CoreCivic (then Corrections Corporation of America): FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010; filed February 25, 2011. This is an annual report, not a Q4-only filing. The company owned and operated privatized correctional and detention facilities, managed government-owned facilities, and provided prisoner transportation services.
Business context and operating footprint
CCA operated 66 facilities with approximately 90,000 beds across 19 states and the District of Columbia. Its revenue depended primarily on government contracts, generally paid per inmate per day and often subject to appropriations and termination without cause. Federal customers generated 43% of 2010 revenue; state customers generated 50%.
Key financial metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Total revenue | $1,675.0 million | $1,628.9 million |
| Operating income | $323.1 million | $307.4 million |
| Net income | $157.2 million | $155.0 million |
| Diluted EPS | $1.39 | $1.32 |
| Cash from operating activities | $255.5 million | $314.7 million |
| Capital expenditures | $143.7 million | $143.0 million |
| Cash and cash equivalents at year-end | $25.5 million | $45.8 million |
| Total debt, net of discount | $1,156.6 million | $1,149.1 million |
| Net working capital at year-end | $172.4 million | Not stated here |
Revenue grew about 2.8% and operating income about 5.1%; net income rose about 1.4%. Overall facility operating margin per compensated man-day increased to 31.2% from 30.9%, while average compensated occupancy eased to 90.2% from 90.6%. Management and other revenue was $1,672.5 million; rental revenue was $2.6 million.
Material changes versus prior year
- Federal revenue rose $61.6 million, or 9.4%, to $717.8 million, helped by inmate population increases and facility activity.
- State revenue fell $10.8 million, or 1.3%, to $838.5 million as some states added in-state capacity or reduced populations amid budget constraints. California growth partly offset declines elsewhere.
- Average compensated population increased to 78,319 from 75,911, but average revenue per compensated man-day slipped 0.3%. Operating expenses per compensated man-day declined 0.7% to $40.16.
- Operating cash flow declined $59.2 million, primarily reflecting unfavorable working-capital movements, including higher California receivables. Year-end California receivables were $89.8 million; the company said past-due balances were being paid in early 2011 after the state budget passed.
- CCA repurchased 7.1 million shares for $145.7 million during 2010 under its $250 million authorization. Share repurchases reduced weighted-average shares and supported per-share earnings growth.
Liquidity, debt and investment
At year-end, CCA reported $25.5 million of cash and $228.2 million available under its $450 million revolving credit facility. The revolver had $178.0 million drawn, at a weighted-average rate of 1.5%; most other debt carried fixed rates. Total weighted-average effective interest rate was 6.5%, and weighted-average debt maturity was 3.9 years. Debt principal maturities included $178.0 million in December 2012, $375.0 million in 2013, $150.0 million in 2014, and $465.0 million in 2017. CCA reported compliance with credit-facility covenants. S&P rated its unsecured debt and corporate credit BB; Moody’s rated unsecured debt Ba2 with a positive outlook.
2010 capital spending included $101.8 million for development and expansions and $41.8 million for maintenance and technology. Management estimated 2011 spending of $50–55 million for maintenance and technology and $63–73 million for development and expansions. The company was building a 1,124-bed Georgia facility, with estimated total cost of $57 million and $55.1 million remaining at year-end. It had suspended construction of a planned Tennessee facility pending clearer demand.
Outlook, commentary and principal risks
- Management cited persistent state budget pressure, which could lead to reduced inmate populations, lower per-diem rates, delayed rate increases, or contract nonrenewals. It nevertheless viewed long-term outsourcing prospects favorably, while saying it would seek meaningful utilization of existing beds before speculative construction.
- CCA had approximately 11,600 available beds after accounting for beds covered by guarantees; filling them could support growth, but management gave no assurance of achieving occupancy.
- California represented 13% of 2010 revenue ($214.0 million). The CDCR extended certain arrangements, but an additional award remained subject to negotiations and appropriations. A proposed California shift of some inmates to local jurisdictions, legal developments, or limits on out-of-state placements could reduce demand.
- Several contracts were due to expire in 2011. CCA said two Texas facility contracts, representing less than 2% of 2010 revenue, were in competitive procurement and might not be retained.
- Two Arizona contracts ended in 2010, leaving the Huerfano and Diamondback facilities idle; Prairie was also idle. CCA continued marketing available capacity. It lost the Gadsden contract and exited the Hernando County contract; related 2010 discontinued operations included a $1.7 million goodwill impairment and about $3.2 million of noncash termination-related charges.
- Other risks include dependence on a concentrated group of government customers, fixed facility costs when occupancy falls, labor and medical-cost inflation, self-insured claims, regulatory and litigation exposure, construction cost overruns, and restrictive debt covenants. Legal accruals rose to $19.2 million from $10.9 million.
- No common dividends were paid in 2010 or 2009. The filing provides no formal earnings or revenue guidance; it provides capital-spending and tax-payment estimates instead.
The financial statements received an unqualified audit opinion from Ernst & Young, and the auditor and management reported effective internal control over financial reporting as of December 31, 2010.
Important facts for investors to verify
- California’s inmate-transfer authority, contract appropriations, proposed budget changes, and actual inmate levels and payment timing.
- Renewal outcomes for contracts expiring in 2011, including the two Texas procurements, and the timing and final terms of the additional California award.
- Occupancy and margin performance, especially the ability to fill currently available and previously idle beds without discounting per-diem rates.
- Operating cash conversion and working-capital trends, including California receivables and the difference between earnings growth and lower operating cash flow.
- Debt maturities, revolver availability and covenant headroom, plus funding needs for repurchases, construction, and forecast capital expenditures.
- Updates to self-insurance and litigation reserves, construction costs and completion of the Georgia project, and any further facility closures or contract losses.