-cash items

 

 

5,476

 

 

 

2,975

 

Changes in assets and liabilities, net:

 

 

 

 

 

 

 

 

Accounts receivable, prepaid expenses and other assets

 

 

15,318

 

 

 

(899

)

Accounts payable, accrued expenses and other liabilities

 

 

29,504

 

 

 

13,482

 

Income taxes payable

 

 

(1,659

)

 

 

(918

)

Net cash provided by operating activities

 

 

284,571

 

 

 

264,135

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Expenditures for facility development and expansions

 

 

(35,750

)

 

 

(16,543

)

Expenditures for other capital improvements

 

 

(44,144

)

 

 

(35,214

)

Acquisitions, net of cash acquired

 

 

(161,057

)

 

 

(29,174

)

Proceeds from sale of assets

 

 

12,606

 

 

 

931

 

Increase in other assets

 

 

(2,291

)

 

 

(2,444

)

Payments received on direct financing lease and notes receivable

 

 

 

 

 

684

 

Net cash used in investing activities

 

 

(230,636

)

 

 

(81,760

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of debt and borrowings from credit facility

 

 

690,863

 

 

 

197,500

 

Scheduled principal repayments

 

 

(4,959

)

 

 

(7,500

)

Other principal repayments of debt

 

 

(523,500

)

 

 

(215,500

)

Payment of debt issuance and other refinancing and related costs

 

 

(6,033

)

 

 

(65

)

Payment of lease obligations

 

 

(2,679

)

 

 

(1,791

)

Contingent consideration for acquisition of businesses

 

 

(1,500

)

 

 

 

Dividends paid

 

 

(153,019

)

 

 

(150,691

)

Purchase and retirement of common stock

 

 

(2,544

)

 

 

(5,818

)

Proceeds from exercise of stock options

 

 

1,981

 

 

 

6,514

 

Net cash used in financing activities

 

 

(1,390

)

 

 

(177,351

)

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

52,545

 

 

 

5,024

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period

 

 

52,183

 

 

 

37,711

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period

 

$

104,728

 

 

$

42,735

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

     Debt assumed on acquisition of property

 

$

157,280

 

 

$

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest (net of amounts capitalized of $414 and $0 in 2018 and 2017,

   respectively)

 

$

38,155

 

 

$

40,130

 

Income taxes paid

 

$

9,288

 

 

$

5,015

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


 

CORECIVIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE QUARTERLY PERIODS ENDED SEPTEMBER 30, 2018

(UNAUDITED AND AMOUNTS IN THOUSANDS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of December 31, 2017

 

 

118,204

 

 

$

1,182

 

 

$

1,794,713

 

 

$

(344,287

)

 

$

 

 

$

1,451,608

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net income

 

 

 

 

 

 

 

 

 

 

 

37,777

 

 

 

 

 

 

37,777

 

  Change in fair value of interest rate swap, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,028

)

 

 

(2,028

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

37,777

 

 

 

(2,028

)

 

 

35,749

 

Retirement of common stock

 

 

(117

)

 

 

(1

)

 

 

(2,524

)

 

 

 

 

 

 

 

 

(2,525

)

Dividends declared on common stock ($0.43 per

   share)

 

 

 

 

 

 

 

 

 

 

 

(51,533

)

 

 

 

 

 

(51,533

)

Restricted stock compensation, net of forfeitures

 

 

 

 

 

 

 

 

3,486

 

 

 

 

 

 

 

 

 

3,486

 

Restricted stock grants

 

 

457

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Cumulative effect of adoption of new

   accounting standard

 

 

 

 

 

 

 

 

 

 

 

(2,575

)

 

 

 

 

 

(2,575

)

Balance as of March 31, 2018

 

 

118,544

 

 

 

1,185

 

 

 

1,795,671

 

 

 

(360,618

)

 

 

(2,028

)

 

 

1,434,210

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net income

 

 

 

 

 

 

 

 

 

 

 

39,197

 

 

 

 

 

 

39,197

 

  Change in fair value of interest rate swap, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,028

 

 

 

2,028

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

39,197

 

 

 

2,028

 

 

 

41,225

 

Retirement of common stock

 

 

(1

)

 

 

 

 

 

(19

)

 

 

 

 

 

 

 

 

(19

)

Dividends declared on common stock ($0.43 per

   share)

 

 

 

 

 

 

 

 

 

 

 

(51,478

)

 

 

 

 

