UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from ______ to_______
Commission file number:
(Exact name of registrant as specified in its charter)
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(Former name, former address and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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 November 6, 2023, the registrant had
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2023 AND 2022
(In thousands, except per share data)
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Three Months |
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Nine Months |
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September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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September 30, 2022 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Operating expenses |
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Depreciation and amortization |
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General and administrative expenses |
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Operating income |
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Interest income |
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Interest expense |
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Loss on extinguishment of debt |
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Gain on asset divestitures |
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Income before income taxes and equity in earnings of affiliates |
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Provision for income taxes |
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Equity in earnings of affiliates, net of income tax provision of |
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Net income |
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Net loss attributable to noncontrolling interests |
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Net income attributable to The GEO Group, Inc. |
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$ |
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$ |
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$ |
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$ |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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Net income per common share attributable to The GEO Group, |
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Basic: |
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Net income per common share attributable to The GEO Group, |
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$ |
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$ |
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$ |
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$ |
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Diluted: |
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Net income per common share attributable to The GEO Group, |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2023 AND 2022
(In thousands)
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Three Months |
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Nine Months |
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September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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September 30, 2022 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
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Change in marketable securities, net of tax provision (benefit) of $ |
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— |
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Pension liability adjustment, net of tax provision |
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— |
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— |
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Change in fair value of derivative instrument |
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Total other comprehensive loss, net of tax |
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Total comprehensive income |
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Comprehensive loss attributable to noncontrolling interests |
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Comprehensive income attributable to The GEO Group, Inc. |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2023 AND DECEMBER 31, 2022
(In thousands, except share data)
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September 30, 2023 |
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December 31, 2022 |
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(Unaudited) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, less allowance for doubtful accounts of $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted Cash and Investments |
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Property and Equipment, Net |
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Assets Held for Sale |
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Operating Lease Right-of-Use Assets, Net |
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Deferred Income Tax Assets |
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Goodwill |
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Intangible Assets, Net |
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Other Non-Current Assets |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued payroll and related taxes |
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Accrued expenses and other current liabilities |
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Operating lease liabilities, current portion |
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Current portion of finance lease liabilities and long-term debt |
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Total current liabilities |
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Deferred Income Tax Liabilities |
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Other Non-Current Liabilities |
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Operating Lease Liabilities |
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Finance Lease Liabilities |
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Long-Term Debt, Net |
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Shareholders’ Equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings (accumulated deficit) |
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Accumulated other comprehensive loss |
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Treasury stock, |
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( |
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Total shareholders’ equity attributable to The GEO Group, Inc. |
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Noncontrolling interests |
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Total shareholders’ equity |
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Total Liabilities and Shareholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2023 AND 2022
(In thousands)
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Nine Months |
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September 30, 2023 |
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September 30, 2022 |
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Cash Flow from Operating Activities: |
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Net income |
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$ |
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$ |
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Net loss attributable to noncontrolling interests |
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Net income attributable to The GEO Group, Inc. |
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Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash |
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Depreciation and amortization expense |
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Stock-based compensation |
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Loss on extinguishment of debt |
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Amortization of debt issuance costs, discount and/or premium and other non-cash |
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Provision for doubtful accounts |
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Equity in earnings of affiliates, net of tax |
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Dividends received from unconsolidated joint ventures |
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Gain on sale/disposal of property and equipment, net |
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Gain on assets held for sale |
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( |
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— |
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Gain on asset divestitures, net |
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— |
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( |
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Changes in assets and liabilities, net of effects of acquisitions: |
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Changes in accounts receivable, prepaid expenses and other assets |
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Changes in accounts payable, accrued expenses and other liabilities |
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Net cash provided by operating activities |
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Cash Flow from Investing Activities: |
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Proceeds from sale of property and equipment |
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Proceeds from sale of real estate and other assets |
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Change in restricted investments |
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( |
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Capital expenditures |
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( |
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Net cash (used in) provided by investing activities |
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( |
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Cash Flow from Financing Activities: |
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Proceeds from long-term debt |
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— |
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Payments on long-term debt |
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( |
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( |
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Payments on non-recourse debt |
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— |
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( |
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Proceeds from sale of treasury shares |
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— |
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Taxes paid related to net share settlements of equity awards |
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( |
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Proceeds from issuance of common stock in connection with ESPP |
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Debt issuance costs |
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— |
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Proceeds from the exercise of stock options |
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— |
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Net cash used in financing activities |
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( |
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( |
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Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash |
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( |
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( |
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Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash |
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Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, beginning of period |
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Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, end of period |
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$ |
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$ |
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Supplemental Disclosures: |
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Non-cash Investing and Financing activities: |
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Right-of-use assets obtained from operating lease liabilities |
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$ |
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$ |
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Principal Exchanges of Debt |
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$ |
— |
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$ |
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Debt issuance costs in accrued expenses |
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$ |
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$ |
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Capital expenditures in accounts payable and accrued expenses |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
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”) specialize in the ownership, leasing and management of secure facilities, processing centers and community reentry centers in the United States, Australia and South Africa. 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' platform 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 GEOAmey Ltd. (“GEOAmey”). At September 30, 2023, the Company’s worldwide operations include the management and/or ownership of approximately
GEO operated as a real estate investment trust ("REIT") from January 1, 2013 through December 31, 2020. As a REIT, the Company provided services and conducted other business activities through taxable REIT subsidiaries ("TRSs"). A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax rates and certain qualification requirements. The Company's use of TRSs permitted GEO to engage in certain business activities in which the REIT could not engage directly, so long as those activities were conducted in entities that elected to be treated as TRSs under the Internal Revenue Code of 1986, as amended (the “Code”), and enabled GEO 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.
On December 2, 2021, the Company announced that its board of directors (the “Board”) unanimously approved a plan to terminate the Company's REIT status and become a taxable C Corporation, effective for the year ended December 31, 2021. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least
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 (“GAAP”) 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 27, 2023 for the year ended December 31, 2022. The accompanying December 31, 2022 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, 2022. 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 nine months ended September 30, 2023 are not necessarily indicative of the results for the entire year ending December 31, 2023, or for any other future interim or annual periods.
7
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.
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January 1, |
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Foreign Currency |
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September 30, 2023 |
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U.S. Secure Services |
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$ |
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$ |
— |
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$ |
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Electronic Monitoring and Supervision Services |
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— |
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Reentry Services |
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— |
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International Services |
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Total Goodwill |
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$ |
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$ |
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$ |
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The Company has also recorded other finite and indefinite-lived intangible assets as a result of its various business combinations.
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September 30, 2023 |
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December 31, 2022 |
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Weighted |
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Gross |
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Accumulated |
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Net |
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Gross |
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Accumulated |
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Net |
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Facility management contracts |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
( |
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$ |
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Technology |
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— |
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Trade names |
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Indefinite |
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— |
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— |
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Total acquired intangible assets |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
( |
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$ |
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Amortization expense was $
Estimated amortization expense related to the Company's finite-lived intangible assets for the remainder of 2023 through 2027 and thereafter is as follows (in thousands):
Fiscal Year |
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Total |
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Remainder of 2023 |
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$ |
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2024 |
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2025 |
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2026 |
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2027 |
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Thereafter |
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$ |
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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 September 30, 2023 and December 31, 2022 (in thousands):
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Fair Value Measurements at September 30, 2023 |
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Carrying Value at |
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Quoted Prices in |
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Significant Other |
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Significant |
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Assets: |
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Restricted investment: |
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Rabbi Trusts |
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$ |
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$ |
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$ |
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$ |
— |
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Marketable equity and fixed income securities |
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|
|
|
|
|
— |
|
|||
Interest rate swap derivatives |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
8
|
|
|
|
|
Fair Value Measurements at December 31, 2022 |
|
||||||||||
|
|
Carrying Value at |
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rabbi Trust |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Marketable equity and fixed income securities |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Interest rate swap derivatives |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
The Company’s Level 2 financial instruments included in the tables above as of September 30, 2023 and December 31, 2022 consist of interest rate swap derivative assets/liabilities held by GEO, investments in equity and fixed income mutual funds held in the Company’s captive insurance subsidiary, Florina and the Company's rabbi trust established for employer contributions to The GEO Group, Inc. Non-qualified Deferred Compensation Plan. The Company's Level 1 financial instruments included in the table above as of September 30, 2023 consist of money market funds held in Florina and money market funds held in the Company's rabbi trust established for its Executive Chairman's retirement account.
The interest rate swap derivative assets are valued using a discounted cash flow model based on projected borrowing rates. The Company's restricted investment in the rabbi trust for The GEO Group, Inc. Non-qualified Deferred Compensation Plan 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 accounts. The underlying assets are equity and fixed income pooled funds. The marketable equity and fixed income securities are valued using quoted rates.
9
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.
|
|
|
|
|
Estimated Fair Value Measurements at September 30, 2023 |
|
||||||||||||||
|
|
Carrying Value as |
|
|
Total Fair |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Restricted cash and investments |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Borrowings under exchange credit facility |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|||
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
Estimated Fair Value Measurements at December 31, 2022 |
|
||||||||||||||
|
|
Carrying Value as |
|
|
Total Fair |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Restricted cash and investments |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Borrowings under exchange credit facility |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|||
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
The fair values of the Company’s cash and cash equivalents, and restricted cash and investments approximates the carrying values of these assets at September 30, 2023 and December 31, 2022. 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).
As of September 30, 2023, the recurring fair values of the Company's
As of September 30, 2023 and December 31, 2022, the fair values of the Company's
10
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:
|
|
September 30, |
|
|
September 30, |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash and cash equivalents - current |
|
|
— |
|
|
|
— |
|
Restricted cash and investments - non-current |
|
|
|
|
|
|
||
Less Restricted investments - non-current |
|
|
( |
) |
|
|
( |
) |
Total cash, cash equivalents and restricted cash and cash |
|
$ |
|
|
$ |
|
||
Amounts included in restricted cash and cash equivalents are attributable to certain contractual cash restriction requirements at the Company's wholly owned Australian subsidiary related to non-recourse debt (which were included in Restricted Cash and cash equivalents current) and asset replacement funds contractually required to be maintained and other guarantees. The Company sold shares/units in certain of its wholly owned Australian subsidiaries related to its Ravenhall facility in September 2022. Upon the sale, the restricted cash related to these subsidiaries was transferred to the buyer. As such, the Company has
6. SHAREHOLDERS’ EQUITY
The following tables present the changes in shareholders’ equity that are attributable to the Company’s shareholders and to noncontrolling interests for the three and nine months ended September 30, 2023 and 2022 (in thousands):
|
|
Common shares |
|
|
Additional |
|
|
|
|
|
Accumulated |
|
|
Treasury shares |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Retained Earnings |
|
|
Loss |
|
|
Shares |
|
|
Amount |
|
|
Interests |
|
|
Equity |
|
|||||||||
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance, June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
Proceeds from exercise |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Restricted stock canceled |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Balance, September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
11
|
|
Common shares |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Treasury shares |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Shares |
|
|
Amount |
|
|
Interests |
|
|
Equity |
|
|||||||||
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance, June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Proceeds from exercise of |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Restricted stock granted |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
||
Restricted stock canceled |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
Other adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of common |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Balance, September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
|
|
Common shares |
|
|
Additional |
|
|
Accumulated Deficit |
|
|
Accumulated |
|
|
Treasury shares |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
/Retained Earnings |
|
|
Loss |
|
|
Shares |
|
|
Amount |
|
|
Interests |
|
|
Equity |
|
|||||||||
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance January 1, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Proceeds from exercise of |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Restricted stock granted |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Restricted stock canceled |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Sale of treasury shares [1] |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
|||
Shares withheld for net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Issuance of common |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Balance, September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
|
|
Common shares |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Treasury shares |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Shares |
|
|
Amount |
|
|
Interests |
|
|
Equity |
|
|||||||||
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance, January 1, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Proceeds from exercise |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Restricted stock granted |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
||
Restricted stock canceled |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
Shares withheld for net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Issuance of common |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Other adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Other comprehensive |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
Balance, September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
[1] The Company sold treasury shares to partially fund its obligation under its Amended and Restated Executive Retirement
Agreement with its Executive Chairman. Refer to Note 13 - Benefit Plans for further information.
[2] The Company withheld shares through net settlements to satisfy statutory tax withholding requirements upon the vesting of shares
of restricted stock held by employees.
Automatic Shelf Registration on Form S-3
On October 30, 2023, the Company filed an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission (the “SEC”) that enables the Company to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, guarantees of debt securities, warrants and units. The shelf registration statement became automatically effective upon filing and is valid for three years.
12
Comprehensive Income (Loss)
Comprehensive income (loss) represents the change in shareholders' equity from transactions and other events and circumstances arising from non-shareholder sources. The Company's total comprehensive income (loss) is comprised of net income attributable to GEO, net income attributable to noncontrolling interests, foreign currency translation adjustments that arise from consolidating foreign operations that do not impact cash flows, net unrealized gains and/or losses on derivative instruments, marketable securities and pension liability adjustments within shareholders' equity and comprehensive income (loss).
The components of accumulated other comprehensive loss attributable to GEO within shareholders' equity are as follows:
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
(In thousands) |
|
|||||||||||||||||
|
|
Foreign currency |
|
|
Change |
|
|
Change in marketable securities, net of tax |
|
|
Pension |
|
|
Total |
|
|||||
Balance, January 1, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Current-period other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
|
|
|
- |
|
|
|
( |
) |
||
Balance, September 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
||
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||
|
|
(In thousands) |
|
|||||||||||||||||
|
|
Foreign currency |
|
|
Change |
|
|
Change in marketable securities, net of tax |
|
|
Pension |
|
|
Total |
|
|||||
Balance, January 1, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Current-period other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Balance, September 30, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
7. EQUITY INCENTIVE PLANS
The Board adopted The GEO Group, Inc. Amended and Restated 2018 Stock Incentive Plan (the "2018 Amended and Restated Plan"), which was approved by the Company's shareholders on April 28, 2021. The 2018 Amended and Restated Plan supersedes the previous 2018 Stock Incentive Plan. As of the date the 2018 Amended and Restated Plan was approved by the Company’s shareholders, it provided for a reserve of an additional
Stock Options
The Company uses a Black-Scholes option valuation model to estimate the fair value of each time-based or performance-based option awarded. For options granted during the nine months ended September 30, 2023, the fair value was estimated using the following assumptions: (i) volatility of
|
|
Shares |
|
|
Wtd. Avg. |
|
|
Wtd. Avg. |
|
|
Aggregate |
|
||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|
(in thousands) |
|
||||
Options outstanding at January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Options forfeited/canceled/expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Options outstanding at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options vested and expected to vest at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
13
On March 1, 2023, the Company granted approximately
Restricted Stock
Compensation expense for nonvested stock awards is recorded over the vesting period based on the fair value at the date of grant. Generally, the restricted stock awards vest in equal increments generally over either a or
A summary of the activity of restricted stock outstanding is as follows for the nine months ended September 30, 2023:
|
|
Shares |
|
|
Wtd. Avg. |
|
||
|
|
(in thousands) |
|
|
|
|
||
Restricted stock outstanding at January 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited/canceled |
|
|
( |
) |
|
|
|
|
Restricted stock outstanding at September 30, 2023 |
|
|
|
|
$ |
|
||
During the nine months ended September 30, 2023, the Company granted
The vesting of these performance-based restricted stock grants are subject to the achievement by GEO of
The metric related to ROCE is considered to be a performance condition. For share-based awards that contain a performance condition, the achievement of the targets must be probable before any share-based compensation expense is recorded. The Company reviews the likelihood of which target in the range will be achieved and if deemed probable, compensation expense is recorded at that time. If subsequent to initial measurement there is a change in the estimate of the probability of meeting the performance condition, the effect of the change in the estimated quantity of awards expected to vest is recognized by cumulatively adjusting compensation expense. If ultimately the performance targets are not met, for any awards where vesting was previously deemed probable, previously recognized compensation expense will be reversed in the period in which vesting is no longer deemed probable. The fair value of these awards was determined based on the closing price of the Company's common stock on the date of grant.
