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2021-05-04
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
☑
|
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended March 31, 2021
OR
|
☐
|
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from ______ to_______
Commission file number: 1-14260
The GEO Group, Inc.
(Exact name of registrant as specified in its charter)
|
Florida
|
|
65-0043078
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer
Identification No.)
|
|
|
|
|
|
4955 Technology Way
Boca Raton, Florida
|
|
33431
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(561) 893-0101
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year if changed
since last report)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
|
Trading Symbol(s)
|
|
Name of each exchange on which registered
|
|
Common Stock, $0.01 par value per share
|
|
GEO
|
|
New York Stock Exchange
|
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 every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes ☑ No ☐
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 the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and "emerging growth company" in Rule
12b-2 of the Exchange Act.
|
Large accelerated filer
|
☑
|
Accelerated filer
|
☐
|
|
|
|
|
|
|
Non-accelerated filer
|
☐
|
Smaller reporting company
|
☐
|
|
|
|
|
|
|
|
|
Emerging growth 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 Exchange
Act). Yes ☐ No ☑
As of May 6, 2021, the registrant had 122,387,739 shares of
common stock outstanding.
Table of Contents
TABLE OF CONTENTS
2
Table of Contents
PART I -
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS ENDED
MARCH 31, 2021 AND 2020
(In thousands, except per share data)
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
Revenues
|
|
$
|
576,377
|
|
|
$
|
605,017
|
|
|
|
Operating expenses
|
|
|
428,151
|
|
|
|
461,746
|
|
|
|
Depreciation and amortization
|
|
|
34,117
|
|
|
|
33,327
|
|
|
|
General and administrative expenses
|
|
|
48,479
|
|
|
|
53,782
|
|
|
|
Operating income
|
|
|
65,630
|
|
|
|
56,162
|
|
|
|
Interest income
|
|
|
6,202
|
|
|
|
5,438
|
|
|
|
Interest expense
|
|
|
(31,844
|
)
|
|
|
(34,180
|
)
|
|
|
Gain on extinguishment of debt
|
|
|
3,038
|
|
|
|
1,563
|
|
|
|
Gain on sales of real estate
|
|
|
13,329
|
|
|
|
424
|
|
|
|
Income before income taxes and equity in earnings of affiliates
|
|
|
56,355
|
|
|
|
29,407
|
|
|
|
Provision for income taxes
|
|
|
7,936
|
|
|
|
6,546
|
|
|
|
Equity in earnings of affiliates, net of income tax provision
of
$340 and $444 respectively
|
|
|
2,064
|
|
|
|
2,260
|
|
|
|
Net income
|
|
|
50,483
|
|
|
|
25,121
|
|
|
|
Net loss attributable to noncontrolling interests
|
|
|
61
|
|
|
|
60
|
|
|
|
Net income attributable to The GEO Group, Inc.
|
|
$
|
50,544
|
|
|
$
|
25,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
120,022
|
|
|
|
119,394
|
|
|
|
Diluted
|
|
|
120,417
|
|
|
|
119,933
|
|
|
|
Net income per common share attributable to The GEO Group,
Inc.:
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
Net income per common share attributable to The GEO Group,
Inc. - basic
|
|
$
|
0.41
|
|
|
$
|
0.21
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
Net income per common share attributable to The GEO Group,
Inc. - diluted
|
|
$
|
0.41
|
|
|
$
|
0.21
|
|
|
|
Dividends declared per share
|
|
$
|
0.25
|
|
|
$
|
0.48
|
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
3
Table of Contents
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
FOR THE THREE MONTHS ENDED
MARCH 31, 2021 AND 2020
(In thousands)
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
Net income
|
|
$
|
50,483
|
|
|
$
|
25,121
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(627
|
)
|
|
|
(8,807
|
)
|
|
|
Pension liability adjustment, net of tax provision
of $41 and $28, respectively
|
|
|
156
|
|
|
|
107
|
|
|
|
Change in fair value of derivative instrument
classified as cash flow hedge, net of tax (benefit)
provision of
$784 and $(1,207), respectively
|
|
|
2,948
|
|
|
|
(4,512
|
)
|
|
|
Total other comprehensive income (loss), net of tax
|
|
|
2,477
|
|
|
|
(13,212
|
)
|
|
|
Total comprehensive income
|
|
|
52,960
|
|
|
|
11,909
|
|
|
|
Comprehensive loss attributable to noncontrolling interests
|
|
|
63
|
|
|
|
108
|
|
|
|
Comprehensive income attributable to The GEO Group, Inc.
