Corrections Corporation of America (CCA; CoreCivic per request) — FY 2011 Form 10-K
Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2011, not a standalone fourth-quarter filing. CCA owned and operated privatized correctional and detention facilities and provided prisoner transportation services. It reported 2011 results alongside 2010 and 2009; amounts below are in U.S. dollars.
Key financial and operating metrics
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Total revenue | $1,735.6 million | $1,675.0 million | +3.6% |
| Operating income | $332.1 million | $323.1 million | +2.8% |
| Net income | $162.5 million | $157.2 million | +3.4% |
| Diluted EPS | $1.54 | $1.39 | +10.8% |
| Cash from operating activities | $351.1 million | $255.5 million | +$95.6 million |
| Capital expenditures | $173.9 million | $143.7 million | +$30.2 million |
| Debt at year-end | $1,245.0 million | $1,156.6 million | +$88.4 million |
- Calculated operating margin was approximately 19.1% of revenue, versus 19.3% in 2010; net margin was approximately 9.4% in both years.
- Average compensated occupancy was 89.8%, down from 90.2%; average compensated population increased to 81,016 from 78,319.
- Operating margin per compensated man-day increased to $18.33 from $18.20. Facility operating margin was 31.3%, versus 31.2%.
- At December 31, cash was $55.8 million, working capital was $161.1 million, and revolving-credit availability was $156.7 million under the then-current $450 million facility. Current assets were $359.4 million and current liabilities $198.4 million.
- Cash used in investing activities was $172.0 million; cash used in financing activities was $148.7 million, principally reflecting share repurchases. The filing reports $1,245.0 million of debt net of discount; contractual principal was $1,255.0 million.
Material changes versus comparable periods
- Revenue and operating income grew mainly from higher average inmate populations and newer or expanded contracts, including Florida facilities, Georgia expansions and the Nevada Southern Detention Center. Average revenue per compensated man-day edged up to $58.48 from $58.36.
- Operating expenses rose 3.4% to $1,203.4 million. Expenses per compensated man-day were nearly unchanged at $40.15 versus $40.16; 2011 wage increases contributed to higher salary costs.
- Net cash from operations improved substantially, partly because California paid past-due receivables collected in early 2011 and working-capital movements were favorable.
- Diluted EPS growth outpaced net income growth, with the company citing the effect of share repurchases. Shares outstanding declined as the company repurchased stock.
- In December 2011, CCA purchased Ohio’s 1,798-bed Lake Erie Correctional Institution for approximately $73 million and entered a 20-year management contract, effective January 2012.
Outlook, commentary, risks and unusual items
- Outlook: Management viewed long-term outsourcing opportunities favorably but described near-term demand as constrained by government budget pressures. It emphasized filling existing capacity before speculative development. The filing provides no formal earnings or revenue guidance.
- Capacity and projects: About 12,300 beds were unoccupied at facilities with at least 100 available beds. The 1,124-bed Jenkins, Georgia facility was expected to be completed in Q1 2012; a 454-bed McRae expansion was expected in Q4 2012. The company estimated 2012 maintenance and IT capital spending of $50–$55 million and development/expansion spending of $30–$35 million.
- Post-year-end refinancing: In January 2012, CCA increased revolving-credit capacity to $785 million, extended its maturity to December 2016 and used borrowings to repay $335 million of 6.25% notes due 2013, leaving $40 million outstanding. Management said the refinancing reduced the weighted-average interest rate from 6.4% to 5.3% and extended weighted-average debt maturity from 2.8 to 4.7 years, while increasing variable-rate exposure. A $1.4–$1.9 million charge was expected in Q1 2012.
- Capital returns: No common dividends were paid in 2011 or 2010. In February 2012, the board approved an annual $0.80-per-share dividend, payable quarterly beginning in Q2 2012, and terminated the share-repurchase program. Debt-agreement restrictions limited further repurchases.
- Contract and policy risks: Government contracts are commonly subject to annual appropriations and termination without cause. Budget cuts, lower inmate populations, rate reductions, contract non-renewals and competitive rebids could reduce revenue. Federal agencies represented 43% of 2011 revenue; California represented 13%.
- Notable exposure: California’s prison realignment and court-ordered population reduction created uncertainty about future demand for CCA’s out-of-state beds. The state housed approximately 9,300 inmates with CCA at year-end. Mississippi’s Delta facility closed in January 2012; Kentucky’s proposed budget could remove inmates from the company-owned Otter Creek facility by June 2012.
- Other risks and contingencies: The business is labor-intensive and substantially self-insured; staffing, healthcare, claims, litigation, facility incidents, construction costs, interest rates and debt covenants can affect results. Management reported no pending legal proceeding expected to materially affect the company, but noted litigation outcomes remain uncertain. The suspended Trousdale, Tennessee project and five idle facilities carried $103.7 million of long-lived assets; management reported no impairment at year-end but acknowledged future charges were possible.
- Quarterly context: Q4 2011 revenue was $439.7 million, operating income $81.1 million, net income $40.5 million and diluted EPS $0.41. Q4 2010 figures were $432.2 million, $87.1 million, $43.7 million and $0.39, respectively; quarterly results can vary with calendar days, start-up costs and contract timing.
Important facts for investors to verify
- Whether California, federal and other government customers maintained bed utilization, appropriations, contract renewals and per-diem rates after year-end.
- Actual ramp-up, occupancy and returns for Jenkins, the McRae expansion and the Lake Erie contract, as well as any consequences of the Delta closure and potential Otter Creek closure.
- Post-refinancing debt balances, variable-rate exposure, covenant headroom, debt service and liquidity; distinguish the year-end balance-sheet debt from contractual principal and subsequent refinancing.
- Whether planned 2012 capital spending and the San Diego replacement-facility project proceeded at estimated costs, and whether idle assets or Trousdale required impairment charges.
- Implementation and affordability of the announced dividend, and the effect of ending repurchases on share count and capital allocation.