cxw-10q_20180331.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:  MARCH 31, 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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

(Do not check if a smaller reporting company)

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 April 27, 2018:

Shares of Common Stock, $0.01 par value per share: 118,543,632 shares outstanding.

 

 

 

 


CORECIVIC, INC.

 

FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

 

INDEX

 

 

 

PAGE

PART 1 – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

    a)

 

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

 

1

    b)

 

Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2018 and 2017

 

2

    c)

 

Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2018 and 2017

 

3

    d)

 

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

 

4

    e)

 

Consolidated Statement of Stockholders' Equity (Unaudited) for the three months ended March 31, 2017

 

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

 

41

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, 2018

 

 

December 31, 2017

 

Cash and cash equivalents

 

$

56,400

 

 

$

52,183

 

Accounts receivable, net of allowance of $997 and $782, respectively

 

 

212,634

 

 

 

254,188

 

Prepaid expenses and other current assets

 

 

19,566

 

 

 

21,119

 

Total current assets

 

 

288,600

 

 

 

327,490

 

Property and equipment, net of accumulated depreciation of $1,512,573 and $1,475,951,

   respectively

 

 

2,825,203

 

 

 

2,802,449

 

Goodwill

 

 

44,779

 

 

 

40,927

 

Non-current deferred tax assets

 

 

11,194

 

 

 

12,814

 

Other assets

 

 

94,674

 

 

 

88,718

 

Total assets

 

$

3,264,450

 

 

$

3,272,398

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

269,458

 

 

$

277,804

 

Income taxes payable

 

 

3,957

 

 

 

3,034

 

Current portion of long-term debt

 

 

12,429

 

 

 

10,000

 

Total current liabilities

 

 

285,844

 

 

 

290,838

 

Long-term debt, net

 

 

1,455,265

 

 

 

1,437,187

 

Deferred revenue

 

 

36,327

 

 

 

39,735

 

Other liabilities

 

 

52,804

 

 

 

53,030

 

Total liabilities

 

 

1,830,240

 

 

 

1,820,790

 

Commitments and contingencies

 

 

 

 

 

 

 

 

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

   at March 31, 2018 and December 31, 2017, respectively

 

 

 

 

 

 

Common stock – $0.01 par value; 300,000 shares authorized; 118,544 and 118,204 shares

   issued and outstanding at March 31, 2018 and December 31, 2017, respectively

 

 

1,185

 

 

 

1,182

 

Additional paid-in capital

 

 

1,795,671

 

 

 

1,794,713

 

Accumulated deficit

 

 

(360,618

)

 

 

(344,287

)

Accumulated other comprehensive loss

 

 

(2,028

)

 

 

 

Total stockholders' equity

 

 

1,434,210

 

 

 

1,451,608

 

Total liabilities and stockholders' equity

 

$

3,264,450

 

 

$

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

March 31,

 

 

 

2018

 

 

2017

 

REVENUES

 

$

440,916

 

 

$

445,684

 

EXPENSES:

 

 

 

 

 

 

 

 

Operating

 

 

319,151

 

 

 

315,303

 

General and administrative

 

 

24,971

 

 

 

24,826

 

Depreciation and amortization

 

 

38,089

 

 

 

36,257

 

Asset impairments

 

 

 

 

 

259

 

 

 

 

382,211

 

 

 

376,645

 

OPERATING INCOME

 

 

58,705

 

 

 

69,039

 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

19,036

 

 

 

16,490

 

Other (income) expense

 

 

(43

)

 

 

17

 

 

 

 

18,993

 

 

 

16,507

 

INCOME BEFORE INCOME TAXES

 

 

39,712

 

 

 

52,532

 

Income tax expense

 

 

(1,935

)

 

 

(2,485

)

NET INCOME

 

$

37,777

 

 

$

50,047

 

BASIC EARNINGS PER SHARE

 

$

0.32

 

 

$

0.42

 

DILUTED EARNINGS PER SHARE

 

$

0.32

 

 

$

0.42

 

DIVIDENDS DECLARED PER SHARE

 

$

0.43

 

 

$

0.42

 

 

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,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

37,777

 

 

$

50,047

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

38,089

 

 

 

36,257

 

Asset impairments

 

 

 

 

 

259

 

Amortization of debt issuance costs and other non-cash interest

 

 

891

 

 

 

783

 

