e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended April 3, 2011
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission file number 1-14260
The GEO Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Florida
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65-0043078 |
(State or Other Jurisdiction of
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(IRS Employer Identification No.) |
Incorporation or Organization) |
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One Park Place, 621 NW 53rd Street, Suite 700, |
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Boca Raton, Florida
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33487 |
(Address of Principal Executive Offices)
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(Zip Code) |
(561) 893-0101
(Registrants Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
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 and post such files). Yes þ No o
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of May 5, 2011, the registrant had 64,877,769 shares of common stock outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
APRIL 3, 2011 AND APRIL 4, 2010
(In thousands, except per share data)
(UNAUDITED)
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Thirteen Weeks Ended |
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April 3, 2011 |
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April 4, 2010 |
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Revenues |
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$ |
391,766 |
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$ |
287,542 |
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Operating expenses |
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299,286 |
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226,332 |
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Depreciation and amortization |
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18,802 |
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9,238 |
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General and administrative expenses |
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32,788 |
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17,448 |
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Operating income |
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40,890 |
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34,524 |
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Interest income |
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1,569 |
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1,229 |
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Interest expense |
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(16,961 |
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(7,814 |
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Income before income taxes and equity in earnings of affiliate |
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25,498 |
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27,939 |
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Provision for income taxes |
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9,780 |
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10,821 |
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Equity in earnings of affiliate, net of income tax provision of $1,024 and $786 |
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662 |
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590 |
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Net income |
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16,380 |
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17,708 |
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Net (income) loss attributable to noncontrolling interests |
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410 |
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(36 |
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Net income attributable to The GEO Group, Inc. |
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$ |
16,790 |
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$ |
17,672 |
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Weighted-average common shares outstanding: |
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Basic |
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64,291 |
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50,711 |
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Diluted |
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64,731 |
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51,640 |
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Income per Common Share Attributable to The GEO Group, Inc. Basic |
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$ |
0.26 |
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$ |
0.35 |
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Income per Common Share Attributable to The GEO Group, Inc. Diluted |
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$ |
0.26 |
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$ |
0.34 |
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Comprehensive income: |
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Net income |
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$ |
16,380 |
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$ |
17,708 |
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Total other comprehensive income, net of tax |
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305 |
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184 |
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Total comprehensive income |
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16,685 |
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17,892 |
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Comprehensive (income) loss attributable to noncontrolling interests |
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417 |
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(55 |
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Comprehensive income attributable to The GEO Group, Inc. |
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$ |
17,102 |
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$ |
17,837 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
APRIL 3, 2011 AND JANUARY 2, 2011
(In thousands, except share data)
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April 3, 2011 |
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January 2, 2011 |
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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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$ |
85,894 |
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$ |
39,664 |
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Restricted cash and investments (including VIEs1 of $30,608 and $34,049, respectively) |
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37,593 |
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41,150 |
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Accounts receivable, less allowance for doubtful accounts of $1,605 and $1,308 |
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278,654 |
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275,778 |
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Deferred income tax assets, net |
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47,983 |
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32,126 |
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Prepaid expenses and other current assets |
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31,897 |
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36,377 |
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Total current assets |
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482,021 |
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425,095 |
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Restricted Cash and Investments (including VIEs of $30,540 and $33,266, respectively) |
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49,974 |
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49,492 |
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Property and Equipment, Net (including VIEs of $166,073 and $167,209, respectively) |
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1,568,517 |
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1,511,292 |
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Assets Held for Sale |
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10,269 |
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9,970 |
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Direct Finance Lease Receivable |
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36,758 |
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37,544 |
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Deferred Income Tax Assets, Net |
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936 |
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936 |
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Goodwill |
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527,118 |
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244,009 |
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Intangible Assets, Net |
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210,598 |
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87,813 |
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Other Non-Current Assets |
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69,944 |
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56,648 |
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Total Assets |
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$ |
2,956,135 |
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$ |
2,422,799 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities |
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Accounts payable |
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$ |
80,158 |
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$ |
73,880 |
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Accrued payroll and related taxes |
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48,834 |
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33,361 |
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Accrued expenses |
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117,446 |
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120,670 |
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Current portion of capital lease obligations, long-term debt and non-recourse debt (including
VIEs of $19,570 and $19,365, respectively) |
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50,047 |
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41,574 |
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Total current liabilities |
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296,485 |
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269,485 |
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Deferred Income Tax Liabilities |
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107,370 |
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63,546 |
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Other Non-Current Liabilities |
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61,905 |
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46,862 |
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Capital Lease Obligations |
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13,888 |
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13,686 |
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Long-Term Debt |
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1,236,241 |
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798,336 |
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Non-Recourse Debt (including VIEs of $126,320 and $132,078, respectively) |
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184,867 |
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191,394 |
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Commitments and Contingencies (Note 12) |
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Shareholders Equity |
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Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued or outstanding |
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Common stock, $0.01 par value, 90,000,000 shares authorized, 84,948,682 and 84,506,772 issued
and 64,874,369 and 64,432,459 outstanding, respectively |
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849 |
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845 |
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Additional paid-in capital |
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721,701 |
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718,489 |
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Retained earnings |
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445,335 |
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428,545 |
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Accumulated other comprehensive income |
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10,383 |
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10,071 |
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Treasury stock 20,074,313 shares |
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(139,049 |
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(139,049 |
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Total shareholders equity attributable to The GEO Group, Inc. |
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1,039,219 |
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1,018,901 |
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Noncontrolling interests |
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16,160 |
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20,589 |
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Total shareholders equity |
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1,055,379 |
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1,039,490 |
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Total Liabilities and Shareholders Equity |
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$ |
2,956,135 |
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$ |
2,422,799 |
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1 |
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Variable interest entities or VIEs |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED
APRIL 3, 2011 AND APRIL 4, 2010
(In thousands)
(UNAUDITED)
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Thirteen Weeks Ended |
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April 3, 2011 |
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April 4, 2010 |
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Cash Flow from Operating Activities: |
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Net Income |
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$ |
16,380 |
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$ |
17,708 |
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Net (income) loss attributable to noncontrolling interests |
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410 |
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(36 |
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Net income attributable to The GEO Group, Inc. |
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16,790 |
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17,672 |
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Adjustments to reconcile net income attributable to The GEO Group,
Inc. to net cash provided by operating activities: |
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Depreciation and amortization expense |
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18,802 |
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9,238 |
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Amortization of debt issuance costs and discount |
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226 |
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1,272 |
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Restricted stock expense |
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738 |
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816 |
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Stock option plan expense |
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1,323 |
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376 |
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Provision for doubtful accounts |
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407 |
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Equity in earnings of affiliates, net of tax |
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(662 |
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(590 |
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Income tax benefit of equity compensation |
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(172 |
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(112 |
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Loss on sale of property and equipment |
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132 |
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Dividends received from unconsolidated joint venture |
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5,402 |
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3,909 |
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Changes in assets and liabilities, net of acquisition: |
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Changes in accounts receivable, prepaid expenses and other assets |
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29,142 |
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21,465 |
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Changes in accounts payable, accrued expenses and other liabilities |
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(3,051 |
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10,688 |
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Net cash provided by operating activities |
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69,077 |
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64,734 |
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Cash Flow from Investing Activities: |
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Acquisition, cash consideration, net of cash acquired |
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(409,607 |
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Just Care purchase price adjustment |
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(41 |
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Proceeds from sale of property and equipment |
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250 |
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100 |
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Change in restricted cash |
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3,199 |
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(2,257 |
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Capital expenditures |
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(38,696 |
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(15,737 |
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Net cash used in investing activities |
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(444,854 |
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(17,935 |
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Cash Flow from Financing Activities: |
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Payments on long-term debt |
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(21,666 |
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(12,799 |
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Proceeds from long-term debt |
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461,000 |
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15,000 |
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Distribution to MCF partners |
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(4,012 |
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Payments for purchase of treasury shares |
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(53,845 |
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Proceeds from the exercise of stock options |
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983 |
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1,138 |
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Income tax benefit of equity compensation |
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172 |
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112 |
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Debt issuance costs |
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(9,277 |
) |
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Net cash provided by (used in) financing activities |
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427,200 |
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(50,394 |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents |
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(5,193 |
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15 |
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Net Increase in Cash and Cash Equivalents |
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46,230 |
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(3,580 |
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Cash and Cash Equivalents, beginning of period |
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39,664 |
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33,856 |
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Cash and Cash Equivalents, end of period |
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$ |
85,894 |
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$ |
30,276 |
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Supplemental Disclosures: |
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Non-cash Investing and Financing activities: |
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Capital expenditures in accounts payable and accrued expenses |
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$ |
21,834 |
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$ |
8,412 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
THE GEO GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of The GEO Group, Inc., a Florida corporation, and
subsidiaries (the Company, or GEO), included in this Quarterly Report on Form 10-Q have been
prepared in accordance with accounting principles generally accepted in the United States and the
instructions to Form 10-Q and consequently do not include all disclosures required by Form 10-K.
Additional information may be obtained by referring to the Companys Annual Report on Form 10-K for
the year ended January 2, 2011. 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 thirteen weeks ended April 3, 2011 are not necessarily indicative of the results
for the entire fiscal year ending January 1, 2012.
The GEO Group, Inc. is a leading provider of government-outsourced services specializing in the
management of correctional, detention, mental health, residential treatment and re-entry
facilities, and the provision of community based services and youth services in the United States,
Australia, South Africa, the United Kingdom and Canada. The Company operates a broad range of
correctional and detention facilities including maximum, medium and minimum security prisons,
immigration detention centers, minimum security detention centers, mental health, residential
treatment and community based re-entry facilities. The Company offers counseling, education and/or
treatment to inmates with alcohol and drug abuse problems at most of the domestic facilities it
manages. The Company, through its acquisition of BII Holding Corporation (BI Holding), is also
a provider of innovative compliance technologies, industry-leading monitoring services, and
evidence-based supervision and treatment programs for community-based parolees, probationers and
pretrial defendants. Additionally, BI Holding has an exclusive contract with U.S. Immigration and
Customs Enforcement (ICE) to provide supervision and reporting services designed to improve the
participation of non-detained aliens in the immigration court system. 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 also provides secure transportation services for offender and
detainee populations as contracted.