The metric related to TSR is considered to be a market condition. For share-based awards that contain a market condition, the probability of satisfying the market condition must be considered in the estimate of grant-date fair value and previously recorded compensation expense is not reversed if the market condition is never met. The fair value of these awards was determined based on a Monte Carlo simulation, which calculates a range of possible outcomes and the probabilities that they will occur, using the following weighted average key assumptions: (i) volatility of
For the nine months ended September 30, 2023 and 2022, the Company recognized $
14
Employee Stock Purchase Plan
The Company previously adopted The GEO Group Inc. 2011 Employee Stock Purchase Plan (the “Plan" or "ESPP”) effective July 9, 2011. The Company has since amended and restated the Plan (the “Amended ESPP”) which was approved by the Company’s shareholders on April 28, 2021 and became effective on July 9, 2021. The purpose of the Amended ESPP, which is qualified under Section 423 of the Code, is to encourage stock ownership through payroll deductions by the employees of GEO and designated subsidiaries of GEO in order to increase their identification with the Company’s goals and secure a proprietary interest in the Company’s success. These deductions are used to purchase shares of the Company’s common stock at a
The Amended ESPP is considered to be non-compensatory. As such, there is no compensation expense required to be recognized. Share purchases under the Amended ESPP are made on the last day of each month. During the nine months ended September 30, 2023 and 2022,
8. EARNINGS PER SHARE
Basic earnings per share of common stock is computed by dividing the net income attributable to The GEO Group, Inc. available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income attributable to The GEO Group, Inc. available to common stockholders represents net income attributable to The GEO Group reduced by an allocation of earnings to participating securities. The
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net loss attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: Undistributed income allocable to participating securities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income attributable to The GEO Group, Inc. available to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share attributable to The GEO Group, |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Per share amount |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted earnings per share attributable to The GEO Group, |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of equity incentive plans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares assuming dilution |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Per share amount |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
For the three months ended September 30, 2023,
For the three months ended September 30, 2022,
15
For the nine months ended September 30, 2023,
For the nine months ended September 30, 2022,
On February 24, 2021, the Company’s wholly owned subsidiary, GEO Corrections Holdings, Inc. (“GEOCH”), completed a private offering of $
9. DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in interest rates. The Company measures its derivative financial instruments at fair value.
In August of 2019, the Company entered into
16
10. DEBT
Debt outstanding as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
Exchange Credit Agreement |
|
|
|
|
|
|
||
Tranche 1 Loans |
|
$ |
|
|
$ |
|
||
Unamortized premium on tranche 1 loans |
|
|
|
|
|
|
||
Unamortized debt issuance costs on tranche 1 loans |
|
|
( |
) |
|
|
( |
) |
Tranche 2 Loans |
|
|
|
|
|
|
||
Unamortized discount on tranche 2 loans |
|
|
( |
) |
|
|
( |
) |
Unamortized debt issuance costs on tranche 2 loans |
|
|
( |
) |
|
|
( |
) |
Revolver |
|
|
— |
|
|
|
|
|
Total Exchange Credit Agreement [*] |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Notes Due in 2028 |
|
|
|
|
|
|
||
Unamortized discount |
|
|
( |
) |
|
|
( |
) |
Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total 10.500% Public Second Lien Notes due 2028 |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Notes Due in 2028 |
|
|
|
|
|
|
||
Unamortized discount |
|
|
( |
) |
|
|
( |
) |
Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total 9.500% Private Second Lien Notes due 2028 |
|
|
|
|
|
|
||
6.50% Exchangeable Senior Notes: |
|
|
|
|
|
|
||
Notes Due in 2026 |
|
|
|
|
|
|
||
Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total |
|
|
|
|
|
|
||
6.00% Senior Notes: |
|
|
|
|
|
|
||
Notes Due in 2026 |
|
|
|
|
|
|
||
Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total |
|
|
|
|
|
|
||
5.875% Senior Notes: |
|
|
|
|
|
|
||
Notes Due in 2024 |
|
|
|
|
|
|
||
Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total |
|
|
|
|
|
|
||
Finance Lease Liabilities |
|
|
|
|
|
|
||
Other debt, net of unamortized debt issuance costs |
|
|
|
|
|
|
||
Total debt |
|
|
|
|
|
|
||
Current portion of finance lease liabilities and long-term debt |
|
|
( |
) |
|
|
( |
) |
Finance Lease Liabilities, long-term portion |
|
|
( |
) |
|
|
( |
) |
Long-Term Debt |
|
$ |
|
|
$ |
|
||
[*] As further discussed below, the exchange agreement included Tranche 3 Loans which were redeemed prior to December 31, 2022.
Exchange Offer
On August 19, 2022, the Company completed an exchange offer to exchange certain of its outstanding
Amendment No. 4 and Amendment No. 5 to Existing Credit Agreement
In connection with the exchange offer, (i) the Company and GEO Corrections Holdings, Inc. (“Corrections”), as borrowers (the “Borrowers”), certain lenders (the “Consenting Lenders”) and BNP Paribas, as the then existing administrative agent (the “Existing Administrative Agent”) under the Company’s then existing senior secured credit agreement (the “Existing Credit Agreement”), entered into Amendment No. 4 to Third Amended and Restated Credit Agreement, dated as of August 19, 2022 (“Amendment No. 4”), and (ii) the Borrowers, certain subsidiaries of the Borrowers (the “Credit Facility Guarantors”), the Consenting Lenders, the
17
Existing Administrative Agent, Alter Domus Products Corp., as the new administrative agent for the lenders under the amended existing credit agreement (in such capacity, the “Amended Credit Agreement Administrative Agent”), and Alter Domus Products Corp., as the administrative agent for the lenders under the Exchange Credit Agreement (in such capacity, the “Exchange Credit Agreement Administrative Agent”), entered into Amendment No. 5 to Third Amended and Restated Credit Agreement, dated as of August 19, 2022 (“Amendment No. 5,” and the Existing Credit Agreement as amended by Amendment No. 4 and Amendment No. 5, the “Amended Credit Agreement”).
Pursuant to Amendment No. 4, the Borrowers and the Consenting Lenders amended the Existing Credit Agreement to permit the consummation of the exchange offers and consent solicitations described below. Pursuant to Amendment No. 5, (i) the Existing Administrative Agent was replaced as administrative agent under the Amended Credit Agreement with the Amended Credit Agreement Administrative Agent, (ii) the Borrowers and the Consenting Lenders agreed to amend the Existing Credit Agreement as set forth therein, (iii) the Company agreed to purchase the revolving credit commitments of certain Consenting Lenders under the Existing Credit Agreement and exchange such revolving credit commitments with revolving credit commitments under the Exchange Credit Agreement, (iv) certain Consenting Lenders holding such revolving credit commitments agreed to exchange their revolving credit loans and related obligations for cash, tranche 2 term loans under the Exchange Credit Agreement (“Tranche 2 Loans”) and tranche 3 term loans under the Exchange Credit Agreement (“Tranche 3 Loans”), (v) certain Consenting Lenders holding such revolving credit commitments agreed to assign their revolving credit loans and related obligations to certain other Consenting Lenders (who then agreed to exchange such assigned revolving credit loans and related obligations for tranche 1 term loans under the Exchange Credit Agreement (“Tranche 1 Loans”)) and exchange the remainder of such revolving credit loans and related obligations for cash, Tranche 2 Loans and/or Tranche 3 Loans, (vi) the Company agreed to purchase the term loans of certain Consenting Lenders under the Existing Credit Agreement and exchange such term loans with Tranche 1 Loans or a combination of Tranche 1 Loans and cash, and (vii) all letters of credit outstanding under the Existing Credit Agreement were deemed issued and outstanding under the Exchange Credit Agreement and no longer outstanding under the Existing Credit Agreement.
After giving effect to Amendment No. 4 and Amendment No. 5 and the transactions described therein, approximately $
New Exchange Credit Agreement
In connection with the exchange offer, the Borrowers, the Consenting Lenders and the Exchange Credit Agreement Administrative Agent entered into a Credit Agreement, dated as of August 19, 2022 (the “Exchange Credit Agreement”), to, among other things, evidence and govern the exchanged revolving credit commitments (the “Exchange Revolving Credit Facility”), Tranche 1 Loans, Tranche 2 Loans and Tranche 3 Loans described above. On the transaction date, after giving effect to the transactions, the aggregate principal amount of revolving credit commitments under the Exchange Revolving Credit Facility was approximately $
Revolving credit loans under the Exchange Revolving Credit Facility bear interest at a per annum rate equal to Term Secured Overnight Financing Rate (“SOFR”) (subject to a
18
lien leverage ratio is less than
Loans under the Exchange Revolving Credit Facility may not be borrowed if, at the time of and immediately after giving pro forma effect to such extension of credit and any planned future expenditures entered into or expected to be made or payments on indebtedness required to be made, in each case within 60 days of such extension of credit, domestic unrestricted cash for the Company and its restricted subsidiaries exceeds $
The revolving credit commitments under the Exchange Revolving Credit Facility terminate, and the Tranche 1 Loans and Tranche 2 Loans mature, in each case on the earliest of (i)
The Exchange Credit Agreement contains certain customary representations and warranties, affirmative covenants and negative covenants, including restrictions on the ability of the Company and its restricted subsidiaries to, among other things, (i) create, incur or assume any indebtedness, (ii) create, incur, assume or permit liens, (iii) make loans and investments, (iv) engage in mergers, acquisitions and asset sales, (v) make certain restricted payments, (vi) issue, sell or otherwise dispose of capital stock, (vii) engage in transactions with affiliates, (viii) cancel, forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for value any senior notes, except as permitted, (ix) engage in other businesses, except as permitted, and (x) materially impair the security interests securing the obligations under the Exchange Credit Agreement. The Exchange Credit Agreement also contains certain financial covenants, including a maximum total leverage ratio covenant of
The Credit Facility Guarantors guarantee the obligations in respect of the commitments and loans under the Exchange Credit Agreement. The obligations of the Borrowers and the Credit Facility Guarantors in respect of the Exchange Credit Agreement are secured by first-priority liens on the Common Collateral securing the obligations under the Amended Credit Agreement and, other than with respect to the Tranche 3 Loans, first-priority liens on certain additional assets of the Borrower and the Credit Facility Guarantors (the “Exclusive Collateral”), including real property interests with respect to which the Exchange Credit Agreement requires the execution and delivery of a mortgage but with respect to which the Amended Credit Agreement does not. The rights of the secured parties under the Amended Credit Agreement and the Exchange Credit Agreement in respect of the Common Collateral are governed by a First Lien Pari Passu Intercreditor Agreement (the “First Lien Pari Passu Intercreditor Agreement”), dated as of August 19, 2022, among the Amended Credit Agreement Administrative Agent, the Exchange Credit Agreement Administrative Agent and each additional senior representative party thereto from time to time, and acknowledged by the Borrower and the Credit Facility Guarantors.
19
As of September 30, 2023, the Company had
During the nine months ended September 30, 2023, the Company made mandatory quarterly prepayments on its Tranche 1 and Tranche 2 loans under its exchange credit agreement. In connection with the prepayments, the Company wrote off a proportionate amount of related deferred loan costs and discount/premium of approximately $
5.125% Senior Notes due 2023 and 5.875% Senior Notes due 2024
The Company exchanged $
6.00% Senior Notes due 2026
The Company exchanged $
A description of the New Registered Notes and the New Private Notes is as follows:
Issuance of 10.500% Senior Second Lien Secured Notes due 2028
The Company issued $
The New Registered Notes will initially be fully and unconditionally guaranteed (collectively, the “Registered Notes Guarantees”) by each of the Company’s Restricted Subsidiaries (as defined in the Registered Notes Indenture) that has guaranteed its obligations under the Exchange Credit Agreement and may be guaranteed by additional subsidiaries as described in the Registered Notes Indenture.
The New Registered Notes are also subject to the terms of the First Lien/Second Lien Intercreditor Agreement (the “First Lien/Second Lien Intercreditor Agreement”), dated August 19, 2022, among the Amended Credit Agreement Administrative Agent, the Exchange Credit Agreement Administrative Agent, each additional senior representative party thereto from time to time and the Second Lien Collateral Trustee and acknowledged by the Company and the Guarantors, and, in connection with the exchange offers and consent solicitations, the Second Lien Collateral Trustee entered into the First Lien/Second Lien Intercreditor Agreement with respect to the New Registered Notes and the New Private Notes. The First Lien/Second Lien Intercreditor Agreement restricts the actions permitted to be taken by the Second Lien Collateral Trustee with respect to the Collateral on behalf of the holders of the New Registered Notes and the New Private Notes, and the Second Lien Collateral Trustee, on behalf of itself and the holders of the New Registered Notes and the New Private Notes, agreed to limit certain other rights with respect to the Collateral during any insolvency proceeding.
20
The New Registered Notes bear interest at a rate of
The Registered Notes Indenture contains covenants that, among other things, restrict the Company’ ability and the ability of its restricted subsidiaries to incur certain additional indebtedness and issue preferred stock, make certain dividend payments, distributions, investments and other restricted payments, sell certain assets, agree to any restrictions on the ability of its restricted subsidiaries to make payments to the Company, create certain liens, merge, consolidate or sell all or substantially all of their assets and enter into certain transactions with affiliates. These covenants are subject to a number of important exceptions and qualifications as described in the Registered Notes Indenture.
Issuance of 9.500% Senior Second Lien Secured Notes due 2028
The Company issued $
The New Private Notes will initially be fully and unconditionally guaranteed (collectively, the “Private Notes Guarantees”) by each of the Company’s Restricted Subsidiaries (as defined in the Registered Notes Indenture) that has guaranteed its obligations under the Exchange Credit Agreement and may be guaranteed by additional subsidiaries as described in the Registered Notes Indenture.
The New Private Notes and Private Notes Guarantees are subject to the terms of the Second Lien Collateral Trust Agreement and the First Lien/Second Lien Intercreditor Agreement described above on the same terms as the New Registered Notes.
The New Private Notes bear interest at a rate of
The Private Notes Indenture contains covenants that, among other things, restrict the Company’s ability and the ability of its restricted subsidiaries to incur certain additional indebtedness and issue preferred stock, make certain dividend payments, distributions, investments and other restricted payments, sell certain assets, agree to any restrictions on the ability of its restricted subsidiaries to make payments to the Company, create certain liens, merge, consolidate or sell all or substantially all of their assets and enter into certain transactions with affiliates. These covenants are subject to a number of important exceptions and qualifications as described in the Private Notes Indenture.
