2017
A N N U A L R E P O R T
Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 001-16109
CORECIVIC, INC.
(Exact name of registrant as specified in its charter)
MARYLAND
(State or other jurisdiction of
incorporation or organization)
62-1763875
(I.R.S. Employer
Identification No.)
10 BURTON HILLS BLVD., NASHVILLE, TENNESSEE 37215
(Address and zip code of principal executive office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 263-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class
Common Stock, par value $.01 per share
Name of each exchange
on which registered
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company",
and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Emerging growth company
☒
☐ (Do not check if a smaller reporting company)
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.). Yes ☐ No ☒
The aggregate market value of the shares of the registrant's Common Stock held by non-affiliates was approximately $3,239,937,829 as
of June 30, 2017 based on the closing price of such shares on the New York Stock Exchange on that day. The number of shares of the
registrant's Common Stock outstanding on February 15, 2018 was 118,204,246.
Portions of the registrant's definitive Proxy Statement for the 2018 Annual Meeting of Stockholders, currently scheduled to be held on
May 10, 2018, are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE:
CORECIVIC, INC.
FORM 10-K
For the fiscal year ended December 31, 2017
TABLE OF CONTENTS
Item No.
Page
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
16.
PART I
Business ....................................................................................................................................................
Overview .............................................................................................................................................
Operating Procedures and Offender Services for Correctional, Detention, and Residential
Reentry Facilities ..............................................................................................................................
Business Development ........................................................................................................................
2017 Accomplishments .......................................................................................................................
Facility Portfolio ..................................................................................................................................
Competitive Strengths .........................................................................................................................
Capital Strategy ...................................................................................................................................
Government Regulation .......................................................................................................................
Insurance .............................................................................................................................................
Employees ...........................................................................................................................................
Competition .........................................................................................................................................
Risk Factors ..............................................................................................................................................
Unresolved Staff Comments ....................................................................................................................
Properties ..................................................................................................................................................
Legal Proceedings ....................................................................................................................................
Mine Safety Disclosures ...........................................................................................................................
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ...................................................................................................................................
Market Price of and Distributions on Capital Stock ............................................................................
Dividend Policy ...................................................................................................................................
Issuer Purchases of Equity Securities ..................................................................................................
Selected Financial Data ............................................................................................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations ....................
Overview .............................................................................................................................................
Critical Accounting Policies ................................................................................................................
Results of Operations ..........................................................................................................................
Liquidity and Capital Resources..........................................................................................................
Inflation ...............................................................................................................................................
Seasonality and Quarterly Results .......................................................................................................
Quantitative and Qualitative Disclosures about Market Risk...................................................................
Financial Statements and Supplementary Data ........................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................
Controls and Procedures ...........................................................................................................................
Other Information .....................................................................................................................................
PART III
Directors, Executive Officers and Corporate Governance .......................................................................
Executive Compensation ..........................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Party Transactions and Director Independence .................................
Principal Accounting Fees and Services ..................................................................................................
Exhibits and Financial Statement Schedules ............................................................................................
Form 10-K Summary ...............................................................................................................................
SIGNATURES
PART IV
5
5
6
9
12
13
21
24
25
26
27
27
27
46
46
46
47
48
48
48
49
49
51
51
53
57
74
79
79
79
80
80
80
83
84
84
84
85
85
86
90
91
2
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K, or Annual Report, contains statements as to our beliefs and expectations of the
outcome of future events that are forward-looking statements as defined within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended. All statements other than statements of current or historical fact
contained in this Annual Report, including statements regarding our future financial position, business strategy,
budgets, projected costs and plans, and objectives of management for future operations, are forward-looking
statements. The words "anticipate," "believe," "continue," "estimate," "expect," "intend," "could," "may," "plan,"
"projects," "will," and similar expressions, as they relate to us, are intended to identify forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ
materially from the statements made in this Annual Report. These include, but are not limited to, the risks and
uncertainties associated with:
general economic and market conditions, including, but not limited to, the impact governmental budgets
can have on our contract renewals and renegotiations, per diem rates, and occupancy;
fluctuations in our operating results because of, among other things, changes in occupancy levels,
competition, contract renegotiations or terminations, increases in costs of operations, fluctuations in
interest rates, and risks of operations;
changes in the privatization of the corrections and detention industry and the public acceptance of our
services;
our ability to obtain and maintain correctional, detention, and residential reentry facility management
contracts because of reasons including, but not limited to, sufficient governmental appropriations,
contract compliance, negative publicity, effects of inmate disturbances, and the timing of the opening of
new facilities and the commencement of new management contracts as well as our ability to utilize
current available beds;
increases in costs to develop or expand correctional, detention, and residential reentry facilities that
exceed original estimates, or the inability to complete such projects on schedule as a result of various
factors, many of which are beyond our control, such as weather, labor conditions, cost inflation, and
material shortages, resulting in increased construction costs;
changes in government policy, legislation and regulations that affect utilization of the private sector for
corrections, detention, and residential reentry services, in general, or our business, in particular,
including, but not limited to, California's utilization of out-of-state contracted correctional capacity and
the continued utilization of the South Texas Family Residential Center by U.S. Immigration and
Customs Enforcement, or ICE, under terms of the current contract, and the impact of any changes to
immigration reform and sentencing laws (Our company does not, under longstanding policy, lobby for
or against policies or legislation that would determine the basis for, or duration of, an individual's
incarceration or detention.);
our ability to successfully integrate operations of our acquisitions and realize projected returns resulting
therefrom;
our ability to meet and maintain qualification for taxation as a real estate investment trust, or REIT; and
the availability of debt and equity financing on terms that are favorable to us.
Any or all of our forward-looking statements in this Annual Report may turn out to be inaccurate. We have based
these forward-looking statements largely on our current expectations and projections about future events and
financial trends that we believe may affect our financial condition, results of operations, business strategy, and
financial needs. Our statements can be affected by inaccurate assumptions we might make or by known or unknown
risks, uncertainties and assumptions, including the risks, uncertainties, and assumptions described in "Risk Factors"
included elsewhere in this Annual Report and in other reports, documents, and other information we file with the
Securities and Exchange Commission, or the SEC, from time to time.
3
In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this
Annual Report may not occur and actual results could differ materially from those anticipated or implied in the
forward-looking statements. When you consider these forward-looking statements, you should keep in mind the risk
factors and other cautionary statements in this Annual Report, including in "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and "Risk Factors."
Our forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or
revise forward-looking statements, whether as a result of new information, future events or otherwise. All
subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements contained in this Annual Report.
4
ITEM 1. BUSINESS.
Overview
PART I.
We are a diversified government solutions company with the scale and experience needed to solve tough
government challenges in flexible, cost-effective ways. Through three business offerings, CoreCivic Safety,
CoreCivic Properties, and CoreCivic Community, we provide a broad range of solutions to government partners that
serve the public good through corrections and detention management, government real estate solutions, and a
growing network of residential reentry centers to help address America's recidivism crisis. We have been a flexible
and dependable partner for government for more than 30 years. Our employees are driven by a deep sense of
service, high standards of professionalism and a responsibility to help government better the public good.
Structured as a REIT, we are one of the nation's largest owners of partnership correctional, detention, and residential
reentry facilities and one of the largest prison operators in the United States. We also believe we are the largest
private owner of real estate used by government agencies. As of December 31, 2017, we owned and managed 70
correctional, detention, and residential reentry facilities, and managed an additional seven correctional and detention
facilities owned by our government partners, with a total design capacity of approximately 78,000 beds in 19 states.
In addition, as of December 31, 2017, we owned 12 properties leased to third parties and used by government
agencies, totaling 1.1 million square feet in five states.
In addition to providing fundamental residential services, our correctional, detention, and residential reentry
facilities offer a variety of rehabilitation and educational programs, including basic education, faith-based services,
life skills and employment training, and substance abuse treatment. These services are intended to help reduce
recidivism and to prepare offenders for their successful reentry into society upon their release. We also provide or
make available to offenders certain health care (including medical, dental, and mental health services), food
services, and work and recreational programs.
We are a Maryland corporation formed in 1983. Our principal executive offices are located at 10 Burton Hills
Boulevard, Nashville, Tennessee, 37215, and our telephone number at that location is (615) 263-3000. Our website
address is www.corecivic.com. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, definitive proxy statements, and amendments to those reports under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, available on our website, free of charge, as soon as
reasonably practicable after these reports are filed with or furnished to the SEC. Information contained on our
website is not part of this Annual Report.
We began operating as a REIT effective January 1, 2013. We provide services and conduct other business activities
through taxable REIT subsidiaries, or TRSs. A TRS is a subsidiary of a REIT that is subject to applicable corporate
income tax and certain qualification requirements. Our use of TRSs enables us to comply with REIT qualification
requirements while providing correctional services at facilities we own and at facilities owned by our government
partners and to engage in certain other business operations. A TRS is not subject to the distribution requirements
applicable to REITs so it may retain income generated by its operations for reinvestment.
As a REIT, we generally are not subject to federal income taxes on our REIT taxable income and gains that we
distribute to our stockholders, including the income derived from our real estate and dividends we earn from our
TRSs. However, our TRSs will be required to pay income taxes on their earnings at regular corporate income tax
rates.
As a REIT, we generally are required to distribute annually to our stockholders at least 90% of our REIT taxable
income (determined without regard to the dividends paid deduction and excluding net capital gains). Our REIT
taxable income will not typically include income earned by our TRSs except to the extent our TRSs pay dividends to
the REIT.
Our customers primarily consist of federal, state, and local correctional and detention authorities. Federal
correctional and detention authorities primarily consist of the Federal Bureau of Prisons, or the BOP, the United
5
States Marshals Service, or the USMS, and ICE. Payments by federal correctional and detention authorities
represented 48%, 52%, and 51% of our total revenue for the years ended December 31, 2017, 2016, and 2015,
respectively.
Our customer contracts typically have terms of three to five years and contain multiple renewal options. Most of our
facility contracts also contain clauses that allow the government agency to terminate the contract at any time without
cause, and our facility contracts and government lease agreements are generally subject to annual or bi-annual
legislative appropriations of funds.
We are compensated for providing bed capacity and correctional, detention, and residential reentry services at a per
diem rate based upon actual or minimum guaranteed occupancy levels. Occupancy rates for a particular facility are
typically low when first opened or immediately following an expansion. However, beyond the start-up period,
which typically ranges from 90 to 180 days, the occupancy rate tends to stabilize. The average compensated
occupancy of our facilities, based on rated capacity was as follows for the years 2017, 2016, and 2015:
Owned and managed facilities
Managed-only facilities
Total operating facilities
2017
2016
2015
77%
94%
80%
76 %
95 %
79 %
80 %
94 %
83 %
The average compensated occupancy of our owned and managed facilities, excluding idled facilities, was 89%,
87%, and 89% for 2017, 2016, and 2015, respectively.
We also lease facilities to governmental agencies and third-party operators where our occupancy percentage is based
on leased square feet rather than bed capacity. These facilities generated 6%, 5%, and 5% of our facility net
operating income, which we define as a facility's operating income or loss from operations before interest, taxes,
asset impairments, depreciation, and amortization, in 2017, 2016, and 2015, respectively, and the occupancy of these
facilities was as follows for the years 2017, 2016, and 2015:
Leased portfolio
2017
2016
2015
100%
100 %
100 %
We also provide transportation services to governmental agencies through TransCor America, LLC, or TransCor, a
subsidiary of our wholly-owned TRS. During the years ended December 31, 2017, 2016, and 2015, TransCor
generated total revenue of $2.3 million, $2.6 million, and $4.1 million, respectively, or approximately 0.1%, 0.1%,
and 0.2% of our total consolidated revenue in 2017, 2016, and 2015, respectively. We believe TransCor provides a
complementary service to our core business that enables us to respond quickly to our customers' transportation
needs.
Operating Procedures and Offender Services for Correctional, Detention, and Residential Reentry Facilities
Pursuant to the terms of our customer contracts, we are responsible for the overall operations of our facilities,
including staff recruitment, general administration of the facilities, facility maintenance, security, and supervision of
the offenders. We are required by our customer contracts to maintain certain levels of insurance coverage for
general liability, workers' compensation, vehicle liability, and property loss or damage. We also are required to
indemnify our customers for claims and costs arising out of our operations and, in certain cases, to maintain
performance bonds and other collateral requirements.
We believe a focus on inmate reentry provides great benefits for our communities – more people living healthy and
productive lives and contributing to strong families and local economies. We have committed to evolving our
model to focus more and more on reentry services, and we are working hard to equip the men and women in our
care with the services, support, and resources they need to be successful.
6
To that end, we provide a wide range of evidence-based reentry programs and activities in our facilities. At most of
the facilities we manage, offenders have the opportunity to enhance their basic education from literacy through
earning a high school equivalency diploma endorsed by their respective state. In some cases, we also provide
opportunities for postsecondary educational achievements and chances to participate in college correspondence
classes. A number of our facilities that house non-citizens offer adult education curricula recognized by several
nations to which these offenders may return, including a curriculum offered in conjunction with the Mexican
government. We also provide the Adult Education in Spanish program for offenders with that specific language
need.
For the offenders who are close to taking their high school equivalency exam (either the GED or the HiSET), we
have invested in the equipment needed to use the GED/HiSET Academy software program, which is an offline
software program providing over 200 hours of individualized lessons up to the 12th grade. The GED/HiSET
Academy incorporates teaching best practices and provides an atmosphere to engage and motivate students to learn
everything they need to know to pass the GED/HiSET exam. As an example of the impact we are having, during
2017, the number of offenders in our facilities who passed high school equivalency exams totaled 1,684, an increase
of 3% from 2016. In 2017, our Crowley County Correctional Facility and Coffee Correctional Facility led the state
systems in Colorado and Georgia, respectively, in GED completions. According to research from the independent
RAND Corporation, "Evaluating the Effectiveness of Correctional Education" published in 2013, inmates who
obtain GEDs while in prison are 30% less likely to return to prison.
In addition, we offer a broad spectrum of career/technical education opportunities to help individuals learn
marketable job skills. Our trade programs are certified by the National Center for Construction Education and
Research, or NCCER. NCCER establishes the curriculum and certification for over 4,000 construction and trade
organizations. Graduates of these programs enter the job market with certified skills that significantly enhance
employability. During 2017, 4,483 offenders in facilities we manage earned career and technical education
certificates. We are proud of the educational programs we offer and intend to maintain and develop such programs.
For example, near the end of 2016, in coordination with the Georgia Department of Corrections, we developed
programs at two facilities in the state to offer courses in welding and diesel truck maintenance, enabling students to
earn trade certificates from nearby community colleges. In 2017, 93 students graduated from these programs.
For those with assessed substance use disorders, we offer cognitive evidence-based treatment programs with proven
clinical outcomes, such as the Residential Drug Abuse Program. We offer both Residential Therapeutic Community
models and intensive outpatient programs. We also offer drug and alcohol use education/DWI programs at some of
our locations. Our goal in providing substance use treatment is to stimulate internal motivation for change and
progress through the stages of change so that lasting behavioral alterations can occur. Our drug and alcohol
education programs help participants understand their relationships with drugs and the links between drug use and
crime, as well as assisting them in making better choices that can lead to healthier relationships in their lives. In
2017, 1,839 offenders completed substance use disorder programming.
Additional program offerings include our Victim Impact Programs, available at a number of our facilities, which
seek to educate offenders about the negative effects their criminal conduct can have on others. In 2017, seven
facilities received training to offer Victim Impact Programs to offenders in both secure and community sites. In
addition, in 2017, 455 offenders successfully completed Victim Impact Programs. All of our facilities offer
opportunities for worship and/or study for a wide range of faith traditions represented in our populations.
Additionally, in many facilities, we offer faith-based programs, with an emphasis on reentry, character development,
and spiritual growth. During 2017, we transitioned to the Threshold Program, a multi-faith, evidence-based model,
for our faith-based reentry component.
Our Reentry and Life Skills programs prepare individuals for life after incarceration by teaching them how to
successfully conduct a job search, how to manage their budget and financial matters, parenting skills, and
relationship and family skills. Equally significant, we offer cognitive behavioral programs aimed at changing anti-
social attitudes and behaviors in offenders, with a focus on altering the level of criminal thinking. We recently
introduced a comprehensive reentry strategy we call "Go Further", a forward thinking, systems approach to reentry.
"Go Further" embraces all facility reentry programs, adds a proprietary cognitive/behavioral curriculum, and
encourages staff and offenders to take a collaborative approach to assist in reentry preparation. "Go Further" is
currently in place in five of our facilities, with plans to add additional facilities in 2018.
7
Across the country, our dedicated staff, along with the assistance of thousands of volunteers, work to provide
guidance, direction, and post-incarceration services to the men and women in our care. We believe, these critical
reentry programs help fight the serious challenge of recidivism facing the United States.
Through our community corrections facilities, we provide an array of services to defendants and offenders who are
serving their full sentence, the last portion of their sentence, waiting to be sentenced, or awaiting trial while
supervised in a community environment. We offer housing and programs with a key focus on employment, job
readiness, life skills and various substance abuse treatment programs, in order to help offenders successfully reenter
their communities and reduce the risk of recidivism.
In addition, in some of our community corrections facilities, we offer housing and program services to parolees who
have completed their sentence but lack a viable reentry plan. Through a focus on employment and skill
development, we provide a means for these parolees to successfully reintegrate into their communities.
Lastly, we provide day-reporting and outpatient substance abuse treatment programs at some of our community
corrections facilities. These programs, depending on the needs of the offender, can provide cognitive behavioral-
based programs to assist in the offender's successful reentry while holding the individual accountable while living in
the community.
Ultimately, the work we do is about giving people the tools to reintegrate with their communities for good. We are
proud of the teachers, counselors, case managers, chaplains, and other inmate support service professionals who
provided these extensive services to the men and women entrusted in our care.
The American Correctional Association, or ACA, is an independent organization comprised of corrections
professionals that establishes accreditation standards for correctional and detention institutions. Outside agency
standards, such as those established by the ACA, provide us with the industry's most widely accepted operational
guidelines. ACA accredited facilities must be audited and re-accredited at least every three years. We have sought
and received ACA accreditation for 35, or approximately 90%, of the eligible facilities we operated as of December
31, 2017, excluding our residential reentry facilities. During 2017, nine of the facilities we manage were re-
accredited by the ACA with an average score of 99.4%, making our portfolio average 99.5%.
Beyond the standards provided by the ACA, our facilities are operated in accordance with a variety of company and
facility-specific policies and procedures, as well as various contractual requirements. Many of these policies and
procedures reflect the high standards generated by a number of sources, including the ACA, the National
Commission on Correctional Healthcare, the Occupational Safety and Health Administration, as well as federal,
state, and local government codes and regulations and longstanding correctional procedures.
In addition, our facilities are operated in compliance with the Prison Rape Elimination Act, or PREA, standards,
which became effective in August 2013. All confinement facilities covered under the PREA standards must be
audited at least every three years to be considered compliant with PREA. Covered facilities include adult prisons
and jails, juvenile facilities, lockups (housing detainees overnight), and community confinement facilities, whether
operated by the United States Department of Justice, or DOJ, or by a state, local, corporate, or nonprofit authority.
We utilize DOJ-certified PREA auditors to help ensure that all facilities operate in compliance with applicable
PREA regulations.
Our facilities operate under these established standards, policies, and procedures, and also are subject to annual
audits by our Quality Assurance Division, or QAD, which operates under the auspices of, and reports directly to, our
Office of General Counsel and independently from our Operations Division. Through the QAD, we have devoted
significant resources to ensuring that our facilities meet outside agency and accrediting organization standards and
guidelines.
The QAD employs a team of full-time auditors, who are subject matter experts from all major disciplines
within institutional operations. Annually, without advance notice, QAD auditors conduct on-site evaluations of each
facility we operate using specialized audit tools, typically containing more than 1,000 audit indicators across all
major operational areas. In most instances, these audit tools are tailored to facility and partner specific
8
requirements. In addition, audit teams often work with facilities to address specific areas of need, such as meeting
requirements of new partner contracts or providing detailed training of new departmental managers.
The QAD management team coordinates overall operational auditing and compliance efforts across all correctional,
detention, and residential reentry facilities we manage. In conjunction with subject matter experts and other
stakeholders having risk management responsibilities, the QAD management team develops performance
measurement tools used in facility audits. The QAD management team provides governance of the corrective action
plan process for any items of nonconformance identified through internal and external facility reviews. Our QAD
also contracts with teams of ACA certified correctional auditors to evaluate compliance with ACA standards at
accredited facilities. Similarly, the QAD routinely incorporates a review of facility compliance with key PREA
regulations during audits of company facilities.
Business Development
We believe we own approximately 58% of all privately owned prison beds in the United States, manage nearly 39%
of all privately managed prison beds in the United States, and are currently the second largest private owner and
provider of community corrections services in the nation. We also believe that we are the largest private owner of
real estate used by government agencies. Under the direction of our partnership development department, we
market our facilities and services to government agencies responsible for federal, state, and local correctional,
detention, and residential reentry facilities in the United States. Under the direction of our real estate department,
we intend to continue pursuing the acquisition and development of additional correctional, detention, and residential
reentry facilities, as well as other government-leased real estate assets with a bias toward those used to provide
mission-critical governmental services that we believe have a favorable investment return, diversify our cash flows,
and increase value to our stockholders.
We execute cross-departmental efforts to market CoreCivic Safety solutions to government partners that seek
corrections and detention management services, CoreCivic Properties solutions to customers that need real estate
and maintenance services, and CoreCivic Community solutions to government partners seeking residential reentry
services. We also offer government partners a combination of these business offerings, and currently have two
government partners utilizing all three.
As indicated by the following chart, business from our federal customers, including primarily the BOP, USMS, and
ICE, continues to be a significant component of our business. The BOP, USMS, and ICE were the only federal
partners that accounted for 10% or more of our total revenue during the last three years.
48%
60%
50%
40%
30%
20%
10%
0%
Percent of Total Revenue
52%
51%
25%
16%
7%
28%
15%
9%
24%
16%
11%
2017
2016
2015
Total Federal
ICE
USMS
BOP
Certain of our contracts with federal partners contain clauses that guarantee the federal partner access to a minimum
bed capacity in exchange for a fixed monthly payment. However, these contracts also generally provide the
government the ability to cancel the contract for non-appropriation of funds or for convenience.
The decline in federal revenue from 2016 to 2017 was primarily a result of an amendment to the inter-governmental
service agreement, or IGSA, associated with our South Texas Family Residential Center, which became effective in
the fourth quarter of 2016. See "Management's Discussion and Analysis of Financial Condition and Results of
9
Operations - Results of Operations" for a further discussion regarding our contract at the South Texas Family
Residential Center. In addition, populations in federal facilities, particularly within the BOP system nationwide,
have declined over the past three years. Inmate populations in the BOP system declined due, in part, to the
retroactive application of changes to sentencing guidelines applicable to certain federal drug trafficking offenses.
Despite this decline, we continue to believe utilization of private sector bed capacity and management services
provides our federal partners with flexible and cost-effective solutions essential to their missions. For example, in
November 2016, we announced that the BOP exercised a two-year renewal option at our 1,978-bed McRae
Correctional Facility. The amended agreement commenced on December 1, 2016, and provides for caring for up to
1,724 federal inmates with a fixed monthly payment for 1,633 beds, compared to our previous contract which
contained a fixed payment for 1,780 beds. In addition, in July 2017, the BOP exercised a two-year renewal option at
our 2,232-bed Adams County Correctional Center. For the year ended December 31, 2017, we generated 5% of our
total revenue through the remaining contracts with the BOP at these two correctional facilities.
Further, we believe our ability to provide flexible solutions and fulfill emergent needs of ICE would be very difficult
and costly to replicate in the public sector, demonstrated by the contract with ICE at our 2,400-bed South Texas
Family Residential Center, which was amended and extended in October 2016. The October 2016 amendment
extended the term of the contract through September 2021 and can be further extended by bi-lateral modification. In
addition, in December 2016, we announced a new award to provide detention capacity to ICE at our 2,016-bed
Northeast Ohio Correctional Center, and in April 2017, we announced a new contract award to provide up to 996
beds to the state of Ohio at this same facility. We previously housed inmates from the BOP at the Northeast Ohio
facility under a contract that expired in May 2015. We believe these contracts provide further examples of the
marketability of our real estate assets across multiple government customers.
State revenues from contracts at correctional, detention, and residential reentry facilities that we operate constituted
41%, 38%, and 40% of our total revenue during 2017, 2016, and 2015, respectively, and increased 2.4% from
$710.4 million during 2016 to $727.8 million during 2017. Approximately 6%, 6%, and 10% of our total revenue
for 2017, 2016, and 2015, respectively, was generated from the California Department of Corrections and
Rehabilitation, or CDCR, in facilities housing inmates outside the state of California. The CDCR was our only state
partner that accounted for 10% or more of our total revenue during these years.
Several of our state partners are projecting improvements in their budgets which has helped us secure recent per
diem increases at certain facilities. Further, several of our existing state partners, as well as prospective state
partners, are experiencing growth in inmate populations and overcrowded conditions. Although we can provide no
assurance that we will enter into any new contracts, we believe we are well positioned to provide them with needed
bed capacity, as well as the programming and reentry services they are seeking.
We believe the long-term growth opportunities of our business remain attractive as governments consider their
emergent needs, as well as the efficiency and offender programming opportunities we provide, as flexible solutions
to satisfy our partners' needs. Further, we expect our partners to continue to face challenges in maintaining old
facilities, developing new facilities, and expanding current facilities for additional capacity, which could result in
future demand for the solutions we provide.
10
We believe that we can further develop our business by, among other things:
Maintaining and expanding our existing customer relationships and filling existing beds within our
facilities, while maintaining an adequate inventory of available beds that we believe provides us with
flexibility and a competitive advantage when bidding for new management contracts;
Enhancing the terms of our existing contracts and expanding the services we provide under those
contracts;
Pursuing additional opportunities to lease our facilities to government and other third-party operators in
need of correctional, detention, and residential reentry capacity;
Pursuing mission-critical real estate solutions for government agencies including, but not limited to,
corrections and detention real estate assets;
Pursuing other asset acquisitions and business combinations through transactions with non-government
third parties;
Maintaining and expanding our focus on community corrections and reentry programming that align
with the needs of our government partners; and
Establishing relationships with new customers that have either previously not outsourced their
correctional facility management needs or have utilized other private enterprises.
We generally receive inquiries from or on behalf of government agencies that are considering outsourcing the
ownership and/or management of certain facilities or that have already decided to contract with a private enterprise.
When we receive such an inquiry, we determine whether there is an existing need for our correctional, detention,
and residential reentry facilities and/or services and whether the legal and political climate in which the inquiring
party operates is conducive to serious consideration of outsourcing. Based on these findings, an initial cost analysis
is conducted to further determine project feasibility.
Frequently, government agencies responsible for correctional, detention, and residential reentry facilities and
services procure space and services through solicitations or competitive procurements. As part of our process of
responding to such requests, members of our management team meet with the appropriate personnel from the
agency making the request to best determine the agency's needs. If the project fits within our strategy, we submit a
written response. A typical solicitation or competitive procurement requires bidders to provide detailed information,
including, but not limited to, the space and services to be provided by the bidder, its experience and qualifications,
and the price at which the bidder is willing to provide the facility and services (which services may include the
purchase, renovation, improvement or expansion of an existing facility or the planning, design and construction of a
new facility). The requesting agency selects a firm believed to be able to provide the requested bed capacity, if
needed, and most qualified to provide the requested services and then negotiates the price and terms of the contract
with that firm.
11
2017 Accomplishments
In 2017, we entered into a number of new contracts, renewed several other significant contracts, and completed
numerous other transactions and milestones, including the following:
Completed the acquisition of Arapahoe Community Treatment Center, a 135-bed residential reentry
center in Colorado.
Completed the acquisition of the Stockton Female Community Corrections Facility, a 100-bed
residential reentry center in California, which is leased to a third-party operator. The lessee separately
contracts with the CDCR.
Announced a new contract with the state of Ohio to care for up to an additional 996 offenders at our
2,016-bed Northeast Ohio Correctional Center. The initial term of the contract continues through June
2032 with unlimited renewal options, subject to appropriations and mutual agreement.
Completed the acquisition of the real estate operated by Center Point, Inc., or Center Point, a California-
based non-profit organization. We consolidated a portion of Center Point's operations into our
preexisting residential reentry center portfolio and assumed ownership and operations of a 200-bed
residential reentry center in Oklahoma.
Executed a new three-year contract with the City of Mesa, Arizona to care for up to 200 offenders at our
4,128-bed Central Arizona Florence Correctional Complex.
Completed the acquisition of New Beginnings Treatment Center, Inc., an Arizona-based community
corrections company. In connection with the acquisition, we assumed a contract with the BOP to
provide reentry services at a 92-bed residential reentry center in Arizona.
Completed the acquisition of a portfolio of four properties, including a 230-bed residential reentry
center leased to the state of Georgia and three properties in North Carolina and Georgia leased to the
General Services Administration, or GSA, an independent agency of the United States government, two
of which are occupied by the Social Security Administration, or SSA, and one of which is occupied by
the Internal Revenue Service, or IRS.
Completed the offering of $250.0 million principal amount of unsecured notes with a fixed stated
interest rate of 4.75%, due October 15, 2027. We used net proceeds from the offering, after
underwriter's fees and offering expenses, to pay down a portion of our revolving credit facility, reducing
our exposure to variable rate debt, extending our weighted average maturity, and increasing the
availability of borrowings under our revolving credit facility that is used to fund growth opportunities
that require capital deployment.
Executed a new contract with the state of Nevada to care for up to 200 offenders at our 1,896-bed
Saguaro Correctional Facility in Arizona.
Launched a nationwide initiative to advocate for a range of government policies that will help former
inmates successfully reenter society and stay out of prison. We also committed to a series of
accountability measures, including publicly reporting related advocacy activities on an annual basis and
making support for recidivism-reducing policies one of our criteria for evaluating political
contributions.
Completed the acquisition of Time to Change, Inc., a Colorado-based community corrections company.
In connection with the acquisition, we assumed contracts to provide residential reentry services in three
facilities located in Colorado containing a total of 422 beds.
Announced a new contract with Hamilton County, Tennessee to continue management, operation, and
maintenance of the 1,046-bed Silverdale Detention Center. The initial term of the new contract is four
years, renewable for four additional four-year periods.
Announced a new contract with the Commonwealth of Kentucky Department of Corrections to house
medium and close-security offenders at our previously idled 816-bed Lee Adjustment Center in
Kentucky. The contract commenced on November 19, 2017, and has an initial term expiring June 30,
2019, with two additional one-year extension options.
12
Facility Portfolio
General
Our correctional, detention, and residential reentry facilities can generally be classified according to the level(s) of
security at such facility. Minimum security facilities have open housing within an appropriately designed and
patrolled institutional perimeter. Medium security facilities have either cells, rooms or dormitories, a secure
perimeter, and some form of external patrol. Maximum security facilities have cells, a secure perimeter, and
external patrol. Multi-security facilities have various areas encompassing minimum, medium or maximum security.
Our facilities can also be classified according to their primary function. The primary functional categories are:
Correctional Facilities. Correctional facilities house and provide contractually agreed upon programs
and services to sentenced adult prisoners, typically prisoners on whom a sentence in excess of one year
has been imposed.
Detention Facilities. Detention facilities house and provide contractually agreed upon programs and
services to (i) individuals being detained by ICE, (ii) individuals who are awaiting trial who have been
charged with violations of federal criminal law (and are therefore in the custody of the USMS) or state
criminal law, and (iii) prisoners who have been convicted of crimes and on whom a sentence of one year
or less has been imposed.
Residential Facilities. Residential facilities provide space and residential services in an open and safe
environment to adults with children who have been detained by ICE and are awaiting the outcome of
immigration hearings or the return to their home countries. As contractually agreed upon, residential
facilities offer services including, but not limited to, educational programs, medical care, recreational
activities, counseling, and access to religious and legal services.
Community Corrections. Community corrections/residential reentry facilities offer housing and
programs to offenders who are serving the last portion of their sentence or who have been assigned to
the facility in lieu of a jail or prison sentence, with a key focus on employment, job readiness, and life
skills.
Leased Facilities. Leased facilities are properties that are owned and leased to third parties and used by
government agencies.
13
Facilities and Facility Management Contracts
As of December 31, 2017, we owned and managed 70 correctional, detention, and residential reentry facilities, and
managed an additional seven correctional and detention facilities owned by our government partners. In addition, as
of December 31, 2017, we owned 12 properties leased to third parties and used by government agencies. We also
owned two corporate office buildings. Owned and managed facilities include facilities placed into service that we
own or control via a long-term lease and manage. Managed-only facilities include facilities we manage that are
owned by a government authority. The following table sets forth all of the facilities that, as of December 31, 2017,
we (i) owned and managed, (ii) owned, but were leased to a third party, and (iii) managed but are owned by a
government authority. The table includes certain information regarding each facility, including the term of the
primary customer contract related to such facility, or, in the case of facilities we owned but leased to a third-party
operator, the term of such lease.
Facility Name
Primary Customer
Owned and Managed Facilities:
Design
Capacity
(A)
Security
Level
Facility
Type
(B)
Term
Remaining
Renewal
Options
(C)
Central Arizona Florence
Correctional Complex
Florence, Arizona
Eloy Detention Center
Eloy, Arizona
La Palma Correctional Center
Eloy, Arizona
USMS
4,128
Multi
Detention Sep-18 (2) 5 year
ICE
1,500
Medium Detention Indefinite —
State of California 3,060
Multi
Correctional Jun-19
Indefinite
Oracle Transitional Center
Tucson, Arizona
BOP
92
—
Community Feb-18 (1) 1 year
Corrections
Red Rock Correctional Center (D)
Eloy, Arizona
Saguaro Correctional Facility
Eloy, Arizona
CAI Boston Avenue
San Diego, California
CAI Ocean View
San Diego, California
Leo Chesney Correctional Center
Live Oak, California
State of Arizona
2,024
Medium Correctional Jul-26
(2) 5 year
State of Hawaii
1,896
Multi
Correctional Jun-19
(2) 1 year
State of California
120
—
Community Jun-18
Corrections
(3) 1 year
BOP
483
—
Community May-18 (3) 1 year
Corrections
—
240
—
—
—
—
Otay Mesa Detention Center
San Diego, California
ICE
1,482
Minimum/ Detention Jun-20
Medium
(1) 3 year
Adams Transitional Center
Denver, Colorado
Arapahoe Community Treatment
Center
Englewood, Colorado
Bent County Correctional Facility
Las Animas, Colorado
Adams County
102
—
Arapahoe County
135
—
Community Jun-18 —
Corrections
Community
Corrections
Jun-18
—
State of Colorado
1,420
Medium Correctional Jun-18
—
14
Facility Name
Boulder Community Treatment
Center
Boulder, Colorado
Centennial Community Transition
Center
Englewood, Colorado
Columbine Facility
Denver, Colorado
Commerce Transitional Center
Commerce City, Colorado
Crowley County Correctional
Facility
Olney Springs, Colorado
Dahlia Facility
Denver, Colorado
Fox Facility and Training Center
Denver, Colorado
Henderson Transitional Center
Henderson, Colorado
Huerfano County Correctional
Center
Walsenburg, Colorado
Kit Carson Correctional Center
Burlington, Colorado
Longmont Community Treatment
Center
Longmont, Colorado
Primary Customer
Boulder County
Design
Capacity
(A)
69
Security
Level
—
Remaining
Renewal
Options
Term
(C)
Dec-18 —
Facility
Type
(B)
Community
Corrections
Arapahoe County
107
—
Community
Corrections
Jun-18
—
Denver County
60
—
Adams County
136
—
Community Jun-18
Corrections
—
Community Jun-18 —
Corrections
State of Colorado
1,794
Medium Correctional Jun-18
—
Denver County
120
—
Denver County
90
—
Community Jun-18
Corrections
—
Community Jun-18
Corrections
—
Adams County
184
—
Community Jun-18 —
Corrections
—
752
Medium Correctional —
—
—
1,488
Medium Correctional —
—
Boulder County
69
—
Community
Corrections
Dec-18 —
Ulster Facility
Denver, Colorado
Denver County
90
—
Community Jun-18
Corrections
—
Coffee Correctional Facility (E)
Nicholls, Georgia
Jenkins Correctional Center (E)
Millen, Georgia
McRae Correctional Facility
McRae, Georgia
Stewart Detention Center
Lumpkin, Georgia
Wheeler Correctional Facility (E)
Alamo, Georgia
State of Georgia
2,312
Medium Correctional Jun-18
(16) 1 year
State of Georgia
1,124
Medium Correctional Jun-18
(17) 1 year
BOP
1,978
Medium Correctional Nov-18 (2) 2 year
ICE
1,752
Medium Detention Indefinite —
State of Georgia
2,312
Medium Correctional Jun-18
(16) 1 year
15
Facility Name
Primary Customer
Design
Capacity
(A)
Security
Level
Facility
Type
(B)
Term
Remaining
Renewal
Options
(C)
Leavenworth Detention Center
Leavenworth, Kansas
USMS
1,033
Maximum Detention Dec-21 (1) 5 year
Lee Adjustment Center
Beattyville, Kentucky
Commonwealth of
Kentucky
816
Multi
Correctional Jun-19
(2) 1 year
Marion Adjustment Center
St. Mary, Kentucky
Southeast Kentucky Correctional
Facility (F)
Wheelwright, Kentucky
Prairie Correctional Facility
Appleton, Minnesota
Adams County Correctional Center
Adams County, Mississippi
Tallahatchie County Correctional
Facility (G)
Tutwiler, Mississippi
Crossroads Correctional
Center (H)
Shelby, Montana
Nevada Southern Detention Center
Pahrump, Nevada
Elizabeth Detention Center
Elizabeth, New Jersey
Cibola County Corrections Center
Milan, New Mexico
Northwest New Mexico
Correctional Center
Grants, New Mexico
Torrance County Detention Facility
Estancia, New Mexico
Lake Erie Correctional
Institution (I)
Conneaut, Ohio
Northeast Ohio Correctional
Center
Youngstown, Ohio
Carver Transitional Center
Oklahoma City, Oklahoma
—
—
826
Minimum/ Correctional —
Medium
—
656
Minimum/
Medium
Correctional —
—
—
1,600
Medium Correctional —
—
BOP
2,232
Medium Correctional Jul-19
—
State of California 2,672
Multi
Correctional Jun-19
Indefinite
State of Montana
664
Multi
Correctional Jun-17
(1) 2 year
USMS
1,072
Medium Detention Sep-20 (2) 5 year
ICE
300
Minimum Detention Aug-18 (3) 1 year
ICE
1,129
Medium Detention Oct-21 Indefinite
State of New Mexico
596
Multi
Correctional Jun-20
—
—
910
Multi
Detention —
—
State of Ohio
1,798
Medium Correctional Jun-32
Indefinite
State of Ohio
2,016
Medium Correctional Jun-32
Indefinite
State of Oklahoma
494
—
Community Jun-18
Corrections
(4) 1 year
16
Primary Customer
State of Oklahoma 1,692
Design
Capacity
(A)
Security
Level
Multi
Facility
Type
(B)
Term
Correctional Jun-18
Remaining
Renewal
Options
(C)
(1) 1 year
State of Oklahoma 1,670
Multi
Correctional Jun-18
(1) 1 year
—
2,160
Multi
Correctional —
—
State of Oklahoma
200
—
Community
Corrections
Jun-18
(4) 1 year
State of Oklahoma
390
—
State of Oklahoma
289
—
Community Jun-18
Corrections
(4) 1 year
Community Jun-18
Corrections
(4) 1 year
—
200
—
—
—
—
State of Tennessee 2,552
Multi
Correctional Jan-21
—
USMS
600
Multi
Detention Sep-19 (5) 2 year
State of Tennessee 1,536
Medium Correctional Jun-21
—
Facility Name
Cimarron Correctional Facility (J)
Cushing, Oklahoma
Davis Correctional Facility (J)
Holdenville, Oklahoma
Diamondback Correctional
Facility
Watonga, Oklahoma
Oklahoma City Transitional
Center
Oklahoma City, Oklahoma
Tulsa Transitional Center
Tulsa, Oklahoma
Turley Residential Center
Tulsa, Oklahoma
Shelby Training Center
Memphis, Tennessee
Trousdale Turner Correctional
Center
Hartsville, Tennessee
West Tennessee Detention
Facility
Mason, Tennessee
Whiteville Correctional
Facility (K)
Whiteville, Tennessee
Austin Residential Reentry Center
Del Valle, Texas
BOP
116
—
Community Feb-18 —
Corrections
Austin Transitional Center
Del Valle, Texas
Corpus Christi Transitional
Center
Corpus Christi, Texas
Dallas Transitional Center
Hutchins, Texas
Eden Detention Center
Eden, Texas
El Paso Multi-Use Facility
El Paso, Texas
State of Texas
460
—
Community Aug-18 (2) 1 year
Corrections
State of Texas
160
—
Community
Corrections
Aug-19 —
State of Texas
300
—
Community Aug-18 (2) 1 year
Corrections
—
1,422
Medium Correctional —
—
State of Texas
360
—
Community Aug-18 (2) 1 year
Corrections
17
Facility Name
El Paso Transitional Center
El Paso, Texas
Primary Customer
State of Texas
Design
Capacity
(A)
224
Security
Level
—
Facility
Type
(B)
Community
Corrections
Remaining
Renewal
Options
(C)
Term
Aug-18 (2) 1 year
Fort Worth Transitional Center
Fort Worth, Texas
State of Texas
248
—
Community Aug-18 (2) 1 year
Corrections
Houston Processing Center
Houston, Texas
Laredo Processing Center
Laredo, Texas
South Texas Family Residential
Center
Dilley, Texas
T. Don Hutto Residential Center
Taylor, Texas
Webb County Detention Center
Laredo, Texas
Cheyenne Transitional Center
Cheyenne, Wyoming
Managed Only Facilities:
Citrus County Detention Facility
Lecanto, Florida
Lake City Correctional Facility
Lake City, Florida
Marion County Jail
Indianapolis, Indiana
Hardeman County Correctional
Facility
Whiteville, Tennessee
Metro-Davidson County
Detention Facility
Nashville, Tennessee
Silverdale Facilities
Chattanooga, Tennessee
ICE
1,000
Medium Detention Apr-18 (5) 2 month
ICE
258
Minimum/ Detention Jun-18
Medium
—
ICE
2,400
—
Residential Sep-21 —
ICE
512
Medium Detention Jan-20
Indefinite
USMS
480
Medium Detention Feb-18 —
State of Wyoming
116
—
Community Jun-18
Corrections
Indefinite
Citrus County, FL
760
Multi
Detention Sep-20 Indefinite
State of Florida
893
Medium Correctional Jun-18
Indefinite
Marion County, IN 1,030
Multi
Detention Dec-27 —
State of Tennessee 2,016
Medium Correctional May-18 —
Davidson County,
1,348
Multi
Detention Jan-20
—
TN
Hamilton County,
1,046
Multi
Detention Sep-21 (4) 4 year
TN
South Central Correctional Center
Clifton, Tennessee
State of Tennessee 1,676
Medium Correctional Jun-18
—
18
Property Name
Primary Customer
Design Capacity
(A)
Square
Footage
Property Type
(B)
Term
Remaining
Renewal Options
(C)
Leased Properties:
California City Correctional Center
California City, California
Long Beach Community Corrections
Center
Long Beach, California
Stockton Female Community
Corrections Facility
Stockton, California
State of California
2,560
522,000 Correctional Nov-20
Indefinite
The GEO Group, Inc.
112
16,000
Community
Corrections Jun-20
(1) 5 year
WestCare California,
Inc.
100
15,000
Community
Corrections Apr-21
(1) 5 year
Augusta Transitional Center
Augusta, Georgia
Georgia Department
of Corrections
230
29,000 Community Jun-18
Corrections
(5) 1 year
Milledgeville
Milledgeville, Georgia
GSA - Social Security
Administration
Greenville
Greenville, North Carolina
GSA - Internal
Revenue Service
Rockingham
Rockingham, North Carolina
GSA - Social Security
Administration
-
-
-
9,000 Government- Jan-20
Leased
13,000 Government- Mar-24
Leased
8,000 Government- Mar-25
Leased
-
-
-
North Fork Correctional Facility
Sayre, Oklahoma
Broad Street Residential Reentry
Center
Philadelphia, Pennsylvania
State of Oklahoma
2,400
466,000 Correctional
Jul-21
Indefinite
The GEO Group, Inc.
150
18,000
Community
Corrections
Jul-19
(4) 5 year
Chester Residential Reentry Center
Chester, Pennsylvania
The GEO Group, Inc.
135
18,000 Community
Corrections
Jul-19
(4) 5 year
Roth Hall Residential Reentry
Center
Philadelphia, Pennsylvania
Walker Hall Residential Reentry
Center
Philadelphia, Pennsylvania
The GEO Group, Inc.
160
18,000
Community
Corrections
Jul-19
(4) 5 year
The GEO Group, Inc.
160
18,000
Community
Corrections
Jul-19
(4) 5 year
19
(A) Design capacity measures the number of beds, and accordingly, the number of offenders each facility is
designed to accommodate. Facilities housing detainees on a short-term basis may exceed the original
intended design capacity due to the lower level of services required by detainees in custody for a brief
period. From time to time, we may evaluate the design capacity of our facilities based on the customers
using the facilities, and the ability to reconfigure space with minimal capital outlays. We believe design
capacity is an appropriate measure for evaluating our operations, because the revenue generated by each
facility is based on a per diem or monthly rate per offender cared for at the facility paid by the
corresponding contracting governmental entity.
(B) We manage numerous facilities that have more than a single function (i.e., housing both long-term
sentenced adult prisoners and pre-trial detainees). The primary functional categories into which facility
types are identified was determined by the relative size of offender populations in a particular facility on
December 31, 2017. If, for example, a 1,000-bed facility housed 900 adult offenders with sentences in
excess of one year and 100 pre-trial detainees, the primary functional category to which it would be
assigned would be that of correctional facilities and not detention facilities. It should be understood that
the primary functional category to which multi-user facilities are assigned may change from time to
time.
(C) Remaining renewal options represents the number of renewal options, if applicable, and the term of
each option renewal.
(D) Pursuant to the terms of a contract awarded by the state of Arizona in September 2012, the state of
Arizona has an option to purchase the Red Rock facility at any time during the term of the contract,
including extension options, based on an amortization schedule starting with the fair market value and
decreasing evenly to zero over the 20-year term of the contract.
(E) These facilities are subject to purchase options held by the Georgia Department of Corrections, or
GDOC, which grants the GDOC the right to purchase the facility for the lesser of the facility's
depreciated book value, as defined, or fair market value at any time during the term of the contract
between the GDOC and us.
(F) The facility is subject to a deed of conveyance with the city of Wheelwright, Kentucky which includes
provisions that would allow assumption of ownership by the city of Wheelwright under the following
occurrences: (1) we cease to operate the facility for more than two years, (2) our failure to maintain at
least one employee for a period of sixty consecutive days, or (3) a conversion to a maximum security
facility based upon classification by the Kentucky Corrections Cabinet. We have entered into an
agreement with the city of Wheelwright that extends the reversion through July 31, 2018, in exchange
for $20,000 per month or until we resume operations.
(G) The facility is subject to a purchase option held by the Tallahatchie County Correctional Authority
which grants Tallahatchie County Correctional Authority the right to purchase the facility at any time
during the contract at a price generally equal to the cost of the premises less an allowance for
amortization originally over a 20 year period. The amortization period was extended through 2050 in
connection with an expansion completed during the fourth quarter of 2007.
(H) The state of Montana has an option to purchase the facility generally at any time during the term of the
contract with us at fair market value less the sum of a pre-determined portion of per-diem payments
made to us by the state of Montana.
(I) The state of Ohio has the irrevocable right to repurchase the facility before we may resell the facility to
a third party, or if we become insolvent or are unable to meet our obligations under the management
contract with the state of Ohio, at a price generally equal to the fair market value.
(J) These facilities are subject to purchase options held by the Oklahoma Department of Corrections, or
ODOC, which grants the ODOC the right to purchase the facility at its fair market value at any time
during the term of the contract with ODOC.
(K) The state of Tennessee has the option to purchase the facility in the event of our bankruptcy, or upon an
operational or financial breach under the management agreement, at a price equal to the book value, as
determined under such agreement.
20
Competitive Strengths
Under our three business offerings, CoreCivic Safety, CoreCivic Community, and CoreCivic Properties, we offer
multiple solutions to unique challenges, allowing government organizations to address their various needs while
customizing the solution based on their unique circumstances. Accordingly, we believe that we benefit from the
following competitive strengths:
The First and Largest Private Prison Owner. Under our CoreCivic Safety platform, we are the nation's largest
private prison owner and one of the largest prison operators in the United States, which provides us significant
credibility with our current and prospective clients. We believe we own approximately 58% of all privately owned
prison beds in the United States and manage nearly 39% of all privately managed prison beds in the United States.
We pioneered modern-day private prisons with a list of notable accomplishments, such as being the first company to
design, build, and operate a private prison, the first company to manage a private maximum-security facility under a
direct contract with the federal government, the first company to purchase a government-owned correctional facility
from a governmental agency in the United States and to manage the facility for the government agency, the first
company to lease a private prison to a state government, and with an award from the state of Kansas in January
2018, we will be the first company to develop a privately-owned, build-to-suit correctional facility to be operated by
a government agency through a long-term lease agreement. In addition to providing us with extensive experience
and institutional knowledge, our size also helps us deliver value to our customers by providing purchasing power
and allowing us to achieve certain economies of scale.
Available Beds within Our Existing Facilities. As of December 31, 2017, we had approximately 9,800 beds at eight
prison facilities that are vacant and immediately available to use. We are actively engaged in marketing this
available capacity to existing and prospective customers. Historically, we have been successful in substantially
filling our inventory of available beds and the beds that we have constructed. Filling these available beds could
provide substantial growth in revenues, cash flow, and earnings per share. We expect the Commonwealth of
Kentucky to utilize one of our previously idled prison facilities containing 816 beds beginning in the second quarter
of 2018 pursuant to a new management contract we executed in November 2017.
Well-Established Community Corrections Platform. Under our CoreCivic Community and CoreCivic Properties
platforms, we have a rapidly growing network of community corrections facilities we own and manage, as well as
facilities we own and lease to third-party operators. Community corrections facilities offer housing and programs,
with a key focus on employment, job readiness and life skills in order to help offenders successfully re-enter the
community and reduce the risk of recidivism.
We are the second largest community corrections owner and operator in the United States, with 33 residential
reentry centers containing a total of 6,261 beds. We believe this recognition provides us with a platform for further
growth. We acquired eight residential reentry centers during 2017, which added an additional 1,179 beds to our
existing residential reentry portfolio. See "2017 Accomplishments" for a summary of certain of our growth
transactions completed during the year ended December 31, 2017. We acquired the residential reentry centers as
strategic investments that further expand the network of reentry assets we own and the reentry services we provide.
Acquisitions of residential reentry centers prior to 2017 include the following:
Acquisition of Correctional Management, Inc., or CMI, in April 2016 (7 facilities with 605 beds);
Acquisition of a residential reentry center in Long Beach, California in June 2016 (112 beds);
Acquisition of Avalon Correctional Services, Inc., or Avalon, in October 2015 (11 facilities with 3,157
beds);
Acquisition of four community corrections facilities in Pennsylvania in August 2015 (605 beds); and
Acquisition of Correctional Alternatives, Inc., or CAI, in July 2013 (2 facilities with 603 beds).
