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Mail Stop 7010
July 18, 2005
Mr. John G. O`Rourke
Senior Vice President - Finance and Chief Financial Officer
The GEO Group, Inc.
621 NW 53rd Street, Suite 700
Boca Raton, Florida 33487
RE: Form 10-K for the Fiscal Year ended January 2, 2005
Form 10-Q for the Fiscal Quarter ended
April
3, 2005
File No. 1-14260
Dear Mr. O`Rourke:
We have reviewed these filings and have the following
comments. If you disagree with a comment, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the Year Ended January 2, 2005
Comment applicable to your overall filing
1. Where a comment below requests additional disclosures or other
revisions, please show us in your supplemental response what the
revisions will look like. With the exception of the comment below
that specifically requests an amendment, all other revisions may
be
included in your future filings.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 15
2. Please discuss and analyze the business reasons for the changes
between periods in the revenues and operating income of each of
your
segments. Please also discuss the impact of significant non-cash
credits and charges on operating income for each segment. For
example, some of the increase in operating income in the U.S.
operations appears to be due to non-cash credits of $1,150,000 in
2004 compared to non-cash charges of $8,600,000 in 2003. Please
refer to SEC Release 33-8350 for guidance.
Liquidity and Capital Resources, page 26
3. Please disclose the impact of the projected benefit payments of
$11,052,000 in 2005 on your liquidity and the anticipated source
of
funds for the payments.
Contractual Obligations and Off Balance Sheet Arrangements, page
31
4. Please revise your table of contractual cash obligations to
include the following:
(a) Estimated interest payments on your debt;
(b) Estimated payments under interest rate swaps; and
(c) Planned funding of pension and other post-retirement benefit
obligations.
Because the table is aimed at increasing transparency of cash
flow,
we believe these payments should be included in the table. Please
also disclose any assumptions you made to derive these amounts.
Financial Statements and Supplementary Data, page 46
5. Audits of financial statements are performed in accordance with
the standards of the Public Company Accounting Oversight Board.
Please revise management`s statement that the audit was conducted
in
accordance with auditing standards generally accepted in the
United
States.
Financial Statements
Consolidated Statements of Income, page 53
6. You had a 50% ownership interest in Premier Custodial Group and
have a minority investment in South African Custodial Services.
Your
equity method investments appear to be significant in 2002 and
possibly in 2003. Please provide us with your significance tests
under Rule 3-09 of Regulation S-X for 2002 and 2003. If in any
period this investment was significant in excess of the 20% level,
separate financial statements are required to be included in your
Form 10-K for all periods presented. These separate financial
statements must be audited for periods that the 20% significance
level was exceeded and may be unaudited for each other period.
Consolidated Balance Sheets, page 54
7. You disclosed that the number of shares of common stock issued
and
outstanding are the same, yet you have 12,000,000 shares of
treasury
stock. Please revise the number of common stock issued and
outstanding to take account of the treasury common shares.
Consolidated Statements of Cash Flows, page 55
8. The cash and cash equivalents amount on the balance sheet does
not
agree with the cash and cash equivalents amount in the statements
of
cash flows apparently due to the discontinued operations.
Paragraph
7 of SFAS 95 requires cash and cash equivalents to be the same
amount
in both statements. Please make the appropriate revisions.
Consolidated Statements of Shareholders` Equity and Comprehensive
Income, page 56
9. Please disclose the reclassification adjustments of your
derivative financial instruments in the accumulated other
comprehensive income (loss) column of your statement of
stockholders`
equity. Please also disclose the reclassification adjustment
related
to the foreign currency translation gain or loss realized upon the
sale of your United Kingdom joint venture or explain why the
reclassification adjustment was not required. Please refer to
paragraphs 18-21 of SFAS 130 and paragraph 14 of SFAS 52.
Note 1 - Summary of Business Operations and Significant Accounting
Policies, page 57
10. You appear to accrue for planned major maintenance activities
prior to the periods in which the costs are actually incurred.
Please disclose the types of planned maintenance costs you accrue
for
in advance and your accounting policy with respect to planned
major
maintenance activities. Please also clarify how your accounting
for planned major maintenance activities is consistent with your
disclosure in the critical accounting policies that maintenance
and
repairs are expensed as incurred. Please refer to EITF D-88.
Variable Interest Entities, page 57
11. Please supplementally tell us if the Canadian special purpose
entity that you are guaranteeing tax liabilities of approximately
$2.1 million is a variable interest entity and if you are the
primary
beneficiary of that entity.
Revenue Recognition, page 60
12. Please disclose your accounting policy for unapproved change
orders on contracts accounted for under the percentage-of-
completion
method, including whether you assume a profit component. Please
also
disclose if you have a favorable history of negotiating and
collecting work performed under unapproved change orders and how
your
accounting conforms to the guidance provided by paragraphs 61-63
of
SOP 81-1.
Note 4 - Property and Equipment, page 68
13. Given that you lease or manage a significant number of your
facilities, please present your leasehold improvements in a
separate
line item from buildings in the table.