|
|
$
|
53,023
|
|
|
$
|
12,017
|
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
4
Table of Contents
THE GEO GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
MARCH 31, 2021 AND DECEMBER 31, 2020
(In thousands, except share data)
|
|
|
March 31, 2021
|
|
|
December 31,
2020
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
289,391
|
|
|
$
|
283,524
|
|
|
Restricted cash and cash equivalents
|
|
|
29,317
|
|
|
|
26,740
|
|
|
Accounts receivable, less allowance for doubtful accounts of $3,334
and $4,183,
respectively
|
|
|
346,817
|
|
|
|
362,668
|
|
|
|
Contract receivable, current portion
|
|
|
6,357
|
|
|
|
6,283
|
|
|
Prepaid expenses and other current assets
|
|
|
29,081
|
|
|
|
32,108
|
|
|
Total current assets
|
|
|
700,963
|
|
|
|
711,323
|
|
|
Restricted Cash and Investments
|
|
|
39,924
|
|
|
|
37,338
|
|
|
Property and Equipment, Net
|
|
|
2,114,058
|
|
|
|
2,122,195
|
|
|
Assets Held for Sale
|
|
|
6,926
|
|
|
|
9,108
|
|
|
Contract Receivable
|
|
|
389,713
|
|
|
|
396,647
|
|
|
Operating Lease Right-of-Use Assets, Net
|
|
|
125,269
|
|
|
|
124,727
|
|
|
Deferred Income Tax Assets
|
|
|
36,604
|
|
|
|
36,604
|
|
|
Goodwill
|
|
|
755,244
|
|
|
|
755,250
|
|
|
Intangible Assets, Net
|
|
|
182,481
|
|
|
|
187,747
|
|
|
Other Non-Current Assets
|
|
|
76,265
|
|
|
|
79,187
|
|
|
Total Assets
|
|
$
|
4,427,447
|
|
|
$
|
4,460,126
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
84,469
|
|
|
$
|
85,861
|
|
|
Accrued payroll and related taxes
|
|
|
87,466
|
|
|
|
67,797
|
|
|
Accrued expenses and other current liabilities
|
|
|
195,763
|
|
|
|
202,378
|
|
|
Operating lease liabilities, current portion
|
|
|
28,223
|
|
|
|
29,080
|
|
|
Current portion of finance lease liabilities, long-term debt and
non-recourse debt
|
|
|
27,135
|
|
|
|
26,180
|
|
|
Total current liabilities
|
|
|
423,056
|
|
|
|
411,296
|
|
|
Deferred Income Tax Liabilities
|
|
|
30,726
|
|
|
|
30,726
|
|
|
Other Non-Current Liabilities
|
|
|
114,521
|
|
|
|
115,555
|
|
|
Operating Lease Liabilities
|
|
|
103,491
|
|
|
|
101,375
|
|
|
Finance Lease Liabilities
|
|
|
2,890
|
|
|
|
2,988
|
|
|
Long-Term Debt
|
|
|
2,494,987
|
|
|
|
2,561,881
|
|
|
Non-Recourse Debt
|
|
|
317,603
|
|
|
|
324,223
|
|
|
Commitments and Contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 30,000,000 shares authorized,
none issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.01 par value, 187,500,000 shares authorized,
127,154,970 and 126,153,173 issued and 122,302,598
and 121,318,175 outstanding, respectively
|
|
|
1,272
|
|
|
|
1,262
|
|
|
Additional paid-in capital
|
|
|
1,268,027
|
|
|
|
1,262,267
|
|
|
Distributions in excess of earnings
|
|
|
(202,834
|
)
|
|
|
(222,892
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(20,110
|
)
|
|
|
(22,589
|
)
|
|
Treasury stock, 4,852,372 and 4,834,998 shares, at cost,
respectively
|
|
|
(105,099
|
)
|
|
|
(104,946
|
)
|
|
Total shareholders’ equity attributable to The GEO Group, Inc.
|
|
|
941,256
|
|
|
|
913,102
|
|
|
Noncontrolling interests
|
|
|
(1,083
|
)
|
|
|
(1,020
|
)
|
|
Total shareholders’ equity
|
|
|
940,173
|
|
|
|
912,082
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
4,427,447
|
|
|
$
|
4,460,126
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
5
Table of Contents
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE MONTHS ENDED
MARCH 31, 2021 AND 2020
(In thousands)
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
Cash Flow from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,483
|
|
|
$
|
25,121
|
|
|
Net loss attributable to noncontrolling interests
|
|
|
61
|
|
|
|
60
|
|
|
Net income attributable to The GEO Group, Inc.