We believe the demand for the housing and programs that community corrections facilities offer will continue to
grow as offenders are released from prison and due to an increased awareness of the important role these programs
play in an offender's successful transition from prison to society. We expect to continue to pursue opportunities to
acquire additional community corrections facilities in order to provide these services to parolees, defendants, and
offenders who are serving their full sentence, the last portion of their sentence, waiting to be sentenced, awaiting
21
trial while supervised in a community environment, or as an alternative to incarceration. We also believe we have
the opportunity to maximize utilization of available beds within our community corrections portfolio that would
further increase the number of individuals benefiting from the services we provide in such facilities.
Attractive REIT Profile. Key characteristics of our business make us a highly attractive REIT. As of December 31,
2017, we owned or controlled 82 facilities containing approximately 14.8 million square feet which, for the year
ended December 31, 2017, generated 99% of our net operating income, or our operating income before general and
administrative expenses, asset impairments, depreciation, and amortization. Land and buildings comprise
approximately 90% of our gross fixed assets. These valuable assets are located in areas with high barriers to entry,
particularly due to the unique permitting and zoning requirements for these facilities. Further, the majority of our
assets are constructed primarily of concrete and steel, generally requiring lower maintenance capital expenditures
than other types of commercial properties.
We believe we are the largest developer of mission-critical, criminal justice center real estate projects over the past
15 years. We also believe we are the largest private owner of real estate used by government agencies. We provide
space and services under contracts with federal, state, and local government agencies that generally have credit
ratings of single-A or better. In addition, a majority of our contracts have terms between one and five years, and we
have historically experienced customer retention of approximately 91%, which contributes to our relatively
predictable and stable revenue base. This stream of revenue combined with our low maintenance capital expenditure
requirement translates into steady, predictable cash flow. We believe the REIT structure also provides us with
greater access to capital and flexibility to pursue growth opportunities, and provides a high dividend yield to our
shareholders compared with other investments.
Flexible Real Estate Solutions and Attractive Real Estate Portfolio. Under our CoreCivic Properties platform, we
offer our customers an attractive portfolio of facilities that can be leased for various needs as an alternative to
providing "turn-key" correctional, detention, and residential reentry bed space and services to our government
partners. In May 2016, we entered into a lease with the ODOC for our previously idled 2,400-bed North Fork
Correctional Facility. The lease agreement commenced on July 1, 2016, and includes a five-year base term with
unlimited two-year renewal options. The lease of the North Fork facility, along with the lease of our California City
Correctional Center to the CDCR originating in 2013, exemplify our ability to react quickly to our partners' needs
with innovative and flexible solutions that make the best use of taxpayer dollars. We intend to pursue additional
opportunities to lease prison facilities to government and other third-party operators in need of correctional capacity.
On January 24, 2018, we entered into a 20-year lease agreement with the Kansas Department of Corrections for a
2,432-bed correctional facility we will construct in Lansing, Kansas. The new facility will replace the Lansing
Correctional Facility, the State's largest correctional complex for adult male inmates, originally constructed in 1863.
This transaction represents the first development of a privately owned, build-to-suit correctional facility to be
operated by a government agency through a long-term lease agreement. We will be responsible for facility
maintenance throughout the 20-year term of the lease, at which time ownership will revert to the State. Construction
of the new facility is expected to commence in the first quarter of 2018 with a timeline for completion of
approximately 24 months. With the extensively aged criminal justice infrastructure in the U.S. today, we believe we
can bring our flexible solutions like this to other government agencies.
Further, we intend to pursue additional opportunities like the 2017 acquisition of the residential reentry center in
Stockton, California, the 2016 acquisition of the Long Beach facility in California, and the 2015 acquisition of four
community corrections facilities in Pennsylvania, all of which are leased to third-party operators.
In September 2017, we completed the acquisition of a portfolio of four properties, which not only included a 230-
bed residential reentry center which is leased to the state of Georgia, but also three properties in North Carolina and
Georgia leased to the GSA, two of which are occupied by the SSA and one of which is occupied by the IRS. In
January 2018, we completed the acquisition of Capital Commerce Center, a 261,000 square foot office building
leased primarily to the Florida Department of Business and Professional Regulation, an agency of the state of
Florida. We intend to pursue additional opportunities to acquire government-leased assets, with a bias toward those
used to provide mission-critical governmental services, that we believe have favorable investment returns, diversify
our cash flows, and increase value to our stockholders.
22
Offer Compelling Value. We believe our government partners seek a compelling value and service offering when
selecting an outsourced correctional services provider. We believe we offer a cost-effective alternative to our
government partners by reducing their correctional services costs, including the avoidance of long-term pension
obligations and large capital investments in new prison beds. We endeavor to improve operating performance and
efficiency through the following key operating initiatives: (1) standardizing supply and service purchasing practices
and usage; (2) implementing a standard approach to staffing and business practices; (3) improving offender
management, resource consumption, and reporting procedures through the utilization of numerous technological
initiatives; (4) reconfiguring facility bed space to optimize capacity utilization; and (5) improving productivity.
Through ongoing company-wide initiatives, we continue to focus on efforts to contain costs and improve operating
efficiencies.
In 2017, we launched a nationwide initiative to advocate for a range of government policies that will help former
offenders successfully reenter society and stay out of prison. Through our strong commitment to community
corrections and reentry programs, we offer our government partners additional long-term value. Our evidence-based
reentry programs, including academic education, vocational training, substance abuse treatment, life skills training,
and faith-based programming, are customizable based on partner needs and are applied utilizing best practices
and/or industry standards. Our proprietary reentry process and cognitive/behavioral curriculum, "Go Further",
promotes a comprehensive approach to addressing the barriers to a successful return to society. Through our efforts
in community corrections and reentry programs, we can provide consistency and common standards across facilities.
We can also serve multiple levels of government on an as-needed basis, all toward reaching the goal we share with
our government partners of providing offenders with the opportunity to succeed when they are released, making our
communities safer, and, ultimately, reducing recidivism.
We also offer a wide variety of specialized services that address the unique needs of various segments of the
offender population. Because the offenders in the facilities we operate differ with respect to security levels, ages,
genders, and cultures, we focus on the particular needs of an offender population and tailor our services based on
local conditions and our ability to provide services on a cost-effective basis.
We believe our government partners and other agencies in the criminal justice sector also seek a compelling value
and service offering when pursuing solutions to their unique real estate needs. We believe our track record of
constructing quality assets on time and within budget, our design and construction methods, unique financing
alternatives, and our expertise and experience enable us to provide a compelling value proposition for the
construction of mission-critical government real estate assets. We also believe our robust preventive maintenance
program included in our service offering significantly reduces the risk of real estate neglect. We also offer utility
management services using environmentally-friendly, state-of-the-art technology. We believe our strengths in these
areas were significant contributing factors in the state of Kansas selecting us to construct a replacement facility for
the Lansing Correctional Center, which we will lease to the State under a twenty-year lease agreement.
Acquisitions, Development, and Expansion Opportunities. The demand for prison capacity in the short-term has
been affected by the budget challenges many of our government partners currently face. At the same time, these
challenges impede our customers' ability to construct new prison beds of their own or update older facilities, which
we believe could result in further need for private sector prison capacity solutions in the long-term. Over the long-
term, we would like to see meaningful utilization of our available capacity and better visibility from our customers
before we develop new prison capacity on a speculative basis. We will, however, respond to customer demand and
may develop or expand correctional and detention facilities when we believe potential long-term returns justify the
capital deployment. We expect to continue to pursue investment opportunities in residential reentry centers and are
in various stages of due diligence to complete additional acquisitions. The transactions that have not yet closed will
also be subject to various customary closing conditions, and we can provide no assurance that any such transactions
will ultimately be completed. We are also pursuing investment opportunities in other real estate assets with a bias
toward those used to provide mission-critical governmental services, as well as other businesses that expand the
range of solutions we provide to government partners which will further diversify our cash flows.
Proven Senior Management Team. Our senior management team has applied their prior experience and diverse
industry expertise to improve our operations, related financial results, and capital structure. Under our senior
management team's leadership, we have successfully executed strategies to diversify our business and offer a
broader range of solutions to government partners over the past several years resulting in the Company being
23
renamed and rebranded as CoreCivic, created new business opportunities with customers that have not previously
utilized the private corrections sector, converted to a REIT, completed several business combination transactions,
and successfully completed numerous recapitalization and refinancing transactions.
Financial Flexibility. As of December 31, 2017, we had cash on hand of $52.2 million and $694.1 million available
under our revolving credit facility, with a total weighted average effective interest rate of 4.7% on all outstanding
debt, while our total weighted average maturity on all outstanding debt was 4.8 years. For the year ended
December 31, 2017, our fixed charge coverage ratio was 5.6x and our debt leverage was 3.6x. During the year ended
December 31, 2017, we generated $341.3 million in cash through operating activities, and as of December 31, 2017,
we had net working capital of $36.7 million.
Capital Strategy
Our business development strategy includes marketing our available beds to existing and potential government
partners that seek corrections, detention, and reentry management services. We may also offer government partners
the opportunity to lease our idle facilities as an alternative to providing "turn-key" bed space and services to our
government partners. Successful efforts would generate significant cash flows without the need to incur substantial
capital expenditures.
Our business development strategy also includes mergers and acquisitions, or M&A, activities that will enable us to
further expand our network of residential reentry centers, grow our portfolio of government-leased properties, and
acquire other businesses that provide complementary services. We will continue to pursue opportunities to help our
government partners meet their infrastructure needs, primarily through the development and redevelopment of
criminal justice sector assets, but also by acquiring other real estate assets with a bias toward those used to provide
mission-critical governmental services, that we believe have favorable investment returns, diversify our cash flows,
and increase value to our stockholders. These business development activities will require capital. We currently
expect to fund these growth opportunities with cash on hand and availability under our revolving credit facility. As
of December 31, 2017, we had cash on hand of $52.2 million and $694.1 million available under our revolving
credit facility. We may also seek to issue debt or equity securities from time to time when we determine that market
conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable. We
currently anticipate that any proceeds obtained through capital markets transactions would be used to repay
borrowings under our revolving credit facility. We will also pursue alternative sources of capital that could include
secured indebtedness, subject to limitations set forth in our debt agreements.
In October 2017, we completed the offering of $250.0 million aggregate principal amount of 4.75% senior notes due
October 15, 2027. We used net proceeds from the offering to pay down a portion of our revolving credit facility,
thereby increasing the availability of borrowings under the revolving credit facility that is used to fund growth
opportunities that require capital deployment.
In January 2018, we obtained a $24.5 million mortgage note with an interest rate of 4.5%, maturing in 2033, to
partially finance the $44.7 million acquisition of Capital Commerce Center, a 261,000 square-foot property located
in Tallahassee, Florida. We may obtain additional secured indebtedness in connection with the acquisition of
additional government-leased properties like Capital Commerce Center, where we believe the terms offer attractive
alternatives to other forms of capital.
On February 26, 2016, we entered into an ATM Equity Offering Sales Agreement, or ATM Agreement, with
multiple sales agents. Pursuant to the ATM Agreement, we may offer and sell to or through the sales agents from
time to time, shares of our common stock, par value $0.01 per share, having an aggregate gross sales price of up to
$200.0 million. Sales, if any, of our shares of common stock will be made primarily in "at-the-market" offerings, as
defined in Rule 415 under the Securities Act of 1933, as amended. The shares of common stock would be offered
and sold pursuant to our registration statement on Form S-3 filed with the SEC on May 15, 2015, and a related
prospectus supplement dated February 26, 2016. We intend to use the net proceeds from any sale of shares of our
common stock to repay borrowings under our revolving credit facility (including the Term Loan under the
"accordion" feature of the revolving credit facility) and for general corporate purposes, including to fund future
acquisitions and development projects. We believe the ATM program is a useful tool to match fund proceeds from
common stock sales with M&A activities and other capital needs, in order to manage our capital allocation strategy.
24
There were no shares of our common stock sold under the ATM Agreement during the years ended December 31,
2017 and 2016.
We reorganized our corporate structure to facilitate our qualification as a REIT for federal income tax purposes
effective for our taxable year beginning January 1, 2013. To qualify and be taxed as a REIT, we generally are
required to distribute annually to our stockholders at least 90% of our REIT taxable income (determined without
regard to the dividends paid deduction and excluding net capital gains), and are subject to regular corporate income
taxes to the extent we distribute less than 100% of our REIT taxable income (including capital gains) each year. The
amount, timing and frequency of future distributions, however, will be at the sole discretion of our Board of
Directors and will be declared based upon various factors, many of which are beyond our control, including our
financial condition and operating cash flows, the amount required to maintain qualification and taxation as a REIT
and reduce any income and excise taxes that we otherwise would be required to pay, limitations on distributions in
our existing and future debt instruments, limitations on our ability to fund distributions using cash generated through
our TRSs, alternative growth opportunities that require capital deployment, and other factors that our Board of
Directors may deem relevant. Because as a REIT we are required to distribute a substantial portion of our cash
generated from operations to stockholders as a dividend, growth opportunities may require more external capital
resources than were required prior to our conversion to a REIT. During 2017, our Board of Directors declared a
quarterly dividend of $0.42 in each quarter, totaling $199.8 million for the year, compared with a total of $241.7
million during 2016 and $254.8 million during 2015.
In addition to the cash on hand and availability under our revolving credit facility, we currently expect our REIT
taxable income to be less than our operating cash flow, primarily due to the deductibility of non-cash expenses such
as depreciation on our real estate assets. This liquidity provides us with the flexibility to (i) invest in additional
facility acquisitions and developments, which could include acquisitions of facilities from government partners,
third parties, or additional business combinations, (ii) pay down debt, (iii) increase dividends to our stockholders, or
(iv) repurchase our common stock.
Government Regulation
Business Regulations
The industry in which we operate is subject to extensive federal, state, and local regulations, including educational,
health care, and safety regulations, which are administered by many governmental and regulatory authorities. Some
of the regulations are unique to the corrections industry. Facility management contracts typically include specific
staffing requirements, reporting requirements, supervision, and on-site monitoring by representatives of the
contracting governmental agencies. Corrections officers are customarily required to meet certain training standards
and, in some instances, facility personnel are required to be licensed and subject to background investigation.
Certain jurisdictions also require us to award subcontracts on a competitive basis or to subcontract with businesses
owned by members of minority groups. Our facilities are also subject to operational and financial audits by the
governmental agencies with which we have contracts. Failure to comply with these regulations and contract
requirements can result in material penalties or non-renewal or termination of facility management contracts.
Environmental Matters
Under various federal, state, and local environmental laws, ordinances and regulations, a current or previous owner
or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances
on, under, or in such property. Such laws often impose liability whether or not the owner or operator knew of, or
was responsible for, the presence of such hazardous or toxic substances. As an owner of real estate assets and as the
result of our operation and management of correctional, detention, and residential reentry facilities, we have been
subject to these laws, ordinances, and regulations. Phase I environmental assessments have been obtained on
substantially all of the properties we currently own. We are not aware of any environmental matters that are
expected to materially affect our financial condition or results of operations; however, if such matters are detected in
the future, the costs of complying with environmental laws may adversely affect our financial condition and results
of operations.
25
Health Insurance Portability and Accountability Act of 1996 and Privacy and Security Requirements
In 1996, Congress enacted the Health Insurance Portability and Accountability Act of 1996, or HIPAA. HIPAA was
designed to improve the portability and continuity of health insurance coverage, simplify the administration of
health insurance, and protect the privacy and security of health-related information.
Privacy regulations promulgated under HIPAA regulate the use and disclosure of individually identifiable health
information, whether communicated electronically, on paper, or orally. The regulations also provide patients with
significant rights related to understanding and controlling how their health information is used or disclosed.
Security regulations promulgated under HIPAA require that covered entities, including most health care providers,
health clearinghouses, group health plans, and their business associates, implement administrative, physical, and
technical safeguards to protect the security of individually identifiable health information that is maintained or
transmitted electronically. These privacy and security regulations require the implementation of compliance training
and awareness programs for our health care service providers and selected other employees primarily associated
with our employee medical plans. Further, covered entities and their business associates must provide notification
to affected individuals without unreasonable delay but not to exceed 60 days of discovery of a breach of unsecured
protected health information. Notification must also be made to the U.S. Department of Health and Human Services,
or DHHS, and, in certain situations involving large breaches, to the media. In a final rule released in January 2013,
DHHS modified the breach notification requirement by creating a presumption that all non-permitted uses or
disclosures of unsecured protected health information are breaches unless the covered entity or business associate
establishes that there is a low probability the information has been compromised.
Violations of the HIPAA privacy and security regulations could result in significant civil and criminal penalties, and
the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, which was
modified by the 2013 final HITECH rule, strengthened the enforcement provisions of HIPAA. HITECH broadens
the applicability of the criminal penalty provisions to employees of covered entities and requires DHHS to impose
penalties for violations resulting from willful neglect. HITECH also increases the amount of the civil penalties, with
penalties of up to $50,000 per violation for a maximum civil penalty of $1,500,000 in a calendar year for violations
of the same requirement. Further, HITECH authorizes state attorneys general to bring civil actions for injunctions or
damages in response to violations that threaten the privacy of state residents. In addition, under HITECH, DHHS is
required to perform periodic HIPAA compliance audits of covered entities and their business associates. These
provisions, as modified by the 2013 final HITECH rule, may be subject to interpretation by various courts and other
governmental authorities, thus creating potentially complex compliance issues.
In addition, there are numerous legislative and regulatory initiatives at the federal and state levels addressing the
privacy and security of patient health information and other identifying information. For example, federal and
various state laws and regulations strictly regulate the disclosure of patient identifiable information related to
substance abuse treatment. Further, various state laws and regulations require providers and other entities to notify
affected individuals in the event of a data breach involving certain types of individually identifiable health or
financial information, and these requirements may be more restrictive than the regulations issued under HIPAA and
HITECH. Such laws may not be preempted by the HIPAA privacy standards and security standards. These statutes
vary and could impose additional penalties and compliance costs.
Insurance
We maintain general liability insurance for all the facilities we operate, as well as insurance in amounts we deem
adequate to cover property and casualty risks, workers' compensation, and directors and officers liability. In
addition, each of our leases with third parties provides that the lessee will maintain insurance on each leased
property under the lessee's insurance policies providing for the following coverages: (i) fire, vandalism, and
malicious mischief, extended coverage perils, and all physical loss perils; (ii) comprehensive general public liability
(including personal injury and property damage); and (iii) workers' compensation. Under each of these leases, we
have the right to periodically review our lessees' insurance coverage and provide input with respect thereto.
Each of our management contracts and the statutes of certain states require the maintenance of insurance. We
maintain various insurance policies including employee health, workers' compensation, automobile liability, and
general liability insurance. Because we are significantly self-insured for employee health, workers' compensation,
automobile liability, and general liability insurance, the amount of our insurance expense is dependent on claims
experience, and our ability to control our claims experience. Our insurance policies contain various deductibles and
stop-loss amounts intended to limit our exposure for individually significant occurrences. However, the nature of
26
our self-insurance policies provides little protection for deterioration in overall claims experience or an increase in
medical costs. We are continually developing strategies to improve the management of our future loss claims but
can provide no assurance that these strategies will be successful. However, unanticipated additional insurance
expenses resulting from adverse claims experience or an increasing cost environment for general liability and other
types of insurance could adversely impact our results of operations and cash flows.
Employees
As of December 31, 2017, we employed 12,875 full- and part-time employees. Of such employees, 385 were
employed at our corporate offices and 12,490 were employed at our facilities and in our inmate transportation
business. We employ personnel in the following areas: clerical and administrative, facility administrators/wardens,
security, medical, quality assurance, transportation and scheduling, maintenance, teachers, counselors, case
managers, chaplains, and other support services.
We have not experienced a strike or work stoppage at any of our facilities. Approximately 810 employees at three
of our facilities are represented by labor unions. In the opinion of management, overall employee relations are good.
Competition
The correctional, detention, and residential reentry facilities we own, operate, or manage, as well as those facilities
we own but are managed by other operators, are subject to competition for offenders and residents from other
private operators. We compete primarily on the basis of bed availability, cost, the quality and range of services
offered, our experience in the design, construction, and management of correctional and detention facilities, and our
reputation. We compete with government agencies that are responsible for correctional, detention, and residential
reentry facilities and a number of companies, including, but not limited to, The GEO Group, Inc. and Management
and Training Corporation. We also compete in some markets with small local companies that may have a better
knowledge of the local conditions and may be better able to gain political and public acceptance. Other potential
competitors may in the future enter into businesses competitive with us without a substantial capital investment or
prior experience. We may also compete in the future for acquisitions and new development projects with companies
that have more financial resources than we have or those willing to accept lower returns than we are willing to
accept. Competition by other companies may adversely affect occupancy at our facilities, which could have a
material adverse effect on the operating revenue of our facilities. In addition, revenue derived from our facilities
will be affected by a number of factors, including the demand for beds, general economic conditions, and the age of
the general population.
We compete with numerous developers, real estate companies and other owners of commercial properties for
acquisitions of government-leased assets. Other real estate investors, including insurance companies, private equity
funds, sovereign wealth funds, pension funds, other REITs, and other well-capitalized investors will compete with
us to acquire government-leased properties. In addition, U.S. Government tenants are viewed as desirable tenants by
other landlords because of their strong credit profile, and properties leased to U.S. Government tenant agencies often
attract many potential buyers. This competition could increase prices for properties of the type we may pursue and
impede our ability to grow and diversify.
ITEM 1A. RISK FACTORS.
As the owner and operator of correctional, detention, and residential reentry facilities, we are subject to certain risks
and uncertainties associated with, among other things, the corrections and detention industry and pending or
threatened litigation in which we are involved. In addition, we are also currently subject to risks associated with our
indebtedness as well as our qualification as a REIT for federal income tax purposes effective for our taxable years
beginning January 1, 2013. The risks and uncertainties set forth below could cause our actual results to differ
materially from those indicated in the forward-looking statements contained herein and elsewhere. The risks
described below are not the only risks we face. Additional risks and uncertainties not currently known to us or those
we currently deem to be immaterial may also materially and adversely affect our business operations. Any of the
following risks could materially adversely affect our business, financial condition, or results of operations.
27
Risks Related to Our Business and Industry
Our results of operations are dependent on revenues generated by our correctional, detention, and residential
reentry facilities, which are subject to the following risks associated with the corrections and detention industry.
We are subject to fluctuations in occupancy levels, and a decrease in occupancy levels could cause a decrease in
revenues and profitability. While a substantial portion of our cost structure is fixed, a substantial portion of our
revenue is generated under facility ownership and management contracts that specify per diem payments based upon
daily occupancy. We are dependent upon the governmental agencies with which we have contracts to provide
offenders for facilities we operate. We cannot control occupancy levels at the facilities we operate. Under a per diem
rate structure, a decrease in our occupancy rates could cause a decrease in revenue and profitability. For the years
2017, 2016, and 2015, the average compensated occupancy of our facilities, based on rated capacity, was 80%, 79%,
and 83%, respectively, for all of the facilities we operated, exclusive of facilities that are leased to third-party
operators where our revenue is generally not based on daily occupancy. Occupancy rates may, however, decrease
below these levels in the future. When combined with relatively fixed costs for operating each facility, a decrease in
occupancy levels could have a material adverse effect on our profitability.
We are dependent on government appropriations, and our results of operations may be negatively affected by
governmental budgetary challenges. Our cash flow is subject to the receipt of sufficient funding of, and timely
payment by, contracting governmental entities. If the appropriate governmental agency does not receive sufficient
appropriations to cover its contractual obligations, it may terminate our contract or delay or reduce payment to us.
Any delays in payment, or the termination of a contract, could have an adverse effect on our cash flow and financial
condition. In addition, federal, state and local governments are constantly under pressure to control additional
spending or reduce current levels of spending. In prior years, these pressures have been compounded by economic
downturns. Accordingly, we have been requested and may be requested in the future to reduce our existing per diem
contract rates or forego prospective increases to those rates. Further, our government partners could reduce offender
population levels in facilities we own or manage to contain their correctional costs. In addition, it may become more
difficult to renew our existing contracts on favorable terms or otherwise.
Competition may adversely affect the profitability of our business. We compete with government entities and other
private operators on the basis of bed availability, cost, quality and range of services offered, experience in designing,
constructing, and managing facilities, and reputation of management and personnel. While there are barriers to
entering the market for the ownership and management of correctional, detention, and residential reentry facilities,
these barriers may not be sufficient to limit additional competition. In addition, our government customers may
assume the management of a facility that they own and we currently manage for them upon the termination of the
corresponding management contract or, if such customers have capacity at their facilities, may take offenders and
residents currently housed in our facilities and transfer them to government-run facilities. Since we are paid on a per
diem basis with no minimum guaranteed occupancy under most of our contracts, the loss of such offenders and
residents, and the resulting decrease in occupancy, would cause a decrease in our revenues and profitability.
28
Resistance to privatization of correctional and detention facilities, and negative publicity regarding inmate
disturbances or perceived poor operational performance, could result in our inability to obtain new contracts, the
loss of existing contracts, or other unforeseen consequences. Privatization of correctional and detention facilities
has not achieved complete acceptance by either governments or the public. The operation of correctional and
detention facilities by private entities has encountered resistance from certain groups, such as labor unions and
others, that believe that correctional and detention facilities should only be operated by governmental agencies. In
the past, legislation has been proposed in the United States Congress to prohibit the federal government from
entering into contracts with private prison operators and to eliminate state and local contracts for privately run
prisons. Further, in September 2017, another bill was introduced in the U.S. House of Representatives that could
affect private immigrant detention facilities. If enacted as written, the Dignity for Detained Immigrants Act would,
from the day of its enactment, prohibit the Department of Homeland Security from entering into or extending any
contract with a private company for an immigrant detention facility. It would also be required to terminate any such
contract it had within three years of the law's passage. While this would impact only our contracts with ICE and
would not impact our contracts with BOP or USMS, such legislation runs contrary to our primary business purpose
and, if passed, could have a material adverse impact on our business, financial condition, or results of operations.
Moreover, the belief or market perception that such legislation could be passed could have a negative impact on our
stock price.
Further, negative publicity regarding an escape, riot or other disturbance or perceived poor operational performance,
contract compliance, or other conditions at a privately managed facility may result in adverse publicity to us and the
private corrections industry in general. Any of these occurrences or continued trends may make it more difficult for
us to renew or maintain existing contracts or to obtain new contracts, which could have a material adverse effect on
our business.
We are subject to terminations, non-renewals, or competitive re-bids of our government contracts. We typically
enter into facility contracts with governmental entities for terms of up to five years, with additional renewal periods
at the option of the contracting governmental agency. Notwithstanding any contractual renewal option of a
contracting governmental agency, as of December 31, 2017, 43 of our facility contracts with the customers listed
under "Business – Facility Portfolio – Facilities and Facility Management Contracts" are currently scheduled to
expire on or before December 31, 2018 but have renewal options (25), or are currently scheduled to expire on or
before December 31, 2018 and have no renewal options (18). Although we generally expect these customers to
exercise renewal options or negotiate new contracts with us, one or more of these contracts may not be renewed by
the corresponding governmental agency. In addition, these and any other contracting agencies may determine not to
exercise renewal options with respect to any of our contracts in the future. Our government partners can also re-bid
contracts in a competitive procurement process upon termination or non-renewal of our contract. Competitive re-
bids may result from the expiration of the term of a contract, including the initial term and any renewal periods, or
the early termination of a contract. Competitive re-bids are often required by applicable federal or state procurement
laws periodically in order to further competitive pricing and other terms for the government agency. The aggregate
revenue earned during the year ended December 31, 2017 for the 43 contracts with scheduled maturity dates,
notwithstanding contractual renewal options, on or before December 31, 2018 was $640.4 million, or 36% of total
revenue.
Based on information available as of the date of this filing, we believe we will renew all material contracts that have
expired or are scheduled to expire within the next twelve months. We believe our renewal rate on existing contracts
remains high due to a variety of reasons including, but not limited to, the constrained supply of available beds within
the U.S. correctional system, our ownership of the majority of the beds we operate, and the cost effectiveness of the
services we provide. However, we cannot assure we will continue to achieve such renewal rates in the future.
Governmental agencies typically may terminate a facility contract at any time without cause or use the possibility of
termination to negotiate a lower per diem rate. In the event any of our contracts are terminated or are not renewed on
favorable terms or otherwise, we may not be able to obtain additional replacement contracts. The non-
renewal, termination, renegotiation or competitive re-bid of any of our contracts with governmental agencies could
materially adversely affect our financial condition, results of operations and liquidity, including our ability to secure
new facility contracts from others.
29
Our ability to secure new contracts to develop and manage correctional, detention, and residential reentry facilities
depends on many factors outside our control. Our growth is generally dependent upon our ability to obtain new
contracts to develop and manage correctional, detention, and residential reentry facilities. This possible growth
depends on a number of factors we cannot control, including crime rates and sentencing patterns in various
jurisdictions, governmental budgetary constraints, and governmental and public acceptance of privatization. The
demand for our facilities and services could be adversely affected by the relaxation of enforcement efforts, the
expansion of alternatives to incarceration and detention, leniency in conviction or parole standards and sentencing
practices or through the decriminalization of certain activities that are currently proscribed by criminal laws. For
instance, any changes with respect to drugs and controlled substances or illegal immigration could affect the number
of persons arrested, convicted, and sentenced, thereby potentially reducing demand for correctional or detention
facilities to house them. Immigration reform laws are currently a focus for legislators and politicians at the federal,
state, and local level. Legislation has also been proposed in numerous jurisdictions that could lower minimum
sentences for some non-violent crimes and make more inmates eligible for early release based on good behavior.
Also, the expansion of alternatives to incarceration and detention, such as electronic monitoring, may reduce the
number of offenders who would otherwise be incarcerated or detained. Similarly, reductions in crime rates or
resources dedicated to prevent and enforce crime could lead to reductions in arrests, convictions and sentences
requiring incarceration at correctional facilities. Our company does not, under longstanding policy, lobby for or
against policies or legislation that would determine the basis for, or duration of, an individual's incarceration or
detention.
Moreover, certain jurisdictions recently have required successful bidders to make a significant capital investment in
connection with the financing of a particular project, a trend that will require us to have sufficient capital resources
to compete effectively. We may compete for such projects with companies that have more financial resources than
we have. Further, we may not be able to obtain the capital resources when needed. A prolonged downturn in the
financial capital markets or in our stock price could make it more difficult to obtain capital resources at favorable
rates of return or obtain capital resources at all.
We may face community opposition to facility location, which may adversely affect our ability to obtain new
contracts. Our success in obtaining new awards and contracts sometimes depends, in part, upon our ability to locate
land that can be leased or acquired, on economically favorable terms, by us or other entities working with us in
conjunction with our proposal to construct and/or manage a facility. Some locations may be in or near populous
areas and, therefore, may generate legal action or other forms of opposition from residents in areas surrounding a
proposed site. When selecting project sites, we attempt to conduct business in communities where local leaders and
residents generally support the establishment of a privatized correctional, detention, or residential reentry facility.
Future efforts to find suitable host communities may not be successful. We may incur substantial costs in evaluating
the feasibility of the development of a correctional or detention facility. As a result, we may report significant
charges if we decide to abandon efforts to develop a correctional or detention facility on a particular site. In many
cases, the site selection is made by the contracting governmental entity. In such cases, site selection may be made
for reasons related to political and/or economic development interests and may lead to the selection of sites that have
less favorable environments.
Providing family residential services increases certain unique risks and difficulties compared to operating our other
facilities. In September 2014, we signed an amended agreement to provide safe and humane residential housing, as
well as educational opportunities, to women and children under the custody of ICE, who are awaiting their due
process before immigration courts. In October 2016, we entered into an amended agreement that extended the term
of the 2014 agreement through September 2021. This is an important service to our federal government partner. At
the same time, providing this type of residential service subjects us to unique risks such as unanticipated increased
costs and litigation that could materially adversely affect our business, financial condition, or results of operations.
For example, the contract mandates resident-to-staff ratios that are higher than our typical contract, requires services
unique to this contract (e.g. child care and primary education services), and limits the use of security protocols and
techniques typically utilized in correctional and detention settings. These operational risks and others associated
with privately managing this type of residential facility could result in higher costs associated with staffing and lead
to increased litigation.
Numerous lawsuits, to which we are not a party, have challenged the government's policy of detaining migrant
families, and government policies with respect to family immigration may impact the demand for the South Texas
30
Family Residential Center. Any court decision or government action that impacts our existing contract for the South
Texas Family Residential Center could materially affect our cash flows, financial condition, and results of
operations.
We may incur significant start-up and operating costs on new contracts before receiving related revenues, which
may impact our cash flows and not be recouped. When we are awarded a contract to provide or manage a facility,
we may incur significant start-up and operating expenses, including the cost of constructing the facility, purchasing
equipment and staffing the facility, before we receive any payments under the contract. These expenditures could
result in a significant reduction in our cash reserves and may make it more difficult for us to meet other cash
obligations. In addition, a contract may be terminated prior to its scheduled expiration and as a result we may not
recover these expenditures or realize any return on our investment.
Government agencies may investigate and audit our contracts and operational performance, and if any deficiencies
or improprieties are found, we may be required to cure those deficiencies or improprieties, refund revenues we have
received, or forego anticipated revenues, and we may be subject to penalties and sanctions, including contract
termination and prohibitions on our bidding in response to RFPs. Certain of the governmental agencies with which
we contract have the authority to audit and investigate our contracts with them. As part of that process, government
agencies may review our performance of the contract, our pricing practices, our cost structure and our compliance
with applicable performance requirements, laws, regulations and standards. The regulatory and contractual
environment in which we operate is complex and many aspects of our operations remain subject to manual processes
and oversight that make compliance monitoring difficult and resource intensive. A governmental agency audit,
review or investigation could result in a request to cure a performance or compliance issue, and if we are unable to
or otherwise fail to do so, the failure could lead to the imposition of monetary penalties or revenue deductions, or the
termination of the contract in question or other contracts that we have with that governmental agency. Similarly, for
contracts that actually or effectively provide for certain reimbursement of expenses, if an agency determines that we
have improperly allocated costs to a specific contract, we may not be reimbursed for those costs, and we could be
required to refund the amount of any such costs that have been reimbursed. If a government audit asserts improper
or illegal activities by us, we may be subject to civil and criminal penalties and administrative sanctions, including
termination of contracts, forfeitures of profits, suspension of payments, fines and suspension or disqualification from
doing business with certain government entities. In addition to the potential civil and criminal penalties and
administrative sanctions, any adverse determination with respect to contractual or regulatory violations could
negatively impact our ability to bid in response to RFPs in one or more jurisdictions.
Failure to comply with facility contracts or with unique and increased governmental regulation could result in
material penalties or non-renewal or termination of noncompliant contracts or our other contracts to provide or
manage correctional, detention, and residential reentry facilities. The industry in which we operate is subject to
extensive federal, state, and local regulations, including educational, health care, and safety regulations, which are
administered by many regulatory authorities. Some of the regulations are unique to the corrections industry, some
are unique to government contractors, and the combination of regulations we face is unique and complex. Facility
contracts typically include reporting requirements, supervision, and on-site monitoring by representatives of the
contracting governmental agencies. Corrections officers are customarily required to meet certain training standards
and, in some instances, facility personnel are required to be licensed and subject to background investigation.
Certain jurisdictions also require us to award subcontracts on a competitive basis or to subcontract with certain types
of businesses, such as small businesses and businesses owned by members of minority groups. Our facilities are
also subject to operational and financial audits by the governmental agencies with which we have contracts. Federal
regulations also require federal government contractors like us to self-report evidence of certain forms of
misconduct. We may not always successfully comply with these regulations and contract requirements, and failure
to comply can result in material penalties, including financial penalties, non-renewal or termination of noncompliant
contracts or our other facility contracts, and suspension or debarment from contracting with certain government
entities.
In addition, private prison managers are subject to government legislation and regulation attempting to restrict the
ability of private prison managers to house certain types of inmates, such as inmates from other jurisdictions or
inmates at medium or higher security levels. Legislation has been enacted in several states, and has previously been
proposed in the United States Congress, containing such restrictions. Such legislation may have an adverse effect on
us.
31
Our inmate transportation subsidiary, TransCor, is subject to regulations promulgated by the Departments of
Transportation and Justice. TransCor must also comply with the Interstate Transportation of Dangerous Criminals
Act of 2000, which covers operational aspects of transporting prisoners, including, but not limited to, background
checks and drug testing of employees; employee training; employee hours; staff-to-inmate ratios; prisoner restraints;
communication with local law enforcement; and standards to help ensure the safety of prisoners during transport.
We are subject to changes in such regulations, which could result in an increase in the cost of our transportation
operations.
On June 13, 2017, the US Court of Appeals for the District of Columbia Circuit, or the Court, struck down large
portions of a late 2016 Order, or the Order, from the Federal Communications Commission, or FCC, which regulates
telecommunications. The Order had set numerous rate caps on interstate and intrastate calling services, or ICS, and
applied directly to ICS providers that offer their services pursuant to contracts with correctional facilities, including
those that we manage. The Court found that the FCC lacked authority to regulate intrastate ICS rates. The Court
also found that the FCC had neglected critical factors in calculating interstate rate caps, remanding the interstate rate
proceeding back to the FCC for reconsideration. As a result of the Court's decision, an earlier FCC order setting
interstate rate caps remains in effect.
Because it is unclear what, if any, further rate capping action the FCC may take with respect to interstate ICS rates,
the financial impact cannot be anticipated at this time. The impact to our revenue is limited because a significant
amount of commissions paid by our ICS providers is passed along to our customers or is reserved and used for the
benefit of offenders in our care.
In previous notices, the FCC sought comment on various topics, including the development of international ICS rate
caps; the potential regulation of rates associated with technology based ICS alternatives, such as videoconferencing;
and whether additional reforms are necessary for effective regulation of revenue sharing agreements. All of these
reforms, if pursued, could impact revenue to correctional facility operators, both public and private, but the most
recent decision by the Court appears to limit FCC jurisdiction in some of these areas. For this reason, it remains
unclear whether the FCC will undertake further regulatory activity in these fields.
We depend on a limited number of governmental customers for a significant portion of our revenues. We currently
derive, and expect to continue to derive, a significant portion of our revenues from a limited number of
governmental agencies. The loss of, or a significant decrease in, business from the BOP, ICE, USMS, or various
state agencies could seriously harm our financial condition and results of operations. The three primary federal
governmental agencies with correctional and detention responsibilities, the BOP, ICE, and USMS, accounted for
48% of our total revenues for the year ended December 31, 2017 ($839.1 million). ICE accounted for 25% of our
total revenues for the year ended December 31, 2017 ($444.1 million), USMS accounted for 16% of our total
revenues for the year ended December 31, 2017 ($277.4 million), and BOP accounted for 7% of our total revenues
for the year ended December 31, 2017 ($117.6 million). Although the revenue generated from each of these
agencies is derived from numerous management contracts, the loss or substantial reduction in value of one or more
of such contracts could have a material adverse impact on our financial condition, results of operations, and cash
flows. We expect to continue to depend upon these federal agencies and a relatively small group of other
governmental customers for a significant percentage of our revenues.
In a memorandum to the BOP dated August 18, 2016, the DOJ directed that, as each contract with privately operated
prisons reaches the end of its term, the BOP should either decline to renew that contract or substantially reduce its
scope in a manner consistent with law and the overall decline of the BOP's inmate population. On February 21,
2017, the newly appointed U.S. Attorney General issued a memorandum rescinding the DOJ's prior directive stating
the August 18, 2016 memorandum changed long-standing policy and practice and impaired the BOP's ability to
meet the future needs of the federal correctional system.
Revenue from our South Texas Family Residential Center was $170.6 million in 2017 and $267.3 million in 2016,
reflecting the aforementioned amendment executed in October 2016 as discussed under Item 1, "Business - Business
Development". The loss or further reduction in value of this contract would have a material adverse impact on our
financial condition, results of operations, and cash flows. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations" for a further discussion regarding our contract at the
32
South Texas Family Residential Center and the reduction in revenue in 2017 that resulted from the amendment to
this contract.
Approximately 6% of our total revenues for the year ended December 31, 2017 ($104.1 million) was generated from
the CDCR in facilities housing inmates outside the state of California, a decrease from $113.4 million, or 6%, of our
total revenues in 2016, and $170.5 million, or 10% of our total revenues in 2015. Our management agreement with
the CDCR, as well as the status of legal and legislative action contributing to the reduction in the state of California
inmate populations, are more fully described hereafter in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations".
During the first quarter of 2015, the adult inmate population held in state of California institutions under custody of
the CDCR first met a Federal court order to reduce inmate populations below 137.5% of the State's capacity. Inmate
populations in the state continued to decline below the court ordered capacity limit which has resulted in declining
inmate populations in the out-of-state program at facilities we own and operate. As of December 31, 2017, the adult
inmate population held in state of California institutions remained in compliance with the Federal court order at
approximately 134.6% of capacity, or approximately 114,500 inmates, which did not include the California inmates
held in our out-of-state facilities, compared with 114,000 inmates at December 31, 2016.
On January 10, 2018, the Governor of California issued a proposed budget for fiscal 2018-2019. The proposed
budget contemplates that the continued implementation of initiatives to reduce prison populations will allow the
CDCR to eliminate the use of out-of-state contract beds. Current estimates include the removal of all inmates from
one of our two out-of-state facilities by the end of fiscal 2017-2018. As the impact of the initiatives grows, the
CDCR anticipates the removal of inmates from our other out-of-state facility by fall 2019. Although the proposed
budget acknowledges that estimates of population reductions are subject to considerable uncertainty, the complete
removal by the CDCR of all inmates from our out-of-state facilities could have a material adverse effect on our
financial position, results of operations, and cash flows.
We may not be able to successfully identify, consummate or integrate acquisitions.
We have an active acquisition program, the objective of which is to identify suitable acquisition targets that will
enhance our growth and diversify our cash flows. The pursuit of acquisitions may pose certain risks to us. We may
not be able to identify acquisition candidates that fit our criteria for growth, profitability and diversification strategy.
Even if we are able to identify such candidates, we may not be able to acquire them on terms satisfactory to us. We
will incur expenses and dedicate attention and resources associated with the review and pursuit of acquisition
opportunities, whether or not we consummate such acquisitions.
Additionally, even if we are able to identify and acquire suitable targets on agreeable terms, we may not be able to
successfully integrate their operations with ours. Achieving the anticipated benefits of any acquisition will depend in
significant part upon whether we integrate such acquired businesses in an efficient and effective manner. We may
not be able to achieve the anticipated operating and cost synergies or long-term strategic benefits of our acquisitions
within the anticipated timing, or at all. We may also assume liabilities in connection with acquisitions to which we
would otherwise not be exposed. An inability to realize the full extent of, or any of, the anticipated synergies or
other benefits of an acquisition, as well as any delays that may be encountered in the integration process, which may
delay the timing of such synergies or other benefits, could have an adverse effect on our business and results of
operations.
As a result of our acquisitions, we have recorded and will continue to record a significant amount of goodwill
and other intangible assets. In the future, our goodwill or other intangible assets may become impaired, which
could result in material non-cash charges to our results of operations.
We have a substantial amount of goodwill and other intangible assets resulting from business acquisitions. As of
December 31, 2017, we had $40.9 million of goodwill and other intangible assets. At least annually, or whenever
events or changes in circumstances indicate a potential impairment in the carrying value as defined by U.S.
generally accepted accounting principles, we will evaluate this goodwill for impairment by first assessing qualitative
factors to determine whether the existence of events or circumstances leads to a determination that it is more likely
than not that the fair value of the reporting unit is less than the carrying amount. Estimated fair values could change
33
if there are changes in our capital structure, cost of debt, interest rates, capital expenditure levels, operating cash
flows, or market capitalization. Impairments of goodwill or other intangible assets could require material non-cash
charges to our results of operations.
We are dependent upon our senior management and our ability to attract and retain sufficient qualified
personnel.
The success of our business depends in large part on the ability and experience of our senior management. The
unexpected loss of any of these persons could materially adversely affect our business and operations.
In addition, the services we provide are labor-intensive. The success of our business, and our ability to satisfy the
staffing and operational performance requirements of our contracts, require that we attract, hire, develop and retain
sufficient qualified personnel. When we are awarded a facility management contract or open a new facility, we
must hire operating management, correctional officers, and other personnel. Our inability to hire sufficient qualified
personnel on a timely basis, or experiencing excessive turnover or the loss of significant personnel at existing
facilities, could adversely affect our business and operations. Many of our contracts include specific staffing
requirements, and our failure to satisfy such requirements may result in the imposition of financial penalties.
Legal proceedings related to, and adverse developments in our relationship with, our employees could adversely
affect our business, financial condition or results of operations.
We and our subsidiaries are party to a variety of claims and legal proceedings in the ordinary course of business,
including but not limited to claims and legal proceedings related to employment matters. Because the resolution of
claims and legal proceedings is inherently uncertain, there can be no assurance we will be successful in defending
against such claims or legal proceedings, or that management's assessment of the materiality of these matters,
including the reserves taken in connection therewith, will be consistent with the ultimate outcome of such claims or
legal proceedings. In the event management's assessment of materiality of current claims and legal proceedings
proves inaccurate or litigation that is material arises in the future, the resolution of such matters may have a material
adverse effect on our business, financial condition or results of operations.
As of December 31, 2017, we employed 12,875 full- and part-time employees. Approximately 810 of our
employees at three of our facilities, or approximately 6% of our workforce, are represented by labor unions. We
have not experienced a strike or work stoppage at any of our facilities and, in the opinion of management, overall
employee relations are good. New executive orders, administrative rules and changes in National Labor Relations
could increase organizing activity at locations where employees are currently not represented by a labor
organization. Increases in organizational activity or any future work stoppages could have a material adverse effect
on our business, financial condition, or results of operations.
We are subject to necessary insurance costs.
Workers' compensation, auto liability, employee health, and general liability insurance represent significant costs to
us. Because we are significantly self-insured for workers' compensation, auto liability, employee health, and general
liability risks, the amount of our insurance expense is dependent on claims experience, our ability to control our
claims experience, and in the case of workers' compensation and employee health, rising health care costs in general.
Unanticipated additional insurance costs could adversely impact our results of operations and cash flows, and the
failure to obtain or maintain any necessary insurance coverage could have a material adverse effect on us.
We may be adversely affected by inflation.
Many of our facility contracts provide for fixed fees or fees that increase by only small amounts during their terms.
If, due to inflation or other causes, our operating expenses, such as wages and salaries of our employees, insurance,
medical, and food costs, increase at rates faster than increases, if any, in our revenues, then our profitability would
be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations – Inflation."
34
We are subject to legal proceedings associated with owning and managing correctional, detention, and residential
reentry facilities.
Our ownership and management of correctional, detention, and residential reentry facilities, and the provision of
inmate transportation services by a subsidiary, expose us to potential third-party claims or litigation by prisoners or
other persons relating to personal injury or other damages resulting from contact with a facility, its managers,
personnel or other prisoners, including damages arising from a prisoner's escape from, or a disturbance or riot at, a
facility we own or manage, or from the misconduct of our employees. To the extent the events serving as a basis for
any potential claims are alleged or determined to constitute illegal or criminal activity, we could also be subject to
criminal liability. Such liability could result in significant monetary fines and could affect our ability to bid on
future contracts and retain our existing contracts. In addition, as an owner of real property, we may be subject to a
variety of proceedings relating to personal injuries of persons at such facilities. The claims against our facilities may
be significant and may not be covered by insurance. Even in cases covered by insurance, our deductible (or self-
insured retention) may be significant.
We are subject to certain stockholder litigation.
In a memorandum to the BOP dated August 18, 2016, the DOJ directed that, as each contract with privately operated
prisons reaches the end of its term, the BOP should either decline to renew that contract or substantially reduce its
scope in a manner consistent with law and the overall decline of the BOP's inmate population. In addition to the
decline in the BOP's inmate population, the DOJ memorandum cites purported operational, programming, and cost
efficiency factors as reasons for the DOJ directive. On February 21, 2017, the newly appointed U.S. Attorney
General issued a memorandum rescinding the DOJ's prior directive stating the August 18, 2016 memorandum
changed long-standing policy and practice and impaired the BOP's ability to meet the future needs of the federal
correctional system.
Following the release of the August 18, 2016 DOJ memorandum, a purported securities class action lawsuit was
filed against us and certain of our current and former officers in the United States District Court for the Middle
District of Tennessee, or the District Court, captioned Grae v. Corrections Corporation of America et al., Case No.
3:16-cv-02267. The lawsuit is brought on behalf of a putative class of shareholders who purchased or acquired our
securities between February 27, 2012 and August 17, 2016. In general, the lawsuit alleges that, during this
timeframe, our public statements were false and/or misleading regarding the purported operational, programming,
and cost efficiency factors cited in the DOJ memorandum and, as a result, our stock price was artificially
inflated. The lawsuit alleges that the publication of the DOJ memorandum on August 18, 2016 revealed the alleged
fraud, causing the per share price of our stock to decline, thereby causing harm to the putative class of
shareholders.
On May 12, 2017, we submitted a motion to dismiss the plaintiff's complaint in its entirety with prejudice. On
December 18, 2017, the District Court entered an order denying our motion to dismiss. We believe the lawsuit is
entirely without merit, and intend to vigorously defend against it. In addition, we maintain insurance, with certain
self-insured retention amounts, to cover the alleged claims which mitigates the risk such litigation would have a
material adverse effect on our financial condition, results of operations, or cash flows.
We are subject to risks associated with ownership of real estate.
Our ownership of correctional, detention, and residential reentry facilities and other government-leased assets
subjects us to risks typically associated with investments in real estate. Investments in real estate and, in particular,
correctional and detention facilities have limited or no alternative use and thus are relatively illiquid. Therefore, our
ability to divest ourselves of one or more of our facilities promptly in response to changing conditions is limited.
Investments in real estate properties subject us to risks involving potential exposure to environmental liability and
uninsured loss. Our operating costs may be affected by the obligation to pay for the cost of complying with existing
environmental laws, ordinances and regulations, as well as the cost of complying with future legislation. In addition,
although we maintain insurance for many types of losses, there are certain types of losses, such as losses from
earthquakes and acts of terrorism, which may be either uninsurable or for which it may not be economically feasible
to obtain insurance coverage in light of the substantial costs associated with such insurance. As a result, we could
35
lose both our capital invested in, and anticipated profits from, one or more of the properties we own. Further, it is
possible to experience losses that may exceed the limits of insurance coverage.
In addition, facility development and expansion projects pose additional risks, including cost overruns caused by
various factors, many of which are beyond our control, such as weather, labor conditions, and material shortages,
resulting in increased construction costs. Further, if we are unable to utilize the new bed capacity, our financial
results could deteriorate.
Certain of our facilities are subject to options to purchase and reversions. Ten of our facilities are subject to an
option to purchase by certain governmental agencies. Such options are exercisable by the corresponding contracting
governmental entity generally at any time during the term of the respective facility contract. Certain of these
purchase options are based on the depreciated book value of the facility, which essentially results in the transfer of
ownership of the facility to the governmental agency at the end of the life used for accounting purposes, while other
options to purchase are exercisable at prices below fair market value. See "Business – Facility Portfolio – Facilities
and Facility Management Contracts." If any of these options are exercised, there exists the risk that we will be
unable to invest the proceeds from the sale of the facility in one or more properties that yield as much cash flow as
the property acquired by the government entity. In addition, in the event any of these options is exercised, there
exists the risk that the contracting governmental agency will terminate the management contract associated with
such facility. For the year ended December 31, 2017, the ten facilities currently subject to these options generated
$338.9 million in revenue (19.2% of total revenue) and incurred $257.5 million in operating expenses.
Risks related to facility construction and development activities may increase our costs related to such activities.
When we are engaged to perform construction and design services for a facility, we typically act as the primary
contractor and subcontract with other companies that act as the general contractors. As primary contractor, we are
subject to the various risks associated with construction (including, without limitation, shortages of labor and
materials, work stoppages, labor disputes, and weather interference which could cause construction delays). In
addition, we are subject to the risk that the general contractor will be unable to complete construction at the
budgeted costs or be unable to fund any excess construction costs, even though we require general contractors to
post construction bonds and insurance. Under such contracts, we are ultimately liable for all late delivery penalties
and cost overruns.