Deferred income taxes

 

 

837

 

 

 

1,867

 

Non-cash revenue and other income

 

 

(4,318

)

 

 

(5,371

)

Non-cash equity compensation

 

 

3,486

 

 

 

4,086

 

Other expenses and non-cash items

 

 

1,939

 

 

 

831

 

Changes in assets and liabilities, net:

 

 

 

 

 

 

 

 

Accounts receivable, prepaid expenses and other assets

 

 

41,249

 

 

 

22,002

 

Accounts payable, accrued expenses and other liabilities

 

 

(12,394

)

 

 

(19,785

)

Income taxes payable

 

 

923

 

 

 

515

 

Net cash provided by operating activities

 

 

108,479

 

 

 

91,491

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Expenditures for facility development and expansions

 

 

(3,447

)

 

 

(6,417

)

Expenditures for other capital improvements

 

 

(17,285

)

 

 

(8,173

)

Acquisitions, net of cash acquired

 

 

(48,461

)

 

 

(7,062

)

Proceeds from sale of assets

 

 

48

 

 

 

77

 

(Increase) decrease in other assets

 

 

(705

)

 

 

1,561

 

Payments received on direct financing lease and notes receivable

 

 

 

 

 

684

 

Net cash used in investing activities

 

 

(69,850

)

 

 

(19,330

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of debt and borrowings from credit facility

 

 

89,500

 

 

 

60,000

 

Scheduled principal repayments

 

 

(2,691

)

 

 

(2,500

)

Other principal repayments of debt

 

 

(66,000

)

 

 

(72,000

)

Payment of debt issuance and other refinancing and related costs

 

 

(844

)

 

 

(65

)

Payment of lease obligations

 

 

(746

)

 

 

(553

)

Dividends paid

 

 

(51,106

)

 

 

(51,462

)

Purchase and retirement of common stock

 

 

(2,525

)

 

 

(5,089

)

Proceeds from exercise of stock options

 

 

 

 

 

4,961

 

Net cash used in financing activities

 

 

(34,412

)

 

 

(66,708

)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

4,217

 

 

 

5,453

 

CASH AND CASH EQUIVALENTS, beginning of period

 

 

52,183

 

 

 

37,711

 

CASH AND CASH EQUIVALENTS, end of period

 

$

56,400

 

 

$

43,164

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest (net of amounts capitalized of $0 in both 2018 and 2017)

 

$

3,278

 

 

$

10,899

 

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 THREE MONTHS 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.

 

4


 

CORECIVIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 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

 

 

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, 2018

 

1.

ORGANIZATION AND OPERATIONS

CoreCivic, Inc. (together with its subsidiaries, the "Company" or "CoreCivic") is one of the nation's largest owners 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 Properties, and CoreCivic Community, the Company provides a broad range of solutions to government partners that serve the public good through corrections and detention management, government real estate solutions, and a growing network of residential reentry centers to help address America's recidivism crisis.  As of March 31, 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 13 properties leased to third parties and used by government agencies, totaling 1.4 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 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 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.  Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.  CoreCivic is currently planning to adopt the ASU when effective in its fiscal year 2019.  CoreCivic does not currently expect that the new standard will have a material impact on its financial statements, but expects that it will result in an increase in its long-term assets and liabilities for leases where the Company is the lessee.  

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 is reviewing the ASU to determine the potential impact it might have on the methodology for evaluating goodwill for impairment subsequent to the adoption of the standard.

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.

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.

 

 

7


 

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, 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):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

Note receivable from Agecroft Prison Management, LTD

 

$

3,176

 

 

$

4,663

 

 

$

3,059

 

 

$

4,511

 

Debt

 

$

(1,479,809

)

 

$

(1,475,996

)

 

$

(1,459,000

)

 

$

(1,490,063

)

    

Derivative Financial Instruments

The Company is exposed to interest rate risk and management considers it prudent to periodically reduce the Company’s exposure to cash flow variability resulting from interest rate fluctuations. In the first quarter of 2018, the Company entered into an interest rate swap transaction. This agreement was designated as a cash flow hedge and was used to hedge the exposure to variability in future cash flows resulting from changes in interest rates related to the anticipated private placement of long-term debt in connection with the construction of a new correctional facility in Lansing, Kansas, as further described in Note 12.  The interest rate swap had a notional amount totaling $125.0 million. At March 31, 2018, the fair value of this agreement was a $2.0 million liability recorded in accrued expenses. The fair value of this derivative financial instrument was determined using quoted prices in markets that are not active or inputs that are observable for the liability and therefore it is classified as Level 2 in the fair value hierarchy. The Company has deferred the loss in accumulated other comprehensive income as of March 31, 2018, as the hedge is expected to be highly effective.  On April 20, 2018, the day the private placement was priced, the Company terminated the interest rate swap, resulting in a payment of $0.2 million from the counterparty based on changes in interest rates up to the termination date.

