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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:  MARCH 31, 2019

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  

Securities registered pursuant to Section 12(b) of the Act:

             Title of each class

     Trading Symbol(s)

Name of each exchange on which registered

              Common Stock

              CXW

               New York Stock Exchange

Indicate the number of shares outstanding of each class of Common Stock as of May 3, 2019:

Shares of Common Stock, $0.01 par value per share: 119,067,887 shares outstanding.

 

 

 

 


CORECIVIC, INC.

 

FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

 

INDEX

 

 

 

PAGE

PART 1 – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

    a)

 

Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018

 

1

    b)

 

Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2019 and 2018

 

2

    c)

 

Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2019 and 2018

 

3

    d)

 

Consolidated Statement of Stockholders' Equity (Unaudited) for the quarterly period ended March 31, 2019

 

4

    e)

 

Consolidated Statement of Stockholders' Equity (Unaudited) for the quarterly period ended March 31, 2018

 

5

    f)

 

Notes to Consolidated Financial Statements (Unaudited)

 

6

Item 2.

 

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

 

24

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

40

Item 4.

 

Controls and Procedures

 

40

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

41

Item 1A.

 

Risk Factors

 

41

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

Item 3.

 

Defaults Upon Senior Securities

 

41

Item 4.

 

Mine Safety Disclosures

 

42

Item 5.

 

Other Information

 

42

Item 6.

 

Exhibits

 

42

 

 

 

 

 

SIGNATURES

 

43

 

 

 

 


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

 

March 31, 2019

 

 

December 31, 2018

 

Cash and cash equivalents

 

$

20,499

 

 

$

52,802

 

Restricted cash

 

 

32,901

 

 

 

21,335

 

Accounts receivable, net of allowance of $2,715 and $2,542, respectively

 

 

273,567

 

 

 

270,597

 

Prepaid expenses and other current assets

 

 

28,364

 

 

 

28,791

 

Total current assets

 

 

355,331

 

 

 

373,525

 

Real estate and related assets:

 

 

 

 

 

 

 

 

   Property and equipment, net of accumulated depreciation of $1,442,844

       and $1,516,664, respectively

 

 

2,794,767

 

 

 

2,830,589

 

   Other real estate assets

 

 

244,479

 

 

 

247,223

 

Goodwill

 

 

48,169

 

 

 

48,169

 

Non-current deferred tax assets

 

 

13,807

 

 

 

14,947

 

Other assets

 

 

213,827

 

 

 

141,207

 

Total assets

 

$

3,670,380

 

 

$

3,655,660

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

330,617

 

 

$

352,275

 

Current portion of long-term debt

 

 

15,448

 

 

 

14,121

 

Total current liabilities

 

 

346,065

 

 

 

366,396

 

Long-term debt, net

 

 

1,828,114

 

 

 

1,787,555

 

Deferred revenue

 

 

22,694

 

 

 

26,102

 

Other liabilities

 

 

91,093

 

 

 

60,548

 

Total liabilities

 

 

2,287,966

 

 

 

2,240,601

 

Commitments and contingencies

 

 

 

 

 

 

 

 

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

   at March 31, 2019 and December 31, 2018, respectively

 

 

 

 

 

 

Common stock – $0.01 par value; 300,000 shares authorized; 119,068 and 118,674 shares

   issued and outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

1,191

 

 

 

1,187

 

Additional paid-in capital

 

 

1,808,147

 

 

 

1,807,202

 

Accumulated deficit

 

 

(426,924

)

 

 

(393,330

)

Total stockholders' equity

 

 

1,382,414

 

 

 

1,415,059

 

Total liabilities and stockholders' equity

 

$

3,670,380

 

 

$

3,655,660

 

 

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

March 31,

 

 

 

2019

 

 

2018

 

REVENUES

 

$

484,064

 

 

$

440,916

 

EXPENSES:

 

 

 

 

 

 

 

 

Operating

 

 

345,832

 

 

 

319,151

 

General and administrative

 

 

29,445

 

 

 

24,971

 

Depreciation and amortization

 

 

35,523

 

 

 

38,089

 

 

 

 

410,800

 

 

 

382,211

 

OPERATING INCOME

 

 

73,264

 

 

 

58,705

 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

21,436

 

 

 

19,036

 

Other (income) expense

 

 

4

 

 

 

(43

)

 

 

 

21,440

 

 

 

18,993

 

