CoreCivic(CXW) - 2019 Q4 - Annual Report

Cautionary Statement Regarding Forward-Looking Information This section cautions that forward-looking statements in the report are subject to risks and uncertainties that could cause actual results to differ materially, with no obligation to update them - Forward-looking statements are identified by words like "anticipate," "believe," "expect," "intend," "may," "plan," "will," and similar expressions[7] - Key risks include general economic and market conditions, fluctuations in operating results (occupancy, competition, costs, interest rates), changes in industry privatization, ability to secure and maintain contracts, increased development costs, changes in government policy/legislation, ability to consummate acquisitions, REIT qualification, and availability of financing[7] - The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or circumstances or otherwise, except as required by law[10] PART I Part I provides a comprehensive overview of CoreCivic's business, including its operational segments, services, market position, strategic initiatives, and the regulatory environment, detailing risks, property portfolio, and legal proceedings ITEM 1. Business CoreCivic is a diversified government solutions company operating in corrections, detention, residential reentry, and government real estate, structured as a REIT with three segments serving federal, state, and local agencies Overview CoreCivic is a diversified government solutions company structured as a REIT, providing corrections, detention, residential reentry, and government real estate solutions through three segments, with federal customers contributing significantly to revenue and a high contract renewal rate - CoreCivic is a diversified government solutions company with three segments: CoreCivic Safety, CoreCivic Community, and CoreCivic Properties[13] Facility Net Operating Income by Segment (2017-2019) | Segment | 2019 (%) | 2018 (%) | 2017 (%) | | :-------- | :---- | :---- | :---- | | Safety | 85.2 | 87.1 | 90.0 | | Community | 5.0 | 4.8 | 4.4 | | Properties | 9.8 | 8.1 | 5.6 | Revenue from Federal Authorities (2017-2019) | Year | Percentage of Total Revenue (%) | | :--- | :-------------------------- | | 2019 | 51 | | 2018 | 48 | | 2017 | 48 | - The contract renewal rate for properties owned and operated in CoreCivic Safety and CoreCivic Community segments was 94% over the five years ended December 31, 2019[23] Average Compensated Occupancy Rates (2017-2019) | Segment | 2019 (%) | 2018 (%) | 2017 (%) | | :----------------------- | :---- | :---- | :---- | | CoreCivic Safety facilities | 82 | 81 | 80 | | CoreCivic Community facilities | 76 | 80 | 80 | | Total | 82 | 81 | 80 | CoreCivic Properties Average Occupancy (2017-2019) | Year | Leased Portfolio Occupancy (%) | | :--- | :------------------------- | | 2019 | 99 | | 2018 | 100 | | 2017 | 100 | Operating Procedures and Offender Services for Correctional, Detention, and Residential Reentry Facilities CoreCivic manages facility operations, including staffing and security, adhering to accreditation standards while providing evidence-based reentry programs like education, substance abuse treatment, and life skills to reduce recidivism - In 2019, 1,376 offenders passed high school equivalency exams, 5,136 earned career and technical education certificates, and 1,900 completed substance use disorder programming[29][30][34] - The company offers various reentry programs, including software coding (Persevere partnership), college-level programming (Ashland University partnership), NCCER plumbing programs, and Information Support and Services computer programs[32][33] - CoreCivic facilities are operated in accordance with ACA accreditation standards (95% of eligible facilities accredited with an average score of 99.6% in 2019) and PREA standards[45] - The Quality Assurance Division (QAD) conducts annual, unannounced on-site evaluations of CoreCivic Safety facilities using over 1,000 audit indicators, and government partners conduct over 230 compliance audits and inspections annually[49][50][52] Business Development CoreCivic seeks growth by expanding customer relationships, enhancing contract terms, pursuing real estate leasing, and developing non-residential correctional alternatives, with federal customers remaining key revenue sources despite a 2019 decrease in state revenues - CoreCivic owns or controls approximately 58% of all privately owned prison beds in the United States and manages nearly 39% of all privately managed prison beds in the United States[53] - Federal customers (ICE, USMS, BOP) accounted for 51% of total revenue in 2019, with ICE and USMS each representing 10% or more[55] State Revenues (2017-2019) | Year | State Revenues (Millions USD) | Percentage of Total Revenue (%) | YoY Change (%) | | :--- | :---------------------------- | :-------------------------- | :--------- | | 2019 | $673.4 | 34 | -4.7 | | 2018 | $706.8 | 39 | - | | 2017 | - | 41 | - | - State revenue decreased by 4.7% from 2018 