CoreCivic(CXW) - 2021 Q4 - Annual Report

Part I Business CoreCivic operates three segments—Safety, Community, and Properties—providing correctional, reentry, and real estate solutions, with 56% of 2021 revenue from federal agencies, and recently revoked its REIT status for financial flexibility - CoreCivic is organized into three main business segments: CoreCivic Safety, CoreCivic Community, and CoreCivic Properties, providing corrections, reentry, and real estate solutions to government partners[18][26] Segment Net Operating Income Contribution (FY 2019-2021) | Segment | 2021 | 2020 | 2019 | |------------|---------|---------|---------| | Safety | 85.5% | 82.2% | 85.2% | | Community | 3.3% | 3.4% | 5.0% | | Properties | 11.2% | 14.4% | 9.8% | - Effective January 1, 2021, the company revoked its REIT election to become a taxable C Corporation, discontinuing its quarterly dividend to prioritize using free cash flow for debt reduction[24][25] Revenue from Federal Agencies (FY 2019-2021) | Year | Federal Revenue (% of Total) | |------|------------------------------| | 2021 | 56% | | 2020 | 52% | | 2019 | 51% | Average Compensated Occupancy (FY 2019-2021) | Facility Type | 2021 | 2020 | 2019 | |---------------------------|-------|-------|-------| | CoreCivic Safety facilities | 73% | 75% | 82% | | CoreCivic Community facilities| 55% | 62% | 76% | | Total | 72% | 74% | 82% | Operating Procedures and Offender Services CoreCivic offers extensive evidence-based reentry programs and maintains high operational standards, with 95% of eligible facilities ACA accredited and regular internal audits ensuring compliance - CoreCivic offers a wide range of reentry programs including education, vocational training, substance abuse treatment, and life skills to prepare individuals for successful reentry into society[33][34] - The company has established partnerships to enhance its educational offerings, including a Construction Academy with HBI, a Culinary Training Program with Trinity Services Group, and a software coding program with Persevere[38][39][40] - Approximately 95% of eligible facilities operated by CoreCivic are accredited by the American Correctional Association (ACA), with an average reaccreditation score of 99.6% in 2021[57] - An internal Quality Assurance Division (QAD) conducts annual, often unannounced, audits to ensure facilities meet partner requirements and accrediting standards, supplementing oversight from government partners[60][61][64] Business Development Business development, heavily reliant on federal customers, faces challenges from President Biden's Executive Order and COVID-19 policies, but seeks long-term opportunities in modernizing public correctional infrastructure - President Biden's January 2021 Executive Order directs the Department of Justice (DOJ) not to renew contracts with private operators, impacting the Bureau of Prisons (BOP) and U.S. Marshals Service (USMS), but not Immigration and Customs Enforcement (ICE), which is under the Department of Homeland Security[70] Revenue Contribution from Key Federal Agencies (FY 2021) | Agency | Revenue (USD Million) | % of Total Revenue | |--------|-----------------------|--------------------| | USMS | $433.6 | 23% | | ICE | $552.2 | 30% | | BOP | $40.6 | 2% | - The company is actively marketing facilities where USMS contracts expired, such as the West Tennessee and Leavenworth centers, to other government agencies[71] - COVID-19 policies, particularly Title 42 which denies entry at the southern border, have reduced ICE detention populations; the reversal of this policy could increase demand for detention capacity[73][76] - Long-term growth strategy focuses on providing solutions for aged or inefficient public correctional infrastructure, as demonstrated by a new contract with Arizona to replace an outdated state prison[82] Facility Portfolio As of December 31, 2021, CoreCivic's portfolio includes 46 Safety facilities (69,407 beds), 26 Community centers (5,049 beds), and 10 Properties (1.8 million sq ft), with some facilities subject to government purchase options Facility Portfolio Summary (as of Dec 31, 2021) | Segment | Number of Facilities/Properties | Total Design Capacity (Beds) | Total Square Footage | |---------------------|---------------------------------|------------------------------|----------------------| | CoreCivic Safety | 46 | 69,407 | N/A | | CoreCivic Community | 26 | 5,049 | N/A | | CoreCivic Properties| 10 | N/A | 1.8 million | - The portfolio includes various facility types such as correctional, detention, residential, and community corrections, categorized by security levels from minimum to maximum[92][93] - Several facilities are subject to purchase options held by government partners, which could allow the government to acquire the facility at a predetermined price, such as depreciated book value or fair market value[104] Competitive Strengths CoreCivic's competitive strengths include being the largest private owner of U.S. government-used real estate, offering flexible capacity and real estate solutions, and enhanced financial flexibility post-REIT revocation - CoreCivic is the largest private owner of real estate used by government agencies in the U.S., with approximately 15.1 million square feet as of year-end 2021[110] - The company maintains 8,459 vacant