3.

GOODWILL

ASC 350, "Intangibles-Goodwill and Other", establishes accounting and reporting requirements for goodwill and other intangible assets.  Goodwill was $44.8 million and $40.9 million as of March 31, 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.

     

 

8


 

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, and 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 $41.5 million of net tangible assets and $3.2 million of identifiable intangible assets.  CoreCivic acquired the property as a strategic investment that further diversifies the Company's cash flows through government-leased properties.  

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 March 31, 2018, CoreCivic has capitalized $1.4 million associated with the construction project and $0.6 million in loan costs associated with a private placement to finance the Kansas project which is expected to close in the second quarter of 2018.

Idle Facilities

As of March 31, 2018, CoreCivic had eight idled correctional facilities that are currently available and being actively marketed to 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

 

2018

 

 

2017

 

Prairie Correctional Facility

 

 

1,600

 

 

2010

 

$

15,857

 

 

$

16,118

 

Huerfano County Correctional Center

 

 

752

 

 

2010

 

 

16,909

 

 

 

16,980

 

Diamondback Correctional Facility

 

 

2,160

 

 

2010

 

 

41,151

 

 

 

41,370

 

Southeast Kentucky Correctional Facility

 

 

656

 

 

2012

 

 

21,656

 

 

 

21,864

 

Marion Adjustment Center

 

 

826

 

 

2013

 

 

11,956

 

 

 

12,058

 

Kit Carson Correctional Center

 

 

1,488

 

 

2016

 

 

56,661

 

 

 

57,095

 

Eden Detention Center

 

 

1,422

 

 

2017

 

 

39,320

 

 

 

39,707

 

Torrance County Detention Facility

 

 

910

 

 

2017

 

 

36,495

 

 

 

36,882

 

 

 

 

9,814

 

 

 

 

$

240,005

 

 

$

242,074

 

 

CoreCivic also has two idled non-core facilities containing 440 beds with an aggregate net book value of $4.0 million.  CoreCivic incurred approximately $3.5 million and $2.6 million in operating expenses at the idled facilities for the three months ended March 31, 2018 and 2017, respectively.    


9


 

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.  

5.

BUSINESS COMBINATIONS

Effective January 1, 2018, CoreCivic closed on the acquisition of Rocky Mountain Offender Management Systems, LLC ("RMOMS"), which provides non-residential correctional alternatives, including electronic monitoring and case management services, to municipal, county, and state governments in eight states.  The aggregate purchase price was $7.0 million, excluding transaction-related expenses.

In allocating the purchase price for the transaction, CoreCivic recorded the following (in millions):

 

Property and equipment

 

$

0.8

 

Intangible assets

 

 

3.1

 

     Total identifiable assets and liabilities

 

 

3.9

 

Goodwill

 

 

3.1

 

     Total consideration

 

$

7.0

 

Several factors gave rise to the goodwill recorded in the acquisition of RMOMS, such as the expected benefit from synergies of the business combination that continues to broaden the scope of solutions CoreCivic provides.  The results of operations for this business combination have been included in the Company's consolidated financial statements from the date of the acquisition.

10


 

6.

DEBT

Debt outstanding as of March 31, 2018 and December 31, 2017 consists of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

$900.0 Million Revolving Credit Facility, principal due at

   maturity in July 2020; interest payable periodically at

   variable interest rates. The weighted average rate at

   March 31, 2018 and December 31, 2017 was 3.3%

   and 3.1%, respectively.

 

$

198,000

 

 

$

199,000

 

Term Loan, scheduled principal payments through maturity in

   July 2020; interest payable periodically at variable interest

   rates. The rate at March 31, 2018 and December 31, 2017

   was 3.4% and 3.1%, respectively.  Unamortized debt issuance

   costs amounted to $0.3 million at both March 31, 2018

   and December 31, 2017.