Debt Issuance Fees
As a result of the transactions discussed above, the Company incurred a total of approximately $
21
6.50% Exchangeable Senior Notes due 2026
On February 24, 2021, the Company’s wholly owned subsidiary, GEOCH, completed a private offering of $
Upon conversion, the Company will pay or deliver, as the case may be, cash or a combination of cash and shares of common stock. The initial conversion rate is
The Company used the net proceeds from this offering, including the exercise in full of the initial purchasers' over-allotment option to fund the redemption of the then outstanding amount of approximately $
The notes were offered in the United States only to persons reasonably believed to be “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and outside of the United States to non-U.S. persons in compliance with Regulation S under the Securities Act. Neither the notes nor any of the shares of the Company’s common stock issuable upon exchange of the notes, if any, have been, or will be, registered under the Securities Act and, unless so registered, may not be offered or sold in the United States, except pursuant to an applicable exemption from the registration requirements under the Securities Act.
The Company elected to early adopt Accounting Standards Update ("ASU") 2020-06, Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity, on January 1, 2021. The new standard simplifies the accounting for convertible debt by removing the requirements to separately present certain conversion features in equity. In addition, the new standard also simplifies the guidance in ASC 815-40, Derivatives and Hedging – Contract in Entity’s Own Equity, by removing certain criteria that must be satisfied to classify a contract as equity. Finally, the new standard revised the guidance on calculating earnings per share. The Company determined under the guidance of the new standard that the embedded conversion option does not require bifurcation and all proceeds were allocated to the Convertible Notes as a single instrument and is included in Long-Term Debt in the accompanying consolidated balance sheets. The costs incurred in the issuance, including the initial purchasers discount, totaling approximately $
Because the Company currently intends to settle conversions by paying cash up to the principal amount of the Convertible Notes, with any excess conversion value settled in shares of common stock, the Convertible Notes are being accounted for using the net settlement method (or treasury stock-type method) for the purposes of calculating diluted earnings per share. Using this method, the denominator will be affected when the average share price of the Company's common stock for a given period is greater than the conversion price of approximately $
22
Other
In August of 2019, the Company entered into two identical Notes in the aggregate amount of $
The Company was in compliance with its debt covenants at September 30, 2023.
Guarantees
Australia
The Company has entered into a guarantee in connection with the operating performance of a facility in Australia. The obligation amounted to approximately AUD
As of September 30, 2023, the Company also had
Except as discussed above, the Company does not have any off-balance sheet arrangements.
11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Litigation, Claims and Assessments
Shareholder and Derivative Litigation
On July 7, 2020, a putative shareholder class action lawsuit was filed against the Company and its officers George C. Zoley and Brian R. Evans in the U.S. District Court for the Southern District of Florida. On November 18, 2020, the lead plaintiffs, James Michael DeLoach and Edward Oketola, filed a consolidated class action amended complaint against Messrs. Zoley and Evans––as well as then current and former Company officers J. David Donahue and Ann M. Schlarb. On September 23, 2021, the court dismissed all claims against Messrs. Evans and Donahue, and Ms. Schlarb, and dismissed all claims against GEO and Mr. Zoley other than claims related to GEO's disclosures about pending litigation. On October 4, 2021, plaintiffs filed a consolidated class action second amended complaint. The second amended complaint alleges that GEO and Mr. Zoley violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and alleges that Mr. Zoley violated Section 20(a) of the Exchange Act, by making materially false and misleading statements and/or omissions related to pending litigation, and seeks relief individually and on behalf of a putative class consisting of all persons and entities––other than the defendants, the officers and directors of the Company, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which the defendants have or had a controlling interest––who purchased or otherwise acquired the Company’s securities during the alleged class period from November 9, 2018 to August 5, 2020, inclusive. The second amended complaint seeks damages, interest, attorneys’ fees, expert fees, other costs, and such other relief as the court may deem proper. On June 21, 2022, the court dismissed all claims in the second amended complaint other than those related to the Company’s statements about pending lawsuits made prior to July 17, 2019. The parties resolved this matter following mediation, and a hearing to consider final approval of the settlement is set for November 14, 2023.
After the putative shareholder class action lawsuit was filed, three related putative shareholder derivative actions have also been filed. These cases generally allege breaches of fiduciary duties related to the same underlying matters alleged in the class action above. First, on July 1, 2021, a putative shareholder derivative complaint was filed in Palm Beach County, Florida Circuit Court against the Company, as well as current and former Company directors and officers George C. Zoley, Jose Gordo, Brian R. Evans, Ann M. Schlarb, Richard H. Glanton, Anne N. Foreman, Christopher C. Wheeler, Julie M. Wood, Guido van Hauwermeiren, Scott M. Kernan, and Duane Helkowski (collectively, the “State Court Defendants”). Second, on November 12, 2021, a putative shareholder derivative complaint was filed in the U.S. District Court for the Southern District of Florida against the Company, the State Court Defendants, as well as then current and former Company officers David Venturella and J. David Donahue (collectively, the “Derivative Defendants”). Third, on August 24, 2022, a putative stockholder derivative complaint was filed in the U.S. District Court for the Southern District of Florida against the Company and the Derivative Defendants. The state-court complaint alleges breach of fiduciary duty and unjust enrichment claims against the State Court Defendants relating to purported healthcare and quality of care deficiencies, an allegedly inadequate response to the COVID-19 pandemic, alleged forced labor by detainees, and alleged exposure to pending litigation, which purportedly led to damage to GEO. The federal-court complaints make similar allegations of breach of fiduciary duty as to the Derivative Defendants, and also allege that the Derivative Defendants violated Section 10(b) of the Exchange Act, and Rule 10b-5
23
promulgated thereunder and that Mr. Zoley contributed to alleged violations of Sections 10(b) and 21D of the Exchange Act. These cases are currently stayed pending the resolution of the federal putative shareholder class action lawsuit described above.
GEO strongly disputes the claims made in these four lawsuits, and intends to take all necessary steps to vigorously defend itself from these lawsuits.
Immigration Detainee Litigation
Civil immigration detainees at the Aurora ICE Processing Center filed a class action lawsuit on October 22, 2014, against the Company in the U.S. District Court for the District of Colorado. The complaint alleges that the Company was in violation of the Colorado Minimum Wages of Workers Act and the Federal Trafficking Victims Protection Act (“TVPA”). The complaint also claims that the Company was unjustly enriched based on the level of payment the detainees received for work performed in a Voluntary Work Program ("VWP") the Company is required to implement at the facility under the terms of its contract with the federal government. On July 6, 2015, the court found that detainees were not employees under the Colorado Minimum Wage Order and dismissed this claim. On February 27, 2017, the court granted the plaintiffs' motion for class certification on the TVPA and unjust enrichment claims. The plaintiffs' class seeks actual damages, compensatory damages, exemplary damages, punitive damages, restitution, attorneys’ fees and costs, and such other relief as the court may deem proper. On October 18, 2022, the court issued an order granting plaintiffs’ motion for summary judgment on the Company’s affirmative defenses, denying the Company’s motion for summary judgment, motion to dismiss, and motion for decertification of the class, narrowing the class period for plaintiffs’ TVPA claims, and otherwise ruling against the Company’s motions for relief. All trial dates are currently stayed by court order pending appeal of certain of GEO's defenses to the 10th Circuit Court of Appeal. Oral argument before the 10th Circuit was held on September 18, 2023.
Since the Colorado suit was initially filed, four similar lawsuits have been filed - two in the state of Washington and two in California.
The first of the two state of Washington lawsuits was filed on September 26, 2017, by immigration detainees against the Company in the U.S. District Court for the Western District of Washington. The second lawsuit was filed on September 20, 2017, by the State Attorney General against the Company in the Superior Court of the State of Washington for Pierce County, which the Company removed to the U.S. District Court for the Western District of Washington on October 9, 2017. The plaintiffs claimed that Washington State minimum wage laws should be enforced with respect to detainees who volunteer to participate in a VWP administered by GEO at the Northwest ICE Processing Center (the "Center") as required by the U.S. Department of Homeland Security under the terms of GEO’s contract. The Center houses persons in the custody of federal immigration authorities while the federal government is determining their immigration status. In October 2021, an unfavorable jury verdict and court judgment resulting in a combined $
In California, a class-action lawsuit was filed on December 19, 2017, by immigration detainees against the Company in the U.S. District Court Eastern Division of the Central District of California. The California lawsuit alleges violations of the state’s minimum wage laws, violations of the TVPA and California's equivalent state statute, unjust enrichment, unfair competition and retaliation. The California court has certified a class of individuals who have been civilly detained at the Company's Adelanto Facility from December 19, 2014, until the date of final judgment. On March 31, 2022, the court entered a stay until the Ninth Circuit rules on the Washington cases.
Current and former detainees of the Mesa Verde ICE Processing Center and the Golden State Annex ICE Processing Center filed a class action lawsuit on July 13, 2022, against the Company in the U.S. District Court for the Eastern District of California, Fresno Division. This lawsuit is similar to the cases in Colorado, Washington and California discussed above. The complaint alleges that federal detainees who volunteer to participate in the VWP at GEO’s Mesa Verde and Golden State Annex ICE facilities are employees of GEO and entitled to the state’s minimum wage. Plaintiffs also make claims for unfair competition, unjust enrichment, human trafficking, forced labor, California's Private Attorneys General Act and retaliation. GEO filed both a motion to stay the action pending the Ninth Circuit's decision in the Washington lawsuits and a motion to dismiss the action in its entirety. On July 10, 2023, the court entered a stay until the Ninth Circuit rules on the Washington cases.
24
GEO believes it operates the VWP in full compliance with its contract with ICE and all applicable laws, regulations, and standards. GEO strongly disputes the claims made in these lawsuits, and intends to take all necessary steps to vigorously defend itself from these lawsuits. GEO has not recorded any accruals relating to these lawsuits at this time as losses are not considered probable.
Challenges to State Legislation that Conflict with Federal Contracts
On December 30, 2019, the Company filed a lawsuit in the U.S. District Court for the Southern District of California against the State of California for declaratory and injunctive relief challenging California’s newly enacted law - Assembly Bill 32 ("AB-32") - which prohibits the operation of "private detention facilities" in California, including facilities in which the Company provides secure immigration detention contract services to the federal government. The Company’s lawsuit asserts that AB-32 violates the Constitution’s Supremacy Clause, which protects the federal government from regulation by any state. By prohibiting federal detention facilities in California, the suit argues AB-32 substantially interferes with the ability of USMS and ICE to carry out detention responsibilities for the federal government. Secondly, because AB-32 creates an exemption for the application of AB-32 for the State of California for the use of "private detention facilities" (to alleviate overcrowding), California’s statute unlawfully discriminates against the federal government. On January 24, 2020, the United States filed a lawsuit challenging AB-32. On October 8, 2020, the court issued an order granting, in part, and denying, in part, the Company’s and the United States’ motions for preliminary injunction and California’s motion to dismiss. Among other findings, the court (1) dismissed the Company’s intergovernmental immunity claims as well as the United States’ preemption claims as applied to ICE facilities; (2) found that the Company and the United States were likely to succeed on the preemption claims as applied to U.S. Marshals’ facilities and enjoined enforcing AB-32 against those facilities; and (3) refused to enjoin California from enforcing AB-32 against ICE contracts with the Company and the United States. The Company and the United States appealed to the Ninth Circuit. Oral argument was held on June 7, 2021. On October 5, 2021, a three-Judge panel of the Ninth Circuit reversed the lower court’s decision, holding that AB-32 conflicted with federal law. California petitioned the Ninth Circuit for the matter to be heard by the court sitting en banc, which petition was accepted. On September 26, 2022, in an 8-3 en banc decision, the Ninth Circuit held that AB-32 violates the Constitution's Supremacy Clause and that AB-32 is preempted, vacated the lower court’s denial of the Company’s and the United States’ motions for preliminary injunction, and remanded the case to the District Court to consider the remaining preliminary injunction factors. On May 23, 2023, the District Court entered a Final Judgment and Permanent Injunction in favor of GEO and the United States.
On April 29, 2021, the Company filed a lawsuit in the U.S. District Court for the Western District of Washington against the State of Washington for declaratory and injunctive relief challenging the State of Washington’s newly enacted law – House Bill 1090 – that purports to prohibit the operation of "private detention facilities" in the state, which would prevent the United States from using privately contracted detention facilities to house detainees in the custody of ICE. The court entered a stay of this action pending the final resolution of the AB-32 appeal. On June 22, 2023, the State of Washington filed a stipulation indicating, among other things, that it will not enforce House Bill 1090 against GEO for its operation of the Northwest ICE Processing Center.
On July 13, 2023, the Company filed a lawsuit in the U.S. District Court for the Western District of Washington against the State of Washington for declaratory and injunctive relief challenging the State of Washington’s newly enacted law – House Bill 1470. House Bill 1470 purports to empower state agencies with new rule making, inspection, investigation, and testing powers over the Northwest ICE Processing Center. House Bill 1470 also creates a statutory regime of civil penalties applicable to private detention facilities for violations of House Bill 1470 detention standards, and purports to create a private right of action for detainees aggrieved by violations of the statute. The Company is currently awaiting a ruling on its complaint from the U.S. District Court for the Western District of Washington.
Other Litigation
The nature of the Company's business also exposes it to various other legal claims or litigation, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct claims brought by individuals in its care, medical malpractice claims, claims related to deaths in custody, product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, indemnification claims by its customers and other third-parties, contractual claims and claims for personal injury or other damages resulting from contact with the Company's facilities, programs, electronic monitoring products, personnel or detainees, including damages arising from the escape of an individual in its care or from a disturbance or riot at a facility. Legal proceedings with respect to our facilities are unpredictable and, where material, can cause adverse effects, such as prompting modification or even termination of the underlying facility management contracts.
Accruals for Legal Proceedings
25
The Company establishes accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. However, the results of these claims or proceedings cannot be predicted with certainty, and an unfavorable resolution of one or more of these claims or proceedings could have a material adverse effect on the Company's financial condition, results of operations or cash flows, including the modification or loss of one ore more facility management contracts, or could result in a material impairment of the Company’s assets. The Company's accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. The Company does not accrue for anticipated legal fees and costs but expenses those items as incurred.
Other Assessment
A state non-income tax audit completed in 2016 included tax periods for which the state tax authority had previously processed a substantial tax refund. At the completion of the audit fieldwork, the Company received a notice of audit findings disallowing deductions that were previously claimed by the Company, approved by the state tax authority and served as the basis for the approved refund claim. In early January 2017, the Company received a formal Notice of Assessment of Taxes and Demand for Payment from the taxing authority disallowing the deductions. The total tax, penalty and interest related to the assessment is approximately $
Ravenhall
Effective September 20, 2022, the Company executed a Share and Unit Sale and Purchase Agreement ("SPA") for the sale of its equity investment interest in the government-owned Ravenhall Correctional Centre ("Centre") project in Australia for approximately $
Commitments
The Company currently has contractual commitments for a number of projects using Company financing. The Company’s management estimates that the cost of these existing active capital projects will be approximately $
Assets Held for Sale
As of September 30, 2023, the Company had
Facility Disturbance
During the third quarter of 2023, the Company's
26
Idle Facilities
As of September 30, 2023, the Company was marketing seven of its idle facilities to potential customers. One of the facilities, Cheyenne Mountain Recovery Center, is under a contract which has yet to be activated. The carrying values of these idle facilities are included in Property and Equipment in the accompanying consolidated balance sheets.