On August 12, 2010, the Company acquired Cornell Companies Inc., (Cornell) and on February 10,
2011, the Company completed its acquisition of BI Holding. As of April 3, 2011, the Companys
worldwide operations included the management and/or ownership of approximately 80,000 beds at 116
correctional, detention and residential treatment facilities, including projects under development,
and also included the provision of monitoring services, tracking more than 60,000 offenders on
behalf of approximately 900 federal, state and local correctional agencies located in all 50
states. Refer to Note 2.
Except as discussed in Note 15, the accounting policies followed for quarterly financial reporting
are the same as those disclosed in the Notes to Consolidated Financial Statements included in the
Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2,
2011 for the fiscal year ended January 2, 2011. During the thirteen weeks ended April 3, 2011 the
Company implemented ASU No. 2009-13 which provides amendments to revenue recognition criteria for
separating consideration in multiple element arrangements. The amendments, among other things,
establish the selling price of a deliverable, replace the term fair value with selling price and
eliminate the residual method such that consideration can be allocated to the deliverables using
the relative selling price method based on GEOs specific assumptions. As discussed in Note 2,
the Company is still in the process of reviewing the accounting policies of BI to ensure conformity
of such accounting policies to those of the Company. At this time, the Company is not aware of any
differences in accounting policies that would have a material impact on the consolidated financial
statements as of April 3, 2011.
Reclassifications
The Companys noncontrolling interest in South Africa Custodial Custodial Management Pty. Limited
(SACM) has been reclassified from operating expenses to noncontrolling interest in the
consolidated statements of income for the thirteen weeks ended April 4, 2010, as this item has
become more significant due to the noncontrolling interest in Municipal Correctional Finance, L.P.
(MCF) acquired from Cornell. Also, as a result of the acquisition of Cornell, managements review
of certain segment financial data was revised with regard to the Bronx Community Re-entry Center
and the Brooklyn Community Re-entry Center. These facilities now report within the
6
GEO Care segment
and are no longer included within the U.S. Detention & Corrections segment. All prior year amounts
have been conformed to the current year presentation.
Discontinued operations
The termination of any of the Companys management contracts, by expiration or otherwise, may
result in the classification of the operating results of such management contract, net of taxes, as
a discontinued operation. The Company reflects such events as discontinued operations so long as
the financial results can be clearly identified, the operations and cash flows are completely
eliminated from ongoing operations, and so long as the Company does not have any significant
continuing involvement in the operations of the component after the disposal or termination
transaction. The component unit for which cash flows are considered to be completely eliminated
exists at the customer level. Historically, the Company has classified operations as discontinued
in the period they are announced as normally all continuing cash flows cease within three to six
months of that date.
2. BUSINESS COMBINATIONS
Acquisition of BII Holding
On
February 10, 2011, the Company completed its acquisition of B.I.
Incorporated (BI), a Colorado
corporation, pursuant to an Agreement and Plan of Merger, dated as of December 21, 2010 (the
Merger Agreement), among GEO, BII Holding, a Delaware corporation, which owns BI, GEO Acquisition
IV, Inc., a Delaware corporation and wholly-owned subsidiary of GEO (Merger Sub), BII Investors
IF LP, in its capacity as the stockholders representative, and AEA Investors 2006 Fund L.P (the
BI Acquisition). Under the terms of the Merger Agreement, Merger Sub merged with and into BII
Holding, with BII Holding emerging as the surviving corporation of the merger. As a result of the
BI Acquisition, the Company paid merger consideration of $409.6 million in cash, net of cash
acquired of $9.7 million, excluding transaction related expenses and subject to certain
adjustments, for 100% of BIs outstanding common stock. Under the Merger Agreement, $12.5 million
of the merger consideration was placed in an escrow account for a one-year period to satisfy any
applicable indemnification claims pursuant to the terms of the Merger Agreement by GEO, the Merger
Sub or its affiliates. At the time of the BI Acquisition, approximately $78.4 million, including
accrued interest, was outstanding under BIs senior term loan and $107.5 million, including accrued
interest. was outstanding under its senior subordinated note purchase agreement, excluding the
unamortized debt discount. All indebtedness of BI under its senior term loan and senior
subordinated note purchase agreement were repaid by BI with a portion of the $409.6 million of
merger consideration. In connection with the BI Acquisition and included in general and
administrative expenses, the Company incurred $3.9 million in non-recurring transaction costs for
the thirteen weeks ended April 3, 2011.
The Company is identified as the acquiring company for US GAAP accounting purposes and believes its
acquisition of BI provides it with the ability to offer turn-key solutions to its customers in
managing the full lifecycle of an offender from arraignment to reintegration into the community,
which the Company refers to as the corrections lifecycle. Under the acquisition method of
accounting, the purchase price for BI was allocated to BIs net tangible and intangible assets
based on their estimated fair values as of February 10, 2011, the date of closing and the date that
the Company obtained control over BI. In order to determine the fair values of certain tangible and
intangible assets acquired, the Company has engaged a third party independent valuation specialist.
For all other assets acquired and liabilities assumed, the recorded fair value was determined by
the Companys management and represents an estimate of the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants.
The preliminary allocation of the purchase price is based on the best information available and is
provisional pending, among other things: (i) final agreement of the adjustment to the purchase
price based upon the level of net working capital, and the fair value of certain components
thereof, transferred at closing; (ii) the valuation of the fair values and useful lives of property
and equipment acquired; (iii) finalization of the valuations and useful lives for intangible assets
for customer relationships, non-compete agreements, technology and patents; (iv) income taxes; and
(v) certain contingent liabilities. During the measurement period (which is not to exceed one year
from the acquisition date), additional assets or liabilities may be recognized if new information
is obtained about facts and circumstances that existed as of the acquisition date that, if known,
would have resulted in the recognition of those assets or liabilities as of that date. The
preliminary purchase price allocation may be adjusted after obtaining additional information
regarding, among other things, asset valuations, liabilities assumed and revisions of previous
estimates. The Company does not believe that any of the goodwill recorded as a result of the BI
Acquisition will be deductible for federal income tax purposes. The Company is still in the process
of reviewing the accounting policies of BI to ensure conformity of such accounting policies to
those of the Company. At this time, the Company is not aware of any differences in accounting
policies that would have a material impact on the consolidated financial
7
statements as of April 3,
2011. The preliminary purchase price consideration of $409.6 million, net of cash acquired of $9.7
million,
excluding transaction related expenses and subject to certain adjustments, was allocated to the
assets acquired and liabilities assumed, based on managements estimates at the time of this
Quarterly Report, as follows (in 000s):
|
|
|
|
|
|
|
Preliminary |
|
|
|
Purchase Price |
|
|
|
Allocation |
|
Accounts receivable |
|
$ |
18,321 |
|
Prepaid and other current assets |
|
|
3,783 |
|
Deferred income tax assets |
|
|
15,970 |
|
Property and equipment |
|
|
22,359 |
|
Intangible assets |
|
|
126,900 |
|
Other long-term assets |
|
|
8,884 |
|
|
|
|
|
Total assets acquired |
|
|
196,217 |
|
|
|
|
|
Accounts payable |
|
|
(3,977 |
) |
Accrued expenses |
|
|
(8,461 |
) |
Deferred income tax liabilities |
|
|
(43,824 |
) |
Long-term debt |
|
|
(2,014 |
) |
Other long-term liabilities |
|
|
(11,431 |
) |
|
|
|
|
Total liabilities assumed |
|
|
(69,707 |
) |
|
|
|
|
Total identifiable net assets |
|
|
126,510 |
|
Goodwill |
|
|
283,097 |
|
|
|
|
|
Total cash consideration |
|
$ |
409,607 |
|
|
|
|
|
The Company has included revenue and earnings, excluding intercompany transactions, of
approximately $17.8 million and $0.5 million, respectively, in its consolidated statement of income
for thirteen weeks ended April 3, 2011 for BI activity since February 10, 2011, the date of
acquisition.
Acquisition of Cornell Companies, Inc.
On August 12, 2010, the Company completed its acquisition of Cornell pursuant to a definitive
merger agreement entered into on April 18, 2010, and amended on July 22, 2010, among the Company,
GEO Acquisition III, Inc., and Cornell. Under the terms of the merger agreement, the Company
acquired 100% of the outstanding common stock of Cornell for aggregate consideration of $618.3
million. The current allocation of the purchase price is subject to change within the measurement
period (up to one year from the acquisition date) if new information is obtained about facts and
circumstances that existed as of the acquisition date that, if known, would have resulted in the
recognition of those assets or liabilities as of that date. The primary areas that are not yet
finalized relate to the calculation of certain tax assets and liabilities. Measurement period
adjustments that the Company determines to be material will be applied retrospectively to the
period of acquisition.