Note 6 - Derivative Financial Instruments, page 69
14. Please disclose the estimated amount of losses associated with
the cash flow hedge of the non-recourse debt of the Australian
subsidiary included in other comprehensive income (loss) that is
expected to be reclassified into earnings in the next twelve
months
as required by paragraph 45 of SFAS 133.
Note 10 - Commitments and Contingencies - Litigation, Claims and
Assessments, page 76
15. Please supplementally tell us how the accounting for the costs
to
terminate the inactive facility in Jena, Louisiana, conforms with
the
SFAS 146 guidance that the obligation shall be determined on the
cease-date based on the remaining lease rentals less the estimated
sublease rentals. Please also tell us the reasons for the
consecutive write-downs of $1,100,000, $5,000,000 and $3,000,000
in
2002, 2003 and 2004. Please also tell us why you have only
accrued
for potential losses though January 2008 given that you have been
unable to enter into a new management contract on this facility
since
the original contract was terminated in 2000, you have lease
obligations through 2009 and the additional lease obligations
through
2009 of $4,300,000 appear material.
16. Please disclose the remaining lease obligation or an estimate
of
the possible loss or range of loss in the event that the
management
contract of the Michigan Youth Correctional Facility is
terminated.
Please refer to paragraph 10 of SFAS 5 for guidance.
Litigation, Claims and Assessments
17. In January 2005 you made a $3.1 million cash payment to settle
a
class action lawsuit filed during 2001 by current and former
employees. Please supplementally tell us if you had previously
accrued for this contingency and the amount of the accrual. If
you
had not previously accrued for this contingency, please tell us
why
this expense was not considered an expense in 2004. Please refer
to
SAS 1.
18. Please disclose details of the third party claim for property
damage incurred during 2002 and 2001 at several detention
facilities
that your Australian subsidiary formerly operated. Please
disclose
an update of the current status of this claim. Given your
disclosure
that an unfavorable settlement could have a material effect on
your
financial condition and results of operations, please tell us why
you
do not believe that a contingency accrual is required and/or
disclose
an estimate of the possible range of loss or state the reasons why
such an estimate cannot be made. Please refer to paragraphs 9-11
of
SFAS 5, FIN 14 and SAB Topic 5:Y.
Note 15 - Business Segment and Geographic Information, page 82
19. Please tell us what you consider to be your operating segments
and why. Please disclose the factors used to identify your
reportable segments and the types of products and services from
which
each reportable segment derives its revenues in accordance with
paragraph 26 of SFAS 131. Please also tell us how you met the
aggregation criteria in paragraph 17 of SFAS 131 to include each
operating segment in the reportable segment you did.
20. Please disclose significant non-cash items, other than
depreciation and amortization expense, included in operating
income
for each segment in accordance with paragraph 27 of SFAS 131. The
disclosure of costs associated with exit activities for each
segment
is also required by paragraph 20 of SFAS 146.
Note 16 - Income Taxes, page 84
21. Please supplementally tell us why income from operations
before
income taxes in the United States of $9,375,000 is less than
operating income in the United States in your segment note of
$28,641,000. Please also tell us why the total income from
operations before income taxes from the Australian and South
Africa
operations of $17,058,000 is more than the total operating income
in
the Australian and South Africa operations in your segment note of
$10,669,000. As part of this explanation please clarify how
financing related income and expenses are allocated to domestic
and
foreign income from operations before taxes.
Certifications - Exhibits 31.1 and 31.2
22. Disclosure controls and procedures are now defined in Exchange
Act Rules 13a-15(e) and 15d-15(e). You are required to evaluate
the
effectiveness of your disclosure controls and procedures as of the
end of the period covered by the report. You are also required to
certify that you designed internal controls over financial
reporting,
or caused such internal control over financial reporting to be
designed under your 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. Please amend your
December
31, 2004 Form 10-K to include the proper certifications. Please
be
sure to refile the entire Form, with the updated certifications,
when
you file the amendment. Similarly amend your April 3, 2005 Form
10-
Q. See Item 601 (b)(31) of Regulation S-K.
Form 10-Q for the period ended April 3, 2005
General
23. Please address the comments above in your interim filings as
well.
* * * *
Please respond to these comments within 10 business
days, or tell us when you will provide us with a response. Please
provide us with a response letter that keys your responses to our
comments and provides any requested information. Detailed letters
greatly facilitate our review. Please file your response on EDGAR
as
a correspondence file. Please understand that we may have
additional
comments after reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy
and adequacy of the disclosure in the filings reviewed by the
staff
to be certain that they have provided all information required
under
the Securities Exchange Act of 1934 and that they have provided
all
information investors require for an informed decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide, in writing, a statement from the company acknowledging
that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of
the Division of Corporation Finance in our review of your filing
or
in response to our comments on your filing.
If you have any questions regarding these comments,
please
direct them to Gus Rodriguez, Staff Accountant, at (202) 551-3752
or,
in his absence, Rufus Decker, the undersigned, at (202) 551-3769.
Sincerely,
Rufus Decker
Branch Chief
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John G. O'Rourke
The GEO Group, Inc.
July 18, 2005
Page 1 of 7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE