CoreCivic, Inc. (formerly Corrections Corporation of America) — 2013 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2013, with quarterly results also reported. The company owns or controls correctional and detention facilities and provides facility management, community re-entry, and transportation services to government customers. It began operating as a REIT for federal tax purposes on January 1, 2013, conducting correctional services through taxable REIT subsidiaries.
Financial performance and position
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $1,694.3 million | $1,723.7 million |
| Operating income | $251.2 million | $304.6 million |
| Operating margin | 14.8% | 17.7% |
| Net income | $300.8 million | $156.8 million |
| Diluted EPS | $2.70 | $1.56 |
| Cash from operating activities | $369.5 million | $283.3 million |
- Revenue fell 1.7%; operating income fell 17.6%. Average compensated occupancy declined to 85.2% from 87.9%, and average compensated population fell to 75,698 from 77,961.
- Net income included a $137.7 million tax benefit from remeasuring deferred taxes upon REIT conversion. Results also included $36.5 million of debt-refinancing expense, $6.5 million of asset impairments, and other REIT-conversion and acquisition costs. Net income therefore does not reflect only recurring operating performance.
- At December 31, cash was $77.9 million; available capacity under the $900 million revolver was $345 million. Net working capital was $98.3 million. Total debt was $1.205 billion, with a 3.6% weighted-average effective interest rate and 6.2-year weighted-average maturity. No scheduled principal payments were due before the revolver matures in December 2017.
- Management reported 3.2x debt leverage and 8.6x fixed-charge coverage. Property and equipment, net, was $2.547 billion; total assets were $3.007 billion.
- Cash used in investing activities was $125.5 million, including $36.3 million for the CAI acquisition. Financing activities used $229.0 million, including $299.4 million in dividends, partly offset by debt proceeds and other financing inflows.
- Regular dividends declared totaled $1.97 per share in 2013. A separate $6.66-per-share special dividend of $675 million fulfilled pre-REIT accumulated-earnings distribution requirements; most was paid in shares, and 13.9 million shares were issued.
Material changes and quarterly comparison
- Fourth-quarter 2013 revenue was $431.1 million versus $427.7 million in fourth-quarter 2012; operating income was $56.0 million versus $80.3 million, and net income was $47.5 million versus $45.4 million.
- Federal revenue remained 44% of total revenue; state revenue was 49%. Federal revenue declined to $740.0 million from $752.2 million, and state revenue declined to $823.6 million from $848.4 million. The USMS, BOP, ICE, and California corrections agency were major customers.
- The company completed its REIT conversion, refinanced 7.75% notes with $675 million of new notes bearing 4.125% and 4.625% coupons, and expanded its revolver from $785 million to $900 million. The refinancing reduced interest costs but generated substantial one-time charges.
- It acquired community-corrections provider Correctional Alternatives, Inc. (CAI) for approximately $36.5 million in cash and leased its California City facility to California for annual base rent of $28.5 million.
- It idled the Mineral Wells and Marion facilities after contract losses, lost management of three Florida facilities, and elected not to bid for the Idaho Correctional Center contract. The filing identifies approximately 13,200 unoccupied beds in facilities with at least 100 available beds.
Outlook, risks, and unusual items
- Management expected 2014 capital expenditures of $180–$195 million, including $130–$140 million for construction and potential land acquisitions. The filing gives no earnings or revenue guidance.
- Planned construction included a San Diego facility estimated at $156–$160 million and the 2,552-bed Trousdale County, Tennessee project estimated at approximately $140 million, with completion expected in 2015. The Trousdale operating arrangement was still under discussion.
- Management cited long-term outsourcing and capacity needs as potential growth drivers, while emphasizing cost control, filling existing beds, and seeking customer visibility before speculative development.
- Key risks include government budget constraints and contract termination or non-renewal, lower occupancy and per-diem rates, customer concentration, California’s potential reduction of out-of-state inmate placements, public opposition to privatization, operating and litigation exposure, and self-insurance costs. Federal agencies accounted for 44% of revenue; California’s corrections department accounted for 12%.
- REIT qualification depends on meeting complex income, asset, ownership, and distribution tests. The company generally must distribute at least 90% of REIT taxable income; failure to qualify could result in significant corporate taxes. The company also noted uncertainty in its calculation of accumulated pre-REIT earnings and profits.
- Variable-rate revolver borrowings expose the company to rate increases. Management estimated that a 100-basis-point change would alter 2013 interest expense by approximately $5.3 million.
- A federal-customer contract adjustment generated offsetting $13 million expense and revenue accruals in the fourth quarter. In February 2014, the company agreed to pay Idaho $1 million concerning staffing-related contractual disputes. A government shutdown delayed some federal payments but did not materially affect liquidity.
- The FCC’s inmate-calling rate order and related legal challenges could affect facility commissions, although the company did not expect a material financial-statement impact at the time. Management reported no pending legal proceeding expected to have a material effect, while acknowledging litigation uncertainty.
Important facts for investors to verify
- How much of the 2013 earnings increase is attributable to the nonrecurring REIT-related tax benefit, and what earnings measure best reflects ongoing operations?
- Whether occupancy and compensated population stabilize or recover, particularly for federal customers and California placements.
- Renewal, rebid, and transition outcomes for significant contracts, including Idaho and other facilities with near-term expirations.
- Progress, remaining funding needs, customer commitments, and returns for the San Diego and Trousdale construction projects, as well as utilization of idle facilities.
- Compliance with REIT requirements, future distribution levels, and the effect of dividends on liquidity, share count, and access to capital.
- Debt covenant headroom, revolver availability, refinancing risk, and exposure to variable interest rates; confirm the timing and terms of the $530 million revolver maturity.
- Facility counts differ across sections: the filing describes 53 owned-or-controlled facilities and 13 additional managed facilities in its overview, but later reports 16 managed facilities and 69 total operated facilities. Verify the relevant portfolio definition and status of facilities.