The Company has retrospectively adjusted provisional amounts with respect to the Cornell
acquisition that were recognized at the acquisition date to reflect new information obtained about
facts and circumstances that existed as of the acquisition date that, if known, would have affected
the measurement of the amounts recognized as of that date. Such adjustments resulted in a net
decrease of $0.9 million in goodwill, an increase to accounts receivable of $0.2 million, a
decrease to prepaid and other current assets of $0.3 million and a decrease to accrued expenses of
$1.0 million. The purchase price allocation as of April 3, 2011 is as follows (in 000s):
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition Date |
|
|
|
|
|
|
Adjusted Acquisition |
|
|
|
Estimated Fair Value as of |
|
|
Measurement Period |
|
|
Date Estimated Fair |
|
|
|
January 2, 2011 |
|
|
Adjustments |
|
|
Value as of April 3, 2011 |
|
Accounts receivable |
|
$ |
55,142 |
|
|
|
294 |
|
|
$ |
55,436 |
|
Prepaid and other current assets |
|
|
13,314 |
|
|
|
(333 |
) |
|
|
12,981 |
|
Deferred income tax assets |
|
|
21,273 |
|
|
|
|
|
|
|
21,273 |
|
Restricted assets |
|
|
44,096 |
|
|
|
|
|
|
|
44,096 |
|
Property and equipment |
|
|
462,771 |
|
|
|
|
|
|
|
462,771 |
|
Intangible assets |
|
|
75,800 |
|
|
|
|
|
|
|
75,800 |
|
Out of market lease assets |
|
|
472 |
|
|
|
|
|
|
|
472 |
|
Other long-term assets |
|
|
7,510 |
|
|
|
|
|
|
|
7,510 |
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
680,378 |
|
|
|
(39 |
) |
|
|
680,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
expenses |
|
|
(56,918 |
) |
|
|
977 |
|
|
|
(55,941 |
) |
Fair value of non-recourse debt |
|
|
(120,943 |
) |
|
|
|
|
|
|
(120,943 |
) |
Out of market lease liabilities |
|
|
(24,071 |
) |
|
|
|
|
|
|
(24,071 |
) |
Deferred income tax liabilities |
|
|
(42,771 |
) |
|
|
|
|
|
|
(42,771 |
) |
Other long-term liabilities |
|
|
(1,368 |
) |
|
|
|
|
|
|
(1,368 |
) |
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed |
|
|
(246,071 |
) |
|
|
977 |
|
|
|
(245,094 |
) |
|
|
|
|
|
|
|
|
|
|
Total identifiable net assets |
|
|
434,307 |
|
|
|
938 |
|
|
|
435,245 |
|
Goodwill |
|
|
204,724 |
|
|
|
(938 |
) |
|
|
203,786 |
|
|
|
|
|
|
|
|
|
|
|
Fair value of Cornells net assets |
|
|
639,031 |
|
|
|
|
|
|
|
639,031 |
|
Noncontrolling interest |
|
|
(20,700 |
) |
|
|
|
|
|
|
(20,700 |
) |
|
|
|
|
|
|
|
|
|
|
Total consideration for Cornell,
net of cash acquired |
|
$ |
618,331 |
|
|
$ |
|
|
|
$ |
618,331 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma financial information
The pro forma financial statement information set forth in the table below is provided for
informational purposes only and presents comparative revenue and earnings for the Company as if the
acquisitions of BI and Cornell and the financing of these transactions had occurred on January 4,
2010, which is the beginning of the first period presented. The pro forma information provided
below is compiled from the financial statements of the combined companies and includes pro forma
adjustments for: (i) estimated changes in depreciation expense, interest expense, amortization
expense, (ii) adjustments to eliminate intercompany transactions, (iii) adjustments to remove $5.9
million in non-recurring charges directly related to these acquisitions that were included in the
combined Companies financial results and (iv) the income tax impact of the adjustments. For the
purposes of the table and disclosure below, earnings is the same as net income attributable to The
GEO Group, Inc. shareholders (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
April 3 , 2011 |
|
April 4 , 2010 |
Pro forma revenues |
|
$ |
405,357 |
|
|
$ |
412,991 |
|
Pro forma net income attributable to The GEO Group, Inc. shareholders |
|
$ |
20,061 |
|
|
$ |
20,103 |
|
3. SHAREHOLDERS EQUITY
The following table represents the changes in shareholders equity that are attributable to the
Companys shareholders and to noncontrolling interests (in thousands):
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Common shares |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury shares |
|
|
Noncontrolling |
|
|
Shareholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Shares |
|
|
Amount |
|
|
Interests |
|
|
Equity |
|
Balance January 2, 2011 |
|
|
64,432 |
|
|
$ |
845 |
|
|
$ |
718,489 |
|
|
$ |
428,545 |
|
|
$ |
10,071 |
|
|
|
20,074 |
|
|
$ |
(139,049 |
) |
|
$ |
20,589 |
|
|
$ |
1,039,490 |
|
Stock option and
restricted stock award
transactions |
|
|
442 |
|
|
|
4 |
|
|
|
979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
983 |
|
Tax benefit related to
equity compensation |
|
|
|
|
|
|
|
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172 |
|
Stock based
compensation expense |
|
|
|
|
|
|
|
|
|
|
2,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,061 |
|
Distribution to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,012 |
) |
|
|
(4,012 |
) |
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(410 |
) |
|
|
16,380 |
|
Change in foreign
currency translation,
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480 |
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
473 |
|
Pension liability, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Unrealized
loss on
derivative
instruments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,790 |
|
|
|
312 |
|
|
|
|
|
|
|
|
|
|
|
(417 |
) |
|
|
16,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 3, 2011 |
|
|
64,874 |
|
|
$ |
849 |
|
|
$ |
721,701 |
|
|
$ |
445,335 |
|
|
$ |
10,383 |
|
|
|
20,074 |
|
|
$ |
(139,049 |
) |
|
$ |
16,160 |
|
|
$ |
1,055,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
Noncontrolling interests in consolidated entities represent equity that other investors have
contributed to MCF and the noncontrolling interest in SACM. Noncontrolling interests are adjusted
for income and losses allocable to the other shareholders in these entities.
Upon acquisition of Cornell in August 2010, the Company assumed MCF as a variable interest entity
and allocated a portion of the purchase price to the noncontrolling interest based on the estimated
fair value of MCF as of August 12, 2010. The noncontrolling interest in MCF represents 100% of the
equity in MCF which was contributed by its partners at inception in 2001. The Company includes the
results of operations and financial position of MCF in its consolidated financial statements. MCF
owns eleven facilities which it leases to the Company.
The Company includes the results of operations and financial position of SACM, its majority-owned
subsidiary, in its consolidated financial statements. SACM was established in 2001 to operate
correctional centers in South Africa. SACM currently provides security and other management
services for the Kutama Sinthumule Correctional Centre in the Republic of South Africa under a
25-year management contract which commenced in February 2002. The Companys and the second joint
venture partners shares in the profits of SACM are 88.75% and 11.25%, respectively. There were no
changes in the Companys ownership percentage of the consolidated subsidiary during the thirteen
weeks ended April 3, 2011. The noncontrolling interest as of April 3, 2011 and January 2, 2011 is
included in Total Shareholders Equity in the accompanying
Consolidated Balance Sheets. In the thirteen weeks ended April 3,
2011, there was a cash distribution to the partners of MCF of $4.0
million. There were
no contributions from owners or distributions to owners in the thirteen weeks ended April 4, 2010.
4. EQUITY INCENTIVE PLANS
The Company had awards outstanding under four equity compensation plans at April 3, 2011: The
Wackenhut Corrections Corporation 1994 Stock Option Plan (the 1994 Plan); the 1995 Non-Employee
Director Stock Option Plan (the 1995 Plan); the Wackenhut Corrections Corporation 1999 Stock
Option Plan (the 1999 Plan); and The GEO Group, Inc. 2006 Stock Incentive Plan (the 2006 Plan
and, together with the 1994 Plan, the 1995 Plan and the 1999 Plan, the Company Plans).
On August 12, 2010, the Companys Board of Directors adopted and its shareholders approved an
amendment to the 2006 Plan to increase the number of shares of common stock subject to awards under
the 2006 Plan by 2,000,000 shares from 2,400,000 to 4,400,000 shares of common stock. On February
16, 2011, the Companys Board of Directors approved Amendment No. 1 to the 2006 Plan to provide
that of the 2,000,000 additional shares of Common Stock that were authorized to be issued pursuant
to awards granted under the 2006 Plan, up to 1,083,000 of such shares may be issued in connection
with awards, other than stock options and stock appreciation
10
rights, that are settled in common
stock. The 2006 Plan, as amended, specifies that up to 2,166,000 of such total shares pursuant to
awards granted under the plan may constitute awards other than stock options and stock appreciation
rights, including shares of restricted stock. As of April 3, 2011, under the 2006 Plan, the
Company had 1,445,350 shares of common stock available for issuance pursuant to future awards that
may be granted under the plan of which up to 1,216,196 shares were available for the issuance of
awards other than stock options. See Restricted Stock below for further discussion.
Stock Options
A summary of the activity of stock option awards issued and outstanding under Company Plans is
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2011 |
|
|
|
|
|
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Aggregate |
|
|
|
|
|
|
Exercise |
|
Remaining |
|
Intrinsic |
Fiscal Year |
|
Shares |
|
Price |
|
Contractual Term |
|
Value |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
(in thousands) |
Options outstanding at January 2, 2011 |
|
|
1,401 |
|
|
$ |
15.01 |
|
|
|
5.84 |
|
|
$ |
13,517 |
|
Options granted |
|
|
503 |
|
|
|
24.61 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(72 |
) |
|
|
13.67 |
|
|
|
|
|
|
|
|
|
Options forfeited/canceled/expired |
|
|
(11 |
) |
|
|
22.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at April 3, 2011 |
|
|
1,821 |
|
|
|
17.67 |
|
|
|
6.76 |
|
|
$ |
15,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at April 3, 2011 |
|
|
1,134 |
|
|
|
14.64 |
|
|
|
5.25 |
|
|
$ |
13,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company uses a Black-Scholes option valuation model to estimate the fair value of each option
awarded. During the thirteen weeks ended April 3, 2011, the Companys Board of Directors approved
the issuance of 477,500 stock option awards to employees of the Company and 25,000 stock option
awards to the Companys directors. These awards vested 20% on the date of grant and will vest in
20% increments annually through 2015. The fair value of each option awarded was as $9.72. For the
thirteen weeks ended April 3, 2011 and April 4, 2010, the amount of stock-based compensation
expense related to stock options was $1.3 million and $0.4 million, respectively. As of April 3,
2011, the Company had $4.8 million of unrecognized compensation costs related to non-vested stock
option awards that are expected to be recognized over a weighted average period of 3.4 years.
Restricted Stock
Shares of restricted stock become unrestricted shares of common stock upon vesting on a one-for-one
basis. The cost of these awards is determined using the fair value of the Companys common stock on
the date of the grant and compensation expense is recognized over the vesting period. The shares of
restricted stock granted under the 2006 Plan vest in equal 25% increments on each of the four
anniversary dates immediately following the date of grant. A summary of the activity of restricted
stock outstanding is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Avg. |
|
|
|
|
|
|
Grant Date |
|
|
Shares |
|
Fair Value |
Restricted stock outstanding at January 2, 2011 |
|
|
160,530 |
|
|
$ |
21.12 |
|
Granted |
|
|
370,010 |
|
|
|
24.59 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited/canceled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding at April 3, 2011 |
|
|
530,540 |
|
|
$ |
23.54 |
|
During the thirteen weeks ended April 3, 2011, the Companys Board of Directors approved awards for
165,010 shares of restricted stock to its senior employees and directors. Of these restricted
stock awards, 49,010 of these shares vest over three years while the remaining 116,000 vest over
four years. In addition, the Companys Board of Directors approved the award of 205,000
performance based shares to the Companys Chief Executive Officer and Senior Vice Presidents which
will vest over a 3-year period. These performance based shares will be forfeited if the Company
does not achieve certain targeted revenue in its fiscal year ended January 1, 2012. The aggregate
fair value of these awards, based on the closing price of the Companys common stock on the grant
date, was $9.1 million. During the thirteen weeks ended April 3, 2011 and April 4, 2010, the
Company recognized $0.7 million and $0.8 million, respectively, of compensation expense related to
its outstanding shares of restricted stock. As of April 3, 2011, the Company had $10.0 million of
unrecognized compensation expense that is expected to be recognized over a weighted average period
of 3.0 years.
