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Facility Activation, Acquisitions, Developments, and Closures | 9 Months Ended
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Sep. 30, 2013
Facility Activation, Acquisitions, Developments, and Closures |
4. | FACILITY ACTIVATIONS, ACQUISITIONS, DEVELOPMENTS, AND CLOSURES
On July 31, 2013, CCA acquired all of the stock of CAI, a privately held San Diego, California-based community corrections company that specializes in residential re-entry, home detention, and work furlough programs for San Diego County, the Federal Bureau of Prisons, and United States Pretrial and Probation. CCA acquired CAI as a strategic investment in a complementary business that broadens the scope of solutions it provides, expanding the range of solutions from incarceration through release, and supporting its belief in helping inmates successfully transition to society. The consideration paid for CAI, consisted of approximately $36.5 million in cash, excluding transaction related expenses. In allocating the purchase price, CCA recorded $7.0 million of goodwill, $26.9 million of identifiable intangible assets, $7.9 million of intangible liabilities, $17.7 million of net tangible assets, and $7.2 million of deferred tax liabilities. The allocation of purchase price is preliminary and may be subject to change within the measurement period of one year from the acquisition date. The primary areas of the preliminary purchase price allocation that are not finalized include determining the composition and valuation of intangible assets and goodwill. The results of operations for CAI have been included in the Company’s condensed consolidated financial statements from the date of acquisition. During the second quarter of 2013, CCA announced that the Texas Department of Criminal Justice (“TDCJ”) elected not to renew its contracts for the CCA owned and operated 2,103-bed Mineral Wells Pre-Parole Transfer Facility and the 2,216-bed managed-only Dawson State Jail due to a legislative budget reduction. As a result, upon expiration of the contracts in August 2013, CCA ceased operations of the Dawson State Jail and idled the Mineral Wells facility. During the second quarter of 2013, CCA performed an impairment analysis of the Mineral Wells property, which has a carrying value of $18.3 million as of September 30, 2013, and concluded that this asset has recoverable values in excess of the carrying value. CCA is currently marketing the Mineral Wells facility to potential customers. During June 2013, the Kentucky Department of Corrections (“KDOC”) provided CCA notice that it was not going to award a contract under a contract bid that would have allowed for the KDOC’s continued use of CCA’s owned and operated 826-bed Marion Adjustment Center. CCA idled the Marion Adjustment Center following the transfer of the population during September 2013, but will continue to market the facility to other customers. As a result of the notification, CCA performed an impairment analysis of the Marion Adjustment Center property, which has a carrying value of $13.5 million as of September 30, 2013, and concluded that this asset has recoverable values in excess of the carrying value. In addition to these two newly idled facilities, CCA has previously idled additional facilities that are also currently available and being actively marketed to other 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 CCA owns without significant cost (dollars in thousands):
|  | Design Capacity |  |  | Date Idled |  |  | Net Carrying Values |
Facility |  |  |  | September 30, 2013 |  |  | December 31, 2012 |
Queensgate Correctional Facility |  |  | 850 |  |  |  | 2008 |  |  | $ | 11,902 |  |  | $ | 12,073 |
Shelby Training Center |  |  | 200 |  |  |  | 2008 |  |  |  | 853 |  |  |  | 1,155 |
Trousdale County, TN (Pre-construction) |  |  | — |  |  |  | 2009 |  |  |  | 28,485 |  |  |  | 28,460 |
Prairie Correctional Facility |  |  | 1,600 |  |  |  | 2010 |  |  |  | 19,653 |  |  |  | 20,503 |
Huerfano County Correctional Center |  |  | 752 |  |  |  | 2010 |  |  |  | 19,997 |  |  |  | 20,603 |
Diamondback Correctional Facility |  |  | 2,160 |  |  |  | 2010 |  |  |  | 44,474 |  |  |  | 45,475 |
Otter Creek Correctional Center |  |  | 656 |  |  |  | 2012 |  |  |  | 25,015 |  |  |  | 25,685 |
Houston Educational Facility |  |  | — |  |  |  | 2012 |  |  |  | 6,520 |  |  |  | 6,657 |
Mineral Wells Pre-Parole Transfer Facility |  |  | 2,103 |  |  |  | 2013 |  |  |  | 18,272 |  |  |  | 19,063 |
Marion Adjustment Center |  |  | 826 |  |  |  | 2013 |  |  |  | 13,545 |  |  |  | 13,720 |
|  |  | 9,147 |  |  |  |  |  |  | $ | 188,716 |  |  | $ | 193,394 |