We may be adversely affected by an increase in costs or difficulty of obtaining adequate levels of surety credit on
favorable terms.
We are often required to post bid or performance bonds issued by a surety company as a condition to bidding on or
being awarded a contract. Availability and pricing of these surety commitments are subject to general market and
industry conditions, among other factors. Increases in surety costs could adversely affect our operating results if we
are unable to effectively pass along such increases to our customers. We cannot assure you that we will have
continued access to surety credit or that we will be able to secure bonds economically, without additional collateral,
or at the levels required for any potential facility development or contract bids. If we are unable to obtain adequate
levels of surety credit on favorable terms, we would have to rely upon letters of credit under our revolving credit
facility which could entail higher costs if such borrowing capacity was even available when desired at the time, and
our ability to bid for or obtain new contracts could be impaired.
Interruption, delay or failure of the provision of our technology services or information systems, or the
compromise of the security thereof, could adversely affect our business, financial condition or results of
operations.
Components of our business depend significantly on effective information systems and technologies. As with all
companies that utilize information systems, we are vulnerable to negative impacts if the operation of those systems
is interrupted, delayed, or certain information contained therein is compromised. As a matter of course, we exchange
data with our government partners and other third-party providers. The nature of this business is such that we do not
store credit card or other retail transactional data. Additionally, our revenue cycle is such that it provides for a much
longer post-breach recovery window without adversely impacting revenue management than is typical. For other
personal information we do store, we employ industry-standard methodologies to ensure the availability and security
of such systems and information. Additionally, we conduct detailed cyber security and data handling training for all
employees with access to that data, and employ independent third parties to assess configuration status, perimeter
36
strength, and social engineering effectiveness. Despite the security measures we have in place, and any additional
measures we may implement in the future, our facilities and systems, and those of our third-party service providers,
could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human
errors, acts of vandalism, or other events. For example, several well-known companies have recently disclosed high-
profile security breaches involving sophisticated and highly targeted attacks on their company's infrastructure or
their customers' data, which were not recognized or detected until after such companies had been affected
notwithstanding the preventive measures they had in place. Any security breach or event resulting in the
interruption, delay or failure of our services or information systems, or the misappropriation, loss, or other
unauthorized disclosure of customer data or confidential information, including confidential information about our
employees, whether by us directly or our third-party service providers, could damage our reputation, expose us to
the risks of litigation and liability, disrupt our business, result in lost business, or otherwise adversely affect our
results of operations. We did not experience any such incidents in 2017.
Risks Related to Our Indebtedness
Our indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under
our debt securities.
We have a significant amount of indebtedness. As of December 31, 2017, we had total indebtedness of $1,459.0
million. Our indebtedness could have important consequences. For example, it could:
make it more difficult for us to satisfy our obligations with respect to our indebtedness;
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital
expenditures, dividends, and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we
operate;
restrict us from pursuing strategic acquisitions or certain other business opportunities;
place us at a competitive disadvantage compared to our competitors that have less debt; and
limit our ability to borrow additional funds or refinance existing indebtedness on favorable terms.
If we are unable to meet our debt service obligations, we may need to reduce capital expenditures and dividend
distributions, restructure or refinance our indebtedness, obtain additional equity financing or sell assets. We may be
unable to restructure or refinance our indebtedness, obtain additional equity financing or sell assets on satisfactory
terms or at all.
Our senior bank credit facility, indentures related to our senior notes, and other debt instruments have restrictive
covenants that could limit our financial flexibility.
The indentures related to our aggregate original principal amount of $325.0 million 4.125% senior notes due 2020,
$350.0 million 4.625% senior notes due 2023, $250.0 million 5.0% senior notes due 2022, and $250.0 million
4.75% senior notes due 2027, collectively referred to herein as our senior notes, and our senior bank credit facility,
contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-
term best interests. Our ability to borrow under our senior bank credit facility is subject to compliance with certain
financial covenants, including leverage and interest coverage ratios. Our senior bank credit facility includes other
restrictions that, among other things, limit our ability to incur indebtedness; grant liens; engage in mergers,
consolidations and liquidations; make asset dispositions, restricted payments and investments; enter into transactions
with affiliates; and amend, modify or prepay certain indebtedness. The indentures related to our senior notes contain
limitations on our ability to effect mergers and change of control events, as well as other limitations on our ability to
create liens on our assets.
37
Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could
result in the acceleration of all or a substantial portion of our debts. We do not have sufficient working capital to
satisfy our debt obligations in the event of an acceleration of all or a significant portion of our outstanding
indebtedness.
Our indebtedness is secured by a substantial portion of our assets.
Subject to applicable laws and certain agreed-upon exceptions, our $900.0 revolving credit facility and our
incremental term loans, available pursuant to an “accordion” feature under our revolving credit facility in an
aggregate principal amount of up to an additional $350.0 million, are secured by a pledge of all of the capital stock
of CoreCivic’s domestic subsidiaries, 65% of the capital stock of CoreCivic’s foreign subsidiaries, all of
CoreCivic’s accounts receivable and all of CoreCivic’s deposit accounts. Subject to compliance with the restrictive
covenants under our existing indebtedness, we may incur additional indebtedness secured by existing or future
assets of CoreCivic or our subsidiaries. In the event of a default under our credit facility or any other secured
indebtedness, or if we experience insolvency, liquidation, dissolution or reorganization, the holders of our secured
debt instruments would first be entitled to payment from their collateral security, and only then would holders of our
unsecured debt be entitled to payment from our remaining assets. In such an event, there can be no assurance that we
would have sufficient assets to pay amounts due to holders of our unsecured debt and such holders may receive less
than the full amount to which they are entitled.
Servicing our indebtedness will require a significant amount of cash or may require us to refinance our
indebtedness before it matures. Our ability to generate cash depends on many factors beyond our control and
there is no assurance that we will be able to refinance our debt on acceptable terms.
Currently, our incremental term loan and revolving credit facility both mature in July 2020. We also have
outstanding $325.0 million in aggregate principal amount of our 4.125% senior notes due 2020, $350.0 million in
aggregate principal amount of our 4.625% senior notes due 2023, $250.0 million in aggregate principal amount of
our 5.0% senior notes due 2022 and $250.0 million in aggregate principal amount of our 4.75% senior notes due
2027. Our ability to make payments on our indebtedness, to refinance our indebtedness, and to fund planned capital
expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.
The risk exists that our business will be unable to generate sufficient cash flow from operations or that future
borrowings will not be available to us in an amount sufficient to enable us to pay our indebtedness, including our
existing senior notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our
indebtedness, including our senior notes, on or before maturity. Our ability to refinance all or a portion of our
indebtedness on acceptable terms, or at all, will be dependent upon a number of factors, including our degree of
leverage, the value of our assets, borrowing and other financial restrictions imposed by lenders and conditions in the
credit markets at the time we refinance. If we are unable to refinance our indebtedness on acceptable terms, we may
be forced to agree to otherwise unfavorable financing terms or sell one or more properties at unattractive prices or
on disadvantageous terms. Any one of these options could have a material adverse effect on our business, financial
condition, results of operations and our ability to make distributions to our stockholders.
We are required to repurchase all or a portion of our senior notes upon a change of control, and our senior bank
credit facility is subject to acceleration upon a change of control.
Upon certain change of control events, as that term is defined in the indentures for our senior notes, including a
change of control caused by an unsolicited third party, we are required to make an offer in cash to repurchase all or
any part of each holder's notes at a repurchase price equal to 101% of the principal thereof, plus accrued interest.
The source of funds for any such repurchase would be our available cash or cash generated from operations or other
sources, including borrowings, sales of equity or funds provided by a new controlling person or entity. Sufficient
funds may not be available to us, however, at the time of any change of control event to repurchase all or a portion
of the tendered notes pursuant to this requirement. Our failure to offer to repurchase notes, or to repurchase notes
tendered, following a change of control will result in a default under the respective indentures, which could lead to a
cross-default under our senior bank credit facility and under the terms of our other indebtedness. In addition, terms
of our senior bank credit facility, which are subject to acceleration upon the occurrence of a change in control (as
38
described therein), may prohibit us from making any such required repurchases. Prior to repurchasing the notes
upon a change of control event, we must either repay outstanding indebtedness under our senior bank credit facility
or obtain the consent of the lenders under our senior bank credit facility. If we do not obtain the required consents
or repay our outstanding indebtedness under our senior bank credit facility, we would remain effectively prohibited
from offering to repurchase the notes.
Despite current indebtedness levels, we may still incur more debt.
The terms of the indentures for our senior notes and our senior bank credit facility restrict our ability to incur
indebtedness; however, we may nevertheless incur additional indebtedness in the future, and in the future, we may
refinance all or a portion of our indebtedness, including our senior bank credit facility, and may incur additional
indebtedness as a result. As of December 31, 2017, we had $694.1 million of additional borrowing capacity
available under our revolving credit facility. In addition, we may issue an indeterminate amount of debt securities
from time to time when we determine that market conditions and the opportunity to utilize the proceeds from the
issuance of such debt securities are favorable. If new debt is added to our and our subsidiaries' current debt levels,
the related risks that we and they now face could intensify.
Our access to capital may be affected by general macroeconomic conditions.
Credit markets may tighten significantly such that our ability to obtain new capital will be more challenging and
more expensive. We can provide no assurance that the banks that have made commitments under our senior bank
credit facility will continue to operate as going concerns in the future or will agree to extend commitments beyond
the maturity date. If any of the banks in the lending group were to fail, or fail to renew their commitments, it is
possible that the capacity under our senior bank credit facility would be reduced. In the event that the availability
under our senior bank credit facility was reduced significantly, we could be required to obtain capital from alternate
sources in order to continue with our business and capital strategies. Our options for addressing such capital
constraints would include, but not be limited to (i) delaying certain capital expenditure projects, (ii) obtaining
commitments from the remaining banks in the lending group or from new banks to fund increased or new amounts
under the terms of our senior bank credit facility, (iii) accessing the public capital markets, or (iv) reducing our
dividend (but not less than amounts required to maintain our status as a REIT and avoid income and excise taxes).
Such alternatives could be on terms less favorable than under existing terms, which could have a material effect on
our consolidated financial position, results of operations, or cash flows.
Rising interest rates would increase the cost of our variable rate debt.
We have incurred and expect in the future to incur indebtedness that bears interest at variable rates, including
indebtedness under our senior bank credit facility. Accordingly, increases in interest rates would increase our
interest costs, which could have a material adverse effect on us and our ability to make distributions to our
stockholders and pay amounts due on our debt or cause us to be in default under certain debt instruments. In
addition, an increase in market interest rates may lead holders of our common stock to demand a higher yield on
their shares from distributions by us, which could adversely affect the market price for our common stock.
Risks Related to our REIT Structure
If we fail to remain qualified as a REIT, we would be subject to corporate income taxes and would not be able to
deduct distributions to stockholders when computing our taxable income.
We currently operate in a manner that is intended to allow us to qualify as a REIT for federal income tax purposes
commencing with our taxable year beginning January 1, 2013. However, we cannot assure you that we have
qualified or will remain qualified as a REIT. Qualification as a REIT requires us to satisfy numerous requirements
established under highly technical and complex sections of the Internal Revenue Code of 1986, as amended, or the
Code, which may change from time to time and for which there are only limited judicial and administrative
interpretations, and involves the determination of various factual matters and circumstances not entirely within our
control. For example, in order to qualify as a REIT, the REIT must derive at least 95% of its gross income in any
year from qualifying sources. In addition, a REIT is required to distribute annually to its stockholders at least 90% of
39
its REIT taxable income (determined without regard to the dividends paid deduction and by excluding capital gains)
and must satisfy specified asset tests on a quarterly basis.
If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any
applicable alternative minimum tax) on our taxable income computed in the usual manner for corporate taxpayers
without deduction for distributions to our stockholders and we may need to borrow additional funds or issue
securities to pay such additional tax liability. Any such corporate income tax liability could be substantial and would
reduce the amount of cash available for other purposes, including distributions to our stockholders, because, unless
we are entitled to relief under certain statutory provisions, we would be taxable as a C-corporation, beginning in the
year in which the failure occurs, and we would not be allowed to re-elect to be taxed as a REIT for the following
four years.
Even if we remain qualified as a REIT, we may owe taxes under certain circumstances.
Even if we qualify as a REIT, we will be subject to certain U.S. federal, state and local taxes on our income and
property, including on taxable income that we do not distribute to our stockholders, and on net income from certain
"prohibited transactions". In addition, the REIT provisions of the Code are complex and are not always subject to
clear interpretation. For example, a REIT must derive at least 95% of its gross income in any year from qualifying
sources, including rents from real property. Rents from real property include amounts received for the use of limited
amounts of personal property and for certain services. Whether amounts constitute rents from real property or other
qualifying income may not be entirely clear in all cases. We may fail to qualify as a REIT if we exceed the
permissible amounts of non-qualifying income unless such failures qualify for relief under certain statutory relief
provisions. Even if we qualify for statutory relief, we may be required to pay an excise or penalty tax (which could
be significant in amount) in order to utilize one or more such relief provisions under the Code to maintain our
qualification as a REIT. Furthermore, we conduct substantial activities through TRSs, and the income of those
subsidiaries is subject to U.S. federal income tax at regular corporate rates.
To maintain our REIT status, we may be forced to obtain capital during unfavorable market conditions, which
could adversely affect our overall financial performance.
In order to qualify as a REIT, we will be required each year to distribute to our stockholders at least 90% of our
REIT taxable income (determined without regard to the dividends paid deduction and by excluding any net capital
gain), and we will be subject to tax to the extent our taxable income (including net capital gain) is not fully
distributed. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which
distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our net
capital gains, and 100% of our undistributed income from prior years. We intend to continue to make distributions to
our stockholders to comply with the distribution requirements of the Code as well as to reduce our exposure to
federal income taxes and the nondeductible excise tax. Differences in timing between the receipt of income and the
payment of expenses to arrive at taxable income, along with the effect of required debt amortization payments, could
require us to borrow funds to meet the distribution requirements that are necessary to achieve the tax benefits
associated with qualifying as a REIT. We may acquire additional capital through our issuance of securities senior to
our common stock, including additional borrowings or other indebtedness or the issuance of additional securities.
Issuance of such senior securities creates additional risks because leverage is a speculative technique that may
adversely affect common stockholders or noteholders. If the return on assets acquired with borrowed funds or other
leverage proceeds does not exceed the cost of the leverage, the use of leverage could negatively affect our cash flow.
Additionally, the issuance of senior securities involves offering expenses and other costs, including interest
payments, which are borne indirectly by our common stockholders. Fluctuations in interest rates could increase
interest payments on our senior securities, and could reduce cash available for distribution on common stock or for
payment on our debt securities. Increased operating costs, including the financing cost associated with any leverage,
may reduce our total return to common stockholders. Rating agency guidelines applicable to any senior securities
may impose asset coverage requirements, dividend limitations, voting right requirements (in the case of the senior
equity securities), and other restrictions. Further, the terms of any senior securities or other borrowings may impose
additional requirements, restrictions and limitations that are more stringent than those required by a rating agency
that rates outstanding senior securities that may have an adverse effect on us and may affect our ability to pay
distributions to our stockholders. On the other hand, we may not be able to raise such additional capital in the future
40
on favorable terms or at all. Unfavorable economic conditions could increase our funding costs, limit our access to
the capital markets or result in a decision by lenders not to extend credit to us.
Further, in order to maintain our REIT status, we may need to borrow funds to meet the REIT distribution
requirements even if the then-prevailing market conditions are not favorable for these borrowings. These borrowing
needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal
income tax purposes or the effect of non-deductible capital expenditures, the creation of reserves, or required debt or
amortization payments. Our ability to access debt and equity capital on favorable terms or at all is dependent upon a
number of factors, including general market conditions, the market's perception of our growth potential, our current
and potential future earnings and cash distributions, and the market price of our securities. Issuance of debt or equity
securities will expose us to typical risks associated with leverage, including increased risk of loss.
To the extent our ability to issue debt or other senior securities such as preferred stock is constrained, we may
depend on issuance of additional shares of common stock to finance new investments. If we raise additional funds
by issuing more shares of our common stock or senior securities convertible into, or exchangeable for, shares of our
common stock, the percentage ownership of our stockholders at that time would decrease, and you may experience
dilution.
Performing services through our TRSs may increase our overall tax liability relative to other REITs or subject us
to certain excise taxes.
A TRS may hold assets and earn income, including income earned from the performance of correctional services,
that would not be qualifying assets or income if held or earned directly by a REIT. We conduct a significant portion
of our business activities through our TRSs. Our TRSs are subject to federal, foreign, state and local income tax on
their taxable income, and their after-tax net income generally is available for distribution to us but is not required to
be distributed to us. The TRS rules also impose a 100% excise tax on certain transactions between a TRS and its
parent REIT that are not conducted on an arm's-length basis. In addition, the TRS rules limit the deductibility of
interest paid or accrued by a TRS to its parent REIT to ensure that the TRS is subject to an appropriate level of
corporate income taxation. We believe our arrangements with our TRSs are on arm's-length terms and intend to
continue to operate in a manner that allows us to avoid incurring the 100% excise tax described above. There can be
no assurance, however, that we will be able to avoid application of the 100% excise tax or the limitations on interest
deductions discussed above.
The value of the securities we own in our TRS is limited under the REIT asset tests.
Under the Code, no more than 25% (20% for tax years beginning on or after January 1, 2018) of the value of the
gross assets of a REIT may be represented by securities of one or more TRSs. This limitation may affect our ability
to increase the size of our TRSs' operations and assets, and there can be no assurance that we will be able to comply
with this limitation. If we are unable to comply with this limitation, we would fail to qualify as a REIT.
Furthermore, our significant use of TRSs may cause the market to value shares of our common stock differently than
the stock of other REITs, which may not use TRSs as extensively. Although we intend to monitor the value of our
investments in TRSs, there can be no assurance that we will be able to comply with the 25% (20% for tax years
beginning on or after January 1, 2018) limitation discussed above.
We may be limited in our ability to fund distributions using cash generated through our TRSs.
At least 75% of gross income for each taxable year as a REIT must be derived from passive real estate sources and
no more than 25% of gross income may consist of dividends from our TRSs and other non-real estate income. This
limitation on our ability to receive dividends from our TRSs may affect our ability to fund cash distributions to our
stockholders using cash from our TRSs. Moreover, our TRSs are not required to distribute their net income to us,
and any income of our TRSs that is not distributed to us will not be subject to the REIT income distribution
requirement.
41
REIT ownership limitations may restrict or prevent you from engaging in certain transfers of our common stock.
In order to satisfy the requirements for REIT qualification, no more than 50% in value of all classes or series of our
outstanding shares of stock may be owned, actually or constructively, by five or fewer individuals (as defined in the
Code to include certain entities) at any time during the last half of each taxable year beginning with our 2014 taxable
year. To assist us in satisfying this share ownership requirement, our charter imposes ownership limits on each class
and series of our shares of stock. Under applicable constructive ownership rules, any shares of stock owned by
certain affiliated owners generally would be added together for purposes of the common stock ownership limits, and
any shares of a given class or series of preferred stock owned by certain affiliated owners generally would be added
together for purposes of the ownership limit on such class or series.
If anyone transfers shares of our common stock in a manner that would violate the ownership limits, or prevent us
from qualifying as a REIT under the federal income tax laws, those shares of common stock instead would be
transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person
whose ownership of the shares will not violate the ownership limit. If this transfer to a trust fails to prevent such a
violation or fails to permit our continued qualification as a REIT, then the initial intended transfer would be null and
void from the outset. The intended transferee of those shares will be deemed never to have owned the shares.
Anyone who acquires shares in violation of the ownership limit or the other restrictions on transfer bears the risk of
suffering a financial loss when the shares of common stock are redeemed or sold if the market price of our shares of
common stock falls between the date of purchase and the date of redemption or sale.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate
otherwise attractive investments.
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other
things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our
stockholders and the ownership of our common stock. If we fail to comply with one or more of the asset tests at the
end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or
qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax
consequences. In order to meet these tests, we may be required to forego investments we might otherwise make or to
liquidate otherwise attractive investments. Thus, compliance with the REIT requirements may hinder our
performance and reduce amounts available for distribution to our stockholders.
The tax imposed on REITs engaging in "prohibited transactions" may limit our ability to engage in transactions
which would be treated as sales for federal income tax purposes.
A REIT's net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited
transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to
customers in the ordinary course of business. Although we do not intend to hold any properties that would be
characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition
qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can
be given that the IRS would agree with our characterization of our properties or that we will always be able to make
use of the available safe harbors.
42
We have not established a minimum distribution payment level, and we may be unable to generate sufficient cash
flows from our operations to make distributions to our stockholders at any time in the future.
We are generally required to distribute to our stockholders at least 90% of our net taxable income (excluding net
capital gains) each year to qualify as a REIT under the Code. To the extent we satisfy the 90% distribution
requirement but distribute less than 100% of our net taxable income (including net capital gains), we will be subject
to federal corporate income tax on our undistributed net taxable income. We intend to distribute at least 100% of our
net taxable income (excluding net capital gains). However, our ability to make distributions to our stockholders may
be adversely affected by the issues described in the risk factors set forth in this Annual Report. Subject to satisfying
the requirements for REIT qualification, we intend to continue to make regular quarterly distributions to our
stockholders. Our Board of Directors has the sole discretion to determine the timing, form and amount of any
distributions to our stockholders. Our Board of Directors makes determinations regarding distributions based upon,
among other factors, our historical and projected results of operations, financial condition, cash flows and liquidity,
satisfaction of the requirements for REIT qualification and other tax considerations, capital expenditure and other
expense obligations, debt covenants, contractual prohibitions or other limitations and applicable law and such other
matters as our Board of Directors may deem relevant from time to time.
It is possible that we will not be able to continue to make distributions to our stockholders or that the level of any
distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over
time, any of which could materially and adversely affect the market price of our shares of common stock.
Distributions could be dilutive to our financial results and may constitute a return of capital to our investors, which
would have the effect of reducing each stockholder's basis in its shares of common stock. We also could use
borrowed funds or proceeds from the sale of assets to fund distributions.
Dividends payable by REITs, including us, generally do not qualify for the reduced tax rates available for some
dividends.
"Qualified dividends" payable to U.S. stockholders that are individuals, trusts and estates generally are subject to tax
at preferential rates. Subject to limited exceptions, dividends payable by REITs are not eligible for these reduced
rates and are taxable at ordinary income tax rates. The more favorable rates applicable to regular corporate qualified
dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be
relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could
adversely affect the value of the shares of REITs, including the shares of our common stock.
Distributions that we make to our stockholders are treated as dividends to the extent of our earnings and profits as
determined for federal income tax purposes and are generally taxable to our stockholders as ordinary income.
However, our dividends are eligible for the lower rate applicable to "qualified dividends" to the extent they are
attributable to income that was previously subject to corporate income tax, such as the dividends we receive from
our TRSs or attributable to the accumulated earnings and profits in connection with acquisitions of C-corporations.
Also, a portion of our distributions may be designated by us as long-term capital gains to the extent that they are
attributable to capital gain income recognized by us. Our distributions may constitute a return of capital to the
extent that they exceed our earnings and profits as determined for federal income tax purposes. A return of capital
generally is not taxable, but has the effect of reducing the basis of a stockholder's investment in our shares of
common stock. Any such distributions that exceed a stockholder's tax basis in our shares of common stock
generally will be taxable as capital gains.
For tax years beginning after December 31, 2017 (but subject to a sunset expiration at the end of 2025), U.S.
stockholders that are individuals, trusts and estates generally are allowed a deduction in computing taxable income
equal to 20% of any dividends received from REITs (other than any portion that is a capital gain dividend).
Depending on the ordinary income tax rate applicable to investors who are individuals, trust and estates, the 20%
deduction for REIT dividends may offset (or eliminate) the relatively more favorable tax treatment applicable to
regular corporate qualified dividends.
43
We could have potential deferred and contingent tax liabilities from our REIT conversion that could limit, delay
or impede future sales of our properties.
Even though we qualify for taxation as a REIT, if we acquire any asset from a corporation which is or has been a C-
corporation in a transaction in which the basis of the asset in our hands is less than the fair market value of the asset
determined at the time we acquired the asset, and we subsequently recognize a gain on the disposition of the asset
during the five-year period beginning on the date on which we acquired the asset, then we will be required to pay tax
at the highest regular corporate tax rate on this gain to the extent of the excess of (a) the fair market value of the
asset over (b) our adjusted basis in the asset, in each case determined as of the date on which we acquired the asset.
These requirements could limit, delay or impede future sales of our properties. We currently do not expect to sell
any asset if the sale would result in the imposition of a material tax liability. We cannot, however, assure you that
we will not change our plans in this regard.
We may inherit tax liabilities and attributes in connection with acquisitions.
From time to time we may acquire other corporations or entities and, in connection with such acquisitions, we may
succeed to the historic tax attributes and liabilities of such entities. For example, in order to qualify as a REIT, at the
end of any taxable year, we must not have any earnings and profits accumulated in a non-REIT year. As a result, if
we acquire a C-corporation in certain transactions, we must distribute the corporation's earnings and profits
accumulated prior to the acquisition before the end of the taxable year in which we acquire the C-corporation. We
also could be required to pay the acquired entity's unpaid taxes even though such liabilities arose prior to the time
we acquired the entity. These issues are applicable to Avalon and CMI which were C-corporations prior to our
acquisitions of these companies.
Legislative or regulatory action affecting REITs could adversely affect us or our stockholders.
In recent years, numerous legislative, judicial and administrative changes have been made to the federal income tax
laws applicable to investments in REITs and similar entities. At any time, the federal income tax laws governing
REITs or the administrative interpretations of those laws may be amended. Changes to the tax laws, regulations and
administrative interpretations, which may have retroactive application, could adversely affect us and may impact our
taxation or that of our stockholders. Accordingly, we cannot assure you that any such change will not significantly
affect our ability to qualify for taxation as a REIT or the federal income tax consequences to us of such qualification.
U.S. federal tax reform legislation could affect REITs generally, the geographic markets in which we operate,
our stock and our results of operations, both positively and negatively in ways that are difficult to anticipate.
The U.S. Congress recently passed tax reform legislation that made significant changes to corporate and individual
tax rates and the calculation of taxes, as well as international tax rules for U.S. domestic corporations. In addition, it
is uncertain if and to what extent various states will conform to the newly enacted federal tax law. As a REIT, we
are generally not required to pay federal taxes otherwise applicable to regular corporations (except for income
generated by our TRSs) if we comply with the various tax regulations governing REITs. Stockholders, however, are
generally required to pay taxes on REIT dividends. Tax reform legislation affects the way in which dividends paid
on shares of our common stock are taxed and could impact our stock price or how stockholders and potential
investors view an investment in REITs generally. In addition, while certain elements of tax reform legislation may
not impact us directly as a REIT, they could impact the geographic markets in which we operate, particularly
affecting tenants of our leased property and their corporate tax obligations, if any.
44
Other Risks Related to Our Securities
The market price of our equity securities may vary substantially, which may limit our stockholders' ability to
liquidate their investment.
The trading prices of equity securities issued by REITs have historically been affected by changes in market interest
rates. One of the factors that may influence the price of our common stock in public trading markets is the annual
yield from distributions on our common stock as compared to yields on other financial instruments. An increase in
market interest rates, or a decrease in our distributions to stockholders, may lead prospective purchasers of our
shares to demand a higher annual yield, which could reduce the market price of our equity securities.
Other factors that could affect the market price of our equity securities include the following:
actual or anticipated variations in our quarterly results of operations;
changes in market valuations of companies in the corrections, detention, or residential reentry
industries;
changes in expectations of future financial performance or changes in estimates of securities analysts;
fluctuations in stock market prices and volumes;
issuances of common shares or other securities in the future; and
announcements by us or our competitors of acquisitions, investments or strategic actions.
The number of shares of our common stock available for future sale could adversely affect the market price of
our common stock.
We cannot predict the effect, if any, of future sales of common stock, or the availability of common stock for future
sale, on the market price of our common stock. Sales of substantial amounts of common stock (including stock
issued under equity compensation plans or stock issued pursuant to our ATM Agreement), or the perception that
these sales could occur, may adversely affect prevailing market prices for our common stock.
Future offerings of debt or equity securities ranking senior to our common stock or incurrence of debt (including
under our senior bank credit facility) may adversely affect the market price of our common stock.
If we decide to issue debt or equity securities in the future ranking senior to our common stock or otherwise incur
indebtedness (including under our senior bank credit facility), it is possible that these securities or indebtedness will
be governed by an indenture or other instrument containing covenants restricting our operating flexibility and
limiting our ability to make distributions to our stockholders. Additionally, any convertible or exchangeable
securities that we issue in the future may have rights, preferences and privileges, including with respect to
distributions, more favorable than those of our common stock and may result in dilution to owners of our common
stock. Because our decision to issue debt or equity securities in any future offering or otherwise incur indebtedness
will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount,
timing or nature of our future offerings or financings, any of which could reduce the market price of our common
stock and dilute the value of our common stock.
Our issuance of preferred stock could adversely affect holders of our common stock and discourage a takeover.
Our Board of Directors has the authority to issue up to 50.0 million shares of preferred stock without any action on
the part of our stockholders. Our Board of Directors also has the authority, without stockholder approval, to set the
terms of any new series of preferred stock that may be issued, including voting rights, dividend rights, liquidation
rights and other preferences superior to our common stock. In the event that we issue shares of preferred stock in
the future that have preferences superior to our common stock, the rights of the holders of our common stock or the
market price of our common stock could be adversely affected. In addition, the ability of our Board of Directors to
issue shares of preferred stock without any action on the part of our stockholders may impede a takeover of us and
discourage or prevent a transaction favorable to our stockholders.
45
Our charter and bylaws and Maryland law could make it difficult for a third party to acquire our company.
The Maryland General Corporation Law and our charter and bylaws contain provisions that could delay, deter, or
prevent a change in control of our company or our management. These provisions could also discourage proxy
contests and make it more difficult for our stockholders to elect directors and take other corporate actions. These
provisions:
authorize us to issue "blank check" preferred stock, which is preferred stock that can be created and
issued by our Board of Directors, without stockholder approval, with rights senior to those of common
stock;
provide that directors may be removed with or without cause only by the affirmative vote of at least a
majority of the votes of shares entitled to vote thereon; and
establish advance notice requirements for submitting nominations for election to the Board of Directors
and for proposing matters that can be acted upon by stockholders at a meeting.
We are also subject to anti-takeover provisions under Maryland law, which could delay or prevent a change of
control. Together, these provisions of our charter and bylaws and Maryland law may discourage transactions that
otherwise could provide for the payment of a premium over prevailing market prices for our common stock, and also
could limit the price that investors are willing to pay in the future for shares of our common stock.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
The properties we owned at December 31, 2017 are described under Item 1 and in Note 4 of the Notes to the
Consolidated Financial Statements contained in this Annual Report, as well as in Schedule III in Part IV of this
Annual Report.
ITEM 3. LEGAL PROCEEDINGS.
General
The nature of our business results in claims and litigation alleging that we are liable for damages arising from the
conduct of our employees or others. In the opinion of management, other than the litigation matter discussed below,
there are no pending legal proceedings that would have a material effect on our financial position, results of
operations or cash flows. Claims and legal proceedings are, however, subject to inherent uncertainties, and
unfavorable decisions and rulings could occur that could have a material adverse impact on our financial position,
results of operations or cash flows for the period in which such decisions and rulings occur, or future periods. See
"Risk Factors - Risks Related to our Business and Industry - Legal proceedings related to, and adverse developments
in our relationship with, our employees could adversely affect or business, financial condition and results of
operations."; "—We are subject to legal proceedings associated with owning and managing correctional, detention,
and residential reentry facilities."; and "—We are subject to certain stockholder litigation."
Litigation
In a memorandum to the BOP dated August 18, 2016, the DOJ directed that, as each contract with privately operated
prisons reaches the end of its term, the BOP should either decline to renew that contract or substantially reduce its
scope in a manner consistent with law and the overall decline of the BOP's inmate population. In addition to the
decline in the BOP's inmate population, the DOJ memorandum cites purported operational, programming, and cost
efficiency factors as reasons for the DOJ directive. On February 21, 2017, the newly appointed Attorney General
issued a memorandum rescinding the DOJ's prior directive stating the memorandum changed long-standing policy
and practice and impaired the BOP's ability to meet the future needs of the federal correctional system.
46
Following the release of the August 18, 2016 DOJ memorandum, a purported securities class action lawsuit was
filed against us and certain of our current and former officers in the United States District Court for the Middle
District of Tennessee, or the District Court, captioned Grae v. Corrections Corporation of America et al., Case No.
3:16-cv-02267. The lawsuit is brought on behalf of a putative class of shareholders who purchased or acquired our
securities between February 27, 2012 and August 17, 2016. In general, the lawsuit alleges that, during this
timeframe, our public statements were false and/or misleading regarding the purported operational, programming,
and cost efficiency factors cited in the DOJ memorandum and, as a result, our stock price was artificially inflated.
The lawsuit alleges that the publication of the DOJ memorandum on August 18, 2016 revealed the alleged fraud,
causing the per share price of our stock to decline, thereby causing harm to the putative class of shareholders.
On May 12, 2017, we submitted a motion to dismiss the plaintiff's complaint in its entirety with prejudice. On
December 18, 2017, the District Court entered an order denying our motion to dismiss. We believe the lawsuit is
entirely without merit and intend to vigorously defend against it. In addition, we maintain insurance, with certain
self-insured retention amounts, to cover the alleged claims which mitigates the risk such litigation would have a
material adverse effect on our financial condition, results of operations, or cash flows.
See additional information required under this section described in Note 15 of the Notes to the Consolidated
Financial Statements contained in this Annual Report.
ITEM 4. MINE SAFETY DISCLOSURES
None.
47
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Price of and Distributions on Capital Stock
Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol "CXW." On February
15, 2018, the last reported sale price of our common stock was $21.47 per share and there were approximately 3,000
registered holders and approximately 47,000 beneficial holders, respectively, of our common stock.
The following table sets forth, for the fiscal quarters indicated, the range of high and low sales prices of the common
stock.
Common Stock
FISCAL YEAR 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
FISCAL YEAR 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
SALES PRICE
HIGH
LOW
35.33 $
35.10 $
29.23 $
27.50 $
23.90
27.03
24.16
21.41
SALES PRICE
HIGH
LOW
32.94 $
35.05 $
34.71 $
26.00 $
25.81
30.00
13.04
12.99
$
$
$
$
$
$
$
$
Dividend Policy
During 2016 and 2017, CoreCivic's Board of Directors declared the following quarterly dividends on its common
stock:
Declaration Date
February 19, 2016
May 12, 2016
August 11, 2016
December 8, 2016
February 17, 2017
May 11, 2017
August 10, 2017
December 7, 2017
Record Date
April 1, 2016
July 1, 2016
October 3, 2016
January 3, 2017
April 3, 2017
July 3, 2017
October 2, 2017
January 2, 2018
Payable Date
April 15, 2016
July 15, 2016
October 17, 2016
January 13, 2017
April 17, 2017
July 17, 2017
October 16, 2017
January 15, 2018
Per Share
0.54
$
0.54
$
0.54
$
0.42
$
0.42
$
0.42
$
0.42
$
0.42
$
In order to qualify as a REIT, we are required each year to distribute to our stockholders at least 90% of our REIT
taxable income (determined without regard to the dividends paid deduction and excluding net capital gains) and we
will be subject to tax to the extent our net taxable income (including net capital gains) is not fully distributed. While
we intend to continue paying regular quarterly cash dividends at levels expected to fully distribute our annual REIT
taxable income, future dividends will be paid at the discretion of our Board of Directors and will depend on our
future earnings, our capital requirements, our financial condition, limitations under debt covenants, alternative uses
of capital, the annual distribution requirements under the REIT provisions of the Code, and on such other factors as
our Board of Directors may consider relevant.
48
Issuer Purchases of Equity Securities
None.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the five years ended December 31, 2017, was derived from our
consolidated financial statements and the related notes thereto after any applicable reclassification of discontinued
operations. This data should be read in conjunction with our audited consolidated financial statements, including the
related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our
audited consolidated financial statements, including the related notes, as of December 31, 2017 and 2016, and for
the years ended December 31, 2017, 2016, and 2015 are included in this Annual Report.
49
CORECIVIC, INC. AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL INFORMATION
(in thousands, except per share data)
STATEMENT OF OPERATIONS:
Revenues
Expenses:
Operating
General and administrative
Depreciation and amortization
Restructuring charges
Asset impairments
Operating income
Other (income) expense:
Interest expense, net
Expenses associated with debt refinancing
transactions
Other (income) expense
Income from continuing operations before income
taxes
Income tax (expense) benefit
Income from continuing operations
Loss from discontinued operations, net of taxes
Net income
Basic earnings per share:
2017
For the Years Ended December 31,
2014
2015
2016
2013
$1,765,498 $1,849,785 $1,793,087 $ 1,646,867 $1,694,297
107,822
147,129
—
614
1,249,537 1,275,586 1,256,128 1,156,135 1,220,351
103,590
112,692
—
6,513
1,505,102 1,553,369 1,512,533 1,406,571 1,443,146
251,151
103,936 106,429
151,514 113,925
—
30,082
107,027
166,746
4,010
—
280,554 240,296
—
955
296,416
260,396
68,535
67,755
49,696
39,535
45,126
—
(90)
68,445
—
489
68,244
701
(58 )
50,339
—
(1,204 )
38,331
36,528
(100)
81,554
191,951
(13,911)
178,040
—
169,597
134,995
304,592
(3,757)
$ 178,040 $ 219,919 $ 221,854 $ 195,022 $ 300,835
230,215 201,965
(6,943 )
221,854 195,022
—
228,172
(8,253)
219,919
—
(8,361 )
—
$
Income from continuing operations
Loss from discontinued operations, net of taxes
$
Net income
Diluted earnings per share:
$
Income from continuing operations
Loss from discontinued operations, net of taxes
$
Net income
Weighted average common shares outstanding:
Basic
Diluted
1.51 $
—
1.51 $
1.50 $
—
1.50 $
1.87 $
—
1.87 $
1.87 $
—
1.87 $
1.90 $
—
1.90 $
1.88 $
—
1.88 $
1.68 $
—
1.68 $
1.66 $
—
1.66 $
2.77
(0.03)
2.74
2.73
(0.03)
2.70
118,084
118,465
117,384
117,791
116,949 116,109
117,785 117,312
109,617
111,250
2017
2016
December 31,
2015
2014
2013
BALANCE SHEET DATA:
Total assets
Total debt
Total liabilities
Stockholders' equity
$3,272,398 $3,271,604 $3,356,018 $ 3,117,646 $2,996,427
$1,447,187 $1,445,169 $1,452,077 $ 1,190,455 $1,194,002
$1,820,790 $1,812,641 $1,893,270 $ 1,636,146 $1,493,920
$1,451,608 $1,458,963 $1,462,748 $ 1,481,500 $1,502,507
50
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Annual Report on Form 10-K. In this report, we use the term, the "Company,"
"CoreCivic," "we," "us," and "our" to refer to CoreCivic, Inc. and its subsidiaries unless context indicates
otherwise. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking statements as a result of certain
factors, including, but not limited to, those described under Item 1A, "Risk Factors" and included in other portions
of this report.
OVERVIEW
We are a diversified government solutions company with the scale and experience needed to solve tough
government challenges in flexible, cost-effective ways. Through three business offerings, CoreCivic Safety,
CoreCivic Properties, and CoreCivic Community, we provide a broad range of solutions to government partners that
serve the public good through corrections and detention management, government real estate solutions, and a
growing network of residential reentry centers to help address America's recidivism crisis. We have been a flexible
and dependable partner for government for more than 30 years. Our employees are driven by a deep sense of
service, high standards of professionalism and a responsibility to help government better the public good.
As of December 31, 2017, we owned and managed 70 correctional, detention, and residential reentry facilities, and
managed an additional seven correctional and detention facilities owned by our government partners, with a total
design capacity of approximately 78,000 beds in 19 states. In addition, as of December 31, 2017, we owned 12
properties leased to third parties and used by government agencies, totaling 1.1 million square feet in five states. We
are one of the nation's largest owners of partnership correctional, detention, and residential reentry facilities and one
of the largest prison operators in the United States. We also believe we are the largest private owner of real estate
used by government agencies. Our size and experience provide us with significant credibility with our current and
prospective customers, and enable us to generate economies of scale in purchasing power for food services, health
care and other supplies and services we offer to our government partners.
We are structured as a real estate investment trust, or REIT. We began operating as a REIT effective January 1,
2013. See Item 1, "Business – Overview" for a description of how we are organized and how we provide
correctional services and conduct other operations through taxable REIT subsidiaries, or TRSs, in order to comply
with REIT qualification requirements. We believe that operating as a REIT maximizes our ability to create
stockholder value given the nature of our assets, helps lower our cost of capital, draws a larger base of potential
stockholders, provides greater flexibility to pursue growth opportunities, and creates a more efficient operating
structure.
Our Business
We are compensated for providing bed capacity and correctional, detention, and residential reentry services at a per
diem rate based upon actual or minimum guaranteed occupancy levels. Federal, state, and local governments are
constantly under budgetary constraints putting pressure on governments to control correctional budgets, including
per diem rates our customers pay to us as well as pressure on appropriations for building new prison capacity.
Our federal revenue declined from 2016 to 2017 primarily as a result of an amendment to the inter-governmental
service agreement, or IGSA, associated with our South Texas Family Residential Center, which became effective in
the fourth quarter of 2016, as further described hereafter. In addition, populations in federal facilities, particularly
within the Federal Bureau of Prisons, or the BOP, system nationwide, have declined over the past three years.
Inmate populations in the BOP system declined due, in part, to the retroactive application of changes to sentencing
guidelines applicable to certain federal drug trafficking offenses.
Despite this decline, we continue to believe utilization of private sector bed capacity and management services
provides our federal partners with flexible and cost-effective solutions essential to their missions. For example, in
November 2016, we announced that the BOP exercised a two-year renewal option at our 1,978-bed McRae
51
Correctional Facility. The amended agreement commenced on December 1, 2016, and provides for caring for up to
1,724 federal inmates with a fixed monthly payment for 1,633 beds, compared to our previous contract which
contained a fixed payment for 1,780 beds. In addition, in July 2017, the BOP exercised a two-year renewal option at
our 2,232-bed Adams County Correctional Center. For the year ended December 31, 2017, we generated 5% of our
total revenue through the remaining contracts with the BOP at these two correctional facilities.
Further, we believe our ability to provide flexible solutions and fulfill emergent needs of the U.S Immigration and
Enforcement, or ICE, would be very difficult and costly to replicate in the public sector, demonstrated by the
contract with ICE at our 2,400-bed South Texas Family Residential Center, which was amended and extended in
October 2016. The October 2016 amendment extended the term of the contract through September 2021 and can be
further extended by bi-lateral modification. In addition, in December 2016, we announced a new award to provide
detention capacity to ICE at our 2,016-bed Northeast Ohio Correctional Center, and in April 2017, we announced a
new contract award to provide up to 996 beds to the state of Ohio at this same facility. We previously housed
inmates from the BOP at the Northeast Ohio facility under a contract that expired in May 2015. We believe these
contracts provide further examples of the marketability of our real estate assets across multiple government
customers.
Several of our state partners are projecting improvements in their budgets which has helped us secure recent per
diem increases at certain facilities. Further, several of our existing state partners, as well as prospective state
partners, are experiencing growth in inmate populations and overcrowded conditions. Although we can provide no
assurance that we will enter into any new contracts, we believe we are well positioned to provide them with needed
bed capacity, as well as the programming and reentry services they are seeking.
We believe the long-term growth opportunities of our business remain attractive as governments consider their
emergent needs, as well as the efficiency and offender programming opportunities we provide, as flexible solutions
to satisfy our partners' needs. Further, we expect our partners to continue to face challenges in maintaining old
facilities, developing new facilities, and expanding current facilities for additional capacity, which could result in
future demand for the solutions we provide.
Governments continue to experience many significant spending demands which have constrained correctional
budgets limiting their ability to expand existing facilities or construct new facilities. We believe the outsourcing of
corrections and detention management services to private operators allows governments to manage increasing
inmate populations while simultaneously controlling costs. We believe our customers discover that partnering with
private operators to provide residential services to their offenders introduces competition to their correctional
system, resulting in improvements to the quality and cost of services throughout their correctional system. Further,
the use of facilities owned and managed by private operators allows governments to expand correctional capacity
without incurring large capital commitments and allows them to avoid long-term pension obligations for their
employees.
We also believe that having beds immediately available to our partners provides us with a distinct competitive
advantage when bidding on new contracts. We believe the most significant opportunities for growth are in
providing our government partners with available beds within facilities we currently own or that we will develop.
We also believe that owning the facilities in which we provide management services enables us to more rapidly
replace business lost compared with managed-only facilities, since we can offer the same beds to new and existing
customers and, with customer consent, may have more flexibility in moving our existing inmate populations to
facilities with available capacity. Our management contracts generally provide our customers with the right to
terminate our management contracts at any time without cause.
We are actively engaged in marketing our available capacity to existing and prospective customers. Historically, we
have been successful in substantially filling our inventory of available beds and the beds that we have constructed.
Filling these available beds could provide substantial growth in revenues, cash flow, and earnings per share.
However, we can provide no assurance that we will be able to fill our available beds. We expect the
Commonwealth of Kentucky to utilize a previously idled facility containing 816 beds beginning in the second
quarter of 2018 pursuant to a new management contract we executed in November 2017.
52
The demand for prison capacity in the short-term has been affected by the budget challenges many of our
government partners currently face. At the same time, these challenges impede our customers' ability to construct
new prison beds of their own or update older facilities, which we believe could result in further need for private
sector prison capacity solutions in the long-term. Over the long-term, we would like to see meaningful utilization of
our available capacity and better visibility from our customers before we develop new prison capacity on a
speculative basis. We will, however, respond to customer demand and may develop or expand correctional and
detention facilities when we believe potential long-term returns justify the capital deployment. We expect to
continue to pursue investment opportunities in residential reentry centers and are in various stages of due diligence
to complete additional acquisitions. The transactions that have not yet closed will also be subject to various
customary closing conditions, and we can provide no assurance that any such transactions will ultimately be
completed. We are also pursuing investment opportunities in other real estate assets with a bias toward those used
to provide mission-critical governmental services, as well as other businesses that expand the range of solutions we
provide to government partners which will further diversify our cash flows.
We also remain steadfast in our efforts to contain costs. Approximately 60% of our operating expenses consist of
salaries and benefits. The turnover rate for correctional officers for our company, and for the corrections industry in
general, remains high. We are making investments in systems and processes intended to help manage our workforce
more efficiently and effectively, especially with respect to overtime and costs of turnover. We are also focused on
workers' compensation and medical benefits costs for our employees due to continued rising healthcare costs
throughout the country. Reducing these staffing costs requires a long-term strategy to control such costs, and we
continue to dedicate resources to enhance our benefits, provide specialized training and career development
opportunities to our staff and attract and retain quality personnel. Through ongoing company-wide initiatives, we
continue to focus on efforts to contain costs and improve operating efficiencies.
Through the combination of our initiatives to (i) increase our revenues by increasing the utilization of our available
beds, (ii) deliver new bed capacity through new facility construction and expansion opportunities, (iii) invest in real
estate-only solutions, (iv) acquire community corrections facilities, and (v) contain our operating expenses, we
believe we will be able to maintain our competitive advantage and continue to diversify the range of services we
provide to our customers at an attractive price, thereby producing value for our stockholders.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in
the United States. As such, we are required to make certain estimates, judgments and assumptions that we believe
are reasonable based upon the information available. These estimates and assumptions affect the reported amounts
of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. A summary of our significant accounting policies is described in Note 2 of the
Notes to the Consolidated Financial Statements contained in this Annual Report. The significant accounting policies
and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported
financial results include the following:
53
Asset impairments. The primary risk we face for asset impairment charges, excluding goodwill, is associated with
correctional facilities we own. As of December 31, 2017, we had $2.8 billion in property and equipment, including
$242.1 million in long-lived assets, excluding equipment, at eight idled correctional facilities. The carrying values
of the eight idled facilities as of December 31, 2017 were as follows (in thousands):
Prairie Correctional Facility
Huerfano County Correctional Center
Diamondback Correctional Facility
Southeast Kentucky Correctional Facility
Marion Adjustment Center
Kit Carson Correctional Center
Eden Detention Center
Torrance County Detention Facility
$
$
16,118
16,980
41,370
21,864
12,058
57,095
39,707
36,882
242,074
We also have two idled non-core facilities containing 440 beds with an aggregate net book value of $4.0 million.
We incurred approximately $10.8 million, $8.1 million, and $7.2 million in operating expenses at the idled facilities
for the years ended December 31, 2017, 2016, and 2015, respectively.
We evaluate the recoverability of the carrying values of our long-lived assets, other than goodwill, when events
suggest that an impairment may have occurred. Such events primarily include, but are not limited to, the
termination of a management contract or a significant decrease in offender populations within a facility we own.
Accordingly, we tested each of the idled facilities for impairment when we were notified by the respective
customers that they would no longer be utilizing such facility.
We re-perform the impairment analyses on an annual basis for each of the idle facilities and evaluate on a quarterly
basis market developments for the potential utilization of each of these facilities in order to identify events that may
cause us to reconsider our most recent assumptions. Such events could include negotiations with a prospective
customer for the utilization of an idle facility at terms significantly less favorable than those used in our most recent
impairment analysis, or changes in legislation surrounding a particular facility that could impact our ability to care
for certain types of offenders at such facility, or a demolition or substantial renovation of a facility. Further, a
substantial increase in the number of available beds at other facilities we own could lead to a deterioration in market
conditions and cash flows that we might be able to obtain under a new management contract at our idle facilities.
Although they are not frequently received, an unsolicited offer to purchase any of our idle facilities at amounts that
are less than the carrying value could also cause us to reconsider the assumptions used in our most recent
impairment analysis.
In performing our annual impairment analyses, the estimates of recoverability are initially based on projected
undiscounted cash flows that are comparable to historical cash flows from management contracts at similar facilities
to the idled facilities and sensitivity analyses that consider reductions to such cash flows. Our sensitivity analyses
included reductions in projected cash flows by as much as half of the historical cash flows generated by the
respective facility as well as prolonged periods of vacancies. In all cases, the projected undiscounted cash flows in
our analyses as of December 31, 2017, exceeded the carrying amounts of each facility.
Our impairment evaluations also take into consideration our historical experience in securing new management
contracts to utilize facilities that had been previously idled for substantial periods of time. Such previously idled
facilities are currently being operated under contracts that continue to generate cash flows resulting in the
recoverability of the net book value of the previously idled facilities by material amounts. Due to a variety of
factors, the lead time to negotiate contracts with our federal and state partners to utilize idle bed capacity is generally
lengthy. As a result of our analyses, we determined each of the idled facilities to have recoverable values in excess
of the corresponding carrying values. However, we can provide no assurance that we will be able to secure
agreements to utilize our idle facilities, or that we will not incur impairment charges in the future.
54
By their nature, these estimates contain uncertainties with respect to the extent and timing of the respective cash
flows due to potential delays or material changes to historical terms and conditions in contracts with prospective
customers that could impact the estimate of cash flows. Notwithstanding our customers' fluctuating demand for bed
capacity which led to our decision to idle certain facilities, we believe the long-term trends favor an increase in the
utilization of our correctional facilities and management services. This belief is based on our experience in
operating in difficult economic environments and in working with governmental agencies faced with significant
budgetary challenges, which is a primary contributing factor to the lack of appropriated funding since 2009 to build
new bed capacity by the federal and state governments with which we partner.