to 2019, largely due to declines in populations from the state of California[58] - Since the beginning of 2018, new contracts have been secured with Kansas, Kentucky, Ohio, Nevada, South Carolina, and Vermont, while Wyoming began utilizing an existing contract it had not utilized in nearly a decade; in January 2020, a new management contract was signed with Mississippi[59] 2019 Accomplishments In 2019, CoreCivic achieved significant milestones, including substantial offender participation in educational and rehabilitative programs, new contracts for idled facilities, the completion of the Otay Mesa Detention Center expansion, integration of offender management systems, acquisition of reentry centers, expansion of its government-leased property portfolio, and the issuance of its first ESG report - In 2019, 1,376 offenders passed high school equivalency exams, 5,136 earned career and technical education certificates, 1,900 completed substance use disorder programming, 1,247 completed Victim Impact Programs, 721 completed the Threshold program, and 5,355 completed cognitive/behavioral evidence-based journals in the "Go Further" program[66] - Increased post-secondary educational offerings by growing a relationship with Ashland University and introduced a new computer coding program at Trousdale Turner Correctional Center[68] - Executed new contracts with ICE for Adams County Correctional Center (2,348 detainees) and Torrance County Detention Facility (910 beds, previously idle), and with USMS for Eden Detention Center (1,422 beds, previously idle)[68] - Completed the $39.0 million, 512-bed expansion of the Otay Mesa Detention Center and extended the contract with the federal government through December 2034[68] - Completed the integration of Rocky Mountain Offender Management Systems, LLC, acquired the South Raleigh Reentry Center (60 beds), and added two residential reentry centers in Virginia (Ghent and James River) through asset acquisition[70] - Acquired a 37,000 square-foot office building in Detroit, Michigan, leased to MDHHS, and entered into a lease with KYDOC for the previously idled 656-bed Southeast Correctional Complex[71] - Issued its first Environmental, Social and Governance (ESG) report, detailing efforts to tackle recidivism and progress toward company-wide reentry goals[71] Facility Portfolio CoreCivic's portfolio includes 50 CoreCivic Safety correctional and detention facilities (43 owned) and 29 CoreCivic Community residential reentry centers, totaling approximately 73,000 and 5,000 beds respectively, with the CoreCivic Properties segment comprising 28 government-leased properties totaling 2.4 million square feet - As of December 31, 2019, CoreCivic Safety operated 50 correctional and detention facilities (43 owned) with a total design capacity of approximately 73,000 beds[76] - As of December 31, 2019, CoreCivic Community owned and managed 29 residential reentry centers with a total design capacity of approximately 5,000 beds[76] - Facility types include Correctional (sentenced adult prisoners), Detention (ICE, USMS, pre-trial), Residential (families detained by ICE), and Community Corrections (reentry, job readiness)[74] - The CoreCivic Properties segment owned 28 properties for lease to third parties and used by government agencies, totaling 2.4 million square feet[89] - Several facilities are subject to purchase options by governmental agencies, some based on depreciated book value and others on fair market value[84] - Construction of the new Lansing Correctional Facility in Kansas, a 2,432-bed correctional facility, was completed in January 2020 at a total cost of approximately $155.0 million[93] Competitive Strengths CoreCivic's competitive strengths include its position as the largest private owner of government-used real estate, its pioneering role in the private prison industry, commitment to ESG accountability, availability of idle beds for growth, a well-established community corrections platform, flexible real estate solutions, an attractive REIT profile, and a compelling value proposition to government agencies - CoreCivic is the largest private owner of real estate used by U.S. government agencies, owning or controlling approximately 16.1 million square feet as of December 31, 2019[95] - The company is the nation's largest private prison owner and one of the largest prison operators, owning or controlling approximately 58% of all privately owned prison beds and managing nearly 39% of all privately managed prison beds in the United States[100] - CoreCivic issued its first ESG report in 2019, detailing environmental impact, social responsibility (recidivism reduction, human rights), and corporate governance, making it the first company in its industry to do so[103][104] - As of December 31, 2019, approximately 6,800 beds at five prison facilities were vacant and immediately available for use, with recent activations of Torrance County Detention Facility and Eden Detention Center in 2019[106] - The company offers flexible real