beds in seven prison facilities, providing immediately available capacity to meet potential customer needs[118] - Revoking its REIT election provides greater financial flexibility, with debt reduction as the first priority, followed by returning capital to shareholders and pursuing growth[128] - The company offers flexible real estate solutions, including leasing facilities to government agencies for them to operate, as demonstrated by agreements with New Mexico, Kentucky, Oklahoma, and Kansas[123] Human Capital CoreCivic's human capital strategy focuses on attracting and retaining a diverse workforce of 10,348 employees through competitive wages, comprehensive benefits, and strong DEI initiatives Employee Demographics (2021) | Metric | Percentage/Number | |---------------------------------------------|-------------------| | Total Employees | 10,348 | | % Female | 52% | | % People of Color or Underrepresented Minorities | 57% | | % Veterans | 10% | - The company has a formal Diversity, Equity, and Inclusion (DEI) strategy led by a VP-level executive and supported by a DEI Advisory Council, with goals to create a common DEI language and a diverse leadership pipeline[150] - CoreCivic has been named a GI Jobs Military Friendly employer for eleven consecutive years[152] - The company has experienced labor shortages and wage pressures, responding with wage increases for most facility staff in both 2020 and 2021 to remain competitive[153] Risk Factors CoreCivic faces significant business risks from political opposition, customer concentration, and COVID-19 impacts, alongside financial risks from substantial indebtedness and challenges in accessing capital post-REIT revocation - President Biden's Executive Order directing the Attorney General not to renew DOJ contracts with private operators is a primary risk, affecting contracts with the BOP and USMS, which together accounted for 25% of 2021 revenue[171] - The company is dependent on a limited number of government customers, with ICE, USMS, and BOP accounting for 56% of total revenues in 2021[209] - The COVID-19 pandemic has negatively affected business by reducing ICE, USMS, and state populations due to border policies and disruptions to the criminal justice system[179][181] - Increasing activist resistance and decisions by several major banks to stop financing the private corrections industry could impact the company's ability to obtain financing or refinance existing debt[253] - Significant indebtedness ($1.55 billion as of Dec 31, 2021) includes restrictive covenants that could limit financial flexibility and requires substantial cash flow for servicing[238][241] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[274] Properties Details on the company's properties are provided in Item 1 (Business) and the Notes to the Consolidated Financial Statements - Details on the company's properties are located in Item 1 of the report and in Schedule III of the Financial Statements[275] Legal Proceedings The company is involved in legal proceedings, including a class action lawsuit regarding its Voluntary Work Program and a $56.0 million securities class action settlement in 2021 - The company faces a class action lawsuit alleging its Voluntary Work Program for ICE detainees violates anti-trafficking and state labor laws; the company disputes the allegations and is vigorously defending itself[687] - A securities class action lawsuit was settled for $56.0 million in 2021, with the company recognizing a net expense of $54.3 million after insurance recoveries; the settlement included no admission of liability[690][691] Mine Safety Disclosures The company reports no mine safety disclosures - There are no mine safety disclosures[277] Part II 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"; the company discontinued its quarterly dividend in August 2020 to prioritize debt reduction and made no equity security purchases - The company's common stock is traded on the NYSE under the symbol CXW[280] - The Board of Directors discontinued the quarterly dividend in August 2020 to prioritize allocating free cash flow to reduce debt levels after revoking its REIT election[281] - No issuer purchases of equity securities were made[282] Management's Discussion and Analysis of Financial Condition and Results of Operations CoreCivic reported a net loss of $51.9 million in 2021, driven by special charges and a 2.3% revenue decrease to $1.86 billion, with liquidity prioritizing debt reduction post-REIT conversion Financial Performance Summary (FY 2021 vs. FY 2020) | Metric | FY 2021 | FY 2020 | |--------------------------------------|----------------|----------------| | Total Revenue | $1,862.6 M | $1,905.5 M | | Net Income (Loss) Attributable to Common Stockholders | ($51.9 M) | $54.2 M | | Diluted EPS | ($0.43) | $0.45 | - The 2021 net loss was primarily driven by special charges, including $54.3 million for shareholder litigation, $56.3 million for debt refinancing, $11.4 million in asset impairments, and a $138.0 million income tax expense related to the C-Corp conversion[325] - The company's primary capital allocation strategy is to use free cash flow to reduce debt, followed by returning capital to shareholders and pursuing growth opportunities[412] - As of December 31, 2021, liquidity consisted of $299.6 million in