11
5. EARNINGS PER SHARE
Basic earnings per share is computed by dividing the income from continuing operations attributable
to The GEO Group, Inc. shareholders by the weighted average number of outstanding shares of common
stock. The calculation of diluted earnings per share is similar to that of basic earnings per
share, except that the denominator includes dilutive common stock equivalents such as stock options
and shares of restricted stock. Basic and diluted earnings per share (EPS) were calculated for
the thirteen weeks ended April 3, 2011 and April 4, 2010 as follows (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
|
April 3, 2011 |
|
|
April 4, 2010 |
|
Net income |
|
$ |
16,380 |
|
|
$ |
17,708 |
|
Net (income) loss attributable to noncontrolling interests |
|
|
410 |
|
|
|
(36 |
) |
|
|
|
|
|
|
|
Income attributable to The GEO Group, Inc. |
|
$ |
16,790 |
|
|
$ |
17,672 |
|
Basic earnings per share attributable to The GEO Group, Inc.: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
64,291 |
|
|
|
50,711 |
|
|
|
|
|
|
|
|
Per share amount |
|
$ |
0.26 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to The GEO Group, Inc.: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
64,291 |
|
|
|
50,711 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options and restricted stock |
|
|
440 |
|
|
|
929 |
|
|
|
|
|
|
|
|
Weighted average shares assuming dilution |
|
|
64,731 |
|
|
|
51,640 |
|
|
|
|
|
|
|
|
Per share amount |
|
$ |
0.26 |
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
For the thirteen weeks ended April 3, 2011, 32,074 weighted average shares of stock underlying
options were excluded from the computation of diluted EPS because the effect would be
anti-dilutive. No shares of restricted stock were anti-dilutive.
For the thirteen weeks ended April 4, 2010, 56,392 weighted average shares of stock underlying
options were excluded from the computation of diluted EPS because the effect would be
anti-dilutive. No shares of restricted stock were anti-dilutive.
6. DERIVATIVE FINANCIAL INSTRUMENTS
The Companys 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.
As of April 3, 2011, the Company had four interest rate swap agreements in the aggregate notional
amount of $100.0 million. The Company has designated these interest rate swaps as hedges against
changes in the fair value of a designated portion of the 73/4% Senior Notes due 2017 (73/4% Senior
Notes) due to changes in underlying interest rates. These swap agreements, which have payment,
expiration dates and call provisions that mirror the terms of the 73/4% Senior Notes, effectively
convert $100.0 million of the 73/4% Senior Notes into variable rate obligations. Each of the swaps
has a termination clause that gives the counterparty the right to terminate the interest rate swaps
at fair market value, under certain circumstances. In addition to the termination clause, the
Agreements also have call provisions which specify that the lender can elect to settle the swap for
the call option price. Under the Agreements, the Company receives a fixed interest rate payment
from the financial counterparties to the agreements equal to 73/4% per year calculated on the
notional $100.0 million amount, while it makes a variable interest rate payment to the same
counterparties equal to the three-month LIBOR plus a fixed margin of between 4.16% and 4.29%, also
calculated on the notional $100.0 million amount. Changes in the fair value of the interest rate
swaps are recorded in earnings along with related designated changes in the value of the 73/4% Senior
Notes. Total net gains (losses) recognized and recorded in earnings related to these fair value
hedges was $(1.0) million and $0.4 million in the thirteen weeks ended April 3, 2011 and April 4,
2010 respectively. As of April 3, 2011 and January 2, 2011, the swap assets fair values were $2.3
million and $3.3 million, respectively and are included as Other Non-Current Assets in the
accompanying balance sheets. There was no material ineffectiveness of these interest rate swaps for
the fiscal periods ended April 3, 2011 or April 4, 2010.
The Companys Australian subsidiary is a party to an interest rate swap agreement to fix the
interest rate on its variable rate non-recourse debt to 9.7%. The Company has determined the swap,
which has a notional amount of $50.9 million, payment and expiration dates, and call provisions
that coincide with the terms of the non-recourse debt to be an effective cash flow hedge.
Accordingly, the Company records the change in the value of the interest rate swap in accumulated
other comprehensive income, net of applicable
12
income taxes. Total unrealized loss, net of tax,
recognized in the periods and recorded in accumulated other comprehensive income, net of tax,
related to this cash flow hedge was $0.2 million and $0.0 million for the thirteen weeks ended
April 3, 2011 and April 4, 2010, respectively. The total value of the swap asset as of April 3,
2011 and January 2, 2011 was $1.6 million and $1.8 million, respectively, and is recorded as a
component of other assets within the accompanying consolidated balance sheets. There was no
material ineffectiveness of this interest rate swap for the fiscal periods presented. The Company
does not expect to enter into any transactions during the next twelve months which would result in
the reclassification into earnings or losses associated with this swap currently reported in
accumulated other comprehensive income (loss).
7. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
The Company has retrospectively adjusted a portion of its goodwill with respect to the Cornell
acquisition to reflect changes in the provisional amounts recognized at January 2, 2011 based on
new information obtained about facts and circumstances that existed as of the acquisition date
that, if known, would have affected the measurement of the amounts recognized as of that date.
Refer to Note 2. Such adjustments resulted in a net decrease of $0.9 million in goodwill which is
reflected in the balance below as of January 2, 2011. Changes in the Companys goodwill balances
for the thirteen weeks ended April 3, 2011 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
January 2, 2011 |
|
|
Acquisitions |
|
|
translation |
|
|
April 3, 2011 |
|
U.S. Detention & Corrections |
|
$ |
175,990 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
175,990 |
|
GEO Care |
|
|
67,257 |
|
|
|
283,097 |
|
|
|
|
|
|
|
350,354 |
|
International Services |
|
|
762 |
|
|
|
|
|
|
|
12 |
|
|
|
774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Goodwill |
|
$ |
244,009 |
|
|
$ |
283,097 |
|
|
$ |
12 |
|
|
$ |
527,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 10, 2011, the Company acquired BI and recorded goodwill representing the strategic
benefits of the Acquisition including the combined Companys increased scale and the
diversification of service offerings. Goodwill resulting from business combinations includes the
excess of the Companys purchase price over net assets of BI acquired of $283.1 million.
Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
|
U.S. Detention & |
|
|
International |
|
|
|
|
|
|
|
|
|
in Years |
|
|
Corrections |
|
|
Services |
|
|
GEO Care |
|
|
Total |
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management contracts |
|
|
1-17 |
|
|
$ |
49,850 |
|
|
$ |
2,754 |
|
|
$ |
41,300 |
|
|
$ |
93,904 |
|
Covenants not to compete |
|
|
1-4 |
|
|
|
4,349 |
|
|
|
|
|
|
|
2,821 |
|
|
|
7,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying value of January 2, 2011 |
|
|
|
|
|
|
54,199 |
|
|
|
2,754 |
|
|
|
44,121 |
|
|
|
101,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes to gross carrying value during the
thirteen weeks ended April 3, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management contracts BI Acquisition |
|
|
11-14 |
|
|
|
|
|
|
|
|
|
|
|
61,600 |
|
|
|
61,600 |
|
Covenants not to compete BI Acquisition |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
1,400 |
|
|
|
1,400 |
|
Technology BI Acquisition |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
21,800 |
|
|
|
21,800 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
(28 |
) |
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names BI Acquisition |
|
Indefinite |
|
|
|
|
|
|
|
|
|
|
42,100 |
|
|
|
42,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying value as of April 3, 2011 |
|
|
|
|
|
|
54,199 |
|
|
|
2,726 |
|
|
|
171,021 |
|
|
|
227,946 |
|
Accumulated amortization expense |
|
|
|
|
|
|
(11,640 |
) |
|
|
(359 |
) |
|
|
(5,349 |
) |
|
|
(17,348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value at April 3, 2011 |
|
|
|
|
|
$ |
42,559 |
|
|
$ |
2,367 |
|
|
$ |
165,672 |
|
|
$ |
210,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 10, 2011, the Company acquired BI and recorded identifiable intangible assets related
to management contracts, existing technology, non-compete agreements for certain former BI
executives and for the trade name associated with BIs business which is now part of the Companys
GEO Care reportable segment. The weighted average amortization period in total for these acquired
intangible assets is 10.9 years and for the acquired management
contracts is 12.4 years. As of April 3, 2011, the weighted average period before the next
contract renewal or extension for the intangible assets acquired from BI was approximately 1.2
years.
13
Accumulated amortization expense for the Companys finite-lived intangible assets in total and
by asset class is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Detention & |
|
|
International |
|
|
|
|
|
|
|
|
|
Corrections |
|
|
Services |
|
|
GEO Care |
|
|
Total |
|
Management contracts |
|
$ |
10,567 |
|
|
$ |
359 |
|
|
$ |
3,757 |
|
|
$ |
14,683 |
|
Technology |
|
|
|
|
|
|
|
|
|
|
441 |
|
|
|
441 |
|
Covenants not to compete |
|
|
1,073 |
|
|
|
|
|
|
|
1,151 |
|
|
|
2,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated amortization expense |
|
$ |
11,640 |
|
|
$ |
359 |
|
|
$ |
5,349 |
|
|
$ |
17,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $4.1 million and $0.6 million for the thirteen weeks ended April 3, 2011
and April 4, 2010, respectively and primarily related to the amortization of intangible assets for
acquired management contracts. As of April 3, 2011, the weighted average period before the next
contract renewal or extension for all of the Companys facility management contracts was
approximately 1.3 years. Although the facility management contracts acquired have renewal and
extension terms in the near term, the Company has historically maintained these relationships
beyond the contractual periods.