On April 30, 2017, the contract with the BOP at our 1,422-bed Eden Detention Center expired and was not renewed.
We idled the Eden facility following the transfer of the offender population, and have begun to market the facility.
We can provide no assurance that we will be successful in securing a replacement contract. We performed an
impairment analysis of the Eden facility, which had a net carrying value of $39.7 million as of December 31, 2017,
and concluded that this asset has a recoverable value in excess of the carrying value.
As a result of declines in federal populations at our 910-bed Torrance County Detention Facility and 1,129-bed
Cibola County Corrections Center, during the third quarter of 2017, we made the decision to consolidate offender
populations into our Cibola facility in order to take advantage of efficiencies gained by consolidating populations
into one facility. We idled the Torrance facility in the fourth quarter of 2017 following the transfer of the offender
population, and have begun to market the facility to other potential customers. We can provide no assurance that we
will be successful in securing a replacement contract. We performed an impairment analysis of the Torrance
facility, which had a net carrying value of $36.9 million as of December 31, 2017, and concluded that this asset has
a recoverable value in excess of the carrying value.
On November 16, 2017, we announced that we had entered into a new contract with the Commonwealth of
Kentucky Department of Corrections to house medium and close-security offenders at our previously idled 816-bed
Lee Adjustment Center in Beattyville, Kentucky. The new management contract commenced on November 19,
2017, and has an initial term expiring June 30, 2019, with two additional one-year extension options. We expect to
begin receiving offender populations under the new contract at the Lee facility toward the end of the first quarter of
2018, following a 120-day period to staff and prepare the facility to care for the offender population. The Lee
facility had a net carrying value of $10.4 million as of December 31, 2017, and had previously been idle since 2015.
Goodwill impairments. As of December 31, 2017, we had $40.9 million of goodwill, established in connection with
multiple business combination transactions. We evaluate the recoverability of the carrying value of goodwill
annually, in connection with our annual budgeting process, and whenever circumstances indicate the carrying value
of goodwill may not be recoverable. Under the provisions of Accounting Standards Codification 350, "Intangibles-
Goodwill and Other," or ASC 350, we perform a qualitative assessment that may allow us to skip the annual two-
step impairment test. Under ASC 350, we have the option to first assess qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity
determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then
performing the two-step impairment test is unnecessary. If the two-step impairment test is required, we determine
the fair value of a reporting unit using a combination of various common valuation techniques, including market
multiples and discounted cash flows. By their nature, valuation techniques are subject to considerable judgment and
require estimates of future cash flows as well as other factors, which are often difficult to predict. Estimated fair
values could change if there are changes in our capital structure, cost of debt, interest rates, capital expenditure
levels, operating cash flows, or market capitalization. Accordingly, we may incur goodwill impairment charges in
the future.
Revenue Recognition – Multiple-Element Arrangement. In September 2014, we agreed under an expansion of an
existing IGSA between the city of Eloy, Arizona and ICE to provide residential space and services at our South
Texas Family Residential Center. The amended IGSA qualifies as a multiple-element arrangement under the
guidance in Accounting Standards Codification 605, "Revenue Recognition," or ASC 605. We evaluate each
deliverable in an arrangement to determine whether it represents a separate unit of accounting. The allocation of
revenue to each element requires considerable judgment and estimations which could change in the future. In
October 2016, we entered into an amended IGSA that extended the term of the contract through September 2021.
55
As a result of this amendment, the deferred revenue associated with the multiple elements will be recognized over
future periods based on the delivery of future services. If the IGSA were to be further amended or terminated before
the expiration of the five-year term, we would determine the allocation of any deferred revenues to the separate units
of accounting to be recognized immediately for services previously provided and, if amended, over future periods
based on the delivery of future services.
Self-funded insurance reserves. As of December 31, 2017 and 2016, we had $32.8 million and $29.8 million,
respectively, in accrued liabilities for employee health, workers' compensation, and automobile insurance claims.
We are significantly self-insured for employee health, workers' compensation, and automobile liability insurance
claims. As such, our insurance expense is largely dependent on claims experience and our ability to control our
claims. We have consistently accrued the estimated liability for employee health insurance claims based on our
history of claims experience and the estimated time lag between the incident date and the date we pay the claims.
We have accrued the estimated liability for workers' compensation claims based on an actuarial valuation of the
outstanding liabilities, discounted to the net present value of the outstanding liabilities, using a combination of
actuarial methods used to project ultimate losses, and our automobile insurance claims based on estimated
development factors on claims incurred. The liability for employee health, workers' compensation, and automobile
insurance includes estimates for both claims incurred and for claims incurred but not reported. These estimates
could change in the future. It is possible that future cash flows and results of operations could be materially affected
by changes in our assumptions, new developments, or by the effectiveness of our strategies.
Legal reserves. As of December 31, 2017 and 2016, we had $7.8 million and $9.3 million, respectively, in accrued
liabilities under the provisions of Accounting Standards Codification Subtopic 450-20, "Loss Contingencies," or
ASC 450, related to certain claims and legal proceedings in which we are involved. We have accrued our best
estimate of the probable costs for the resolution of these claims and legal proceedings. In addition, we are subject to
current and potential future claims and legal proceedings for which little or no accrual has been reflected because
our current assessment of the potential exposure is nominal. These estimates have been developed in consultation
with our General Counsel's office and, as appropriate, outside counsel handling these matters, and are based upon an
analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible that future
cash flows and results of operations could be materially affected by changes in our assumptions, new developments,
or by the effectiveness of our litigation and settlement strategies.
56
RESULTS OF OPERATIONS
Our results of operations are impacted by the number of facilities we owned and managed, the number of facilities
we managed but did not own, the number of facilities we leased to other operators, and the facilities we owned that
were not in operation. The following table sets forth the changes in the number of facilities operated for the years
ended December 31, 2017, 2016, and 2015.
Facilities as of December 31, 2014
Impairment of non-core assets
Acquisition of four community
corrections facilities in Pennsylvania
Termination of the management contract
for the Winn Correctional Center
Termination of the contract at the
Leo Chesney Correctional Center
Acquisition of eleven community
corrections facilities in Oklahoma (3),
Texas (7), and Wyoming (1)
Activation of the Trousdale Turner
Correctional Center
Facilities as of December 31, 2015
Acquisition of seven community
corrections facilities in Colorado
Lease of the North Fork Correctional
Facility
Acquisition of the Long Beach
Community Corrections Center in
California
Facilities as of December 31, 2016
Acquisition of the Arapahoe Community
Treatment Center in Colorado
Expiration of the contract at the D.C.
Correctional Treatment Facility in the
District of Columbia
Acquisition of the Stockton Female
Community Corrections Facility in
California
Acquisition of the Oklahoma City
Transitional Center in Oklahoma
Combination of two existing facilities
in Arizona into one complex
Expiration of the contract at the Bartlett
State Jail
Termination of the lease at the Bridgeport
Pre-Parole Transfer Facility
Acquisition of the Oracle Transitional
Center in Arizona
Expiration of the contracts at three
managed-only facilities in Texas
Acquisition of a portfolio of leased
properties
Acquisition of three community
corrections facilities in Colorado
Facilities as of December 31, 2017
Effective
Date
January 2015
August 2015
September 2015
Owned
and
Managed
Managed
Only
Leased
Total
49
(2)
—
—
12
—
—
3
—
4
(1)
—
October 2015
1
—
(1 )
October 2015
December 2015
April 2016
May 2016
June 2016
11
1
60
7
(1)
—
66
—
—
—
11
—
6
—
—
—
1
—
11
1
8
January 2017
1
—
—
January 2017
(1)
—
—
February 2017
—
—
1
June 2017
June 2017
June 2017
June 2017
1
(1)
—
—
—
—
—
—
(1)
—
—
(1 )
August 2017
1
—
—
August 2017
September 2017
November 2017
—
—
3
70
(3)
—
—
—
7
4
—
12
57
64
(2)
4
(1)
—
11
1
77
7
—
1
85
1
(1)
1
1
(1)
(1)
(1)
1
(3)
4
3
89
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
During the year ended December 31, 2017, we generated net income of $178.0 million, or $1.50 per diluted share,
compared with net income of $219.9 million, or $1.87 per diluted share, for the previous year. Our financial results
were impacted by several non-routine transactions, including the renegotiation of a contract at the South Texas
Family Residential Center in the fourth quarter of 2016 that resulted in a decrease in revenue of $96.7 million at this
facility in 2017 compared with 2016, income tax charges of $4.5 million resulting from the Tax Cuts and Jobs Act,
or the TCJA, enacted in the fourth quarter of 2017, and restructuring charges of $4.0 million in the third quarter of
2016. Each of these factors is described more fully hereafter.
Facility Operations
A key performance indicator we use to measure the revenue and expenses associated with the operation of the
facilities we own or manage is expressed in terms of a compensated man-day, which represents the revenue we
generate and expenses we incur for one offender for one calendar day. Revenue and expenses per compensated
man-day are computed by dividing facility revenue and expenses by the total number of compensated man-days
during the period. A compensated man-day represents a calendar day for which we are paid for the occupancy of an
offender. We believe the measurement is useful because we are compensated for operating and managing facilities
at an offender per-diem rate based upon actual or minimum guaranteed occupancy levels. We also measure our
ability to contain costs on a per-compensated man-day basis, which is largely dependent upon the number of
offenders we accommodate. Further, per compensated man-day measurements are also used to estimate our
potential profitability based on certain occupancy levels relative to design capacity. Revenue and expenses per
compensated man-day for all of the operating facilities that we owned or managed, exclusive of those held for lease
by third parties, were as follows for the years ended December 31, 2017 and 2016:
Revenue per compensated man-day
Operating expenses per compensated man-day:
Fixed expense
Variable expense
Total
Operating income per compensated man-day
Operating margin
Average compensated occupancy
Average available beds
Average compensated population
For the Years Ended
December 31,
2017
2016
$
73.14 $
74.77
$
38.20
14.71
52.91
20.23 $
27.7%
79.6%
38.53
15.21
53.74
21.03
28.1 %
78.8 %
80,903
64,439
83,882
66,112
Fixed expenses per compensated man-day for the year ended December 31, 2017 include depreciation expense of
$16.5 million and interest expense of $6.4 million in order to more properly reflect the cash flows associated with
the lease at the South Texas Family Residential Center. Fixed expenses per compensated man-day for the year
ended December 31, 2016 include depreciation expense of $38.7 million and interest expense of $10.0 million
associated with the lease at the South Texas Family Residential Center.
58
Revenue
Total revenue consists of revenue we generate in the operation and management of correctional, detention, and
residential reentry facilities, as well as rental revenue generated from facilities we lease to third parties, and from our
inmate transportation subsidiary, TransCor America, LLC, or TransCor. The following table reflects the components
of revenue for the years ended December 31, 2017 and 2016 (in millions):
For the Years Ended
December 31,
2017
2016
$ Change
% Change
Management revenue:
Federal
State
Local
Other
Total management revenue
Rental and other revenue
Total revenue
$
839.9 $
727.8
89.1
63.4
1,720.2
45.3
954.8 $
710.4
78.1
65.8
1,809.1
40.7
$ 1,765.5 $ 1,849.8 $
(114.9 )
17.4
11.0
(2.4 )
(88.9 )
4.6
(84.3 )
(12.0%)
2.4%
14.1%
(3.6%)
(4.9%)
11.3%
(4.6%)
The $88.9 million, or 4.9%, decrease in total management revenue was a result of a decrease in revenue of
approximately $38.3 million driven by a decrease of 2.2% in average revenue per compensated man-day. The
decrease in management revenue was also a result of a decrease in revenue of approximately $50.6 million caused
by a decrease in the average daily compensated population, as well as the revenue generated by one fewer day of
operations due to leap year in 2016. The decrease in average revenue per compensated man-day from 2016 to 2017
was primarily a result of the amended IGSA associated with the South Texas Family Residential Center, which
became effective in the fourth quarter of 2016, as further described hereafter. The decrease in average revenue per
compensated man-day was partially offset by the effect of per diem increases at several of our other facilities.
Average daily compensated population decreased 1,673, or 2.5%, to 64,439 in 2017 compared to 66,112 in 2016.
There were several notable factors that affected the average daily compensated population when comparing 2017 to
2016. Average daily compensated population during 2017 increased due to the activation in the third quarter of 2016
of the new contract to care for up to an additional 1,000 inmates at our newly expanded Red Rock Correctional
Center, and the full activation of the newly constructed Trousdale Turner Correctional Center during 2016, both as
further described hereafter. Average daily compensated population in 2017 also increased due to two new contracts
at our Northeast Ohio Correctional Center. In December 2016, we announced a new contract award from ICE at the
Northeast Ohio facility in order to assist ICE with their detention needs and, in the third quarter of 2017, we began
receiving offender populations at the Northeast Ohio facility under a new contract with the state of Ohio, as further
described hereafter. Such average daily compensated population increases were offset by the decline in California
inmates held in our out-of-state facilities, the expiration of our contract with the District of Columbia, or the District,
at the D.C. Correctional Treatment Facility in the first quarter of 2017, the expiration of our contract with the BOP
at our Eden Detention Center on April 30, 2017, and the expirations in the second and third quarters of 2017 of our
contracts at four facilities that we managed for the state of Texas, all as further described hereafter. The expiration of
our contract with the BOP at our Cibola County Corrections Center in October 2016 also resulted in a decrease in
average daily compensated population in 2017. While we signed a new contract in October 2016 to provide
detention space and services at our Cibola facility to ICE for up to 1,116 detainees, the transition period from the
BOP contract to the ICE contract and lower utilization by ICE resulted in a reduction in average daily compensated
population at our Cibola facility in 2017 when compared to 2016. Lower utilization by the United States Marshals
Service, or USMS, and ICE at our Torrance County Detention Facility also contributed to the reduction in average
daily compensated population and led to our idling the facility in the fourth quarter of 2017, as further described
hereafter.
Business from our federal customers, including primarily the BOP, the USMS, and ICE, continues to be a significant
component of our business. Our federal customers generated approximately 48% and 52% of our total revenue for
the years ended December 31, 2017 and 2016, respectively, decreasing $114.9 million, or 12.0%. The decrease in
federal revenues primarily resulted from the amended IGSA associated with the South Texas Family Residential
Center, which became effective in the fourth quarter of 2016, the expiration of our contract with the BOP at our
59
Eden Detention Center on April 30, 2017, and the expiration of our contract with the BOP at our Cibola County
Corrections Center in October 2016, net of revenue from the new contract with ICE at this facility. The decrease in
federal revenues was partially offset by the combined effect of per diem increases for several of our federal contracts
and a net increase in federal populations at certain other facilities.
State revenues from contracts at correctional, detention, and residential reentry facilities that we operate increased
2.4% from 2016 to 2017. The increase in state revenues was primarily a result of the full activation of the newly
constructed Trousdale Turner Correctional Center during 2016, the activation of the expansion at our Red Rock
Correctional Center in the third quarter of 2016, and the new contract with the state of Ohio at our Northeast Ohio
Correctional Center. Per diem increases and a net increase in state populations at certain other facilities also
contributed to the increase in state revenues. The increase in state revenues was partially offset by a decline in
California inmates held in our out-of-state facilities, the expiration of our contract with the District at the D.C.
Correctional Treatment Facility in the first quarter of 2017, and the expirations in the second and third quarters of
2017 of our contracts at four facilities that we managed for the state of Texas.
The $11.0 million, or 14.1%, increase in revenue from local authorities from 2016 to 2017 was primarily a result of
acquisitions during 2016 and 2017 of multiple residential reentry centers, some of which partner with local agencies,
as further described hereafter. Also contributing to the increase in revenue from local authorities from 2016 to 2017
was the execution in July 2017 of a new three-year contract with the City of Mesa, Arizona to care for up to 200
offenders at our 4,128-bed Central Arizona Florence Correctional Complex.
Operating Expenses
Operating expenses totaled $1,249.5 million and $1,275.6 million for the years ended December 31, 2017 and 2016,
respectively. Operating expenses consist of those expenses incurred in the operation and management of
correctional, detention, and residential reentry facilities, as well as at facilities we lease to third-party operators, and
for TransCor.
Expenses incurred in connection with the operation and management of correctional, detention, and residential
reentry facilities decreased $30.2 million, or 2.4% during 2017 compared with 2016. There were several notable
factors that affected operating expenses when comparing 2017 with 2016. The amended IGSA associated with the
South Texas Family Residential Center, which lowered the cost structure effective in the fourth quarter of 2016, the
expiration of our contract with the District at the D.C. Correctional Treatment Facility in the first quarter of 2017,
the expiration of our contract with the BOP at our Eden Detention Center in the second quarter of 2017, the
expirations in the second and third quarters of 2017 of our contracts at four facilities that we managed for the state of
Texas, and the idling of our Torrance County Detention facility in the fourth quarter of 2017 all contributed to a
decrease in operating expenses. The decrease in operating expenses was partially offset primarily by the activation
of the expansion at our Red Rock Correctional Center in the third quarter of 2016 and the additional expenses
resulting from the new contracts with ICE and the state of Ohio at our Northeast Ohio Correctional Center.
Additional factors affecting operating expenses included the one fewer day of operations due to leap year in 2016,
the additional expenses resulting from the full activation of the newly constructed Trousdale Turner Correctional
Center during 2016, and the additional expenses resulting from acquisitions of multiple residential reentry centers
during 2016 and 2017.
Total expenses per compensated man-day decreased to $52.91 during the year ended December 31, 2017 from
$53.74 during the year ended December 31, 2016. Fixed expenses per compensated man-day for 2017 and 2016
include depreciation expense of $16.5 million and $38.7 million, respectively, and interest expense of $6.4 million
and $10.0 million, respectively, in order to more properly reflect the cash flows associated with the lease at the
South Texas Family Residential Center. Fixed expenses and variable expenses per compensated man-day decreased
from 2016 to 2017 primarily as a result of the amended IGSA which lowered the cost structure associated with the
South Texas Family Residential Center effective in the fourth quarter of 2016, as further described hereafter.
As the economy has improved and the nation's unemployment rate has declined, we have experienced wage
pressures in certain markets across the country, and have provided wage increases to remain competitive. These
wage pressures (among other factors) contributed to the decline in operating margins during 2017 compared to 2016,
as salaries expense per compensated man-day increased 4.5%, excluding the impact of the aforementioned contract
modification at the South Texas Family Residential Center. We continually monitor compensation levels very
60
closely along with overall economic conditions and will set wage levels necessary to help ensure the long-term
success of our business. Salaries and benefits represent the most significant component of our operating expenses,
representing approximately 60% and 59% of our total operating expenses during 2017 and 2016, respectively.
Facility Management Contracts
We enter into facility contracts to provide prison bed capacity and management services to governmental entities for
terms typically ranging from three to five years, with additional renewal periods at the option of the contracting
governmental agency. Accordingly, a substantial portion of our facility contracts are scheduled to expire each year,
notwithstanding contractual renewal options that a government agency may exercise. Although we generally expect
these customers to exercise renewal options or negotiate new contracts with us, one or more of these contracts may
not be renewed by the corresponding governmental agency.
Based on information available as of the date of this filing, we believe we will renew all material contracts that have
expired or are scheduled to expire within the next twelve months. We believe our renewal rate on existing contracts
remains high due to a variety of reasons including, but not limited to, the constrained supply of available beds within
the U.S. correctional system, our ownership of the majority of the beds we operate, and the cost effectiveness of the
services we provide. However, we cannot assure we will continue to achieve such renewal rates in the future.
The operation of the facilities we own carries a higher degree of risk associated with a facility contract than the
operation of the facilities we manage but do not own because we incur significant capital expenditures to construct,
renovate or acquire facilities we own. Additionally, correctional and detention facilities have limited or no
alternative use. Therefore, if a contract is terminated at a facility we own, we continue to incur certain operating
expenses, such as real estate taxes, utilities, and insurance, which we would not incur if a management contract were
terminated for a managed-only facility. As a result, revenue per compensated man-day is typically higher for
facilities we own and manage than for managed-only facilities. Because we incur higher expenses, such as repairs
and maintenance, real estate taxes, and insurance, on the facilities we own and manage, our cost structure for
facilities we own and manage is also higher than the cost structure for the managed-only facilities. The following
tables display the revenue and expenses per compensated man-day for the facilities placed into service that we own
and manage and for the facilities we manage but do not own, which we believe is useful information for our
financial statement users:
Owned and Managed Facilities:
Revenue per compensated man-day
Operating expenses per compensated man-day:
Fixed expense
Variable expense
Total
Operating income per compensated man-day
Operating margin
Average compensated occupancy
Average available beds
Average compensated population
For the Years Ended
December 31,
2017
2016
$
78.87 $
82.76
$
40.02
15.20
55.22
23.65 $
30.0%
77.1%
41.44
16.19
57.63
25.13
30.4 %
75.6 %
68,918
53,148
69,984
52,942
61
Managed Only Facilities:
Revenue per compensated man-day
Operating expenses per compensated man-day:
Fixed expense
Variable expense
Total
Operating income per compensated man-day
Operating margin
Average compensated occupancy
Average available beds
Average compensated population
For the Years Ended
December 31,
2017
2016
$
46.16 $
42.62
$
29.65
12.38
42.03
4.13 $
8.9%
94.2%
26.81
11.29
38.10
4.52
10.6 %
94.8 %
11,985
11,291
13,898
13,170
Owned and Managed Facilities
Total revenue from our owned and managed facilities decreased $73.7 million, or 4.6%, from $1,603.7 million in
2016 to $1,530.0 million in 2017. Facility net operating income, or the operating income or loss from operations
before interest, taxes, asset impairments, depreciation and amortization, at our owned and managed facilities
decreased by $53.8 million, from $535.6 million in 2016 to $481.8 million in 2017, a decrease of 10.0%. Facility
net operating income at our owned and managed facilities in 2017 was unfavorably impacted by the amended IGSA
associated with the South Texas Family Residential Center, which became effective in the fourth quarter of 2016, as
further described hereafter. The aggregate depreciation and interest expense associated with the lease at the South
Texas Family Residential Center in the years ended December 31, 2017 and 2016, totaling $22.9 million and $48.7
million, respectively, are not included in these facility net operating income amounts, but are included in the per
compensated man-day statistics.
In September 2014, we announced that we agreed to an expansion of an IGSA between the city of Eloy, Arizona and
ICE to care for up to 2,400 individuals at the South Texas Family Residential Center, a facility we lease in Dilley,
Texas. The services provided under the original amended IGSA commenced in the fourth quarter of 2014 and had
an original term of up to four years. In October 2016, we entered into an amended IGSA that provides for a new,
lower fixed monthly payment that commenced in November 2016, and extended the term of the contract through
September 2021. The agreement can be further extended by bi-lateral modification. However, ICE can also
terminate the agreement for convenience or non-appropriation of funds, without penalty, by providing us with at
least a 60-day notice. Concurrent with the amendment to the IGSA entered into in October 2016, we modified our
lease agreement with the third-party lessor of the facility to reflect a reduced monthly lease expense effective in
November 2016, with a new term concurrent with the amended IGSA. In the event we cancel the lease with the
third-party lessor prior to its expiration as a result of the termination of the IGSA by ICE for convenience, and if we
are unable to reach an agreement for the continued use of the facility within 90 days from the termination date, we
are required to pay a termination fee based on the termination date, currently equal to $10.0 million and declining to
zero by October 2020.
During the years ended December 31, 2017 and 2016, we recognized $170.6 million and $267.3 million,
respectively, in total revenue associated with the South Texas Family Residential Center. The original IGSA with
ICE had a favorable impact on the revenue and net operating income of our owned and managed facilities during
2016, with more favorable operating margin percentages than those of our average owned and managed facilities.
Under terms of the amended IGSA entered into in October 2016, the revenues generated at the South Texas Family
Residential Center declined and operating margin percentages at the facility became more comparable to those of
our average owned and managed facilities, resulting in a material reduction to our facility net operating income in
2017.
62
Numerous lawsuits, to which we are not a party, have challenged the government's policy of detaining migrant
families, and government policies with respect to family immigration may impact the demand for the South Texas
Family Residential Center. Any court decision or government action that impacts our existing contract for the South
Texas Family Residential Center could materially affect our cash flows, financial condition, and results of
operations.
In December 2015, we announced that we were awarded a new contract from the Arizona Department of
Corrections, or ADOC, to care for up to an additional 1,000 medium-security inmates at our Red Rock facility,
bringing the contracted bed capacity to 2,000 inmates. The new management contract contains an initial term of ten
years, with two five-year renewal options upon mutual agreement and provides for an occupancy guarantee of 90%
of the contracted beds. The government partner included the occupancy guarantee in its request for proposal in
order to guarantee its access to the beds. In connection with the new award, we expanded our Red Rock facility to a
design capacity of 2,024 beds and added additional space for inmate reentry programming. We began receiving
inmates under the new contract during the third quarter of 2016. The new contract generated $18.7 million of
incremental revenue during 2017 when compared to 2016.
During the first quarter of 2015, the adult inmate population held in state of California institutions first met a Federal
court order to reduce inmate populations below 137.5% of its capacity. Inmate populations in the state continued to
decline below the court ordered capacity limit which has resulted in declining inmate populations in the out-of-state
program at facilities we own and operate. As of December 31, 2017, the adult inmate population held in state of
California institutions remained in compliance with the Federal court order at approximately 134.6% of capacity, or
approximately 114,500 inmates, which did not include the California inmates held in our out-of-state facilities,
compared with 114,000 inmates at December 31, 2016. During the years ended December 31, 2017 and 2016, we
cared for an average daily population of approximately 4,400 and 4,900 California inmates, respectively, in facilities
outside the state as a partial solution to the State's overcrowding. This decline in population, along with the revenue
impact of one fewer day of operations due to leap year in 2016, resulted in a decrease in revenue of $9.3 million
from the year ended December 31, 2016 to the year ended December 31, 2017.
Approximately 6% of our total revenue for both the years ended December 31, 2017 and 2016 was generated from the
California Department of Corrections and Rehabilitation, or CDCR, in facilities housing inmates outside the state of
California.
On January 10, 2018, the Governor of California issued a proposed budget for fiscal 2018-2019. The proposed
budget contemplates that the continued implementation of initiatives to reduce prison populations will allow the
CDCR to eliminate the use of out-of-state contract beds. Current estimates include the removal of all inmates from
one of our two out-of-state facilities by the end of fiscal 2017-2018. As the impact of the initiatives grows, the
CDCR anticipates the removal of inmates from our other out-of-state facility by fall 2019. Although the proposed
budget acknowledges that estimates of population reductions are subject to considerable uncertainty, the complete
removal by the CDCR of all inmates from our out-of-state facilities could have a material adverse effect on our
financial position, results of operations, and cash flows.
During the fourth quarter of 2015, we completed construction of our 2,552-bed Trousdale Turner Correctional
Center. While we began housing state of Tennessee inmates at the facility in January 2016, occupancy at the facility
increased throughout the year, leading to an increase in revenue of $18.4 million from the year ended December 31,
2016 to the year ended December 31, 2017. However, we have not yet stabilized the financial operations of this
facility due to a competitive job market in the surrounding area. We have incurred incremental expenses for wage
increases, various incentive plans, recruiting efforts, and other costs which has had an impact on the facility
operating margin. Until operations are stabilized, we may continue to incur these incremental expenses.
On April 11, 2017, we announced that we contracted with the state of Ohio to care for up to an additional 996
offenders at our 2,016-bed Northeast Ohio Correctional Center. The initial term of the contract continues through
June 2032 with unlimited renewal options, subject to appropriations and mutual agreement. We began receiving
offender populations at the Northeast Ohio facility from the state of Ohio in the third quarter of 2017, with full
contract utilization expected by the end of the first quarter of 2018. On December 31, 2017, we cared for
approximately 680 offenders from the state of Ohio, 650 detainees from the USMS, and approximately 270
63
detainees from ICE at our Northeast Ohio facility. Total revenue at the Northeast Ohio facility increased by $10.7
million from the year ended December 31, 2016 to the year ended December 31, 2017.
Our contract with the District at the D.C. Correctional Treatment Facility expired in the first quarter of 2017. The
District assumed operation of the facility in January 2017. Total revenue decreased $17.6 million at this facility
from 2016 to 2017. We incurred a facility net operating loss of $0.5 million during the first quarter of 2017. We
incurred a facility net operating loss of $0.1 million during the full year ended December 31, 2016. Our investment
in the direct financing lease with the District also expired in the first quarter of 2017. Upon expiration of the lease,
ownership of the facility automatically reverted to the District.
On April 30, 2017, our contract with the BOP at our Eden Detention Center expired and was not renewed. Total
revenue decreased $23.7 million at this facility from 2016 to 2017. During the time the facility was active in 2017,
we generated facility net operating income of $1.9 million and we generated facility net operating income of $9.1
million for the full year ended December 31, 2016.
As a result of declines in federal populations at our 910-bed Torrance County Detention Facility and 1,129-bed
Cibola County Corrections Center, during the third quarter of 2017, we made the decision to consolidate offender
populations into our Cibola facility in order to take advantage of efficiencies gained by consolidating populations
into one facility. We idled the Torrance facility in the fourth quarter of 2017 following the transfer of the offender
population, and have begun to market the facility to other potential customers. During the years ended
December 31, 2017 and 2016, we incurred facility net operating losses of $2.3 million and $4.0 million,
respectively, at the Torrance facility.
The following acquisitions in 2016 and 2017 have positively impacted our current facility operating income and our
diversification strategy:
On April 8, 2016, we closed on the acquisition of 100% of the stock of CMI along with the real estate
used in the operation of CMI's business from two entities affiliated with CMI. CMI, a privately held
community corrections company that operates seven community corrections facilities, including six
owned and one leased, with approximately 600 beds in Colorado, specializes in community correctional
services, drug and alcohol treatment services, and residential reentry services;
On January 1, 2017, we acquired Arapahoe Community Treatment Center, or ACTC, a 135-bed
residential reentry center in Englewood, Colorado, which we integrated with the operations of our
existing Colorado residential reentry centers;
On June 1, 2017, we acquired the real estate operated by Center Point, Inc., or Center Point, a
California-based non-profit organization. We consolidated a portion of Center Point's operations into
our preexisting residential reentry portfolio and assumed ownership and operations of the Oklahoma
City Transitional Center, a 200-bed residential reentry center in Oklahoma City, Oklahoma;
On August 1, 2017, we acquired New Beginnings Treatment Center, Inc., or NBTC, an Arizona-based
community corrections company, along with the real estate used in the operation of NBTC's business
from an affiliate of NBTC. In connection with the NBTC acquisition, we assumed a contract with the
BOP to provide reentry services to male and female adults at the 92-bed Oracle Transitional Center
located in Tucson, Arizona; and
On November 1, 2017, we acquired Time to Change, Inc., or TTC, a Colorado-based community
corrections company. In connection with the acquisition, we assumed contracts with Adams County,
Colorado to provide reentry services to male and female adults in three facilities located in Colorado
containing a total of 422 beds.
We acquired these 13 facilities as strategic investments that further expand the network of reentry assets we own and
the services we provide. Total revenue generated from the 13 facilities during the year ended December 31, 2017
totaled $19.5 million compared with $9.7 million of revenue generated during the year ended December 31, 2016,
an increase of $9.8 million from the continued expansion of our residential reentry services.
64
Managed-Only Facilities
Total revenue at our managed-only facilities decreased $15.2 million, from $205.4 million in 2016 to $190.2 million
in 2017. Revenue per compensated man-day increased 8.3%, to $46.16 in 2017 from $42.62 in 2016. Operating
expenses per compensated man-day increased to $42.03 in 2017 from $38.10 in 2016. Facility net operating income
at our managed-only facilities decreased $4.8 million, from $21.8 million in 2016 to $17.0 million in 2017. During
2017 and 2016, managed-only facilities generated 3.4% and 3.9% respectively, of our total facility net operating
income. We expect the managed-only business to remain competitive and we will only pursue opportunities for
managed-only business where we are sufficiently compensated for the risk associated with this competitive business.
Further, we may terminate existing contracts from time to time when we are unable to achieve per diem increases
that offset increasing expenses and enable us to maintain safe, effective operations.
During the third quarter of 2016, the Texas Department of Criminal Justice, or TDCJ, solicited proposals for the
rebid of four facilities we managed for the state of Texas. The managed-only contracts for these four facilities were
scheduled to expire in August 2017. On March 31, 2017, the TDCJ notified us that, in light of the current economic
climate as well as the fiscal constraints and budget outlook for the TDCJ for the next biennium, the TDCJ would not
be awarding the contract for the Bartlett State Jail, one of the facilities included in the rebid process. During the first
quarter of 2017, we wrote-off $0.3 million of goodwill associated with this managed-only facility. In collaboration
with the TDCJ, the decision was made to close the Bartlett facility on June 24, 2017. During the third quarter of
2017, the TDCJ notified us that it selected other operators for the management of the three remaining managed-only
facilities that were subject to the rebid. We successfully transferred operations of these facilities to the other
operators upon expiration of the contracts. The four facilities we managed for the state of Texas had a total capacity
of 5,129 beds and generated total revenue and a facility net operating loss of $30.4 million and $0.2 million,
respectively, during the time they were active in 2017, and total revenue and net operating income of $49.9 million
and $2.3 million, respectively, for the year ended December 31, 2016. The termination of the contracts with the
TDCJ contributed to the increase in revenue and expenses per compensated man-day, as the per diem and operating
expense structure associated with these contracts were substantially lower than our remaining managed-only
portfolio.
Other Portfolio-Related Activity
In May 2016, we entered into a lease with the Oklahoma Department of Corrections, or ODOC, for our previously
idled 2,400-bed North Fork Correctional Facility. The lease agreement commenced on July 1, 2016, and includes a
five-year base term with unlimited two-year renewal options. However, the lease agreement permitted the ODOC to
utilize the facility for certain activation activities and, therefore, revenue recognition began upon execution of the lease.
The average annual rent to be recognized during the five-year base term is $7.3 million, including annual rent in the
fifth year of $12.0 million. After the five-year base term, the annual rent will be equal to the rent due during the prior
lease year, adjusted for increases in the Consumer Price Index. We are responsible for repairs and maintenance,
property taxes and property insurance, while all other aspects and costs of facility operations are the responsibility of
the ODOC.
On June 10, 2016, we acquired a residential reentry center in Long Beach, California from a privately held owner.
The 112-bed facility is leased to a third-party operator under a triple net lease agreement that extends through June
2020 and includes one five-year lease extension option. In addition, on February 10, 2017, we acquired the
Stockton Female Community Corrections Facility, a 100-bed residential reentry center in Stockton, California. The
100-bed facility is leased to a third-party operator under a triple net lease agreement that extends through April 2021
and includes one five-year lease extension option. Both third-party operators separately contract with the CDCR to
provide rehabilitative and reentry services to residents at the leased facilities. We acquired the facilities in the real
estate–only transactions as strategic investments that further expand our network of residential reentry centers.
During the third quarter of 2017, we acquired a portfolio of four properties, including a 230-bed residential reentry
center leased to the state of Georgia and three properties in North Carolina and Georgia leased to the General
Services Administration, or GSA, an independent agency of the United States government, two of which are
occupied by the Social Security Administration, or SSA, and one of which is occupied by the Internal Revenue
Service, or IRS. We currently expect these six properties to generate total annual revenue of approximately $2.0
million.
65
General and administrative expense
For the years ended December 31, 2017 and 2016, general and administrative expenses totaled $107.8 million and
$107.0 million, respectively. General and administrative expenses consist primarily of corporate management
salaries and benefits, professional fees, including those associated with mergers and acquisitions, or M&A, and other
administrative expenses. An increase in incentive compensation and M&A expenses during 2017 compared to
2016, was largely offset by a reduction in general and administrative expenses resulting from a restructuring of our
corporate operations announced during the third quarter of 2016.
Depreciation and Amortization
For the years ended December 31, 2017 and 2016, depreciation and amortization expense totaled $147.1 million and
$166.7 million, respectively. Our lease agreement with the third-party lessor associated with the 2,400-bed South
Texas Family Residential Center resulted in our being deemed the owner of the constructed assets for accounting
purposes, in accordance with ASC 840-40-55, formerly Emerging Issues Task Force No. 97-10, "The Effect of
Lessee Involvement in Asset Construction". Accordingly, our balance sheet reflects the costs attributable to the
building assets constructed by the third-party lessor, which, beginning in the second quarter of 2015, began
depreciating over the remainder of the four-year term of the original lease. Depreciation expense for the constructed
assets at this facility was $16.5 million and $38.7 million during the years ended December 31, 2017 and 2016,
respectively. As previously described herein, we modified our lease agreement with the third-party lessor of the
facility in October 2016, which resulted in a reduced monthly lease rate effective in November 2016 and extended
the term of the contract resulting in a reduction in depreciation expense during 2017 compared to prior periods.
Restructuring charges
During the third quarter of 2016, we announced a restructuring of our corporate operations and implementation of a
cost reduction plan, resulting in the elimination of approximately 12% of the corporate workforce at our
headquarters. The restructuring realigned the corporate structure to more effectively serve facility operations and
support the progression of our business diversification strategy. We reported a charge in the third quarter of 2016 of
$4.0 million associated with this restructuring. This charge primarily consisted of cash payments for severance and
related benefits to terminated employees and a non-cash charge associated with the voluntary forfeiture by our chief
executive officer of a restricted stock unit award.
Interest expense, net
Interest expense was reported net of interest income and capitalized interest for the years ended December 31, 2017
and 2016. Gross interest expense, net of capitalized interest, was $69.5 million and $68.9 million for 2017 and
2016, respectively. Gross interest expense is based on outstanding borrowings under our $900.0 million revolving
credit facility, or revolving credit facility, our outstanding Incremental Term Loan, or Term Loan, and our
outstanding senior notes, as well as the amortization of loan costs and unused facility fees. We also incur interest
expense associated with the lease of the South Texas Family Residential Center, in accordance with ASC 840-40-55.
Interest expense associated with the lease of this facility was $6.4 million and $10.0 million during the years ended
December 31, 2017 and 2016, respectively. As previously described herein, we modified our lease agreement with
the third-party lessor of the facility in October 2016, which resulted in a reduced monthly lease rate effective in
November 2016 and extended the term of the contract. The decrease in interest expense that primarily resulted from
the reduction in expense associated with the lease of the South Texas Family Residential Center was partially offset
by an increase in the London Interbank Offered Rate, or LIBOR, and the higher interest expense associated with the
new senior notes offering issued in October 2017, as further described hereafter.
We have benefited from relatively low interest rates on our revolving credit facility, which is largely based on
LIBOR. Based on our total leverage ratio, loans under our revolving credit facility during 2016 and 2017 were at
the base rate plus a margin of 0.50% or at LIBOR plus a margin of 1.50%, and a commitment fee equal to 0.35% of
the unfunded balance. Interest rates under the Term Loan are the same as the interest rates under our revolving
credit facility.
66
On October 13, 2017, we completed the offering of $250.0 million aggregate principal amount of 4.75% senior
notes due October 15, 2027. We used net proceeds from the offering to pay down a portion of our revolving credit
facility which had a variable weighted average interest rate of 3.1% at December 31, 2017. While our interest
expense is expected to increase in the future as a result of this refinancing, we reduced our exposure to variable rate
debt, extended our weighted average maturity, and increased the availability of borrowings under our revolving
credit facility.
Gross interest income was $1.0 million and $1.1 million for the years ended December 31, 2017 and 2016,
respectively. Gross interest income is earned on notes receivable, investments, and cash and cash equivalents. There
was no interest capitalized during the year ended December 31, 2017. Capitalized interest was $0.6 during the year
ended December 31, 2016. Capitalized interest in 2016 was primarily associated with the expansion project at our
Red Rock Correctional Center.
Income tax expense
As a REIT, we are entitled to a deduction for dividends paid, resulting in a substantial reduction in the amount of
federal income tax expense we recognize. Substantially all of our income tax expense is incurred based on the earnings
generated by our TRSs. Our overall effective tax rate is estimated based on the current projection of taxable income
primarily generated by our TRSs. Our consolidated effective tax rate could fluctuate in the future based on changes in
estimates of taxable income, the relative amounts of taxable income generated by the TRSs and the REIT, the
implementation of additional tax planning strategies, changes in federal or state tax rates or laws affecting tax credits
available to us, changes in other tax laws, changes in estimates related to uncertain tax positions, or changes in state
apportionment factors, as well as changes in the valuation allowance applied to our deferred tax assets that are based
primarily on the amount of state net operating losses and tax credits that could expire unused.
During the years ended December 31, 2017 and 2016, our financial statements reflected an income tax expense of
$13.9 million and $8.3 million, respectively. Our effective tax rate was 7.2% and 3.6% during the years ended
December 31, 2017 and 2016, respectively. The TCJA, enacted December 22, 2017, reduces the U.S. federal
corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain
foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign-sourced earnings.
However, the TCJA does not change the dividends paid deduction applicable to REITs and, therefore, we generally
will not be subject to federal income taxes on our REIT taxable income and gains that we distribute to our
stockholders. As a result of changes in the U.S. federal corporate tax rates resulting from the TCJA, during the
fourth quarter of 2017, we re-measured certain deferred tax assets and liabilities based on the rates at which they are
expected to reverse in the future, which is generally 21%. We recognized $4.5 million, which is included as a
component of income tax expense, for the revaluation of deferred tax assets and liabilities and other taxes associated
with the TCJA.
Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015
During the year ended December 31, 2016, we generated net income of $219.9 million, or $1.87 per diluted share,
compared with net income of $221.9 million, or $1.88 per diluted share, for the previous year. Financial results for
the year ended December 31, 2016, include $4.0 million of restructuring charges resulting from the realignment of
our corporate structure to more effectively serve facility operations and support the progression of our business
diversification strategy via the acquisitions of residential reentry facilities and a focus on real estate-only solutions
for our government partners.
67
Facility Operations
Revenue and expenses per compensated man-day for all of the facilities placed into service that we owned or
managed, exclusive of those held for lease, were as follows for the years ended December 31, 2016 and 2015:
Revenue per compensated man-day
Operating expenses per compensated man-day:
Fixed expense
Variable expense
Total
Operating income per compensated man-day
Operating margin
Average compensated occupancy
Average available beds
Average compensated population
For the Years Ended
December 31,
2016
2015
$
74.77 $
72.76
$
38.53
15.21
53.74
21.03 $
28.1%
78.8%
37.53
14.96
52.49
20.27
27.9 %
82.5 %
83,882
66,112
80,121
66,111
Fixed expenses per compensated man-day for the year ended December 31, 2016 include depreciation expense of
$38.7 million and interest expense of $10.0 million in order to more properly reflect the cash flows associated with
the lease at the South Texas Family Residential Center. Fixed expenses per compensated man-day for the year
ended December 31, 2015 include depreciation expense of $29.9 million and interest expense of $8.5 million
associated with the lease at the South Texas Family Residential Center.
Revenue
Total revenue consists of revenue we generate in the operation and management of correctional, detention, and
residential reentry facilities, as well as rental revenue generated from facilities we lease to third parties, and from our
inmate transportation subsidiary. The following table reflects the components of revenue for the years ended
December 31, 2016 and 2015 (in millions):
For the Years Ended
December 31,
2016
2015
$ Change
% Change
Management revenue:
Federal
State
Local
Other
Total management revenue
Rental and other revenue
Total revenue
$
954.8 $
710.4
78.1
65.8
1,809.1
40.7
912.1 $
725.1
65.7
52.9
1,755.8
37.3
$ 1,849.8 $ 1,793.1 $
42.7
(14.7 )
12.4
12.9
53.3
3.4
56.7
4.7%
(2.0%)
18.9%
24.4%
3.0%
9.1%
3.2%
The $53.3 million, or 3.0%, increase in revenue associated with the operation and management of correctional,
detention, and residential reentry facilities consisted of an increase in revenue of approximately $48.5 million
resulting from an increase of 2.8% in average revenue per compensated man-day and an increase in revenue of
approximately $4.8 million generated primarily by one additional day of operations due to leap year in 2016. The
increase in average revenue per compensated man-day from 2015 to 2016 was primarily a result of the full
activation of the South Texas Family Residential Center in the second quarter of 2015, as further described
hereafter, and per diem increases at several of our other facilities.
68
Average daily compensated population was consistent from 2015 to 2016. However, there were several notable
offsetting factors that affected the average daily compensated population when comparing 2015 to 2016. Average
compensated population in 2016 was positively affected by the acquisition of Avalon Correctional Services, Inc., or
Avalon, in the fourth quarter of 2015, the acquisition of CMI in the second quarter of 2016, and the activation of the
Trousdale Turner Correctional Center in the fourth quarter of 2015. We began housing state of Tennessee inmates
at the Trousdale facility in January 2016. Average compensated population was also positively affected by the full
activation of the South Texas Family Residential Center in the second quarter of 2015. Average compensated
population in 2016 was negatively affected by the expiration of our contract with the BOP at our Northeast Ohio
Correctional Center effective May 31, 2015, and the decline in California inmates held in our out-of-state facilities,
both as further described hereafter. Average compensated population was also negatively affected by the decline in
offender populations within the state of Colorado and the expiration of our managed-only contract at the Winn
Correctional Facility effective September 30, 2015, both as further described hereafter.
Our federal customers generated approximately 52% and 51% of our total revenue for the years ended December 31,
2016 and 2015, respectively, increasing $42.7 million, or 4.7%. The increase in federal revenues primarily resulted
from the full activation of the South Texas Family Residential Center in the second quarter of 2015, partially offset
by a decline in federal populations at our Northeast Ohio Correctional Center. The combined effect of per diem
increases for several of our federal contracts and a net increase in federal populations at certain other facilities,
primarily from ICE, also contributed to the increase in federal revenues.
State revenues from contracts at correctional, detention, and residential reentry facilities that we operate decreased
2.0% from 2015 to 2016 primarily as a result of a decline in California inmates held in our out-of-state facilities. In
addition, the decrease in state revenues was a result of the expiration of our managed-only contract with the state of
Louisiana at the state-owned Winn Correctional Facility effective September 30, 2015. The decline in offender
populations within the state of Colorado also contributed to the decrease in state revenues. The decrease in state
revenues was partially offset by the revenue generated at our newly activated Trousdale Turner Correctional Center,
and as a result of the acquisitions of Avalon's eleven community corrections facilities in the fourth quarter of 2015
and CMI's seven community corrections facilities in the second quarter of 2016, each as further described hereafter.
The acquisition of CMI also contributed to the $12.4 million, or 18.9%, increase in the revenue from local
authorities from 2015 to 2016.
Operating Expenses
Operating expenses totaled $1,275.6 million and $1,256.1 million for the years ended December 31, 2016 and 2015,
respectively. Operating expenses consist of those expenses incurred in the operation and management of
correctional, detention, and residential reentry facilities, as well as at facilities we lease to third-party operators, and
for our inmate transportation subsidiary.
Expenses incurred in connection with the operation and management of correctional, detention, and residential
reentry facilities increased $23.6 million, or 1.9% during 2016 compared with 2015. The increase in operating
expenses was primarily a result of the activation of the Trousdale Turner Correctional Center in the fourth quarter of
2015, and the acquisitions of Avalon and CMI. The one additional day of operations due to leap year in 2016 also
contributed to the increase in operating expenses. The increase in operating expenses was partially offset by a
reduction in expenses resulting from the expiration of our BOP contract at our Northeast Ohio Correctional Center
effective May 31, 2015 and the expiration of our managed-only contract with the state of Louisiana at the state-
owned Winn Correctional Facility effective September 30, 2015. In addition, the increase in operating expenses was
partially offset by a reduction in expenses that resulted from idling our Kit Carson Correctional Center in the third
quarter of 2016, as further described hereafter, and from idling our North Fork Correctional Facility in the fourth
quarter of 2015. We idled the North Fork facility as a result of a decline in California inmates held in our out-of-
state program. In May 2016, we announced that we leased the North Fork Correctional Facility to the ODOC. The
lease agreement commenced on July 1, 2016.
Fixed expenses per compensated man-day increased to $38.53 during the year ended December 31, 2016 from
$37.53 during the year ended December 31, 2015. Fixed expenses per compensated man-day increased primarily as
a result of an increase in salaries and benefits per compensated man-day. The increase in salaries and benefits per
compensated man-day was partially a result of these expenses being leveraged over smaller offender populations at
69
certain facilities and due to wage adjustments implemented during 2015. The increase in salaries and benefits per
compensated man-day was also due to more favorable claims experience in our employee self-insured medical plan
in the prior year. Salaries and benefits represent the most significant component of our operating expenses,
representing approximately 59% of our total operating expenses during both 2016 and 2015.
The following tables display the revenue and expenses per compensated man-day for the facilities placed into
service that we own and manage and for the facilities we manage but do not own, which we believe is useful to our
financial statement users:
Owned and Managed Facilities:
Revenue per compensated man-day
Operating expenses per compensated man-day:
Fixed expense
Variable expense
Total
Operating income per compensated man-day
Operating margin
Average compensated occupancy
Average available beds
Average compensated population
Managed Only Facilities:
Revenue per compensated man-day
Operating expenses per compensated man-day:
Fixed expense
Variable expense
Total
Operating income per compensated man-day
Operating margin
Average compensated occupancy
Average available beds
Average compensated population
For the Years Ended
December 31,
2016
2015
$
82.76 $
81.32
$
41.44
16.19
57.63
25.13 $
30.4%
75.6%
40.55
16.16
56.71
24.61
30.3 %
79.9 %
69,984
52,942
65,073
52,007
For the Years Ended
December 31,
2016
2015
$
42.62 $
41.18
$
26.81
11.29
38.10
4.52 $
10.6%
94.8%
26.38
10.53
36.91
4.27
10.4 %
93.7 %
13,898
13,170
15,048
14,104
Owned and Managed Facilities
Facility net operating income increased by $29.9 million, from $505.7 million in 2015 to $535.6 million in 2016, an
increase of 5.9%. Facility net operating income at our owned and managed facilities in 2016 was favorably
impacted by the full activation of the South Texas Family Residential Center. The aforementioned $48.7 million
and $38.4 million aggregate depreciation and interest expense associated with the lease at the South Texas Family
Residential Center in the years ended December 31, 2016 and 2015, respectively, are not included in the facility net
operating income amounts reported above, but are included in the per compensated man-day statistics.
In September 2014, we announced that we agreed to an expansion of an existing IGSA between the city of Eloy,
Arizona and ICE to house up to 2,400 individuals at the South Texas Family Residential Center, a facility we lease
in Dilley, Texas. The services provided under the original amended IGSA commenced in the fourth quarter of 2014
and had an original term of up to four years. In October 2016, we entered into an amended IGSA that provided for a
70
new, lower fixed monthly payment that commenced in November 2016, and extended the term of the contract
through September 2021.
ICE began housing the first residents at the facility in the fourth quarter of 2014, and the site was completed during
the second quarter of 2015. In accordance with the multiple-element arrangement guidance, a portion of the fixed
monthly payments to us pursuant to the IGSA is recognized as lease and service revenue. During the years ended
December 31, 2016 and 2015, we recognized $267.3 million and $244.7 million, respectively, in total revenue
associated with the facility. The original IGSA with ICE had a favorable impact on the revenue and net operating
income of our owned and managed facilities during the years ended December 31, 2016 and 2015. Operating
margin percentages at this facility were comparable to those of our average owned and managed facilities during
2015, but increased during 2016 as expenses normalized for stabilized operations.
During the first quarter of 2015, the adult inmate population held in state of California institutions first met a Federal
court order to reduce inmate populations below 137.5% of its capacity. Inmate populations in the state continued to
decline below the court ordered capacity limit which resulted in declining inmate populations in the out-of-state
program at facilities we own and operate. As of December 31, 2016, the adult inmate population held in state of
California institutions remained in compliance with the Federal court order at approximately 134.0% of capacity, or
approximately 114,000 inmates, which did not include the California inmates held in our out-of-state facilities.