estate solutions, including leasing previously idled facilities to government partners (e.g., Southeast Correctional Complex to KYDOC) and developing build-to-suit facilities (e.g., Lansing Correctional Facility for KDOC)[111][112] - CoreCivic's REIT profile is attractive due to its extensive real estate portfolio (100 facilities, ~16.1 million sq ft), long-term government contracts (94% customer retention), predictable cash flows, and low maintenance capital expenditures[115][116] Capital Strategy As a REIT, CoreCivic must distribute at least 90% of its taxable income annually, influencing its capital deployment for growth, debt reduction, and dividends, primarily funded by cash and its credit facility, though opposition to private correctional facilities has tempered M&A activities by impacting capital markets - As a REIT, CoreCivic is generally required to distribute annually to its stockholders at least 90% of its REIT taxable income[127] Quarterly Dividends Declared (2017-2019) | Year | Total Dividends Declared (Millions USD) | | :--- | :-------------------------------------- | | 2019 | $211.9 | | 2018 | $205.7 | | 2017 | $199.8 | - As of December 31, 2019, the company had $92.1 million cash on hand and $412.7 million available under its revolving credit facility[128] - Opposition to immigration policies and the association of private companies with enforcement have caused some banks to announce they will not continue providing credit or financial services to private correctional/detention facilities, affecting CoreCivic's capital markets and tempering M&A activities[129] - In December 2019, CoreCivic entered into a new $250.0 million Senior Secured Term Loan B (LIBOR + 4.50%, 5-year maturity) to partially fund the early redemption of $325.0 million of 4.125% senior notes due April 2020[132] - In January 2020, the company completed the acquisition of a portfolio of 28 government-leased properties for $83.2 million, financed with cash, assumed debt ($52.2 million), and the issuance of 1.3 million limited partnership units (DownREIT structure)[135][661] Government Regulation CoreCivic operates under extensive federal, state, and local regulations, including educational, healthcare, data privacy (HIPAA, HITECH, CCPA), and safety standards, with compliance failures potentially leading to penalties or contract termination, and is also subject to environmental laws - The industry is subject to extensive federal, state, and local regulations, including educational, health care, data privacy, and safety regulations[137] - Compliance with HIPAA, HITECH, and the California Consumer Privacy Act (CCPA) is critical, with potential for significant civil and criminal penalties for violations[140][142][143] - Failure to comply with these regulations and contract requirements can result in material penalties or non-renewal or termination of facility management contracts[137] Insurance CoreCivic maintains various insurance coverages for its operated facilities, including general liability, workers' compensation, vehicle liability, and property loss, and is significantly self-insured for employee health, workers' compensation, automobile liability, and general liability, making insurance expenses highly dependent on claims experience and cost control - CoreCivic maintains general liability insurance for all operated facilities, as well as property and casualty, workers' compensation, vehicle liability, and directors and officers liability insurance[144] - The company is significantly self-insured for employee health, workers' compensation, automobile liability, and general liability insurance, making insurance expense dependent on claims experience and the ability to control claims[145] Employees As of December 31, 2019, CoreCivic employed 14,075 full- and part-time employees, with approximately 9.4% represented by labor unions across six facilities, reporting good overall employee relations and no strikes or work stoppages Employee Count (as of Dec 31, 2019) | Category | Count | | :------- | :---- | | Total Employees | 14,075 | | Corporate Offices | 455 | | Facilities & Transportation/Monitoring | 13,620 | | Union-represented (at 6 facilities) | ~1,330 (9.4% of workforce) | - The company has not experienced a strike or work stoppage at any of its facilities and, in the opinion of management, overall employee relations are good[148] Competition CoreCivic faces competition from other private operators and government agencies in correctional, detention, and residential reentry sectors based on bed availability, cost, service quality, and experience, and also competes with other real estate investors for government-leased assets, potentially increasing acquisition prices and hindering growth - CoreCivic competes with government agencies and other private operators (e.g., The GEO Group, Inc. and Management and Training Corporation) on the basis of bed availability, cost, quality and range of services offered, experience, and reputation[149] - The company also competes with