CoreCivic(CXW) - 2020 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CoreCivic's unaudited consolidated financial statements for Q1 2020, covering balance sheets, operations, cash flows, equity, and detailed notes on key accounting areas Consolidated Balance Sheets This section provides a snapshot of CoreCivic's financial position at March 31, 2020, and December 31, 2019 Consolidated Balance Sheet Highlights (Amounts in Thousands) | Metric | March 31, 2020 | December 31, 2019 | | :---------------------- | :------------- | :---------------- | | Cash and cash equivalents | $335,491 | $92,120 | | Total current assets | $659,901 | $435,385 | | Total assets | $4,078,799 | $3,791,631 | | Total current liabilities | $353,256 | $368,811 | | Total liabilities | $2,700,123 | $2,414,882 | | Total equity | $1,378,676 | $1,376,749 | Consolidated Statements of Operations This section details CoreCivic's financial performance for the three months ended March 31, 2020, and 2019 Consolidated Statements of Operations Highlights (Amounts in Thousands, Except Per Share) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | REVENUES | $491,101 | $484,064 | | OPERATING INCOME | $59,019 | $73,264 | | NET INCOME | $33,238 | $49,340 | | NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | $32,057 | $49,340 | | BASIC EARNINGS PER SHARE | $0.27 | $0.42 | | DILUTED EARNINGS PER SHARE | $0.27 | $0.41 | Consolidated Statements of Cash Flows This section outlines CoreCivic's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Amounts in Thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $75,377 | $77,823 | | Net cash used in investing activities | $(42,069) | $(78,000) | | Net cash provided by (used in) financing activities | $199,940 | $(20,560) | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $352,341 | $53,400 | Consolidated Statement of Stockholders' Equity (March 31, 2020) This section details changes in CoreCivic's stockholders' equity for the quarter ended March 31, 2020 Changes in Stockholders' Equity (Q1 2020, Amounts in Thousands) | Item | Common Shares | Common Stock Par Value | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Equity | | :--------------------------------------- | :------------ | :--------------------- | :------------------------- | :------------------ | :------------------------- | | Balance as of December 31, 2019 | 119,096 | $1,191 | $1,821,810 | $(446,252) | $1,376,749 | | Net income | — | — | — | 32,057 | 32,057 | | Retirement of common stock | (207) | (2) | (3,558) | — | (3,560) | | Dividends declared ($0.44 per share) | — | — | — | (53,415) | (53,415) | | Restricted stock compensation, net of forfeitures | — | — | 4,610 | — | 4,610 | | Balance as of March 31, 2020 | 119,629 | $1,196 | $1,822,855 | $(468,646) | $1,355,405 | Consolidated Statement of Stockholders' Equity (March 31, 2019) This section details changes in CoreCivic's stockholders' equity for the quarter ended March 31, 2019 Changes in Stockholders' Equity (Q1 2019, Amounts in Thousands) | Item | Common Shares | Common Stock Par Value | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Equity | | :--------------------------------------- | :------------ | :--------------------- | :------------------------- | :------------------ | :------------------------- | | Balance as of December 31, 2018 | 118,674 | $1,187 | $1,807,202 | $(393,330) | $1,415,059 | | Net income | — | — | — | 49,340 | 49,340 | | Retirement of common stock | (143) | (1) | (3,069) | — | (3,070) | | Dividends declared ($0.44 per share) | — | — | — | (52,994) | (52,994) | | Restricted stock compensation, net of forfeitures | — | — | 3,812 | — | 3,812 | | Balance as of March 31, 2019 | 119,068 | $1,191 | $1,808,147 | $(426,924) | $1,382,414 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements 1. Organization and Operations CoreCivic, the largest owner of partnership correctional and reentry facilities, operates as a REIT via Safety, Community, and Properties segments - CoreCivic operates 50 correctional and detention facilities (43 owned) with approximately 73,000 beds, 28 residential reentry centers (approximately 5,000 beds), and 57 properties leased to third parties (3.3 million sq ft) as of March 31, 2020[23] - The company operates as a Real Estate Investment Trust (REIT) since January 1, 2013, conducting services through Taxable REIT Subsidiaries (TRSs) to comply with REIT qualification requirements[25] 2. Basis of Presentation and Summary of Significant Accounting Policies Unaudited interim financial statements follow GAAP; Q1 2020 adoption of ASU 2016-13 resulted in a $1.0 million charge to accumulated deficit, with no material impact - CoreCivic adopted ASU 2016-13, 'Financial Instruments – Credit Losses,' in Q1 2020, resulting in a $1.0 million charge to accumulated deficit The impact was not material due to the high credit quality of government receivables[27] Fair Value of Financial Instruments CoreCivic estimates fair value of financial instruments; no material differences between carrying amounts and fair values were noted, except for debt Fair Value of Debt (Amounts in Thousands) | Metric | March 31, 2020 Carrying Amount | March 31, 2020 Fair Value | December 31, 2019 Carrying Amount | December 31, 2019 Fair Value | | :----- | :----------------------------- | :------------------------ | :-------------------------------- | :--------------------------- | | Debt | $(2,297,529) | $(2,183,779) | $(1,986,865) | $(1,964,366) | 3. Goodwill Goodwill remained at $50.5 million, primarily in Community; a COVID-19 assessment found no impairment as of March 31, 2020, but future uncertainty exists Goodwill Allocation (Amounts in Millions) | Segment | March 31, 2020 | December 31, 2019 | | :---------------- | :------------- | :---------------- | | CoreCivic Safety | $7.9 | $7.9 | | CoreCivic Community | $42.6 | $42.6 | | Total Goodwill | $50.5 | $50.5 | - A qualitative assessment for goodwill recoverability was performed due to COVID-19, concluding no impairments as of March 31, 2020, but future impacts are difficult to predict[33] 4. Real Estate Transactions CoreCivic acquired 28 properties for $83.2 million and leased Lansing Correctional Facility in Q1 2020, incurring $2.1 million in idled facility expenses and a $0.5 million impairment - On January 2, 2020, CoreCivic acquired a portfolio of 28 government-leased properties for $83.2 million, financed with $7.7 million cash, $52.2 million assumed debt, and 1.3 million Operating Partnership Units[35] - The 20-year lease for the Lansing Correctional Facility commenced in January 2020, with a financing receivable of $150.8 million recognized as of March 31, 2020[36] Idled Correctional Facilities Carrying Values (Amounts in Thousands) | Facility Name | Design Capacity | Net Carrying Value (March 31, 2020) | | :-------------------------------- | :-------------- | :---------------------------------- | | Prairie Correctional Facility | 1,600 | $14,668 | | Huerfano County Correctional Center | 752 | $16,108 | | Diamondback Correctional Facility | 2,160 | $39,293 | | Marion Adjustment Center | 826 | $11,247 | | Kit Carson Correctional Center | 1,488 | $53,600 | | Total | 6,826 | $134,916 | - CoreCivic incurred $2.1 million in operating expenses for idled facilities in Q1 2020 and recorded a $0.5 million impairment charge for a Community segment facility sold in April 2020[39] 5. Debt Total debt increased to $2.3 billion due to borrowings and acquisitions; CoreCivic was in compliance with covenants, with maturities concentrated in 2023 Debt Outstanding (Amounts in Thousands) | Debt Instrument | March 31, 2020 | December 31, 2019 | | :------------------------------------------------ | :------------- | :---------------- | | Revolving Credit Facility | $631,000 | $365,000 | | Term Loan A | $250,000 | $250,000 | | 4.75% Senior Notes maturing October 2027 | $250,000 | $250,000 | | 4.5% Capital Commerce Center Non-Recourse Mortgage Note | $21,896 | $22,209 | | 4.43% Lansing Correctional Center Non-Recourse Mortgage Note | $159,522 | $159,522 | | 4.5% SSA-Baltimore Non-Recourse Mortgage Note | $148,745 | $150,134 | | Term Loan B maturing December 2024 | $246,875 | $250,000 | | 4.625% Senior Notes maturing May 2023 | $350,000 | $350,000 | | 5.0% Senior Notes maturing October 2022 | $250,000 | $250,000 | | 4.91% Government Real Estate Solutions Non-Recourse Mortgage Note | $51,991 | — | | Total debt | $2,297,529 | $1,986,865 | - As of March 31, 2020, CoreCivic had $631.0 million outstanding under its Revolving Credit Facility and $155.0 million available, with a weighted average interest rate of 2.4%[42][45] - The company was in compliance with all financial covenants under its Bank Credit Agreement as of March 31, 2020[46] Scheduled Principal Debt Payments (Amounts in Thousands) | Year | Amount | | :----------------- | :------------ | | 2020 (remainder) | $24,701 | | 2021 | $40,047 | | 2022 | $293,990 | | 2023 | $1,171,170 | | 2024 | $196,044 | | Thereafter | $571,577 | | Total debt | $2,297,529 | 6. Stockholders' Equity CoreCivic declared a $0.44 per share dividend for Q1 2020, issued 1.2 million RSUs valued at $20.7 million, and expensed $4.6 million for equity compensation Quarterly Dividends Declared on Common Stock | Declaration Date | Record Date | Payable Date | Per Share | | :--------------- | :---------- | :----------- | :-------- | | 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 | | Feb 20, 2020 | Apr 1, 2020 | Apr 15, 2020 | $0.44 | - In Q1 2020, CoreCivic issued approximately 1.2 million RSUs with an aggregate value of $20.7 million and expensed $4.6 million (net of forfeitures) related to RSUs[62][66] 7. Earnings Per Share Q1 2020 basic and diluted EPS decreased to $0.27 from $0.42/$0.41 in Q1 2019, reflecting restricted stock and Operating Partnership Units Earnings Per Share (Amounts in Thousands, Except Per Share Data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income attributable to common stockholders | $32,057 | $49,340 | | Weighted average common shares outstanding (Basic) | 119,336 | 118,836 | | Weighted average shares and assumed conversions (Diluted) | 120,725 | 118,918 | | BASIC EARNINGS PER SHARE | $0.27 | $0.42 | | DILUTED EARNINGS PER SHARE | $0.27 | $0.41 | 8. Commitments and Contingencies CoreCivic faces legal claims, including ICE detainee labor and securities class actions, maintaining $13.9 million in litigation reserves as of March 31, 2020 - A class action lawsuit was filed against CoreCivic alleging forced labor and minimum wage violations for ICE detainees, with a nationwide anti-trafficking class certified on April 1, 2020 No accrual has been recorded as losses are not considered probable or estimable[72] - A securities class action lawsuit alleges false/misleading statements regarding operational and cost efficiency factors, with the class certified on March 26, 2019 CoreCivic has established a reserve based on its estimate of a potential settlement[74][75][76] - As of March 31, 2020, CoreCivic had $13.9 million in accrued liabilities for legal claims and proceedings[134] 9. Income Taxes Q1 2020 income tax expense was $3.8 million (10.2% effective rate), up from $2.5 million (4.8%) in Q1 2019, partly due to a $3.1 million deferred tax expense for the Lansing facility Income Tax Expense and Effective Tax Rate | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------ | :-------------------------------- | :-------------------------------- | | Income tax expense | $3,776 | $2,484 | | Effective tax rate | 10.2% | 4.8% | - Q1 2020 income tax expense included $3.1 million deferred during the construction of the Lansing Correctional Facility, which was revalued to zero upon its conversion to a QRS[81][196] - The Coronavirus Aid, Relief and Economic Security Act (CARES Act) is not currently expected to have a material impact on CoreCivic's consolidated financial statements[82] 10. Segment Reporting CoreCivic reports on Safety, Community, and Properties segments; Q1 2020 saw Safety generate most revenue and NOI, while Properties grew significantly from acquisitions and new leases Segment Revenue and Net Operating Income (Amounts in Thousands) | Segment | Q1 2020 Revenue | Q1 2019 Revenue | Q1 2020 Net Operating Income | Q1 2019 Net Operating Income | | :---------------- | :-------------- | :-------------- | :--------------------------- | :--------------------------- | | Safety | $437,765 | $434,318 | $107,028 | $117,723 | | Community | $30,599 | $30,566 | $6,150 | $7,070 | | Properties | $22,679 | $19,112 | $15,725 | $13,460 | | Total Segment | $491,043 | $483,996 | $128,903 | $138,253 | Segment Capital Expenditures (Amounts in Thousands) | Segment | Q1 2020 Capital Expenditures | Q1 2019 Capital Expenditures | | :---------------- | :--------------------------- | :--------------------------- | | Safety | $6,677 | $19,956 | | Community | $654 | $1,463 | | Properties | $95,949 | $15,903 | | Corporate and other | $2,058 | $3,472 | | Total | $105,338 | $40,794 | Segment Total Assets (Amounts in Thousands) | Segment | March 31, 2020 | December 31, 2019 | | :---------------- | :------------- | :---------------- | | Safety | $2,553,970 | $2,606,127 | | Community | $266,106 | $275,882 | | Properties | $789,322 | $682,249 | | Corporate and other | $469,401 | $227,373 | | Total | $4,078,799 | $3,791,631 | 11. Condensed Consolidating Financial Statements Condensed consolidating financial statements for CoreCivic and subsidiaries are presented per Rule 3-10 of Regulation S-X, detailing financial position and performance ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses CoreCivic's Q1 2020 financial condition and results, covering KPIs, revenue/expense drivers, segment performance, liquidity, capital resources, and COVID-19 impacts Overview CoreCivic is a diversified government solutions company operating as a REIT through Safety, Community, and Properties segments, managing correctional and government-leased facilities - 