During the nine months ended September 30, 2013, CCA incurred $5.2 million in operating expenses during the period such facilities were idle. CCA tested each of the aforementioned facilities for impairment when it was notified by the respective customers that they would no longer be utilizing such facility or, in the case of the Trousdale County facility, upon suspension of construction. CCA concluded in each case that no impairment had occurred. CCA updates the impairment analyses on an annual basis for each of the idled facilities and for the suspended construction project in Trousdale County, Tennessee, 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 CCA to reconsider its most recent assumptions. As a result of CCA’s analyses, CCA determined each of these assets to have recoverable values in excess of the corresponding carrying values. In order to retain federal inmate populations CCA currently manages in the 1,154-bed San Diego Correctional Facility, CCA is constructing a new facility at a site in San Diego. The existing San Diego Correctional Facility is subject to a ground lease with the County of San Diego. Under the provisions of the lease, the facility is divided into different premises whereby, pursuant to an amendment to the ground lease executed in January 2010, ownership of the entire facility reverts to the County upon expiration of the lease on December 31, 2015. As of September 30, 2013, CCA has invested approximately $50.9 million in the new facility. CCA has developed plans to build a detention facility and a construction timeline that coincides with the expiration of the ground lease with the County of San Diego. CCA plans to offer this new facility to house the existing federal inmate populations at the San Diego Correctional Facility. In September 2012, CCA announced that it was awarded a new management contract from the Arizona Department of Corrections to house up to 1,000 medium-security inmates at its 1,596-bed Red Rock Correctional Center in Arizona. The new management contract contains an initial term of ten years, with two five-year renewal options upon mutual agreement and provides an occupancy guarantee of 90% of the contracted beds, which is expected to be implemented in two phases. CCA expects to begin receiving approximately 500 inmates from Arizona beginning in January of 2014 and an additional 500 inmates during the first quarter of 2015. Additionally, the contract provides the state of Arizona 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 twenty-year term. In order to prepare the Red Rock facility to house Arizona inmates under this contract, CCA expects to incur approximately $20.5 million in capital improvements for certain physical plant modifications. As of September 30, 2013, CCA managed approximately 500 inmates for the state of California at its Red Rock facility. In October 2013, CCA entered into a lease for its 2,304-bed California City Correctional Center with the state of California Department of Corrections and Rehabilitation (the “CDCR”). The lease agreement includes a three-year base term commencing December 1, 2013, with unlimited two-year renewal options upon mutual agreement. Annual rent during the three-year base term is fixed at $28.5 million. After the three-year base term, the rent will be increased annually by the lesser of CPI (Consumer Price Index) or 2%. CCA will be responsible for repairs and maintenance, property taxes and property insurance, while all other aspects and costs of facility operations will be the responsibility of the CDCR. In November 2013, CCA announced its decision to construct the 2,500-bed Trousdale Correctional Center in Trousdale County, Tennessee. CCA expects it will house state of Tennessee inmates under an inter-governmental agreement with the county of Trousdale, Tennessee. In October 2013, Trousdale County received notice from the Tennessee Department of Corrections of its intent to partner with the County to develop a new correctional facility to house State of Tennessee inmates. CCA is in discussions with Trousdale County officials regarding an agreement to provide and manage the correctional facility. In 2008, CCA purchased land in Trousdale County and began preparing the site for the development of a correctional facility. Total cost of the project is estimated at approximately $140.0 million, including costs invested to date. Construction is expected to be completed in the third quarter of 2015. During the third quarter of 2013, CCA began hiring staff at the Diamondback Correctional Facility in order to reactivate the facility for future operations. While CCA has begun to incur expenditures associated with the activation of these beds, we do not have a current customer contract and can provide no assurance that we will enter into a contract for the utilization of these beds.

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