numerous developers, real estate companies, and other well-capitalized investors for acquisitions of government-leased assets, which could increase prices and impede growth[150] ITEM 1A. Risk Factors CoreCivic faces risks from fluctuating occupancy, government dependence, competition, privatization resistance, contract issues, operational challenges, real estate ownership, legal proceedings, technological changes, ESG scrutiny, substantial indebtedness, and REIT compliance - Fluctuations in occupancy levels can cause a decrease in revenues and profitability, as a substantial portion of the cost structure is fixed while revenue is per diem based[153] - Dependence on government appropriations means that governmental budgetary challenges or government shutdowns can negatively affect results of operations through contract termination, delayed payments, or reduced per diem rates[154] - Resistance to privatization of correctional, detention, and residential reentry facilities, and negative publicity regarding inmate disturbances or perceived poor operational performance, could result in inability to obtain new contracts or loss of existing contracts[157][158] - 49 facility contracts, representing $644.1 million or 33% of total revenue in 2019, are scheduled to expire or have renewal options on or before December 31, 2020, posing renewal risks[159] - The company is subject to legal proceedings, including a purported securities class action lawsuit (Grae v. Corrections Corporation of America et al.) alleging false/misleading public statements and artificially inflated stock price, which the company is vigorously defending[196][198] - As of December 31, 2019, total indebtedness was $1,986.9 million, which could adversely affect financial health, increase vulnerability to adverse economic conditions, and limit financial flexibility[210] - Increasing activist resistance to public-private partnerships for correctional, detention, and residential reentry facilities could impact the company's ability to obtain financing or refinance existing indebtedness[224] - Failure to remain qualified as a REIT would result in corporate income taxes and inability to deduct distributions to stockholders, materially impacting profitability[227][228] ITEM 1B. Unresolved Staff Comments There are no unresolved staff comments - No unresolved staff comments[263] ITEM 2. Properties Information regarding the properties owned by CoreCivic as of December 31, 2019, is detailed in Item 1 ("Business") and Note 4 of the Notes to the Consolidated Financial Statements - The properties owned at December 31, 2019, are described under Item 1 and in Note 4 of the Notes to the Consolidated Financial Statements[264] ITEM 3. Legal Proceedings CoreCivic is involved in various claims and litigation inherent to its business, including those related to employee/offender conduct, medical malpractice, and contractual compliance, with management believing no pending legal proceedings will materially affect financial position, results, or cash flows, despite an ongoing securities class action lawsuit - The nature of CoreCivic's business results in claims and litigation alleging liability for damages arising from the conduct of its employees or others, including employee/offender misconduct, medical malpractice, and contractual claims[266] - Management believes there are no pending legal proceedings that would have a material effect on CoreCivic's financial position, results of operations or cash flows, and maintains insurance to cover many of these claims[266][270] - A purported securities class action lawsuit (Grae v. Corrections Corporation of America et al.) is ongoing, alleging false and/or misleading public statements regarding operational, programming, and cost efficiency factors, which the company intends to vigorously defend[268][270] ITEM 4. Mine Safety Disclosures No mine safety disclosures are applicable - No mine safety disclosures[272] PART II Part II covers CoreCivic's common equity market, selected financial data, management's discussion and analysis of financial condition and results of operations, market risk disclosures, financial statements, and internal controls, providing detailed insights into financial performance, liquidity, capital resources, and operational effectiveness ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities CoreCivic's common stock trades on the NYSE under "CXW," with a closing price of $16.85 per share and approximately 119 million shares outstanding as of February 14, 2020; the Board declared $0.44 per share quarterly dividends in 2019, totaling $211.9 million, consistent with REIT requirements, and no issuer purchases of equity securities were made Market Price of and Distributions on Capital Stock CoreCivic's common stock is traded on the NYSE under the symbol "CXW," with a closing price of $16.85 per share and 119,095,550 shares outstanding as of February 14, 2020 - Common stock is traded on the New York Stock Exchange (NYSE) under the symbol "CXW"[275] Common