 

(51,478

)

Restricted stock compensation, net of forfeitures

 

 

 

 

 

 

 

 

3,980

 

 

 

 

 

 

 

 

 

3,980

 

Restricted stock grants

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2018

 

 

118,548

 

 

 

1,185

 

 

 

1,799,632

 

 

 

(372,899

)

 

 

 

 

 

1,427,918

 

Net income

 

 

 

 

 

 

 

 

 

 

 

40,994

 

 

 

 

 

 

40,994

 

Dividends declared on common stock ($0.43 per

   share)

 

 

 

 

 

 

 

 

 

 

 

(51,110

)

 

 

 

 

 

(51,110

)

Restricted stock compensation, net of forfeitures

 

 

 

 

 

 

 

 

2,292

 

 

 

 

 

 

 

 

 

2,292

 

Stock options exercised

 

 

122

 

 

 

2

 

 

 

1,979

 

 

 

 

 

 

 

 

 

1,981

 

Balance as of September 30, 2018

 

 

118,670

 

 

$

1,187

 

 

$

1,803,903

 

 

$

(383,015

)

 

$

 

 

$

1,422,075

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4


 

CORECIVIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE QUARTERLY PERIODS ENDED SEPTEMBER 30, 2017

(UNAUDITED AND AMOUNTS IN THOUSANDS)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2016

 

 

117,554

 

 

$

1,176

 

 

$

1,780,350

 

 

$

(322,563

)

 

$

1,458,963

 

Net income

 

 

 

 

 

 

 

 

 

 

 

50,047

 

 

 

50,047

 

Retirement of common stock

 

 

(153

)

 

 

(2

)

 

 

(5,087

)

 

 

 

 

 

(5,089

)

Dividends declared on common stock ($0.42 per share)

 

 

 

 

 

 

 

 

 

 

 

(50,036

)

 

 

(50,036

)

Restricted stock compensation, net of forfeitures

 

 

 

 

 

 

 

 

4,086

 

 

 

 

 

 

4,086

 

Restricted stock grants

 

 

506

 

 

 

5

 

 

 

(5

)

 

 

 

 

 

 

Stock options exercised

 

 

233

 

 

 

2

 

 

 

5,188

 

 

 

 

 

 

5,190

 

Balance as of March 31, 2017

 

 

118,140

 

 

 

1,181

 

 

 

1,784,532

 

 

 

(322,552

)

 

 

1,463,161

 

Net income

 

 

 

 

 

 

 

 

 

 

 

45,475

 

 

 

45,475

 

Retirement of common stock

 

 

(22

)

 

 

 

 

 

(729

)

 

 

 

 

 

(729

)

Dividends declared on common stock ($0.42 per share)

 

 

 

 

 

 

 

 

 

 

 

(50,098

)

 

 

(50,098

)

Restricted stock compensation, net of forfeitures

 

 

 

 

 

 

 

 

4,059

 

 

 

 

 

 

4,059

 

Restricted stock grants

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

60

 

 

 

1

 

 

 

1,475

 

 

 

 

 

 

1,476

 

Balance as of June 30, 2017

 

 

118,179

 

 

 

1,182

 

 

 

1,789,337

 

 

 

(327,175

)

 

 

1,463,344

 

Net income

 

 

 

 

 

 

 

 

 

 

 

41,178

 

 

 

41,178

 

Dividends declared on common stock ($0.42 per share)

 

 

 

 

 

 

 

 

 

 

 

(50,072

)

 

 

(50,072

)

Restricted stock compensation, net of forfeitures

 

 

 

 

 

 

 

 

4,058

 

 

 

 

 

 

4,058

 

Restricted stock grants

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

10

 

 

 

 

 

 

173

 

 

 

 

 

 

173

 

Balance as of September 30, 2017

 

 

118,191

 

 

$

1,182

 

 

$

1,793,568

 

 

$

(336,069

)

 

$

1,458,681

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


 

CORECIVIC, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

SEPTEMBER 30, 2018

 

1.