|
|
|
50,544
|
|
|
|
25,181
|
|
|
Adjustments to reconcile net income attributable to The GEO Group,
Inc. to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
34,117
|
|
|
|
33,327
|
|
|
Stock-based compensation
|
|
|
7,402
|
|
|
|
9,768
|
|
|
Gain on extinguishment of debt
|
|
|
(3,038
|
)
|
|
|
(1,563
|
)
|
|
Amortization of debt issuance costs, discount and/or premium and
other non-cash
interest
|
|
|
1,683
|
|
|
|
1,670
|
|
|
Provision for doubtful accounts
|
|
|
614
|
|
|
|
25
|
|
|
Equity in earnings of affiliates, net of tax
|
|
|
(2,064
|
)
|
|
|
(2,260
|
)
|
|
Dividends received from unconsolidated joint venture
|
|
|
1,399
|
|
|
|
633
|
|
|
Loss on sale/disposal of property and equipment, net
|
|
|
1,664
|
|
|
|
304
|
|
|
Gain on sales of real estate
|
|
|
(13,329
|
)
|
|
|
(424
|
)
|
|
Changes in assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
Changes in accounts receivable, prepaid expenses and other
assets
|
|
|
26,846
|
|
|
|
53,210
|
|
|
Changes in contract receivable
|
|
|
1,611
|
|
|
|
1,206
|
|
|
Changes in accounts payable, accrued expenses and other
liabilities
|
|
|
17,468
|
|
|
|
7,182
|
|
|
Net cash provided by operating activities
|
|
|
124,917
|
|
|
|
128,259
|
|
|
Cash Flow from Investing Activities:
|
|
|
|
|
|
|
|
|
|
Insurance proceeds - damaged property
|
|
|
469
|
|
|
|
—
|
|
|
Proceeds from sale of property and equipment
|
|
|
39
|
|
|
|
264
|
|
|
Proceeds from sales of real estate
|
|
|
15,673
|
|
|
|
—
|
|
|
Proceeds from sale of assets held for sale
|
|
|
—
|
|
|
|
1,300
|
|
|
Change in restricted investments
|
|
|
(2,191
|
)
|
|
|
3,363
|
|
|
Capital expenditures
|
|
|
(27,276
|
)
|
|
|
(30,652
|
)
|
|
Net cash used in investing activities
|
|
|
(13,286
|
)
|
|
|
(25,725
|
)
|
|
Cash Flow from Financing Activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
240,000
|
|
|
|
96,000
|
|
|
Payments on long-term debt
|
|
|
(298,522
|
)
|
|
|
(125,505
|
)
|
|
Payments on non-recourse debt
|
|
|
(1,755
|
)
|
|
|
(1,362
|
)
|
|
Taxes paid related to net share settlements of equity awards
|
|
|
(1,901
|
)
|
|
|
(2,632
|
)
|
|
Proceeds from issuance of common stock in connection with ESPP
|
|
|
116
|
|
|
|
150
|
|
|
Payment for repurchases of common stock
|
|
|
—
|
|
|
|
(9,009
|
)
|
|
Debt issuance costs
|
|
|
(9,587
|
)
|
|
|
—
|
|
|
Cash dividends paid
|
|
|
(30,486
|
)
|
|
|
(57,703
|
)
|
|
Net cash used in financing activities
|
|
|
(102,135
|
)
|
|
|
(100,061
|
)
|
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents and
Restricted Cash
and Cash Equivalents
|
|
|
(657
|
)
|
|
|
(7,364
|
)
|
|
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted
Cash
and Cash Equivalents
|
|
|
8,839
|
|
|
|
(4,891
|
)
|
|
Cash, Cash Equivalents and Restricted Cash and Cash Equivalents,
beginning of period
|
|
|
311,853
|
|
|
|
67,472
|
|
|
Cash, Cash Equivalents and Restricted Cash and Cash Equivalents,
end of period
|
|
$
|
320,692
|
|
|
$
|
62,581
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing activities:
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained from operating lease liabilities
|
|
$
|
3,764
|
|
|
$
|
—
|
|
|
Equipment obtained from finance lease liabilities
|
|
$
|
794
|
|
|
$
|
—
|
|
|
Dividends paid in treasury shares
|
|
$
|
153
|
|
|
$
|
—
|
|
|
Conversion of pension liability to shares of common stock
|
|
$
|
—
|
|
|
$
|
8,925
|
|
|
Capital expenditures in accounts payable and accrued expenses
|
|
$
|
4,408
|
|
|
$
|
3,304
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
6
Table of Contents
THE GEO GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The GEO Group, Inc., a Florida corporation, and subsidiaries (the
“Company” or “GEO”) is a fully-integrated real estate investment
trust (“REIT”) specializing in the ownership, leasing and
management of secure facilities, processing centers and community
reentry centers in the United States, Australia, South Africa and
the United Kingdom. The Company owns, leases and operates a broad
range of facilities including maximum, medium and minimum security
facilities, processing centers, as well as community-based reentry
facilities and offers an expanded delivery of rehabilitation
services under its 'GEO Continuum of Care' platform. The 'GEO
Continuum of Care' program integrates enhanced rehabilitative
programs, which are evidence-based and include cognitive behavioral
treatment and post-release services, and provides academic and
vocational classes in life skills and treatment programs while
helping individuals reintegrate into their communities. The Company
develops new facilities based on contract awards, using its project
development expertise and experience to design, construct and