 

 

82,500

 

 

 

85,000

 

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

   $3.1 million and $3.3 million at March 31, 2018 and

   December 31, 2017, 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

   $1.7 million and $1.9 million at March 31, 2018 and

   December 31, 2017, 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 $2.2 million

   and $2.3 million at March 31, 2018 and

   December 31, 2017, 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 $3.9 million

   and $4.0 million at March 31, 2018 and

   December 31, 2017, respectively.

 

 

250,000

 

 

 

250,000

 

4.5% Non-Recourse Mortgage Note, principal and interest at

   4.5% payable monthly until maturity in January 2033;

   Unamortized debt issuance costs amounted to

   $0.3 million at March 31, 2018.

 

 

24,309

 

 

 

 

Total debt

 

 

1,479,809

 

 

 

1,459,000

 

Unamortized debt issuance costs

 

 

(12,115

)

 

 

(11,813

)

Current portion of long-term debt

 

 

(12,429

)

 

 

(10,000

)

Long-term debt, net

 

$

1,455,265

 

 

$

1,437,187

 

 

Revolving Credit Facility.  During July 2015, CoreCivic entered into an amended and restated $900.0 million senior secured revolving credit facility (the "$900.0 Million Revolving Credit Facility").  The $900.0 Million Revolving Credit Facility has an aggregate principal capacity of $900.0 million and a maturity of July 2020.  The $900.0 Million Revolving Credit Facility also has an "accordion" feature that provides for uncommitted incremental extensions of credit in the form of increases in the revolving commitments or incremental term loans in an aggregate principal amount up to an additional $350.0 million as requested by CoreCivic, subject to bank approval. At CoreCivic's option, interest on outstanding borrowings under the $900.0 Million Revolving Credit Facility is based on either a base rate plus a margin ranging from 0.00% to 0.75% or at the London Interbank Offered Rate ("LIBOR") plus a margin ranging from 1.00% to 1.75% based on CoreCivic's then-current leverage ratio.  The $900.0 Million Revolving Credit Facility includes a $30.0 million sublimit for swing line loans that enables CoreCivic to borrow at the base rate from the Administrative Agent without advance notice.

Based on CoreCivic's current total leverage ratio, loans under the $900.0 Million Revolving Credit Facility bear interest at the base rate plus a margin of 0.50% or at LIBOR plus a margin of 1.50%, and a commitment fee equal to 0.35% of the unfunded

11


 

balance.  The $900.0 Million Revolving Credit Facility also has a $50.0 million sublimit for the issuance of standby letters of credit. As of March 31, 2018, CoreCivic had $198.0 million in borrowings outstanding under the $900.0 Million Revolving Credit Facility as well as $7.6 million in letters of credit outstanding resulting in $694.4 million available under the $900.0 Million Revolving Credit Facility.  

The $900.0 Million Revolving Credit Facility is secured by a pledge of all of the capital stock of CoreCivic's domestic subsidiaries, 65% of the capital stock of CoreCivic's foreign subsidiaries, all of CoreCivic's accounts receivable, and all of CoreCivic's deposit accounts. The $900.0 Million Revolving Credit Facility requires CoreCivic to meet certain financial covenants, including, without limitation, a maximum total leverage ratio, a maximum secured leverage ratio, and a minimum fixed charge coverage ratio.  As of March 31, 2018, CoreCivic was in compliance with all such covenants.  In addition, the $900.0 Million Revolving Credit Facility contains certain covenants that, among other things, limit the incurrence of additional indebtedness, payment of dividends and other customary restricted payments, transactions with affiliates, asset sales, mergers and consolidations, liquidations, prepayments and modifications of other indebtedness, liens and other encumbrances and other matters customarily restricted in such agreements.  In addition, the $900.0 Million Revolving Credit Facility is subject to certain cross-default provisions with terms of CoreCivic's other indebtedness, and is subject to acceleration upon the occurrence of a change of control.

On October 6, 2015, CoreCivic obtained a $100.0 million Incremental Term Loan ("Term Loan") under the "accordion" feature of the $900.0 Million Revolving Credit Facility.  Interest rates under the Term Loan are the same as the interest rates under the $900.0 Million Revolving Credit Facility.  The Term Loan also has the same collateral requirements, financial and certain other covenants, and cross-default provisions as the $900.0 Million Revolving Credit Facility.  The Term Loan, which is pre-payable, also has a maturity concurrent with the $900.0 Million Revolving Credit Facility due July 2020, with scheduled quarterly principal payments through 2020.  As of March 31, 2018, the outstanding balance of the Term Loan was $82.5 million.  

On April 17, 2018, CoreCivic entered into the Second Amended and Restated Credit Agreement (the "New Credit Agreement"), as further described in Note 12.

Senior Notes.  Interest on the $325.0 million aggregate principal amount of CoreCivic's 4.125% senior notes issued in April 2013 (the "4.125% Senior Notes") accrues at the stated rate and is payable in April and October of each year.  The 4.125% Senior Notes are scheduled to mature on April 1, 2020.  Interest on the $350.0 million aggregate principal amount of CoreCivic's 4.625% senior notes issued in April 2013 (the "4.625% Senior Notes") accrues at the stated rate and is payable in May and November of each year.  The 4.625% Senior Notes are scheduled to mature on May 1, 2023.  Interest on the $250.0 million aggregate principal amount of CoreCivic's 5.0% senior notes issued in September 2015 (the "5.0% Senior Notes") accrues at the stated rate and is payable in April and October of each year.  The 5.0% Senior Notes are scheduled to mature on October 15, 2022.  Interest on the $250.0 million aggregate principal amount of CoreCivic's 4.75% senior notes issued in October 2017 (the "4.75% Senior Notes") accrues at the stated rate and is payable in April and October of each year.  The 4.75% Senior Notes are scheduled to mature on October 15, 2027.

The 4.125% Senior Notes, the 4.625% Senior Notes, the 5.0% Senior Notes, and the 4.75% Senior Notes, collectively referred to herein as the "Senior Notes", are senior unsecured obligations of the Company and are guaranteed by all of the Company's subsidiaries that guarantee the $900.0 Million Revolving Credit Facility.  CoreCivic may redeem all or part of the Senior Notes at any time prior to three months before their respective maturity date at a "make-whole" redemption price, plus accrued and unpaid interest thereon to, but not including, the redemption date.  Thereafter, the Senior Notes are redeemable at CoreCivic's option, in whole or in part, at a redemption price equal to 100% of the aggregate principal amount of the notes to be redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date.  

Non-Recourse Mortgage Note.  As previously discussed herein, 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.  The acquisition was partially financed with a $24.5 million non-recourse mortgage note, which is fully-secured by the Capital Commerce Center property, with an interest rate of 4.5%, maturing in January 2033.  Principal and interest on the mortgage note are payable in equal monthly payments over the 15-year term of the note. The note is pre-payable at any time with a prepayment charge, if any, equal to an amount so as to maintain the same yield on the mortgage note as if it had been carried through to its full term using Treasury instruments having a term equal to the remaining term of the mortgage note as of the prepayment date.  As of March 31, 2018, the outstanding balance of the mortgage note was $24.3 million.

CoreCivic may also seek to issue additional debt or equity securities from time to time when the Company determines that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable.

12


 

Debt Maturities.  Scheduled principal payments as of March 31, 2018 (prior to the amendment and restatement of the $900.0 Million Revolving Credit Facility, as further described in Note 12) for the remainder of 2018, the next four years, and thereafter were as follows (in thousands):

 

2018 (remainder)

 

$

8,380

 

2019

 

 

16,220

 

2020

 

 

584,276

 

2021

 

 

1,334

 

2022

 

 

251,396

 

Thereafter

 

 

618,203

 

Total debt

 

$

1,479,809

 

 

7.

STOCKHOLDERS' EQUITY

Dividends on Common Stock

During 2017 and the first quarter of 2018, CoreCivic's Board of Directors declared the following quarterly dividends on its common stock:

 

Declaration Date

 

Record Date

 

Payable Date

 

Per Share

 

February 17, 2017

 

April 3, 2017

 

April 17, 2017

 

$

0.42

 

May 11, 2017

 

July 3, 2017

 

July 17, 2017

 

$

0.42

 

August 10, 2017

 

October 2, 2017

 

October 16, 2017

 

$

0.42

 

December 7, 2017

 

January 2, 2018

 

January 15, 2018

 

$

0.42

 

February 22, 2018

 

April 2, 2018

 

April 16, 2018

 

$

0.43

 

 

Future dividends will depend on CoreCivic's distribution requirements as a REIT, future earnings, capital requirements, financial condition, limitations under debt covenants, opportunities for alternative uses of capital, and on such other factors as the Board of Directors of CoreCivic may consider relevant.