During the years ended December 31, 2016 and 2015, we housed an average daily population of approximately
4,900 and 7,300 California inmates, respectively, in facilities outside the state as a partial solution to the State's
overcrowding. This decline in population, net of the revenue generated by one additional day of operations due to
leap year in 2016, resulted in a decrease in revenue of $57.1 million from the year ended December 31, 2015 to the
year ended December 31, 2016.
Approximately 6% and 10% of our total revenue for the years ended December 31, 2016 and 2015, respectively,
was generated from the CDCR in facilities housing inmates outside the state of California.
During December 2014, the BOP announced that it elected not to renew its contract with us at our owned and
managed 2,016-bed Northeast Ohio Correctional Center. The contract with the BOP at this facility expired on May
31, 2015. Facility net operating income decreased by $9.8 million from the year ended December 31, 2015 to the
year ended December 31, 2016 as a result of this reduction in inmate population. In December 2016, we announced
a new contract award from ICE at the Northeast Ohio facility in order to assist ICE with their current detention
needs. The new contract contained an initial term expiring March 31, 2017, with three six-month renewal periods at
the option of ICE.
Based on a decline in offender populations within the state of Colorado and available capacity at other facilities we
own in Colorado, we idled our 1,488-bed Kit Carson Correctional Center during the third quarter of 2016. Inmate
populations from the Kit Carson Correctional Center were transferred to the remaining two company-owned
facilities that we continue to operate for the Colorado Department of Corrections, the Bent County Correctional
Facility and the Crowley County Correctional Facility.
During the fourth quarter of 2015, we closed on the acquisition of 100% of the stock of Avalon, along with two
additional facilities operated by Avalon. The acquisition included 11 community corrections facilities with
approximately 3,000 beds in Oklahoma, Texas, and Wyoming. We acquired Avalon, which specializes in
community correctional services, drug and alcohol treatment services, and residential reentry services, as a strategic
investment that continues to expand the reentry assets we own and the services we provide.
On April 8, 2016, we closed on the acquisition of 100% of the stock of CMI along with the real estate used in the
operation of CMI's business from two entities affiliated with CMI. CMI, a privately held community corrections
company that operates seven community corrections facilities, including six owned and one leased, with
approximately 600 beds in Colorado, specializes in community correctional services, drug and alcohol treatment
services, and residential reentry services. CMI provides these services through multiple contracts with three
counties in Colorado, as well as the Colorado Department of Corrections, a pre-existing partner of ours. We
acquired CMI as a strategic investment that continues to expand the reentry assets we own and the services we
provide.
71
Total revenue generated from the acquisitions of Avalon and CMI during 2016 totaled $45.1 million.
Managed-Only Facilities
Total revenue at our managed-only facilities decreased $6.6 million, from $212.0 million in 2015 to $205.4 million
in 2016. The decrease in revenues at our managed-only facilities was largely the result of our decision to exit the
contract at the Winn Correctional Center effective September 30, 2015. Facility net operating income at our
managed-only facilities decreased $0.2 million, from $22.0 million during the year ended December 31, 2015 to
$21.8 million during the year ended December 31, 2016. During 2016 and 2015, managed-only facilities generated
3.9% and 4.2%, respectively, of our total facility net operating income.
In April 2015, we provided notice to the state of Louisiana that we would cease management of the contract at the
1,538-bed Winn Correctional Center within 180 days, in accordance with the notice provisions of the contract.
Management of the facility transitioned to another operator effective September 30, 2015. We incurred a facility net
operating loss at the Winn Correctional Center of $3.9 million during the time the facility was active in 2015. In
anticipation of terminating the contract at this facility, we also recorded an asset impairment of $1.0 million during
the first quarter of 2015 for the write-off of goodwill associated with the Winn facility.
Other Portfolio-Related Activity
On August 27, 2015, we acquired four community corrections facilities from a privately held owner of community
corrections facilities and other government leased assets. The four acquired community corrections facilities have a
capacity of approximately 600 beds and are leased to The GEO Group, Inc., or GEO, under triple net lease
agreements that extend through July 2019 and include multiple five-year lease extension options. GEO separately
contracts with the Pennsylvania Department of Corrections and the Philadelphia Prison System to provide
rehabilitative and reentry services to residents and inmates at the leased facilities. We acquired the four facilities in
the real estate-only transaction as a strategic investment that expands our investment in residential reentry facilities.
In May 2016, we entered into a lease with the ODOC for our previously idled 2,400-bed North Fork Correctional
Facility. The lease agreement commenced on July 1, 2016, and includes a five-year base term with unlimited two-
year renewal options. However, the lease agreement permitted the ODOC to utilize the facility for certain activation
activities and, therefore, revenue recognition began upon execution of the lease. The average annual rent to be
recognized during the five-year base term is $7.3 million, including annual rent in the fifth year of $12.0 million.
After the five-year base term, the annual rent will be equal to the rent due during the prior lease year, adjusted for
increases in the Consumer Price Index, or CPI. We are responsible for repairs and maintenance, property taxes and
property insurance, while all other aspects and costs of facility operations are the responsibility of the ODOC.
On June 10, 2016, we acquired a residential reentry facility in Long Beach, California from a privately held owner.
The 112-bed facility is leased to GEO under a triple net lease agreement that extends through June 2020 and
includes one five-year lease extension option. GEO separately contracts with the CDCR to provide rehabilitative
and reentry services to residents at the leased facility. We acquired the facility in the real estate–only transaction as
a strategic investment that further expands our investment in residential reentry facilities.
General and administrative expense
For the years ended December 31, 2016 and 2015, general and administrative expenses totaled $107.0 million and
$103.9 million, respectively. General and administrative expenses consist primarily of corporate management
salaries and benefits, professional fees and other administrative expenses. We incurred $1.6 million and $3.6
million of expenses in the years ended December 31, 2016 and 2015, respectively, associated with mergers and
acquisitions.
Depreciation and Amortization
For the years ended December 31, 2016 and 2015, depreciation and amortization expense totaled $166.7 million and
$151.5 million, respectively. Our depreciation and amortization expense increased as a result of completion of
72
construction of the 2,400-bed South Texas Family Residential Center in the second quarter of 2015. Prior to the
second quarter of 2015, residents had been housed in pre-existing housing units on the property. In accordance with
ASC 840-40-55, we incurred depreciation expense for the constructed assets at this facility of $38.7 million and
$29.9 million during the years ended December 31, 2016 and 2015, respectively. Depreciation expense also
increased in 2016 due to the completion of the Trousdale Turner Correctional Center construction project in the
fourth quarter of 2015.
Interest expense, net
Interest expense was reported net of interest income and capitalized interest for the years ended December 31, 2016
and 2015. Gross interest expense, net of capitalized interest, was $68.9 million and $51.8 million for 2016 and
2015, respectively. Gross interest expense was based on outstanding borrowings under our revolving credit facility,
our outstanding Term Loan, and our outstanding senior notes, as well as the amortization of loan costs and unused
facility fees. We also incur interest expense associated with the lease of the South Texas Family Residential Center,
in accordance with ASC 840-40-55. Our interest expense increased in 2016 as a result of completion of construction
of the 2,400-bed South Texas Family Residential Center in the second quarter of 2015. Interest expense associated
with the lease of this facility was $10.0 million and $8.5 million during the years ended December 31, 2016 and
2015, respectively.
We benefited from relatively low interest rates on our revolving credit facility, which is largely based on the
LIBOR. The interest rate on our revolving credit facility was at LIBOR plus a margin of 1.75% during the first six
months of 2015. During July 2015, we amended and restated the revolving credit facility agreement to, among other
modifications, reduce by 0.25% the applicable margin of base rate and LIBOR loans. Based on our leverage ratio,
loans under our revolving credit facility during the last six months of 2015 and during 2016 were at the base rate
plus a margin of 0.50% or at LIBOR plus a margin of 1.50%, and a commitment fee equal to 0.35% of the unfunded
balance.
In October 2015, we obtained a $100.0 million Term Loan under the "accordion" feature of our revolving credit
facility. Interest rates under the Term Loan are the same as the interest rates under our revolving credit facility,
except that the interest rate on the Term Loan was at a base rate plus a margin of 0.50% or at LIBOR plus a margin
of 1.75% during the first two fiscal quarters following closing of the Term Loan. We used net proceeds from the
Term Loan to pay down a portion of our revolving credit facility. The Term Loan has a maturity of July 2020, with
scheduled principal payments in years 2016 through 2020.
On September 25, 2015, we completed the offering of $250.0 million aggregate principal amount of 5.0% senior
notes due October 15, 2022. We used net proceeds from the offering to pay down a portion of our revolving credit
facility which had a variable weighted average interest rate of 2.2% at December 31, 2016. While our interest
expense increased during the year ended December 31, 2016 compared with the prior year as a result of this
refinancing transaction completed in 2015, we reduced our exposure to variable rate debt, extended our weighted
average maturity, and increased the availability under our revolving credit facility.
Gross interest income was $1.1 million and $2.1 million for the years ended December 31, 2016 and 2015,
respectively. Gross interest income was earned on a direct financing lease, notes receivable, investments, and cash
and cash equivalents. Capitalized interest was $0.6 million and $5.5 million during the years ended December 31,
2016 and 2015, respectively. Capitalized interest decreased as a result of the completion of the Otay Mesa
Detention Center and the Trousdale Turner Correctional Center construction projects in the fourth quarter of 2015.
Capitalized interest in 2016 was primarily associated with the expansion project at our Red Rock Correctional
Center.
Income tax expense
During the years ended December 31, 2016 and 2015, our financial statements reflected an income tax expense of
$8.3 million and $8.4 million, respectively. Our effective tax rate was 3.6% during both the years ended December
31, 2016 and 2015. As a REIT, we are entitled to a deduction for dividends paid, resulting in a substantial reduction
in the amount of federal income tax expense we recognize. Substantially all of our income tax expense is incurred
73
based on the earnings generated by our TRSs. Our overall effective tax rate is estimated based on the current
projection of taxable income primarily generated by our TRSs.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are for working capital, stockholder distributions, capital expenditures, and debt
service payments. Capital requirements may also include cash expenditures associated with our outstanding
commitments and contingencies, as further discussed in the notes to our financial statements. Additionally, our
capital expenditures may include M&A activities that will enable us to further expand our network of residential
reentry centers, grow our portfolio of government-leased properties, and acquire other businesses that provide
complementary services. We will continue to pursue opportunities to help our government partners meet their
infrastructure needs, primarily through the development and redevelopment of criminal justice sector assets, but also
by acquiring other real estate assets with a bias toward those used to provide mission-critical governmental services,
that we believe have favorable investment returns, diversify our cash flows, and increase value to our stockholders.
We will also respond to customer demand and may develop or expand correctional and detention facilities when we
believe potential long-term returns justify the capital deployment.
To maintain our qualification as a REIT, we generally are required to distribute annually to our stockholders at least
90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net
capital gains). Our REIT taxable income will not typically include income earned by our TRSs except to the extent
our TRSs pay dividends to the REIT. Our Board of Directors declared a quarterly dividend of $0.42 for each quarter
of 2017 totaling $199.8 million. The amount, timing and frequency of future distributions will be at the sole
discretion of our Board of Directors and will be declared based upon various factors, many of which are beyond our
control, including our financial condition and operating cash flows, limitations under our debt covenants, the amount
required to maintain qualification and taxation as a REIT and to reduce any income and excise taxes that we
otherwise would be required to pay, limitations on distributions in our existing and future debt instruments,
limitations on our ability to fund distributions using cash generated through our TRSs, alternative growth
opportunities that require capital deployment, and other factors that our Board of Directors may deem relevant.
As of December 31, 2017, our liquidity was provided by cash on hand of $52.2 million, and $694.1 million available
under our revolving credit facility. Our liquidity was further increased by the pay-down of our revolving credit facility
with net proceeds from the issuance of $250.0 million, 4.75% unsecured notes on October 13, 2017. During the years
ended December 31, 2017 and 2016, we generated $341.3 million and $375.4 million, respectively, in cash through
operating activities, and as of December 31, 2017, we had net working capital of $36.7 million. We currently expect
to be able to meet our cash expenditure requirements for the next year utilizing these resources. We have no debt
maturities until April 2020.
Our cash flow is subject to the receipt of sufficient funding of and timely payment by contracting governmental
entities. If the appropriate governmental agency does not receive sufficient appropriations to cover its contractual
obligations, it may terminate our contract or delay or reduce payment to us. Delays in payment from our major
customers or the termination of contracts from our major customers could have an adverse effect on our cash flow,
financial condition and, consequently, dividend distributions to our shareholders.
Debt and equity
On October 13, 2017, we completed the offering of $250.0 million aggregate principal amount of unsecured notes
with a fixed stated interest rate of 4.75%, due October 15, 2027. We used net proceeds from the offering to pay
down a portion of our revolving credit facility, for working capital and other general corporate purposes.
As of December 31, 2017, we had $350.0 million principal amount of unsecured notes outstanding with a fixed stated
interest rate of 4.625%, $325.0 million principal amount of unsecured notes outstanding with a fixed stated interest rate
of 4.125%, $250.0 million principal amount of unsecured notes outstanding with a fixed stated interest rate of 5.0%,
and $250.0 million principal amount of unsecured notes outstanding with a fixed stated interest rate of 4.75%. In
addition, we had $85.0 million outstanding under our Term Loan with a variable interest rate of 3.1% and $199.0
million outstanding under our revolving credit facility with a variable weighted average interest rate of 3.1%. As of
December 31, 2017, our total weighted average effective interest rate was 4.7%, while our total weighted average
74
maturity was 4.8 years. We may also seek to issue debt or equity securities from time to time when we determine that
market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable.
On February 26, 2016, we entered into an ATM Equity Offering Sales Agreement, or ATM Agreement, with
multiple sales agents. Pursuant to the ATM Agreement, we may offer and sell to or through the sales agents from
time to time, shares of our common stock, par value $0.01 per share, having an aggregate gross sales price of up to
$200.0 million. Sales, if any, of our shares of common stock will be made primarily in "at-the-market" offerings, as
defined in Rule 415 under the Securities Act of 1933, as amended. The shares of common stock will be offered and
sold pursuant to our registration statement on Form S-3 ASR filed with the SEC on May 15, 2015, and a related
prospectus supplement dated February 26, 2016. We intend to use the net proceeds from any sale of shares of our
common stock to repay borrowings under our revolving credit facility (including the Term Loan under the
"accordion" feature of the revolving credit facility) and for general corporate purposes, including to fund future
acquisitions and development projects. There were no shares of our common stock sold under the ATM Agreement
during the years ended December 31, 2017 and 2016.
On August 19, 2016, Moody's Investors Service, or Moody's, downgraded our senior unsecured debt rating to "Ba1"
from "Baa3". Also on August 19, 2016, S&P Global Ratings, or S&P, lowered our corporate credit and senior
unsecured debt ratings to "BB" from "BB+". Additionally, S&P lowered our revolving credit facility rating to
"BBB-" from "BBB". Both Moody's and S&P lowered our ratings as a result of the Department of Justice, or DOJ,
announcing its plans on August 18, 2016 to reduce the BOP's utilization of privately operated prisons. On February
21, 2017, the U.S. Attorney General rescinded the memorandum issued on August 18, 2016 by the Deputy Attorney
General of the DOJ. On February 7, 2012, Fitch Ratings assigned a rating of "BBB-" to our revolving credit facility
and "BB+" ratings to our unsecured debt and corporate credit.
Facility acquisitions, development, and capital expenditures
We acquired the following properties in 2017 for a combined total cost of $49.5 million in cash, excluding
transaction-related expenses and including contingent consideration that we expect to pay, and funded the
transactions utilizing available cash on hand:
On January 1, 2017, we acquired ACTC, a 135-bed residential reentry center in Englewood, Colorado
that we operate;
On February 10, 2017, we acquired, as a real estate-only transaction, the Stockton Female Community
Corrections Facility, a 100-bed residential reentry center in Stockton, California, which is leased to a
third-party operator that separately contracts with the CDCR;
On June 1, 2017, we acquired the real estate operated by Center Point, a California-based non-profit
organization. We consolidated a portion of Center Point's operations into our preexisting residential
reentry center portfolio and assumed ownership and operations of the Oklahoma City Transitional
Center, a 200-bed residential reentry center in Oklahoma City, Oklahoma;
On August 1, 2017, we acquired NBTC, an Arizona-based community corrections company, along with
the real estate used in the operation of NBTC's business from an affiliate of NBTC. In connection with
the NBTC acquisition, we assumed a contract with the BOP to provide reentry services to male and
female adults at the 92-bed Oracle Transitional Center located in Tucson, Arizona;
On September 15, 2017, we acquired a portfolio of four properties, including a 230-bed residential
reentry center leased to the state of Georgia and three properties in North Carolina and Georgia leased to
the GSA, two of which are occupied by the SSA and one of which is occupied by the IRS; and
On November 1, 2017, we acquired TTC, a Colorado-based community corrections company. In
connection with the acquisition, we assumed contracts with Adams County, Colorado to provide reentry
services to male and female adults in three facilities located in Colorado containing a total of 422 beds.
We acquired these properties as strategic investments that further expand our network of residential reentry centers
and further diversify our cash flows through government-leased properties.
75
Effective January 1, 2018, we closed on the acquisition of Rocky Mountain Offender Management Systems, LLC,
which provides non-residential correctional alternatives, including electronic monitoring and case management
services, to municipal, county, and state governments in eight states. The aggregate purchase price was $7.0
million, excluding transaction-related expenses.
On January 19, 2018, we acquired the 261,000 square-foot Capital Commerce Center, located in Tallahassee,
Florida for a purchase price of $44.7 million, excluding transaction-related costs and certain closing credits. Capital
Commerce Center is 98% leased, and 87% leased to the state of Florida on behalf of the Florida Department of
Business and Professional Regulation. The acquisition was financed with a $24.5 million non-recourse mortgage
note, which is fully-secured by the Capital Commerce Center property, with an interest rate of 4.5%, maturing in
2033, and cash from our $900.0 Million Revolving Credit Facility.
On January 24, 2018, we entered into a 20-year lease agreement with the Kansas Department of Corrections for a
2,432-bed correctional facility we will construct in Lansing, Kansas, for a total project cost of approximately $155.0
million to $165.0 million. The new facility will replace the Lansing Correctional Facility, the State's largest
correctional complex for adult male inmates, originally constructed in 1863. This transaction represents the first
development of a privately owned, build-to-suit correctional facility to be operated by a government agency through
a long-term lease agreement. We will be responsible for facility maintenance throughout the 20-year term of the
lease, at which time ownership will revert to the State. Construction of the new facility is expected to commence in
the first quarter of 2018 with a timeline for completion of approximately 24 months. With the extensively aged
criminal justice infrastructure in the U.S. today, we believe we can bring our flexible solutions like this to other
government agencies.
The demand for prison capacity in the short-term has been affected by the budget challenges many of our
government partners currently face. At the same time, these challenges impede our customers' ability to construct
new prison beds of their own or update older facilities, which we believe could result in further need for private
sector prison capacity solutions in the long-term. Over the long-term, we would like to see meaningful utilization of
our available capacity and better visibility from our customers before we develop new prison capacity on a
speculative basis. We will, however, respond to customer demand and may develop or expand correctional and
detention facilities when we believe potential long-term returns justify the capital deployment. We expect to
continue to pursue investment opportunities in residential reentry centers and are in various stages of due diligence
to complete additional acquisitions. The transactions that have not yet closed will also be subject to various
customary closing conditions, and we can provide no assurance that any such transactions will ultimately be
completed. We are also pursuing additional investment opportunities in other real estate assets with a bias toward
those used to provide mission-critical governmental services, as well as other businesses that expand the range of
solutions we provide to government partners which will further diversify our cash flows.
Operating Activities
Our net cash provided by operating activities for the year ended December 31, 2017 was $341.3 million compared
with $375.4 million in 2016 and $399.8 million in 2015. Cash provided by operating activities represents our net
income plus depreciation and amortization, changes in various components of working capital, and various non-cash
charges. The decrease in cash provided by operating activities during 2017 was primarily due to the reduction in
operating income when compared to the same period in the prior year.
The decrease in cash provided by operating activities during 2016 was primarily due to negative fluctuations in
working capital balances when compared to 2015, including the decrease in deferred revenues associated with the
South Texas Family Residential Center and routine timing differences in the payment of accounts payables, accrued
salaries and wages, and other liabilities, net of the collection of accounts receivables and higher operating income.
Investing Activities
Our cash flow used in investing activities was $124.6 million for the year ended December 31, 2017 and was
primarily attributable to capital expenditures of $73.7 million, including expenditures for facility development and
expansions of $17.6 million and $56.1 million for facility maintenance and information technology capital
expenditures. Our cash flow used in investing activities also included $48.9 million primarily attributable to the
76
acquisitions of the two residential reentry centers in the first quarter of 2017, the acquisition of Center Point in the
second quarter of 2017, the acquisitions of NBTC and a portfolio of four leased properties in the third quarter of
2017, and the acquisition of TTC in the fourth quarter of 2017.
Our cash flow used in investing activities was $122.2 million for the year ended December 31, 2016 and was
primarily attributable to capital expenditures of $93.4 million, including expenditures for facility development and
expansions of $41.8 million primarily related to the expansion project at our Red Rock Correctional Center, and
$51.6 million for facility maintenance and information technology capital expenditures. Our cash flow used in
investing activities also included $43.8 million attributable to the acquisitions of CMI and a residential reentry
facility in California during the second quarter of 2016. Partially offsetting these cash outflows, we received
proceeds of $8.4 million primarily related to the sale of undeveloped land.
Our cash flow used in investing activities was $409.3 million for the year ended December 31, 2015 and was
primarily attributable to capital expenditures of $224.3 million, including expenditures for facility development and
expansions of $164.9 million primarily related to facility development projects at our Trousdale and Otay Mesa
facilities, and $59.4 million for facility maintenance and information technology capital expenditures. In addition,
cash flow used in investing activities during the year ended December 31, 2015 included $34.5 million of capitalized
lease payments related to the South Texas Family Residential Center. Our cash flow used in investing activities
during the year ended December 31, 2015 also included $158.4 million related to the acquisitions of four community
corrections facilities in the third quarter of 2015 and Avalon in the fourth quarter of 2015.
Financing Activities
Cash flow used in financing activities was $202.3 million for the year ended December 31, 2017 and was primarily
attributable to dividend payments of $200.3 million and $5.8 million for the purchase and retirement of common
stock that was issued in connection with equity-based compensation. In addition, cash flow used in financing
activities included $10.0 million of scheduled principal repayments under our Term Loan. These payments were
partially offset by $14.0 million of net proceeds from the issuance of debt and principal repayments under our
revolving credit facility.
Cash flow used in financing activities was $280.8 million for the year ended December 31, 2016 and was primarily
attributable to dividend payments of $255.5 million and $4.0 million for the purchase and retirement of common
stock that was issued in connection with equity-based compensation. In addition, cash flow used in financing
activities included $11.8 million of cash payments associated with the financing components of the lease related to
the South Texas Family Residential Center, $4.0 million of net repayments under our revolving credit facility, and
$5.0 million of scheduled principal repayments under our Term Loan.
Cash flow provided by financing activities was $0.4 million for the year ended December 31, 2015. Cash flow used
in financing activities included dividend payments of $250.7 million and $9.5 million for the purchase and
retirement of common stock that was issued in connection with equity-based compensation. Cash flow used in
financing activities for the year ended December 31, 2015 also included $5.7 million for the payment of debt
issuance and other refinancing costs associated with refinancing transactions. In addition, cash flow used in
financing activities included $6.5 million of cash payments associated with the financing components of the lease
related to the South Texas Family Residential Center. These payments were offset by $264.0 million of net
proceeds from the issuance of debt and principal repayments under our revolving credit facility, as well as the cash
flows associated with exercising stock options, including the related income tax benefit of equity compensation,
totaling $8.2 million.
Funds from Operations
Funds From Operations, or FFO, is a widely accepted supplemental non-GAAP measure utilized to evaluate the
operating performance of real estate companies. The National Association of Real Estate Investment Trusts, or
NAREIT, defines FFO as net income computed in accordance with generally accepted accounting principles,
excluding gains or losses from sales of property and extraordinary items, plus depreciation and amortization of real
estate and impairment of depreciable real estate and after adjustments for unconsolidated partnerships and joint
ventures calculated to reflect funds from operations on the same basis. We believe FFO is an important
77
supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors
and other interested parties in the evaluation of REITs, many of which present FFO when reporting results.
We also present Normalized FFO as an additional supplemental measure as we believe it is more reflective of our core
operating performance. We may make adjustments to FFO from time to time for certain other income and expenses
that we consider non-recurring, infrequent or unusual, even though such items may require cash settlement, because
such items do not reflect a necessary component of our ongoing operations. Even though expenses associated with
M&A may be recurring, the magnitude and timing fluctuate based on the timing and scope of M&A activity, and
therefore, such expenses, which are not a necessary component of our ongoing operations, may not be comparable from
period to period. Normalized FFO excludes the effects of such items.
FFO and Normalized FFO are supplemental non-GAAP financial measures of real estate companies' operating
performances, which do not represent cash generated from operating activities in accordance with GAAP and
therefore should not be considered an alternative for net income or as a measure of liquidity. Our method of
calculating FFO and Normalized FFO may be different from methods used by other REITs and, accordingly, may
not be comparable to such other REITs.
Our reconciliation of net income to FFO and Normalized FFO for the years ended December 31, 2017, 2016, and
2015 is as follows (in thousands):
For the Years Ended December 31,
2016
2015
2017
FUNDS FROM OPERATIONS:
Net income
Depreciation of real estate assets
Impairment of real estate assets
Funds From Operations
Expenses associated with debt refinancing
transactions
Charges associated with adoption of tax reform
Expenses associated with mergers and acquisitions
Gain on settlement of contingent consideration
Restructuring charges
Goodwill and other impairments
Income tax benefit for special items
Normalized Funds From Operations
$ 178,040 $ 219,919 $ 221,854
90,219
—
274,297 314,265 312,073
94,346
—
95,902
355
—
4,548
2,530
—
—
259
—
701
—
3,643
—
—
955
(26 )
$ 281,634 $ 317,646 $ 317,346
—
—
1,586
(2,000 )
4,010
—
(215 )
Contractual Obligations
The following schedule summarizes our contractual obligations by the indicated period as of December 31, 2017 (in
thousands):
Long-term debt
Interest on senior notes
Contractual facility developments and
other commitments
South Texas Family Residential Center
Operating leases
Total contractual cash obligations
2018
Payments Due By Year Ended December 31,
2021
$ 10,000 $ 15,000 $584,000 $ — $250,000 $ 600,000 $1,459,000
303,797
53,969 53,969 47,266 40,562 40,562 67,469
Thereafter
Total
2019
2020
2022
2,207
—
—
50,808 50,808 50,947 36,888
620
2,207
189,451
2,942
$117,728 $120,435 $682,820 $78,070 $290,875 $ 667,469 $1,957,397
—
—
313
—
—
—
607
658
744
—
The cash obligations in the table above do not include future cash obligations for variable interest expense
associated with our Term Loan or the balance on our outstanding revolving credit facility as projections would be
78
based on future outstanding balances as well as future variable interest rates, and we are unable to make reliable
estimates of either. Further, the cash obligations in the table above also do not include future cash obligations for
uncertain tax positions as we are unable to make reliable estimates of the timing of such payments, if any, to the
taxing authorities. The contractual facility developments included in the table above represent development projects
for which we have already entered into a contract with a customer that obligates us to complete the development
project. Certain of our other ongoing construction projects are not currently under contract and thus are not included
as a contractual obligation above as we may generally suspend or terminate such projects without substantial
penalty. With respect to the South Texas Family Residential Center, the cash obligations included in the table above
reflect the full contractual obligations of the lease of the site, excluding contingent payments, even though the lease
agreement provides us with the ability to terminate if ICE terminates the amended IGSA, as previously described
herein.
We had $6.9 million of letters of credit outstanding at December 31, 2017 primarily to support our requirement to
repay fees and claims under our self-insured workers' compensation plan in the event we do not repay the fees and
claims due in accordance with the terms of the plan. The letters of credit are renewable annually. We did not have
any draws under any outstanding letters of credit during 2017, 2016, or 2015.
INFLATION
Many of our contracts include provisions for inflationary indexing, which mitigates an adverse impact of inflation
on net income. However, a substantial increase in personnel costs, workers' compensation or food and medical
expenses could have an adverse impact on our results of operations in the future to the extent that these expenses
increase at a faster pace than the per diem or fixed rates we receive for our management services. We outsource our
food service operations to a third party. The contract with our outsourced food service vendor contains certain
protections against increases in food costs.
SEASONALITY AND QUARTERLY RESULTS
Our business is subject to seasonal fluctuations. Because we are generally compensated for operating and managing
facilities at an inmate per diem rate, our financial results are impacted by the number of calendar days in a fiscal
quarter. Our fiscal year follows the calendar year and therefore, our daily profits for the third and fourth quarters
include two more days than the first quarter (except in leap years) and one more day than the second quarter.
Further, salaries and benefits represent the most significant component of operating expenses. Significant portions
of the Company's unemployment taxes are recognized during the first quarter, when base wage rates reset for
unemployment tax purposes. Finally, quarterly results are affected by government funding initiatives, the timing of
the opening of new facilities, or the commencement of new management contracts and related start-up expenses
which may mitigate or exacerbate the impact of other seasonal influences. Because of these seasonality factors,
results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our primary market risk exposure is to changes in U.S. interest rates. We are exposed to market risk related to our
revolving credit facility and Term Loan because the interest rates on our revolving credit facility and Term Loan are
subject to fluctuations in the market. If the interest rate for our outstanding indebtedness under the revolving credit
facility and Term Loan was 100 basis points higher or lower during the years ended December 31, 2017, 2016, and
2015, our interest expense, net of amounts capitalized, would have been increased or decreased by $5.0 million, $5.7
million, and $5.9 million, respectively.
As of December 31, 2017, we had outstanding $325.0 million of senior notes due 2020 with a fixed interest rate of
4.125%, $350.0 million of senior notes due 2023 with a fixed interest rate of 4.625%, $250.0 million of senior notes
due 2022 with a fixed interest rate of 5.0%, and $250.0 million of senior notes due 2027 with a fixed interest rate of
4.75%. Because the interest rates with respect to these instruments are fixed, a hypothetical 100 basis point increase
or decrease in market interest rates would not have a material impact on our financial statements.
79
We may, from time to time, invest our cash in a variety of short-term financial instruments. These instruments
generally consist of highly liquid investments with original maturities at the date of purchase of three months or less.
While these investments are subject to interest rate risk and will decline in value if market interest rates increase, a
hypothetical 100 basis point increase or decrease in market interest rates would not materially affect the value of
these instruments. See the risk factor discussion captioned "Rising interest rates would increase the cost of our
variable rate debt" under Item 1A of this Annual Report on Form 10-K for more discussion on interest rate risks that
may affect our financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Management's Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our senior management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by
this Annual Report. Based on that evaluation, our officers, including our Chief Executive Officer and Chief
Financial Officer, concluded that as of the end of the period covered by this Annual Report our disclosure controls
and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the
SEC's rules and forms and information required to be disclosed in the reports we file or submit under the Exchange
Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. The Company's internal control over financial reporting includes those policies and procedures that:
(i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
80
Management assessed the effectiveness of the Company's internal control over financial reporting as of December
31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework released in 2013.
Based on this assessment, management believes that, as of December 31, 2017, the Company's internal control over
financial reporting was effective.
The Company's independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report
on the Company's internal control over financial reporting. That report begins on page 82.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the fourth fiscal
quarter of 2017 that have materially affected, or are likely to materially affect, our internal control over financial
reporting.
81
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of CoreCivic, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited CoreCivic, Inc. and Subsidiaries’ internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion,
CoreCivic, Inc. and Subsidiaries (the Company) maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the 2017 consolidated financial statements of the Company and our report dated February 22,
2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
Nashville, Tennessee
February 22, 2018
82
ITEM 9B. OTHER INFORMATION
Dividend Declared for First Quarter 2018
On February 22, 2018, the Company's Board of Directors declared a dividend for the first quarter of 2018 of $0.43
per share to be paid on April 16, 2018 to stockholders of record as of the close of business on April 2, 2018.
83
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item 10 will appear in, and is hereby incorporated by reference from, the
information under the headings "Proposal 1 – Election of Directors-Directors Standing for Election," "Executive
Officers-Information Concerning Executive Officers Who Are Not Directors," "Corporate Governance – Board of
Directors Meetings and Committees," "Corporate Governance – Independence and Financial Literacy of Audit
Committee Members," and "Security Ownership of Certain Beneficial Owners and Management – Section 16(a)
Beneficial Ownership Reporting Compliance" in our definitive proxy statement for the 2018 Annual Meeting of
Stockholders.
Our Board of Directors has adopted a Code of Ethics and Business Conduct applicable to the members of our Board
of Directors and our officers, including our Chief Executive Officer and Chief Financial Officer. In addition, the
Board of Directors has adopted Corporate Governance Guidelines and charters for our Audit Committee, Risk
Committee, Compensation Committee, Nominating and Governance Committee and Executive Committee. You
can access our Code of Ethics and Business Conduct, Corporate Governance Guidelines and current committee
charters on our website at www.corecivic.com.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 will appear in, and is hereby incorporated by reference from, the
information under the headings "Executive and Director Compensation" in our definitive proxy statement for the
2018 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The information required by this Item 12 will appear in, and is hereby incorporated by reference from, the
information under the heading "Security Ownership of Certain Beneficial Owners and Management – Ownership of
Common Stock" in our definitive proxy statement for the 2018 Annual Meeting of Stockholders.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information as of December 31, 2017 regarding compensation plans under
which our equity securities are authorized for issuance.
(c)
Number of
Securities
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plan (Excluding
Securities
Reflected in
Column
(a))
(a)
Number of
Securities
to be Issued
Upon Exercise
of Outstanding
Options
(b)
Weighted –
Average
Exercise Price
of Outstanding
Options
1,014,551 $
20.03 8,457,104 (1)
—
1,014,551 $
—
—
20.03 8,457,104
Plan Category
Equity compensation plans approved by
stockholders
Equity compensation plans not approved by
stockholders
Total
(1) Reflects shares of common stock available for issuance under our Amended and Restated 2008 Stock Incentive Plan and
our Non-Employee Directors' Compensation Plan, the only equity compensation plans approved by our stockholders under
which we continue to grant awards.
84
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information required by this Item 13 will appear in, and is hereby incorporated by reference from, the
information under the heading "Corporate Governance – Certain Relationships and Related Party Transactions" and
"Corporate Governance – Director Independence" in our definitive proxy statement for the 2018 Annual Meeting of
Stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item 14 will appear in, and is hereby incorporated by reference from, the
information under the heading "Proposal 2 – Ratification of Appointment of Independent Registered Public
Accounting Firm" in our definitive proxy statement for the 2018 Annual Meeting of Stockholders.
85
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as part of this Annual Report:
(1)
Financial Statements:
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 of this Annual Report.
(2)
Financial Statement Schedules:
Schedule III-Real Estate Assets and Accumulated Depreciation.
Information with respect to this item begins on page F-45 of this Annual Report on Form 10-K. Other
schedules are omitted because of the absence of conditions under which they are required or because the
required information is given in the financial statements or notes thereto.
(3)
Exhibits:
The following exhibits marked with an * are filed herewith. Exhibits marked with ** are furnished
herewith. Other exhibits have previously been filed with the Securities and Exchange Commission (the
"Commission") and are incorporated herein by reference:
3.1
3.2
3.3*
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Articles of Amendment and Restatement of the Company (previously filed as Exhibit 3.1 to the
Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with the Commission
on May 20, 2013 and incorporated herein by this reference).
Articles of Amendment of the Company (previously filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K (Commission File no. 001-16109), filed with the Commission on November 10,
2016 and incorporated herein by this reference).
Ninth Amended and Restated Bylaws of the Company dated December 7, 2017.
Specimen of certificate representing shares of the Company's Common Stock (previously filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with
the Commission on November 10, 2016 and incorporated herein by this reference).
Indenture (2020 Notes), dated as of April 4, 2013, by and among the Company, certain of its
subsidiaries, and U.S. Bank National Association, as Trustee (previously filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with the Commission
on April 8, 2013 and incorporated herein by this reference).
Indenture (2023 Notes), dated as of April 4, 2013, by and among the Company, certain of its
subsidiaries, and U.S. Bank National Association, as Trustee (previously filed as Exhibit 4.3 to the
Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with the Commission
on April 8, 2013 and incorporated herein by this reference).
Indenture (2022 Notes and 2027 Notes), dated as of September 25, 2015, by and between the Company
and U.S. Bank National Association, as Trustee (previously filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K (Commission File no. 001-16109), filed with the Commission on
September 25, 2015 and incorporated herein by this reference).
Form of 4.125% Senior Note due 2020 (incorporated by reference to Exhibit A to Exhibit 4.2 hereof).
Form of 4.625% Senior Note due 2023 (incorporated by reference to Exhibit A to Exhibit 4.3 hereof).
Form of 5.00% Senior Note due 2022 (incorporated by reference to Exhibit A to Exhibit 4.11 hereof).
4.8
Form of 4.75% Senior Note due 2027 (incorporated by reference to Exhibit A to Exhibit 4.12 hereof).
86
4.9
4.10
4.11
4.12
4.13
4.14
4.15
10.1
10.2
10.3
10.4
Supplemental Indenture (2020 Notes), dated as of September 4, 2013, by and among the Company,
certain of its subsidiaries, and U.S. Bank National Association, as Trustee (previously filed as Exhibit
4.1 to the Company's Quarterly Report on Form 10-Q (Commission File no. 001-16109), filed with the
Commission on November 7, 2013 and incorporated herein by this reference).
Supplemental Indenture (2023 Notes), dated as of September 4, 2013, by and among the Company,
certain of its subsidiaries, and U.S. Bank National Association, as Trustee (previously filed as Exhibit
4.2 to the Company's Quarterly Report on Form 10-Q (Commission File no. 001-16109), filed with the
Commission on November 7, 2013 and incorporated herein by this reference).
First Supplemental Indenture (2022 Notes), dated as of September 25, 2015, by and among the
Company, certain of its subsidiaries, and U.S. Bank National Association, as Trustee (previously filed
as Exhibit 4.2 to the Company's Current Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on September 25, 2015 and incorporated herein by this reference).
Second Supplemental Indenture (2027 Notes), dated as of October 13, 2017, by and among the
Company, the Guarantors, and U.S. Bank National Association, as Trustee (previously filed as Exhibit
4.2 to the Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with the
Commission on October 13, 2017 and incorporated herein by this reference).
Schedule of additional Supplemental Indentures (2020 Notes), relating to the Supplemental Indenture in
Exhibit 4.9 hereof (previously filed as Exhibit 4.11 to the Company's Annual Report on Form 10-K
(Commission File no. 001-16109), filed with the Commission on February 25, 2016 and incorporated
herein by this reference).
Schedule of additional Supplemental Indentures (2023 Notes), relating to the Supplemental Indenture in
Exhibit 4.10 hereof (previously filed as Exhibit 4.12 to the Company's Annual Report on Form 10-K
(Commission File no. 001-16109), filed with the Commission on February 25, 2016 and incorporated
herein by this reference).
Schedule of additional Supplemental Indentures (2022 Notes), relating to the Supplemental Indenture in
Exhibit 4.11 hereof (previously filed as Exhibit 4.13 to the Company's Annual Report on Form 10-K
(Commission File no. 001-16109), filed with the Commission on February 25, 2016 and incorporated
herein by this reference).
Amended and Restated Credit Agreement, dated as of January 6, 2012, by and among the Company, as
Borrower, certain lenders and Bank of America, N.A., as Administrative Agent and Wells Fargo Bank,
National Association, as Syndication Agent for the lenders (previously filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with the Commission
on January 10, 2012 and incorporated herein by this reference).
Amendment to the Amended and Restated Credit Agreement, dated as of March 22, 2013, by and
among the Company, as Borrower, certain lenders and Bank of America, N.A., as Administrative Agent
and Wells Fargo Bank, National Association, as Syndication Agent for the lenders (previously filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on March 25, 2013 and incorporated herein by this reference).
Second Amendment to the Amended and Restated Credit Agreement, dated as of July 22, 2015, by and
among the Company, as Borrower, certain lenders and Bank of America, N.A., as Administrative Agent
(previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on July 24, 2015 and incorporated herein by this reference).
Third Amendment and Incremental Term Loan Agreement to the Amended and Restated Credit
Agreement, dated as of October 6, 2015, by and among the Company, as Borrower, certain lenders and
Bank of America, N.A., as Administrative Agent (previously filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K (Commission File no. 001-16109), filed with the Commission on October
7, 2015 and incorporated herein by this reference).
87
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
The Company's Amended and Restated 2000 Stock Incentive Plan (previously filed as Exhibit 10.20 to
the Company's Annual Report on Form 10-K (Commission File no. 001-16109), filed with the
Commission on March 12, 2004 and incorporated herein by this reference).
Amendment No. 1 to the Company's Amended and Restated 2000 Stock Incentive Plan (previously filed
as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (Commission File no. 001-16109),
filed with the Commission on November 5, 2004 and incorporated herein by this reference).
First Amendment to Amended and Restated 2000 Stock Incentive Plan of the Company (previously
filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (Commission File no. 001-
16109), filed with the Commission on August 7, 2008 and incorporated herein by this reference).
Second Amendment to Amended and Restated 2000 Stock Incentive Plan of the Company (previously
filed as Exhibit 10.3 to the Company's Current Report on Form 8-K (Commission File no. 001-16109),
filed with the Commission on August 18, 2009 and incorporated herein by this reference).
The Company's Non-Employee Directors' Compensation Plan (previously filed as Appendix C to the
Company's definitive Proxy Statement relating to its Annual Meeting of Stockholders (Commission File
no. 001-16109), filed with the Commission on April 11, 2003 and incorporated herein by this
reference).
Form of Employee Non-qualified Stock Option Agreement for the Company's Amended and Restated
2000 Stock Incentive Plan (previously filed as Exhibit 10.15 to the Company's Annual Report on Form
10-K (Commission File no. 001-16109), filed with the Commission on March 7, 2006 and incorporated
herein by this reference).
Form of Director Non-qualified Stock Option Agreement for the Company's Amended and Restated
2000 Stock Incentive Plan (previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q (Commission File no. 001-16109), filed with the Commission on August 7, 2007 and incorporated
herein by this reference).
The Company's 2008 Stock Incentive Plan (previously filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K (Commission File no. 001-16109), filed with the Commission on May 11, 2007
and incorporated herein by this reference).
Form of Executive Non-qualified Stock Option Agreement for the Company's 2008 Stock Incentive
Plan (previously filed as Exhibit 10.2 to the Company's Current Report on Form 8-K (Commission File
no. 001-16109), filed with the Commission on February 21, 2008 and incorporated herein by this
reference).
Amended Form of Executive Non-qualified Stock Option Agreement for the Company's 2008 Stock
Incentive Plan (previously filed as Exhibit 10.2 to the Company's Current Report on Form 8-K
(Commission File no. 001-16109), filed with the Commission on February 23, 2009 and incorporated
herein by this reference).
Form of Director Non-qualified Stock Option Agreement for the Company's 2008 Stock Incentive Plan
(previously filed as Exhibit 10.3 to the Company's Current Report on Form 8-K (Commission File no.
001-16109), filed with the Commission on February 21, 2008 and incorporated herein by this
reference).
The Company's Amended and Restated 2008 Stock Incentive Plan (previously filed as Exhibit 10.1 of
the Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with the
Commission on May 17, 2011 and incorporated herein by this reference).
Form of Executive Restricted Stock Unit Award Agreement for the Company's Amended and Restated
2008 Stock Incentive Plan (previously filed as Exhibit 10.1 to the Company's Current Report on Form
8-K (Commission File no. 001-16109), filed with the Commission on March 21, 2012 and incorporated
herein by this reference).
88
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Form of Non-Employee Directors Restricted Stock Unit Award Agreement with deferral provisions for
the Company's Amended and Restated 2008 Stock Incentive Plan (previously filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with the
Commission on March 21, 2012 and incorporated herein by this reference).
Form of Non-Employee Directors Restricted Stock Unit Award Agreement for the Company's Amended
and Restated 2008 Stock Incentive Plan (previously filed as Exhibit 10.3 to the Company's Current
Report on Form 8-K (Commission File no. 001-16109), filed with the Commission on March 21, 2012
and incorporated herein by this reference).
Form of Restricted Stock Unit Award Agreement for the Company's Amended and Restated 2008 Stock
Incentive Plan (Time-Vesting Form for Executive Officers) (previously filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K (Commission File no. 001-16109), filed with the Commission
on February 27, 2013 and incorporated herein by this reference).
Amended and Restated Non-Employee Director Deferred Compensation Plan (previously filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K (Commission File no. 001-16109), filed
with the Commission on August 16, 2007 and incorporated herein by this reference).
Amendment to the Amended and Restated Non-Employee Director Deferred Compensation Plan
(previously filed as Exhibit 10.35 to the Company's Annual Report on Form 10-K (Commission File no.
001-16109), filed with the Commission on February 24, 2010 and incorporated herein by this
reference).
Amended and Restated Executive Deferred Compensation Plan (previously filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with the Commission
on August 16, 2007 and incorporated herein by this reference).
Form of Indemnification Agreement (previously filed as Exhibit 10.1 to the Company's Current Report
on Form 8-K (Commission File no. 001-16109), filed with the Commission on August 18, 2009 and
incorporated herein by this reference).
Form of Executive Employment Agreement, effective as of January 1, 2015 (previously filed as Exhibit
10.32 to the Company's Current Report on Form 10-K (Commission File no. 001-16109), filed with the
Commission on February 25, 2015 and incorporated herein by this reference).
Transition Agreement, effective as of June 15, 2016, with Steven E. Groom (previously filed as Exhibit
10.1 to the Company's Current Report on Form 8-K (Commission File no. 001-16109), filed with the
Commission on June 15, 2016 and incorporated herein by this reference).
Restricted Stock Unit Award Cancellation Agreement, dated as of September 27, 2016, with Damon T.
Hininger (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (Commission
File no. 001-16109), filed with the Commission on September 27, 2016 and incorporated herein by this
reference).
10.28*
Form of Executive Employment Agreement, effective as of January 1, 2018.
10.29*
Letter Agreement, dated as of December 31, 2017, with Harley G. Lappin.
21.1*
Subsidiaries of the Company.
23.1*
Consent of Independent Registered Public Accounting Firm.
31.1*
Certification of the Company's Chief Executive Officer pursuant to Securities and Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of the Company's Chief Financial Officer pursuant to Securities and Exchange Act Rules
13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of the Company's Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
89
32.2**
Certification of the Company's Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema
101.CAL* XBRL Taxonomy Extension Calculation Linkbase
101.DEF* XBRL Taxonomy Extension Definition Linkbase
101.LAB* XBRL Taxonomy Extension Label Linkbase
101.PRE* XBRL Taxonomy Extension Presentation Linkbase
ITEM 16. FORM 10-K SUMMARY
None.
90
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 22, 2018
CORECIVIC, INC.
By:/s/ Damon T. Hininger
Damon T. Hininger, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Damon T. Hininger
Damon T. Hininger, President and Chief Executive Officer
(Principal Executive Officer and Director)
February 22, 2018
/s/ David M. Garfinkle
David M. Garfinkle, Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 22, 2018
/s/ Mark A. Emkes
Mark A. Emkes, Chairman of the Board of Directors
/s/ Donna M. Alvarado
Donna M. Alvarado, Director
/s/ Robert J. Dennis
Robert J. Dennis, Director
/s/ Stacia A. Hylton
Stacia A. Hylton, Director
/s/ Harley G. Lappin
Harley G. Lappin, Director
/s/ Anne L. Mariucci
Anne L. Mariucci, Director
/s/ Thurgood Marshall, Jr.
Thurgood Marshall, Jr., Director
/s/ Charles L. Overby
Charles L. Overby, Director
/s/ John R. Prann, Jr.
John R. Prann, Jr., Director
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
91
[This page intentionally left blank]
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of CoreCivic, Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm .................................................................................
Consolidated Balance Sheets as of December 31, 2017 and 2016 .......................................................................
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015 .......................
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 ......................
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016 and 2015 .......
Notes to Consolidated Financial Statements.........................................................................................................