finance what it believes are state-of-the-art facilities that
maximize security and efficiency. The Company provides innovative
compliance technologies, industry-leading monitoring services, and
evidence-based supervision and treatment programs for
community-based parolees, probationers and pretrial defendants. The
Company also provides secure transportation services for
individuals as contracted domestically and in the United Kingdom
through its joint venture GEO Amey PECS Ltd. (“GEOAmey”). At March
31, 2021, the Company’s worldwide operations include the management
and/or ownership of approximately 92,000 beds at 116 facilities,
including idle facilities, projects under development and recently
awarded contracts, and also include the provision of community
supervision services for more than 210,000 individuals, including
over 100,000 through an array of technology products including
radio frequency, GPS, and alcohol monitoring devices.
The Company's unaudited consolidated financial statements included
in this Quarterly Report on Form 10-Q have been prepared in
accordance with accounting principles generally accepted in the
United States and the instructions to Form 10-Q and consequently do
not include all disclosures required by Form 10-K. The accounting
policies followed for quarterly financial reporting are the same as
those disclosed in the Notes to Consolidated Financial Statements
included in the Company’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 16, 2021 for the
year ended December 31, 2020. The accompanying
December 31, 2020 consolidated balance sheet has been derived
from those audited financial statements. Additional information may
be obtained by referring to the Company’s Form 10-K for the year
ended December 31, 2020. In the opinion of management, all
adjustments (consisting only of normal recurring items) necessary
for a fair presentation of the financial information for the
interim periods reported in this Quarterly Report on Form 10-Q have
been made. Results of operations for the three months ended March
31, 2021 are not necessarily indicative of the results for the
entire year ending December 31, 2021, or for any other future
interim or annual periods.
Risks and uncertainties
Executive Order
On January 26, 2021, President Biden signed an executive order
directing the United States Attorney General not to renew
Department of Justice (“DOJ”) contracts with privately operated
criminal detention facilities, as consistent with applicable law
(the “Executive Order”). Two agencies of the DOJ, the Bureau of
Prisons “(BOP”) and U.S. Marshals Service (“USMS”), utilize GEO’s
services. The BOP houses inmates who have been convicted of federal
crimes, and the USMS is generally responsible for detainees who are
awaiting trial or sentencing in U.S. federal courts. GEO’s
contracts with the BOP for its company-owned 1,940-bed Great Plains
Correctional Facility, company-owned 1,732-bed Big Spring
Correctional Facility, company-owned 1,800-bed Flightline
Correctional Facility, and company-owned 1,800-bed North Lake
Correctional Facility have renewal option periods that expire on
May 31, 2021, November 30, 2021, November 30, 2021, and September
30, 2022, respectively. Additionally, the contracts with the BOP
for the county owned and managed 1,800-bed Reeves County Detention
Center I & II and the 1,376-bed Reeves County Detention Center
III have renewal option periods that expire September 30, 2022 and
June 30, 2022, respectively. The Company has a management agreement
with Reeves County, Texas for the management oversight of these two
county-owned facilities. In total, the Great Plains, Big Spring,
Flightline, North Lake Correctional Facilities, Reeves County
Detention Center I & II and Reeves County Detention Center III
generated approximately $145 million in revenues during the year
ended December 31, 2020. The BOP has experienced a decline in
federal prison populations over the last several years, a trend
that has more recently been accelerated by the COVID-19 global
pandemic. As a result of the Executive Order and the decline in
federal prison populations, the above described contracts with the
BOP may not be renewed over the coming years. On March 5, 2021, the
Company was notified by the BOP that it has decided to not exercise
its contract renewal option for the company-owned, 1,940-bed Great
Plains Correctional Facility in Oklahoma, when the contract base
period expires on May 31, 2021. On March 25, 2021 the Company was
notified that the BOP will terminate its contract with the
county-owned and managed Reeves I & II effective May 10, 2021.