Estimated amortization expense related to the Companys finite-lived intangible assets for the
remainder of fiscal year 2011 through fiscal year 2015 and thereafter is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Detention & |
|
|
International |
|
|
|
|
|
|
|
|
|
Corrections |
|
|
Services |
|
|
GEO Care |
|
|
|
|
|
|
Expense |
|
|
Expense |
|
|
Expense |
|
|
Total Expense |
|
Fiscal Year |
|
Amortization |
|
|
Amortization |
|
|
Amortization |
|
|
Amortization |
|
Remainder of 2011 |
|
$ |
4,289 |
|
|
$ |
112 |
|
|
$ |
10,307 |
|
|
$ |
14,708 |
|
2012 |
|
|
4,894 |
|
|
|
149 |
|
|
|
13,025 |
|
|
|
18,068 |
|
2013 |
|
|
3,556 |
|
|
|
149 |
|
|
|
11,451 |
|
|
|
15,156 |
|
2014 |
|
|
3,556 |
|
|
|
149 |
|
|
|
11,236 |
|
|
|
14,941 |
|
2015 |
|
|
3,556 |
|
|
|
149 |
|
|
|
11,205 |
|
|
|
14,910 |
|
Thereafter |
|
|
22,708 |
|
|
|
1,659 |
|
|
|
66,348 |
|
|
|
90,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,559 |
|
|
$ |
2,367 |
|
|
$ |
123,572 |
|
|
$ |
168,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table above includes the estimated amortization of the finite-lived intangible assets acquired
from BI on February 10, 2011. As discussed in Note 2, the preliminary allocation of the purchase
price is based on the best information available and is provisional pending, among other things,
the finalization of the valuation of intangible assets, including the estimated useful lives of the
finite-lived intangible assets. The finalization of fair value assessments relative to the
finite-lived intangible assets may have an impact on the Companys estimated future amortization
expense.
8. FAIR VALUE OF ASSETS AND LIABILITIES
The Company is required to measure certain of its financial assets and liabilities at fair value on
a recurring basis. The Company defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date (exit price). The Company classifies and discloses its fair value measurements
in one of the following categories: Level 1-unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets or liabilities; Level
2-quoted prices in markets that are not active, or inputs that are observable, either directly or
indirectly, for substantially the full term of the asset or liability; and Level 3- prices or
valuation techniques that require inputs that are both significant to the fair value measurement
and unobservable (i.e., supported by little or no market activity). The Company recognizes
transfers between Levels as of the actual date of the event or change in circumstances that cause
the transfer.
All of the Companys interest rate swap derivatives were in the Companys favor as of April 3, 2011
and are presented as assets in the table below and in the accompanying balance sheet. The following
tables provide a summary of the Companys significant financial assets and liabilities carried at
fair value and measured on a recurring basis as of April 3, 2011 and January 2, 2011 (in
thousands):
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at April 3, 2011 |
|
|
Total Carrying |
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
|
Value at |
|
Active Markets |
|
Observable Inputs |
|
Unobservable |
|
|
April 3, 2011 |
|
(Level 1) |
|
(Level 2) |
|
Inputs (Level 3) |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap derivative assets |
|
$ |
3,837 |
|
|
$ |
|
|
|
$ |
3,837 |
|
|
$ |
|
|
Investments other than derivatives |
|
|
7,573 |
|
|
|
|
|
|
|
7,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at January 2, 2011 |
|
|
Total Carrying |
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
|
Value at |
|
Active Markets |
|
Observable Inputs |
|
Unobservable |
|
|
January 2, 2011 |
|
(Level 1) |
|
(Level 2) |
|
Inputs (Level 3) |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap derivative assets |
|
$ |
5,131 |
|
|
$ |
|
|
|
$ |
5,131 |
|
|
$ |
|
|
Investments
other than derivatives |
|
|
7,533 |
|
|
|
|
|
|
|
7,533 |
|
|
|
|
|
The financial investments included in the Companys Level 2 fair value measurements as of April 3,
2011 and January 2, 2011 consist of an interest rate swap asset held by our Australian subsidiary,
other interest rate swap assets of the Company, an investment in Canadian dollar denominated fixed
income securities and a guaranteed investment contract which is a restricted investment related to
CSC of Tacoma LLC. The Australian subsidiarys interest rate swap asset is valued using a
discounted cash flow model based on projected Australian borrowing rates. The Companys other
interest rate swap assets and liabilities are based on pricing models which consider prevailing
interest rates, credit risk and similar instruments. The Canadian dollar denominated securities,
not actively traded, are valued using quoted rates for these and similar securities. The restricted
investment in the guaranteed investment contract is valued using quoted rates for these and similar
securities.
9. FINANCIAL INSTRUMENTS
The Companys balance sheet reflects certain financial instruments at carrying value. The following
tables present the carrying values of those instruments and the corresponding fair values at April
3, 2011 and January 2, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 3, 2011 |
|
|
Carrying |
|
Estimated |
|
|
Value |
|
Fair Value |
Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
85,894 |
|
|
$ |
85,894 |
|
Restricted cash and investments, including current portion |
|
|
87,567 |
|
|
|
87,567 |
|
Liabilities: |
|
|
|
|
|
|
|
|
Borrowings under the Senior Credit Facility |
|
$ |
703,465 |
|
|
$ |
710,203 |
|
73/4% Senior Notes |
|
|
249,148 |
|
|
|
267,813 |
|
6.625% Senior Notes |
|
|
300,000 |
|
|
|
298,689 |
|
Non-recourse debt, Australian subsidiary |
|
|
45,638 |
|
|
|
45,013 |
|
Other non-recourse debt, including current portion |
|
|
170,915 |
|
|
|
172,664 |
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2011 |
|
|
Carrying |
|
Estimated |
|
|
Value |
|
Fair Value |
Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
39,664 |
|
|
$ |
39,664 |
|
Restricted cash and investments, including current portion |
|
|
90,642 |
|
|
|
90,642 |
|
Liabilities: |
|
|
|
|
|
|
|
|
Borrowings under the Senior Credit Facility |
|
$ |
557,758 |
|
|
$ |
562,610 |
|
73/4% Senior Notes |
|
|
250,078 |
|
|
|
265,000 |
|
Non-recourse debt, Australian subsidiary |
|
|
46,300 |
|
|
|
46,178 |
|
Other non-recourse debt, including current portion |
|
|
176,384 |
|
|
|
180,340 |
|
The fair values of the Companys Cash and cash equivalents, and Restricted cash and investments
approximate the carrying values of these assets at April 3, 2011 and January 2, 2011. Restricted
cash consists of debt service funds used for payments on the Companys non-recourse debt. The fair
values of our 73/4% Senior Notes, 6.625% Senior Notes, and certain non-recourse debt are based on
market prices, where available, or similar instruments. The fair value of the non-recourse debt
related to the Companys Australian subsidiary is
15
estimated using a discounted cash flow model based on current Australian borrowing rates for similar instruments. The fair value of the
non-recourse debt related to MCF is estimated using a discounted cash flow model based on the
Companys current borrowing rates for similar instruments. The fair value of the borrowings under
the Credit Agreement is based on an estimate of trading value considering the Companys borrowing
rate, the undrawn spread and similar instruments.
10. VARIABLE INTEREST ENTITIES
The Company evaluates its joint ventures and other entities in which it has a variable interest (a
VIE), generally in the form of investments, loans, guarantees, or equity in order to determine if
it has a controlling financial interest and is required to consolidate the entity as a result. The
reporting entity with a variable interest that provides the entity with a controlling financial
interest in the VIE will have both of the following characteristics: (i) the power to direct the
activities of a VIE that most significantly impact the VIEs economic performance and (ii) the
obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the
right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company consolidates South Texas Local Development Corporation (STLDC), a VIE. STLDC was
created to finance construction for the development of a 1,904-bed facility in Frio County, Texas.
STLDC, the owner of the complex, issued $49.5 million in taxable revenue bonds and has an operating
agreement with the Company, which provides the Company with the sole and exclusive right to operate
and manage the detention center. The operating agreement and bond indenture require the revenue
from the contract to be used to fund the periodic debt service requirements as they become due. The
net revenues, if any, after various expenses such as trustee fees, property taxes and insurance
premiums are distributed to the Company to cover operating expenses and management fees. The
Company is responsible for the entire operations of the facility including the payment of all
operating expenses whether or not there are sufficient revenues. The bonds have a ten-year term and
are non-recourse to the Company. At the end of the ten-year term of the bonds, title and ownership
of the facility transfers from STLDC to the Company. See Note 11.
As a result of the acquisition of Cornell in August 2010, the Company assumed the variable interest
in MCF of which it is the primary beneficiary and consolidates the entity as a result. MCF was
created in August 2001 as a special limited partnership for the purpose of acquiring, owning,
leasing and operating low to medium security adult and juvenile correction and treatment
facilities. At its inception, MCF purchased assets representing eleven facilities from Cornell and
leased those assets back to Cornell under a Master Lease Agreement (the Lease). These assets were
purchased from Cornell using proceeds from the 8.47% Revenue Bonds due 2016, which are limited
non-recourse obligations of MCF and collateralized by the bond reserves, assignment of subleases
and substantially all assets related to the eleven facilities. Under the terms of the Lease with
Cornell, assumed by the Company, the Company will lease the assets for the remainder of the 20-year
base term, which ends in 2021, and has options at its sole discretion to renew the Lease for up to
approximately 25 additional years. MCFs sole source of revenue is from the Company and as such
the Company has the power to direct the activities of the VIE that most significantly impact its
performance. The Companys risk is generally limited to the rental obligations under the operating
leases. This entity is included in the accompanying consolidated financial statements and all
intercompany transactions are eliminated in consolidation.
The Company does not consolidate its 50% owned South African joint venture in South African
Custodial Services Pty. Limited (SACS), a VIE. SACS joint venture investors are GEO and Kensani
Holdings, Pty. Ltd; each partner owns a 50% share. The Company has determined it is not the primary
beneficiary of SACS since it does not have the power to direct the activities of SACS that most
significantly impact its performance. As such, this entity is reported as an equity affiliate. SACS
was established in 2001 and was subsequently awarded a 25-year contract to design, finance and
build the Kutama Sinthumule Correctional Centre in Louis Trichardt, South Africa. To fund the
construction of the prison, SACS obtained long-term financing from its equity partners and lenders,
the repayment of which is fully guaranteed by the South African government, except in the event of
default, in which case the government guarantee is reduced to 80%. The Companys maximum exposure
for loss under this contract is limited to its investment in the joint venture of $8.5 million at
April 3, 2011 and its guarantees related to SACS discussed in Note 11.
The Company does not consolidate its 50% owned joint venture in the United Kingdom. In February
2011, The GEO Group Limited, the Companys wholly-owned subsidiary in the United Kingdom (GEO
UK), executed a Shareholders Agreement (the Shareholders Agreement) with Amey Community Limited
(Amey), GEO Amey PECS Limited (GEOAmey) and Amey UK PLC (Amey Guarantor) to form a private company limited by shares incorporated in England and Wales. GEOAmey
was formed by GEO UK and Amey for the purpose of performing prisoner escort and related custody
services in the United Kingdom and Wales. In order to form this private company, GEOAmey issued
share capital of £100 divided into 100 shares of £1 each
and allocated 50/50 to GEO UK and Amey. GEO
UK and Amey each have three directors appointed to the Board of Directors and neither party has the
power to direct the
16
activities that most significantly impact the performance of GEOAmey. Both parties guarantee the availability of working capital in equal proportion to ensure that GEOAmey
can comply with future contractual commitments related to the performance of its operations. As of
April 3, 2011, GEOAmey had not incurred any operating costs and as such, there was no impact to the
Companys consolidated financial statements as of and for the thirteen weeks ended April 3, 2011.