F-2
F-3
F-4
F-5
F-6
F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of CoreCivic, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CoreCivic, Inc. and Subsidiaries (the Company)
as of December 31, 2017 and 2016, and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial
statement schedule listed in the Index at Item 15(2) (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) and our report dated February 22, 2018, expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2002
Nashville, Tennessee
February 22, 2018
/s/ Ernst & Young LLP
F-2
CORECIVIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
Cash and cash equivalents
Accounts receivable, net of allowance of $782 and $1,580, respectively
Prepaid expenses and other current assets
$
Total current assets
Property and equipment, net of accumulated depreciation of $1,475,951 and
$1,352,323, respectively
Goodwill
Non-current deferred tax assets
Other assets
$
$
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses
Income taxes payable
Current portion of long-term debt
Total current liabilities
Long-term debt, net
Deferred revenue
Other liabilities
Total liabilities
Commitments and contingencies
Preferred stock – $0.01 par value; 50,000 shares authorized; none issued
and outstanding at December 31, 2017 and 2016, respectively
Common stock – $0.01 par value; 300,000 shares authorized;
118,204 and 117,554 shares issued and outstanding
at December 31, 2017 and 2016, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2017
2016
52,183 $
254,188
21,119
327,490
2,802,449
40,927
12,814
88,718
3,272,398 $
277,804 $
3,034
10,000
290,838
1,437,187
39,735
53,030
1,820,790
37,711
229,885
31,228
298,824
2,837,657
38,386
13,735
83,002
3,271,604
260,107
2,086
10,000
272,193
1,435,169
53,437
51,842
1,812,641
—
—
1,182
1,794,713
(344,287 )
1,451,608
3,272,398 $
1,176
1,780,350
(322,563)
1,458,963
3,271,604
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CORECIVIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
REVENUES
EXPENSES:
Operating
General and administrative
Depreciation and amortization
Restructuring charges
Asset impairments
OPERATING INCOME
OTHER (INCOME) EXPENSE:
Interest expense, net
Expenses associated with debt refinancing transactions
Other (income) expense
INCOME BEFORE INCOME TAXES
Income tax expense
NET INCOME
BASIC EARNINGS PER SHARE
DILUTED EARNINGS PER SHARE
DIVIDENDS DECLARED PER SHARE
$
$
$
$
$
For the Years Ended December 31,
2016
1,849,785 $ 1,793,087
2017
1,765,498 $
2015
1,249,537
107,822
147,129
—
614
1,505,102
260,396
1,275,586
107,027
166,746
4,010
—
1,553,369
296,416
1,256,128
103,936
151,514
—
955
1,512,533
280,554
68,535
—
(90)
68,445
191,951
(13,911)
178,040 $
1.51 $
1.50 $
1.68 $
67,755
—
489
68,244
228,172
(8,253 )
219,919 $
1.87 $
1.87 $
2.04 $
49,696
701
(58)
50,339
230,215
(8,361)
221,854
1.90
1.88
2.16
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CORECIVIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
2016
2015
2017
$
178,040 $
219,919
$
221,854
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Asset impairments
Amortization of debt issuance costs and other non-cash interest
Expenses associated with debt refinancing transactions
Deferred income taxes
Other expenses and non-cash items
Non-cash revenue and other income
Income tax benefit of equity compensation
Non-cash equity compensation
Changes in assets and liabilities, net:
Accounts receivable, prepaid expenses and other assets
Accounts payable, accrued expenses and other liabilities
Income taxes payable
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for facility development and expansions
Expenditures for other capital improvements
Capitalized lease payments
Acquisitions, net of cash acquired
Decrease in restricted cash
Proceeds from sale of assets
(Increase) decrease in other assets
Payments received on direct financing lease and notes receivable
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt and borrowings from credit facility
Scheduled principal repayments
Other principal repayments of debt
Payment of debt issuance and other refinancing and related costs
Payment of lease obligations
Contingent consideration for acquisition of businesses
Proceeds from exercise of stock options
Purchase and retirement of common stock
Income tax benefit of equity compensation
Decrease in restricted cash for dividends
Dividends paid
Net cash provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of period
$
CASH AND CASH EQUIVALENTS, end of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
147,129
614
3,222
—
921
4,267
(14,528)
—
13,286
(13,913)
21,339
948
341,325
(17,576)
(56,168)
—
(48,867)
—
970
(3,605)
684
(124,562)
475,500
(10,000)
(461,500)
(4,169)
(2,483)
—
6,534
(5,847)
—
—
(200,326)
(202,291)
14,472
37,711
52,183 $
166,746
—
3,147
—
(3,911 )
5,265
(8,518 )
(1,479 )
17,903
14,059
(39,403 )
1,645
375,373
(41,816 )
(51,647 )
—
(43,769 )
240
8,412
3,853
2,539
(122,188 )
389,000
(5,000 )
(393,000 )
(68 )
(11,789 )
(5,073 )
2,638
(4,006 )
1,479
550
(255,496 )
(280,765 )
(27,580 )
65,291
37,711
$
151,514
955
2,973
701
5,706
3,732
(2,639)
(525)
15,394
1,266
(2,210)
1,077
399,798
(164,880)
(59,414)
(34,470)
(158,366)
1,350
563
3,686
2,250
(409,281)
807,000
—
(543,000)
(5,727)
(6,468)
—
7,700
(9,454)
525
500
(250,695)
381
(9,102)
74,393
65,291
Cash paid during the period for:
Interest (net of amounts capitalized of $0, $552, and $5,478
in 2017, 2016, and 2015, respectively)
Income taxes paid (refunded), net
$
$
57,485 $
8,089 $
55,966
(2,137 )
$
$
36,992
9,966
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CORECIVIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(in thousands)
Additional
Total
Balance as of December 31, 2016
Net income
Retirement of common stock
Dividends declared on common stock ($1.68 per
share)
Restricted stock compensation, net of forfeitures
Restricted stock grants
Stock options exercised
Balance as of December 31, 2017
Common Stock
Shares
117,554 $
—
(176)
Paid-in
Par Value Capital
Accumulated Stockholders'
Deficit
1,176 $1,780,350 $ (322,563 ) $ 1,458,963
— 178,040 178,040
(5,847)
—
—
(2)
(5,845)
Equity
—
—
5
3
— (199,764 ) (199,764)
13,286
—
—
—
6,930
—
1,182 $1,794,713 $ (344,287 ) $ 1,451,608
13,286
(5)
6,927
—
—
513
313
118,204 $
(Continued)
F-6
CORECIVIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(in thousands)
Additional
Total
Balance as of December 31, 2015
Net income
Retirement of common stock
Dividends declared on common stock ($2.04 per
share)
Restricted stock compensation, net of forfeitures
Stock option compensation expense, net of
forfeitures
Income tax benefit of equity compensation
Restricted stock grants
Stock options exercised
Balance as of December 31, 2016
Common Stock
Shares
117,232 $
—
(135)
Paid-in
Par Value Capital
Accumulated Stockholders'
Deficit
1,172 $1,762,394 $ (300,818 ) $ 1,462,748
— 219,919 219,919
(4,006)
—
—
(1)
(4,005)
Equity
—
(1)
—
—
— (241,721 ) (241,721)
17,792
57
17,735
—
—
3
2
111
1,479
3
2,638
1,176 $1,780,350 $ (322,563 ) $ 1,458,963
111
1,479
—
2,636
—
—
—
—
—
—
318
140
117,554 $
(Continued)
F-7
CORECIVIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(in thousands)
Additional
Total
Balance as of December 31, 2014
Net income
Retirement of common stock
Dividends declared on common stock ($2.16 per
share)
Restricted stock compensation, net of forfeitures
Stock option compensation expense, net of
forfeitures
Income tax benefit of equity compensation
Restricted stock grants
Stock options exercised
Balance as of December 31, 2015
Common Stock
Shares
116,764 $
—
(237)
Paid-in
Par Value Capital
Accumulated Stockholders'
Deficit
1,168 $1,748,303 $ (267,971 ) $ 1,481,500
— 221,854 221,854
(9,454)
—
—
(3)
(9,451)
Equity
—
(11)
—
—
— (254,774 ) (254,774)
14,712
73
14,639
—
—
303
413
117,232 $
—
—
3
4
682
525
3
7,700
1,172 $1,762,394 $ (300,818 ) $ 1,462,748
682
525
—
7,696
—
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
F-8
CORECIVIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015
1. ORGANIZATION AND OPERATIONS
CoreCivic, Inc. (together with its subsidiaries, the "Company" or "CoreCivic") is one of the nation's largest
owners of partnership correctional, detention, and residential reentry facilities and one of the largest prison
operators in the United States. The Company also believes it is the largest private owner of real estate used by
government agencies. Through three business offerings, CoreCivic Safety, CoreCivic Properties, and
CoreCivic Community, the Company provides a broad range of solutions to government partners that serve
the public good through corrections and detention management, government real estate solutions, and a
growing network of residential reentry centers to help address America's recidivism crisis. As of
December 31, 2017, CoreCivic owned and managed 70 correctional, detention, and residential reentry
facilities, and managed an additional seven correctional and detention facilities owned by its government
partners, with a total design capacity of approximately 78,000 beds in 19 states. In addition, as of
December 31, 2017, CoreCivic owned 12 properties leased to third parties and used by government agencies,
totaling 1.1 million square feet in five states.
In addition to providing fundamental residential services, CoreCivic's correctional, detention, and reentry
facilities offer a variety of rehabilitation and educational programs, including basic education, faith-based
services, life skills and employment training, and substance abuse treatment. These services are intended to
help reduce recidivism and to prepare offenders for their successful reentry into society upon their release.
CoreCivic also provides or makes available to offenders certain health care (including medical, dental, and
mental health services), food services, and work and recreational programs.
CoreCivic began operating as a real estate investment trust ("REIT") effective January 1, 2013. The Company
provides services and conducts other business activities through taxable REIT subsidiaries ("TRSs"). A TRS is
a subsidiary of a REIT that is subject to applicable corporate income tax and certain qualification
requirements. The Company's use of TRSs permits CoreCivic to engage in certain business activities in which
the REIT may not engage directly, so long as these activities are conducted in entities that elect to be treated
as TRSs under the Internal Revenue Code, and enable CoreCivic to, among other things, provide correctional
services at facilities it owns and at facilities owned by its government partners. A TRS is not subject to the
distribution requirements applicable to REITs so it may retain income generated by its operations for
reinvestment.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting
principles and include the accounts of CoreCivic on a consolidated basis with its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated.
Certain reclassifications of 2016 and 2015 amounts have been made to conform to the 2017 presentation.
Cash and Cash Equivalents
CoreCivic considers all liquid debt instruments with a maturity of three months or less at the time of purchase
to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
At December 31, 2017 and 2016, accounts receivable of $254.2 million and $229.9 million, respectively, were
net of allowances for doubtful accounts totaling $0.8 million and $1.6 million, respectively. Accounts
receivable consist primarily of amounts due from federal, state, and local government agencies for the
F-9
utilization of CoreCivic's correctional, detention, and residential reentry facilities, as well as for operating and
managing such facilities.
Accounts receivable are stated at estimated net realizable value. CoreCivic recognizes allowances for
doubtful accounts to ensure receivables are not overstated due to uncollectibility. Bad debt reserves are
maintained for customers based on a variety of factors, including the length of time receivables are past due,
significant one-time events, and historical experience. If circumstances related to customers change, estimates
of the recoverability of receivables would be further adjusted.
Property and Equipment
Property and equipment are carried at cost. Assets acquired by CoreCivic in conjunction with acquisitions are
recorded at estimated fair market value at the time of purchase. Betterments, renewals and significant repairs
that extend the life of an asset are capitalized; other repair and maintenance costs are expensed. Interest is
capitalized to the asset to which it relates in connection with the construction or expansion of facilities.
Construction costs directly associated with the development of a correctional facility are capitalized as part of
the cost of the development project. Such costs are written-off to expense whenever a project is abandoned.
The cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain
or loss on disposition is recognized in income. Depreciation is computed over the estimated useful lives of
depreciable assets using the straight-line method. Useful lives for property and equipment are as follows:
Land improvements
Buildings and improvements
Equipment and software
Office furniture and fixtures
5 – 20 years
5 – 50 years
3 – 10 years
5 years
Accounting for the Impairment of Long-Lived Assets Other Than Goodwill
Long-lived assets other than goodwill are reviewed for impairment when circumstances indicate the carrying
value of an asset may not be recoverable. When circumstances indicate an asset may not be recoverable,
impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of
assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to
its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values
are determined based on quoted market values, comparable sales data, discounted cash flows or internal and
external appraisals, as applicable.
Goodwill
Goodwill represents the cost in excess of the net assets of businesses acquired. As further discussed in Note 3,
goodwill is tested for impairment at least annually using a fair-value based approach.
Investment in Affiliates
Investments in affiliates that are equal to or less than 50%-owned over which CoreCivic can exercise
significant influence are accounted for using the equity method of accounting. Investments under the equity
method are recorded at cost and subsequently adjusted for contributions, distributions, and net income
attributable to the Company's ownership based on the governing agreement.
Debt Issuance Costs
Debt issuance costs, excluding those costs incurred related to CoreCivic's revolving credit facility, are
presented as a direct deduction from the face amount of the related liability in the consolidated balance sheets.
Debt issuance costs related to the Company's revolving credit facility are included in other assets in the
consolidated balance sheets. Generally, debt issuance costs are capitalized and amortized into interest expense
using the interest method, or on a straight-line basis over the term of the related debt, if not materially
different than the interest method. However, certain debt issuance costs incurred in connection with debt
F-10
refinancings are charged to expense in accordance with Accounting Standards Codification ("ASC") 470-50,
"Modifications and Extinguishments".
Revenue Recognition
CoreCivic maintains contracts with certain governmental entities to manage their facilities for fixed per diem
rates. CoreCivic also maintains contracts with various federal, state, and local governmental entities for the
housing of offenders in company-owned facilities at fixed per diem rates or monthly fixed rates. These
contracts usually contain expiration dates with renewal options ranging from annual to multi-year renewals.
Most of these contracts have current terms that require renewal every two to five years. Additionally, most
facility management contracts contain clauses that allow the government agency to terminate a contract
without cause, and are generally subject to legislative appropriations. CoreCivic generally expects to renew
these contracts for periods consistent with the remaining renewal options allowed by the contracts or other
reasonable extensions; however, no assurance can be given that such renewals will be obtained. Fixed
monthly rate revenue is recorded in the month earned and fixed per diem revenue, including revenue under
those contracts that include guaranteed minimum populations, is recorded based on the per diem rate
multiplied by the number of offenders housed or guaranteed during the respective period.
CoreCivic recognizes any additional management service revenues upon completion of services provided to
the customer. Certain of the government agencies also have the authority to audit and investigate CoreCivic's
contracts with them. If the agency determines that CoreCivic has improperly allocated costs to a specific
contract or otherwise was unable to perform certain contractual services, CoreCivic may not be reimbursed for
those costs and could be required to refund the amount of any such costs that have been reimbursed. In these
instances, the amounts required to be returned to the customer are reflected as operating expenses. Upon
adoption of Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers", as
further described in "Recent Accounting Pronouncements" hereafter, these amounts will be classified as
reductions to revenue.
Rental revenue is recognized in accordance with ASC 840, "Leases". In accordance with ASC 840, minimum
rental revenue is recognized on a straight-line basis over the term of the related lease. Leasehold incentives are
recognized as a reduction to rental revenue on a straight-line basis over the term of the related lease. Rental
revenue associated with expense reimbursements from tenants is recognized in the period that the related
expenses are incurred based upon the tenant lease provision.
In September 2014, CoreCivic agreed under an expansion of an existing inter-governmental service agreement
("IGSA") between the city of Eloy, Arizona and U.S. Immigration and Customs Enforcement ("ICE") to
provide residential space and services at the South Texas Family Residential Center. The IGSA was further
amended in October 2016, as described in Note 11. The IGSA qualifies as a multiple-element arrangement
under the guidance in ASC 605, "Revenue Recognition". CoreCivic evaluates each deliverable in an
arrangement to determine whether it represents a separate unit of accounting.
Other revenue consists primarily of ancillary revenues associated with operating correctional, detention and
residential reentry facilities, such as commissary, phone, and vending sales, and are recorded in the period the
goods and services are provided. Revenues generated from prisoner transportation services for governmental
agencies are recorded in the period the inmates have been transported to their destination.
Self-Funded Insurance Reserves
CoreCivic is significantly self-insured for employee health, workers' compensation, automobile liability
claims, and general liability claims. As such, CoreCivic's insurance expense is largely dependent on claims
experience and CoreCivic's ability to control its claims experience. CoreCivic has consistently accrued the
estimated liability for employee health insurance based on its history of claims experience and time lag
between the incident date and the date the cost is paid by CoreCivic. CoreCivic has accrued the estimated
liability for workers' compensation claims based on an actuarially determined liability, discounted to the net
present value of the outstanding liabilities, using a combination of actuarial methods used to project ultimate
losses, and the Company's automobile insurance claims based on estimated development factors on claims
F-11
incurred. The liability for employee health, workers' compensation, and automobile insurance includes
estimates for both claims incurred and for claims incurred but not reported. CoreCivic records litigation
reserves related to general liability matters for which it is probable that a loss has been incurred and the range
of such loss can be estimated. These estimates could change in the future.
Income Taxes
CoreCivic began operating in compliance with REIT requirements for federal income tax purposes effective
January 1, 2013. As a REIT, the Company generally is not subject to corporate level federal income tax on
taxable income it distributes to its stockholders as long as it meets the organizational and operational
requirements under the REIT rules. However, certain subsidiaries have made an election with the Company to
be treated as TRSs in conjunction with the Company's REIT election. The TRS elections permit CoreCivic to
engage in certain business activities in which the REIT may not engage directly, so long as these activities are
conducted in entities that elect to be treated as TRSs under the Internal Revenue Code. A TRS is subject to
federal and state income taxes on the income from these activities and therefore, CoreCivic includes a
provision for taxes in its consolidated financial statements.
Income taxes are accounted for under the provisions of ASC 740, "Income Taxes". ASC 740 generally
requires CoreCivic to record deferred income taxes for the tax effect of differences between book and tax
bases of its assets and liabilities. Deferred income taxes reflect the available net operating losses and the net
tax effect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the statement of operations in the period that includes the enactment date.
Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including
CoreCivic's past earnings history, expected future earnings, the character and jurisdiction of such earnings,
unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of its deferred tax
assets, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of
realization of a deferred tax asset.
CoreCivic's deferred tax assets and liabilities are classified as non-current in the consolidated balance sheets.
See Note 12 for further discussion of the significant components of CoreCivic's deferred tax assets and
liabilities and the impact on deferred tax assets and liabilities that resulted from the lower corporate tax rates
enacted under the Tax Cuts and Jobs Act ("the TCJA") in December 2017.
Income tax contingencies are accounted for under the provisions of ASC 740. ASC 740 prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. The guidance prescribed in ASC 740 establishes a
recognition threshold of more likely than not that a tax position will be sustained upon examination. The
measurement attribute requires that a tax position be measured at the largest amount of benefit that is greater
than 50% likely of being realized upon ultimate settlement.
Foreign Currency Transactions
CoreCivic has extended a working capital loan to Agecroft Prison Management, Ltd. ("APM"), the operator of
a correctional facility in Salford, England previously owned by a subsidiary of CoreCivic. The working
capital loan is denominated in British pounds; consequently, CoreCivic adjusts these receivables to the current
exchange rate at each balance sheet date and recognizes the unrealized currency gain or loss in current period
earnings. See Note 7 for further discussion of CoreCivic's relationship with APM.
Fair Value of Financial Instruments
To meet the reporting requirements of ASC 825, "Financial Instruments", regarding fair value of financial
instruments, CoreCivic calculates the estimated fair value of financial instruments using market interest rates,
quoted market prices of similar instruments, or discounted cash flow techniques with observable Level 1
F-12
inputs for publicly traded debt and Level 2 inputs for all other financial instruments, as defined in ASC 820,
"Fair Value Measurement". At December 31, 2017 and 2016, there were no material differences between the
carrying amounts and the estimated fair values of CoreCivic's financial instruments, other than as follows (in
thousands):
December 31,
2017
2016
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Note receivable from APM
Debt
3,059 $
4,647
$
$(1,459,000) $(1,490,063) $(1,455,000 ) $ (1,459,625)
2,920 $
4,511 $
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates and those differences could be material.
Concentration of Credit Risks
CoreCivic's credit risks relate primarily to cash and cash equivalents and accounts receivable. Cash and cash
equivalents are primarily held in bank accounts and overnight investments. CoreCivic maintains deposits of
cash in excess of federally insured limits with certain financial institutions. CoreCivic's accounts receivable
represents amounts due primarily from governmental agencies. CoreCivic's financial instruments are subject
to the possibility of loss in carrying value as a result of either the failure of other parties to perform according
to their contractual obligations or changes in market prices that make the instruments less valuable.
CoreCivic derives its revenues primarily from amounts earned under federal, state, and local government
contracts. For each of the years ended December 31, 2017, 2016, and 2015, federal correctional and detention
authorities represented 48%, 52%, and 51%, respectively, of CoreCivic's total revenue. Federal correctional
and detention authorities consist primarily of the Federal Bureau of Prisons ("BOP"), the United States
Marshals Service ("USMS"), and ICE. The BOP accounted for 7%, 9%, and 11% of total revenue for 2017,
2016, and 2015, respectively. The USMS accounted for 16%, 15%, and 16% of total revenue for 2017, 2016,
and 2015, respectively. ICE accounted for 25%, 28%, and 24% of total revenue for 2017, 2016, and 2015,
respectively, with the decrease in 2017 resulting in part from the amended contract at the South Texas Family
Residential Center, as further described in Note 11. These federal customers have management contracts at
facilities CoreCivic owns and at facilities CoreCivic manages but does not own. State revenues from contracts
at correctional, detention, and residential reentry facilities that CoreCivic operates represented 41%, 38%, and
40% of total revenue during the years ended December 31, 2017, 2016, and 2015, respectively.
Approximately 6%, 6%, and 10% of total revenue for the years ended December 31, 2017, 2016, and 2015,
respectively, was generated from the State of California Department of Corrections and Rehabilitation (the
"CDCR") in facilities housing inmates outside the state of California. No other customer generated 10% or
more of total revenue during 2017, 2016, or 2015. Although the revenue generated from each of these
agencies is derived from numerous management contracts, the loss of one or more of such contracts could
have a material adverse impact on CoreCivic's financial condition and results of operations.
Accounting for Stock-Based Compensation
Restricted Stock and Units
CoreCivic accounts for restricted stock-based compensation under the recognition and measurement principles
of ASC 718, "Compensation-Stock Compensation". CoreCivic amortizes the fair market value as of the grant
date of restricted stock and unit awards over the vesting period using the straight-line method. The fair market
value of performance-based restricted stock units is amortized over the vesting period as long as CoreCivic
F-13
expects to meet the performance criteria. If achievement of the performance criteria becomes improbable, an
adjustment is made to reverse the expense previously recognized.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from
Contracts with Customers", which establishes a single, comprehensive revenue recognition standard for all
contracts with customers. For public reporting entities such as CoreCivic, ASU 2014-09 was originally
effective for interim and annual periods beginning after December 15, 2016 and early adoption of the ASU
was not permitted. In July 2015, the FASB agreed to defer the effective date of the ASU for public reporting
entities by one year, or to interim and annual periods beginning after December 15, 2017. Early adoption is
now allowed as of the original effective date for public companies. In summary, the core principle of ASU
2014-09 is to recognize revenue when promised goods or services are transferred to customers in an amount
that reflects the consideration that is expected to be received for those goods or services. Companies are
allowed to select between two transition methods: (1) a full retrospective transition method with the
application of the new guidance to each prior reporting period presented, or (2) a modified retrospective
transition method that recognizes the cumulative effect on prior periods at the date of adoption together with
additional footnote disclosures. CoreCivic will adopt the standard when effective in its fiscal year 2018 and
will utilize the modified retrospective transition method upon adoption of the ASU. CoreCivic completed its
analysis of the various contracts and revenue streams and does not currently expect the adoption of the ASU to
have a material impact on the Company's results of operations or financial position and its related financial
statement disclosure.
In February 2016, the FASB issued ASU 2016-02, "Leases (ASC 842)", which requires lessees to put most
leases on their balance sheets but recognize expenses on their income statements in a manner similar to current
accounting requirements. ASU 2016-02 also eliminates current real estate-specific provisions for all entities.
For lessors, the ASU modifies the classification criteria and the accounting for sales-type and direct financing
leases. For public reporting entities such as CoreCivic, guidance in ASU 2016-02 is effective for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years, and early adoption of the
ASU is permitted. Entities are required to use a modified retrospective approach for leases that exist or are
entered into after the beginning of the earliest comparative period in the financial statements. CoreCivic is
currently planning to adopt the ASU when effective in its fiscal year 2019. CoreCivic does not currently
expect that the new standard will have a material impact on its financial statements, but expects that it will
result in an increase in its long-term assets and liabilities for leases where the Company is the lessee.
In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment
Accounting", that changes certain aspects of accounting for share-based payments to employees. ASU 2016-
09 requires all income tax effects of awards to be recognized in the income statement when the awards vest or
are settled. The new ASU also allows an employer to repurchase more of an employee's shares for tax
withholding purposes without triggering liability accounting, and to make a policy election to account for
forfeitures. Companies are required to elect whether to account for forfeitures of share-based payments by (1)
recognizing forfeitures of awards as they occur, or (2) estimating the number of awards expected to be
forfeited and adjusting the estimate when it is likely to change, as previously required. For public reporting
entities such as CoreCivic, guidance in ASU 2016-09 is effective for fiscal years beginning after December
15, 2016, and interim periods within those fiscal years, and early adoption of the ASU is permitted. All of the
guidance in the ASU must be adopted in the same period. CoreCivic adopted the ASU in the first quarter of
2017, opting to estimate the number of awards expected to be forfeited and adjusting the estimate when it is
likely to change, as was previously required. The amendments in ASU 2016-09 were applied prospectively
and the Company's financial statements for prior periods were not adjusted. Adoption of the ASU resulted in
a $1.0 million income tax benefit recognized by the Company in the year ended December 31, 2017. The new
standard will continue to have an impact on the Company's financial statements whenever the vested value of
the awards differs from the grant-date fair value of such awards.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the
Definition of a Business", that provides guidance to assist entities with evaluating when a set of transferred
assets and activities ("set") is a business. Under the new guidance, an entity first determines whether
F-14
substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a
group of similar identifiable assets. If this threshold is met, the set is not a business. If the threshold is not
met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an
input and a substantive process that together significantly contribute to the ability to create outputs. The new
ASU provides a more robust framework to use in determining when a set of assets and activities is a business.
For public reporting entities such as CoreCivic, guidance in ASU 2017-01 is effective for fiscal years
beginning after December 15, 2017, and interim periods within those years, and is to be applied prospectively
to any transactions occurring within the period of adoption. Early adoption of the ASU is allowed for
transactions that occur before the issuance date or effective date of the ASU, only when the transaction has not
been reported in financial statements that have been issued or made available for issuance. CoreCivic early
adopted ASU 2017-01 in the first quarter of 2017.
In January 2017, the FASB issued ASU 2017-04, "Intangibles–Goodwill and Other (Topic 350): Simplifying
the Test of Goodwill Impairment", that eliminates the requirement to calculate the implied fair value of
goodwill by performing a hypothetical application of the acquisition method as of the date of the impairment
test to measure a goodwill impairment charge. This requirement is the second step in the annual two-step
quantitative impairment test that is currently required under Accounting Standards Codification ("ASC") 350,
"Intangibles-Goodwill and Other". Instead, entities will recognize an impairment charge based on the first
step of the quantitative impairment test currently required, which is the measurement of the excess of a
reporting unit's carrying amount over its fair value. Entities will still have the option to perform a qualitative
assessment to determine if the quantitative impairment test is necessary. For public reporting entities such as
CoreCivic, guidance in ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and
interim periods within those years. Early adoption of the ASU is allowed for interim or annual goodwill
impairment tests performed on testing dates on or after January 1, 2017. CoreCivic is reviewing the ASU to
determine the potential impact it might have on the methodology for evaluating goodwill for impairment
subsequent to the adoption of the standard.
In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory",
which requires companies to recognize the income tax effects of intercompany sales or transfers of assets,
other than inventory, in the income statement as income tax expense when the sale or transfer occurs. The
new guidance is effective for public companies for fiscal years beginning after December 15, 2017, and
interim periods within those annual periods. The guidance requires companies to apply a modified
retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of
adoption. In the period of adoption, companies will write off any income tax effects that had been deferred
from past intercompany transactions involving non-inventory assets to opening retained earnings. CoreCivic
expects to adopt the new standard upon the effective date of January 1, 2018 and will write off approximately
$2.6 million of prepaid taxes to accumulated deficit as a result of intercompany transactions between the REIT
and one of its TRSs.
3. GOODWILL
ASC 350, "Intangibles-Goodwill and Other", establishes accounting and reporting requirements for goodwill
and other intangible assets. Goodwill was $40.9 million and $38.4 million as of December 31, 2017 and
2016, respectively. This goodwill was established in connection with multiple business combination
transactions.
Under the provisions of ASC 350, CoreCivic performs a qualitative assessment that may allow it to skip the
annual two-step impairment test. Under ASC 350, a company has the option to first assess qualitative factors
to determine whether the existence of events or circumstances leads to a determination that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of
events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting
unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If the two-
step impairment test is required, CoreCivic determines the fair value of a reporting unit using a collaboration
of various common valuation techniques, including market multiples and discounted cash flows. These
impairment tests are required to be performed at least annually. CoreCivic performed its impairment tests
during the fourth quarter, in connection with CoreCivic's annual budgeting process, and concluded no
F-15
impairments had occurred. CoreCivic will perform these impairment tests at least annually and whenever
circumstances indicate the carrying value of goodwill may not be recoverable.
In March 2017, the Texas Department of Criminal Justice ("TDCJ") notified CoreCivic that, in light of the
current economic climate, as well as the fiscal constraints and budget outlook for the next biennium, the TDCJ
would not be awarding the contract for the Bartlett State Jail. The TDCJ had previously solicited proposals for
the rebid of the Bartlett facility, along with three other facilities that CoreCivic managed for the state of Texas.
The managed-only contracts at the four facilities were scheduled to expire in August 2017. However, in
collaboration with the TDCJ, the decision was made to close the Bartlett facility on June 24, 2017. In
anticipation of the termination of the contract and closing of the Bartlett facility, CoreCivic recorded an asset
impairment of $0.3 million during the first quarter of 2017 for the write-off of goodwill associated with the
facility. During the third quarter of 2017, CoreCivic was notified that the TDCJ selected other operators for
the three remaining facilities the Company managed for the state of Texas. CoreCivic had no goodwill
associated with these three facilities.
In April 2015, CoreCivic provided notice to the state of Louisiana that it would cease management of the
Winn Correctional Center within 180 days, in accordance with the notice provisions of the contract.
Management of the facility transitioned to another operator effective September 30, 2015. In anticipation of
terminating the contract at this facility, CoreCivic recorded an asset impairment of $1.0 million during the first
quarter of 2015 for the write-off of goodwill associated with the Winn facility.
4. PROPERTY AND EQUIPMENT
At December 31, 2017, CoreCivic owned 70 correctional, detention, and residential reentry real estate
properties, 12 properties leased to third parties, and two corporate office buildings. At December 31, 2017,
CoreCivic also managed seven correctional and detention facilities owned by governmental agencies.
Property and equipment, at cost, consists of the following (in thousands):
December 31,
Land and improvements
Buildings and improvements
Equipment and software
Office furniture and fixtures
Construction in progress
Less: Accumulated depreciation
2017
260,038 $
2016
234,862
$
3,556,118 3,509,825
379,811
35,651
29,831
4,278,400 4,189,980
(1,475,951) (1,352,323 )
$ 2,802,449 $ 2,837,657
399,630
34,510
28,104
Construction in progress primarily consists of correctional facilities under construction or expansion. Interest
is capitalized on construction in progress and amounted to $0.6 million and $5.5 million in 2016 and 2015,
respectively. There was no interest capitalized on construction in progress in 2017.
Depreciation expense was $145.7 million, $165.8 million, and $151.4 million for the years ended December
31, 2017, 2016, and 2015, respectively.
Ten of the facilities owned by CoreCivic are subject to options that allow various governmental agencies to
purchase those facilities. Certain of these options to purchase are based on a depreciated book value while
others are based on a fair market value calculation.
F-16
CoreCivic leases land and building at the Elizabeth Detention Center under operating leases that expire in
June 2022. Further, CoreCivic leases three residential reentry centers under operating leases that expire over
varying dates through 2019.
CoreCivic leases the South Texas Family Residential Center and the site upon which it was constructed from a
third-party lessor. CoreCivic's lease agreement with the lessor is over a base period concurrent with an IGSA
with ICE which was amended in October 2016, as further described in Note 11. However, ICE can terminate
the agreement for convenience or non-appropriation of funds, without penalty, by providing CoreCivic with at
least a 60-day notice. In the event CoreCivic cancels the lease with the third-party lessor prior to its expiration
as a result of the termination of the IGSA by ICE for convenience, and if CoreCivic is unable to reach an
agreement for the continued use of the facility within 90 days from the termination date, CoreCivic is required
to pay a termination fee based on the termination date, currently equal to $10.0 million and declining to zero
by October 2020.
CoreCivic's original lease agreement with the third-party lessor required CoreCivic to pay $70.0 million in
September 2014, which resulted in CoreCivic being deemed the owner of the constructed assets for
accounting purposes, in accordance with ASC 840-40-55, formerly Emerging Issues Task Force No. 97-10,
"The Effect of Lessee Involvement in Asset Construction". Accordingly, CoreCivic recorded an asset
representing the costs incurred attributable to the building assets constructed by the third-party lessor and a
related financing liability. CoreCivic is depreciating the asset over the term of the lease, as amended and
extended through September 2021, and is imputing interest on the financing liability. Additionally, CoreCivic
determined that the lease with the third-party lessor also included separate units of account for the land and
pre-existing cottages as well as food services provided by the third-party lessor. The amount of consideration
allocated to each of these separate deliverables was determined based on the relative selling price of the
lessor-financing, the land lease, the lease of pre-existing cottages, and the food services. The operating lease
term for the land is equivalent to the term of the lease and is recognized on a straight-line basis over the lease
term. The operating lease term for the pre-existing cottages was the four-month period in which CoreCivic
used the cottages for housing residents. The food services provided by the third-party lessor are recognized
proportionally based on the number of beds available to ICE.
The expense incurred for operating leases, inclusive of the expenses recognized for the South Texas lease, as
described above, was $66.3 million, $103.5 million, and $85.9 million for the years ended December 31,
2017, 2016, and 2015, respectively. Future minimum lease payments as of December 31, 2017 under
operating leases, inclusive of $189.5 million of payments expected to be made under the cancelable lease at
the South Texas facility, are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
$
51,552
51,466
51,554
37,508
313
—
In June 2013, CoreCivic entered into an Economic Development Agreement ("EDA") with the Development
Authority of Telfair County ("Telfair County") in Telfair County, Georgia to implement a tax abatement plan
related to CoreCivic's bed expansion project at its McRae Correctional Facility. The tax abatement plan
provides for 90% abatement of real property taxes in the first year, decreasing by 10% over the subsequent
nine years. In June 2013, Telfair County issued bonds in a maximum principal amount of $15.0 million.
According to the EDA, legal title of CoreCivic's real property was transferred to Telfair County. Pursuant to
the EDA, the bonds were issued to CoreCivic, so no cash exchanged hands. Telfair County then leased the
real property back to CoreCivic. The lease payments are equal to the amount of the payments on the bonds.
At any time, CoreCivic has the option to purchase the real property by paying off the bonds, plus $100. Due
to the form of the transactions, CoreCivic has not recorded the bonds or the capital lease associated with the
sale lease-back transaction. The original cost of CoreCivic's property and equipment is recorded on the
balance sheet and is being depreciated over its estimated useful life.
F-17
5.
REAL ESTATE TRANSACTIONS
Acquisitions
On August 27, 2015, CoreCivic acquired four community corrections facilities from a privately held owner of
community corrections facilities and other government leased assets. The four acquired community
corrections facilities have a capacity of approximately 600 beds and are leased to The GEO Group, Inc.
("GEO") under triple net lease agreements that extend through July 2019 and include multiple five-year lease
extension options. GEO separately contracts with the Pennsylvania Department of Corrections and the
Philadelphia Prison System to provide rehabilitative and reentry services to residents and inmates at the leased
facilities. CoreCivic acquired the four facilities in the real estate-only transaction as a strategic investment
that expands the Company's investment in the residential reentry market. The consideration paid for the asset
portfolio consisted of approximately $13.8 million in cash, excluding transaction related expenses. In
allocating the purchase price, CoreCivic recorded $13.4 million of net tangible assets and $0.4 million of
identifiable intangible assets.
On June 10, 2016, CoreCivic acquired a residential reentry facility in Long Beach, California from a privately
held owner for approximately $7.7 million in cash, excluding transaction-related expenses. In allocating the
purchase price, CoreCivic recorded $7.4 million of net tangible assets and $0.3 million of identifiable
intangible assets. The 112-bed facility is leased to GEO under a triple net lease agreement that extends
through June 2020 and includes one five-year lease extension option. GEO separately contracts with the
CDCR to provide rehabilitative and reentry services to residents at the leased facility. CoreCivic acquired the
facility in the real estate–only transaction as a strategic investment that expands the Company's investment in
the residential reentry market.
On January 1, 2017, CoreCivic acquired the Arapahoe Community Treatment Center, a 135-bed residential
reentry center in Englewood, Colorado, for $5.5 million in cash, excluding transaction-related expenses. The
acquisition included a contract with Arapahoe County whereby CoreCivic provides residential reentry services
for up to 135 residents.
On February 10, 2017, CoreCivic acquired the Stockton Female Community Corrections Facility, a 100-bed
residential reentry center in Stockton, California, in a real estate-only transaction for $1.6 million, excluding
transaction-related expenses. The 100-bed Stockton facility is leased to a third-party operator pursuant to a
lease agreement that extends through April 2021 and includes one five-year lease extension option. The lessee
separately contracts with the CDCR to provide rehabilitative and reentry services to female residents at the
leased facility.
On August 1, 2017, CoreCivic acquired New Beginnings Treatment Center, Inc. ("NBTC"), an Arizona-based
community corrections company, along with the real estate used in the operation of NBTC's business from an
affiliate of NBTC, for an aggregate purchase price of $6.4 million, excluding transaction related expenses. In
connection with the acquisition, CoreCivic assumed a contract with the BOP to provide reentry services to
male and female adults at the 92-bed Oracle Transitional Center located in Tucson, Arizona.
On September 15, 2017, CoreCivic acquired a portfolio of four properties for an aggregate purchase price of
$8.7 million, excluding transaction related expenses. The acquisition included a 230-bed residential reentry
center leased to the state of Georgia, and three properties in North Carolina and Georgia leased to the General
Services Administration, an independent agency of the United States government, two of which are occupied
by the Social Security Administration, and one of which is occupied by the Internal Revenue Service ("IRS").
In allocating the purchase price of the four acquisitions in 2017, CoreCivic recorded $20.1 million of net
tangible assets, $1.8 million of identifiable intangible assets, and $0.3 million of tenant improvements
associated with one of the North Carolina leased properties which was recognized as a receivable and will be
recovered by payments from the lessee. CoreCivic acquired the properties as strategic investments that further
expand the Company's network of residential reentry centers and further diversify the Company's cash flows
through government-leased properties.
F-18
Leasing Transactions
In May 2016, CoreCivic entered into a lease with the Oklahoma Department of Corrections ("ODOC") for its
previously idled 2,400-bed North Fork Correctional Facility. The lease agreement commenced on July 1,
2016, and includes a five-year base term with unlimited two-year renewal options. However, the lease
agreement permitted the ODOC to utilize the facility for certain activation activities and, therefore, revenue
recognition began upon execution of the lease. The average annual rent to be recognized during the base term
is $7.3 million, including annual rent in the fifth year of $12.0 million. After the five-year base term, the
annual rent will be equal to the rent due during the prior lease year, adjusted for increases in the Consumer
Price Index ("CPI"). CoreCivic is responsible for repairs and maintenance, property taxes and property
insurance, while all other aspects and costs of facility operations are the responsibility of the ODOC.
Idle Facilities
On April 30, 2017, the contract with the BOP at the Company's 1,422-bed Eden Detention Center expired and
was not renewed. CoreCivic idled the Eden facility following the transfer of the offender population, and has
begun to market the facility. The Company can provide no assurance that it will be successful in securing a
replacement contract. CoreCivic performed an impairment analysis of the Eden facility, which had a net
carrying value of $39.7 million as of December 31, 2017, and concluded that this asset has a recoverable value
in excess of the carrying value.
As a result of declines in federal populations at the Company's 910-bed Torrance County Detention Facility
and 1,129-bed Cibola County Corrections Center, during the third quarter of 2017, CoreCivic made the
decision to consolidate offender populations into its Cibola facility in order to take advantage of efficiencies
gained by consolidating populations into one facility. CoreCivic idled the Torrance facility in the fourth
quarter of 2017 following the transfer of the offender population, and has begun to market the facility to other
potential customers. The Company can provide no assurance that it will be successful in securing a
replacement contract. CoreCivic performed an impairment analysis of the Torrance facility, which had a net
carrying value of $36.9 million as of December 31, 2017, and concluded that this asset has a recoverable value
in excess of the carrying value.
As of December 31, 2017, CoreCivic had eight idled facilities, including the Eden and Torrance facilities, that
are currently available and being actively marketed to potential customers. The following table summarizes
each of the idled facilities and their respective carrying values, excluding equipment and other assets that
could generally be transferred and used at other facilities CoreCivic owns without significant cost (dollars in
thousands):
Facility
Prairie Correctional Facility
Huerfano County Correctional Center
Diamondback Correctional Facility
Southeast Kentucky Correctional Facility
Marion Adjustment Center
Kit Carson Correctional Center
Eden Detention Center
Torrance County Detention Facility
Design
Capacity
1,600
752
2,160
656
826
1,488
1,422
910
9,814
Date
Idled
2010
2010
2010
2012
2013
2016
2017
2017
Net Carrying Values at
December 31,
$
2016
2017
16,118 $ 17,071
17,542
16,980
41,539
41,370
22,618
21,864
12,135
12,058
58,819
57,095
41,269
39,707
38,109
36,882
$ 242,074 $ 249,102
CoreCivic also has two idled non-core facilities containing 440 beds with an aggregate net book value of $4.0
million. CoreCivic incurred approximately $10.8 million, $8.1 million, and $7.2 million in operating
expenses at the idled facilities for the years ended December 31, 2017, 2016, and 2015, respectively.
CoreCivic considers the cancellation of a contract as an indicator of impairment and tested each of the idled
facilities for impairment when it was notified by the respective customers that they would no longer be
F-19
utilizing such facility. CoreCivic updates the impairment analyses on an annual basis for each of the idled
facilities and evaluates on a quarterly basis market developments for the potential utilization of each of these
facilities in order to identify events that may cause CoreCivic to reconsider its most recent assumptions. As a
result of CoreCivic's analyses, CoreCivic determined each of the idled facilities to have recoverable values in
excess of the corresponding carrying values.
On November 16, 2017, CoreCivic announced that it had entered into a new contract with the Commonwealth
of Kentucky Department of Corrections to house medium and close-security offenders at the Company's
previously idled 816-bed Lee Adjustment Center in Beattyville, Kentucky. The new management contract
commenced on November 19, 2017, and has an initial term expiring June 30, 2019, with two additional one-
year extension options. CoreCivic expects to begin receiving offender populations under the new contract at
the Lee facility toward the end of the first quarter of 2018, following a 120-day period to staff and prepare the
facility to care for the offender population. The Lee facility had a net carrying value of $10.4 million as of
December 31, 2017, and had previously been idle since 2015.
6.
BUSINESS COMBINATIONS
During the fourth quarter of 2015, CoreCivic closed on the acquisition of 100% of the stock of Avalon
Correctional Services, Inc. ("Avalon"), along with two additional facilities operated by Avalon. The
acquisition included 11 community corrections facilities with approximately 3,000 beds in Oklahoma, Texas,
and Wyoming. CoreCivic acquired Avalon, which specializes in community correctional services, drug and
alcohol treatment services, and residential reentry services, as a strategic investment that continues to expand
the reentry assets CoreCivic owns and the services the Company provides. The aggregate purchase price of
$157.5 million, excluding transaction-related expenses, includes two earn-outs. One earn-out for $5.5 million,
which was based on the completion of and transition to a newly constructed facility that delivers the
contracted services provided at the Dallas Transitional Center, was paid in the second quarter of 2016. The
second earn-out for up to $2.0 million was based on the achievement of certain utilization milestones over 12
months following the acquisition. The utilization milestones were not achieved resulting in a $2.0 million
gain recognized in the third quarter of 2016. The gain is reported as revenue in the accompanying statement
of operations for the year ended December 31, 2016. The acquisition was funded utilizing cash from
CoreCivic's $900.0 Million Revolving Credit Facility, as defined hereafter.
In allocating the purchase price for the transaction, CoreCivic recorded the following (in millions):
Property and equipment
Intangible assets
Total identifiable assets
Goodwill
Total consideration
$
$
119.2
18.5
137.7
19.8
157.5
On April 8, 2016, CoreCivic closed on the acquisition of 100% of the stock of Correctional Management, Inc.
("CMI"), along with the real estate used in the operation of CMI's business from two entities affiliated with
CMI. CMI, a privately held community corrections company that operates seven community corrections
facilities, including six owned and one leased, with approximately 600 beds in Colorado, specializes in
community correctional services, drug and alcohol treatment services, and residential reentry services. CMI
provides these services through multiple contracts with three counties in Colorado, as well as the Colorado
Department of Corrections, a pre-existing partner of CoreCivic's. CoreCivic acquired CMI as a strategic
investment that continues to expand the reentry assets CoreCivic owns and the services the Company
provides. The aggregate purchase price of the transaction was $35.0 million, excluding transaction-related
expenses. The transaction was funded utilizing cash from CoreCivic's $900.0 Million Revolving Credit
Facility.
F-20
In allocating the purchase price for the transaction, CoreCivic recorded the following (in millions):
Tangible current assets and liabilities, net
Property and equipment
Intangible assets
Total identifiable assets
Goodwill
Total consideration
$
$
1.0
29.2
1.5
31.7
3.3
35.0
On June 1, 2017, CoreCivic acquired the real estate operated by Center Point, Inc. ("Center Point"), a
California-based non-profit organization, for $5.3 million in cash, excluding transaction-related expenses and
a potential earn-out of up to $1.7 million. CoreCivic consolidated a portion of Center Point's operations into
the Company's preexisting residential reentry center portfolio and assumed ownership and operations of the
Oklahoma City Transitional Center, a 200-bed residential reentry center in Oklahoma City, Oklahoma.
On November 1, 2017, CoreCivic completed the acquisition of Time to Change, Inc. ("TTC"), a Colorado-
based community corrections company, for an aggregate purchase price of $22.0 million, excluding
transaction related expenses, but inclusive of the current estimate of future cash contingent consideration,
which is subject to change based upon future financial performance of the acquisition over the two-year period
following the acquisition. In connection with the acquisition, CoreCivic assumed contracts with Adams
County, Colorado to provide residential reentry services to male and female adults in three facilities located in
Colorado containing a total of 422 beds.
In allocating the purchase price for the two transactions in 2017, CoreCivic recorded the following (in
millions):
Tangible current assets and liabilities, net
Property and equipment
Intangible assets
Total identifiable assets
Goodwill
Total consideration
$
$
0.9
19.7
3.9
24.5
2.8
27.3
Several factors gave rise to the goodwill recorded in the acquisitions of Avalon, CMI, Center Point and TTC,
such as the expected benefit from synergies of the business combinations and the long-term contracts for
community corrections services that continues to broaden the scope of solutions CoreCivic provides, from
incarceration through release. The results of operations for these business combinations have been included in
the Company's consolidated financial statements from the dates of the acquisitions.
7.
INVESTMENT IN AFFILIATE
CoreCivic has a 50% ownership interest in APM, an entity holding the management contract for a correctional
facility, HM Prison Forest Bank, under a 25-year prison management contract with an agency of the United
Kingdom government. CoreCivic has determined that its joint venture investment in APM represents a
variable interest entity ("VIE") in accordance with ASC 810, "Consolidation" of which CoreCivic is not the
primary beneficiary. The Forest Bank facility, located in Salford, England, was previously constructed and
owned by a wholly-owned subsidiary of CoreCivic, which was sold in April 2001. All gains and losses under
the joint venture are accounted for using the equity method of accounting. During 2000, CoreCivic extended a
working capital loan to APM, which has an outstanding balance of $3.1 million as of December 31, 2017.
For the years ended December 31, 2017, 2016, and 2015, equity in losses of the joint venture was $62,000,
$41,000, and $126,000, respectively. The equity in losses and earnings of the joint venture is included in
other (income) expense in the consolidated statements of operations. As of December 31, 2017, CoreCivic's
F-21
equity investment in APM was $0.2 million and is reported in other assets in the accompanying consolidated
balance sheets. The outstanding working capital loan of $3.1 million, combined with the $0.2 million
investment in APM, represents CoreCivic's maximum exposure to loss in connection with APM.
8. OTHER ASSETS
Other assets consist of the following (in thousands):
Debt issuance costs, less accumulated amortization of
$2,711 and $1,633, respectively
Intangible lease value, less accumulated amortization
of $6,920 and $4,990, respectively
Other intangible assets, less accumulated amortization
of $2,625 and $1,421, respectively
Deferred leasing costs
Cash equivalents and cash surrender value of life
insurance held in Rabbi trust
Straight-line rent receivable
Other
December 31,
2017
2016
$
2,518 $
3,526
34,668
36,598
8,585
6,738
4,434
7,380
13,537
9,335
13,337
88,718 $
13,110
9,229
8,725
83,002
$
The gross carrying amount of intangible assets amounted to $52.8 million and $47.4 million at December 31,
2017 and 2016, respectively. Of these amounts, $41.6 million was related to intangible lease values at both
December 31, 2017 and 2016. Amortization expense related to intangible assets was $3.4 million, $2.9
million, and $1.5 million for 2017, 2016, and 2015, respectively, and depending upon the nature of the asset,
was either reported as operating expense or depreciation and amortization in the accompanying statement of
operations for the respective periods.
As of December 31, 2017, the estimated amortization expense related to intangible assets for each of the next
five years is as follows (in thousands):
2018
2019
2020
2021
2022
$
4,307
4,014
3,423
2,562
1,687
F-22
9. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
Accounts payable and accrued expenses consist of the following (in thousands):
December 31,
Trade accounts payable
Accrued salaries and wages
Accrued dividends
Accrued workers' compensation and auto liability
Accrued litigation
Accrued employee medical insurance
Accrued property taxes
Accrued interest
Deferred revenue
Construction payable
Lease financing obligation
Other
$
2017
53,230 $
39,411
51,156
6,737
7,822
6,506
28,473
11,949
13,633
3,903
11,612
43,372
2016
49,866
29,766
51,496
6,652
9,290
8,413
27,707
9,526
14,332
7,845
11,785
33,429
$ 277,804 $ 260,107
The total liability for workers' compensation and auto liability was $26.3 million and $21.4 million as of
December 31, 2017 and 2016, respectively, with the long-term portion included in other long-term liabilities
in the accompanying consolidated balance sheets. These liabilities were discounted to the net present value of
the outstanding liabilities using a 3.0% rate in 2017 and 2016. These liabilities amounted to $29.4 million and
$23.9 million on an undiscounted basis as of December 31, 2017 and 2016, respectively.
Other long-term liabilities consist of the following (in thousands):
December 31,
2017
2016
$
6,191 $
19,518
10,208
15,530
1,583
6,578
14,726
9,850
18,832
1,856
$ 53,030 $ 51,842
Intangible lease liability
Accrued workers' compensation
Accrued deferred compensation
Lease financing obligation
Other
F-23
10. DEBT
Debt outstanding consists of the following (in thousands):
$900.0 Million Revolving Credit Facility, principal due at
maturity in July 2020; interest payable periodically at
variable interest rates. The weighted average rate at
December 31, 2017 and 2016 was 3.1% and 2.2%,
respectively.
$
Term Loan, scheduled principal payments through
December 31,
2017
2016
199,000 $
435,000
85,000
95,000
350,000
350,000
325,000
325,000
250,000
250,000
250,000
—
1,459,000 1,455,000
(9,831 )
(10,000 )
$ 1,437,187 $ 1,435,169
(11,813)
(10,000)
maturity in July 2020; interest payable periodically at
variable interest rates. The rate at December 31, 2017
and 2016 was 3.1% and 2.3%, respectively.
Unamortized debt issuance costs amounted to $0.3
million and $0.4 million at December 31, 2017 and
2016, respectively.
4.625% Senior Notes, principal due at maturity in May
2023; interest payable semi-annually in May and
November at 4.625%. Unamortized debt issuance costs
amounted to $3.3 million and $3.9 million at
December 31, 2017 and 2016, respectively.
4.125% Senior Notes, principal due at maturity in April
2020; interest payable semi-annually in April and
October at 4.125%. Unamortized debt issuance costs
amounted to $1.9 million and $2.7 million at
December 31, 2017 and 2016, respectively.
5.0% Senior Notes, principal due at maturity in October
2022; interest payable semi-annually in April and
October at 5.0%. Unamortized debt issuance costs
amounted to $2.3 million and $2.8 million at
December 31, 2017 and 2016, respectively.
4.75% Senior Notes, principal due at maturity in October
2027; interest payable semi-annually in April and
October at 4.75%. Unamortized debt issuance costs
amounted to $4.0 million at December 31, 2017.
Total debt
Unamortized debt issuance costs
Current portion of long-term debt
Long-term debt, net
Revolving Credit Facility. During July 2015, CoreCivic entered into an amended and restated $900.0 million
senior secured revolving credit facility (the "$900.0 Million Revolving Credit Facility"). The $900.0 Million
Revolving Credit Facility has an aggregate principal capacity of $900.0 million and a maturity of July 2020.
The $900.0 Million Revolving Credit Facility also has an "accordion" feature that provides for uncommitted
incremental extensions of credit in the form of increases in the revolving commitments or incremental term
loans in an aggregate principal amount up to an additional $350.0 million as requested by CoreCivic, subject
to bank approval. At CoreCivic's option, interest on outstanding borrowings under the $900.0 Million
Revolving Credit Facility is based on either a base rate plus a margin ranging from 0.00% to 0.75% or at the
London Interbank Offered Rate ("LIBOR") plus a margin ranging from 1.00% to 1.75% based on CoreCivic's
then-current leverage ratio. The $900.0 Million Revolving Credit Facility includes a $30.0 million sublimit
for swing line loans that enables CoreCivic to borrow at the base rate from the Administrative Agent without
advance notice.