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, also believing it is the largest private owner of real estate used by U.S. government agencies[115] - As of March 31, 2020, CoreCivic operated 50 correctional/detention facilities (43 owned), 28 residential reentry centers, and owned 57 properties for lease to third parties[115] - The company operates as a REIT, with Taxable REIT Subsidiaries (TRSs) handling correctional services and other business activities, subject to corporate income tax[118][119] Critical Accounting Policies CoreCivic's critical accounting policies involve estimates for asset impairments, insurance, and legal reserves; a COVID-19 assessment found no goodwill impairment as of March 31, 2020, but future uncertainty remains Carrying Values of Idled CoreCivic Safety Correctional Facilities (Amounts in Thousands) | Facility Name | Carrying Value (March 31, 2020) | | :-------------------------------- | :------------------------------ | | Prairie Correctional Facility | $14,668 | | Huerfano County Correctional Center | $16,108 | | Diamondback Correctional Facility | $39,293 | | Marion Adjustment Center | $11,247 | | Kit Carson Correctional Center | $53,600 | | Total | $134,916 | - A qualitative assessment for goodwill impairment was performed due to the potential impact of COVID-19, concluding no impairments as of March 31, 2020, but the long-term impacts are difficult to predict[132] - As of March 31, 2020, CoreCivic had $42.6 million in accrued liabilities for self-funded insurance claims (employee health, workers' compensation, automobile) and $13.9 million for legal reserves[133][134] Results of Operations Q1 2020 net income decreased to $32.1 million ($0.27 diluted EPS) from $49.3 million ($0.41 diluted EPS) in Q1 2019, despite a 1.4% revenue increase, due to higher operating expenses and initial COVID-19 impacts Facility Changes This section outlines the changes in the number of facilities operated by CoreCivic across its segments Changes in Number of Facilities Operated | Item | Safety | Community | Properties | Total | | :-------------------------------------------- | :----- | :-------- | :--------- | :---- | | Facilities as of December 31, 2018 | 51 | 26 | 27 | 104 | | Acquisition of South Raleigh Reentry Center | — | 1 | — | 1 | | Acquisition of a leased property in Michigan | — | — | 1 | 1 | | Sale of a leased property in Pennsylvania | — | — | (1) | (1) | | Acquisition of Rehabilitation Services, Inc. assets | — | 2 | — | 2 | | Lease of Southeast Correctional Complex | (1) | — | 1 | — | | Facilities as of December 31, 2019 | 50 | 29 | 28 | 107 | | Acquisition of government-leased properties | — | — | 28 | 28 | | Commencement of Lansing Correctional Facility lease | — | — | 1 | 1 | | Termination of contract and lease of a Colorado reentry center | — | (1) | — | (1) | | Facilities as of March 31, 2020 | 50 | 28 | 57 | 135 | Net Income and EPS This section presents CoreCivic's net income attributable to common stockholders and diluted earnings per share Net Income Attributable to Common Stockholders and Diluted EPS | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income attributable to common stockholders | $32.1 million | $49.3 million | | Diluted earnings per share | $0.27 | $0.41 | Segment Contribution to Net Operating Income This section analyzes the proportional contribution of each segment to CoreCivic's total facility net operating income Total Facility Net Operating Income by Segment | Segment | Q1 2020 | Q1 2019 | | :-------- | :------ | :------ | | Safety | 83.0% | 85.2% | | Community | 4.8% | 5.1% | | Properties| 12.2% | 9.7% | Facility Operations Key Performance Indicators This section presents key operational metrics for CoreCivic's facilities, including revenue, expenses, and occupancy rates Facility Operations Key Performance Indicators | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue per compensated man-day | $81.92 | $78.37 | | Operating expenses per compensated man-day | $61.79 | $57.03 | | Operating income per compensated man-day | $20.13 | $21.34 | | Operating margin | 24.6% | 27.2% | | Average compensated occupancy | 79.0% | 82.7% | | Average available beds | 78,019 | 78,073 | | Average compensated population | 61,617 | 64,551 | Revenue Analysis Q1 2020 total revenue rose 1.4% to $491.1 million, driven by higher per diem and rental revenue, despite a 4.5% drop in compensated population; federal revenue increased, state decreased, and COVID-19 impacts are emerging Revenue Components (Amounts in Millions) | Revenue Type | Q1 2020 | Q1 2019 | Change ($) | Change (%) | | :------------------- | :------ | :------ | :--------- | :--------- | | Federal | $251.3 | $242.1 | $9.2 | 3.8% | | State | $166.6 | $171.3 | $(4.7) | (2.7%) | | Local | $25.6 | $24.8 | $0.8 | 3.2% | | Other Management | $24.8 | $26.7 | $(1.9) | (7.1%) | | Total Management | $468.3 | $464.9 | $3.4 | 0.7% | | Rental Revenue | $22.7 | $19.1 | $3.6 | 18.8% | | Total Revenue | $491.1 | $484.1 | $7.0 | 1.4% | - Average daily compensated population decreased by 2,934 (4.5%) to 61,617 in Q1 2020, primarily due to the expiration of the BOP contract at Adams County Correctional Center and the transfer of California inmates[145] - Federal revenues increased $9.2 million (3.8%) in Q1 2020, but COVID-19 has amplified reductions in ICE and USMS populations due to border entry denials and criminal justice system disruptions[146][147] - State revenues decreased $4.7 million (2.7%) in Q1 2020, mainly due to California inmate transfers, partially offset by new contracts with Mississippi and Kansas[149] Operating Expenses Analysis Q1 2020 operating expenses increased to $362.3 million, with per-man-day expenses rising to $61.79 due to higher salaries/benefits; COVID-19 is expected to add $6.5-7.5 million in Q2 'hero bonuses' Operating Expenses (Amounts in Millions) | Metric | Q1 2020 | Q1 2019 | | :--------------- | :------ | :------ | | Operating expenses | $362.3 | $345.8 | - Total expenses per compensated man-day increased to $61.79 in Q1 2020 from $57.03 in Q1 2019, driven by increases in salaries and benefits expenses[158] - CoreCivic expects to incur $6.5 million to $7.5 million in 'hero bonuses' for line and field staff during Q2 2020 due to the COVID-19 pandemic[159] Facility Management Contracts CoreCivic expects to renew most 3-5 year facility management contracts due to bed supply and cost-effectiveness, though government partners retain termination rights - CoreCivic expects to renew all material contracts expiring within the next twelve months, maintaining a high renewal rate due to constrained bed supply and cost-effectiveness[162] - Government partners generally retain the right to terminate management contracts for non-appropriation of funds or for convenience[161] CoreCivic Safety Segment Performance Q1 2020 CoreCivic Safety revenue rose slightly to $437.8 million, but NOI decreased 9.1% to $107.0 million, with margins impacted by reduced populations and higher expenses, alongside California inmate transfers and new contracts CoreCivic Safety Segment Performance Indicators | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue per compensated man-day | $83.37 | $79.84 | | Operating expenses per compensated man-day | $62.99 | $58.20 | | Operating income per compensated man-day | $20.38 | $21.64 | | Operating margin | 24.4% | 27.1% | | Average compensated occupancy | 79.4% | 83.0% | | Average available beds | 72,689 | 72,833 | | Average compensated population | 57,699 | 60,441 | - Operating margins in CoreCivic Safety were negatively impacted by reduced populations and increased salaries and benefits expenses, with further adverse impacts expected from COVID-19[165] - The transfer of all California inmates from out-of-state facilities was completed by June 30, 2019, resulting in a $9.8 million revenue decrease for Q1 2020 compared to Q1 2019[166] - New contracts were secured for the previously idled Torrance County Detention Facility (ICE) and Eden Detention Center (USMS), and with the state of Mississippi for the Tallahatchie facility and Kansas for the Saguaro facility[169][170][171][173] CoreCivic Community Segment Performance Q1 2020 CoreCivic Community revenue was $30.6 million, but NOI fell 13.0% to $6.2 million, with margins impacted by higher expenses and reduced population; the segment acquired two centers and faces COVID-19 impacts CoreCivic Community Segment Performance Indicators | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue per compensated man-day | $60.46 | $56.71 | | Operating expenses per compensated man-day | $44.14 | $39.86 | | Operating income per compensated man-day | $16.32 | $16.85 | | Operating margin | 27.0% | 29.7% | | Average compensated occupancy | 73.5% | 78.4% | | Average available beds | 5,330 | 5,240 | | Average compensated population | 3,918 | 4,110 | - Operating margins were negatively impacted by increased salaries and benefits expenses and a decline in average compensated population, partly due to reduced utilization from Oklahoma[176] - CoreCivic acquired certain assets of Rehabilitation Services, Inc. in December 2019, adding two residential reentry centers in Virginia[177] - The COVID-19 pandemic has led to resident transfers to non-residential status or early releases and a modest reduction in referrals to community facilities[178] CoreCivic