On March 15, 2021, the Company announced that the USMS has decided
to not exercise the contract renewal option for its company-owned,
222-bed Queens Detention Facility in New York, when the contract
base period ended on March 31, 2021.
7
Table of Contents
Quarterly Dividends
On April 7, 2021, GEO announced that its Board of Directors (the
“Board”) had immediately suspended GEO’s quarterly dividend
payments with the goal of maximizing the use of cash flows to repay
debt, deleverage and internally fund growth. While GEO currently
intends to maintain its corporate tax structure as a REIT, the
Board is evaluating GEO’s corporate tax structure as a REIT. The
Board’s evaluation of the current corporate tax structure and GEO’s
REIT status is expected to take into consideration, among other
factors, potential changes to GEO’s financial operating
performance, as well as, potential changes to the Internal Revenue
Code of 1986, as amended (the “Code”) applicable to U.S.
corporations and REITs. As a part of this evaluation, GEO has
engaged financial advisors and legal advisors to assist in
evaluating various capital structure alternatives. The Board
expects to conclude its evaluation in the fourth quarter of 2021,
and should the Board determine to maintain GEO’s REIT status, an
additional dividend payment may be required before year-end in
order to meet the minimum REIT distribution requirements under the
Code.
COVID-19
In December 2019, a novel strain of coronavirus, now known as
COVID-19 (“COVID-19”), was reported in Wuhan, China and has since
extensively impacted the global health and economic environment. In
January 2020, the World Health Organization (“WHO”) declared it a
Public Health Emergency of International Concern. On February 28,
2020, the WHO raised its assessment of the COVID-19 threat from
high to very high at a global level due to the continued increase
in the number of cases and affected countries, and on March 11,
2020, the WHO characterized COVID-19 as a pandemic.
The Company has been closely monitoring the impact of the COVID-19
pandemic on all aspects of its business and geographies, including
how it will impact those entrusted to its care and governmental
partners. During the year ended December 31, 2020, the Company did
incur disruptions from the COVID-19 pandemic but, it is unable to
predict the overall future impact that the COVID-19 pandemic will
have on its financial condition, results of operations and cash
flows due to numerous uncertainties related to the pandemic.The
COVID-19 pandemic and related government-imposed mandatory
closures, the efficacy and distribution of COVID-19 vaccines,
shelter in-place restrictions and social distancing protocols and
increased expenditures on engineering controls, personal protective
equipment, diagnostic testing, medical expenses, temperature
scanners, protective plexiglass barriers and increased sanitation
have had, and will continue to have, a severe impact on global
economic conditions and the environment in which the Company
operates. Starting in early 2020, the Company began to observe
negative impacts from the pandemic on its performance in its secure
services business, specifically with its U.S. Immigration and
Customs Enforcement (“ICE”) Processing Centers and U.S. Marshals
Facilities, as a result of declines in crossings and apprehensions
along the Southwest border and a decrease in court sentencing at
the federal level. Various governmental agencies have also taken
steps to decrease the number of those in custody to adhere to
social distancing protocols. Additionally, the Company’s reentry
services business conducted through its GEO Care business segment
has also been negatively impacted, specifically its residential
reentry centers and non-residential day reporting programs were
impacted by declines in programs due to lower levels of referrals
by federal, state and local agencies. Additionally, the Company has
experienced the transmission of COVID-19 among detainees and staff
at most of its facilities during 2020 and continuing into 2021. If
the Company is unable to mitigate the transmission of COVID-19 at
its facilities it could experience a material adverse effect on its
financial position, results of operations and cash flows. Although
the Company is unable to predict the duration or scope of the
COVID-19 pandemic or estimate the extent of the negative financial
impact to its operating results, an extended period of depressed
economic activity necessitated to combating the disease, and the
severity and duration of the related global economic crisis may
adversely impact its future financial performance.
2. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has recorded goodwill as a result of its various
business combinations. Goodwill is recorded as the difference, if
any, between the aggregate consideration paid for an acquisition
and the fair value of the tangible assets and intangible assets
acquired net of liabilities assumed, including noncontrolling
interests. Changes in the Company's goodwill balances from
January 1, 2021 to March 31, 2021 are as follows (in
thousands):
|
|
|
January 1,
2021
|
|
|
Foreign Currency
Translation
|
|
|
March 31, 2021
|
|
|
U.S. Secure Services
|
|
$
|
316,366
|
|
|
$
|
—
|
|
|
$
|
316,366
|
|
|
GEO Care [1]
|
|
|
438,443
|
|
|
|
—
|
|
|
|
438,443
|
|
|
International Services
|
|
|
441
|
|
|
|
(6
|
)
|
|
|
435
|
|
|
Total Goodwill
|
|
$
|
755,250
|
|
|
$
|
(6
|
)
|
|
$
|
755,244
|
|
[1] Net of accumulated loss on impairment of $21.1 million related
to the Community Based reporting unit for an impairment charge
incurred during the fourth quarter of 2020.
8
Table of Contents
As previously discussed in Note 1 – Basis of Presentation, on
January 26, 2021, President Biden signed an Executive Order
directing the United States Attorney General not to renew DOJ
contracts with privately operated criminal detention facilities, as
consistent with applicable law. The exact details regarding the
timing scope and impacts of this plan is unknown, and uncertainties
exist about the capacity of other DOJ facilities to absorb the
populations which are currently housed in public-private
partnerships. The Company considered the issuance of the Executive
Order to be a “triggering event” that requires certain quantitative
testing for potential impairment of goodwill for its U.S. Secure
Services reporting unit.
The quantitative testing performed during the quarter ended March
31, 2021 resulted in no impairment in the goodwill of the U.S.
Secure Services reporting unit. The carrying value of the U.S.
Secure Services reporting unit is all of the goodwill in the U.S.
Secure Services segment in the table above. The calculated fair
value of the U.S. Secure Services reporting unit exceeded its
carrying value. The percentage that the fair value exceeded the
carrying value was approximately 6%. The Company used a third-party
valuation firm to determine the estimated fair value of the
reporting unit using a discounted cash flow model which is
dependent on several significant estimates and assumptions related
to forecasts of future cash flows and the weighted average cost of
capital, among other factors. A discount rate of 10% was utilized
to adjust the cash flow forecasts based on the Company’s estimate
of a market participant’s weighted-average cost of capital. Growth
rates for sales, profits and other assumptions were determined
using inputs from the Company’s long-term planning process. The
Company also makes estimates for discount rates and other factors
based on market conditions, historical experience and other
economic factors. Additionally, management made certain assumptions
relating to future re-activations and sales of certain idle
facilities, including those where the BOP and USMS have recently
notified the Company of its intention not to exercise upcoming
renewal options and/or not to rebid contracts with upcoming
contract expirations, A change in one or a combination of these
assumptions could significantly impact the fair value of the
reporting unit. For example, a 1% increase in the discount rate
would cause the carrying value to exceed the fair value and trigger
an impairment of approximately $76 million or 24% of the goodwill
balance at March 31 2021 in the U.S. Secure Services reporting
unit. Conversely, a 1% decrease in the discount rate would increase
the percentage that the fair value exceeded the carrying value to
22%.
Future impairment charges may be required on the Company’s
goodwill, as the discounted cash flow model is subject to change
based upon the Company’s performance, overall market conditions,
the state of the credit markets and political environment. The
Company will continue to monitor these relevant factors to
determine if an additional interim impairment assessment is
warranted. If there were to be a deterioration in management’s
forecasted financial performance, an increase in discount rates or
a reduction in long-term growth rates, these factors could all be
potential indicators of an impairment charge to our remaining
goodwill, which could be material, in future periods.
The Company has also recorded other finite and indefinite-lived
intangible assets as a result of its various business combinations.
The Company's intangible assets include facility management
contracts, covenants not to compete, trade names and technology, as
follows (in thousands):
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
Weighted
Average
Useful Life
(years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Facility management contracts
|
|
|
16.3
|
|
|
$
|
308,393
|
|
|
$
|
(173,739
|
)
|
|
$
|
134,654
|
|
|
$
|
308,398
|
|
|
$
|
(168,848
|
)
|
|
$
|
139,550
|
|
|
Technology
|
|
|
7.3
|
|
|
|
33,700
|
|
|
|
(31,073
|
)
|
|
|
2,627
|
|
|
|
33,700
|
|
|
|
(30,703
|
)
|
|
|
2,997
|
|
|
Trade names
|
|
Indefinite
|
|
|
|
45,200
|
|
|
|
—
|
|
|
|
45,200
|
|
|
|
45,200
|
|
|
|
—
|
|
|
|
45,200
|
|
|
Total acquired intangible assets
|
|
|
|
|
|
$
|
387,293
|
|
|
$
|
(204,812
|
)
|
|
$
|
182,481
|
|
|
$
|
387,298
|
|
|
$
|
(199,551
|
)
|
|
$
|
187,747
|
|
Amortization expense was $5.3 million and $5.6 million for the
three months ended March 31, 2021 and 2020, respectively.