INCOME BEFORE INCOME TAXES

 

 

51,824

 

 

 

39,712

 

Income tax expense

 

 

(2,484

)

 

 

(1,935

)

NET INCOME

 

$

49,340

 

 

$

37,777

 

BASIC EARNINGS PER SHARE

 

$

0.42

 

 

$

0.32

 

DILUTED EARNINGS PER SHARE

 

$

0.41

 

 

$

0.32

 

 

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 Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

49,340

 

 

$

37,777

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

35,523

 

 

 

38,089

 

Amortization of debt issuance costs and other non-cash interest

 

 

857

 

 

 

891

 

Deferred income taxes

 

 

1,140

 

 

 

837

 

Non-cash revenue and other income

 

 

(2,937

)

 

 

(4,318

)

Non-cash equity compensation

 

 

3,812

 

 

 

3,486

 

Other expenses and non-cash items

 

 

3,423

 

 

 

1,939

 

Changes in assets and liabilities, net:

 

 

 

 

 

 

 

 

Accounts receivable, prepaid expenses and other assets

 

 

(2,564

)

 

 

41,249

 

Accounts payable, accrued expenses and other liabilities

 

 

(11,921

)

 

 

(12,394

)

Income taxes payable

 

 

1,150

 

 

 

923

 

Net cash provided by operating activities

 

 

77,823

 

 

 

108,479

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Expenditures for facility development and expansions

 

 

(36,037

)

 

 

(3,447

)

Expenditures for other capital improvements

 

 

(9,972

)

 

 

(17,285

)

Acquisitions, net of cash acquired

 

 

(30,931

)

 

 

(48,461

)

Proceeds from sale of assets

 

 

331

 

 

 

48

 

Increase in other assets

 

 

(1,391

)

 

 

(705

)

Net cash used in investing activities

 

 

(78,000

)

 

 

(69,850

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of debt and borrowings from credit facility

 

 

197,141

 

 

 

89,500

 

Scheduled principal repayments

 

 

(2,876

)

 

 

(2,691

)

Other principal repayments of debt

 

 

(153,000

)

 

 

(66,000

)

Payment of debt issuance and other refinancing and related costs

 

 

(85

)

 

 

(844

)

Payment of lease obligations for financing leases

 

 

(134

)

 

 

(746

)

Contingent consideration for acquisition of businesses

 

 

(6,378

)

 

 

 

Dividends paid

 

 

(52,365

)

 

 

(51,106

)

Purchase and retirement of common stock

 

 

(3,070

)

 

 

(2,525

)

Proceeds from exercise of stock options

 

 

207

 

 

 

 

Net cash used in financing activities

 

 

(20,560

)

 

 

(34,412

)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND

     RESTRICTED CASH

 

 

(20,737

)

 

 

4,217

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period

 

 

74,137

 

 

 

52,183

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period

 

$

53,400

 

 

$

56,400

 

NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

      Establishment of right of use assets and lease liabilities

 

$

82,917

 

 

$

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest (net of amounts capitalized of $924 and $0 in 2019 and 2018,

   respectively)

 

$

18,522

 

 

$

3,278

 

Income taxes paid

 

$

 

 

$

105

 

 

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 PERIOD ENDED MARCH 31, 2019

(UNAUDITED AND AMOUNTS IN THOUSANDS)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2018

 

 

118,674

 

 

$

1,187

 

 

$

1,807,202

 

 

$

(393,330

)

 

$

1,415,059

 

Net income

 

 

 

 

 

 

 

 

 

 

 

49,340

 

 

 

49,340

 

Retirement of common stock

 

 

(143

)

 

 

(1

)

 

 

(3,069

)

 

 

 

 

 

(3,070

)

Dividends declared on common stock ($0.44 per

   share)

 

 

 

 

 

 

 

 

 

 

 

(52,994

)

 

 

(52,994

)

Restricted stock compensation, net of forfeitures

 

 

 

 

 

 

 

 

3,812

 

 

 

 

 

 

3,812

 

Restricted stock grants

 

 

521

 

 

 

5

 

 

 

(5

)

 

 

 

 

 

 

Stock options exercised

 

 

16

 

 

 

 

 

 

207

 

 

 

 

 

 

207

 

Cumulative effect of adoption of new

   accounting standard

 

 

 

 

 

 

 

 

 

 

 

(29,940

)

 

 

(29,940

)

Balance as of March 31, 2019

 

 

119,068

 

 

$

1,191

 

 

$

1,808,147

 

 

$

(426,924

)

 

$

1,382,414

 

 

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 PERIOD ENDED MARCH 31, 2018

(UNAUDITED AND AMOUNTS IN THOUSANDS)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

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

 

 

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

 

5


 

CORECIVIC, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

MARCH 31, 2019

 

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 March 31, 2019, 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 owned and operated 27 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, 2018 filed with the Securities and Exchange Commission (the "SEC") on February 25, 2019 (the "2018 Form 10-K") with respect to certain significant accounting and financial reporting policies as well as other pertinent information of the Company.