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Secure |
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Reentry |
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Total |
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Secure |
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Reentry |
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Net Carrying |
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Net Carrying |
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Net Carrying |
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Facility |
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Year Idled |
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Design |
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Design |
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September 30, 2023 |
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September 30, 2023 |
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September 30, 2023 |
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D. Ray James Correctional Facility |
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— |
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— |
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Northlake Correctional Facility |
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— |
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— |
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Rivers Correctional Facility |
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— |
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— |
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Big Spring Correctional Facility |
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— |
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— |
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Flightline Correctional Facility |
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— |
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— |
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McFarland Female Community |
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— |
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— |
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Cheyenne Mountain Recovery Center |
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- |
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Coleman Hall |
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— |
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— |
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Total |
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$ |
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$ |
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$ |
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|||||
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. Two agencies of the DOJ, the Federal Bureau of Prisons (“BOP”) and the U.S. Marshals Service (“USMS”), utilized GEO’s support services at the time the executive order was signed. 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. As of September 30, 2023, GEO has three company-owned/company-leased facilities under direct contracts with USMS, which have current contract option periods that expire between
12. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
Operating and Reporting Segments
The Company conducts its business through
The U.S. Secure Services segment primarily encompasses U.S.-based secure services business. The Electronic Monitoring and Supervision Services segment, which conducts its services in the United States, represents technology and services provided to adults for monitoring services for community-based parolees, probationers, and pretrial defendants. The Reentry Services segment, which conducts its services in the United States represents evidence-based supervision and treatment programs provided to adults for residential and non-residential treatment, educational and community-based programs, pre-release and half-way house programs. The International Services segment primarily consists of secure services operations in South Africa and Australia. Segment disclosures below (in thousands) reflect the results of continuing operations. All transactions between segments are eliminated.
The Company's segment revenues from external customers and a measure of segment profit are as follows (in thousands):
27
|
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Three Months Ended |
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Nine Months Ended |
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September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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September 30, 2022 |
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Revenues: |
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||||
U.S. Secure Services |
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$ |
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$ |
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$ |
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$ |
|
||||
Electronic Monitoring and Supervision Services |
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Reentry Services |
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International Services |
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Total revenues |
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$ |
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$ |
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$ |
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$ |
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||||
Operating income from segments: |
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||||
U.S. Secure Services |
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$ |
|
|
$ |
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$ |
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$ |
|
||||
Electronic Monitoring and Supervision Services |
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Reentry Services |
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International Services |
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Operating income from segments |
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$ |
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$ |
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$ |
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$ |
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||||
General and Administrative Expenses |
|
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( |
) |
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|
( |
) |
|
$ |
( |
) |
|
|
( |
) |
Total Operating Income |
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$ |
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$ |
|
|
$ |
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$ |
|
||||
Pre-Tax Income Reconciliation of Segments
The following is a reconciliation of the Company’s total operating income from its reportable segments to the Company’s income before income taxes and equity in earnings of affiliates (in thousands):
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Three Months Ended |
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Nine Months Ended |
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September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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September 30, 2022 |
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||||
Operating income from segments |
|
$ |
|
|
$ |
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$ |
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$ |
|
||||
Unallocated amounts: |
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||||
General and administrative expenses |
|
|
( |
) |
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( |
) |
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( |
) |
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( |
) |
Net interest expense |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Loss on extinguishment of debt |
|
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Gain on disposition on asset divestitures |
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||||
Income before income taxes and equity in earnings of |
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$ |
|
|
$ |
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|
$ |
|
|
$ |
|
||||
Equity in Earnings of Affiliates
Equity in earnings of affiliates includes the Company’s
The Company has recorded $
The Company has recorded $
28
13. BENEFIT PLANS
The following table summarizes key information related to the Company’s pension plans and retirement agreements (in thousands):
|
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Nine Months Ended |
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Year Ended |
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||
Change in Projected Benefit Obligation |
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||
Projected benefit obligation, beginning of period |
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$ |
|
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$ |
|
||
Service cost |
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||
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|
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|
|||
Actuarial gain |
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|
— |
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( |
) |
Benefits paid |
|
|
( |
) |
|
|
( |
) |
Projected benefit obligation, end of period |
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$ |
|
|
$ |
|
||
Change in Plan Assets |
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|
|
|
|
|
||
Plan assets at fair value, beginning of period |
|
$ |
— |
|
|
$ |
— |
|
Company contributions |
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|
|
|
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|
||
Benefits paid |
|
|
( |
) |
|
|
( |
) |
Plan assets at fair value, end of period |
|
$ |
— |
|
|
$ |
— |
|
Unfunded Status of the Plan |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended |
|
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Nine Months Ended |
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||||||||||
|
|
September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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September 30, 2022 |
|
||||
Components of Net Periodic Benefit Cost |
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||||
Service cost |
|
$ |
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|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
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|||||
Net loss |
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|
- |
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- |
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|
||
Net periodic pension cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The service cost and other components of net periodic benefit cost are included in General and Administrative Expenses in the accompanying consolidated statements of operations.
The long-term portion of the pension liability as of September 30, 2023 and December 31, 2022 was $
Amended and Restated Executive Retirement Agreement
The Company also has a non-qualified deferred compensation agreement with its former CEO. The agreement provides for a lump sum cash payment upon retirement, no sooner than age
On May 27, 2021, the Company and its former CEO entered into an Amended and Restated Executive Retirement Agreement which replaced the former CEO’s previous agreement, effective July 1, 2021. Pursuant to the terms of the Amended and Restated Executive Retirement Agreement, upon the date that the former CEO ceases to provide services to the Company, the Company will pay to the former CEO an amount equal to $
The Company has established several trusts for the purpose of paying the retirement benefit pursuant to the Amended and Restated Executive Retirement Agreement. The trusts are revocable “rabbi trusts” and the assets of the trusts are subject to the claims of the Company’s creditors in the event of the Company’s insolvency.
14.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not, or are not expected to, have a material effect on the Company's results of operations or financial position.
29
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Information
This Quarterly Report on Form 10-Q and the documents incorporated by reference herein contain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. “Forward-looking” statements are any statements that are not based on historical information. Statements other than statements of historical facts included in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, legal proceedings, our corporate structure and potential steps to address our future debt maturities are “forward-looking” statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” or “continue” or the negative of such words or variations of such words and similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements and we can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements, or “cautionary statements,” include, but are not limited to:
31
32
33
We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 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 included in this Quarterly Report on Form 10-Q.
34
Introduction
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. 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 numerous factors including, but not limited to, those described above under “Forward-Looking Information”, and under “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. This discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
We specialize in the ownership, leasing and management of secure facilities, processing centers and reentry facilities and the provision of community-based services in the United States, Australia and South Africa. We own, lease and operate a broad range of secure facilities including maximum, medium and minimum-security facilities, processing centers, as well as community-based reentry facilities. We develop new facilities based on contract awards, using our project development expertise and experience to design, construct and finance what we believe are state-of-the-art facilities. We provide innovative technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community based programs. We also provide secure transportation services domestically and in the United Kingdom through our joint venture GEOAmey.
At September 30, 2023, our worldwide operations include the management and/or ownership of approximately 81,000 beds at 100 secure services and community based facilities, including idle facilities, and also include the provision of community supervision services for an average of more than 400,000 individuals, including nearly 180,000 through an array of technology products including radio frequency, GPS, and alcohol monitoring devices.
We provide a diversified scope of services on behalf of our government agency partners:
For the nine months ended September 30, 2023 and 2022, we had consolidated revenues of $1,804.9 million and $1,756.0 million, respectively. We maintained an average company-wide facility occupancy rate of approximately 86% including 71,034 active beds and excluding 10,221 idle beds which includes those being marketed to potential customers and those classified as held for sale for the nine months ended September 30, 2023, and approximately 85% including 68,920 active beds and excluding 13,061 idle beds which includes those being marketed to potential customers for the nine months ended September 30, 2022.
Reference is made to Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on February 27, 2023, for further discussion and analysis of information pertaining to our financial condition and results of operations as of and for the year ended December 31, 2022.
Business Segments
We conduct our business through four reportable business segments: our U.S. Secure Services segment; our Electronic Monitoring and Supervision Services segment; our Reentry Services segment and our International Services segment. We have identified these four reportable segments to reflect our current view that we operate four distinct business lines, each of which constitutes a material part of our overall business.
Our U.S. Secure Services segment primarily encompasses our U.S.-based public-private partnership secure services business. Our Electronic Monitoring and Supervision Services segment, which conducts its services in the U.S., consists of our electronic monitoring and supervision services. Our Reentry Services segment consists of various community-based and reentry services. Our
35
International Services segment primarily consists of our public-private partnership secure services operations in Australia and South Africa.
Recent Developments
Contract Developments
During the third quarter of 2023, we renewed two direct contracts with the U.S. Marshals Service. One was at our company-owned 1,900-bed Rio Grande Processing Center in Texas for a five-year term, and the second at our company-leased 770-bed Western Region Detention Facility in San Diego for a two-year term.
We also renewed three contracts with ICE for respective one-year terms that include our company-owned 700-bed Broward Transitional Center in Florida, our company-owned 1,904-bed South Texas ICE Processing Center, and our company-owned 1,314-bed Montgomery Processing Center in Texas and entered into a new emergency nine month contract to provide air operations support for ICE.
Idle Facilities
We are currently marketing 9,332 vacant beds at seven of our idle facilities to potential customers which do not include assets classified as held for sale or idle facilities that are under a contract that has not yet been activated. The carrying values of these idle facilities totaled $235.7 million as of September 30, 2023, excluding equipment and other assets that can be easily transferred for use at other facilities. Refer to Note 11 - Commitments, Contingencies and Other Matters of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Critical Accounting Policies
The accompanying unaudited 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 as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We routinely evaluate our estimates based on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. During the nine months ended September 30, 2023, we did not experience any significant changes in estimates or judgments inherent in the preparation of our consolidated financial statements. A summary of our significant accounting policies is contained in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the notes to our unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Comparison of Third Quarter 2023 and Third Quarter 2022
Revenues
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
U.S. Secure Services |
|
$ |
385,007 |
|
|
|
63.9 |
% |
|
$ |
368,493 |
|
|
|
59.8 |
% |
|
$ |
16,514 |
|
|
|
4.5 |
% |
Electronic Monitoring and Supervision Services |
|
|
94,489 |
|
|
|
15.7 |
% |
|
|
137,039 |
|
|
|
22.2 |
% |
|
|
(42,550 |
) |
|
|
(31.0 |
)% |
Reentry Services |
|
|
71,375 |
|
|
|
11.8 |
% |
|
|
65,406 |
|
|
|
10.6 |
% |
|
|
5,969 |
|
|
|
9.1 |
% |
International Services |
|
|
51,914 |
|
|
|
8.6 |
% |
|
|
45,745 |
|
|
|
7.4 |
% |
|
|
6,169 |
|
|
|
13.5 |
% |
Total |
|
$ |
602,785 |
|
|
|
100.0 |
% |
|
$ |
616,683 |
|
|
|
100.0 |
% |
|
$ |
(13,898 |
) |
|
|
(2.3 |
)% |
U.S. Secure Services
Revenues for U.S. Secure Services increased by $16.5 million in Third Quarter 2023 compared to Third Quarter 2022 primarily due to aggregate increases of $8.8 million due to the activation of new transportation contracts. In addition, we experienced aggregate net increases in rates and/or per diem amounts in connection with contract modifications, transportation services and increased occupancies of $16.6 million. These increases were partially offset by aggregate decreases of $8.8 million primarily due to the ramp-down/deactivation of our company-owned North Lake Correctional Facility.
36
The number of compensated mandays in U.S. Secure Services facilities was approximately 4.3 million in Third Quarter 2023 and 4.5 million in Third Quarter 2022. We experienced an aggregate net decrease of approximately 200,000 mandays as a result of contract terminations, partially offset by contract activations and increases in occupancies discussed above. We look at the average occupancy in our facilities to determine how we are managing our available beds. The average occupancy is calculated by taking compensated mandays as a percentage of capacity. The average occupancy in our U.S. Secure Services facilities was 86.6% and 88.8% of capacity in the Third Quarter 2023 and Third Quarter 2022, respectively, excluding idle facilities.
Electronic Monitoring and Supervision Services
Revenues for Electronic Monitoring and Supervision Services decreased by $42.6 million in Third Quarter 2023 compared to Third Quarter 2022 primarily due to decreases in average participant counts under the Intensive Supervision and Appearance Program ("ISAP").
Reentry Services
Revenues for Reentry Services increased by $6.0 million in Third Quarter 2023 compared to Third Quarter 2022 primarily due to increases of $1.7 million due to new day reporting center contracts. We also experienced a net aggregate increase of $4.2 million primarily related to increased census levels at certain of our community-based and reentry centers due to increased programming needs and referrals.
International Services
Revenues for International Services increased by $6.2 million in Third Quarter 2023 compared to Third Quarter 2022 primarily due to a net increase of $8.7 million due to increased populations at our Australian subsidiary and our new health care contract in Australia. Partially offsetting this increase was a decrease due to foreign exchange rate fluctuations of $2.5 million.
Operating Expenses
|
|
2023 |
|
|
% of Segment |
|
|
2022 |
|
|
% of Segment |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
U.S. Secure Services |
|
$ |
301,201 |
|
|
|
78.2 |
% |
|
$ |
281,694 |
|
|
|
76.4 |
% |
|
$ |
19,507 |
|
|
|
6.9 |
% |
Electronic Monitoring and Supervision Services |
|
|
41,145 |
|
|
|
43.5 |
% |
|
|
61,351 |
|
|
|
44.8 |
% |
|
|
(20,206 |
) |
|
|
(32.9 |
)% |
Reentry Services |
|
|
50,256 |
|
|
|
70.4 |
% |
|
|
51,121 |
|
|
|
78.2 |
% |
|
|
(865 |
) |
|
|
(1.7 |
)% |
International Services |
|
|
48,065 |
|
|
|
92.6 |
% |
|
|
42,044 |
|
|
|
91.9 |
% |
|
|
6,021 |
|
|
|
14.3 |
% |
Total |
|
$ |
440,667 |
|
|
|
73.1 |
% |
|
$ |
436,210 |
|
|
|
70.7 |
% |
|
$ |
4,457 |
|
|
|
1.0 |
% |
U.S. Secure Services
Operating expenses for U.S. Secure Services increased by $19.5 million in Third Quarter 2023 compared to Third Quarter 2022 primarily due to aggregate net increases in connection with labor and medical costs, transportation services, increased occupancies and the variable costs associated with those services of $19.2 million. We also experienced an increase of $5.7 million related to new transportation contracts. Partially offsetting these increases were decreases of $5.4 million primarily related to the ramp-down/deactivation of our company-owned North Lake Correctional Facility. Operating expenses as a percentage of revenue have increased due to increased labor and medical costs and increased variable costs associated with population increases for several of our minimum guarantee contracts.
Electronic Monitoring and Supervision Services
Operating expenses for Electronic Monitoring and Supervision Services decreased by $20.2 million in Third Quarter 2023 compared to Third Quarter 2022 primarily due to decreases in variable costs related to decreases in average participant counts under ISAP.