Amortization expense was primarily related to the U.S Secure
Services and GEO Care segments' amortization of acquired facility
management contracts. As of March 31, 2021, the weighted average
period before the next contract renewal or extension for the
acquired facility management contracts was approximately 2.1
years.
9
Table of Contents
Estimated amortization expense related to the Company's
finite-lived intangible assets for the remainder of 2021 through
2025 and thereafter is as follows (in thousands):
|
Fiscal Year
|
|
Total
Amortization
Expense
|
|
|
Remainder of 2021
|
|
$
|
14,751
|
|
|
2022
|
|
|
18,133
|
|
|
2023
|
|
|
13,489
|
|
|
2024
|
|
|
9,756
|
|
|
2025
|
|
|
9,704
|
|
|
Thereafter
|
|
|
71,448
|
|
|
|
|
$
|
137,281
|
|
3. FINANCIAL INSTRUMENTS
The following tables provide a summary of the Company’s significant
financial assets and liabilities carried at fair value and measured
on a recurring basis as of March 31, 2021 and December 31,
2020 (in thousands):
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2021
|
|
|
|
|
Carrying Value at
March 31,
2021
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
$
|
37,940
|
|
|
$
|
—
|
|
|
$
|
37,940
|
|
|
$
|
—
|
|
|
Fixed income securities
|
|
|
1,941
|
|
|
|
—
|
|
|
|
1,941
|
|
|
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap derivatives
|
|
$
|
2,282
|
|
|
$
|
—
|
|
|
$
|
2,282
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2020
|
|
|
|
|
Carrying Value at
December 31,
2020
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
$
|
35,749
|
|
|
$
|
—
|
|
|
$
|
35,749
|
|
|
$
|
—
|
|
|
Fixed income securities
|
|
|
1,932
|
|
|
|
—
|
|
|
|
1,932
|
|
|
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap derivatives
|
|
$
|
6,015
|
|
|
$
|
—
|
|
|
$
|
6,015
|
|
|
$
|
—
|
|
The Company’s Level 2 financial instruments included in the tables
above as of March 31, 2021 and December 31, 2020 consist of
interest rate swap derivative liabilities held by GEO, the
Company's rabbi trust established for a GEO employee and employer
contributions to The GEO Group, Inc. Non-qualified Deferred
Compensation Plan and an investment in Canadian dollar denominated
fixed income securities.
The interest rate swap derivative liabilities are valued using a
discounted cash flow model based on projected borrowing rates. The
Company's restricted investment in the rabbi trust is invested in
Company-owned life insurance policies which are recorded at their
cash surrender values. These investments are valued based on the
underlying investments held in the policies' separate account. The
underlying assets are equity and fixed income pooled funds that are
comprised of Level 1 and Level 2 securities. The Canadian dollar
denominated securities, not actively traded, are valued using
quoted rates for these and similar securities.