The Company expects that GEOAmey will commence operations in August 2011.
11. DEBT
Senior Credit Facility
On August 4, 2010, the Company terminated its Third Amended and Restated Credit Agreement (Prior
Senior Credit Agreement) and entered into a new Credit Agreement (the Senior Credit Facility),
by and among GEO, as Borrower, BNP Paribas, as Administrative Agent, and the lenders who are, or
may from time to time become, a party thereto. On February 8, 2011, the Company entered into
Amendment No. 1 (Amendment No. 1), to the Senior Credit Facility. Amendment No. 1, among other
things amended certain definitions and covenants relating to the total leverage ratios and the
senior secured leverage ratios set forth in the Senior Credit Facility. This amendment increased
the Companys borrowing capacity by $250.0 million. As of April 3, 2011, the Senior Credit
Facility, as amended, was comprised of: (i) a $150.0 million Term Loan A due August 2015 (Term Loan
A), bearing interest at LIBOR plus 2.25%, (ii) a $150.0 million Term Loan A-2 due August 2015
(Term Loan A-2), bearing interest at LIBOR plus 2.75%, (iii) a $200.0 million Term Loan B due
August 2016 (Term Loan B) bearing interest at LIBOR plus 3.25% with a LIBOR floor of 1.50%, and
(iv) a $500.0 million Revolving Credit Facility due August 2015 (Revolver) bearing interest at
LIBOR plus 2.25%.
Incremental borrowings of $150.0 million under the Companys amended Senior Credit Facility along
with proceeds from the Companys $300.0 million offering of the 6.625% Senior Notes were used to
finance the acquisition of BI. As of April 3, 2011, the Company had $493.5 million in aggregate
borrowings outstanding, net of discount, under the Term Loan A, Term Loan A-2 and Term Loan B,
$210.0 million in borrowings under the Revolver, approximately $70.4 million in letters of credit
and $219.6 million in additional borrowing capacity under the Revolver. In connection with these
borrowings, the Company recorded $9.3 million of deferred financing fees included in Other
Non-Current Assets in the accompanying consolidated balance sheet as of April 3, 2011. The
weighted average interest rate on outstanding borrowings under the Senior Credit Facility, as
amended, as of April 3, 2011 was 3.3%.
Indebtedness under the Revolver, the Term Loan A and the Term Loan A-2 bears interest based on the
Total Leverage Ratio as of the most recent determination date, as defined, in each of the instances
below at the stated rate:
|
|
|
|
|
Interest Rate under the Revolver, |
|
|
Term Loan A and Term Loan A-2 |
LIBOR borrowings |
|
LIBOR plus 2.00% to 3.00%. |
Base rate borrowings |
|
Prime Rate plus 1.00% to 2.00%. |
Letters of credit |
|
2.00% to 3.00%. |
Unused Revolver |
|
0.375% to 0.50%. |
The Senior Credit Facility contains certain customary representations and warranties, and certain
customary covenants that restrict the Companys ability to, among other things as permitted (i)
create, incur or assume indebtedness, (ii) create, incur, assume or permit liens, (iii) make loans
and investments, (iv) engage in mergers, acquisitions and asset sales, (v) make restricted
payments, (vi) issue, sell or otherwise dispose of capital stock, (vii) engage in transactions with
affiliates, (viii) allow the total leverage ratio or senior secured leverage ratio to exceed
certain maximum ratios or allow the interest coverage ratio to be less than a certain ratio, (ix)
cancel, forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for
value any senior notes, (x) alter the business the Company conducts, and (xi) materially impair the
Companys lenders security interests in the collateral for its loans.
The Company must not exceed the following Total Leverage Ratios, as computed at the end of each
fiscal quarter for the immediately preceding four quarter-period:
|
|
|
|
|
|
|
Total Leverage Ratio |
Period |
|
Maximum Ratio |
Through and including the last day of the fiscal year 2011 |
|
|
5.25 to 1.00 |
|
First day of fiscal year 2012 through and including the last day of fiscal year 2012 |
|
|
5.00 to 1.00 |
|
First day of fiscal year 2013 through and including the last day of fiscal year 2013 |
|
|
4.75 to 1.00 |
|
Thereafter |
|
|
4.25 to 1.00 |
|
17
The Senior Credit Facility also does not permit the Company to exceed the following Senior Secured
Leverage Ratios, as computed at the end of each fiscal quarter for the immediately preceding four
quarter-period:
|
|
|
|
|
|
|
Senior Secured Leverage Ratio |
Period |
|
Maximum Ratio |
Through and including the last day of the second quarter of the fiscal year 2012 |
|
|
3.25 to 1.00 |
|
First day of the third quarter of fiscal year 2012 through and including the last
day of the second quarter of the fiscal year 2013 |
|
|
3.00 to 1.00 |
|
Thereafter |
|
|
2.75 to 1.00 |
|
Additionally, there is an Interest Coverage Ratio under which the lender will not permit a ratio of
less than 3.00 to 1.00 relative to (a) Adjusted EBITDA for any period of four consecutive fiscal
quarters to (b) Interest Expense, less that attributable to non-recourse debt of unrestricted
subsidiaries.
Events of default under the Senior Credit Facility include, but are not limited to, (i) the
Companys failure to pay principal or interest when due, (ii) the Companys material breach of any
representations or warranty, (iii) covenant defaults, (iv) liquidation, reorganization or other
relief relating to bankruptcy or insolvency, (v) cross default under certain other material
indebtedness, (vi) unsatisfied final judgments over a specified threshold, (vii) material
environmental liability claims which have been asserted against the Company, and (viii) a change in
control. All of the obligations under the Senior Credit Facility are unconditionally guaranteed by
certain of the Companys subsidiaries and secured by substantially all of the Companys present and
future tangible and intangible assets and all present and future tangible and intangible assets of
each guarantor, including but not limited to (i) a first-priority pledge of substantially all of
the outstanding capital stock owned by the Company and each guarantor, and (ii) perfected
first-priority security interests in substantially all of the Companys, and each guarantors,
present and future tangible and intangible assets and the present and future tangible and
intangible assets of each guarantor. The Companys failure to comply with any of the covenants
under its Senior Credit Facility could cause an event of default under such documents and result in
an acceleration of all outstanding senior secured indebtedness. The Company believes it was in
compliance with all of the covenants of the Senior Credit Facility as of April 3, 2011.
6.625% Senior Notes
On February 10, 2011, the Company completed a private offering of $300.0 million in aggregate
principal amount of 6.625% senior unsecured notes due 2021. These senior unsecured notes
pay interest semi-annually in cash in arrears on February 15 and August 15, beginning on August 15,
2011. The Company realized net proceeds of $293.3 million at the close of the transaction and used
the net proceeds of the offering, together with borrowings of $150.0 million under the Senior
Credit Facility, to finance the BI Acquisition. The remaining net proceeds from the offering were
used for general corporate purposes.
The 6.625% Senior Notes are guaranteed by certain subsidiaries and are unsecured, senior
obligations of the Company and these obligations rank as follows: pari passu with any unsecured,
senior indebtedness of the Company and the guarantors, including the 73/4% Senior Notes; senior to
any future indebtedness of the Company and the guarantors that is expressly subordinated to the
6.625% Senior Notes and the guarantees; effectively junior to any secured indebtedness of the
Company and the guarantors, including indebtedness under its Senior Credit Facility, to the extent
of the value of the assets securing such indebtedness; and structurally junior to all obligations
of the Companys subsidiaries that are not guarantors.
On or after February 15, 2016, the Company may, at its option, redeem all or part of the 6.625%
Senior Notes upon not less than 30 nor more than 60 days notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest
and liquidated damages, if any, on the 6.625% Senior Notes redeemed, to the applicable redemption
date, if redeemed during the 12-month period beginning on February 15 of the years indicated below:
|
|
|
|
|
Year |
|
Percentage |
2016 |
|
|
103.3125 |
% |
2017 |
|
|
102.2083 |
% |
2018 |
|
|
101.1042 |
% |
2019 and thereafter |
|
|
100.0000 |
% |
18
Before February 15, 2016, the Company may redeem some or all of the 6.625% Senior Notes at a
redemption price equal to 100% of the principal amount of each note to be redeemed plus a make
whole premium, together with accrued and unpaid interest and liquidated damages, if any, to the
date of redemption. In addition, at any time before February 15, 2014, the Company may redeem up to
35% of the aggregate principal amount of the 6.625% Senior Notes with the net cash proceeds from
specified equity offerings at a redemption price equal to 106.625% of the principal amount of each
note to be redeemed, plus accrued and unpaid interest and liquidated damages, if any, to the date
of redemption.
The indenture governing the notes contains certain covenants, including limitations and
restrictions on the Company and its restricted subsidiaries ability to: incur additional
indebtedness or issue preferred stock; make dividend payments or other restricted payments; create
liens; sell assets; enter into transactions with affiliates; and enter into mergers, consolidations
or sales of all or substantially all of the Companys assets. As of the date of the indenture, all
of the Companys subsidiaries, other than certain dormant domestic and other subsidiaries and all
foreign subsidiaries in existence on the date of the indenture, were restricted subsidiaries. The
Companys failure to comply with certain of the covenants under the indenture governing the 6.625%
Notes could cause an event of default of any indebtedness and result in an acceleration of such
indebtedness. In addition, there is a cross-default provision which becomes enforceable upon
failure of payment of indebtedness at final maturity. The Companys unrestricted subsidiaries will
not be subject to any of the restrictive covenants in the indenture. The Company believes it was
in compliance with all of the covenants of the Indenture governing the 6.625% Senior Notes as of
April 3, 2011.
73/4% Senior Notes
On October 20, 2009, the Company completed a private offering of $250.0 million in aggregate
principal amount of its 73/4% Senior Notes due 2017 (73/4% Senior Notes). These senior unsecured
notes pay interest semi-annually in cash in arrears on April 15 and October 15 of each year,
beginning on April 15, 2010. The Company realized net proceeds of $246.4 million at the close of
the transaction, net of the discount on the notes of $3.6 million. The Company used the net
proceeds of the offering to fund the repurchase of all of its 81/4% Senior Notes due 2013 and pay
down part of the Revolving Credit Facility under our Prior Senior Credit Agreement.