37
Reentry Services
Operating expenses for Reentry Services decreased by $0.9 million during Third Quarter 2023 compared to Third Quarter 2022 primarily due to a decrease of $2.0 million due to contract terminations. Partially offsetting this decrease was an aggregate net increase of $2.2 million related to increased census levels at certain of our community-based and reentry centers due to increased programming needs and referrals and the associated variable costs. We also experienced an increase of $1.9 million due to new day reporting center contracts. We also experienced net favorable adjustments of $3.0 million primarily related to worker's compensation actuarial adjustments and employee retention credits from the IRS in Third Quarter 2023.
International Services
Operating expenses for International Services increased by $6.0 million in Third Quarter 2023 compared to Third Quarter 2022 primarily due to a net increase of approximately $8.4 million primarily due to expenses associated with our new health care contract in Australia. Partially offsetting this increase was a decrease related to foreign exchange rate fluctuations of $2.4 million.
Depreciation and Amortization
|
|
2023 |
|
|
% of Segment |
|
|
2022 |
|
|
% of Segment |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
U.S. Secure Services |
|
$ |
19,619 |
|
|
|
5.1 |
% |
|
$ |
19,337 |
|
|
|
5.2 |
% |
|
$ |
282 |
|
|
|
1.5 |
% |
Electronic Monitoring and Supervision Services |
|
|
6,693 |
|
|
|
7.1 |
% |
|
|
8,015 |
|
|
|
5.8 |
% |
|
|
(1,322 |
) |
|
|
(16.5 |
)% |
Reentry Services |
|
|
4,293 |
|
|
|
6.0 |
% |
|
|
4,469 |
|
|
|
6.8 |
% |
|
|
(176 |
) |
|
|
(3.9 |
)% |
International Services |
|
|
568 |
|
|
|
1.1 |
% |
|
|
509 |
|
|
|
1.1 |
% |
|
|
59 |
|
|
|
11.6 |
% |
Total |
|
$ |
31,173 |
|
|
|
5.2 |
% |
|
$ |
32,330 |
|
|
|
5.2 |
% |
|
$ |
(1,157 |
) |
|
|
(3.6 |
)% |
U.S. Secure Services
U.S. Secure Services depreciation and amortization expense increased in Third Quarter 2023 compared to Third Quarter 2022 primarily due to renovations at certain of our company-owned and leased facilities.
Electronic Monitoring and Supervision Services
Electronic Monitoring and Supervision Services depreciation and amortization expense decreased in Third Quarter 2023 compared to Third Quarter 2022 primarily due to certain assets becoming fully depreciated and/or amortized as well as the closing of certain ISAP locations.
Reentry Services
Reentry Services depreciation and amortization expense decreased in Third Quarter 2023 compared to Third Quarter 2022 primarily due to certain assets becoming fully depreciated and/or amortized as well as certain asset dispositions at our company-owned centers.
International Services
International Services depreciation and amortization expense was relatively consistent in Third Quarter 2023 compared to Third Quarter 2022.
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
General and Administrative Expenses |
|
$ |
47,356 |
|
|
|
7.9 |
% |
|
$ |
50,022 |
|
|
|
8.1 |
% |
|
$ |
(2,666 |
) |
|
|
(5.3 |
)% |
38
General and administrative expenses comprise substantially all of our other unallocated operating expenses which primarily includes, corporate management salaries and benefits, professional fees and other administrative expenses. General and administrative expenses decreased by $2.7 million in Third Quarter 2023 compared to Third Quarter 2022 primarily due to decreases in professional fees, insurance and other administrative expenses.
Non-Operating Expenses
Interest Income and Interest Expense
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Interest Income |
|
$ |
1,320 |
|
|
|
0.2 |
% |
|
$ |
5,111 |
|
|
|
0.8 |
% |
|
$ |
(3,791 |
) |
|
|
(74.2 |
)% |
Interest Expense |
|
$ |
55,777 |
|
|
|
9.3 |
% |
|
$ |
46,537 |
|
|
|
7.5 |
% |
|
$ |
9,240 |
|
|
|
19.9 |
% |
Interest income decreased in Third Quarter 2023 compared to Third Quarter 2022 primarily due to the sale of our equity interest in the Ravenhall project in Australia in August 2022 and the corresponding decrease in interest income on the contract receivable. Also contributing to the decrease was the effect of foreign exchange rate fluctuations. Refer to Note 11 - Commitments, Contingencies and Other Matters of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
On August 19, 2022, we completed an exchange offer to exchange certain of our outstanding 5.125% Senior Notes due 2023, 5.875% Senior Notes due 2024, 6.00% Senior Notes due 2026 and certain revolving credit loans and term loans under our senior secured credit facility into newly issued senior second lien secured notes and a new exchange credit agreement. Interest expense increased in Third Quarter 2023 compared to Third Quarter 2022 primarily due to higher interest rates on the new debt instruments as well as the net amortization of deferred issuance costs and discounts/premiums related to the transaction. Additionally, SOFR/LIBOR rates have increased in Third Quarter 2023 compared to Third Quarter 2022. Refer to Note 10 - Debt of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Loss on Extinguishment of Debt
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Loss on Extinguishment of Debt |
|
$ |
91 |
|
|
|
0.0 |
% |
|
$ |
37,487 |
|
|
|
6.1 |
% |
|
$ |
(37,396 |
) |
|
|
(99.8 |
)% |
During Third Quarter 2023, the Company made a mandatory quarterly prepayment on its Tranche 1 and Tranche 2 loans under its exchange credit agreement. In connection with the prepayment, the Company wrote off a proportionate amount of related deferred loan costs and discount/premium. Refer to Note 10 - Debt of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
During Third Quarter 2022, the Company completed an exchange offer to exchange certain of its outstanding 5.125% Senior Notes due 2023, 5.875% Senior Notes due 2024, 6.000% Senior Notes due 2026 and certain revolving credit loans and term loans under its senior secured credit facility into newly issued senior second lien secured notes and a new credit facility. As a result of the transactions, we recorded a net loss on extinguishment of debt of $37.5 million.
Gain on Asset Divestitures
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Gain on Asset Divestitures |
|
$ |
1,274 |
|
|
|
0.2 |
% |
|
$ |
29,279 |
|
|
|
4.7 |
% |
|
$ |
(28,005 |
) |
|
|
(95.6 |
)% |
We experienced a gain on asset divestiture in Third Quarter 2023 primarily due to the sale of our company-owned 900-bed Albert Bo Robinson Assessment and Treatment Center.
During Third Quarter 2022, we sold our equity investment interest in the government-owned Ravenhall Correctional Centre project in Australia for approximately $84 million in gross proceeds, pre-tax to an unrelated third party. As a result of the transaction, we recorded a gain of approximately $29.3 million. Refer to Note 11 - Commitments, Contingencies and Other Matters of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
39
Income Tax Provision
|
|
2023 |
|
|
Effective Rate |
|
|
2022 |
|
|
Effective Rate |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Provision for Income Taxes |
|
$ |
6,521 |
|
|
|
21.5 |
% |
|
$ |
11,246 |
|
|
|
23.2 |
% |
|
$ |
(4,725 |
) |
|
|
(42.0 |
)% |
The provision for income taxes decreased during Third Quarter 2023 principally due to lower pre-tax income for the quarter. The effective tax rate decreased compared to Third Quarter 2022. In Third Quarter 2023, there was a $2.1 million net discrete tax benefit as compared to a $4.3 million net discrete tax benefit in Third Quarter 2022. Due to the lower pre-tax income during Third Quarter 2023, the net discrete benefit in the quarter had a larger impact on the effective tax rate. We estimate our 2023 annual effective tax rate to be in the range of approximately 27% to 30%, exclusive of any discrete items.
Equity in Earnings of Affiliates, net of Income Tax Provision
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Equity in Earnings of Affiliates, net of Income Tax Provision |
|
$ |
709 |
|
|
|
0.1 |
% |
|
$ |
1,071 |
|
|
|
0.2 |
% |
|
$ |
(362 |
) |
|
|
(33.8 |
)% |
Equity in earnings of affiliates, presented net of income tax provision, represents the earnings of SACS and GEOAmey in the aggregate. Equity in earnings of affiliates decreased during Third Quarter 2023 compared to Third Quarter 2022 due to unfavorable performance at SACS.
Comparison of Nine Months 2023 and Nine Months 2022
Revenues
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
U.S. Secure Services |
|
$ |
1,123,507 |
|
|
|
62.2 |
% |
|
$ |
1,073,140 |
|
|
|
61.1 |
% |
|
$ |
50,367 |
|
|
|
4.7 |
% |
Electronic Monitoring and Supervision Services |
|
|
335,158 |
|
|
|
18.6 |
% |
|
|
346,444 |
|
|
|
19.7 |
% |
|
|
(11,286 |
) |
|
|
(3.3 |
)% |
Reentry Services |
|
|
203,192 |
|
|
|
11.3 |
% |
|
|
192,557 |
|
|
|
11.0 |
% |
|
|
10,635 |
|
|
|
5.5 |
% |
International Services |
|
|
143,028 |
|
|
|
7.9 |
% |
|
|
143,904 |
|
|
|
8.2 |
% |
|
|
(876 |
) |
|
|
(0.6 |
)% |
Total |
|
$ |
1,804,885 |
|
|
|
100 |
% |
|
$ |
1,756,045 |
|
|
|
100.0 |
% |
|
$ |
48,840 |
|
|
|
2.8 |
% |
U.S. Secure Services
Revenues for U.S. Secure Services increased by $50.4 million in Nine Months 2023 compared to Nine Months 2022 primarily due to aggregate increases of $14.3 million due to the activation of new transportation contracts. In addition, we experienced aggregate net increases in rates and/or per diem amounts in connection with contract modifications, transportation services and increased occupancies of $75.5 million. These increases were partially offset by aggregate decreases of $39.4 million due to the ramp-down/deactivations of our company-owned North Lake Correctional Facility and our managed-only George W. Hill Correctional Facility.
The number of compensated mandays in U.S. Secure Services facilities was approximately 12.5 million in Nine Months 2023 and 13.3 million in Nine Months 2022. We experienced an aggregate net decrease of approximately 800,000 mandays as a result of contract terminations, partially offset by contract activations and increases in occupancies discussed above. We look at the average occupancy in our facilities to determine how we are managing our available beds. The average occupancy is calculated by taking compensated mandays as a percentage of capacity. The average occupancy in our U.S. Secure Services facilities was 86.2% and 88.2% of capacity in Nine Months 2023 and Nine Months 2022, respectively, excluding idle facilities.
40
Electronic Monitoring and Supervision Services
Revenues for Electronic Monitoring and Supervision Services decreased by $11.3 million in Nine Months 2023 compared to Nine Months 2022 primarily due to decreases in average participant counts under ISAP.
Reentry Services
Revenues for Reentry Services increased by $10.6 million in Nine Months 2023 compared to Nine Months 2022 primarily due to increases of $4.6 million due to new day reporting center contracts. We also experienced a net aggregate increase of $12.3 million primarily related to increased census levels at certain of our community-based and reentry centers due to increased programming needs and referrals. These increases were partially offset by decreases of $6.3 million due to contract terminations.
International Services
Revenues for International Services decreased by $0.9 million in Nine Months 2023 compared to Nine Months 2022 primarily due to foreign exchange rate fluctuations of $9.5 million. This decrease was partially offset by a net increase of $8.6 million due to increased populations at our Australian subsidiary and our new health care contract in Australia.
Operating Expenses
|
|
2023 |
|
|
% of Segment |
|
|
2022 |
|
|
% of Segment |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
U.S. Secure Services |
|
$ |
869,233 |
|
|
|
77.4 |
% |
|
$ |
796,913 |
|
|
|
74.3 |
% |
|
$ |
72,320 |
|
|
|
9.1 |
% |
Electronic Monitoring and Supervision Services |
|
|
147,144 |
|
|
|
43.9 |
% |
|
|
162,072 |
|
|
|
46.8 |
% |
|
|
(14,928 |
) |
|
|
(9.2 |
)% |
Reentry Services |
|
|
153,078 |
|
|
|
75.3 |
% |
|
|
144,563 |
|
|
|
75.1 |
% |
|
|
8,515 |
|
|
|
5.9 |
% |
International Services |
|
|
132,832 |
|
|
|
92.9 |
% |
|
|
129,614 |
|
|
|
90.1 |
% |
|
|
3,218 |
|
|
|
2.5 |
% |
Total |
|
$ |
1,302,287 |
|
|
|
72.2 |
% |
|
$ |
1,233,162 |
|
|
|
70.2 |
% |
|
$ |
69,125 |
|
|
|
5.6 |
% |
U.S. Secure Services
Operating expenses for U.S. Secure Services increased by $72.3 million in Nine Months 2023 compared to Nine Months 2022 primarily due to aggregate net increases in connection with labor and medical costs, transportation services, increased occupancies and the variable costs associated with those services of $88.2 million. We also experienced an increase of $9.7 million related to new transportation contracts. Partially offsetting these increases were decreases of $25.6 million related to the ramp-down/deactivations of our company-owned North Lake Correctional Facility and our managed-only George W. Hill Correctional Facility. Operating expenses as a percentage of revenue have increased due to increased labor and medical costs and increased variable costs associated with population increases for several of our minimum guarantee contracts.
Electronic Monitoring and Supervision Services
Operating expenses for Electronic Monitoring and Supervision Services decreased by $14.9 million in Nine Months 2023 compared to Nine Months 2022 primarily due to decreases in variable costs related to decreases in average participant counts under ISAP. Operating expenses as a percentage of revenues decreased due to favorable cost trends.
41
Reentry Services
Operating expenses for Reentry Services increased by $8.5 million during Nine Months 2023 compared to Nine Months 2022 primarily due to an aggregate net increase of $9.2 million related to increased census levels at certain of our community-based and reentry centers due to increased programming needs and referrals and the associated variable costs. We also experienced an increase of $5.6 million due to the new day reporting center contracts. Partially offsetting these increases was a decrease of $6.3 million due to contract terminations.
International Services
Operating expenses for International Services increased by $3.2 million in Nine Months 2023 compared to Nine Months 2022 primarily due to a net increase of approximately $12.1 million primarily due to increases in populations at our Australian subsidiary and transitional expenses associated with our new health care contract in Australia. Partially offsetting this increase was a decrease related to foreign exchange rate fluctuations of $8.9 million.
Depreciation and Amortization
|
|
2023 |
|
|
% of Segment |
|
|
2022 |
|
|
% of Segment |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
U.S. Secure Services |
|
$ |
58,685 |
|
|
|
5.2 |
% |
|
$ |
61,233 |
|
|
|
5.7 |
% |
|
$ |
(2,548 |
) |
|
|
(4.2 |
)% |
Electronic Monitoring and Supervision Services |
|
|
21,554 |
|
|
|
6.4 |
% |
|
|
23,534 |
|
|
|
6.8 |
% |
|
|
(1,980 |
) |
|
|
(8.4 |
)% |
Reentry Services |
|
|
12,916 |
|
|
|
6.4 |
% |
|
|
13,967 |
|
|
|
7.3 |
% |
|
|
(1,051 |
) |
|
|
(7.5 |
)% |
International Services |
|
|
1,632 |
|
|
|
1.1 |
% |
|
|
1,550 |
|
|
|
1.1 |
% |
|
|
82 |
|
|
|
5.3 |
% |
Total |
|
$ |
94,787 |
|
|
|
5.3 |
% |
|
$ |
100,284 |
|
|
|
5.7 |
% |
|
$ |
(5,497 |
) |
|
|
(5.5 |
)% |
U.S. Secure Services
U.S. Secure Services depreciation and amortization expense decreased in Nine Months 2023 compared to Nine Months 2022 primarily due to certain assets becoming fully depreciated and/or amortized.