ORGANIZATION AND OPERATIONS

CoreCivic, Inc. (together with its subsidiaries, the "Company" or "CoreCivic") is the nation's largest owner of partnership correctional, detention, and residential reentry facilities and one of the largest prison operators in the United States.  The Company also believes it is the largest private owner of real estate used by U.S. government agencies. Through three segments, CoreCivic Safety, CoreCivic Community, and CoreCivic Properties, the Company provides a broad range of solutions to government partners that serve the public good through corrections and detention management, a growing network of residential reentry centers to help address America's recidivism crisis, and government real estate solutions.  As of September 30, 2018, through its CoreCivic Safety segment, the Company operated 51 correctional and detention facilities, 44 of which the Company owned, with a total design capacity of approximately 73,000 beds.  Through its CoreCivic Community segment, the Company also owned and operated 26 residential reentry centers with a total design capacity of approximately 5,000 beds.  In addition, through its CoreCivic Properties segment, the Company owned 27 properties leased to third parties and used by government agencies, totaling 2.3 million square feet.

In addition to providing fundamental residential services, CoreCivic's correctional, detention, and reentry facilities offer a variety of rehabilitation and educational programs, including basic education, faith-based services, life skills and employment training, and substance abuse treatment.  These services are intended to help reduce recidivism and to prepare offenders for their successful reentry into society upon their release.  CoreCivic also provides or makes available to offenders certain health care (including medical, dental, and mental health services), food services, and work and recreational programs.

CoreCivic began operating as a real estate investment trust ("REIT") effective January 1, 2013.  The Company provides services and conducts other business activities through taxable REIT subsidiaries ("TRSs"). A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax and certain qualification requirements. The Company's use of TRSs permits CoreCivic to engage in certain business activities in which the REIT may not engage directly, so long as these activities are conducted in entities that elect to be treated as TRSs under the Internal Revenue Code of 1986, as amended, and enable CoreCivic to, among other things, provide correctional services at facilities it owns and at facilities owned by its government partners.  A TRS is not subject to the distribution requirements applicable to REITs so it may retain income generated by its operations for reinvestment.  

2.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited interim consolidated financial statements have been prepared by the Company and, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of results for the unaudited interim periods presented.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") have been condensed or omitted.  The results of operations for the interim period are not necessarily indicative of the results to be obtained for the full fiscal year.  Reference is made to the audited financial statements of CoreCivic included in its Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission (the "SEC") on February 22, 2018 (the "2017 Form 10-K") with respect to certain significant accounting and financial reporting policies as well as other pertinent information of the Company.  

Reclassifications

 

Certain reclassifications have been made to the segmented data to conform to the current year presentation.

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers", which establishes a single, comprehensive revenue recognition standard for all contracts with customers. For public reporting entities such as CoreCivic, ASU 2014-09 was originally effective for interim and annual periods beginning after December 15, 2016 and early adoption of the ASU was not permitted.  In July 2015, the FASB agreed to defer the effective date of the ASU for public reporting entities by one year, or to interim and annual periods beginning after December 15, 2017.  In summary, the core principle of ASU 2014-09 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for

6


 

those goods or services. Companies are allowed to select between two transition methods: (1) a full retrospective transition method with the application of the new guidance to each prior reporting period presented, or (2) a modified retrospective transition method that recognizes the cumulative effect on prior periods at the date of adoption together with additional footnote disclosures.  CoreCivic adopted the standard in the first quarter of 2018 and utilized the modified retrospective transition method upon adoption.  CoreCivic completed its analysis of the various contracts and revenue streams and concluded that the adoption of the ASU does not have a material impact on the Company's results of operations or financial position and its related financial statement disclosure.  Upon adoption of the ASU, CoreCivic classifies certain contract-related costs for which it may not be reimbursed, or for costs that have been reimbursed, but may be required to be returned to the customer, as reductions to revenue.  Prior to adoption, such costs were reflected as operating expenses.

In February 2016, the FASB issued ASU 2016-02, "Leases (ASC 842)", which requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting requirements.  ASU 2016-02 also eliminates current real estate-specific provisions for all entities.  For lessors, the ASU modifies the classification criteria and the accounting for sales-type and direct financing leases.  For finance leases and operating leases, a lessee should recognize on the balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term, with each initially measured at the present value of the lease payments.  For public reporting entities such as CoreCivic, guidance in ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and early adoption of the ASU is permitted.  In July 2018, the FASB issued ASU 2018-11, "Targeted Improvements – Leases (Topic 842)", which permits entities to adopt a new transition method whereby the modified retrospective transition method would allow companies to recognize the cumulative-effect adjustment in the period of adoption rather than the earliest period presented and continue to apply the legacy guidance in ASC 840 in the comparative periods presented.  Further, ASU 2018-11 also allows entities to elect, by class of underlying asset, to not separate non-lease components from the associated lease components when certain criteria are met.  CoreCivic does not currently expect that the new standard will have a material impact on its results of operations, but expects that it will result in an increase in its long-term assets and liabilities for leases where the Company is the lessee.  CoreCivic expects to elect to adopt the package of available practical expedients that permits lessees and lessors to not reassess certain items, including whether any expired or existing contracts are or contain leases, lease classification of any expired or existing leases, and initial direct costs for any expired or existing leases.  