The 73/4% Senior Notes are guaranteed by certain subsidiaries and are unsecured, senior obligations
of GEO and these obligations rank as follows: pari passu with any unsecured, senior indebtedness of
GEO and the guarantors, including the 6.625% Senior Notes; senior to any future indebtedness of GEO and the guarantors that is
expressly subordinated to the notes and the guarantees; effectively junior to any secured
indebtedness of GEO and the guarantors, including indebtedness under the Companys Senior Credit
Facility, to the extent of the value of the assets securing such indebtedness; and effectively
junior to all obligations of the Companys subsidiaries that are not guarantors.
On or after October 15, 2013, the Company may, at its option, redeem all or a part of the 73/4%
Senior Notes upon not less than 30 nor more than 60 days notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest
and liquidated damages, if any, on the 73/4% Senior Notes redeemed, to the applicable redemption
date, if redeemed during the 12-month period beginning on October 15 of the years indicated below:
|
|
|
|
|
Year |
|
Percentage |
2013 |
|
|
103.875 |
% |
2014 |
|
|
101.938 |
% |
2015 and thereafter |
|
|
100.000 |
% |
Before October 15, 2013, the Company may redeem some or all of the 73/4% Senior Notes at a redemption
price equal to 100% of the principal amount of each note to be redeemed plus a make-whole premium
together with accrued and unpaid interest and liquidated damages, if any. In addition, at any time
on or prior to October 15, 2012, the Company may redeem up to 35% of the notes with the net cash
proceeds from specified equity offerings at a redemption price equal to 107.750% of the aggregate
principal amount of the notes to be redeemed, plus accrued and unpaid interest and liquidated
damages, if any, to the date of redemption.
The indenture governing the notes contains certain covenants, including limitations and
restrictions on the Company and its restricted subsidiaries ability to: incur additional
indebtedness or issue preferred stock; make dividend payments or other restricted payments; create
liens; sell assets; enter into transactions with affiliates; and enter into mergers,
consolidations, or sales of all or substantially all of our assets. As of the date of the
indenture, all of the Companys subsidiaries, other than certain dormant and other domestic
subsidiaries and all foreign subsidiaries in existence on the date of the indenture, were
restricted subsidiaries. The Companys unrestricted subsidiaries will not be subject to any of the
restrictive covenants in the indenture. The Companys failure to comply with certain of the
19
covenants under the indenture governing the 73/4% Senior Notes could cause an event of default of any
indebtedness and result in an acceleration of such indebtedness. In addition, there is a
cross-default provision which becomes enforceable upon failure of payment of indebtedness at final
maturity. The Company believes it was in compliance with all of the covenants of the Indenture
governing the 73/4% Senior Notes as of April 3, 2011.
Non-Recourse Debt
South Texas Detention Complex
The Company has a debt service requirement related to the development of the South Texas Detention
Complex, a 1,904-bed detention complex in Frio County, Texas acquired in November 2005 from
Correctional Services Corporation (CSC). CSC was awarded the contract in February 2004 by the
Department of Homeland Security, U.S. Immigration and Customs Enforcement (ICE) for development
and operation of the detention center. In order to finance the construction of the complex, STLDC
was created and issued $49.5 million in taxable revenue bonds. These bonds mature in February 2016
and have fixed coupon rates between 4.63% and 5.07%. Additionally, the Company is owed $5.0 million
in the form of subordinated notes by STLDC which represents the principal amount of financing
provided to STLDC by CSC for initial development.
The Company has an operating agreement with STLDC, the owner of the complex, which provides it with
the sole and exclusive right to operate and manage the detention center. The operating agreement
and bond indenture require the revenue from the contract with ICE to be used to fund the periodic
debt service requirements as they become due. The net revenues, if any, after various expenses such
as trustee fees, property taxes and insurance premiums are distributed to the Company to cover
operating expenses and management fees. The Company is responsible for the entire operations of the
facility including the payment of all operating expenses whether or not there are sufficient
revenues. STLDC has no liabilities resulting from its ownership. The bonds have a ten-year term and
are non-recourse to the Company and STLDC. The bonds are fully insured and the sole source of
payment for the bonds is the operating revenues of the center. At the end of the ten-year term of
the bonds, title and ownership of the facility transfers from STLDC to the Company. The Company has
determined that it is the primary beneficiary of STLDC and consolidates the entity as a result. The
carrying value of the facility as of April 3, 2011 and January 2, 2011 was $26.9 million and $27.0
million, respectively, and is included in property and equipment in the accompanying balance
sheets.
On February 1, 2011, STLDC made a payment from its restricted cash account of $4.8 million for the
current portion of its periodic debt service requirement in relation to the STLDC operating
agreement and bond indenture. As of April 3, 2011, the remaining balance of the debt service
requirement under the STLDC financing agreement is $27.3 million, of which $5.0 million is due
within the next twelve months. Also, as of April 3, 2011, included in current restricted cash and
non-current restricted cash is $6.3 million and $5.6 million, respectively, of funds held in trust
with respect to the STLDC for debt service and other reserves.
Northwest Detention Center
On June 30, 2003, CSC arranged financing for the construction of the Northwest Detention Center in
Tacoma, Washington, referred to as the Northwest Detention Center, which was completed and opened
for operation in April 2004. The Company began to operate this facility following its acquisition
in November 2005. In connection with the original financing, CSC of Tacoma LLC, a wholly-owned
subsidiary of CSC, issued a $57.0 million note payable to the Washington Economic Development
Finance Authority, referred to as WEDFA, an instrumentality of the State of Washington, which
issued revenue bonds and subsequently loaned the proceeds of the bond issuance back to CSC for the
purposes of constructing the Northwest Detention Center. The bonds are non-recourse to the Company
and the loan from WEDFA to CSC is also non-recourse to the Company. These bonds mature in February
2014 and have fixed coupon rates between 3.80% and 4.10%.
The proceeds of the loan were disbursed into escrow accounts held in trust to be used to pay the
issuance costs for the revenue bonds, to construct the Northwest Detention Center and to establish
debt service and other reserves. No payments were made during the thirteen weeks ended April 3, 2011. As of April 3, 2011, the remaining balance of the debt service
requirement is $25.7 million, of which $6.1 million is classified as current in the accompanying
balance sheet.
As of April 3, 2011, included in current restricted cash and non-current restricted cash is $7.0
million and $3.8 million, respectively, of funds held in trust with respect to the Northwest
Detention Center for debt service and other reserves.
20
MCF
MCF, one of the Companys consolidated variable interest entities, is obligated for the outstanding
balance of the 8.47% Revenue Bonds. The bonds bear interest at a rate of 8.47% per annum and are
payable in semi-annual installments of interest and annual installments of principal. All unpaid
principal and accrued interest on the bonds is due on the earlier of August 1, 2016 (maturity) or
as noted under the bond documents. The bonds are limited, nonrecourse obligations of MCF and are
collateralized by the property and equipment, bond reserves, assignment of subleases and
substantially all assets related to the facilities owned by MCF. The bonds are not guaranteed by
the Company or its subsidiaries. As of both April 3, 2011 and January 2, 2011, the aggregate
principal amount of these bonds was $108.3 million and is included in Non-recourse debt on the
accompanying consolidated balance sheet, net of the current portion of $14.6 million.
The 8.47% Revenue Bond indenture provides for the establishment and maintenance by MCF for the
benefit of the trustee under the indenture of a debt service reserve fund. As of April 3, 2011, the
debt service reserve fund has a balance of $23.8 million. The debt service reserve fund is
available to the trustee to pay debt service on the 8.47% Revenue Bonds when needed, and to pay
final debt service on the 8.47% Revenue Bonds. If MCF is in default in its obligation under the
8.47% Revenue Bonds indenture, the trustee may declare the principal outstanding and accrued
interest immediately due and payable. MCF has the right to cure a default of non-payment
obligations. The 8.47% Revenue Bonds are subject to extraordinary mandatory redemption in certain
instances upon casualty or condemnation. The 8.47% Revenue Bonds may be redeemed at the option of
MCF prior to their final scheduled payment dates at par plus accrued interest plus a make-whole
premium.
Australia
The Companys wholly-owned Australian subsidiary financed the development of a facility and
subsequent expansion in 2003 with long-term debt obligations. These obligations are non-recourse to
the Company and total $45.6 million and $46.3 million at April 3, 2011 and January 2, 2011,
respectively. The term of the non-recourse debt is through 2017 and it bears interest at a
variable rate quoted by certain Australian banks plus 140 basis points. Any obligations or
liabilities of the subsidiary are matched by a similar or corresponding commitment from the
government of the State of Victoria. As a condition of the loan, the Company is required to
maintain a restricted cash balance of AUD 5.0 million, which, at April 3, 2011, was $5.2 million.
This amount is included in restricted cash and the annual maturities of the future debt obligation
are included in non-recourse debt.
Guarantees
In connection with the creation of SACS, the Company entered into certain guarantees related to the
financing, construction and operation of the prison. The Company guaranteed certain obligations of
SACS under its debt agreements up to a maximum amount of 60.0 million South African Rand, or $9.0
million, to SACS senior lenders through the issuance of letters of credit. Additionally, SACS is
required to fund a restricted account for the payment of certain costs in the event of contract
termination. The Company has guaranteed the payment of 60% of amounts which may be payable by SACS
into the restricted account and provided a standby letter of credit of 8.4 million South African
Rand, or $1.3 million, as security for its guarantee. The Companys obligations under this
guarantee expire upon SACS release from its obligations in respect to the restricted account under
its debt agreements. No amounts have been drawn against these letters of credit, which are included
as part of the value of Companys outstanding letters of credit under its Revolver.
The Company has agreed to provide a loan, of up to 20.0 million South African Rand, or $3.0
million, referred to as the Standby Facility, to SACS for the purpose of financing SACS
obligations under its contract with the South African government. No amounts have been funded under
the Standby Facility, and the Company does not currently anticipate that such funding will be
required by SACS in the future. The Companys obligations under the Standby Facility expire upon
the earlier of full funding or SACSs release from its obligations under its debt agreements. The
lenders ability to draw on the Standby Facility is limited to certain circumstances, including
termination of the contract.