Based on CoreCivic's current total leverage ratio, loans under the $900.0 Million Revolving Credit Facility
bear interest at the base rate plus a margin of 0.50% or at LIBOR plus a margin of 1.50%, and a commitment
F-24
fee equal to 0.35% of the unfunded balance. The $900.0 Million Revolving Credit Facility also has a $50.0
million sublimit for the issuance of standby letters of credit. As of December 31, 2017, CoreCivic had $199.0
million in borrowings outstanding under the $900.0 Million Revolving Credit Facility as well as $6.9 million
in letters of credit outstanding resulting in $694.1 million available under the $900.0 Million Revolving Credit
Facility.
The $900.0 Million Revolving Credit Facility is secured by a pledge of all of the capital stock of CoreCivic's
domestic subsidiaries, 65% of the capital stock of CoreCivic's foreign subsidiaries, all of CoreCivic's accounts
receivable, and all of CoreCivic's deposit accounts. The $900.0 Million Revolving Credit Facility requires
CoreCivic to meet certain financial covenants, including, without limitation, a maximum total leverage ratio, a
maximum secured leverage ratio, and a minimum fixed charge coverage ratio. As of December 31, 2017,
CoreCivic was in compliance with all such covenants. In addition, the $900.0 Million Revolving Credit
Facility contains certain covenants that, among other things, limit the incurrence of additional indebtedness,
payment of dividends and other customary restricted payments, transactions with affiliates, asset sales,
mergers and consolidations, liquidations, prepayments and modifications of other indebtedness, liens and
other encumbrances and other matters customarily restricted in such agreements. In addition, the $900.0
Million Revolving Credit Facility is subject to certain cross-default provisions with terms of CoreCivic's other
indebtedness, and is subject to acceleration upon the occurrence of a change of control.
Incremental Term Loan. On October 6, 2015, CoreCivic obtained a $100.0 million Incremental Term Loan
("Term Loan") under the "accordion" feature of the $900.0 Million Revolving Credit Facility. Interest rates
under the Term Loan are the same as the interest rates under the $900.0 Million Revolving Credit Facility.
The Term Loan also has the same collateral requirements, financial and certain other covenants, and cross-
default provisions as the $900.0 Million Revolving Credit Facility. The Term Loan, which is pre-payable,
also has a maturity concurrent with the $900.0 Million Revolving Credit Facility due July 2020, with
scheduled quarterly principal payments through 2020. As of December 31, 2017, the outstanding balance of
the Term Loan was $85.0 million.
Senior Notes. Interest on the $325.0 million aggregate principal amount of CoreCivic's 4.125% senior notes
issued in April 2013 (the "4.125% Senior Notes") accrues at the stated rate and is payable in April and
October of each year. The 4.125% Senior Notes are scheduled to mature on April 1, 2020. Interest on the
$350.0 million aggregate principal amount of CoreCivic's 4.625% senior notes issued in April 2013 (the
"4.625% Senior Notes") accrues at the stated rate and is payable in May and November of each year. The
4.625% Senior Notes are scheduled to mature on May 1, 2023. Interest on the $250.0 million aggregate
principal amount of CoreCivic's 5.0% senior notes issued in September 2015 (the "5.0% Senior Notes")
accrues at the stated rate and is payable in April and October of each year. The 5.0% Senior Notes are
scheduled to mature on October 15, 2022.
On October 13, 2017, CoreCivic completed the offering of $250.0 million aggregate principal amount of
4.75% senior notes due October 15, 2027 (the "4.75% Senior Notes"). Interest on the 4.75% Senior Notes
accrues at the stated rate and is payable in April and October of each year. CoreCivic capitalized $4.1 million
for costs associated with the new issuance of the 4.75% Senior Notes. CoreCivic used net proceeds from the
offering to pay down a portion of the $900.0 Million Revolving Credit Facility and to pay related fees and
expenses.
The 4.125% Senior Notes, the 4.625% Senior Notes, the 5.0% Senior Notes, and the 4.75% Senior Notes,
collectively referred to herein as the "Senior Notes", are senior unsecured obligations of the Company and are
guaranteed by all of the Company's subsidiaries that guarantee the $900.0 Million Revolving Credit Facility.
CoreCivic may redeem all or part of the Senior Notes at any time prior to three months before their respective
maturity date at a "make-whole" redemption price, plus accrued and unpaid interest thereon to, but not
including, the redemption date. Thereafter, the Senior Notes are redeemable at CoreCivic's option, in whole
or in part, at a redemption price equal to 100% of the aggregate principal amount of the notes to be redeemed
plus accrued and unpaid interest thereon to, but not including, the redemption date.
CoreCivic may also seek to issue additional debt or equity securities from time to time when the Company
determines that market conditions and the opportunity to utilize the proceeds from the issuance of such
securities are favorable.
F-25
Guarantees and Covenants. All of the domestic subsidiaries of CoreCivic (as the parent corporation) have
provided full and unconditional guarantees of the Senior Notes. Each of CoreCivic's subsidiaries guaranteeing
the Senior Notes are 100% owned subsidiaries of CoreCivic; the subsidiary guarantees are full and
unconditional and are joint and several obligations of the guarantors; and all non-guarantor subsidiaries are
minor (as defined in Rule 3-10(h)(6) of Regulation S-X).
As of December 31, 2017, neither CoreCivic nor any of its subsidiary guarantors had any material or
significant restrictions on CoreCivic's ability to obtain funds from its subsidiaries by dividend or loan or to
transfer assets from such subsidiaries.
The indentures governing the Senior Notes contain certain customary covenants that, subject to certain
exceptions and qualifications, restrict CoreCivic's ability to, among other things, make restricted payments;
incur additional debt or issue certain types of preferred stock; create or permit to exist certain liens;
consolidate, merge or transfer all or substantially all of CoreCivic's assets; and enter into transactions with
affiliates. In addition, if CoreCivic sells certain assets (and generally does not use the proceeds of such sales
for certain specified purposes) or experiences specific kinds of changes in control, CoreCivic must offer to
repurchase all or a portion of the Senior Notes. The offer price for the Senior Notes in connection with an
asset sale would be equal to 100% of the aggregate principal amount of the notes repurchased plus accrued
and unpaid interest and liquidated damages, if any, on the notes repurchased to the date of purchase. The offer
price for the Senior Notes in connection with a change in control would be 101% of the aggregate principal
amount of the notes repurchased plus accrued and unpaid interest and liquidated damages, if any, on the notes
repurchased to the date of purchase. The Senior Notes are also subject to certain cross-default provisions with
the terms of CoreCivic's $900.0 Million Revolving Credit Facility, as more fully described hereafter.
Other Debt Transactions
Letters of Credit. At December 31, 2017 and 2016, CoreCivic had $6.9 million and $9.1 million, respectively,
in outstanding letters of credit. The letters of credit were issued to secure CoreCivic's workers' compensation
and general liability insurance policies, performance bonds, and utility deposits. The letters of credit
outstanding at December 31, 2017 and 2016 were provided by a sub-facility under the $900.0 Million
Revolving Credit Facility.
Debt Maturities
Scheduled principal payments as of December 31, 2017 for the next five years and thereafter were as follows
(in thousands):
2018
2019
2020
2021
2022
Thereafter
Total debt
$
10,000
15,000
584,000
—
250,000
600,000
$ 1,459,000
Cross-Default Provisions
The provisions of CoreCivic's debt agreements relating to the $900.0 Million Revolving Credit Facility and
the Senior Notes contain certain cross-default provisions. Any events of default under the $900.0 Million
Revolving Credit Facility that results in the lenders' actual acceleration of amounts outstanding thereunder
also result in an event of default under the Senior Notes. Additionally, any events of default under the Senior
Notes that give rise to the ability of the holders of such indebtedness to exercise their acceleration rights also
result in an event of default under the $900.0 Million Revolving Credit Facility.
F-26
If CoreCivic were to be in default under the $900.0 Million Revolving Credit Facility, and if the lenders under
the $900.0 Million Revolving Credit Facility elected to exercise their rights to accelerate CoreCivic's
obligations under the $900.0 Million Revolving Credit Facility, such events could result in the acceleration of
all or a portion of CoreCivic's Senior Notes, which would have a material adverse effect on CoreCivic's
liquidity and financial position. CoreCivic does not have sufficient working capital to satisfy its debt
obligations in the event of an acceleration of all or a substantial portion of CoreCivic's outstanding
indebtedness.
11. DEFERRED REVENUE
In September 2014, CoreCivic announced that it had agreed under an expansion of an existing IGSA between
the city of Eloy, Arizona and ICE to house up to 2,400 individuals at the South Texas Family Residential
Center, a facility leased by CoreCivic in Dilley, Texas. Services provided under the original amended IGSA
commenced in the fourth quarter of 2014 and had an original term of up to four years. The agreement
provided for a fixed monthly payment in accordance with a graduated schedule. In October 2016, CoreCivic
entered into an amended IGSA that provided for a new, lower fixed monthly payment commencing in
November 2016, and extended the term of the contract through September 2021. The agreement can be
further extended by bi-lateral modification. However, ICE can also terminate the agreement for convenience
or non-appropriation of funds, without penalty, by providing CoreCivic with at least a 60-day notice. ICE
began housing the first residents at the facility in December 2014, and the site was completed during the
second quarter of 2015.
Under the fixed monthly payment schedule of the original amended IGSA, ICE agreed to pay CoreCivic $70.0
million in two $35.0 million installments during the fourth quarter of 2014 and graduated fixed monthly
payments over the remaining months of the contract. As described in Note 2, CoreCivic used the multiple-
element arrangement guidance prescribed in ASC 605, "Revenue Recognition" in determining the total
revenue to be recognized over the term of the amended IGSA. CoreCivic determined that there were five
distinct elements related to the amended IGSA with ICE. The lease revenue element, representing the
operating lease of the site and constructed assets, was valued based on the estimated selling price of the land
and building improvements provided to ICE and is recognized proportionately based on the number of beds
available. The correctional services revenue element, representing the correctional management services
provided to ICE, was valued based on the estimated selling price of similar services CoreCivic provides and is
recognized based on labor efforts expended over the contract. The food services revenue element was valued
based on the third-party evidence ("TPE") of the contracted outsourced service and is recognized
proportionately based on the number of beds available. CoreCivic established TPE of selling price by
evaluating similar products or services in standalone sales to similarly situated customers. The educational
services revenue element, representing the grade-level appropriate juvenile educational program prescribed
under the IGSA, was based on the TPE of the contracted outsourced service and is recognized on a straight-
line basis over the period educational services are required to be performed. The construction management
services revenue element, representing CoreCivic's site development and construction management services,
was valued based on the estimated selling price of similar services CoreCivic provides and was recognized on
a straight-line basis during the first seven months of the IGSA representing the period over which the
construction activity was ongoing. During the years ended December 31, 2017, 2016, and 2015, CoreCivic
recognized $170.1 million, $266.8 million, and $244.2 million, respectively, in revenue associated with the
amended IGSA with the unrecognized balance of the fixed monthly payments reported in deferred revenue.
The current portion of deferred revenue is reflected within accounts payable and accrued expenses while the
long-term portion is reflected in deferred revenue in the accompanying consolidated balance sheets. As of
December 31, 2017 and 2016, total deferred revenue associated with this agreement amounted to $53.4
million and $67.0 million, respectively.
12.
INCOME TAXES
As discussed in Note 1, the Company began operating in compliance with REIT requirements for federal
income tax purposes effective January 1, 2013. As a REIT, the Company must distribute at least 90 percent of
its taxable income (including dividends paid to it by its TRSs) and will not pay federal income taxes on the
amount distributed to its stockholders. In addition, the Company must meet a number of other organizational
and operational requirements. It is management's intention to adhere to these requirements and maintain the
Company's REIT status. Most states where CoreCivic holds investments in real estate conform to the federal
F-27
rules recognizing REITs. Certain subsidiaries have made an election with the Company to be treated as TRSs
in conjunction with the Company's REIT election; the TRS elections permit CoreCivic to engage in certain
business activities in which the REIT may not engage directly. A TRS is subject to federal and state income
taxes on the income from these activities and therefore, CoreCivic includes a provision for taxes in its
consolidated financial statements.
The TCJA was enacted on December 22, 2017. The TCJA reduces the U.S. federal corporate tax rate from
35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries
that were previously tax deferred, and creates new taxes on certain foreign-sourced earnings. However, the
TCJA does not change the dividends paid deduction applicable to REITs and, therefore, CoreCivic generally
will not be subject to federal income taxes on the Company's REIT taxable income and gains that it distributes
to its stockholders. At December 31, 2017, the Company has recorded, in accordance with ASC 740, the tax
effects of enactment of the TCJA on existing deferred tax balances and the Company estimates there is no
one-time transition tax on foreign earnings. The Company re-measured certain deferred tax assets and
liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The
Company recognized a charge of $4.5 million, which is included as a component of income tax expense, for
the revaluation of deferred tax assets and liabilities and other taxes associated with the TCJA. However, the
Company is still analyzing certain aspects of the TCJA, including research on historical earnings of certain
foreign subsidiaries among others, and refining its calculations which could potentially affect the
measurement of these balances or potentially give rise to new deferred tax amounts.
Income tax expense is comprised of the following components (in thousands):
Current income tax expense
Federal
State
Deferred income tax expense (benefit)
Federal
State
Income tax expense
For the Years Ended December 31,
2015
2016
2017
$
10,202 $
2,788
12,990
10,181 $
1,983
12,164
1,088
(167)
921
13,911 $
(3,400 )
(511 )
(3,911 )
8,253 $
$
2,519
136
2,655
5,589
117
5,706
8,361
Significant components of CoreCivic's deferred tax assets and liabilities as of December 31, 2017 and 2016,
are as follows (in thousands):
Noncurrent deferred tax assets:
Asset reserves and liabilities not yet deductible for tax
Tax over book basis of certain assets
Net operating loss and tax credit carryforwards
Intangible contract value
Other
$
Total noncurrent deferred tax assets
Less valuation allowance
Total noncurrent deferred tax assets
Noncurrent deferred tax liabilities:
Book over tax basis of certain assets
Intangible lease value
Other
Total noncurrent deferred tax liabilities
Net total noncurrent deferred tax assets
$
December 31,
2017
2016
19,045 $
40
5,040
—
172
24,297
(3,308)
20,989
(5,959)
—
(2,216)
(8,175)
12,814 $
29,198
866
5,487
2,570
346
38,467
(3,436 )
35,031
(9,386 )
(8,368 )
(3,542 )
(21,296 )
13,735
F-28
The tax benefits associated with equity-based compensation reduced income taxes payable by $1.0 million
with a corresponding income tax benefit recognized in the accompanying statement of operations for the year
ended December 31, 2017, consistent with the newly-adopted ASU 2016-09. The tax benefits associated with
equity-based compensation reduced income taxes payable by $1.5 million and $0.5 million during 2016 and
2015, respectively, with benefits recorded as increases to stockholders' equity.
A reconciliation of the income tax provision at the statutory income tax rate and the effective tax rate as a
percentage of income from continuing operations before income taxes for the years ended December 31, 2017,
2016, and 2015 is as follows:
Statutory federal rate
Dividends paid deduction
State taxes, net of federal tax benefit
Permanent differences
Charges associated with adoption of tax reform
Tax benefit of equity-based compensation
Other items, net
2017
2016
2015
35.0%
(31.3)
1.2
0.6
2.4
(0.5)
(0.2)
7.2%
35.0 %
(32.5 )
1.1
0.3
—
—
(0.3 )
3.6 %
35.0 %
(31.9 )
0.9
0.4
—
—
(0.8 )
3.6 %
CoreCivic's effective tax rate was 7.2%, 3.6%, and 3.6% during 2017, 2016, and 2015, respectively. As a
REIT, CoreCivic is entitled to a deduction for dividends paid, resulting in a substantial reduction in the
amount of federal income tax expense it recognizes. Substantially all of CoreCivic's income tax expense is
incurred based on the earnings generated by its TRSs. CoreCivic's overall effective tax rate is estimated based
on its current projection of taxable income primarily generated by its TRSs. The Company's consolidated
effective tax rate could fluctuate in the future based on changes in estimates of taxable income, the relative
amounts of taxable income generated by the TRSs and the REIT, the implementation of additional tax
planning strategies, changes in federal or state tax rates or laws affecting tax credits available to the Company,
changes in other tax laws, changes in estimates related to uncertain tax positions, or changes in state
apportionment factors, as well as changes in the valuation allowance applied to the Company's deferred tax
assets that are based primarily on the amount of state net operating losses and tax credits that could expire
unused.
CoreCivic had no liabilities for uncertain tax positions as of December 31, 2017 and 2016. CoreCivic
recognizes interest and penalties related to unrecognized tax positions in income tax expense. CoreCivic does
not currently anticipate that the total amount of unrecognized tax positions will significantly change in the
next twelve months.
CoreCivic's U.S. federal income tax returns for tax years 2014 through 2016 remain subject to examination by
the IRS. All states in which CoreCivic files income tax returns follow the same statute of limitations as
federal, with the exception of the following states whose open tax years include 2013 through 2016: Arizona,
California, Colorado, Kentucky, Minnesota, New Jersey, Texas, and Wisconsin.
F-29
13. STOCKHOLDERS' EQUITY
Dividends on Common Stock
The tax characterization of dividends per share on common shares as reported to stockholders was as follows
for the years ended December 31, 2017, 2016, and 2015:
Declaration Date
February 20, 2015
May 14, 2015
August 13, 2015
December 10, 2015
February 19, 2016
May 12, 2016
August 11, 2016
December 8, 2016
February 17, 2017
May 11, 2017
August 10, 2017
December 7, 2017
Record Date
April 2, 2015
July 2, 2015
October 2, 2015
January 4, 2016
April 1, 2016
July 1, 2016
October 3, 2016
January 3, 2017
April 3, 2017
July 3, 2017
October 2, 2017
January 2, 2018
Payable Date
April 15, 2015
July 15, 2015
October 15, 2015
January 15, 2016
April 15, 2016
July 15, 2016
October 17, 2016
January 13, 2017
April 17, 2017
July 17, 2017
October 16, 2017
January 15, 2018
Total
Ordinary
Income
Return of
Capital
0.405355 (1) 0.134645
0.405355 (1) 0.134645
0.405355 (1) 0.134645
0.487167 (2) 0.052833
0.487167 (2) 0.052833
0.487167 (2) 0.052833
0.487167 (2) 0.052833
0.363660 (3) 0.056340
0.363660 (3) 0.056340
0.363660 (3) 0.056340
0.363660 (3) 0.056340
— (4)
Per Share
$
$
$
$
$
$
$
$
$
$
$
— (4) $
0.54
0.54
0.54
0.54
0.54
0.54
0.54
0.42
0.42
0.42
0.42
0.42
(1) $0.051202 of this amount constitutes a "Qualified Dividend", as defined by the IRS.
(2) $0.030979 of this amount constitutes a "Qualified Dividend", as defined by the IRS.
(3) $0.000000 of this amount constitutes a "Qualified Dividend", as defined by the IRS.
(4) Taxable in 2018.
Future dividends will depend on CoreCivic's distribution requirements as a REIT, future earnings, capital
requirements, financial condition, limitations under debt covenants, opportunities for alternative uses of
capital, and on such other factors as the Board of Directors of CoreCivic may consider relevant.
Common Stock
Restricted shares. During 2017, CoreCivic issued approximately 554,000 shares of restricted common stock
units ("RSUs") to certain of its employees and non-employee directors, with an aggregate value of $18.1
million, including 487,000 RSUs to employees and non-employee directors whose compensation is charged to
general and administrative expense and 67,000 RSUs to employees whose compensation is charged to
operating expense. During 2016, CoreCivic issued approximately 635,000 RSUs to certain of its employees
and non-employee directors, with an aggregate value of $18.5 million, including 562,000 RSUs to employees
and non-employee directors whose compensation is charged to general and administrative expense and 73,000
RSUs to employees whose compensation is charged to operating expense.
CoreCivic established performance-based vesting conditions on the RSUs awarded to its officers and
executive officers in years 2015 through 2017. Unless earlier vested under the terms of the agreements,
performance-based RSUs issued to officers and executive officers in those years are subject to vesting over a
three-year period based upon the satisfaction of certain annual performance criteria, and no more than one-
third of the RSUs may vest in any one performance period. Time-based RSUs issued to other employees in
2016 and 2017, unless earlier vested under the terms of the agreements, generally vest equally on the first,
second, and third anniversary of the award. Time-based RSUs issued to other employees in 2015, unless
earlier vested under the terms of the agreements, "cliff" vest on the third anniversary of the award. RSUs
issued to non-employee directors vest one year from the date of award.
Nonvested RSU transactions as of December 31, 2017 and for the year then ended are summarized below (in
thousands, except per share amounts).
F-30
Nonvested at December 31, 2016
Granted
Cancelled
Vested
Nonvested at December 31, 2017
Weighted
average
grant date
fair value
32.84
32.60
37.71
32.43
32.26
Shares of
RSUs
1,044 $
554 $
(131) $
(513) $
954 $
During 2017, 2016, and 2015, CoreCivic expensed $13.3 million ($1.9 million of which was recorded in
operating expenses and $11.4 million of which was recorded in general and administrative expenses), $17.8
million ($1.7 million of which was recorded in operating expenses and $14.4 million of which was recorded in
general and administrative expenses, and $1.7 million of which was recorded in restructuring charges), and
$14.7 million ($1.5 million of which was recorded in operating expenses and $13.2 million of which was
recorded in general and administrative expenses), net of forfeitures, relating to the restricted common stock
and RSUs, respectively. As of December 31, 2017, CoreCivic had $16.8 million of total unrecognized
compensation cost related to RSUs that is expected to be recognized over a remaining weighted-average
period of 1.8 years. The total fair value of restricted common stock and RSUs that vested during 2017, 2016,
and 2015 was $16.6 million, $15.1 million, and $13.9 million, respectively.
Restricted stock-based compensation expense of $1.7 million for the year ended December 31, 2016 included
in restructuring charges in the consolidated statement of operations reflects the voluntary forfeiture of RSUs
awarded in February 2016 to CoreCivic's chief executive officer, in connection with a restructuring and cost
reduction plan implemented during the third quarter of 2016.
Preferred Stock
CoreCivic has the authority to issue 50.0 million shares of $0.01 par value per share preferred stock (the
"Preferred Stock"). The Preferred Stock may be issued from time to time upon authorization by the Board of
Directors, in such series and with such preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions as may be fixed by CoreCivic's Board of
Directors.
Stock Option Plans
CoreCivic has equity incentive plans under which, among other things, incentive and non-qualified stock
options are granted to certain employees and non-employee directors of CoreCivic by the compensation
committee of CoreCivic's Board of Directors. The options are granted with exercise prices equal to the fair
market value on the date of grant. Vesting periods for options granted to employees generally range from
three to four years. Options granted to non-employee directors vest on a date approximately following the
first anniversary of the grant date. The term of such options is ten years from the date of grant.
Since 2012, CoreCivic has elected not to issue stock options to its non-employee directors, officers, and
executive officers as it had in prior years, and instead elected to issue all of its equity compensation in the
form of restricted common stock and RSUs as previously described herein. However, CoreCivic continued to
recognize stock option expense during the vesting period of stock options awarded in prior years. All
outstanding stock options were fully vested as of December 31, 2016. During 2016 and 2015, CoreCivic
expensed $0.1 million and $0.7 million, respectively, net of estimated forfeitures, relating to its outstanding
stock options, all of which was charged to general and administrative expenses. As of December 31, 2017,
CoreCivic had no unrecognized compensation cost related to stock options.
F-31
Stock option transactions relating to CoreCivic's non-qualified stock option plans are summarized below (in
thousands, except exercise prices):
Outstanding at December 31, 2016
Granted
Exercised
Cancelled
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Weighted-
Average
Exercise
Price of
options
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
No. of
options
1,327 $
—
(313)
—
1,014 $
1,014 $
20.53
—
22.18
—
20.03
20.03
2.6
2.6
$ 2,669
$ 2,669
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference
between CoreCivic's stock price as of December 31, 2017 and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the option holders had all option holders exercised
their options on December 31, 2017. This amount changes based on the fair market value of CoreCivic's stock.
The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was
$2.9 million, $1.7 million, and $7.3 million, respectively.
At CoreCivic's 2011 annual meeting of stockholders held in May 2011, CoreCivic's stockholders approved an
amendment to the 2008 Stock Incentive Plan that increased the authorized limit on issuance of new awards to
an aggregate of up to 18.0 million shares. In addition, during the 2003 annual meeting the stockholders
approved the adoption of CoreCivic's Non-Employee Directors' Compensation Plan, authorizing CoreCivic to
issue up to 225,000 shares of common stock pursuant to the plan. As of December 31, 2017, CoreCivic had
8.2 million shares available for issuance under the Amended and Restated 2008 Stock Incentive Plan and 0.2
million shares available for issuance under the Non-Employee Directors' Compensation Plan.
14. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted average number of common
shares outstanding during the year. Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the entity. For CoreCivic, diluted earnings
per share is computed by dividing net income by the weighted average number of common shares after
considering the additional dilution related to restricted share grants and stock options.
F-32
A reconciliation of the numerator and denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computation is as follows (in thousands, except
per share data):
For the Years Ended December 31,
2016
2015
2017
NUMERATOR
Basic:
Net income
Diluted:
Net income
DENOMINATOR
Basic:
$ 178,040 $ 219,919 $ 221,854
$ 178,040 $ 219,919 $ 221,854
Weighted average common shares outstanding
118,084 117,384 116,949
Diluted:
Weighted average common shares outstanding
Effect of dilutive securities:
118,084 117,384 116,949
Stock options
Restricted stock-based awards
Weighted average shares and assumed
conversions
BASIC EARNINGS PER SHARE
DILUTED EARNINGS PER SHARE
310
71
306
101
631
205
118,465 117,791 117,785
1.90
$
1.88
$
1.87 $
1.87 $
1.51 $
1.50 $
Approximately 8,000, 268,000, and 8,000 stock options were excluded from the computations of diluted
earnings per share for the years ended December 31, 2017, 2016, and 2015, respectively, because they were
anti-dilutive.
15. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
General. The nature of CoreCivic's business results in claims and litigation alleging that it is liable for
damages arising from the conduct of its employees, offenders or others. The nature of such claims includes,
but is not limited to, claims arising from employee or offender misconduct, medical malpractice, employment
matters, property loss, contractual claims, including claims regarding compliance with contract performance
requirements, and personal injury or other damages resulting from contact with CoreCivic's facilities,
personnel or offenders, including damages arising from an offender's escape or from a disturbance at a facility.
CoreCivic maintains insurance to cover many of these claims, which may mitigate the risk that any single
claim would have a material effect on CoreCivic's consolidated financial position, results of operations, or
cash flows, provided the claim is one for which coverage is available. The combination of self-insured
retentions and deductible amounts means that, in the aggregate, CoreCivic is subject to substantial self-
insurance risk.
CoreCivic records litigation reserves related to certain matters for which it is probable that a loss has been
incurred and the range of such loss can be estimated. Based upon management's review of the potential
claims and outstanding litigation, and based upon management's experience and history of estimating losses,
and taking into consideration CoreCivic's self-insured retention amounts, management believes a loss in
excess of amounts already recognized would not be material to CoreCivic's financial statements. In the
opinion of management, there are no pending legal proceedings that would have a material effect on
CoreCivic's consolidated financial position, results of operations, or cash flows. Any receivable for insurance
recoveries is recorded separately from the corresponding litigation reserve, and only if recovery is determined
to be probable. Adversarial proceedings and litigation are, however, subject to inherent uncertainties, and
unfavorable decisions and rulings resulting from legal proceedings could occur which could have a material
F-33
adverse impact on CoreCivic's consolidated financial position, results of operations, or cash flows for the
period in which such decisions or rulings occur, or future periods. Expenses associated with legal proceedings
may also fluctuate from quarter to quarter based on changes in CoreCivic's assumptions, new developments,
or by the effectiveness of CoreCivic's litigation and settlement strategies.
Insurance Contingencies
Each of CoreCivic's management contracts and the statutes of certain states require the maintenance of
insurance. CoreCivic maintains various insurance policies including employee health, workers' compensation,
automobile liability, and general liability insurance. These policies are fixed premium policies with various
deductible amounts that are self-funded by CoreCivic. Reserves are provided for estimated incurred claims
for which it is probable that a loss has been incurred and the range of such loss can be estimated.
Retirement Plan
All employees of CoreCivic are eligible to participate in the Corrections Corporation of America 401(k)
Savings and Retirement Plan (the "Plan") upon reaching age 18 and completing one year of qualified service.
Eligible employees may contribute up to 90% of their eligible compensation, subject to IRS limitations. For
the years ended December 31, 2017, 2016, and 2015, CoreCivic provided a discretionary matching
contribution equal to 100% of the employee's contributions up to 5% of the employee's eligible compensation
to employees with at least one thousand hours of employment in the plan year. Effective January 1, 2012,
the Plan adopted a safe harbor provision that provides, among other changes, future employer matching
contributions to be paid into the Plan each pay period and vest immediately.
During 2017, 2016, and 2015, CoreCivic's discretionary contributions to the Plan, net of forfeitures, were
$12.3 million, $12.0 million, and $12.0 million, respectively.
Deferred Compensation Plans
During 2002, the compensation committee of the board of directors approved CoreCivic's adoption of two
non-qualified deferred compensation plans (the "Deferred Compensation Plans") for non-employee directors
and for certain senior executives. The Deferred Compensation Plans are unfunded plans maintained for the
purpose of providing CoreCivic's directors and certain of its senior executives the opportunity to defer a
portion of their compensation. Under the terms of the Deferred Compensation Plans, certain senior executives
may elect to contribute on a pre-tax basis up to 50% of their base salary and up to 100% of their cash bonus,
and non-employee directors may elect to contribute on a pre-tax basis up to 100% of their director retainer and
meeting fees. During the years ended December 31, 2017, 2016, and 2015, CoreCivic matched 100% of
employee contributions up to 5% of total cash compensation. CoreCivic also contributes a fixed rate of return
on balances in the Deferred Compensation Plans, determined at the beginning of each plan year. Matching
contributions and investment earnings thereon become vested 20% after two years of service, 40% after three
years of service, 80% after four years of service, and 100% after five or more years of service. Distributions
are generally payable no earlier than five years subsequent to the date an individual becomes a participant in
the Plan, or upon termination of employment (or the date a director ceases to serve as a director of CoreCivic),
at the election of the participant. Distributions to senior executives must commence on or before the later of
60 days after the participant's separation from service or the fifteenth day of the month following the month
the individual attains age 65.
During 2017, 2016, and 2015, CoreCivic provided a fixed return of 5.0%, 5.45%, and 5.6%, respectively, to
participants in the Deferred Compensation Plans. CoreCivic has purchased life insurance policies on the lives
of certain employees of CoreCivic, which are intended to fund distributions from the Deferred Compensation
Plans. CoreCivic is the sole beneficiary of such policies. At the inception of the Deferred Compensation
Plans, CoreCivic established an irrevocable Rabbi Trust to secure the plans' obligations. However, assets in
the Deferred Compensation Plans are subject to creditor claims in the event of bankruptcy. During 2017,
2016, and 2015, CoreCivic recorded $0.1 million, $0.2 million, and $0.3 million, respectively, of matching
contributions as general and administrative expense associated with the Deferred Compensation Plans. Assets
F-34
in the Rabbi Trust were $13.5 million and $13.1 million as of December 31, 2017 and 2016, respectively. As
of December 31, 2017 and 2016, CoreCivic's liability related to the Deferred Compensation Plans was $11.0
million and $10.6 million, respectively, which was reflected in accounts payable and accrued expenses and
other liabilities in the accompanying balance sheets.
Employment and Severance Agreements
CoreCivic currently has employment agreements with several of its executive officers, which provide for the
payment of certain severance amounts upon termination of employment under certain circumstances or a
change of control, as defined in the agreements.
16. SEGMENT REPORTING
As of December 31, 2017, CoreCivic owned and managed 70 facilities, and managed seven facilities it did not
own. In addition, CoreCivic owned 12 properties that it leased to third parties. Management views
CoreCivic's operating results in one operating segment. However, the Company has chosen to report financial
performance segregated for (1) owned and managed facilities and (2) managed-only facilities as the Company
believes this information is useful to users of the financial statements. Owned and managed facilities include
the operating results of those facilities placed into service that were owned or controlled via a long-term lease
and managed by CoreCivic. Managed-only facilities include the operating results of those facilities owned by
a third party and managed by CoreCivic. The operating performance of the owned and managed and the
managed-only facilities can be measured based on their net operating income. CoreCivic defines facility net
operating income as a facility's operating income or loss from operations before interest, taxes, asset
impairments, depreciation, and amortization.
F-35
The revenue and net operating income for the owned and managed and the managed-only facilities and a
reconciliation to CoreCivic's operating income is as follows for the three years ended December 31, 2017,
2016, and 2015 (in thousands):
For the Years Ended December 31,
2016
2015
2017
Revenue:
Owned and managed
Managed-only
Total management revenue
Operating expenses:
Owned and managed
Managed-only
Total operating expenses
Facility net operating income:
Owned and managed
Managed-only
Total facility net operating income
Other revenue (expense):
Rental and other revenue
Other operating expense
General and administrative
Depreciation and amortization
Restructuring charges
Asset impairments
Operating income
$1,529,987 $1,603,671 $ 1,543,750
205,420 211,995
1,720,233 1,809,091 1,755,745
190,246
1,048,219 1,068,031 1,038,070
183,643 190,010
1,221,456 1,251,674 1,228,080
173,237
481,768
17,009
498,777
535,640 505,680
21,985
557,417 527,665
21,777
45,265
(28,081)
(107,822)
(147,129)
—
(614)
37,342
40,694
(28,048 )
(23,912 )
(107,027 ) (103,936 )
(166,746 ) (151,514 )
—
(955 )
$ 260,396 $ 296,416 $ 280,554
(4,010 )
—
The following table summarizes capital expenditures including accrued amounts for the years ended
December 31, 2017, 2016, and 2015 (in thousands):
For the Years Ended December 31,
2016
2015
2017
Capital expenditures:
Owned and managed
Managed-only
Corporate and other
Total capital expenditures
The total assets are as follows (in thousands):
$
83,757 $ 108,241 $ 382,781
4,049
5,238
28,611
25,752
$ 114,747 $ 134,531 $ 415,441
5,749
20,541
Assets:
Owned and managed
Managed-only
Corporate and other
Total assets
December 31,
2017
2016
$ 2,827,928 $ 2,841,799
62,292
367,513
$ 3,272,398 $ 3,271,604
59,805
384,665
F-36
17. SUBSEQUENT EVENTS
Effective January 1, 2018, CoreCivic closed on the acquisition of Rocky Mountain Offender Management
Systems, LLC, which provides non-residential correctional alternatives, including electronic monitoring and
case management services, to municipal, county, and state governments in eight states. The aggregate
purchase price was $7.0 million, excluding transaction-related expenses.
On January 19, 2018, CoreCivic acquired the 261,000 square-foot Capital Commerce Center, located in
Tallahassee, Florida for a purchase price of $44.7 million, excluding transaction-related costs and certain
closing credits. Capital Commerce Center is 98% leased, and 87% leased to the state of Florida on behalf of
the Florida Department of Business and Professional Regulation. The acquisition was financed with a $24.5
million non-recourse mortgage note, which is fully-secured by the Capital Commerce Center property, with an
interest rate of 4.5%, maturing in 2033, and cash from CoreCivic's $900.0 Million Revolving Credit Facility.
On January 24, 2018, CoreCivic entered into a 20-year lease agreement with the Kansas Department of
Corrections for a 2,432-bed correctional facility the Company will construct in Lansing, Kansas. The new
facility will replace the Lansing Correctional Facility, the State's largest correctional complex for adult male
inmates, originally constructed in 1863. CoreCivic will be responsible for facility maintenance throughout the
20-year term of the lease, at which time ownership will revert to the State. Construction of the new facility is
expected to commence in the first quarter of 2018 with a timeline for completion of approximately 24 months.
During February 2018, CoreCivic issued approximately 0.9 million RSUs to certain of CoreCivic's employees
and non-employee directors, with an aggregate value of $19.8 million. Unless earlier vested under the terms
of the RSU agreement, approximately 0.6 million RSUs were issued to officers and executive officers and are
subject to vesting over a three-year period based upon satisfaction of certain annual performance criteria for
the fiscal years ending December 31, 2018, 2019, and 2020. Approximately 0.3 million RSUs issued to other
employees vest evenly on the first, second, and third anniversary of the award. Shares of RSUs issued to non-
employee directors vest on the first anniversary of the award. Any RSUs that become vested will be settled in
shares of CoreCivic's common stock.
On February 22, 2018, the Company's Board of Directors declared a quarterly dividend of $0.43 per common
share payable April 16, 2018 to stockholders of record on April 2, 2018.
18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF CORECIVIC AND
SUBSIDIARIES
The following condensed consolidating financial statements of CoreCivic and subsidiaries have been prepared
pursuant to Rule 3-10 of Regulation S-X. These condensed consolidating financial statements have been
prepared from the Company's financial information on the same basis of accounting as the consolidated
financial statements.