Electronic Monitoring and Supervision Services
Electronic Monitoring and Supervision Services depreciation and amortization expense decreased in Nine Months 2023 compared to Nine Months 2022 primarily due to certain assets becoming fully depreciated and/or amortized as well as the closing of certain ISAP locations.
Reentry Services
Reentry Services depreciation and amortization expense decreased in Nine Months 2023 compared to Nine Months 2022 primarily due to certain assets becoming fully depreciated and/or amortized as well as certain asset dispositions at our company-owned centers.
International Services
International Services depreciation and amortization expense was relatively consistent in Nine Months 2023 compared to Nine Months 2022.
Other Unallocated Operating Expenses
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
General and Administrative Expenses |
|
$ |
139,182 |
|
|
|
7.7 |
% |
|
$ |
147,878 |
|
|
|
8.4 |
% |
|
$ |
(8,696 |
) |
|
|
(5.9 |
)% |
42
General and administrative expenses comprise substantially all of our other unallocated operating expenses which primarily includes, corporate management salaries and benefits, professional fees and other administrative expenses. General and administrative expenses decreased by $8.7 million in Nine Months 2023 compared to Nine Months 2022 primarily due to decreases in professional fees, insurance and other administrative expenses.
Non-Operating Expenses
Interest Income and Interest Expense
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Interest Income |
|
$ |
3,785 |
|
|
|
0.2 |
% |
|
$ |
16,301 |
|
|
|
0.9 |
% |
|
$ |
(12,516 |
) |
|
|
(76.8 |
)% |
Interest Expense |
|
$ |
165,081 |
|
|
|
9.1 |
% |
|
$ |
111,383 |
|
|
|
6.3 |
% |
|
$ |
53,698 |
|
|
|
48.2 |
% |
Interest income decreased in Nine Months 2023 compared to Nine Months 2022 primarily due to the sale of our equity interest in the Ravenhall project in Australia in August 2022 and the corresponding decrease in interest income on the contract receivable. Also contributing to the decrease was the effect of foreign exchange rate fluctuations. Refer to Note 11 - Commitments, Contingencies and Other Matters of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
On August 19, 2022, we completed an exchange offer to exchange certain of our outstanding 5.125% Senior Notes due 2023, 5.875% Senior Notes due 2024, 6.00% Senior Notes due 2026 and certain revolving credit loans and term loans under our senior secured credit facility into newly issued senior second lien secured notes and a new exchange credit agreement. Interest expense increased in Nine Months 2023 compared to Nine Months 2022 primarily due to higher interest rates on the new debt instruments as well as the net amortization of deferred issuance costs and discounts/premiums related to the transaction. Additionally, SOFR/LIBOR rates have increased in Nine Months 2023 compared to Nine Months 2022. Refer to Note 10 - Debt of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Loss on Extinguishment of Debt
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Loss on Extinguishment of Debt |
|
$ |
1,845 |
|
|
|
0.1 |
% |
|
$ |
37,487 |
|
|
|
2.1 |
% |
|
$ |
(35,642 |
) |
|
|
(95.1 |
)% |
During Nine Months 2023, the Company made a mandatory quarterly prepayment on its Tranche 1 and Tranche 2 loans under its exchange credit agreement. In connection with the prepayment, the Company wrote off a proportionate amount of related deferred loan costs and discount/premium. Refer to Note 10 - Debt of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
During Nine Months 2022, we completed an exchange offer to exchange certain of our outstanding 5.125% Senior Notes due 2023, 5.875% Senior Notes due 2024, 6.00% Senior Notes due 2026 and certain revolving credit loans and term loans under our senior secured credit facility into newly issued senior second lien secured notes and a new credit facility. As a result of the transactions, we recorded a net loss on extinguishment of debt of $37.5 million, net of the write-off of associated unamortized deferred loan costs.
Gain on Asset Divestitures
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Gain on Asset Divestitures |
|
$ |
3,449 |
|
|
|
0.2 |
% |
|
$ |
32,332 |
|
|
|
1.8 |
% |
|
$ |
(28,883 |
) |
|
|
(89.3 |
)% |
We experienced a gain on asset divestitures in Nine Months 2023 primarily due to the sale of vacant land located in South Dallas County, Texas and the sale of our company-owned 900-bed Albert Bo Robinson Assessment and Treatment Center.
During Nine Months 2022, we sold our equity investment interest in the government-owned Ravenhall Correctional Centre project in Australia for approximately $84 million in gross proceeds, pre-tax to an unrelated third party. As a result of the transaction, we recorded a gain of approximately $29.3 million. Refer to Note 11 - Commitments, Contingencies and Other Matters of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion. The net gain in Nine Months 2022 also includes the sale of our Perry County Correctional Facility located in Alabama.
Income Tax Provision
|
|
2023 |
|
|
Effective Rate |
|
|
2022 |
|
|
Effective Rate |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Provision for Income Taxes |
|
$ |
30,036 |
|
|
|
27.6 |
% |
|
$ |
48,106 |
|
|
|
27.6 |
% |
|
$ |
(18,070 |
) |
|
|
(37.6 |
)% |
43
The provision for income taxes decreased during Nine Months 2023 due to lower pre-tax income for Nine Months 2023. In turn, our effective tax rate during Nine Months 2023 and Nine Months 2022 is the same. In Nine Months 2023 and Nine Months 2022, there was a $2.0 million and $2.3 million net discrete tax benefit, respectively. Included in the provision for income taxes in Nine Months 2023 and Nine Months 2022 were a $0.9 million and $2.0 million discrete tax expense related to stock compensation that vested during the respective periods. We estimate our 2023 annual effective tax rate to be in the range of approximately 27% to 30%, exclusive of any discrete items.
Equity in Earnings of Affiliates, net of Income Tax Provision
|
|
2023 |
|
|
% of Revenue |
|
|
2022 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
||||||
|
|
(Dollars in thousands) |
|
|||||||||||||||||||||
Equity in Earnings of Affiliates, net of Income Tax Provision |
|
$ |
3,121 |
|
|
|
0.2 |
% |
|
$ |
3,786 |
|
|
|
0.2 |
% |
|
$ |
(665 |
) |
|
|
(17.6 |
)% |
Equity in earnings of affiliates, presented net of income tax provision, represents the earnings of SACS and GEOAmey in the aggregate. Equity in earnings of affiliates decreased during Nine Months 2023 compared to Nine Months 2022 primarily due to less favorable performance by GEOAmey and SACS.
Financial Condition
Capital Requirements
Our current cash requirements consist of amounts needed for working capital, debt service, supply purchases, research and development costs related to new electronic monitoring products, investments in joint ventures, and capital expenditures related to either the development of new secure, processing and reentry facilities, or the maintenance of existing facilities. In addition, some of our management contracts require us to make substantial initial expenditures of cash in connection with opening or renovating a facility. Generally, these initial expenditures are subsequently fully or partially recoverable as pass-through costs or are billable as a component of the per diem rates or monthly fixed fees to the contracting agency over the original term of the contract. Additional capital needs may also arise in the future with respect to possible acquisitions, other corporate transactions or other corporate purposes.
We currently have contractual commitments for a number of projects using Company financing. We estimate that the cost of these existing active capital projects will be approximately $57.8 million of which $43.0 million was spent through September 30, 2023. We estimate that the remaining capital requirements related to these capital projects will be $14.8 million which will be spent through the remainder of 2023.
We plan to fund all of our capital needs, including capital expenditures, from cash on hand, cash from operations, borrowings under our Exchange Credit Agreement and any other financings which our management and Board, in their discretion, may consummate. Currently, our primary source of liquidity to meet these requirements is cash flow from operations and borrowings under our Exchange Credit Agreement. Our management believes that our financial resources and sources of liquidity will allow us to manage our business, financial condition, results of operations and cash flows. We completed our annual budgeting process, and for 2023, we will continue to strategically manage our capital expenditures to maintain both short and long term financial objectives. Additionally, we may from time to time pursue transactions for the potential sale of additional assets and businesses and/or other strategic transactions. Our management believes that cash on hand, cash flows from operations and availability under our Exchange Credit Agreement will be adequate to support our capital requirements for 2023 as disclosed under “Capital Requirements” above and the next twelve months.
Liquidity and Capital Resources
Indebtedness
Exchange Offering
On August 19, 2022, we completed an exchange offer to exchange certain of our outstanding 5.125% Senior Notes due 2023, 5.875% Senior Notes due 2024, 6.00% Senior Notes due 2026 and certain revolving credit loans and term loans under our senior secured credit facility into newly issued senior second lien secured notes and a new Exchange Credit Agreement. Refer to Note 10 - Debt of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
44
Following the completed exchange offer in August 2022, S&P Global Ratings upgraded our issuer rating to B with a stable outlook. In September 2022, Moody’s Investors Service upgraded our corporate family rating to B3 with a stable outlook.
6.50% Exchangeable Senior Notes due 2026
On February 24, 2021, our wholly owned subsidiary, GEOCH, completed a private offering of $230 million aggregate principal amount of 6.50% Exchangeable Notes due 2026, which included the full exercise of the initial purchasers’ over-allotment option to purchase an additional $30 million aggregate principal amount of Convertible Notes. The Convertible Notes will mature on February 23, 2026, unless earlier repurchased or exchanged. The Convertible Notes bear interest at the rate of 6.50% per year plus an additional amount based on the dividends paid by GEO on its common stock. Interest on the notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2021.
Upon conversion, we will pay or deliver, as the case may be, cash or a combination of cash and shares of common stock. The initial conversion rate is 108.4011 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $9.225 per share of common stock). The conversion rate will be subject to adjustment in certain events. If GEO or GEOCH undergoes a fundamental change, holders may require GEOCH to purchase the notes in whole or in part for cash at a fundamental change purchase price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.
Our debt outstanding under the new Exchange Credit Agreement, the New Registered Notes, the New Private Notes, the 6.50% Exchangeable Notes due 2026, the 6.00% Senior Notes due 2026 and the 5.875% Senior Notes due 2024 require cash expenditures for debt service. Our significant debt obligations could have material consequences. See “Risk Factors-Risks Related to Our High Level of Indebtedness” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. We are exposed to various commitments and contingencies which may have a material adverse effect on our liquidity. We also have guaranteed certain obligations for certain of our international subsidiaries. These commitments, contingencies and guarantees are further discussed in our Annual Report on Form 10-K for the year ended December 31, 2022.
Refer to Note 10 - Debt of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our indebtedness.
We consider opportunities for future business and/or asset acquisitions or dispositions as we deem appropriate when market conditions present opportunities. If we are successful in our pursuit of any new projects, our cash on hand, cash flows from operations and borrowings under the new Exchange Credit Agreement may not provide sufficient liquidity to meet our capital needs and we could be forced to seek additional financing or refinance our existing indebtedness. There can be no assurance that any such financing or refinancing would be available to us on terms equal to or more favorable than our current financing terms, or at all. In the future, our access to capital and ability to compete for future capital-intensive projects will also be dependent upon, among other things, our ability to meet certain financial covenants in the indenture governing the New Registered Notes, the indenture governing the New Private Notes, the indenture governing the 5.875% Senior Notes due 2024, the indenture governing the 6.00% Senior Notes due 2026, the indenture governing our Convertible Notes and our Exchange Credit Agreement. A substantial decline in our financial performance could limit our access to capital pursuant to these covenants and have a material adverse effect on our liquidity and capital resources and, as a result, on our financial condition and results of operations. In addition to these foregoing potential constraints on our capital, a number of state government agencies have been suffering from budget deficits and liquidity issues. While we were in compliance with our debt covenants as of September 30, 2023 and we expect to continue to be in compliance with our debt covenants, if these constraints were to intensify, our liquidity could be materially adversely impacted as could our ability to remain in compliance with these debt covenants.
Guarantor Financial Information
GEO’s New Registered Notes, New Private Notes, Convertible Notes, 6.00% Senior Notes due 2026, and the 5.875% Senior Notes due 2024 are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of our wholly owned domestic subsidiaries (the “Subsidiary Guarantors”).
Summarized financial information is provided for The GEO Group, Inc. (“Parent”) and the Subsidiary Guarantors on a combined basis in accordance with SEC Regulation S-X Rules 3-10 and 13-01. The accounting policies used in the preparation of this summarized financial information are consistent with those elsewhere in the consolidated financial statements of the Company, except that intercompany transactions and balances of the Parent and Subsidiary Guarantor entities with non-guarantor entities have not been
45
eliminated. Intercompany transactions between the Parent and Subsidiary Guarantors have been eliminated and equity in earnings from and investments in non-guarantor subsidiaries have not been presented.
Summarized statement of operations (in thousands):
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||
Net operating revenues |
|
$ |
1,652,780 |
|
|
$ |
1,602,182 |
|
Income from operations |
|
|
254,779 |
|
|
|
280,776 |
|
Net income |
|
|
65,343 |
|
|
|
105,331 |
|
Net income attributable to The GEO Group, Inc. |
|
|
65,343 |
|
|
|
105,331 |
|
Summarized balance sheets (in thousands):
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Current assets |
|
$ |
462,402 |
|
|
$ |
492,080 |
|
Noncurrent assets (a) |
|
|
3,031,037 |
|
|
|
3,059,195 |
|
Current liabilities |
|
|
329,064 |
|
|
|
370,177 |
|
Noncurrent liabilities (b) |
|
|
2,059,542 |
|
|
|
2,163,004 |
|
(a) Includes amounts due from non-guarantor subsidiaries of $32.4 million and $32.6 million as of September 30, 2023 and December 31, 2022, respectively.
(b) Includes amounts due to non-guarantor subsidiaries of $8.2 million and $8.9 million as of September 30, 2023 and December 31, 2022, respectively.
Off-Balance Sheet Arrangements
Except as discussed in the notes to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we do not have any off-balance sheet arrangements.
Cash Flow
Cash, cash equivalents and restricted cash and cash equivalents as of September 30, 2023 was $206.2 million compared to $121.4 million as of September 30, 2022.
46
Operating Activities
Net cash provided by operating activities amounted to $232.7 million for the nine months ended September 30, 2023 versus net cash provided by operating activities of $227.6 million for the nine months ended September 30, 2022. Cash provided by operating activities during the nine months ended September 30, 2023 was positively impacted by net income attributable to GEO, non-cash expenses such as depreciation and amortization, loss on sale/disposal of property and equipment, loss on extinguishment of debt, amortization of debt issuance costs, discount and/or premium and other non-cash interest, dividends received from unconsolidated joint ventures and stock-based compensation expense. Equity in earnings of affiliates, net of tax and gain on asset divestitures negatively impacted cash. Accounts receivable, prepaid expenses and other assets decreased in total by $45.1 million, representing a positive impact on cash. The decrease was primarily driven by the favorable timing of billings and collections. Accounts payable, accrued expenses and other liabilities decreased by $9.7 million which negatively impacted cash. The decrease was primarily driven by the timing of payments.
Net cash provided by operating activities for the nine months ended September 30, 2022 was positively impacted by net income attributable to GEO, non-cash expenses such as depreciation and amortization, amortization of debt issuance costs, discount and/or premium and other non-cash interest, dividends received from unconsolidated joint ventures and stock-based compensation expense. Equity in earnings of affiliates, net of tax, gain on sale/disposal of property and equipment and gain on asset divestitures negatively impacted cash. Changes in accounts receivable, prepaid expenses and other assets increased in total by $34.4 million, representing a negative impact on cash. The increase was primarily driven by the timing of billings and collections. Changes in accounts payable, accrued expenses and other liabilities increased by $9.0 million which positively impacted cash. The increase was primarily driven by the timing of payments.
Investing Activities
Net cash used in investing activities of $38.4 million during the nine months ended September 30, 2023 was primarily the result of capital expenditures of $53.6 million and changes in restricted investments of $2.6 million, partially offset by proceeds from sale of real estate and other assets of $15.1 million and proceeds from sale of property and equipment of $2.7 million. Net cash provided by investing activities of $23.7 million during the nine months ended September 30, 2022 was primarily the result of capital expenditures of $72.2 million, changes in restricted investments of $5.5 million, partially offset by proceeds from sale of real estate and other assets of $99.8 million.
Financing Activities
Net cash used in financing activities during the nine months ended September 30, 2023 was approximately $128.8 million compared to net cash used in financing activities of $670.1 million during the nine months ended September 30, 2022. Net cash used in financing activities during the nine months ended September 30, 2023 was primarily the result of payments on long-term debt of $131.4 million and taxes paid related to net share settlement of equity awards of $3.4 million partially offset by proceeds from sale of treasury shares of $5.8 million. Net cash provided by financing activities during the nine months ended September 30, 2022 was primarily the result of payments on long-term debt of $676.1 million, proceeds from long-term debt of $50.0 million, debt issuance costs of $41.5 million and payments on non-recourse debt of $1.3 million.
Non-GAAP Measures
EBITDA is defined as net income adjusted by adding provisions for income tax, interest expense, net of interest income, loss on extinguishment of debt and depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for gain on asset divestitures, pre-tax, net loss attributable to non-controlling interests, stock-based compensation expenses, pre-tax, transaction related expenses, pre-tax, other non-cash revenue and expenses, pre-tax, and certain other adjustments as defined from time to time.
Given the nature of our business as a real estate owner and operator, we believe that EBITDA and Adjusted EBITDA are helpful to investors as measures of our operational performance because they provide an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures, and to fund other cash needs or reinvest cash into our business.
We believe that by removing the impact of our asset base (primarily depreciation and amortization) and excluding certain non-cash charges, amounts spent on interest and taxes, and certain other charges that are highly variable from year to year, EBITDA and Adjusted EBITDA provide our investors with performance measures that reflect the impact to operations from trends in occupancy rates, per diem rates and operating costs, providing a perspective not immediately apparent from net income.
The adjustments we make to derive the non-GAAP measures of EBITDA and Adjusted EBITDA exclude items which may cause short-term fluctuations in income from continuing operations and which we do not consider to be the fundamental attributes or primary drivers of our business plan and they do not affect our overall long-term operating performance.
47
EBITDA and Adjusted EBITDA provide disclosure on the same basis as that used by our management and provide consistency in our financial reporting, facilitate internal and external comparisons of our historical operating performance and our business units and provide continuity to investors for comparability purposes.
Our reconciliation of net income to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022 is as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Net income |
|
$ |
24,503 |
|
|
$ |
38,312 |
|
|
$ |
82,022 |
|
|
$ |
130,164 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax provision * |
|
|
6,588 |
|
|
|
11,435 |
|
|
|
30,617 |
|
|
|
48,570 |
|
Interest expense, net of interest income |
|
|
54,457 |
|
|
|
41,426 |
|
|
|
161,296 |
|
|
|
95,082 |
|
Loss on extinguishment of debt |
|
|
91 |
|
|
|
37,487 |
|
|
|
1,845 |
|
|
|
37,487 |
|
Depreciation and amortization |
|
|
31,173 |
|
|
|
32,330 |
|
|
|
94,787 |
|
|
|
100,284 |
|
EBITDA |
|
$ |
116,812 |
|
|
$ |
160,990 |
|
|
$ |
370,567 |
|
|
$ |
411,587 |
|
Add (Subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on asset divestitures, pre-tax |
|
|
(1,274 |
) |
|
|
(29,279 |
) |
|
|
(3,449 |
) |
|
|
(32,332 |
) |
Net loss attributable to noncontrolling interests |
|
|
16 |
|
|
|
25 |
|
|
|
71 |
|
|
|
119 |
|
Stock-based compensation expenses, pre-tax |
|
|
3,116 |
|
|
|
3,141 |
|
|
|
12,052 |
|
|
|
13,010 |
|
Transaction related expenses, pre-tax |
|
|
— |
|
|
|
1,322 |
|
|
|
— |
|
|
|
1,322 |
|
Other non-cash revenue & expenses, pre-tax |
|
|
— |
|
|
|
— |
|
|
|
(687 |
) |
|
|
— |
|
Adjusted EBITDA |
|
$ |
118,670 |
|
|
$ |
136,199 |
|
|
$ |
378,554 |
|
|
$ |
393,706 |
|
* including income tax provision on equity in earnings of affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
48
Outlook
The following discussion contains statements that are not limited to historical statements and, therefore, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied in the forward-looking statements. Please refer to “Part I - Item 1A. Risk Factors” and the "Forward Looking Statements - Safe Harbor" sections in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for further discussion on forward-looking statements and the risks and other factors that could prevent us from achieving our goals and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements.
As of the date of this filing, the public health emergency declaration related to the COVID-19 pandemic has ended. Despite this fact, there continues to be lingering impacts of the COVID-19 pandemic in the regions in which we operate. At this time, it is not possible for us to predict the duration or magnitude of the adverse results stemming from the outbreak and its lingering effects on our business or results of operations, financial condition, or liquidity. We will continue to coordinate closely with our government agency partners and local health agencies to ensure the health and safety of all those in our care and our employees.
We continue to be encouraged by the current landscape of growth opportunities; however, any positive trends may, to some extent, be adversely impacted by government budgetary constraints or any changes to a government's willingness to maintain or grow public-private partnerships in the future. While state finances overall are stable, future budgetary pressures may cause state agencies to pursue a number of cost savings initiatives which may include reductions in per diem rates and/or the scope of services provided by private operators or the decision to not re-bid a contract after expiration of the contract term. These potential cost savings initiatives could have a material adverse impact on our current operations and/or our ability to pursue new business opportunities. Additionally, if state budgetary constraints, as discussed above, develop, persist or intensify, our state customers’ ability to pay us may be impaired and/or we may be forced to renegotiate our management contracts on less favorable terms and our financial condition, results of operations or cash flows could be materially adversely impacted. We plan to actively bid on any new projects that fit our target profile for profitability and operational risk. Any positive trends in the industry may be offset by several factors, including budgetary constraints, contract modifications, contract terminations, contract non-renewals, contract re-bids and/or the decision to not re-bid a contract after expiration of the contract term and the impact of any other potential changes to the willingness or ability to maintain or grow public-private partnerships on the part of other government agencies. We believe we have a strong relationship with our government agency partners and we believe that we operate facilities that maximize security, safety and efficiency while offering our suite of GEO Continuum of Care programs, services and resources.
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. Two agencies of the DOJ, the BOP and the USMS, utilized GEO’s support services at the time the executive order was signed. 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. As of September 30, 2023, GEO has three company-owned/company-leased facilities under direct contracts with USMS, which have current contract option periods that expire between September 2025 and September 2028. These facilities combined represented approximately 6% of our revenues for the nine months ended September 30, 2023. As of September 30, 2023, we no longer have any contracts with the BOP for secure correctional facilities.
President Biden’s administration may implement additional executive orders or directives relating to federal criminal justice policies and/or immigration policies, which may impact the federal government’s use of public-private partnerships with respect to secure correctional and detention facilities and immigration processing centers, including with respect to our contracts, and/or may impact the budget and spending priorities of federal agencies, including the BOP, USMS, and ICE, which is an agency of the U.S. Department of Homeland Security.
Prior to the executive order, we have historically had a relatively high contract renewal rate, however, there can be no assurance that we will be able to renew our expiring management contracts on favorable terms, or at all. Also, while we are pleased with our track record in re-bid situations, we cannot assure that we will prevail in any such future situations.
California enacted legislation that became effective on January 1, 2020 aimed at phasing out public-private partnership contracts for the operation of secure correctional facilities and detention facilities within California and facilities outside of the State of California housing State of California inmates. Currently, we have four public-private partnership contracts in place with ICE relating to secure services facilities located in California. The contracts for these facilities/annexes do not expire until December of 2034. GEO and the DOJ filed separate legal actions challenging the constitutionality of the attempted ban on new federal contracts entered into after the effective date of the California law. On October 5, 2021, the Ninth Circuit Court of Appeals reversed a prior U.S. District Court decision dismissing the requests by GEO and the United States for declaratory and injunctive relief and ruled that AB32
49
conflicts with federal law in violation of the Supremacy Clause of the U.S. Constitution and discriminates against the federal government in violation of the intergovernmental immunity doctrine. On April 26, 2022, the Ninth Circuit granted California’s petition for an en banc hearing and vacated the previous panel’s opinion. En banc arguments took place the week of June 21, 2022, in Pasadena, California. On September 26, 2022, in an 8-3 decision, the En Banc court vacated the prior decision denying the requests by GEO and the United States for declaratory and injunctive relief barring application of the California law to federal immigration processing centers. The Ninth Circuit Court of Appeals, En Banc, ruled that AB-32 would give California a virtual power of review over detention decisions made by ICE in violation of the Supremacy Clause. The court held that whether analyzed under intergovernmental immunity or preemption, California cannot exert such control over the federal government’s detention operations. The case was remanded to the U.S. District Court for further proceedings, consistent with the court’s ruling. On May 23, 2023, the District Court entered a Final Judgment and Permanent Injunction in favor of GEO and the United States. Refer to Note 11- Commitments, Contingencies and Other Matters of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our indebtedness.
Recently the State of Washington approved a similar measure, EHB 1090, banning the use of public-private partnership contracts for the operation of detention facilities in the state, that GEO also challenged in federal court. GEO's contract for the company-owned 1575-bed Northwest ICE Processing Center in Washington has a renewal option period that expires in 2025. On June 22, 2023, the State of Washington filed a stipulation indicating, among other things, that it will not enforce House Bill 1090 against GEO for its operation of the Northwest ICE Processing Center. The facility generated approximately $66 million in annualized revenues for GEO during the year ended December 31, 2022.
Internationally, we are exploring opportunities in our current markets and will continue to actively bid on any opportunities that fit our target profile for profitability and operational risk. We are pleased to have been awarded a ten-year contract renewal for the continued delivery of secure transportation under our GEOAmey joint venture in the United Kingdom. In January 2023, our Australian subsidiary, GEO Australia, entered into a contract with the Department of Justice and Community Safety in the State of Victoria for the delivery of primary health services across thirteen public prisons. The contract commenced on July 1, 2023 and is expected to generate approximately AUD47.5 million, or $31.8 million based on average exchange rates for the nine months ended September 30, 2023, in incremental annualized revenue for GEO.
With respect to our reentry services, electronic monitoring services, and community-based services business, we are currently pursuing a number of business development opportunities. Related to opportunities for community-based reentry services, we are working with our existing federal, state, and local clients to leverage new opportunities for both residential reentry facilities as well as non-residential day reporting centers. With respect to the Department of Homeland Security's ISAP, the number of participants steadily increased throughout 2022, however, since the beginning of 2023, there has been a decline in ISAP participants as a result of recent changes in immigration and budgetary pressures. There are no assurances that there will not be a further decline in ISAP participants in 2023 and beyond. Title 42, which provided for restrictions at the Southwest border under the COVID public health emergency declaration, ended on May 11, 2023. We are focused on delivering high quality services and developing new and innovative technology solutions. To this end, we recently launched VeriWatch, a new wrist-worn GPS tracking device that allows for real-time and discrete monitoring of individuals under community supervision. We continue to expend resources on informing federal, state and local governments about the benefits of public-private partnerships, and we anticipate that there will be new opportunities in the future as those efforts continue to yield results. We believe we are well positioned to capitalize on any suitable opportunities that become available in this area.
Operating Expenses
Operating expenses consist of those expenses incurred in the operation and management of our contracts to provide services to our governmental clients. Labor and related costs represented approximately 66% and 63% of our operating expenses during the nine months ended September 30, 2023 and 2022, respectively. Additional significant operating expenses include food, utilities and medical costs. During the nine months ended September 30, 2023 and 2022, operating expenses totaled approximately 72% and 70%, respectively, of our consolidated revenues. We expect our operating expenses as a percentage of revenues in 2023 will be impacted by the opening of any new or existing idle facilities as a result of the cost of transitioning and/or start-up operations related to a facility opening. We also expect that our operating expenses will be impacted by the effect of inflation on costs related to personnel, utilities, insurance, and medical and food, among other operational costs. During 2023, we will incur carrying costs for facilities that are currently vacant.
General and Administrative Expenses
General and administrative expenses consist primarily of corporate management salaries and benefits, professional fees and other administrative expenses. During each of the nine months ended September 30, 2023 and 2022, general and administrative expenses totaled approximately 8% of our consolidated revenues. We expect general and administrative expenses as a percentage of revenues in 2023 to remain consistent or decrease as a result of cost savings initiatives.
50
Idle Facilities
We are currently marketing 9,332 vacant beds at six of our U.S. Secure Services and at one of our Reentry Services idle facilities to potential customers. One of our U.S Secure Services idle facilities, the 750-bed Cheyenne Mountain Recovery Center, is currently under a contract that has not yet been activated. The annual net carrying cost of our idle facilities in 2023 is estimated to be $25.6 million, including depreciation expense of $12.5 million. As of September 30, 2023, these eight facilities had a combined net book value of $253.4 million. We currently do not have any firm commitment or agreement in place to activate the idle facilities. Historically, some facilities have been idle for multiple years before they received a new contract award. These idle facilities are included in the U.S. Secure Services and Reentry Services segments. The per diem rates that we charge our clients often vary by contract across our portfolio. However, if the eight remaining idle facilities were to be activated using our U.S. Secure Services and Reentry Services average per diem rates in 2023 (calculated as the U.S. Secure Services and Reentry Services revenue divided by the number of U.S. Secure Services and Reentry Services mandays) and based on the average occupancy rate in our facilities through September 30, 2023, we would expect to receive incremental annualized revenue of approximately $290 million and an annualized increase in earnings per share of approximately $0.28 to $0.33 per share based on our average operating margins.
51
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
We are exposed to market risks related to changes in interest rates with respect to our Exchange Credit Agreement. Payments under the Exchange Credit Agreement are indexed to a variable interest rate. Based on borrowings outstanding under the Exchange Credit Agreement of approximately $982.7 million and approximately $76 million in outstanding letters of credit, as of September 30, 2023, for every one percent increase in the average interest rate applicable to the Exchange Credit Facility, our total annual interest expense would increase by approximately $10 million.
