May 18, 2017
VIA EDGAR
Mr. Eric McPhee
Senior Staff Accountant
Office of Real Estate and Commodities
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
| RE: | The GEO Group, Inc. |
Form 10-K for the fiscal year ended December 31, 2016
Filed on February 27, 2017
File No. 001-14260
Form 8-K
Filed February 28, 2017
File No. 001-14260
Dear Mr. McPhee:
On behalf of The GEO Group, Inc. (the “Company” or “GEO”), we hereby respond to the Staff’s comment letter, dated May 9, 2017, regarding the above referenced Form 10-K for the year ended December 31, 2016 filed on February 27, 2017 (the “Form 10-K”) and the Form 8-K filed on February 28, 2017 (the “Form 8-K”). Please note that, for the Staff’s convenience, we have recited the Staff’s comment in boldface type and provided our response to the comment immediately thereafter.
Form 10-K for the fiscal year ended December 31, 2016
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Funds from Operations, page 81
| 1. | We note that certain adjustments to “NAREIT Defined FFO” and “Normalized Funds from Operations” have been presented net of tax. Please tell us how you considered the guidance in Question 102.11 of the updated Compliance and Disclosure Interpretations issued on May 17, 2016. This comment should also be applied to the presentation within your earnings release filed on Form 8-K and within the supplemental information posted on your website. |
Response:
We acknowledge the Staff’s comment and we will revise the presentation and definition of FFO and Normalized FFO in future earnings releases, supplemental materials and periodic filings to be consistent with the proposed presentation attached hereto as Exhibit I.
Form 8-K filed February 28, 2017
Exhibit 99.1
| 2. | We note your calculation of EBITDA contains adjustments for items other than interest, taxes, depreciation and amortization. Please revise in future filings to ensure that measures calculated differently from EBITDA are not characterized as EBITDA. See Question 103.01 of the updated Compliance and Disclosure Interpretations issued on May 17, 2016. This comment should also be applied to your presentation within the supplemental information posted on your website. |
Response:
We acknowledge the Staff’s comment and we will revise the presentation and definition of EBITDA in future earnings releases and supplemental materials to be consistent with the proposed presentation attached hereto as Exhibit II.
| 3. | In future filings, please revise to present a separate EBITDA reconciliation to comply with Item 10(e)(1)(i)(B) of Regulation S-K which requires a reconciliation of non-GAAP financial measures disclosed or released with the most directly comparable GAAP measure (i.e. net income). Further, your reconciliation should begin with the GAAP measure, so the non-GAAP measures do not receive undue prominence. See Question 102.10 of the updated Compliance and Disclosure Interpretations issued on May 17, 2016. This comment should also be applied to your presentation within the supplemental information posted on your website. |
Response:
We acknowledge the Staff’s comment and we will revise the presentation of the EBITDA reconciliation in future earnings releases and supplemental materials to be consistent with the proposed presentation attached hereto as Exhibit II.
| Sincerely, |
| AKERMAN LLP |
| /s/ Esther L. Moreno |
| Esther L. Moreno |
| For the Firm |
| cc: | Securities and Exchange Commission |
Jeffrey Lewis, Staff Accountant
The GEO Group, Inc.
Brian R. Evans, Senior Vice President and Chief Financial Officer
John J. Bulfin, Esq., Senior Vice President and General Counsel
Ronald A. Brack, Vice President, Chief Accounting Officer and Controller
Akerman LLP
Stephen K. Roddenberry, Esq.