Certain reclassifications have been made to the consolidated balance sheets in 2018 to conform to the current year presentation.  

Recent Accounting Pronouncements – Lease Adoption

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 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 ("ROU") 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

6


 

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 Accounting Standards Codification ("ASC") 840, "Leases", 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.  Adoption results in an increase in long-term assets and liabilities for leases where the Company is the lessee.  

CoreCivic adopted ASU 2016-02 and ASU 2018-11, cumulatively ("ASC 842"), on January 1, 2019.  The Company elected the modified retrospective transition method and recognized the cumulative-effect adjustment resulting from adoption of ASC 842 in the first quarter of 2019.  CoreCivic also elected 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 addition, the Company made an accounting policy election to apply the "short-term lease exception" permitted by ASC 842 for all classes of underlying assets.  With the exception of the South Texas Family Residential Center lease, as further described hereafter, the Company also elected the practical expedient that permits lessees to make an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component. Prior to the adoption of ASC 842, a portion of the rental payments for the South Texas Family Residential Center was classified as depreciation and interest expense in accordance with ASC 840-40-55, formerly Emerging Issues Task Force No. 97-10, "The Effect of Lessee Involvement in Asset Construction."  Upon adoption of ASC 842, all rental payments associated with this lease are classified as operating expenses.  

Upon adoption of ASC 842, CoreCivic recognized a ROU asset and a lease liability of $82.9 million for all operating leases identified by the Company as applicable under the guidance of ASC 842, including the lease for the South Texas Family Residential Center.  For those operating leases that contain renewal options, the Company included the renewal period in the lease terms, and the related payments are reflected in the ROU asset and lease liability, when it is reasonably certain that a renewal option will be exercised. The ROU asset, amounting to $76.2 million at March 31, 2019, is included in other assets on the consolidated balance sheets, while the current portion of the lease liability, amounting to $28.1 million at March 31, 2019, is included in accounts payable and accrued expenses and the long-term portion of the liability, amounting to $48.3 million at March 31, 2019, is included in other liabilities on the consolidated balance sheets. The Company also recognized a net charge of approximately $29.9 million to accumulated deficit upon adoption of ASC 842.  Because CoreCivic does not generally have access to the interest rates implicit in its leases, the Company utilized its incremental borrowing rate, based upon the terms and tenure of each base lease, as the discount rate when calculating the present value of future minimum lease payments for each lease arrangement.  The weighted average discount rate associated with the operating leases at adoption of ASC 842 was 5.3%.  As of March 31, 2019, the weighted-average lease term of the operating leases was 2.8 years.

CoreCivic leases land and buildings from third-party lessors for multiple properties under operating leases that expire over varying dates through 2023.  

CoreCivic leases the South Texas Family Residential Center and the site upon which it was constructed from a third-party lessor.  CoreCivic's lease agreement with the lessor is over a base period concurrent with an inter-governmental service agreement ("IGSA") with U.S. Immigration and Customs Enforcement ("ICE") which was amended in October 2016 to extend the term of the agreement through September 2021.  However, ICE can terminate the IGSA for convenience or non-appropriation of funds, without penalty, by providing CoreCivic with at least a 60-day notice.  In the event CoreCivic cancels the lease with the third-party lessor prior to its expiration as a result of the termination of the IGSA by ICE for convenience, and if CoreCivic is unable to reach an agreement for the continued use of the facility within 90 days from the termination date, CoreCivic is required to pay a termination fee to the third-party lessor based on the termination date, currently equal to $7.0 million and declining to zero by October 2020.  Under provisions of ASC 842, CoreCivic determined that the South Texas Family Residential Center lease with the third-party lessor includes a non-lease component for food services representing 44% of the consideration paid under the lease.