Stock Options

Since 2012, CoreCivic has elected not to issue stock options to its non-employee directors, officers, and executive officers as it had in prior years, and instead elected to issue all of its equity compensation in the form of restricted common stock units ("RSUs"), as described hereafter.  All outstanding stock options were fully vested as of December 31, 2016.  As of March 31, 2018, options to purchase 1.0 million shares of common stock were outstanding with a weighted average exercise price of $19.85 per share.

Restricted Stock Units

During the first quarter of 2018, CoreCivic issued approximately 908,000 RSUs to certain of its employees and non-employee directors, with an aggregate value of $19.6 million, including 813,000 RSUs to employees and non-employee directors whose compensation is charged to general and administrative expense and 95,000 RSUs to employees whose compensation is charged to operating expense.  During 2017, CoreCivic issued approximately 554,000 RSUs to certain of its employees and non-employee directors, with an aggregate value of $18.1 million, including 487,000 RSUs to employees and non-employee directors whose compensation is charged to general and administrative expense and 67,000 RSUs to employees whose compensation is charged to operating expense.

CoreCivic established performance-based vesting conditions on the RSUs awarded to its officers and executive officers in years 2015 through 2018.  Unless earlier vested under the terms of the agreements, performance-based RSUs issued to officers and executive officers in those years are subject to vesting over a three-year period based upon the satisfaction of certain annual performance criteria, and no more than one-third of the RSUs may vest in any one performance period.  Time-based RSUs issued to other employees in 2016 through 2018, unless earlier vested under the terms of the agreements, generally vest equally on the first, second, and third anniversary of the award.  Time-based RSUs issued to other employees in 2015, unless earlier vested under the terms of the agreements, "cliff" vest on the third anniversary of the award.  RSUs issued to non-employee directors vest one year from the date of award.  

13


 

During the three months ended March 31, 2018, CoreCivic expensed $3.5 million, net of forfeitures, relating to RSUs ($0.5 million of which was recorded in operating expenses and $3.0 million of which was recorded in general and administrative expenses). During the three months ended March 31, 2017, CoreCivic expensed $4.1 million, net of forfeitures, relating to RSUs ($0.5 million of which was recorded in operating expenses and $3.6 million of which was recorded in general and administrative expenses). As of March 31, 2018, approximately 1.4 million RSUs remained outstanding and subject to vesting.

8.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year.  Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.  For CoreCivic, diluted earnings per share is computed by dividing net income by the weighted average number of common shares after considering the additional dilution related to restricted stock-based awards and stock options.

A reconciliation of the numerator and denominator of the basic earnings per share computation to the numerator and denominator of the diluted earnings per share computation is as follows (in thousands, except per share data):

 

 

 

For the Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

NUMERATOR

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

Net income

 

$

37,777

 

 

$

50,047

 

Diluted:

 

 

 

 

 

 

 

 

Net income

 

$

37,777

 

 

$

50,047

 

DENOMINATOR

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

118,359

 

 

 

117,782

 

Diluted:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

118,359

 

 

 

117,782

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Stock options

 

101

 

 

 

420

 

Restricted stock-based awards

 

49

 

 

 

57

 

Weighted average shares and assumed conversions

 

 

118,509

 

 

 

118,259

 

BASIC EARNINGS PER SHARE

 

$

0.32

 

 

$

0.42

 

DILUTED EARNINGS PER SHARE

 

$

0.32

 

 

$

0.42

 

 

 

Approximately 0.5 million stock options were excluded from the computation of diluted earnings per share for the three months ended March 31, 2018, because they were anti-dilutive.  There were no stock options excluded from the computation of diluted earnings per share for the three months ended March 31, 2017.


14


 

 

9.

COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The nature of CoreCivic's business results in claims and litigation alleging that it is liable for damages arising from the conduct of its employees, offenders or others.  The nature of such claims includes, but is not limited to, claims arising from employee or offender misconduct, medical malpractice, employment matters, property loss, contractual claims, including claims regarding compliance with contract performance requirements, and personal injury or other damages resulting from contact with CoreCivic's facilities, personnel or offenders, including damages arising from an offender's escape or from a disturbance at a facility.  CoreCivic maintains insurance to cover many of these claims, which may mitigate the risk that any single claim would have a material effect on CoreCivic's consolidated financial position, results of operations, or cash flows, provided the claim is one for which coverage is available.  The combination of self-insured retentions and deductible amounts means that, in the aggregate, CoreCivic is subject to substantial self-insurance risk.  

CoreCivic records litigation reserves related to certain matters for which it is probable that a loss has been incurred and the range of such loss can be estimated.  Based upon management's review of the potential claims and outstanding litigation, and based upon management's experience and history of estimating losses, and taking into consideration CoreCivic's self-insured retention amounts, management believes a loss in excess of amounts already recognized would not be material to CoreCivic's financial statements.  In the opinion of management, there are no pending legal proceedings that would have a material effect on CoreCivic's consolidated financial position, results of operations, or cash flows.  Any receivable for insurance recoveries is recorded separately from the corresponding litigation reserve, and only if recovery is determined to be probable.  Adversarial proceedings and litigation are, however, subject to inherent uncertainties, and unfavorable decisions and rulings resulting from legal proceedings could occur which could have a material adverse impact on CoreCivic's consolidated financial position, results of operations, or cash flows for the period in which such decisions or rulings occur, or future periods.  Expenses associated with legal proceedings may also fluctuate from quarter to quarter based on changes in CoreCivic's assumptions, new developments, or by the effectiveness of CoreCivic's litigation and settlement strategies.

10.

INCOME TAXES

As discussed in Note 1, the Company began operating in compliance with REIT requirements for federal income tax purposes effective January 1, 2013.  As a REIT, the Company must distribute at least 90 percent of its taxable income (including dividends paid to it by its TRSs) and will not pay federal income taxes on the amount distributed to its stockholders.  In addition, the Company must meet a number of other organizational and operational requirements. It is management's intention to adhere to these requirements and maintain the Company's REIT status. Most states where CoreCivic holds investments in real estate conform to the federal rules recognizing REITs. Certain subsidiaries have made an election with the Company to be treated as TRSs in conjunction with the Company's REIT election; the TRS elections permit CoreCivic to engage in certain business activities in which the REIT may not engage directly. A TRS is subject to federal and state income taxes on the income from these activities and therefore, CoreCivic includes a provision for taxes in its consolidated financial statements.

Income taxes are accounted for under the provisions of ASC 740, "Income Taxes". ASC 740 generally requires CoreCivic to record deferred income taxes for the tax effect of differences between book and tax bases of its assets and liabilities. Deferred income taxes reflect the available net operating losses and the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the statement of operations in the period that includes the enactment date.  Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including CoreCivic's past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of its deferred tax assets, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.

The Tax Cuts and Jobs Act (the "TCJA") was enacted on December 22, 2017.  The TCJA reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign-sourced earnings.  However, the TCJA does not change the dividends paid deduction applicable to REITs and, therefore, CoreCivic generally will not be subject to federal income taxes on the Company's REIT taxable income and gains that it distributes to its stockholders.  In the fourth quarter of 2017, the Company recorded, in accordance with ASC 740, the tax effects of enactment of the TCJA on existing deferred tax balances and the Company estimates there is no one-time transition tax on foreign earnings.  The Company re-measured certain deferred tax

15


 

assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. In the fourth quarter of 2017, the Company recognized a charge of $4.5 million, which was included as a component of income tax expense, for the revaluation of deferred tax assets and liabilities and other taxes associated with the TCJA.  However, the Company is still analyzing certain aspects of the TCJA, including research on historical earnings of certain foreign subsidiaries among others, and refining its calculations which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.  

CoreCivic recorded an income tax expense of $1.9 million and $2.5 million for the three months ended March 31, 2018 and 2017, respectively.  As a REIT, CoreCivic is entitled to a deduction for dividends paid, resulting in a substantial reduction in the amount of federal income tax expense it recognizes.  Substantially all of CoreCivic's income tax expense is incurred based on the earnings generated by its TRSs.  CoreCivic's overall effective tax rate is estimated based on its current projection of taxable income primarily generated by its TRSs. The Company's consolidated effective tax rate could fluctuate in the future based on changes in estimates of taxable income, the relative amounts of taxable income generated by the TRSs and the REIT, the implementation of additional tax planning strategies, changes in federal or state tax rates or laws affecting tax credits available to the Company, changes in other tax laws, changes in estimates related to uncertain tax positions, or changes in state apportionment factors, as well as changes in the valuation allowance applied to the Company's deferred tax assets that are based primarily on the amount of state net operating losses and tax credits that could expire unused.