Properties Segment Performance Q1 2020 CoreCivic Properties revenue grew 18.7% to $22.7 million and NOI rose 16.8% to $15.7 million, driven by a 28-property acquisition and the Lansing Correctional Facility lease commencement CoreCivic Properties Segment Revenue and Net Operating Income (Amounts in Millions) | Metric | Q1 2020 | Q1 2019 | | :-------------------------- | :------ | :------ | | Total revenue | $22.7 | $19.1 | | Facility net operating income | $15.7 | $13.5 | - The segment's growth was primarily due to the acquisition of a 28-property government-leased portfolio in January 2020, which generated $2.7 million in rental revenue in Q1 2020[183] - The lease for the Lansing Correctional Facility commenced in January 2020, generating $0.7 million in non-lease service revenue and $1.6 million in interest income in Q1 2020[184] General and Administrative Expenses Q1 2020 general and administrative expenses increased to $31.3 million from $29.4 million in Q1 2019, mainly due to higher corporate salaries, benefits, and administrative costs General and Administrative Expenses (Amounts in Millions) | Metric | Q1 2020 | Q1 2019 | | :------------------------------------ | :------ | :------ | | General and administrative expenses | $31.3 | $29.4 | Depreciation and Amortization Q1 2020 depreciation and amortization expense increased to $38.0 million from $35.5 million in Q1 2019, primarily due to M&A activities in 2019 and 2020 Depreciation and Amortization Expense (Amounts in Millions) | Metric | Q1 2020 | Q1 2019 | | :------------------------------------ | :------ | :------ | | Depreciation and amortization expense | $38.0 | $35.5 | Interest Expense, Net Q1 2020 gross interest expense, net of capitalized interest, rose to $24.5 million from $21.9 million, driven by increased borrowings; gross interest income also increased to $2.0 million, including $1.6 million from the Lansing facility lease Gross Interest Expense and Income (Amounts in Millions) | Metric | Q1 2020 | Q1 2019 | | :------------------------------------ | :------ | :------ | | Gross interest expense, net of capitalized interest | $24.5 | $21.9 | | Gross interest income | $2.0 | $0.5 | - The increase in gross interest expense was primarily due to increased borrowings on the revolving credit facility and interest from the new Term Loan B and the GRES Note[188][192][193] - Interest income included $1.6 million from the 20-year finance receivable associated with the Lansing Correctional Facility lease[194] Income Tax Expense Q1 2020 income tax expense was $3.8 million (10.2% effective rate), up from $2.5 million (4.8%) in Q1 2019, partly due to a $3.1 million deferred tax expense for the Lansing facility Income Tax Expense and Effective Tax Rate | Metric | Q1 2020 | Q1 2019 | | :------------------ | :------ | :------ | | Income tax expense | $3.8M | $2.5M | | Effective tax rate | 10.2% | 4.8% | - The Q1 2020 income tax expense included $3.1 million deferred during the construction of the Lansing Correctional Facility, which was revalued to zero upon its conversion to a QRS[196] Liquidity and Capital Resources CoreCivic's Q1 2020 liquidity includes $335.5 million cash and $155.0 million available credit; net operating cash flow was $75.4 million, with COVID-19 prompting precautionary measures and reevaluation of spending, while FFO and Normalized FFO decreased Capital Requirements and REIT Distributions This section outlines CoreCivic's primary capital needs and its obligations as a REIT regarding stockholder distributions - CoreCivic's principal capital requirements include working capital, stockholder distributions, capital expenditures, and debt service payments[198] - As a REIT, CoreCivic is generally required to distribute annually at least 90% of its REIT taxable income to stockholders[199] - A quarterly dividend of $0.44 per share, totaling $53.4 million, was declared for Q1 2020[199] COVID-19 Impact on Liquidity This section discusses the potential adverse effects of the COVID-19 pandemic on CoreCivic's financial position and liquidity - The COVID-19 pandemic has led to reductions in ICE and USMS populations and potential releases of inmates by state/local agencies, which could materially affect financial position, results of operations, and cash flows[200] - As a precautionary measure, CoreCivic partially drew its revolving credit facility and is reevaluating spending and capital projects[200] Current Liquidity and Debt Maturities This section details CoreCivic's immediate liquidity position and its debt maturity schedule Liquidity Position (Amounts in Millions) | Metric | March 31, 2020 | | :------------------------------------ | :------------- | | Cash on hand | $335.5 | | Available under revolving credit facility | $155.0 | Net Cash Provided by Operating Activities (Amounts in Millions) | Period | Amount | | :------------------------------------ | :----- | | Three months ended March 31, 2020 | $75.4 | | Three months ended March 31, 2019 | $77.8 | - CoreCivic has no debt maturities until October 2022 and does not anticipate needing to access capital markets in the short-term[201] Debt and Equity Overview This section provides an overview of CoreCivic's total debt, interest rates, maturity profile, and equity offering agreements - As of March 31, 2020, total debt was $2.3 billion, with a weighted average effective interest rate of 4.7% and a weighted average maturity of 5.7 years[204] - The company has an Amended and Restated ATM Equity Offering Sales Agreement for up to $200.0 million in common stock sales, but no shares were sold in 2020 or 2019[205] Facility Acquisitions, Development, and Capital Expenditures This section details CoreCivic's recent acquisition and development activities, as well as future investment strategies - In January 2020, CoreCivic acquired a portfolio of 28 government-leased properties for $83.2 million, utilizing a 'DownREIT' structure with Operating Partnership Units[206] - The Lansing Correctional Facility development was completed in January 2020 for approximately $155.0 million, fully funded by Kansas Notes[207] - Future investment opportunities in real estate and complementary businesses are being pursued, but temporarily suspended due to the decline in market value of public securities and an uncertain economic environment from COVID-19[208] Operating Activities Cash Flow This section presents the net cash generated from CoreCivic's primary business operations Net Cash Provided by Operating Activities (Amounts in Millions) | Period | Amount | | :------------------------------------ | :----- | | Three months ended March 31, 2020 | $75.4 | | Three months ended March 31, 2019 | $77.8 | Investing Activities Cash Flow This section details the cash flows related to CoreCivic's investments in property, plant, and equipment, and acquisitions Net Cash Used in Investing Activities (Amounts in Millions) | Period | Amount | | :------------------------------------ | :----- | | Three months ended March 31, 2020 | $42.1 | | Three months ended March 31, 2019 | $78.0 | - Q1 2020 investing activities included $22.2 million for facility development/expansions, $8.6 million for capital improvements, and $8.8 million for the acquisition of 28 properties[211] Financing Activities Cash Flow This section outlines the cash flows related to CoreCivic's debt and equity transactions Net Cash Flow from Financing Activities (Amounts in Millions) | Period | Amount | | :------------------------------------ | :----- | | Three months ended March 31, 2020 | $199.9 | | Three months ended March 31, 2019 | $(20.6)| - Q1 2020 financing activities included $266.0 million net borrowings from the revolving credit facility, offset by $54.5 million in dividends and $3.6 million for common stock repurchase[212] Funds from Operations (FFO) and Normalized FFO This section presents CoreCivic's Funds from Operations (FFO) and Normalized FFO, key metrics for REIT performance FFO and Normalized FFO (Amounts in Thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $33,238 | $49,340 | | Depreciation and amortization of real estate assets | $28,106 | $26,599 | | Impairment of real estate assets | $405 | — | | Funds From Operations (FFO) | $61,749 | $75,939 | | Expenses associated with M&A| $338 | $436 | | Deferred tax expense on Kansas lease structure | $3,085 | — | | Goodwill and other impairments | $131 | — | | Normalized FFO | $65,303 | $76,375 | Contractual Obligations This section details CoreCivic's future contractual cash obligations, including debt, interest, and lease payments Contractual Cash Obligations as of March 31, 2020 (Amounts in Thousands) | Obligation Type | 2020 (remainder) | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | | :-------------------------------------- | :--------------- | :-------- | :-------- | :---------- | :-------- | :--------- | :------------ | | Long-term debt | $24,701 | $40,047 | $293,990 | $1,171,170 | $196,044 | $571,577 | $2,297,529 | | Interest on senior and mortgage notes | $53,470 | $57,314 | $56,790 | $35,594 | $26,863 | $129,648 | $359,679 | | Contractual facility developments and other commitments | $5,649 | — | — | — | — | — | $5,649 |\ | South Texas Family Residential Center | $38,742 | $37,333 | — | — | — | — | $76,075 | | Operating leases | $3,720 | $5,219 | $4,181 | $3,145 | $3,135 | $24,183 | $43,583 | | Total contractual cash obligations | $126,282 | $139,913 | $354,961 | $1,209,909 | $226,042 | $725,408 | $2,782,515 | Inflation Many contracts include inflationary indexing, but significant increases in personnel, workers' compensation, food, or medical expenses could adversely affect results if they outpace fixed rates - Many contracts include inflationary indexing to mitigate adverse impacts of inflation[222] - Substantial increases in personnel, workers' compensation, food, or medical expenses could negatively impact results if they exceed per diem or fixed rates[222] Seasonality and Quarterly Results CoreCivic's financial results are subject to seasonality, influenced by calendar days, Q1 unemployment tax recognition, government funding, and new facility openings - Financial results are impacted by the number of calendar days in a fiscal quarter (Q3 and Q4 typically have more days than Q1 and Q2)[223] - Significant portions of unemployment taxes are recognized during the first quarter[223] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk CoreCivic's primary market risk is U.S. interest rate exposure on variable-rate debt; a 100 basis point change would impact Q1 2020 interest expense by $2.1 million, while fixed-rate debt remains unaffected - A hypothetical 100 basis point increase or decrease in market interest rates would have increased or decreased interest expense by $2.1 million for the three months ended March 31, 2020, due to variable-rate debt[224] - Fixed-rate debt, including senior notes and non-recourse mortgage notes, would not be materially impacted by a 100 basis point change in market interest rates[225] ITEM 4. Controls and Procedures Management concluded CoreCivic's disclosure controls and procedures were effective as of March 31, 2020, ensuring timely and accurate reporting, with no material changes in internal control - CoreCivic's disclosure controls and procedures were deemed effective as of March 31, 2020, ensuring timely and accurate reporting[227] - No material changes in internal control over financial reporting occurred during the period covered by the report[227] PART II – OTHER INFORMATION ITEM 1. Legal Proceedings This section refers to Note 8 for details on legal proceedings, including class action lawsuits related to ICE detainee labor and securities - Information on legal proceedings is incorporated by reference from Note 8 to the financial statements[230] ITEM 1A. Risk Factors This section updates risk factors, highlighting COVID-19's material adverse effects, including reduced ICE/USMS populations, criminal justice disruptions, potential inmate releases, increased costs, and third-party service provider risks - The COVID-19 pandemic has resulted in a reduction in ICE populations due to federal government denial of entry at the southern border[233] - Disruptions to the criminal justice system from COVID-19 have reduced USMS and, to a lesser extent, state populations, and fewer referrals to residential reentry facilities[233] - CoreCivic faces increased personnel costs (e.g., 'hero bonuses'), potential inmate releases, and risks to third-party service providers due to the pandemic[233][235] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds On January 2, 2020, CoreCivic issued 1.3 million Operating Partnership Units, valued at $17.34 per unit, for a property acquisition; these units are convertible and were issued under a Section 4(a)(2) exemption - CoreCivic issued 1.3 million Operating Partnership Units, valued at $17.34 per unit, on January 2, 2020, as part of a property portfolio acquisition[237] - The Operating Partnership Units are convertible into cash or common stock after a two-year holding period and were issued without registration under Section 4(a)(2) of the Securities Act[237][238] ITEM 3. Defaults Upon Senior Securities CoreCivic reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[239] ITEM 4. Mine Safety Disclosures CoreCivic reported no mine safety disclosures for the period - No mine safety disclosures were reported[239] ITEM 5. Other Information CoreCivic reported no other information for the period - No other information was reported[239] ITEM 6. Exhibits This section lists Form 10-Q exhibits, including financial information in Inline XBRL format and various certifications - Exhibits include financial information in Inline XBRL format (Exhibit 101, 104) and certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2)[242][243] Signatures The report is signed by Damon T. Hininger, President and CEO, and David M. Garfinkle, EVP, CFO, and Principal Accounting Officer, on behalf of CoreCivic, Inc