Additionally, we invest our cash in a variety of short-term financial instruments to provide a return. These instruments generally consist of highly liquid investments with original maturities at the date of purchase of three months or less. While these instruments are subject to interest rate risk, a hypothetical 100 basis point increase or decrease in market interest rates would not have a material impact on our financial condition or results of operations.
Foreign Currency Exchange Rate Risk
We are also exposed to market risks related to fluctuations in foreign currency exchange rates between the U.S. dollar, and the Australian dollar, the South African Rand and the British Pound currency exchange rates. Based upon our foreign currency exchange rate exposure as of September 30, 2023, every 10 percent change in historical currency rates would have approximately a $7.6 million effect on our financial position and approximately a $0.9 million impact on our results of operations during the nine months ended September 30, 2023.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act), as of the end of the period covered by this report. On the basis of this review, our management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to give reasonable assurance that the information required to be disclosed in our reports filed with the SEC, under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
It should be noted that the effectiveness of our system of disclosure controls and procedures is subject to certain limitations inherent in any system of disclosure controls and procedures, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. Accordingly, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. As a result, by its nature, our system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.
Changes in Internal Control Over Financial Reporting.
Our management is responsible to report any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management believes that there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no significant changes to our internal control over financial reporting during the quarter ended September 30, 2023.
52
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Litigation, Claims and Assessments
Shareholder and Derivative Litigation
On July 7, 2020, a putative shareholder class action lawsuit was filed against the Company and its officers George C. Zoley and Brian R. Evans in the U.S. District Court for the Southern District of Florida. On November 18, 2020, the lead plaintiffs, James Michael DeLoach and Edward Oketola, filed a consolidated class action amended complaint against Messrs. Zoley and Evans––as well as then current and former Company officers J. David Donahue and Ann M. Schlarb. On September 23, 2021, the court dismissed all claims against Messrs. Evans and Donahue, and Ms. Schlarb, and dismissed all claims against GEO and Mr. Zoley other than claims related to GEO's disclosures about pending litigation. On October 4, 2021, plaintiffs filed a consolidated class action second amended complaint. The second amended complaint alleges that GEO and Mr. Zoley violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and alleges that Mr. Zoley violated Section 20(a) of the Exchange Act, by making materially false and misleading statements and/or omissions related to pending litigation, and seeks relief individually and on behalf of a putative class consisting of all persons and entities––other than the defendants, the officers and directors of the Company, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which the defendants have or had a controlling interest––who purchased or otherwise acquired the Company’s securities during the alleged class period from November 9, 2018 to August 5, 2020, inclusive. The second amended complaint seeks damages, interest, attorneys’ fees, expert fees, other costs, and such other relief as the court may deem proper. On June 21, 2022, the court dismissed all claims in the second amended complaint other than those related to the Company’s statements about pending lawsuits made prior to July 17, 2019. The parties resolved this matter following mediation, and a hearing to consider final approval of the settlement is set for November 14, 2023.
After the putative shareholder class action lawsuit was filed, three related putative shareholder derivative actions have also been filed. These cases generally allege breaches of fiduciary duties related to the same underlying matters alleged in the class action above. First, on July 1, 2021, a putative shareholder derivative complaint was filed in Palm Beach County, Florida Circuit Court against the Company, as well as current and former Company directors and officers George C. Zoley, Jose Gordo, Brian R. Evans, Ann M. Schlarb, Richard H. Glanton, Anne N. Foreman, Christopher C. Wheeler, Julie M. Wood, Guido van Hauwermeiren, Scott M. Kernan, and Duane Helkowski (collectively, the “State Court Defendants”). Second, on November 12, 2021, a putative shareholder derivative complaint was filed in the U.S. District Court for the Southern District of Florida against the Company, the State Court Defendants, as well as then current and former Company officers David Venturella and J. David Donahue (collectively, the “Derivative Defendants”). Third, on August 24, 2022, a putative stockholder derivative complaint was filed in the U.S. District Court for the Southern District of Florida against the Company and the Derivative Defendants. The state-court complaint alleges breach of fiduciary duty and unjust enrichment claims against the State Court Defendants relating to purported healthcare and quality of care deficiencies, an allegedly inadequate response to the COVID-19 pandemic, alleged forced labor by detainees, and alleged exposure to pending litigation, which purportedly led to damage to GEO. The federal-court complaints make similar allegations of breach of fiduciary duty as to the Derivative Defendants, and also allege that the Derivative Defendants violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder and that Mr. Zoley contributed to alleged violations of Sections 10(b) and 21D of the Exchange Act. These cases are currently stayed pending the resolution of the federal putative shareholder class action lawsuit described above.
GEO strongly disputes the claims made in these four lawsuits, and intends to take all necessary steps to vigorously defend itself from these lawsuits.
Immigration Detainee Litigation
Civil immigration detainees at the Aurora ICE Processing Center filed a class action lawsuit on October 22, 2014, against the Company in the U.S. District Court for the District of Colorado. The complaint alleges that the Company was in violation of the Colorado Minimum Wages of Workers Act and the Federal Trafficking Victims Protection Act (“TVPA”). The complaint also claims that the Company was unjustly enriched based on the level of payment the detainees received for work performed in a Voluntary Work Program ("VWP") the Company is required to implement at the facility under the terms of its contract with the federal government. On July 6, 2015, the court found that detainees were not employees under the Colorado Minimum Wage Order and dismissed this claim. On February 27, 2017, the court granted the plaintiffs' motion for class certification on the TVPA and unjust enrichment claims. The plaintiffs' class seeks actual damages, compensatory damages, exemplary damages, punitive damages, restitution, attorneys’ fees and costs, and such other relief as the court may deem proper. On October 18, 2022, the court issued an order granting plaintiffs’ motion for summary judgment on the Company’s affirmative defenses, denying the Company’s motion for
53
summary judgment, motion to dismiss, and motion for decertification of the class, narrowing the class period for plaintiffs’ TVPA claims, and otherwise ruling against the Company’s motions for relief. All trial dates are currently stayed by court order pending appeal of certain of GEO's defenses to the 10th Circuit Court of Appeal. Oral argument before the 10th Circuit was held on September 18, 2023.
Since the Colorado suit was initially filed, four similar lawsuits have been filed - two in the state of Washington and two in California.
The first of the two state of Washington lawsuits was filed on September 26, 2017, by immigration detainees against the Company in the U.S. District Court for the Western District of Washington. The second lawsuit was filed on September 20, 2017, by the State Attorney General against the Company in the Superior Court of the State of Washington for Pierce County, which the Company removed to the U.S. District Court for the Western District of Washington on October 9, 2017. The plaintiffs claimed that Washington State minimum wage laws should be enforced with respect to detainees who volunteer to participate in a VWP administered by GEO at the Northwest ICE Processing Center (the "Center") as required by the U.S. Department of Homeland Security under the terms of GEO’s contract. The Center houses persons in the custody of federal immigration authorities while the federal government is determining their immigration status. In October 2021, an unfavorable jury verdict and court judgment resulting in a combined $23.2 million judgment entered against the Company in the retrial of the two cases, which judgment amounts were subsequently increased by a further award against the Company of attorney’s fees, costs, and pre-judgment interest in the amount of $12.7 million. Post judgment interest is accruing on these judgments in accordance with Washington law. The trial court has waived the necessity to post a supersedeas bond for the combined judgments and has stayed enforcement of the verdict and judgments while GEO’s appeal to the U.S. Court of Appeals for the Ninth Circuit is pending. Oral argument before the Ninth Circuit was held on October 6, 2022. On March 7, 2023, the Ninth Circuit certified certain state law questions to the Washington Supreme Court. Oral argument before the Washington Supreme Court was held on October 17, 2023.
In California, a class-action lawsuit was filed on December 19, 2017, by immigration detainees against the Company in the U.S. District Court Eastern Division of the Central District of California. The California lawsuit alleges violations of the state’s minimum wage laws, violations of the TVPA and California's equivalent state statute, unjust enrichment, unfair competition and retaliation. The California court has certified a class of individuals who have been civilly detained at the Company's Adelanto Facility from December 19, 2014, until the date of final judgment. On March 31, 2022, the court entered a stay until the Ninth Circuit rules on the Washington cases.
Current and former detainees of the Mesa Verde ICE Processing Center and the Golden State Annex ICE Processing Center filed a class action lawsuit on July 13, 2022, against the Company in the U.S. District Court for the Eastern District of California, Fresno Division. This lawsuit is similar to the cases in Colorado, Washington and California discussed above. The complaint alleges that federal detainees who volunteer to participate in the VWP at GEO’s Mesa Verde and Golden State Annex ICE facilities are employees of GEO and entitled to the state’s minimum wage. Plaintiffs also make claims for unfair competition, unjust enrichment, human trafficking, forced labor, California's Private Attorneys General Act and retaliation. GEO filed both a motion to stay the action pending the Ninth Circuit's decision in the Washington lawsuits and a motion to dismiss the action in its entirety. On July 10, 2023, the court entered a stay until the Ninth Circuit rules on the Washington cases.
GEO believes it operates the VWP in full compliance with its contract with ICE and all applicable laws, regulations, and standards. GEO strongly disputes the claims made in these lawsuits, and intends to take all necessary steps to vigorously defend itself from these lawsuits. GEO has not recorded any accruals relating to these lawsuits at this time as losses are not considered probable.
Challenges to State Legislation that Conflict with Federal Contracts
On December 30, 2019, the Company filed a lawsuit in the U.S. District Court for the Southern District of California against the State of California for declaratory and injunctive relief challenging California’s newly enacted law - Assembly Bill 32 ("AB-32") - which prohibits the operation of "private detention facilities" in California, including facilities in which the Company provides secure immigration detention contract services to the federal government. The Company’s lawsuit asserts that AB-32 violates the Constitution’s Supremacy Clause, which protects the federal government from regulation by any state. By prohibiting federal detention facilities in California, the suit argues AB-32 substantially interferes with the ability of USMS and ICE to carry out detention responsibilities for the federal government. Secondly, because AB-32 creates an exemption for the application of AB-32 for the State of California for the use of "private detention facilities" (to alleviate overcrowding), California’s statute unlawfully discriminates against the federal government. On January 24, 2020, the United States filed a lawsuit challenging AB-32. On October 8, 2020, the court issued an order granting, in part, and denying, in part, the Company’s and the United States’ motions for preliminary injunction and California’s motion to dismiss. Among other findings, the court (1) dismissed the Company’s intergovernmental immunity claims as well as the United States’ preemption claims as applied to ICE facilities; (2) found that the Company and the United States were likely to succeed on the preemption claims as applied to U.S. Marshals’ facilities and enjoined enforcing AB-32 against those facilities; and (3) refused to enjoin California from enforcing AB-32 against ICE contracts with the Company and the
54
United States. The Company and the United States appealed to the Ninth Circuit. Oral argument was held on June 7, 2021. On October 5, 2021, a three-Judge panel of the Ninth Circuit reversed the lower court’s decision, holding that AB-32 conflicted with federal law. California petitioned the Ninth Circuit for the matter to be heard by the court sitting en banc, which petition was accepted. On September 26, 2022, in an 8-3 en banc decision, the Ninth Circuit held that AB-32 violates the Constitution's Supremacy Clause and that AB-32 is preempted, vacated the lower court’s denial of the Company’s and the United States’ motions for preliminary injunction, and remanded the case to the District Court to consider the remaining preliminary injunction factors. On May 23, 2023, the District Court entered a Final Judgment and Permanent Injunction in favor of GEO and the United States.
On April 29, 2021, the Company filed a lawsuit in the U.S. District Court for the Western District of Washington against the State of Washington for declaratory and injunctive relief challenging the State of Washington’s newly enacted law – House Bill 1090 – that purports to prohibit the operation of "private detention facilities" in the state, which would prevent the United States from using privately contracted detention facilities to house detainees in the custody of ICE. The court entered a stay of this action pending the final resolution of the AB-32 appeal. On June 22, 2023, the State of Washington filed a stipulation indicating, among other things, that it will not enforce House Bill 1090 against GEO for its operation of the Northwest ICE Processing Center.
On July 13, 2023, the Company filed a lawsuit in the U.S. District Court for the Western District of Washington against the State of Washington for declaratory and injunctive relief challenging the State of Washington’s newly enacted law – House Bill 1470. House Bill 1470 purports to empower state agencies with new rule making, inspection, investigation, and testing powers over the Northwest ICE Processing Center. House Bill 1470 also creates a statutory regime of civil penalties applicable to private detention facilities for violations of House Bill 1470 detention standards, and purports to create a private right of action for detainees aggrieved by violations of the statute. The Company is currently awaiting a ruling on its complaint from the U.S. District Court for the Western District of Washington.
Other Litigation
The nature of the Company's business also exposes it to various other legal claims or litigation, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct claims brought by individuals in its care, medical malpractice claims, claims related to deaths in custody, product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, indemnification claims by its customers and other third-parties, contractual claims and claims for personal injury or other damages resulting from contact with the Company's facilities, programs, electronic monitoring products, personnel or detainees, including damages arising from the escape of an individual in its care or from a disturbance or riot at a facility. Legal proceedings with respect to our facilities are unpredictable and, where material, can cause adverse effects, such as prompting modification or even termination of the underlying facility management contracts.
Accruals for Legal Proceedings
The Company establishes accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. However, the results of these claims or proceedings cannot be predicted with certainty, and an unfavorable resolution of one or more of these claims or proceedings could have a material adverse effect on the Company's financial condition, results of operations or cash flows, including the modification or loss of one ore more facility management contracts, or could result in a material impairment of the Company’s assets. The Company's accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. The Company does not accrue for anticipated legal fees and costs but expenses those items as incurred.
ITEM 1A. RISK FACTORS.
Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) includes a detailed discussion of the risk factors that could materially affect our business, financial condition or future prospects. We encourage you to read these risk factors in their entirety.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
55
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
Securities Trading Plans of Directors and Executive Officers
56
ITEM 6. EXHIBITS.
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Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 |
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The cover page from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2023, has been formatted in Inline XBRL (included with the Exhibit 101 attachments). |
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57
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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THE GEO GROUP, INC. |
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Date: |
November 8, 2023 |
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/s/ Brian R. Evans |
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Brian R. Evans |
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Senior Vice President & Chief Financial Officer |
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(duly authorized officer and principal financial officer) |
58
EXHIBIT 31.1
THE GEO GROUP, INC.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Jose Gordo, certify that:
Date: November 8, 2023 |
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/s/ Jose Gordo |
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Jose Gordo |
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Chief Executive Officer |
EXHIBIT 31.2
THE GEO GROUP, INC.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Brian R. Evans, certify that:
Date: November 8, 2023 |
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/s/ Brian R. Evans |
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Brian R. Evans |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of The GEO Group, Inc. (the “Company”) for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jose Gordo, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
/s/ Jose Gordo |
Jose Gordo |
Chief Executive Officer |
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Date: November 8, 2023 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of The GEO Group, Inc. (the “Company”) for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian R. Evans, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
/s/ Brian R. Evans |
Brian R. Evans |
Chief Financial Officer |
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Date: November 8, 2023 |