F-37
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2017
(in thousands)
ASSETS
Parent
Combined
Subsidiary
Guarantors
Cash and cash equivalents
Accounts receivable, net of allowance
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Non-current deferred tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued expenses
Income taxes payable
Current portion of long-term debt
Total current liabilities
Long-term debt, net
Non-current deferred tax liabilities
Deferred revenue
Other liabilities
Total liabilities
$
25,745 $
211,673
1,835
239,253
2,467,166
26,031
—
421,474
$ 3,153,924 $
$
251,011 $
1,443
10,000
262,454
1,437,982
379
—
1,501
1,702,316
Total
Consolidated
Amounts
Consolidating
Adjustments
and Other
— $
(330,240 )
(5,702 )
(335,942 )
26,438 $
372,755
24,986
52,183
254,188
21,119
327,490
— 2,802,449
40,927
—
12,814
(379 )
88,718
(401,873 )
856,668 $ (738,194 ) $ 3,272,398
424,179
335,283
14,896
13,193
69,117
1,591
—
277,804
362,701 $ (335,908 ) $
3,034
—
10,000
—
290,838
(335,908 )
(115,000 ) 1,437,187
—
39,735
53,030
(451,287 ) 1,820,790
364,292
114,205
—
39,735
51,529
(379 )
—
—
569,761
Total stockholders' equity
Total liabilities and stockholders' equity
1,451,608
$ 3,153,924 $
286,907
(286,907 ) 1,451,608
856,668 $ (738,194 ) $ 3,272,398
F-38
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2016
(in thousands)
ASSETS
Parent
Combined
Subsidiary
Guarantors
Consolidating
Adjustments
and Other
Total
Consolidated
Amounts
Cash and cash equivalents
Accounts receivable, net of allowance
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Non-current deferred tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued expenses
Income taxes payable
Current portion of long-term debt
Total current liabilities
Long-term debt, net
Non-current deferred tax liabilities
Deferred revenue
Other liabilities
Total liabilities
$
11,378 $
237,495
7,582
256,455
2,493,025
23,231
—
339,391
$ 3,112,102 $
$
203,074 $
1,850
10,000
214,924
1,436,186
321
—
1,708
1,653,139
26,333 $
270,952
30,123
— $
(278,562 )
(6,477 )
(285,039 )
37,711
229,885
31,228
298,824
— 2,837,657
38,386
—
13,735
(321 )
83,002
(314,262 )
759,124 $ (599,622 ) $ 3,271,604
327,408
344,632
15,155
14,056
57,873
236
—
260,107
342,072 $ (285,039 ) $
2,086
—
10,000
—
272,193
(285,039 )
(115,000 ) 1,435,169
—
53,437
51,842
(400,360 ) 1,812,641
342,308
113,983
—
53,437
50,134
(321 )
—
—
559,862
Total stockholders' equity
Total liabilities and stockholders' equity
1,458,963
$ 3,112,102 $
199,262
(199,262 ) 1,458,963
759,124 $ (599,622 ) $ 3,271,604
F-39
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2017
(in thousands)
Combined
Subsidiary
Guarantors
Consolidating
Adjustments
and Other
Total
Consolidated
Amounts
Parent
$ 1,194,690 $ 1,454,194 $ (883,386 ) $ 1,765,498
36,964
87,694
300
914,443 1,218,480
70,858
59,435
314
1,039,401 1,349,087
105,107
155,289
—
—
—
(883,386 ) 1,249,537
107,822
147,129
614
(883,386 ) 1,505,102
260,396
—
56,712
(255)
56,457
98,832
(1,765)
97,067
80,973
178,040 $
11,823
103
11,926
93,181
(12,146)
81,035
—
81,035 $
—
62
62
(62 )
—
(62 )
(80,973 )
(81,035 ) $
68,535
(90)
68,445
191,951
(13,911)
178,040
—
178,040
REVENUES
EXPENSES:
Operating
General and administrative
Depreciation and amortization
Asset impairments
OPERATING INCOME
OTHER (INCOME) EXPENSE:
Interest expense, net
Other (income) expense
INCOME BEFORE INCOME TAXES
Income tax expense
INCOME BEFORE EQUITY IN SUBSIDIARIES
Income from equity in subsidiaries
NET INCOME
$
F-40
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2016
(in thousands)
Combined
Subsidiary
Guarantors
Consolidating
Adjustments
and Other
Total
Consolidated
Amounts
Parent
$ 1,182,765 $ 1,542,231 $ (875,211 ) $ 1,849,785
35,440
84,842
197
904,750 1,246,047
71,587
81,904
3,813
1,025,229 1,403,351
138,880
157,536
—
—
—
(875,211 ) 1,275,586
107,027
166,746
4,010
(875,211 ) 1,553,369
296,416
—
51,928
995
52,923
104,613
(1,896)
102,717
117,202
219,919 $
15,827
(548)
15,279
123,601
(6,357)
—
42
42
(42 )
—
(42 )
(117,202 )
117,244 $ (117,244 ) $
117,244
—
67,755
489
68,244
228,172
(8,253)
219,919
—
219,919
REVENUES
EXPENSES:
Operating
General and administrative
Depreciation and amortization
Restructuring charges
OPERATING INCOME
OTHER (INCOME) EXPENSE:
Interest expense, net
Other (income) expense
INCOME BEFORE INCOME TAXES
Income tax expense
INCOME BEFORE EQUITY IN SUBSIDIARIES
Income from equity in subsidiaries
NET INCOME
$
F-41
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2015
(in thousands)
Combined
Subsidiary
Guarantors
Consolidating
Adjustments
and Other
Total
Consolidated
Amounts
Parent
$ 1,184,878 $ 1,469,105 $ (860,896 ) $ 1,793,087
33,248
82,745
—
889,203 1,227,821
70,688
68,769
955
1,005,196 1,368,233
100,872
179,682
—
—
—
(860,896 ) 1,256,128
103,936
151,514
955
(860,896 ) 1,512,533
280,554
—
35,919
13,777
—
49,696
701
232
36,852
142,830
(1,541)
141,289
80,565
221,854 $
—
(414)
13,363
87,509
(6,820)
80,689
—
80,689 $
—
124
124
(124 )
—
(124 )
(80,565 )
(80,689 ) $
701
(58)
50,339
230,215
(8,361)
221,854
—
221,854
REVENUES
EXPENSES:
Operating
General and administrative
Depreciation and amortization
Asset impairments
OPERATING INCOME
OTHER (INCOME) EXPENSE:
Interest expense, net
Expenses associated with debt refinancing
transactions
Other (income) expense
INCOME BEFORE INCOME TAXES
Income tax expense
INCOME BEFORE EQUITY IN SUBSIDIARIES
Income from equity in subsidiaries
NET INCOME
$
F-42
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2017
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
CASH AND CASH EQUIVALENTS, beginning
of year
CASH AND CASH EQUIVALENTS, end of year
$
Parent
276,055 $
(55,242)
(206,446)
14,367
Combined
Subsidiary
Guarantors
Consolidating
Adjustments
And Other
Total
Consolidated
Amounts
65,270 $
(69,320)
4,155
105
— $
—
—
—
341,325
(124,562)
(202,291)
14,472
11,378
25,745 $
26,333
26,438 $
$
—
—
37,711
52,183
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2016
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents
CASH AND CASH EQUIVALENTS, beginning
of year
CASH AND CASH EQUIVALENTS, end of year
$
Parent
295,366 $
(19,317)
(280,337)
(4,288)
Combined
Subsidiary
Guarantors
Consolidating
Adjustments
And Other
Total
Consolidated
Amounts
80,007 $
(69,571)
(33,728)
(23,292)
— $
(33,300 )
33,300
—
375,373
(122,188)
(280,765)
(27,580)
15,666
11,378 $
49,625
26,333 $
$
—
— $
65,291
37,711
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2015
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
CASH AND CASH EQUIVALENTS, beginning
of year
CASH AND CASH EQUIVALENTS, end of year
$
Combined
Subsidiary
Guarantors
Consolidating
Adjustments
And Other
Total
Consolidated
Amounts
297,427 $
(212,215)
(97,643)
(12,431)
— $
(103,175 )
103,175
—
399,798
(409,281)
381
(9,102)
Parent
102,371 $
(93,891)
(5,151)
3,329
12,337
15,666 $
62,056
49,625 $
$
—
— $
74,393
65,291
F-43
19. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly financial information for each of the quarters in the years ended December 31, 2017 and
2016 is as follows (in thousands, except per share data):
Revenue
Operating income
Net income
Basic earnings per share:
Net income
Diluted earnings per share:
Net income
Revenue
Operating income
Net income
Basic earnings per share:
Net income
Diluted earnings per share:
Net income
March 31,
2017
June 30,
2017
$ 445,684 $ 436,393 $
65,279
45,475
69,039
50,047
December 31,
2017
September 30,
2017
442,845 $ 440,576
65,263
41,340
60,815
41,178 $
$
$
0.42 $
0.38 $
0.35 $
0.35
0.42 $
0.38 $
0.35 $
0.35
March 31,
2016
June 30,
2016
$ 447,385 $ 463,331 $
77,176
57,583
64,928
46,307
December 31,
2016
September 30,
2016
474,935 $ 464,134
80,359
60,689
73,953
55,340
$
$
0.39 $
0.49 $
0.47 $
0.52
0.39 $
0.49 $
0.47 $
0.52
F-44
e
t
a
D
/
d
e
t
c
u
r
t
s
n
o
C
d
e
r
i
u
q
c
A
d
e
t
a
l
u
m
u
c
c
A
n
o
i
t
a
i
c
e
r
p
e
D
)
B
(
)
A
(
t
a
d
e
i
r
r
a
C
h
c
i
h
W
t
a
t
n
u
o
m
A
s
s
o
r
G
d
n
a
s
g
n
i
d
l
i
u
B
d
o
i
r
e
P
f
o
e
s
o
l
C
t
s
o
C
d
e
z
i
l
a
t
i
p
a
C
o
t
t
s
o
C
l
a
i
t
i
n
I
y
n
a
p
m
o
C
d
l
o
h
e
s
a
e
L
d
n
a
L
d
n
a
d
n
a
L
o
t
t
n
e
u
q
e
s
b
u
S
d
n
a
s
g
n
i
d
l
i
u
B
7
1
0
2
,
1
3
R
E
B
M
E
C
E
D
)
s
d
n
a
s
u
o
h
t
n
i
(
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
C
I
V
I
C
E
R
O
C
N
O
I
T
A
I
C
E
R
P
E
D
D
E
T
A
L
U
M
U
C
C
A
D
N
A
S
T
E
S
S
A
E
T
A
T
S
E
L
A
E
R
-
I
I
I
E
L
U
D
E
H
C
S
l
a
t
o
T
s
t
n
e
m
e
v
o
r
p
m
I
s
t
n
e
m
e
v
o
r
p
m
I
n
o
i
t
i
s
i
u
q
c
A
s
t
n
e
m
e
v
o
r
p
m
I
d
n
a
L
n
o
i
t
a
c
o
L
n
o
i
t
p
i
r
c
s
e
D
,
y
t
n
u
o
C
s
m
a
d
A
l
a
n
o
i
t
c
e
r
r
o
C
y
t
n
u
o
C
s
m
a
d
A
8
0
0
2
)
1
1
6
,
2
2
(
$
0
5
3
,
3
2
1
$
1
6
2
,
2
2
1
$
9
8
0
,
1
$
1
1
9
,
2
$
5
6
5
,
9
1
1
$
4
7
8
$
i
p
p
i
s
s
i
s
s
i
M
7
1
0
2
)
6
(
8
2
0
,
7
8
3
9
7
1
0
2
)
0
4
(
7
4
1
,
5
7
8
3
,
1
7
1
0
2
)
2
2
(
5
5
9
,
3
4
7
6
,
2
5
1
0
2
)
1
5
1
(
9
4
5
,
5
8
5
3
,
1
0
9
0
,
6
0
6
7
,
3
1
8
2
,
1
1
9
1
,
4
5
1
0
2
)
8
1
5
(
7
6
9
,
4
2
0
7
4
,
5
7
9
4
,
9
1
5
8
8
4
1
-
1
0
3
2
7
8
3
5
8
9
3
2
,
1
4
7
6
,
2
0
9
0
,
6
0
6
7
,
3
1
8
2
,
1
8
5
0
,
1
0
9
1
,
4
7
0
6
,
4
8
8
4
,
9
1
,
r
e
v
n
e
D
o
d
a
r
o
l
o
C
,
d
o
o
w
e
l
g
n
E
o
d
a
r
o
l
o
C
,
a
t
s
u
g
u
A
a
i
g
r
o
e
G
,
e
l
l
a
V
l
e
D
s
a
x
e
T
,
e
l
l
a
V
l
e
D
s
a
x
e
T
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
s
m
a
d
A
r
e
t
n
e
C
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
a
t
s
u
g
u
A
y
t
i
n
u
m
m
o
C
e
o
h
a
p
a
r
A
r
e
t
n
e
C
t
n
e
m
t
a
e
r
T
y
r
t
n
e
e
R
l
a
i
t
n
e
d
i
s
e
R
n
i
t
s
u
A
r
e
t
n
e
C
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
n
i
t
s
u
A
2
9
9
1
)
6
9
8
,
3
2
(
1
4
2
,
1
8
6
6
8
,
9
7
5
7
3
,
1
6
7
5
,
7
6
5
1
1
,
3
1
5
9
9
1
-
)
C
(
0
7
-
5
1
0
2
)
9
6
1
(
0
2
4
,
3
7
5
7
,
2
3
1
0
2
)
2
8
7
,
1
(
7
1
9
,
2
1
3
8
0
,
2
1
0
7
3
6
6
4
3
8
-
7
5
7
7
6
1
9
2
0
0
7
,
2
0
4
4
,
1
1
0
5
5
0
7
3
6
6
0
0
8
9
9
9
1
)
6
8
5
,
8
4
(
6
7
2
,
9
3
1
7
0
7
,
6
3
1
9
6
5
,
2
4
5
1
,
2
1
7
3
3
,
5
2
1
5
8
7
,
1
5
1
0
2
)
5
2
5
(
3
5
2
,
4
1
4
5
6
,
5
6
1
0
2
)
1
9
(
5
4
3
,
6
7
3
4
,
1
9
9
5
,
8
8
0
9
,
4
0
6
0
,
1
1
3
6
,
4
2
6
5
,
8
4
8
1
6
5
2
,
1
5
0
9
,
4
9
9
9
1
/
4
9
9
1
)
7
0
7
,
6
6
(
1
5
6
,
2
8
1
4
8
4
,
8
7
1
7
6
1
,
4
2
2
8
,
7
4
1
3
5
,
3
3
1
8
9
2
,
1
5
1
0
2
)
2
6
1
(
6
3
3
,
3
9
7
6
,
2
7
5
6
5
1
0
2
)
1
4
2
(
4
6
0
,
8
7
9
4
,
2
7
6
5
,
5
-
5
0
4
9
7
6
,
2
7
5
6
2
9
0
,
2
7
6
5
,
5
o
d
a
r
o
l
o
C
,
t
r
o
p
e
g
d
i
r
B
s
a
x
e
T
,
a
i
h
p
l
e
d
a
l
i
h
P
a
i
n
a
v
l
y
s
n
n
e
P
,
o
g
e
i
D
n
a
S
a
i
n
r
o
f
i
l
a
C
,
y
t
i
C
a
i
n
r
o
f
i
l
a
C
a
i
n
r
o
f
i
l
a
C
,
y
t
i
C
a
m
o
h
a
l
k
O
a
m
o
h
a
l
k
O
,
d
o
o
w
e
l
g
n
E
o
d
a
r
o
l
o
C
,
e
c
n
e
r
o
l
F
a
n
o
z
i
r
A
,
r
e
t
s
e
h
C
a
i
n
a
v
l
y
s
n
n
e
P
,
e
n
n
e
y
e
h
C
g
n
i
m
o
y
W
r
e
f
s
n
a
r
T
e
l
o
r
a
P
-
e
r
P
t
r
o
p
e
g
d
i
r
B
y
t
i
l
i
c
a
F
y
r
t
n
e
e
R
l
a
i
t
n
e
d
i
s
e
R
t
e
e
r
t
S
d
a
o
r
B
e
u
n
e
v
A
n
o
t
s
o
B
I
A
C
r
e
t
n
e
C
l
a
n
o
i
t
c
e
r
r
o
C
y
t
i
C
a
i
n
r
o
f
i
l
a
C
r
e
t
n
e
C
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
r
e
v
r
a
C
e
c
n
e
r
o
l
F
a
n
o
z
i
r
A
l
a
r
t
n
e
C
x
e
l
p
m
o
C
l
a
n
o
i
t
c
e
r
r
o
C
y
t
i
n
u
m
m
o
C
l
a
i
n
n
e
t
n
e
C
r
e
t
n
e
C
n
o
i
t
i
s
n
a
r
T
y
r
t
n
e
e
R
l
a
i
t
n
e
d
i
s
e
R
r
e
t
s
e
h
C
r
e
t
n
e
C
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
e
n
n
e
y
e
h
C
,
s
a
m
i
n
A
s
a
L
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
y
t
n
u
o
C
t
n
e
B
F-45
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
C
I
V
I
C
E
R
O
C
N
O
I
T
A
I
C
E
R
P
E
D
D
E
T
A
L
U
M
U
C
C
A
D
N
A
S
T
E
S
S
A
E
T
A
T
S
E
L
A
E
R
-
I
I
I
E
L
U
D
E
H
C
S
e
t
a
D
/
d
e
t
c
u
r
t
s
n
o
C
d
e
r
i
u
q
c
A
d
e
t
a
l
u
m
u
c
c
A
n
o
i
t
a
i
c
e
r
p
e
D
)
B
(
)
A
(
t
a
d
e
i
r
r
a
C
h
c
i
h
W
t
a
t
n
u
o
m
A
s
s
o
r
G
d
n
a
s
g
n
i
d
l
i
u
B
d
o
i
r
e
P
f
o
e
s
o
l
C
t
s
o
C
d
e
z
i
l
a
t
i
p
a
C
o
t
t
s
o
C
l
a
i
t
i
n
I
y
n
a
p
m
o
C
l
a
t
o
T
s
t
n
e
m
e
v
o
r
p
m
I
s
t
n
e
m
e
v
o
r
p
m
I
n
o
i
t
i
s
i
u
q
c
A
s
t
n
e
m
e
v
o
r
p
m
I
d
n
a
L
d
l
o
h
e
s
a
e
L
d
n
a
L
d
n
a
d
n
a
L
o
t
t
n
e
u
q
e
s
b
u
S
d
n
a
s
g
n
i
d
l
i
u
B
7
1
0
2
,
1
3
R
E
B
M
E
C
E
D
)
s
d
n
a
s
u
o
h
t
n
i
(
4
9
9
1
)
8
7
6
,
8
1
(
0
4
7
,
7
4
2
7
3
,
6
4
8
6
3
,
1
1
8
0
,
1
3
5
1
2
,
6
1
7
9
9
1
)
5
1
6
,
6
3
(
7
0
6
,
5
1
1
5
0
0
,
5
1
1
8
9
9
1
)
1
1
6
,
2
2
(
6
0
8
,
8
7
3
5
9
,
7
7
6
1
0
2
)
5
4
(
4
6
0
,
2
9
4
6
7
1
0
2
)
2
1
(
0
0
1
,
7
4
3
9
,
1
2
0
6
3
5
8
5
1
4
,
1
6
6
1
,
5
5
1
0
2
)
5
2
5
(
4
2
3
,
2
4
2
3
,
2
-
4
5
0
,
4
4
3
0
3
,
1
7
1
5
2
,
0
5
1
6
3
,
8
2
2
6
1
6
7
1
8
3
4
6
8
8
,
1
9
9
9
1
)
7
0
5
,
6
3
(
4
9
6
,
2
4
6
0
3
,
1
4
8
8
3
,
1
5
8
0
,
9
6
9
1
,
3
3
3
0
0
2
)
6
0
4
,
3
2
(
7
9
5
,
6
7
9
0
1
,
4
7
8
8
4
,
2
1
4
5
,
9
2
5
4
8
,
6
4
4
4
4
0
5
2
4
9
1
—
3
1
4
1
1
2
6
1
0
2
)
8
5
(
2
2
7
,
7
4
3
9
8
8
7
,
6
7
0
2
7
2
7
8
8
7
,
6
5
1
0
2
)
0
0
7
(
5
5
5
,
5
5
5
5
,
5
-
3
0
7
,
1
2
5
8
,
3
6
9
9
1
)
6
2
4
,
4
3
(
6
1
1
,
8
0
1
5
5
1
,
7
0
1
1
6
9
5
6
1
,
1
4
1
0
7
,
6
6
8
9
9
1
5
9
9
1
5
1
0
2
5
1
0
2
)
5
3
5
(
)
4
4
4
(
)
6
3
4
,
4
2
(
)
9
8
6
,
2
2
(
7
0
8
,
5
6
5
9
3
,
2
6
7
7
4
,
0
2
3
2
2
,
5
1
4
9
4
,
4
6
9
8
8
,
6
5
1
4
5
,
5
8
9
8
,
4
3
1
3
,
1
6
0
5
,
5
6
3
9
,
4
1
5
2
3
,
0
1
0
0
7
2
2
9
,
3
2
5
2
8
,
3
3
5
0
0
,
1
7
7
6
,
1
4
5
4
6
,
7
2
6
3
5
,
4
8
9
1
,
4
—
0
5
2
8
0
2
5
2
9
6
3
9
,
4
1
5
2
3
,
0
1
5
9
9
1
)
6
9
9
,
9
1
(
1
5
7
,
9
4
6
9
8
,
7
4
5
5
8
,
1
5
4
9
,
5
1
8
0
3
,
3
3
8
9
4
8
8
4
4
1
4
,
1
8
5
7
,
1
6
6
1
,
5
o
d
a
r
o
l
o
C
,
y
t
i
C
e
c
r
e
m
m
o
C
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
e
c
r
e
m
m
o
C
n
o
i
t
a
c
o
L
w
e
N
,
n
a
l
i
M
o
c
i
x
e
M
,
g
n
i
h
s
u
C
a
m
o
h
a
l
k
O
,
s
l
l
o
h
c
i
N
a
i
g
r
o
e
G
,
r
e
v
n
e
D
o
d
a
r
o
l
o
C
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
n
o
r
r
a
m
C
i
s
n
o
i
t
c
e
r
r
o
C
y
t
n
u
o
C
a
l
o
b
i
C
n
o
i
t
p
i
r
c
s
e
D
r
e
t
n
e
C
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
e
e
f
f
o
C
y
t
i
l
i
c
a
F
e
n
i
b
m
u
l
o
C
o
d
a
r
o
l
o
C
,
r
e
v
n
e
D
o
d
a
r
o
l
o
C
,
s
n
i
h
c
t
u
H
s
a
x
e
T
,
e
l
l
i
v
n
e
d
l
o
H
a
m
o
h
a
l
k
O
,
a
g
n
o
t
a
W
a
m
o
h
a
l
k
O
s
a
x
e
T
,
n
e
d
E
s
a
x
e
T
,
o
s
a
P
l
E
s
a
x
e
T
,
o
s
a
P
l
E
,
y
o
l
E
a
n
o
z
i
r
A
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
s
a
l
l
a
D
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
s
i
v
a
D
l
a
n
o
i
t
c
e
r
r
o
C
k
c
a
b
d
n
o
m
a
i
D
r
e
t
n
e
C
n
o
i
t
n
e
t
e
D
n
e
d
E
y
t
i
l
i
c
a
F
y
t
i
l
i
c
a
F
a
i
l
h
a
D
y
t
i
l
i
c
a
F
y
t
i
l
i
c
a
F
e
s
U
-
i
t
l
u
M
o
s
a
P
l
E
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
o
s
a
P
l
E
r
e
t
n
e
C
n
o
i
t
n
e
t
e
D
y
o
l
E
,
i
t
s
i
r
h
C
s
u
p
r
o
C
l
a
n
o
i
t
i
s
n
a
r
T
i
t
s
i
r
h
C
s
u
p
r
o
C
s
a
x
e
T
,
y
b
l
e
h
S
a
n
a
t
n
o
M
r
e
t
n
e
C
l
a
n
o
i
t
c
e
r
r
o
C
s
d
a
o
r
s
s
o
r
C
r
e
t
n
e
C
,
s
g
n
i
r
p
S
y
e
n
l
O
l
a
n
o
i
t
c
e
r
r
o
C
y
t
n
u
o
C
y
e
l
w
o
r
C
F-46
5
1
0
2
)
4
0
4
(
2
4
8
,
3
0
9
5
6
1
0
2
)
8
8
(
9
9
4
,
4
1
6
4
,
1
2
5
2
,
3
8
3
0
,
3
7
5
2
8
5
2
4
3
3
3
0
2
,
1
1
5
2
,
3
8
3
0
,
3
s
a
x
e
T
,
r
e
v
n
e
D
o
d
a
r
o
l
o
C
r
e
t
n
e
C
g
n
i
n
i
a
r
T
d
n
a
y
t
i
l
i
c
a
F
x
o
F
,
h
t
r
o
W
t
r
o
F
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
h
t
r
o
W
t
r
o
F
e
t
a
D
/
d
e
t
c
u
r
t
s
n
o
C
d
e
r
i
u
q
c
A
d
e
t
a
l
u
m
u
c
c
A
n
o
i
t
a
i
c
e
r
p
e
D
)
B
(
)
A
(
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
C
I
V
I
C
E
R
O
C
N
O
I
T
A
I
C
E
R
P
E
D
D
E
T
A
L
U
M
U
C
C
A
D
N
A
S
T
E
S
S
A
E
T
A
T
S
E
L
A
E
R
-
I
I
I
E
L
U
D
E
H
C
S
t
a
d
e
i
r
r
a
C
h
c
i
h
W
t
a
t
n
u
o
m
A
s
s
o
r
G
d
n
a
s
g
n
i
d
l
i
u
B
d
o
i
r
e
P
f
o
e
s
o
l
C
t
s
o
C
d
e
z
i
l
a
t
i
p
a
C
o
t
t
s
o
C
l
a
i
t
i
n
I
y
n
a
p
m
o
C
l
a
t
o
T
s
t
n
e
m
e
v
o
r
p
m
I
s
t
n
e
m
e
v
o
r
p
m
I
n
o
i
t
i
s
i
u
q
c
A
s
t
n
e
m
e
v
o
r
p
m
I
d
n
a
L
d
l
o
h
e
s
a
e
L
d
n
a
L
d
n
a
d
n
a
L
o
t
t
n
e
u
q
e
s
b
u
S
d
n
a
s
g
n
i
d
l
i
u
B
7
1
0
2
,
1
3
R
E
B
M
E
C
E
D
)
s
d
n
a
s
u
o
h
t
n
i
(
n
o
i
t
a
c
o
L
,
e
l
l
i
v
n
e
e
r
G
n
o
i
t
p
i
r
c
s
e
D
e
l
l
i
v
n
e
e
r
G
7
1
0
2
)
2
1
(
6
5
7
,
1
5
9
3
,
1
1
6
3
8
7
8
3
,
1
1
6
3
a
n
i
l
o
r
a
C
h
t
r
o
N
4
8
9
1
)
7
9
3
,
4
3
(
7
6
5
,
5
9
7
0
0
,
2
9
0
6
5
,
3
4
4
9
,
9
3
3
7
3
,
3
5
0
5
2
,
2
,
n
o
t
s
u
o
H
s
a
x
e
T
r
e
t
n
e
C
g
n
i
s
s
e
c
o
r
P
n
o
t
s
u
o
H
,
g
r
u
b
n
e
s
l
a
W
l
a
n
o
i
t
c
e
r
r
o
C
y
t
n
u
o
C
o
n
a
f
r
e
u
H
7
9
9
1
)
2
2
7
,
3
1
(
2
0
7
,
0
3
3
8
6
,
9
2
9
1
0
,
1
0
2
2
,
4
8
5
3
,
6
2
2
1
0
2
)
5
8
6
,
5
(
9
6
7
,
8
4
1
1
5
,
8
4
8
5
2
3
0
4
8
5
1
,
8
4
8
9
9
1
)
9
8
7
,
2
2
(
4
8
8
,
9
7
3
3
8
,
8
7
1
5
0
,
1
2
7
4
,
3
4
0
8
9
,
5
3
8
0
0
2
)
0
0
9
,
9
3
(
2
9
7
,
6
9
1
6
0
3
,
6
9
1
6
8
4
4
5
3
,
3
1
5
5
1
,
3
8
1
4
2
1
8
0
2
2
3
4
3
8
2
o
d
a
r
o
l
o
C
,
n
e
l
l
i
M
a
i
g
r
o
e
G
,
n
o
t
g
n
i
l
r
u
B
o
d
a
r
o
l
o
C
,
y
o
l
E
a
n
o
z
i
r
A
r
e
t
n
e
C
l
a
n
o
i
t
c
e
r
r
o
C
n
o
s
r
a
C
t
i
K
r
e
t
n
e
C
l
a
n
o
i
t
c
e
r
r
o
C
a
m
l
a
P
a
L
r
e
t
n
e
C
l
a
n
o
i
t
c
e
r
r
o
C
s
n
i
k
n
e
J
r
e
t
n
e
C
,
t
u
a
e
n
n
o
C
n
o
i
t
u
t
i
t
s
n
I
l
a
n
o
i
t
c
e
r
r
o
C
e
i
r
E
e
k
a
L
8
9
9
1
)
3
8
2
,
7
(
3
2
7
,
7
1
3
0
5
,
6
1
0
2
2
,
1
8
0
7
,
6
1
5
1
5
6
1
0
2
)
6
9
(
1
5
4
,
7
3
1
4
,
2
6
1
0
2
)
4
4
(
4
4
0
,
4
1
8
6
8
3
0
,
5
3
6
3
,
3
-
8
9
9
8
9
1
)
2
9
9
,
2
(
1
0
6
,
6
1
5
3
,
6
0
5
2
7
7
5
,
1
4
7
7
,
4
3
1
4
,
2
2
8
5
8
9
9
1
)
8
1
8
,
6
(
6
7
8
,
8
1
8
5
9
,
7
1
8
1
9
2
3
6
,
8
4
9
9
,
9
7
1
0
2
)
6
(
4
3
8
4
1
7
0
2
1
-
4
1
7
0
0
0
2
)
5
7
1
,
1
2
(
4
7
9
,
8
7
5
7
8
,
7
7
9
9
0
,
1
6
1
1
,
8
1
6
9
3
,
0
6
1
1
0
2
)
3
4
5
,
9
(
6
0
9
,
7
7
8
8
0
,
4
7
8
1
8
,
3
5
8
9
1
)
8
4
7
,
1
1
(
0
9
1
,
0
3
4
0
2
,
9
2
2
9
9
1
)
1
8
9
,
8
2
(
8
7
3
,
8
8
7
8
8
,
7
8
6
8
9
1
9
4
8
7
2
,
3
4
0
7
9
,
4
4
6
5
2
,
5
5
6
6
,
2
7
3
7
,
6
2
9
7
7
,
9
6
1
7
8
,
2
8
8
7
0
3
1
0
0
5
0
5
2
8
3
0
,
5
4
6
3
,
3
0
5
2
2
6
4
0
2
1
,
h
t
r
o
w
n
e
v
a
e
L
r
e
t
n
e
C
n
o
i
t
n
e
t
e
D
h
t
r
o
w
n
e
v
a
e
L
o
i
h
O
,
o
d
e
r
a
L
s
a
x
e
T
r
e
t
n
e
C
g
n
i
s
s
e
c
o
r
P
o
d
e
r
a
L
s
a
s
n
a
K
,
e
l
l
i
v
y
t
t
a
e
B
y
k
c
u
t
n
e
K
,
k
a
O
e
v
i
L
a
i
n
r
o
f
i
l
a
C
,
h
c
a
e
B
g
n
o
L
a
i
n
r
o
f
i
l
a
C
,
t
n
o
m
g
n
o
L
o
d
a
r
o
l
o
C
,
y
r
a
M
.
t
S
y
k
c
u
t
n
e
K
,
e
a
R
c
M
a
i
g
r
o
e
G
,
e
l
l
i
v
e
g
d
e
l
l
i
M
a
i
g
r
o
e
G
r
e
t
n
e
C
l
a
n
o
i
t
c
e
r
r
o
C
y
e
n
s
e
h
C
o
e
L
t
n
e
m
t
a
e
r
T
y
t
i
n
u
m
m
o
C
t
n
o
m
g
n
o
L
r
e
t
n
e
C
t
n
e
m
t
s
u
j
d
A
n
o
i
r
a
M
r
e
t
n
e
C
y
t
i
n
u
m
m
o
C
h
c
a
e
B
g
n
o
L
r
e
t
n
e
C
s
n
o
i
t
c
e
r
r
o
C
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
e
a
R
c
M
r
e
t
n
e
C
t
n
e
m
t
s
u
j
d
A
e
e
L
e
l
l
i
v
e
g
d
e
l
l
i
M
F-47
e
t
a
D
/
d
e
t
c
u
r
t
s
n
o
C
d
e
r
i
u
q
c
A
d
e
t
a
l
u
m
u
c
c
A
n
o
i
t
a
i
c
e
r
p
e
D
)
B
(
)
A
(
t
a
d
e
i
r
r
a
C
h
c
i
h
W
t
a
t
n
u
o
m
A
s
s
o
r
G
d
n
a
s
g
n
i
d
l
i
u
B
d
o
i
r
e
P
f
o
e
s
o
l
C
t
s
o
C
d
e
z
i
l
a
t
i
p
a
C
o
t
t
s
o
C
l
a
i
t
i
n
I
y
n
a
p
m
o
C
d
l
o
h
e
s
a
e
L
d
n
a
L
d
n
a
d
n
a
L
o
t
t
n
e
u
q
e
s
b
u
S
d
n
a
s
g
n
i
d
l
i
u
B
7
1
0
2
,
1
3
R
E
B
M
E
C
E
D
)
s
d
n
a
s
u
o
h
t
n
i
(
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
C
I
V
I
C
E
R
O
C
N
O
I
T
A
I
C
E
R
P
E
D
D
E
T
A
L
U
M
U
C
C
A
D
N
A
S
T
E
S
S
A
E
T
A
T
S
E
L
A
E
R
-
I
I
I
E
L
U
D
E
H
C
S
l
a
t
o
T
s
t
n
e
m
e
v
o
r
p
m
I
s
t
n
e
m
e
v
o
r
p
m
I
n
o
i
t
i
s
i
u
q
c
A
s
t
n
e
m
e
v
o
r
p
m
I
d
n
a
L
n
o
i
t
a
c
o
L
n
o
i
t
p
i
r
c
s
e
D
5
9
9
1
-
)
C
(
0
0
1
-
0
0
1
-
9
8
5
,
2
2
6
7
1
0
1
0
2
)
3
5
9
,
2
1
(
3
0
0
,
2
8
9
2
6
,
3
7
4
7
3
,
8
3
9
0
,
0
1
2
6
3
,
4
6
8
4
5
,
7
8
9
9
1
)
1
4
5
,
1
3
(
7
1
5
,
2
0
1
1
6
1
,
2
0
1
6
5
3
1
5
3
,
0
6
6
6
1
,
2
4
7
9
9
1
)
5
6
4
,
9
1
(
6
1
9
,
0
5
8
5
0
,
9
4
8
5
8
,
1
3
8
5
,
0
1
3
8
5
,
9
3
9
8
9
1
)
3
0
7
,
3
1
(
9
4
3
,
4
3
0
7
4
,
3
3
9
7
8
9
1
3
,
8
1
8
8
8
,
5
1
7
1
0
2
)
1
4
(
7
9
9
,
3
3
8
8
,
2
7
1
0
2
)
3
1
(
2
7
7
,
5
0
2
2
,
1
4
1
1
,
1
2
5
5
,
4
5
1
0
2
)
6
5
3
,
6
(
)
D
(
8
3
0
,
2
5
1
9
2
0
,
5
1
1
9
0
0
,
7
3
1
9
9
1
)
4
1
4
,
5
1
(
2
3
5
,
1
3
4
6
4
,
0
3
8
6
0
,
1
8
9
9
1
)
5
4
(
)
C
(
8
3
8
8
9
4
6
0
0
2
)
8
5
9
,
1
3
(
2
7
7
,
4
3
1
6
1
5
,
4
3
1
7
1
0
2
)
9
(
5
6
1
,
1
0
7
0
,
1
5
1
0
2
)
3
6
1
(
7
4
3
,
3
3
9
6
,
2
7
0
0
2
)
2
7
2
,
1
2
(
4
2
3
,
0
0
1
8
3
8
,
9
9
9
9
9
1
-
)
D
(
-
-
6
8
9
1
)
8
4
4
,
9
(
0
6
8
,
9
1
8
5
,
9
0
4
3
6
5
2
5
9
4
5
6
6
8
4
-
9
7
2
8
7
5
2
2
8
7
,
8
6
2
1
,
9
8
9
4
6
2
6
,
2
0
2
2
,
1
6
0
3
,
2
2
1
2
2
,
5
1
6
0
3
,
6
5
6
5
4
,
8
7
-
-
0
7
0
,
1
3
9
6
,
2
8
2
2
,
1
3
0
9
,
8
9
-
8
5
4
,
2
9
7
1
3
,
3
3
9
3
,
6
—
0
5
7
2
4
1
4
1
1
,
1
4
4
5
,
4
0
0
1
0
5
7
0
1
5
9
4
5
6
3
9
1
—
0
5
1
1
1
4
,
4
1
1
5
4
8
,
8
2
,
s
l
l
e
W
l
a
r
e
n
i
M
e
l
o
r
a
P
-
e
r
P
s
l
l
e
W
l
a
r
e
n
i
M
s
a
x
e
T
,
p
m
u
r
h
a
P
a
d
a
v
e
N
,
e
r
y
a
S
a
m
o
h
a
l
k
O
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
k
r
o
F
h
t
r
o
N
n
o
i
t
n
e
t
e
D
n
r
e
h
t
u
o
S
a
d
a
v
e
N
y
t
i
l
i
c
a
F
r
e
f
s
n
a
r
T
r
e
t
n
e
C
,
n
w
o
t
s
g
n
u
o
Y
l
a
n
o
i
t
c
e
r
r
o
C
o
i
h
O
t
s
a
e
h
t
r
o
N
o
i
h
O
,
s
t
n
a
r
G
o
c
i
x
e
M
w
e
N
,
y
t
i
C
a
m
o
h
a
l
k
O
a
m
o
h
a
l
k
O
,
n
o
s
c
u
T
a
n
o
z
i
r
A
,
o
g
e
i
D
n
a
S
a
i
n
r
o
f
i
l
a
C
,
n
o
t
e
l
p
p
A
a
t
o
s
e
n
n
i
M
,
i
t
a
n
n
i
c
n
i
C
o
i
h
O
,
y
o
l
E
a
n
o
z
i
r
A
,
m
a
h
g
n
i
k
c
o
R
a
n
i
l
o
r
a
C
h
t
r
o
N
,
a
i
h
p
l
e
d
a
l
i
h
P
a
i
n
a
v
l
y
s
n
n
e
P
,
y
o
l
E
a
n
o
z
i
r
A
,
o
g
e
i
D
n
a
S
a
i
n
r
o
f
i
l
a
C
,
s
i
h
p
m
e
M
e
e
s
s
e
n
n
e
T
l
a
n
o
i
t
i
s
n
a
r
T
y
t
i
C
a
m
o
h
a
l
k
O
o
c
i
x
e
M
w
e
N
t
s
e
w
h
t
r
o
N
r
e
t
n
e
C
l
a
n
o
i
t
c
e
r
r
o
C
r
e
t
n
e
C
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
e
l
c
a
r
O
r
e
t
n
e
C
r
e
t
n
e
C
n
o
i
t
n
e
t
e
D
a
s
e
M
y
a
t
O
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
e
i
r
i
a
r
P
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
e
t
a
g
s
n
e
e
u
Q
r
e
t
n
e
C
l
a
n
o
i
t
c
e
r
r
o
C
k
c
o
R
d
e
R
y
r
t
n
e
e
R
l
a
i
t
n
e
d
i
s
e
R
l
l
a
H
h
t
o
R
r
e
t
n
e
C
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
o
r
a
u
g
a
S
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
o
g
e
i
D
n
a
S
r
e
t
n
e
C
g
n
i
n
i
a
r
T
y
b
l
e
h
S
m
a
h
g
n
i
k
c
o
R
F-48
0
9
9
1
)
4
1
5
,
4
2
(
6
9
3
,
1
6
7
7
6
,
9
5
9
1
7
,
1
5
1
0
2
5
1
0
2
7
1
0
2
5
1
0
2
)
7
4
4
(
)
4
4
8
,
5
(
)
2
(
)
8
7
4
(
5
3
0
,
3
1
3
1
5
,
0
4
1
9
2
8
,
4
4
9
8
,
8
3
1
5
7
2
5
6
3
,
5
5
7
4
4
9
,
4
6
1
0
2
)
4
3
(
0
3
6
,
4
2
6
5
5
1
0
2
8
9
9
1
0
9
9
1
8
9
9
1
)
3
6
1
(
)
2
6
9
,
0
1
(
)
2
2
5
,
6
1
(
)
1
3
6
,
2
2
(
8
4
3
,
3
7
7
7
,
6
2
2
7
5
,
8
3
4
4
1
,
6
7
4
9
6
,
2
8
4
6
,
4
2
5
6
5
,
6
3
6
1
7
,
5
7
9
1
6
,
1
6
0
2
,
8
0
0
2
1
2
4
8
6
0
,
4
4
5
6
9
2
1
,
2
8
2
4
7
0
0
,
2
6
8
2
,
8
8
6
7
2
5
4
,
4
-
9
3
8
0
2
1
1
9
1
1
,
6
3
0
1
,
6
6
4
2
,
5
4
8
9
9
1
)
8
3
7
,
4
1
(
2
0
6
,
6
3
2
1
0
,
5
3
0
9
5
,
1
5
1
6
,
1
1
7
8
4
,
4
2
4
0
0
2
)
4
7
3
,
2
2
(
1
5
7
,
7
8
7
1
5
,
6
8
4
3
2
,
1
8
4
0
,
7
1
0
6
5
,
0
7
7
1
0
2
)
8
1
(
0
8
4
,
1
8
8
7
7
9
9
1
)
9
5
7
,
7
(
1
2
9
,
7
1
7
2
3
,
7
1
2
9
6
4
9
5
-
8
8
7
0
2
3
,
4
8
1
4
,
3
1
0
0
0
2
)
6
3
6
,
4
4
(
7
7
1
,
1
4
1
1
9
5
,
9
3
1
6
8
5
,
1
9
3
5
,
6
9
8
3
6
,
4
4
e
t
a
D
/
d
e
t
c
u
r
t
s
n
o
C
d
e
r
i
u
q
c
A
d
e
t
a
l
u
m
u
c
c
A
n
o
i
t
a
i
c
e
r
p
e
D
)
B
(
)
A
(
t
a
d
e
i
r
r
a
C
h
c
i
h
W
t
a
t
n
u
o
m
A
s
s
o
r
G
d
n
a
s
g
n
i
d
l
i
u
B
d
o
i
r
e
P
f
o
e
s
o
l
C
t
s
o
C
d
e
z
i
l
a
t
i
p
a
C
o
t
t
s
o
C
l
a
i
t
i
n
I
y
n
a
p
m
o
C
l
a
t
o
T
s
t
n
e
m
e
v
o
r
p
m
I
s
t
n
e
m
e
v
o
r
p
m
I
n
o
i
t
i
s
i
u
q
c
A
s
t
n
e
m
e
v
o
r
p
m
I
d
n
a
L
d
l
o
h
e
s
a
e
L
d
n
a
L
d
n
a
d
n
a
L
o
t
t
n
e
u
q
e
s
b
u
S
d
n
a
s
g
n
i
d
l
i
u
B
7
1
0
2
,
1
3
R
E
B
M
E
C
E
D
)
s
d
n
a
s
u
o
h
t
n
i
(
5
1
0
2
)
2
7
9
,
9
8
(
)
E
(
8
8
6
,
5
5
1
3
5
6
,
5
5
1
5
3
4
1
7
,
8
4
7
9
,
6
4
1
—
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
C
I
V
I
C
E
R
O
C
N
O
I
T
A
I
C
E
R
P
E
D
D
E
T
A
L
U
M
U
C
C
A
D
N
A
S
T
E
S
S
A
E
T
A
T
S
E
L
A
E
R
-
I
I
I
E
L
U
D
E
H
C
S
9
9
5
,
2
5
1
6
0
,
4
2
1
4
,
5
3
1
9
4
6
6
0
2
,
8
5
7
5
0
1
,
4
0
0
2
1
2
4
2
4
4
8
6
0
,
4
0
0
5
3
4
1
2
9
6
3
8
1
—
1
1
5
,
t
h
g
i
r
w
l
e
e
h
W
l
a
n
o
i
t
c
e
r
r
o
C
y
k
c
u
t
n
e
K
t
s
a
e
h
t
u
o
S
n
o
i
t
a
c
o
L
,
y
e
l
l
i
D
s
a
x
e
T
l
a
i
t
n
e
d
i
s
e
R
y
l
i
m
a
F
s
a
x
e
T
h
t
u
o
S
n
o
i
t
p
i
r
c
s
e
D
r
e
t
n
e
C
y
k
c
u
t
n
e
K
,
n
i
k
p
m
u
L
a
i
g
r
o
e
G
,
n
o
t
k
c
o
t
S
a
i
n
r
o
f
i
l
a
C
,
r
o
l
y
a
T
s
a
x
e
T
,
r
e
l
i
w
t
u
T
i
p
p
i
s
s
i
s
s
i
M
,
a
i
c
n
a
t
s
E
o
c
i
x
e
M
w
e
N
,
e
l
l
i
v
s
t
r
a
H
N
T
K
O
,
a
s
l
u
T
K
O
,
a
s
l
u
T
K
O
,
a
s
l
u
T
,
r
e
v
n
e
D
o
d
a
r
o
l
o
C
r
e
t
n
e
C
l
a
i
t
n
e
d
i
s
e
R
o
t
t
u
H
n
o
D
.
T
y
t
i
n
u
m
m
o
C
e
l
a
m
e
F
n
o
t
k
c
o
t
S
y
t
i
l
i
c
a
F
s
n
o
i
t
c
e
r
r
o
C
r
e
t
n
e
C
n
o
i
t
n
e
t
e
D
t
r
a
w
e
t
S
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
y
t
n
u
o
C
e
i
h
c
t
a
h
a
l
l
a
T
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
r
e
n
r
u
T
e
l
a
d
s
u
o
r
T
n
o
i
t
n
e
t
e
D
y
t
n
u
o
C
e
c
n
a
r
r
o
T
y
t
i
l
i
c
a
F
F-49
l
a
i
t
n
e
d
i
s
e
R
s
n
e
m
o
W
'
a
s
l
u
T
r
e
t
n
e
C
l
a
n
o
i
t
i
s
n
a
r
T
a
s
l
u
T
m
a
r
g
o
r
P
r
e
t
n
e
C
l
a
i
t
n
e
d
i
s
e
R
y
e
l
r
u
T
y
t
i
l
i
c
a
F
r
e
t
s
l
U
r
e
t
n
e
C
3
9
6
,
2
0
6
1
,
0
2
1
3
9
,
1
3
1
8
7
,
0
3
4
5
6
8
9
4
8
3
5
7
1
1
3
0
3
,
a
i
h
p
l
e
d
a
l
i
h
P
y
r
t
n
e
e
R
l
a
i
t
n
e
d
i
s
e
R
l
l
a
H
r
e
k
l
a
W
A
P
r
e
t
n
e
C
s
a
x
e
T
,
o
d
e
r
a
L
r
e
t
n
e
C
n
o
i
t
n
e
t
e
D
y
t
n
u
o
C
b
b
e
W
,
n
o
s
a
M
e
e
s
s
e
n
n
e
T
n
o
i
t
n
e
t
e
D
e
e
s
s
e
n
n
e
T
t
s
e
W
y
t
i
l
i
c
a
F
a
i
g
r
o
e
G
,
o
m
a
l
A
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
r
e
l
e
e
h
W
,
e
l
l
i
v
e
t
i
h
W
e
e
s
s
e
n
n
e
T
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
e
l
l
i
v
e
t
i
h
W
8
9
9
1
)
8
5
6
,
2
2
(
9
0
3
,
9
5
8
3
6
,
7
5
1
7
6
,
1
2
1
3
,
7
4
9
6
,
1
5
)
6
0
0
,
9
5
0
,
1
(
$
8
4
8
,
5
0
7
,
3
$
6
6
9
,
8
6
4
,
3
$
2
8
8
,
6
3
2
$
8
0
1
,
2
1
0
,
1
$
9
4
7
,
5
3
6
,
2
$
6
3
0
,
9
8
1
$
s
l
a
t
o
T
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
C
N
I
,
C
I
V
I
C
E
R
O
C
N
O
I
T
A
I
C
E
R
P
E
D
D
E
T
A
L
U
M
U
C
C
A
D
N
A
S
T
E
S
S
A
E
T
A
T
S
E
L
A
E
R
-
I
I
I
E
L
U
D
E
H
C
S
7
1
0
2
,
1
3
R
E
B
M
E
C
E
D
)
s
d
n
a
s
u
o
h
t
n
i
(
,
s
e
i
t
i
l
i
c
a
f
s
l
l
e
W
l
a
r
e
n
i
M
d
n
a
e
t
a
g
s
n
e
e
u
Q
e
h
t
f
o
s
e
u
l
a
v
k
o
o
b
e
h
t
n
w
o
d
e
t
i
r
w
o
t
4
1
0
2
f
o
r
e
t
r
a
u
q
h
t
r
u
o
f
e
h
t
g
n
i
r
u
d
s
t
n
e
m
r
i
a
p
m
i
h
s
a
c
-
n
o
n
d
e
d
r
o
c
e
r
c
i
v
i
C
e
r
o
C
r
e
h
t
o
s
e
s
u
r
o
f
s
e
l
a
s
t
e
s
s
a
g
n
i
m
u
s
s
a
s
e
u
l
a
v
r
i
a
f
d
e
t
a
m
i
t
s
e
e
h
t
o
t
,
y
t
i
l
i
c
a
f
t
r
o
p
e
g
d
i
r
B
e
h
t
f
o
e
u
l
a
v
k
o
o
b
e
h
t
n
w
o
d
e
t
i
r
w
o
t
7
1
0
2
f
o
r
e
t
r
a
u
q
d
r
i
h
t
e
h
t
g
n
i
r
u
d
d
n
a
.
7
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
n
o
i
l
l
i
b
6
.
3
$
y
l
e
t
a
m
i
x
o
r
p
p
a
s
i
s
e
s
o
p
r
u
p
x
a
t
e
m
o
c
n
i
l
a
r
e
d
e
f
r
o
f
s
e
i
t
r
e
p
o
r
p
f
o
t
s
o
c
e
t
a
g
e
r
g
g
a
e
h
T
.
s
e
i
t
i
l
i
c
a
f
n
o
s
i
r
p
r
o
f
s
r
a
e
y
0
5
o
t
p
u
s
t
e
s
s
a
e
l
b
a
i
c
e
r
p
e
d
f
o
s
e
v
i
l
l
u
f
e
s
u
d
e
t
a
m
i
t
s
e
g
n
i
s
u
d
e
t
a
l
u
c
l
a
c
s
i
n
o
i
t
a
i
c
e
r
p
e
D
)
A
(
)
B
(
)
C
(
.
s
e
i
t
i
l
i
c
a
f
l
a
n
o
i
t
c
e
r
r
o
c
n
a
h
t
r
e
b
m
e
c
e
D
n
o
e
s
a
e
l
e
h
t
f
o
n
o
i
t
a
r
i
p
x
e
n
o
p
U
.
o
g
e
i
D
n
a
S
f
o
y
t
n
u
o
C
e
h
t
h
t
i
w
e
s
a
e
l
d
n
u
o
r
g
a
o
t
t
c
e
j
b
u
s
s
a
w
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
o
g
e
i
D
n
a
S
e
h
T
.
5
1
0
2
f
o
r
e
t
r
a
u
q
h
t
r
u
o
f
e
h
t
n
i
r
e
t
n
e
C
n
o
i
t
n
e
t
e
D
a
s
e
M
y
a
t
O
d
e
b
-
2
8
4
,
1
d
e
t
c
u
r
t
s
n
o
c
y
l
w
e
n
e
h
t
o
t
y
t
i
l
i
c
a
F
l
a
n
o
i
t
c
e
r
r
o
C
o
g
e
i
D
n
a
S
d
e
b
-
4
5
1
,
1
e
h
t
m
o
r
f
s
n
o
i
t
a
r
e
p
o
d
e
n
o
i
t
i
s
n
a
r
t
e
W
)
D
(
e
h
T
"
,
0
1
-
7
9
.
o
N
e
c
r
o
F
k
s
a
T
s
e
u
s
s
I
g
n
i
g
r
e
m
E
y
l
r
e
m
r
o
f
,
5
5
-
0
4
-
0
4
8
C
S
A
h
t
i
w
e
c
n
a
d
r
o
c
c
a
n
i
,
s
e
s
o
p
r
u
p
g
n
i
t
n
u
o
c
c
a
r
o
f
s
t
e
s
s
a
d
e
t
c
u
r
t
s
n
o
c
y
l
w
e
n
e
h
t
f
o
r
e
n
w
o
e
h
t
d
e
m
e
e
d
g
n
i
e
b
c
i
v
i
C
e
r
o
C
n
i
d
e
t
l
u
s
e
r
t
n
e
m
e
e
r
g
a
s
i
h
T
.
r
o
s
s
e
l
y
t
r
a
p
-
d
r
i
h
t
a
h
t
i
w
t
n
e
m
e
e
r
g
a
e
s
a
e
l
a
o
t
t
c
e
j
b
u
s
s
i
r
e
t
n
e
C
l
a
i
t
n
e
d
i
s
e
R
y
l
i
m
a
F
s
a
x
e
T
h
t
u
o
S
e
h
T
)
E
(
.
o
g
e
i
D
n
a
S
f
o
y
t
n
u
o
C
e
h
t
o
t
d
e
t
r
e
v
e
r
y
l
l
a
c
i
t
a
m
o
t
u
a
y
t
i
l
i
c
a
f
e
h
t
f
o
p
i
h
s
r
e
n
w
o
,
5
1
0
2
,
1
3
"
.
n
o
i
t
c
u
r
t
s
n
o
C
t
e
s
s
A
n
i
t
n
e
m
e
v
l
o
v
n
I
e
e
s
s
e
L
f
o
t
c
e
f
f
E
N
O
I
T
A
I
C
E
R
P
E
D
D
E
T
A
L
U
M
U
C
C
A
D
N
A
S
T
E
S
S
A
E
T
A
T
S
E
L
A
E
R
-
I
I
I
E
L
U
D
E
H
C
S
O
T
S
E
T
O
N
F-50
CORECIVIC, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016, AND 2015
(in thousands)
For the Years Ended December 31,
2015
2016
2017
$ 3,636,935 $3,542,023 $ 3,071,094
54,678 433,481
36,199 131,348
—
(93,900 )
$ 3,705,848 $3,636,935 $ 3,542,023
38,181
37,827
(879)
(6,216)
—
4,035
$ (960,354) $ (834,558 ) $ (815,980 )
(125,913 ) (113,611 )
95,033
—
$(1,059,006) $ (960,354 ) $ (834,558 )
(105,392)
6,162
578
117
—
Investment in Real Estate:
Balance at beginning of period
Additions through capital expenditures
Acquisitions
Asset Impairments
Reclassifications and other
Balance at end of period
Accumulated Depreciation:
Balance at beginning of period
Depreciation
Disposals/Other
Asset Impairments
Balance at end of period
F-51
[This page intentionally left blank]
Exhibit 21.1
LIST OF SUBSIDIARIES OF CORECIVIC, INC.
ACS Corrections of Texas, L.L.C., a Texas limited liability company
Avalon Corpus Christi Transitional Center, LLC, a Texas limited liability company
Avalon Correctional Services, Inc., a Nevada corporation
Avalon Transitional Center Dallas, LLC, a Texas limited liability company
Avalon Tulsa, L.L.C., an Oklahoma limited liability company
Carver Transitional Center, L.L.C., an Oklahoma limited liability company
CCA Health Services, LLC, a Tennessee limited liability company
CCA International, LLC, a Delaware limited liability company
CCA South Texas, LLC, a Maryland limited liability company
CCA (UK) Ltd., a United Kingdom limited company
CoreCivic, LLC, a Delaware limited liability company
CoreCivic Government Solutions, LLC, a Maryland limited liability company
CoreCivic of Tennessee, LLC, a Tennessee limited liability company
CoreCivic TRS, LLC, a Maryland limited liability company
Correctional Alternatives, LLC, a California limited liability company
Correctional Management, Inc., a Colorado corporation
EP Horizon Management, LLC, a Texas limited liability company
Fort Worth Transitional Center, L.L.C., an Oklahoma limited liability company
Green Level Realty, LLC, a Colorado limited liability company
Prison Realty Management, LLC, a Tennessee limited liability company
Southern Corrections System of Wyoming, L.L.C., an Oklahoma limited liability company
Technical and Business Institute of America, LLC, a Tennessee limited liability company
Time To Change, Inc., a Colorado corporation
TransCor America, LLC, a Tennessee limited liability company
TransCor Puerto Rico, Inc., a Puerto Rico corporation
Turley Residential Center, L.L.C., an Oklahoma limited liability company
CERTIFICATION OF THE CEO PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Damon T. Hininger, certify that:
1. I have reviewed this Annual Report on Form 10-K of CoreCivic, Inc.;
Exhibit 31.1
2. Based on my knowledge, this Annual Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statement made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial information included in
this Annual Report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this Annual
Report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
Annual Report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this Annual Report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this Annual
Report based on such evaluation;
d) Disclosed in this Annual Report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial reporting.
Date: February 22, 2018
/s/ Damon T. Hininger
Damon T. Hininger
President and Chief Executive Officer
CERTIFICATION OF THE CFO PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, David M. Garfinkle, certify that:
1. I have reviewed this Annual Report on Form 10-K of CoreCivic, Inc.;
Exhibit 31.2
2. Based on my knowledge, this Annual Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statement made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial information included in
this Annual Report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this Annual
Report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
Annual Report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this Annual Report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this Annual
Report based on such evaluation;
d) Disclosed in this Annual Report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial reporting.
Date: February 22, 2018
/s/ David M. Garfinkle
David M. Garfinkle
Executive Vice President, Chief
Financial Officer, and Principal
Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of CoreCivic, Inc. (the "Company") on Form 10-K for the period ending
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Damon
T. Hininger, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Damon T. Hininger
Damon T. Hininger
President and Chief Executive Officer
February 22, 2018
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of CoreCivic, Inc. (the "Company") on Form 10-K for the period ending
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David
M. Garfinkle, Executive Vice President, Chief Financial Officer, and Principal Accounting Officer of the Company,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ David M. Garfinkle
David M. Garfinkle
Executive Vice President, Chief
Financial Officer, and Principal
Accounting Officer
February 22, 2018
Total Stockholder Return Performance
The following performance graph compares the cumulative total shareholder return on CoreCivic's common shares
with the S&P 500 Index, the Russell 2000 Index, and the index of equity real estate investment trusts prepared by
the National Association of Real Estate Investment Trusts ("NAREIT") for the five fiscal years commencing
December 31, 2012, and ending December 31, 2017, assuming an investment of $100 and the reinvestment of all
dividends into additional common shares during the holding period. Equity real estate investment trusts are defined
as those that derive more than 75% of their income from equity investments in real estate assets. The FTSE
NAREIT Equity REIT Total Return Index includes all tax qualified real estate investment trusts listed on the NYSE,
NYSE MKT, or the NASDAQ National Market. Stock performance for the past five years is not necessarily
indicative of future results.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CoreCivic, Inc., the S&P 500 Index, the Russell 2000 Index,
the FTSE NAREIT All Equity REITs Index, and a Peer Group
$250
$200
$150
$100
$50
$0
12/12
12/13
12/14
12/15
12/16
12/17
CoreCivic, Inc.
S&P 500
Russell 2000
FTSE NAREIT All Equity REITs
*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved.
Copyright© 2018 Russell Investment Group. All rights reserved.
APPENDIX TO 2017 ANNUAL LETTER
Reconciliation of Non-GAAP Disclosures
($ in thousands, except per share amounts)
Net Income
Special items:
Charges associated with adoption of tax reform
Expenses associated with debt refinancing transactions
Expenses associated with mergers and acquisitions
Gain on settlement of contingent consideration
Restructuring charges
Asset impairments
Income tax benefit for special items
Diluted adjusted net income (A)
2017
$
For the Years Ended December 31,
2016
$
219,919
178,040
2015
$
221,854
4,548
-
2,530
-
-
614
-
185,732
$
-
-
1,586
(2,000)
4,010
-
(215)
223,300
$
-
701
3,643
-
-
955
(26)
227,127
$
Weighted average common shares outstanding - basic
118,084
117,384
116,949
Effect of dilutive securities:
Stock options
Restricted stock-based awards
Weighted average shares and assumed conversions - diluted
310
71
118,465
306
101
117,791
631
205
117,785
Adjusted Diluted Earnings Per Share
$
1.57
$
1.90
$
1.93
Net income
Depreciation of real estate assets
Impairment of real estate assets
Funds From Operations (A)
Charges associated with adoption of tax reform
Expenses associated with debt refinancing transactions
Expenses associated with mergers and acquisitions
Gain on settlement of contingent consideration
Restructuring charges
Goodwill and other impairments
Income tax benefit for special items
Normalized Funds From Operations (A)
2017
$
For the Years Ended December 31,
2016
$
2015
$
178,040
95,902
355
219,919
94,346
-
221,854
90,219
-
$
274,297
$
314,265
$
312,073
4,548
-
2,530
-
-
259
-
281,634
$
-
-
1,586
(2,000)
4,010
-
(215)
317,646
$
-
701
3,643
-
-
955
(26)
317,346
$
NORMALIZED FUNDS FROM OPERATIONS PER SHARE:
Diluted
$
2.38
$
2.70
$
2.69
A-1
APPENDIX TO 2017 ANNUAL LETTER
Reconciliation of Non-GAAP Disclosures
($ in thousands, except per share amounts)
Net Income
Interest expense, net
Depreciation and amortization
Income tax expense
EBITDA
(A)
Expenses associated with debt refinancing transactions
Expenses associated with mergers and acquisitions
Gain on settlement of contingent consideration
Restructuring charges
Depreciation expense associated with STFRC lease (A)
Interest expense associated with STFRC lease (A)
Asset impairments
Adjusted EBITDA
(A)
2017
$
For the Years Ended December 31,
2016
$
2015
$
178,040
68,535
147,129
13,911
219,919
67,755
166,746
8,253
221,854
49,696
151,514
8,361
$
407,615
$
462,673
$
431,425
-
2,530
-
-
(16,453)
-
1,586
(2,000)
4,010
(38,678)
701
3,643
-
-
(29,887)
(6,425)
614
387,881
$
(10,040)
-
417,551
$
(8,467)
955
398,370
$
(A)
Adjusted Net Income, EBITDA, Adjusted EBITDA, Funds From Operations (FFO), and Normalized FFO, and, where appropriate, their
corresponding per share metrics are non-GAAP financial measures. CoreCivic believes that these measures are important operating measures that
supplement discussion and analysis of the Company's results of operations and are used to review and assess operating performance of the
Company and its correctional facilities and their management teams. CoreCivic believes that it is useful to provide investors, lenders and security
analysts disclosures of its results of operations on the same basis that is used by management. FFO, in particular, is a widely accepted non-GAAP
supplemental measure of REIT performance, grounded in the standards for FFO established by the National Association of Real Estate Investment
Trusts (NAREIT). NAREIT defines FFO as net income computed in accordance with generally accepted accounting principles, excluding gains (or
losses) from sales of property and extraordinary items, plus depreciation and amortization of real estate and impairment of depreciable real estate.
EBITDA, Adjusted EBITDA, and Normalized FFO are useful as supplemental measures of performance of the Company's corrections facilities
because they don't take into account depreciation and amortization, or with respect to EBITDA, the impact of the Company's tax provisions and
financing strategies. Because the historical cost accounting convention used for real estate assets requires depreciation (except on land), this
accounting presentation assumes that the value of real estate assets diminishes at a level rate over time. Because of the unique structure, design and
use of the Company's properties, management believes that assessing performance of the Company's properties without the impact of depreciation
or amortization is useful. However, a portion of the rental payments for the South Texas Family Residential Center (STFRC) is classified as
depreciation and interest expense for financial reporting purposes. Adjusted EBITDA includes such depreciation and interest expense in order to
more properly reflect the cash flows associated with this lease. CoreCivic may make adjustments to FFO from time to time for certain other income
and expenses that it considers non-recurring, infrequent or unusual, even though such items may require cash settlement, because such items do not
reflect a necessary component of the ongoing operations of the Company. Normalized FFO excludes the effects of such items. CoreCivic
calculates Adjusted Net Income by adding to GAAP Net Income expenses associated with the Company’s debt refinancing transactions, mergers
and acquisitions (M&A) activity, restructuring charges, and certain impairments that the Company believes are unusual or nonrecurring to provide
an alternative measure of comparing operating performance for the periods presented. Even though expenses associated with mergers and
acquisitions may be recurring, the magnitude and timing fluctuate based on the timing and scope of M&A activity, and therefore, such expenses,
which are not a necessary component of the ongoing operations of the Company, may not be comparable from period to period. Other companies
may calculate Adjusted Net Income, EBITDA, Adjusted EBITDA, FFO, and Normalized FFO differently than the Company does, or adjust for
other items, and therefore comparability may be limited. Adjusted Net Income, EBITDA, Adjusted EBITDA, FFO, and Normalized FFO and their
corresponding per share measures are not measures of performance under GAAP, and should not be considered as an alternative to cash flows from
operating activities, a measure of liquidity or an alternative to net income as indicators of the Company's operating performance or any other
measure of performance derived in accordance with GAAP. This data should be read in conjunction with the Company's consolidated financial
statements and related notes included in its filings with the Securities and Exchange Commission.
A-2
[This page intentionally left blank]
[This page intentionally left blank]
10 Burton Hills Boulevard
Nashville, TN 37215
(615) 263-3000
Website: www.CoreCivic.com
NYSE: CXW
BR21871N-0318-10KW