In January 2017, the FASB issued ASU 2017-04, "Intangibles–Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment", that eliminates the requirement to calculate the implied fair value of goodwill by performing a hypothetical application of the acquisition method as of the date of the impairment test to measure a goodwill impairment charge.  This requirement is the second step in the annual two-step quantitative impairment test that is currently required under Accounting Standards Codification ("ASC") 350, "Intangibles-Goodwill and Other".  Instead, entities will recognize an impairment charge based on the first step of the quantitative impairment test currently required, which is the measurement of the excess of a reporting unit's carrying amount over its fair value.  Entities will still have the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary.  For public reporting entities such as CoreCivic, guidance in ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and interim periods within those years.  Early adoption of the ASU is allowed for interim or annual goodwill impairment tests performed on testing dates on or after January 1, 2017.  CoreCivic adopted ASU 2017-04 in the third quarter of 2018.

In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory", which requires companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the income statement as income tax expense when the sale or transfer occurs.  The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those annual periods.  The guidance requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. In the period of adoption, companies will write off any income tax effects that had been deferred from past intercompany transactions involving non-inventory assets to opening retained earnings.  CoreCivic adopted the new standard in the first quarter of 2018 and wrote off approximately $2.6 million of prepaid taxes to accumulated deficit as a result of intercompany transactions between the REIT and one of its TRSs.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows – Restricted Cash", which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows.  For public reporting entities such as CoreCivic, the guidance is to be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years.  CoreCivic adopted the new standard in the first quarter of 2018.  

7


 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not, or are not expected to, have a material effect on the Company's results of operations or financial position.

Fair Value of Financial Instruments

 

To meet the reporting requirements of ASC 825, "Financial Instruments", regarding fair value of financial instruments, CoreCivic calculates the estimated fair value of financial instruments using market interest rates, quoted market prices of similar instruments, or discounted cash flow techniques with observable Level 1 inputs for publicly traded debt and Level 2 inputs for all other financial instruments, as defined in ASC 820, "Fair Value Measurement". At September 30, 2018 and December 31, 2017, there were no material differences between the carrying amounts and the estimated fair values of CoreCivic's financial instruments, other than as follows (in thousands):

 

 

 

September 30, 2018

 

 

December 31, 2017

 

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

Note receivable from Agecroft Prison Management, LTD

 

$

2,953

 

 

$

4,235

 

 

$

3,059

 

 

$

4,511

 

Debt

 

$

(1,778,684

)

 

$

(1,742,497

)

 

$

(1,459,000

)

 

$

(1,490,063

)

    

3.

GOODWILL

ASC 350, "Intangibles-Goodwill and Other", establishes accounting and reporting requirements for goodwill and other intangible assets.  Goodwill was $44.0 million and $40.9 million as of September 30, 2018 and December 31, 2017, respectively.  This goodwill was established in connection with multiple business combination transactions.  

Under the provisions of ASC 350, CoreCivic performs a qualitative assessment that may allow it to skip the annual two-step impairment test.  Under ASC 350, a company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.  If the two-step impairment test is required, CoreCivic determines the fair value of a reporting unit using a collaboration of various common valuation techniques, including market multiples and discounted cash flows.  These impairment tests are required to be performed at least annually.  CoreCivic performs its impairment tests during the fourth quarter, in connection with its annual budgeting process. CoreCivic performs these impairment tests at least annually and whenever circumstances indicate the carrying value of goodwill may not be recoverable.

4.

REAL ESTATE TRANSACTIONS

Acquisitions

On January 19, 2018, CoreCivic acquired the 261,000 square-foot Capital Commerce Center, located in Tallahassee, Florida for a purchase price of $44.7 million, excluding transaction-related costs and certain closing credits.  Capital Commerce Center is 98% leased, including 87% leased to the state of Florida on behalf of the Florida Department of Business and Professional Regulation.  In allocating the purchase price of this transaction, CoreCivic recorded $40.6 million of net tangible assets and $3.2 million of identifiable intangible assets.  