10
Table of Contents
4. FAIR VALUE OF ASSETS AND LIABILITIES
The Company’s consolidated balance sheets reflect certain financial
assets and liabilities at carrying value. The carrying value of
certain debt instruments, if applicable, is net of unamortized
discount. The following tables present the carrying values of those
financial instruments and the estimated corresponding fair values
at March 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
Estimated Fair Value Measurements at March 31, 2021
|
|
|
|
|
Carrying Value as
of March 31,
2021
|
|
|
Total Fair
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
289,391
|
|
|
$
|
289,391
|
|
|
$
|
289,391
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Restricted cash and investments
|
|
|
31,301
|
|
|
|
31,301
|
|
|
|
31,301
|
|
|
|
—
|
|
|
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under senior credit facility
|
|
$
|
1,399,605
|
|
|
$
|
1,267,235
|
|
|
$
|
—
|
|
|
$
|
1,267,235
|
|
|
$
|
—
|
|
|
5.125% Senior Notes due 2023
|
|
|
278,783
|
|
|
|
246,386
|
|
|
|
—
|
|
|
|
246,386
|
|
|
|
—
|
|
|
5.875% Senior Notes due 2024
|
|
|
225,293
|
|
|
|
180,240
|
|
|
|
—
|
|
|
|
180,240
|
|
|
|
—
|
|
|
6.00% Senior Notes due 2026
|
|
|
350,000
|
|
|
|
255,546
|
|
|
|
—
|
|
|
|
255,546
|
|
|
|
—
|
|
|
6.50% Exchangeable Senior Notes due 2026
|
|
|
230,000
|
|
|
|
240,693
|
|
|
|
—
|
|
|
|
240,693
|
|
|
|
—
|
|
|
Non-recourse debt
|
|
|
338,481
|
|
|
|
338,481
|
|
|
|
—
|
|
|
|
338,481
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Estimated Fair Value Measurements at December 31, 2020
|
|
|
|
|
Carrying Value as
of December 31,
2020
|
|
|
Total Fair
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
283,524
|
|
|
$
|
283,524
|
|
|
$
|
283,524
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Restricted cash and investments
|
|
|
28,329
|
|
|
|
28,329
|
|
|
|
28,329
|
|
|
|
—
|
|
|
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under senior credit facility
|
|
$
|
1,474,437
|
|
|
$
|
1,342,066
|
|
|
$
|
—
|
|
|
$
|
1,342,066
|
|
|
$
|
—
|
|
|
5.875% Senior Notes due 2022
|
|
|
193,958
|
|
|
|
192,736
|
|
|
|
—
|
|
|
|
192,736
|
|
|
|
—
|
|
|
5.125% Senior Notes due 2023
|
|
|
281,783
|
|
|
|
256,096
|
|
|
|
—
|
|
|
|
256,096
|
|
|
|
—
|
|
|
5.875% Senior Notes due 2024
|
|
|
242,500
|
|
|
|
202,458
|
|
|
|
—
|
|
|
|
202,458
|
|
|
|
—
|
|
|
6.00% Senior Notes due 2026
|
|
|
350,000
|
|
|
|
279,493
|
|
|
|
—
|
|
|
|
279,493
|
|
|
|
—
|
|
|
Non-recourse debt
|
|
|
344,614
|
|
|
|
344,632
|
|
|
|
—
|
|
|
|
344,632
|
|
|
|
—
|
|
The fair values of the Company’s cash and cash equivalents, and
restricted cash and investments approximates the carrying values of
these assets at March 31, 2021 and December 31, 2020.
Restricted cash consists of money market funds, bank deposits,
commercial paper and time deposits used for asset replacement funds
and other funds contractually required to be maintained at the
Company's Australian subsidiary. The fair value of the money market
funds and bank deposits is based on quoted market prices (Level 1)
and the fair value of commercial paper and time deposits is based
on market prices for similar instruments (Level 2).
The fair values of the Company's 5.875% senior unsecured notes due
2022 ("5.875% Senior Notes due 2022"), 5.875% senior unsecured
notes due 2024 ("5.875% Senior Notes due 2024"), 6.00% senior
unsecured notes due 2026 (“6.00% Senior Notes”), the 5.125% senior
unsecured notes due 2023 ("5.125% Senior Notes") and the 6.50%
exchangeable senior unsecured notes due 2026 (“Convertible Notes”
or “6.50% Exchangeable Notes due 2026”) although not actively
traded, are based on published financial data for these
instruments. On February 25, 2021, the Company completed a private
offering of $230 million aggregate principal amount of 6.50%
exchangeable senior unsecured notes due 2026. The Company used the
net proceeds from this offering to fund the redemption of the then
outstanding amount of the Company’s 5.875% Senior Notes due 2022.
Refer to Note 10 – Debt for further information. The
fair values of the Company's non-recourse debt related to the
Washington Economic Development Finance Authority ("WEDFA") and the
Company’s Australian subsidiary are estimated based on market
prices of similar instruments. The fair value of borrowings under
the senior credit facility is based on an estimate of trading value
considering the Company’s borrowing rate, the undrawn spread and
similar instruments.
11
Table of Contents
5. RESTRICTED CASH AND CASH EQUIVALENTS
The following table provides a reconciliation of cash, cash
equivalents and restricted cash and cash equivalents reported on
the consolidated balance sheets that sum to the total of the same
such amounts shown in the consolidated statements of cash
flows:
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
|
Cash and cash equivalents
|
|
$
|
289,391
|
|
|
$
|
32,414
|
|
|
Restricted cash and cash equivalents - current
|
|