Stock Information (as of Feb 14, 2020) | Metric | Value | | :----- | :---- | | Closing Price | $16.85 per share | | Shares Outstanding | 119,095,550 | | Registered Holders | ~3,000 | | Beneficial Holders | ~41,000 | Dividend Policy CoreCivic's Board of Directors declared quarterly dividends of $0.44 per share in 2019, totaling $211.9 million for the year, consistent with the REIT requirement to distribute at least 90% of its REIT taxable income annually, with future dividends subject to Board discretion and various factors Quarterly Dividends Declared (2018-2019) | Declaration Date | Record Date | Payable Date | Per Share (USD) | | :--------------- | :---------- | :----------- | :-------- | | Feb 22, 2018 | Apr 2, 2018 | Apr 16, 2018 | $0.43 | | May 11, 2018 | Jul 2, 2018 | Jul 16, 2018 | $0.43 | | Aug 16, 2018 | Oct 1, 2018 | Oct 15, 2018 | $0.43 | | Dec 13, 2018 | Jan 2, 2019 | Jan 15, 2019 | $0.43 | | Feb 21, 2019 | Apr 1, 2019 | Apr 15, 2019 | $0.44 | | May 16, 2019 | Jul 1, 2019 | Jul 16, 2019 | $0.44 | | Aug 15, 2019 | Oct 1, 2019 | Oct 15, 2019 | $0.44 | | Dec 12, 2019 | Jan 6, 2020 | Jan 15, 2020 | $0.44 | - As a REIT, the company is generally required to distribute annually to its stockholders at least 90% of its REIT taxable income[275] Issuer Purchases of Equity Securities There were no issuer purchases of equity securities during the reported period - No issuer purchases of equity securities[276] ITEM 6. Selected Financial Data This section presents selected historical financial data for the five years ended December 31, 2019, derived from the consolidated financial statements, including revenues, operating income, net income, basic and diluted EPS, total assets, total debt, total liabilities, and stockholders' equity Selected Historical Financial Information (2015-2019, in thousands USD, except per share data) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :------------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | | STATEMENT OF OPERATIONS: | | | | | | | Revenues | $1,980,689 | $1,835,766 | $1,765,498 | $1,849,785 | $1,793,087 | | Operating expenses | 1,422,769 | 1,315,250 | 1,249,537 | 1,275,586 | 1,256,128 | | General and administrative | 127,078 | 106,865 | 107,822 | 107,027 | 103,936 | | Depreciation and amortization | 144,572 | 156,501 | 147,129 | 166,746 | 151,514 | | Asset impairments | 4,706 | 1,580 | 614 | — | 955 | | Operating income | 281,564 | 249,485 | 260,396 | 296,416 | 280,554 | | Interest expense, net | 84,401 | 80,753 | 68,535 | 67,755 | 49,696 | | Net income | $188,886 | $159,207 | $178,040 | $219,919 | $221,854 | | Basic earnings per share | $1.59 | $1.34 | $1.51 | $1.87 | $1.90 | | Diluted earnings per share | $1.59 | $1.34 | $1.50 | $1.87 | $1.88 | | BALANCE SHEET DATA (as of Dec 31): | | | | | | | Total assets | $3,791,631 | $3,655,660 | $3,272,398 | $3,271,604 | $3,356,018 | | Total debt | $1,959,372 | $1,801,676 | $1,447,187 | $1,445,169 | $1,452,077 | | Total liabilities | $2,414,882 | $2,240,601 | $1,820,790 | $1,812,641 | $1,893,270 | | Stockholders' equity | $1,376,749 | $1,415,059 | $1,451,608 | $1,458,963 | $1,462,748 | ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of CoreCivic's financial performance, condition, and operational results for the years ended December 31, 2019, 2018, and 2017, covering business overview, critical accounting policies, segment-wise results, liquidity, capital resources, and the impact of inflation and seasonality Overview CoreCivic, a REIT, provides diversified government solutions across three segments: Safety, Community, and Properties, aiming to increase bed utilization, develop new capacity, invest in real estate, acquire community corrections facilities, and contain operating expenses to maintain competitiveness and diversify services - 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[284] - The company aims to increase revenues by increasing the utilization of available beds, delivering new bed capacity through new facility construction and expansion opportunities, investing in real estate-only solutions, acquiring community corrections facilities, and acquiring other businesses that expand solutions and diversify cash flows[297] - Approximately 60% of operating expenses consist of salaries and benefits, and the company is making investments in systems and processes to manage its workforce more efficiently and effectively, especially with respect to overtime and costs of turnover[296] - The $39.0 million, 512-bed expansion of the Otay Mesa Detention Center was completed during the third quarter of 2019 due to long-standing demand from the USMS and ICE[292] - New contracts in the second quarter of 2019 activated previously idled facilities: the 910-bed Torrance County Detention Facility for ICE and the 1,422-bed Eden Detention Center for the USMS[293] Critical Accounting Policies This section outlines CoreCivic's critical accounting policies, focusing on asset impairments (long-lived assets and goodwill), self-funded insurance reserves, and legal reserves, which are evaluated based on recoverability, annual/quarterly reviews, actuarial valuations, and management's best estimates - As of December 31, 2019, CoreCivic had $2.7 billion in property and equipment, including $136.3 million in long-lived assets at five idled CoreCivic Safety correctional facilities[298] - Operating expenses at idled facilities were approximately $8.0 million in 2019, $8.2 million in 2018, and $8.9 million in 2017[299] - In the second quarter of 2019, an asset impairment of $4.3 million was recorded for a residential reentry facility in Arizona, reducing its carrying value to its estimated fair value as a commercial real estate property, after it became idle[301] - Goodwill amounted to $50.5 million as of December 31, 2019, with $7.9 million assigned to CoreCivic Safety and $42.6 million assigned to CoreCivic Community[314] - Accrued liabilities for self-funded insurance (employee health, workers' compensation, and automobile insurance claims) were $41.9 million in 2019 and $35.1 million in 2018[315] - Accrued liabilities for legal reserves were $14.1 million in 2019 and $13.9 million in 2018, representing the best estimate of probable costs for the resolution of claims[316] Results of Operations CoreCivic reported net income of $188.9 million ($1.59 diluted EPS) in 2019, up from $159.2 million ($1.34 diluted EPS) in 2018, with total revenue increasing by 7.9% to $1,980.7 million due to higher federal populations, per diem rate increases, and acquisitions, while CoreCivic Safety remained the largest segment by net operating income and CoreCivic Properties showed significant revenue growth Net Income and EPS (2018-2019) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | YoY Change (%) | | :----------------- | :--------- | :--------- | :--------- | | Net Income | $188.9 | $159.2 | +18.7 | | Diluted EPS | $1.59 | $1.34 | +18.7 | Total Revenue (2018-2019) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | Change (Millions USD) | % Change (%) | | :------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Total Revenue | $1,980.7 | $1,835.8 | $144.9 | 7.9 | - Total management revenue increased by $125.4 million (7.1%), primarily due to a $31.9 million increase in average daily compensated population and a $93.5 million increase from higher average revenue per compensated man-day, acquisitions (RMSC), and a contractual dispute settlement[326] Average Daily Compensated Population (2018-2019) | Year | Average Daily Compensated Population | YoY Change | % Change (%) | | :--- | :----------------------------------- | :--------- | :--------- | | 2019 | 64,107 | +1,095 | +1.7 | | 2018 | 63,012 | - | - | - Federal revenues increased by $122.8 million (13.8%) in 2019, representing 51% of total revenue, driven by per diem increases for several federal contracts and a net increase in federal populations, primarily from the USMS and ICE[328] - State revenues decreased by $33.4 million (4.7%) from 2018 to 2019, primarily due to the continued transfer of California inmates back to the state of California, partially offset by new contracts in other states[330] Operating Metrics per Compensated Man-Day (2018-2019) | Metric | 2019 | 2018 | | :-------------------------------- | :----- | :----- | | Revenue per compensated man-day | $79.72 | $76.50 | | Operating expenses per compensated man-day | $58.31 | $56.70 | | Operating income per compensated man-day | $21.41 | $19.80 | | Operating margin | 26.9% | 25.9% | | Average compensated occupancy | 81.9% | 80.7% | - CoreCivic Safety's facility net operating income increased $22.3 million (4.9%) from $453.6 million in 2018 to $475.8 million in 2019, representing 85.2% of total facility net operating income[341] - CoreCivic Properties' total revenue increased $19.4 million (33.5%) from $57.9 million in 2018 to $77.3 million in 2019, and its facility net operating income increased $12.0 million (28.3%) to $54.5 million, primarily due to acquisitions[355] - General and administrative expenses increased to $127.1 million in 2019 from $106.9 million in 2018, mainly due to higher salaries (including incentive compensation) and professional fees associated with corporate headquarters relocation[365] - Depreciation and amortization decreased to $144.6 million in 2019 from $156.5 million in 2018, primarily due to the adoption of ASC 842, which reclassified South Texas Family Residential Center lease payments from depreciation/interest to operating expenses[367] - Income tax expense was $7.8 million in 2019 (4.0% effective tax rate) compared to $8.4 million in 2018 (5.0% effective tax rate), largely based on earnings generated by Taxable REIT Subsidiaries (TRSs)[380] Liquidity and Capital Resources CoreCivic's capital requirements include working capital, stockholder distributions, capital expenditures, and debt service, with liquidity supported by cash on hand and its revolving credit facility; in 2019, operating activities generated $354.4 million in cash, while investing activities used $244.6 million and financing