cash and $786.1 million available under the Revolving Credit Facility[415] Results of Operations In FY 2021, total revenue decreased 2.3% to $1.86 billion, driven by lower state/local populations and property sales, partially offset by increased federal revenue and a $69.3 million reduction in operating expenses Revenue by Source (in millions) | Revenue Source | 2021 | 2020 | % Change | |----------------------------|-----------|-----------|----------| | Federal Management Revenue | $1,050.7 | $999.2 | 5.2% | | State Management Revenue | $602.1 | $636.3 | (5.4%) | | Local Management Revenue | $51.5 | $81.7 | (37.0%) | | Lease Revenue | $68.9 | $93.1 | (26.0%) | | Total Revenue | $1,862.6| $1,905.5| (2.3%) | Key Performance Indicators (Facility Operations) | Metric | 2021 | 2020 | |------------------------------------|---------|---------| | Revenue per compensated man-day | $89.86 | $84.71 | | Operating expenses per compensated man-day | $65.67 | $64.06 | | Operating margin | 26.9% | 24.4% | | Average compensated occupancy | 71.5% | 74.1% | - The decrease in state and local revenue was primarily driven by lower inmate populations resulting from government actions to prevent the spread of COVID-19[337][341] - Operating expenses decreased by $69.3 million, mainly due to lower staffing levels corresponding to lower occupancy and the absence of $13.8 million in incremental COVID-19 expenses (like hero bonuses) incurred in 2020[343][344][345] Liquidity and Capital Resources CoreCivic's liquidity is supported by $299.6 million cash and a $786.1 million credit facility, with its capital strategy prioritizing debt reduction, including $675.0 million in new senior notes and asset sale proceeds, resulting in $1.55 billion total debt at year-end - The company's capital allocation strategy prioritizes debt reduction, followed by returning capital to shareholders and pursuing growth, enabled by the revocation of its REIT status[411][412] - In 2021, CoreCivic issued $675.0 million in 8.25% senior notes due 2026 and used proceeds to redeem its 5.0% senior notes and repurchase a portion of its 4.625% senior notes, extending its debt maturity profile[395][398][418] - Net proceeds of $152.8 million from the sale of 47 non-core assets were used to pay down debt, primarily on the Revolving Credit Facility[425] Debt Summary (as of Dec 31, 2021) | Debt Instrument | Principal Outstanding (USD Million) | |------------------------------|-------------------------------------| | Revolving Credit Facility | $0.0 | | Term Loan A | $170.0 | | Term Loan B | $128.8 | | 4.625% Senior Notes (2023) | $173.7 | | 8.25% Senior Notes (2026) | $675.0 | | 4.75% Senior Notes (2027) | $250.0 | | Non-Recourse Mortgage Notes | $154.5 | | Total Debt | $1,551.9 | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure on its variable-rate debt, where a 100 basis point increase would have raised 2021 interest expense by $3.0 million - The primary market risk is from interest rate changes on variable-rate debt, including the Revolving Credit Facility, Term Loan A, and Term Loan B[450] - A 100 basis point increase in interest rates would have increased interest expense by $3.0 million in 2021[450] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with an unqualified opinion from Ernst & Young LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[456] - Management's report on internal control over financial reporting concluded that the company's internal controls were effective as of December 31, 2021[457][460] - No material changes to internal control over financial reporting occurred during the fourth quarter of 2021[462] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Required information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[475] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Required information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[477] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2022 proxy statement, with 2,812,906 securities available for future issuance under approved equity compensation plans as of December 31, 2021 - Required information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[478] Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise of Outstanding Options | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | |---------------------------------------------|--------------------------------------------------------------|---------------------------------|----------------------------------------------------| | Equity compensation plans approved by stockholders | 300,741 | $22.77 | 2,812,906 | Certain Relationships and Related Party Transactions and Director Independence Information on certain relationships, related party transactions, and director independence is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Required information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[482] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Required information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[483] Part IV Exhibits and Financial Statement Schedules This section provides a comprehensive list of all financial statements, schedules, and exhibits filed as part of the Annual Report - This section contains a comprehensive list of all financial statements, schedules, and exhibits filed with the Form 10-K[486]