On July 17, 2018, CoreCivic acquired a portfolio of twelve properties for $12.0 million, excluding transaction-related costs, 100% leased to the U.S. Federal Government through the General Services Administration ("GSA") on behalf of the Social Security Administration ("SSA"), the Department of Homeland Security, and U.S. Immigration and Customs Enforcement.  Since this was a portfolio acquisition, the Company may elect to market up to three of the properties for sale.  In allocating the purchase price of this transaction, CoreCivic recorded $11.1 million of net tangible assets and $1.7 million of identifiable intangible assets.  

On August 23, 2018, CoreCivic acquired a 541,000 square-foot SSA office building in Baltimore, Maryland ("SSA-Baltimore") for a total purchase price of $242.0 million, excluding transaction-related costs and certain closing credits.  The office building was purpose built to SSA specifications in 2014 under a 20-year firm term lease expiring in January 2034, and is backed by the full faith and credit of the U.S. Federal Government through the GSA.  In connection with the acquisition and as further described in Note 6, CoreCivic assumed $157.3 million of in-place financing that was used to fund the initial construction of the property in 2014.  In allocating the purchase price of this transaction, CoreCivic recorded $207.4 million of net tangible assets and $38.9 million of identifiable intangible assets.

8


 

On September 21, 2018, CoreCivic acquired a 217,000 square-foot, steel frame warehouse in Dayton, Ohio for $6.9 million, excluding transaction-related costs and certain closing credits, that was built-to-suit for the National Archives and Records Administration ("NARA") in 2002.  The building is 100% leased to the GSA on behalf of NARA through January 2023 and includes two additional 10-year renewal options.  The building provides 1.2 million cubic feet of storage space, approximately 90% of which is dedicated to archives of the U.S. Internal Revenue Service. In allocating the purchase price of this transaction, CoreCivic recorded $6.9 million of net tangible assets and $0.7 million of identifiable intangible assets.

CoreCivic acquired these 15 properties in 2018 as strategic investments that further diversify the Company's cash flows through government-leased properties and broaden the solutions it provides to its government partners.

Leasing Transactions

On January 24, 2018, CoreCivic entered into a 20-year lease agreement with the Kansas Department of Corrections ("KDOC") for a 2,432-bed correctional facility the Company is constructing in Lansing, Kansas.  The new facility will replace the Lansing Correctional Facility, the State's largest correctional complex for adult male inmates, originally constructed in 1863.  CoreCivic will be responsible for facility maintenance throughout the 20-year term of the lease, at which time ownership will revert to the State.  Construction of the new facility commenced in the first quarter of 2018 with a timeline for completion of approximately 24 months.  CoreCivic expects to account for the lease with the KDOC as a multiple element lease with a portion of the lease payments attributable to the capital lease.  In addition, portions of the lease payments will be attributable to maintenance services and capital maintenance, representing two separately valued non-lease components.  As of September 30, 2018, CoreCivic has capitalized $31.8 million associated with the construction of the project.

Idle Facilities

As of September 30, 2018, CoreCivic had eight idled correctional facilities that are currently available and being actively marketed as solutions to meet the needs of potential customers.  The following table summarizes each of the idled facilities and their respective carrying values, excluding equipment and other assets that could generally be transferred and used at other facilities CoreCivic owns without significant cost (dollars in thousands):

 

 

 

 

 

 

 

 

Net Carrying Values

 

 

 

Design

 

 

Date

 

September 30,

 

 

December 31,

 

Facility

 

Capacity

 

 

Idled

 

2018

 

 

2017

 

Prairie Correctional Facility

 

 

1,600

 

 

2010

 

$

15,330

 

 

$

16,118

 

Huerfano County Correctional Center

 

 

752

 

 

2010

 

 

16,803

 

 

 

16,980

 

Diamondback Correctional Facility

 

 

2,160

 

 

2010

 

 

40,702

 

 

 

41,370

 

Southeast Kentucky Correctional Facility

 

 

656

 

 

2012

 

 

21,233

 

 

 

21,864

 

Marion Adjustment Center

 

 

826

 

 

2013

 

 

11,878

 

 

 

12,058

 

Kit Carson Correctional Center

 

 

1,488

 

 

2016

 

 

55,952

 

 

 

57,095

 

Eden Detention Center

 

 

1,422

 

 

2017

 

 

38,741