activities used $64.8 million, with the company refinancing senior notes and acquiring government-leased properties using a "DownREIT" structure - Principal capital requirements are for working capital, stockholder distributions, capital expenditures, and debt service payments[383] - As of December 31, 2019, liquidity was provided by cash on hand of $92.1 million and $412.7 million available under the revolving credit facility[385] Cash Flow Summary (2018-2019, in millions USD) | Activity | 2019 | 2018 | | :---------------------- | :----- | :----- | | Operating Activities | $354.4 | $322.9 | | Investing Activities | $(244.6) | $(291.1) | | Financing Activities | $(64.8) | $(9.9) | - Investing activities in 2019 included $136.1 million for facility development and expansions and $57.2 million for facility maintenance and information technology capital expenditures[402] - Financing activities in 2019 included $209.5 million in dividend payments and $325.0 million for the satisfaction and discharge of 4.125% Senior Notes[403] - A new $250.0 million Term Loan B was entered into in December 2019, partially funding the early redemption of $325.0 million of 4.125% Senior Notes[390] - In January 2020, CoreCivic completed the acquisition of a portfolio of 28 government-leased properties for $83.2 million, utilizing cash, assumed debt, and 1.3 million limited partnership units (DownREIT structure)[135][661] Funds From Operations (FFO) and Normalized FFO (2017-2019, in thousands USD) | Metric | 2019 | 2018 | 2017 | | :----------------------------- | :--------- | :--------- | :--------- | | Net income | $188,886 | $159,207 | $178,040 | | Funds From Operations (FFO) | $300,429 | $262,558 | $274,297 | | Normalized Funds From Operations | $311,921 | $273,779 | $281,634 | Inflation Many of CoreCivic's contracts include inflationary indexing to mitigate the impact of rising costs; however, significant increases in personnel, workers' compensation, food, or medical expenses could adversely affect profitability if they outpace per diem or fixed rates - Many of CoreCivic's facility contracts include provisions for inflationary indexing, which mitigates an adverse impact of inflation on net income[413] - A substantial increase in personnel costs, workers' compensation or food and medical expenses could have an adverse impact on results of operations if these expenses increase faster than per diem or fixed rates[413] Seasonality and Quarterly Results CoreCivic's financial results are impacted by seasonal fluctuations, including the number of calendar days in a quarter and the recognition of unemployment taxes primarily in Q1, with quarterly performance also influenced by government funding, acquisitions, new facility openings, and start-up expenses, making single-quarter results not necessarily indicative of full-year performance - CoreCivic's financial results are impacted by the number of calendar days in a fiscal quarter, with daily profits for the third and fourth quarters including two more days than the first quarter (except in leap years) and one more day than the second quarter[414] - Significant portions of unemployment taxes are recognized during the first quarter, when base wage rates reset for unemployment tax purposes[414] - Quarterly results are affected by government funding initiatives, acquisitions, the timing of the opening of new facilities, or the commencement of new management contracts and related start-up expenses[414] ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk CoreCivic's primary market risk is exposure to changes in U.S. interest rates, particularly for its variable-rate debt under the revolving credit facility, Term Loan A, and Term Loan B, where a hypothetical 100 basis point change would impact interest expense by approximately $5.0 million in 2019, while fixed-rate debt is not materially affected - CoreCivic's primary market risk exposure is to changes in U.S. interest rates, particularly for its variable-rate debt under the revolving credit facility, Term Loan A, and Term Loan B[416] Impact of 100 Basis Point Interest Rate Change on Interest Expense (2017-2019, in millions USD) | Year | Impact on Interest Expense (net of capitalized amounts) | | :--- | :------------------------------------------------------ | | 2019 | +/- $5.0 | | 2018 | +/- $3.6 | | 2017 | +/- $5.0 | - Fixed-rate debt, including senior notes and mortgage notes, is not materially impacted by hypothetical 100 basis point increases or decreases in market interest rates[417] ITEM 8. Financial Statements and Supplementary Data This section indicates that the required financial statements and supplementary data are included in the Annual Report starting on page F-1 - The financial statements and supplementary data required by Regulation S-X are included in this Annual Report on Form 10-K commencing on Page F-1[419] ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure - None[420] ITEM 9A. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of December 31, 2019, concluding they were effective, and the company's internal control over financial reporting was also assessed as effective based on the COSO framework, with Ernst & Young LLP issuing an unqualified opinion - Management concluded that disclosure controls and procedures were effective as of December 31, 2019[421] - Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2019, using the criteria set forth by the COSO framework and believes it was effective[425] - Ernst & Young LLP, the independent registered public accounting firm, issued an unqualified opinion on the Company's internal control over financial reporting as of December 31, 2019[430][431] - There have been no changes in internal control over financial reporting that occurred during the fourth fiscal quarter of 2019 that have materially affected, or are likely to materially affect, internal control over financial reporting[427] ITEM 9B. Other Information On February 20, 2020, the Board of Directors declared a quarterly dividend of $0.44 per common share for the first quarter of 2020, payable on April 15, 2020 - On February 20, 2020, the Company's Board of Directors declared a dividend for the first quarter of 2020 of $0.44 per share to be paid on April 15, 2020 to stockholders of record as of the close of business on April 1, 2020[436] PART III Part III incorporates by reference information from CoreCivic's definitive Proxy Statement for the 2020 Annual Meeting of Stockholders, covering details on directors, executive officers, corporate governance, executive compensation, security ownership, related party transactions, and principal accounting fees and services ITEM 10. Directors, Executive Officers and Corporate Governance This section incorporates by reference information from the 2020 Proxy Statement regarding directors, executive officers, corporate governance, board committees, and audit committee financial literacy, with the company's Code of Ethics and Business Conduct, Corporate Governance Guidelines, and committee charters available on its website - Information required by this Item 10 is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[439] - The Board of Directors has adopted a Code of Ethics and Business Conduct, Corporate Governance Guidelines, and charters for its Audit, Risk, Compensation, Nominating and Governance, and Executive Committees[440] ITEM 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2020 Proxy Statement - Information required by this Item 11 is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[441] ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates by reference information on security ownership from the 2020 Proxy Statement and provides a table detailing securities authorized for issuance under equity compensation plans as of December 31, 2019 - Information required by this Item 12 is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[442] Securities Authorized for Issuance Under Equity Compensation Plans (as of Dec 31, 2019, in thousands, except price) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options | Weighted-Average Exercise Price of Outstanding Options (USD) | Number of Securities Remaining Available for Future Issuance | | :------------------------------------ | :------------------------------------------------------------- | :--------------------------------------------------- | :----------------------------------------------------------- | | Equity compensation plans approved by stockholders | 644 | $20.91 | 5,253 | | Equity compensation plans not approved by stockholders | — | — | — | | Total | 644 | $20.91 | 5,253 | ITEM 13. Certain Relationships and Related Party Transactions, and Director Independence Information on certain relationships and related party transactions, as well as director independence, is incorporated by reference from the 2020 Proxy Statement - Information required by this Item 13 is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[446] ITEM 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement - Information required by this Item 14 is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[447] PART IV Part IV lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K, and states that there is no Form 10-K Summary ITEM 15. Exhibits and Financial Statement Schedules This section lists the financial statements, Schedule III (Real Estate Assets and Accumulated Depreciation), and various exhibits filed with the Annual Report, including corporate governance documents, debt agreements, and certifications - The financial statements as set forth under Item 8 of this Annual Report on Form 10-K have been filed herewith, beginning on page F-1[450] - Schedule III - Real Estate Assets and Accumulated Depreciation, is included starting on page F-51[450] - Various exhibits, including Articles of Amendment, Bylaws, Indentures for Senior Notes, Credit Agreements, and certifications (CEO/CFO), are filed or incorporated by reference[450][451][452][454][455] ITEM 16. Form 10-K Summary There is no Form 10-K Summary provided - None[456]