Larry W. Ross II
Exhibit I
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| Q4 2016 | Q4 2015 | FY 2016 | FY 2015 | |||||||||||||
| Net Income attributable to GEO |
$ | 49,436 | $ | 44,058 | $ | 148,715 | $ | 139,438 | ||||||||
| Add: |
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| Real Estate Related Depreciation and Amortization |
15,482 | 14,933 | 61,179 | 57,758 | ||||||||||||
| Gain on sale of real estate assets *** |
(952 | ) | — | (952 | ) | — | ||||||||||
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| Equals: NAREIT defined FFO |
$ | 63,966 | $ | 58,991 | $ | 208,942 | $ | 197,196 | ||||||||
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| Add: |
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| Non-recurring tax benefits** |
(2,031 | ) | — | (2,031 | ) | — | ||||||||||
| Loss on extinguishment of debt |
— | — | 15,885 | — | ||||||||||||
| Start-up expenses |
— | — | 1,939 | 4,658 | ||||||||||||
| M&A related expenses |
— | — | — | 2,232 | ||||||||||||
| Tax effect of adjustments to Funds From Operations **** |
— | — | (749 | ) | 173 | |||||||||||
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| Equals: FFO, normalized |
$ | 61,935 | $ | 58,991 | $ | 223,986 | $ | 204,259 | ||||||||
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| Add: |
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| Non-Real Estate Related Depreciation & Amortization |
13,548 | 13,196 | 53,737 | 48,998 | ||||||||||||
| Consolidated Maintenance Capital Expenditures |
(4,699 | ) | (5,622 | ) | (23,419 | ) | (23,551 | ) | ||||||||
| Stock Based Compensation Expenses |
3,098 | 3,107 | 12,773 | 11,709 | ||||||||||||
| Amortization of debt issuance costs, discount and/or premium and other non-cash interest |
3,791 | 1,977 | 12,121 | 6,963 | ||||||||||||
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| Equals: AFFO |
$ | 77,673 | $ | 71,649 | $ | 279,198 | $ | 248,378 | ||||||||
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| Weighted average common shares outstanding - Diluted |
74,460 | 74,059 | 74,323 | 73,995 | ||||||||||||
| FFO/AFFO per Share - Diluted |
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| Normalized FFO Per Diluted Share |
$ | 0.83 | $ | 0.80 | $ | 3.01 | $ | 2.76 | ||||||||
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| AFFO Per Diluted Share |
$ | 1.04 | $ | 0.97 | $ | 3.76 | $ | 3.36 | ||||||||
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| Regular Common Stock Dividends per common share |
$ | 0.65 | $ | 0.65 | $ | 2.60 | $ | 2.51 | ||||||||
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| * | all figures in ‘000s, except per share data |
| ** | adjusmtent to tax provision |
| *** | no tax impact |
| **** | tax adjustments relate to start-up expenses and M&A expenses |
Exhibit II
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| Q4 2016 | Q4 2015 | FY 2016 | FY 2015 | |||||||||||||
| Net Income |
$ | 49,342 | $ | 44,015 | $ | 148,498 | $ | 139,315 | ||||||||
| Add (Subtract): |
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| Equity in earnings of affiliates, net of income tax provision |
(1,983 | ) | (1,584 | ) | (6,925 | ) | (5,533 | ) | ||||||||
| Income tax provision |
(4,096 | ) | 434 | 7,904 | 7,389 | |||||||||||
| Interest expense, net of interest income |
24,745 | 23,880 | 100,222 | 94,558 | ||||||||||||
| Loss on extinguishment of debt |
— | — | 15,885 | — | ||||||||||||
| Depreciation and amortization |
29,030 | 28,129 | 114,916 | 106,756 | ||||||||||||
| General and administrative expenses |
40,262 | 39,276 | 148,709 | 137,040 | ||||||||||||
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| Net Operating Income, net of operating lease obligations |
$ | 137,300 | $ | 134,150 | $ | 529,209 | $ | 479,525 | ||||||||
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| Add: |
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| Operating lease expense, real estate |
6,505 | 8,397 | 32,232 | 27,765 | ||||||||||||
| Start-up expenses, pre-tax |
— | — | 1,939 | 4,658 | ||||||||||||
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| Net Operating Income (NOI) |
$ | 143,805 | $ | 142,547 | $ | 563,380 | $ | 511,948 | ||||||||
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| Net Income |
$ | 49,342 | $ | 44,015 | $ | 148,498 | $ | 139,315 | ||||||||
| Income tax |
(4,122 | ) | 760 | 10,245 | 9,427 | |||||||||||
| Interest expense, net of interest income |
24,745 | 23,880 | 116,107 | 94,558 | ||||||||||||
| Depreciation and amortization |
29,030 | 28,129 | 114,916 | 106,756 | ||||||||||||
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| EBITDA |
$ | 98,995 | $ | 96,784 | $ | 389,766 | $ | 350,056 | ||||||||
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| Adjustments |
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| Net loss attributable to noncontrolling interests |
94 | 43 | 217 | 123 | ||||||||||||
| Stock based compensation expenses, pre-tax |
3,098 | 3,107 | 12,773 | 11,709 | ||||||||||||
| Start-up expenses, pre-tax |
— | — | 1,939 | 4,658 | ||||||||||||
| M&A related expenses, pre-tax |
— | — | — | 2,174 | ||||||||||||
| Gain on sale of real estate assets, pre-tax |
(952 | ) | — | (952 | ) | — | ||||||||||
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| Adjusted EBITDA |
$ | 101,235 | $ | 99,934 | $ | 403,743 | $ | 368,720 | ||||||||
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| * | all figures in ‘000s |