7


 

The expense incurred for all operating leases, inclusive of short-term and variable leases, was $8.4 million and $7.7 million for the three months ended March 31, 2019 and 2018, respectively.  The cash payments for operating leases are reflected as cash flows from operating activities on the accompanying consolidated statements of cash flows and cash payments for financing leases are reflected as cash flows from financing activities.  Future minimum lease payments as of March 31, 2019 for the Company's operating lease liabilities, inclusive of $71.3 million of payments expected to be made under the cancelable lease at the South Texas facility (excluding the non-lease food services component), are as follows (in thousands):

 

2019 (remainder)

 

$

23,499

 

2020

 

 

31,278

 

2021

 

 

22,836

 

2022

 

 

1,413

 

2023

 

 

878

 

Thereafter

 

 

2,357

 

  Total future minimum lease payments

 

 

82,261

 

Less amount representing interest

 

 

(5,911

)

  Total present value of minimum lease payments

 

$

76,350

 

In addition, through its CoreCivic Properties segment, the Company owns 27 properties leased to third parties and used by government agencies under operating leases that expire over varying dates through 2034, some of which contain renewal options.  In accordance with ASC 842, minimum rental revenue is recognized on a straight-line basis over the term of the related lease. Leasehold incentives are recognized as a reduction to rental revenue on a straight-line basis over the term of the related lease. Rental revenue associated with expense reimbursements from tenants is recognized in the period that the related expenses are incurred based upon the tenant lease provision.  See Note 4 for further discussion regarding a 20-year lease agreement with the Kansas Department of Corrections ("KDOC").  Future undiscounted cash flows to be received from third-party lessees as of March 31, 2019 for the Company's operating leases are as follows (in thousands):

 

2019 (remainder)

 

$

55,941

 

2020

 

 

73,904

 

2021

 

 

67,541

 

2022

 

 

61,108

 

2023

 

 

58,671

 

Thereafter

 

 

410,147

 

 

Recent Accounting Pronouncements – Other

In June 2016,  the FASB issued ASU No. 2016 13, "Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments," which will change how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the current "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, contract assets, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowances for losses. The ASU is effective for the Company in the first quarter of 2020. The Company is currently evaluating the effects of this ASU to determine the potential impact on its financial statements, however the Company does not currently expect the new standard will have a material impact on its financial statements.

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 March 31, 2019 and December 31, 2018,

8


 

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):

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

Note receivable from Agecroft Prison Management, LTD

 

$

2,953

 

 

$

4,129

 

 

$

2,887

 

 

$

4,037

 

Debt

 

$

(1,856,060

)

 

$

(1,808,872

)

 

$

(1,814,795

)

 

$

(1,744,045

)

  

3.

GOODWILL

ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment", establishes accounting and reporting requirements for goodwill and other intangible assets.  Goodwill was $48.2 million as of both March 31, 2019 and December 31, 2018.  Of this amount, goodwill was $7.9 million as of both March 31, 2019 and December 31, 2018 for the Company's CoreCivic Safety segment, and was $40.3 million as of both March 31, 2019 and December 31, 2018 for its CoreCivic Community segment.  This goodwill was established in connection with multiple business combination transactions.  

Under the provisions of ASU 2017-04, CoreCivic performs a qualitative assessment 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, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative impairment test is not necessary.  If a quantitative test is required, CoreCivic performs an assessment to identify the existence of impairment and to measure the excess of a reporting unit's carrying amount over its fair value by using a combination 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 and whenever circumstances indicate the carrying value of goodwill may not be recoverable.     

4.

REAL ESTATE TRANSACTIONS

Acquisitions

On February 20, 2019, CoreCivic acquired the South Raleigh Reentry Center, a 60-bed residential reentry center in Raleigh, North Carolina, for $0.9 million, excluding transaction-related expenses. In connection with the acquisition, CoreCivic expects to become the contracting party to a contract with the Federal Bureau of Prisons to provide reentry services for both male and female residents. In allocating the purchase price of this transaction, CoreCivic recorded $0.9 million of net tangible assets.  CoreCivic acquired the property as a strategic investment that further expands the Company's network of residential reentry centers.  

On May 6, 2019, CoreCivic acquired a 36,520-square foot office building in Detroit, Michigan, for $7.2 million, excluding transaction-related expenses, that was built-to-suit for the state of Michigan's Department of Health and Human Services ("MDHHS") in 2002.  The property is 100% leased to the Michigan Department of Technology, Management and Budget ("MDTMB") on behalf of MDHHS through June 2028 and includes one six-year renewal option at the sole discretion of the MDTMB.

Financing Leasing Transactions

On January 24, 2018, CoreCivic entered into a 20-year lease agreement with the 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 and is expected to be completed during the first quarter of 2020.  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 March 31, 2019, CoreCivic has capitalized $74.4 million associated with the construction of the project.

9


 

Idle Facilities

As of March 31, 2019, CoreCivic had eight idled 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

 

March 31,

 

 

December 31,

 

Facility

 

Capacity

 

 

Idled

 

2019

 

 

2018

 

Prairie Correctional Facility

 

 

1,600

 

 

2010

 

$

15,086

 

 

$

15,278

 

Huerfano County Correctional Center

 

 

752

 

 

2010

 

 

16,497

 

 

 

16,660

 

Diamondback Correctional Facility

 

 

2,160

 

 

2010

 

 

40,800

 

 

 

40,962

 

Southeast Kentucky Correctional Facility

 

 

656

 

 

2012

 

 

20,889

 

 

 

21,098

 

Marion Adjustment Center

 

 

826

 

 

2013

 

 

11,666

 

 

 

11,770

 

Kit Carson Correctional Center

 

 

1,488

 

 

2016

 

 

55,069

 

 

 

55,507

 

Eden Detention Center

 

 

1,422

 

 

2017

 

 

37,966

 

 

 

38,349

 

Torrance County Detention Facility

 

 

910

 

 

2017

 

 

34,968

 

 

 

35,355

 

 

 

 

9,814

 

 

 

 

$

232,941

 

 

$

234,979

 

 

CoreCivic also has two idled non-core facilities containing an aggregate of 440 beds with an aggregate net book value of $3.7 million.  CoreCivic incurred approximately $3.1 million and $3.5 million in operating expenses at the idled facilities for the three months ended March 31, 2019 and 2018, respectively.    

CoreCivic considers the cancellation of a contract as an indicator of impairment and tested each of the idled facilities for impairment when it was notified by the respective customers that they would no longer be utilizing such facility.  CoreCivic updates the impairment analyses on an annual basis for each of the idled facilities and evaluates on a quarterly basis market developments for the potential utilization of each of these facilities in order to identify events that may cause CoreCivic to reconsider its most recent assumptions.  As a result of CoreCivic's analyses, CoreCivic determined each of the idled facilities to have recoverable values in excess of the corresponding carrying values.  

 


10


 

5.

DEBT

Debt outstanding as of March 31, 2019 and December 31, 2018 consists of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Revolving Credit Facility, principal due at maturity

   in April 2023; interest payable periodically at variable interest

   rates. The weighted average rate at both March 31, 2019 and

   December 31, 2018 was 4.0%.

 

$

214,000

 

 

$

201,000

 

Term Loan, scheduled principal payments through maturity in

   April 2023; interest payable periodically at variable interest rates.

   The rate at both March 31, 2019 and December 31, 2018 was 4.0%.

   Unamortized debt issuance costs amounted to $0.1 million at both

   March 31, 2019 and December 31, 2018.

 

 

196,250

 

 

 

197,500

 

4.625% Senior Notes, principal due at maturity in May 2023;

   interest payable semi-annually in May and November at 4.625%.

   Unamortized debt issuance costs amounted to $2.6 million

   and $2.7 million at March 31, 2019 and

   December 31, 2018, respectively.

 

 

350,000

 

 

 

350,000

 

4.125% Senior Notes, principal due at maturity in April 2020;

   interest payable semi-annually in April and October at 4.125%.

   Unamortized debt issuance costs amounted to $0.8 million

   and $1.0 million at March 31, 2019 and

   December 31, 2018, respectively.

 

 

325,000

 

 

 

325,000

 

5.0% Senior Notes, principal due at maturity in October 2022;

   interest payable semi-annually in April and October at 5.0%.

   Unamortized debt issuance costs amounted to $1.7 million

   and $1.8 million at March 31, 2019 and

   December 31, 2018, respectively.

 

 

250,000

 

 

 

250,000

 

4.75% Senior Notes, principal due at maturity in October 2027;

   interest payable semi-annually in April and October at 4.75%.

   Unamortized debt issuance costs amounted to $3.4 million

   and $