Income Tax Contingencies

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance prescribed in ASC 740 establishes a recognition threshold of more likely than not that a tax position will be sustained upon examination.  The measurement attribute requires that a tax position be measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.  

CoreCivic had no liabilities recorded for uncertain tax positions as of March 31, 2018 and December 31, 2017.  CoreCivic recognizes interest and penalties related to unrecognized tax positions in income tax expense.  CoreCivic does not currently anticipate that the total amount of unrecognized tax positions will significantly change in the next twelve months.  

11.

SEGMENT REPORTING

As of March 31, 2018, CoreCivic operated 51 correctional and detention facilities, 44 of which were owned by the Company.  In addition, CoreCivic owned and operated 26 residential reentry centers and owned 13 properties that it leased to third parties.  Management views CoreCivic's operating results in three operating segments, CoreCivic Safety, CoreCivic Community, and CoreCivic Properties.  CoreCivic Safety includes the operating results of those correctional and detention facilities placed into service that were owned, or controlled via a long-term lease, and managed by CoreCivic, as well as those correctional and detention facilities owned by a third party and managed by CoreCivic.  CoreCivic Safety also includes the operating results of TransCor America, LLC, a subsidiary of the Company that provides transportation services to governmental agencies.  CoreCivic Community includes the operating results of those residential reentry centers placed into service that were owned, or controlled via a long-term lease, and managed by CoreCivic.  CoreCivic Community also includes the operating results of the electronic monitoring and case management services provided by RMOMS. CoreCivic Properties includes the operating results of those properties leased to third parties.  The operating performance of the three segments can be measured based on their net operating income.  CoreCivic defines facility net operating income as a facility's revenues less operating expenses.  


16


 

 

The revenue and net operating income for each of the three segments and a reconciliation to CoreCivic's operating income is as follows for the three months ended March 31, 2018 and 2017 (in thousands):

 

 

 

 

For the Three Months Ended

March 31,

 

 

 

 

2018

 

 

2017

 

Revenue:

 

 

 

 

 

 

 

 

 

Safety

 

 

$

404,498

 

 

$

418,683

 

Community

 

 

 

24,800

 

 

 

17,054

 

Properties

 

 

 

11,615

 

 

 

9,872

 

Total segment revenue

 

 

 

440,913

 

 

 

445,609

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Safety

 

 

 

296,503

 

 

 

300,709

 

Community

 

 

 

19,367

 

 

 

12,015

 

Properties

 

 

 

3,114

 

 

 

2,423

 

Total segment operating expenses

 

 

 

318,984

 

 

 

315,147

 

Facility net operating income:

 

 

 

 

 

 

 

 

 

Safety

 

 

 

107,995

 

 

 

117,974

 

Community

 

 

 

5,433

 

 

 

5,039

 

Properties

 

 

 

8,501

 

 

 

7,449

 

Total facility net operating income

 

 

 

121,929

 

 

 

130,462

 

Other revenue (expense):

 

 

 

 

 

 

 

 

 

Other revenue

 

 

 

3

 

 

 

75

 

Other operating expense

 

 

 

(167

)

 

 

(156

)

General and administrative

 

 

 

(24,971

)

 

 

(24,826

)

Depreciation and amortization

 

 

 

(38,089

)

 

 

(36,257

)

Asset impairments

 

 

 

 

 

 

(259

)

Operating income

 

 

$

58,705

 

 

$

69,039

 

 

The following table summarizes capital expenditures including accrued amounts for the three months ended March 31, 2018 and 2017 (in thousands):

 

 

 

For the Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Capital expenditures:

 

 

 

 

 

 

 

 

Safety

 

$

11,470

 

 

$

12,242

 

Community

 

 

7,147

 

 

 

5,440

 

Properties

 

 

40,994

 

 

 

3,094

 

Corporate and other

 

 

6,641

 

 

 

430

 

Total capital expenditures

 

$

66,252

 

 

$

21,206

 

 

The total assets are as follows (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017