The Company has also guaranteed certain obligations of SACS to the security trustee for SACS
lenders. The Company secured its guarantee to the security trustee by ceding its rights to claims
against SACS in respect of any loans or other finance agreements, and by pledging the Companys
shares in SACS. The Companys liability under the guarantee is limited to the cession and pledge of
shares. The guarantee expires upon expiration of the cession and pledge agreements.
21
In connection with a design, build, finance and maintenance contract for a facility in Canada, the
Company guaranteed certain potential tax obligations of a not-for-profit entity. The potential
estimated exposure of these obligations is Canadian Dollar (CAD) 2.5 million, or $2.6 million,
commencing in 2017. The Company has a liability of $1.8 million and $1.8 million related to this
exposure as April 3, 2011 and January 2, 2011, respectively. To secure this guarantee, the Company
purchased Canadian dollar denominated securities with maturities matched to the estimated tax
obligations in 2017 to 2021. The Company has recorded an asset and a liability equal to the current
fair market value of those securities on its consolidated balance sheet. The Company does not
currently operate or manage this facility.
At April 3, 2011, the Company also had eight letters of guarantee outstanding under separate
international facilities relating to performance guarantees of its Australian subsidiary totaling
$10.0 million. Except as discussed above, the Company does not have any off balance sheet
arrangements.
12. COMMITMENTS AND CONTINGENCIES
Litigation, Claims and Assessments
In June 2004, the Company received notice of a third-party claim for property damage incurred
during 2001 and 2002 at several detention facilities formerly operated by its Australian
subsidiary. The claim relates to property damage caused by detainees at the detention facilities.
The notice was given by the Australian governments insurance provider and did not specify the
amount of damages being sought. In August 2007, a lawsuit (Commonwealth of Australia v.
Australasian Correctional Services PTY, Limited No. SC 656) was filed against the Company in the
Supreme Court of the Australian Capital Territory seeking damages of up to approximately AUD 18
million, as of April 3, 2011, or $18.7 million, plus interest. The Company believes that it has
several defenses to the allegations underlying the litigation and the amounts sought and intends to
vigorously defend its rights with respect to this matter. The Company has established a reserve
based on its estimate of the most probable loss based on the facts and circumstances known to date
and the advice of legal counsel in connection with this matter. Although the outcome of this matter
cannot be predicted with certainty, based on information known to date and the Companys
preliminary review of the claim and related reserve for loss, the Company believes that, if settled
unfavorably, this matter could have a material adverse effect on its financial condition, results
of operations or cash flows. The Company is uninsured for any damages or costs that it may incur as
a result of this claim, including the expenses of defending the claim.
During the fourth fiscal quarter of 2009, the Internal Revenue Service (IRS) completed its
examination of the Companys U.S. federal income tax returns for the years 2002 through 2005.
Following the examination, the IRS notified the Companys management that it proposed to disallow a
deduction that the Company realized during the 2005 tax year. In December of 2010, the Company
reached an agreement with the office of the IRS Appeals on the amount of the deduction, subject to
the review by the Joint Committee on Taxation. The review was completed without change on April 18,
2011, subsequent to the end of the First Quarter. As a result of the review, there was no change to
our tax accrual related to this matter.
The Companys South Africa joint venture had been in discussions with the South African Revenue
Service (SARS) with respect to the deductibility of certain expenses for the tax periods 2002
through 2004. The joint venture operates the Kutama Sinthumule Correctional Centre and accepted
inmates from the South African Department of Correctional Services in 2002. During 2009, SARS
notified the Company that it proposed to disallow these deductions. The Company appealed these
proposed disallowed deductions with SARS and in October 2010 received a favorable Tax Court ruling
relative to these deductions. On March 9, 2011, SARS filed a notice that it would appeal the lower
courts ruling. The Company continues to believe in the merits of its position and will defend its
rights vigorously as the case proceeds to the Court of Appeals. If resolved unfavorably, the
Companys maximum exposure would be $2.6 million.
The Company is a participant in the IRS Compliance Assurance
Process (CAP) for the 2011 fiscal
year. Under the IRS CAP principally transactions that meet certain materiality thresholds are
reviewed on a real-time basis shortly after their completion. Additionally, all transactions that
are part of certain IRS tier and similar initiatives are audited regardless of their materiality. The
program also provides for the audit of transition years that have not previously been audited. The
IRS will be reviewing the Companys 2009 and 2010 years as transition years.
During the First Quarter following its acquisition, BI received notice from the IRS that it will
audit its 2008 tax year. The audit is currently in progress.
22
The nature of the Companys business exposes it to various types of claims or litigation
against the Company, including, but not limited to, civil rights claims relating to conditions of
confinement and/or mistreatment, sexual misconduct claims brought by prisoners or detainees,
medical malpractice 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 Companys facilities, programs, personnel or prisoners, including damages
arising from a prisoners escape or from a disturbance or riot at a facility. Except as otherwise
disclosed above, the Company does not expect the outcome of any pending claims or legal proceedings
to have a material adverse effect on its financial condition, results of operations or cash flows.
Construction Commitments
The Company is currently developing a number of projects using company financing. The Companys
management estimates that these existing capital projects will cost approximately $281.0 million,
of which $87.6 million was spent through the first quarter of 2011. The Company estimates the
remaining capital requirements related to these capital projects to be approximately $193.4
million, which will be spent through fiscal years 2011 and 2012. Capital expenditures related to
facility maintenance costs are expected to range between $20.0 million and $25.0 million for fiscal
year 2011. In addition to these current estimated capital requirements for 2011 and 2012, the
Company is currently in the process of bidding on, or evaluating potential bids for the design,
construction and management of a number of new projects. In the event that the Company wins bids
for these projects and decides to self-finance their construction, its capital requirements in 2011
could materially increase.
Contract Terminations
Effective February 28, 2011, the Companys contract for the management of the 424-bed North Texas
ISF, located in Fort Worth, Texas, terminated.
Effective April 30, 2011, the Companys contract for the management of the 970-bed Regional
Correctional Center, located in Albuquerque, New Mexico, terminated.
Effective May 29, 2011, the Companys subsidiary in the United Kingdom will no longer manage the
215-bed Campsfield House Immigration Removal Centre in Kidlington, England.
13. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Operating and Reporting Segments
The Company conducts its business through four reportable business segments: the U.S. Detention &
Corrections segment; the International Services segment; the GEO Care segment; and the Facility
Construction & Design segment. The Company has identified these four reportable segments to reflect
the current view that the Company operates four distinct business lines, each of which constitutes
a material part of its overall business. The U.S. Detention & Corrections segment primarily
encompasses U.S.-based privatized corrections and detention business. The International Services
segment primarily consists of privatized corrections and detention operations in South Africa,
Australia and the United Kingdom. The GEO Care segment, which is operated by the Companys
wholly-owned subsidiary GEO Care, Inc. and conducts its services in the U.S., represents services
provided for mental health, residential and non-residential treatment, educational and community
based programs, pre-release and halfway house programs, compliance technologies, monitoring
services, and evidence-based supervision and treatment programs for community-based parolees,
probationers and pretrial defendants. The Facility Construction & Design segment consists of
contracts with various state, local and federal agencies for the design and construction of
facilities for which the Company has management contracts. As a result of the acquisition of
Cornell, managements review of certain segment financial data was revised with regards to the
Bronx Community Re-entry Center and the Brooklyn Community Re-entry Center. These facilities now
report within the GEO Care segment and are no longer included with U.S. Detention & Corrections.
Disclosures for business segments reflect reclassifications for all periods presented and are as
follows (in thousands):
23
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
|
April 3, 2011 |
|
|
April 4, 2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
U.S. Detention & Corrections |
|
$ |
241,630 |
|
|
$ |
189,709 |
|
International Services |
|
|
53,128 |
|
|
|
45,880 |
|
GEO Care |
|
|
96,889 |
|
|
|
37,502 |
|
Facility Construction & Design |
|
|
119 |
|
|
|
14,451 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
391,766 |
|
|
$ |
287,542 |
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
U.S. Detention & Corrections |
|
$ |
12,930 |
|
|
$ |
7,905 |
|
International Services |
|
|
527 |
|
|
|
435 |
|
GEO Care |
|
|
5,345 |
|
|
|
898 |
|
Facility Construction & Design |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
18,802 |
|
|
$ |
9,238 |
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
U.S. Detention & Corrections |
|
$ |
55,773 |
|
|
$ |
44,944 |
|
International Services |
|
|
3,952 |
|
|
|
1,841 |
|
GEO Care |
|
|
13,850 |
|
|
|
4,239 |
|
Facility Construction & Design |
|
|
103 |
|
|
|
948 |
|
|
|
|
|
|
|
|
Operating income from segments |
|
|
73,678 |
|
|
|
51,972 |
|
General and administrative expenses |
|
|
(32,788 |
) |
|
|
(17,448 |
) |
|
|
|
|
|
|
|
Total operating income |
|
$ |
40,890 |
|
|
$ |
34,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2011 |
|
|
January 2, 2011 |
|
Segment assets: |
|
|
|
|
|
|
|
|
U.S. Detention & Corrections |
|
$ |
1,869,843 |
|
|
$ |
1,855,067 |
|
International Services |
|
|
97,210 |
|
|
|
103,004 |
|
GEO Care |
|
|
766,676 |
|
|
|
301,334 |
|
Facility Construction & Design |
|
|
26 |
|
|
|
26 |
|
|
|
|
|
|
|
|
Total segment assets |
|
$ |
2,733,755 |
|
|
$ |
2,259,431 |
|
|
|
|
|
|
|
|
Pre-Tax Income Reconciliation of Segments
The following is a reconciliation of the Companys total operating income from its reportable
segments to the Companys income before income taxes, equity in earnings of affiliates and
discontinued operations, in each case, during the thirteen weeks ended April 3, 2011 and April 4,
2010, respectively (in thousands).
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
|
April 3, 2011 |
|
|
April 4, 2010 |
|
Total operating income from segments |
|
$ |
73,678 |
|
|
$ |
51,972 |
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
General and Administrative Expenses |
|
|
(32,788 |
) |
|
|
(17,448 |
) |
Net interest expense |
|
|
(15,392 |
) |
|
|
(6,585 |
) |
|
|
|
|
|
|
|
Income before income taxes and equity in earnings of affiliates |
|
$ |
25,498 |
|
|
$ |
27,939 |
|
|
|
|
|
|
|
|
Asset Reconciliation of Segments
The following is a reconciliation of the Companys reportable segment assets to the Companys total
assets as of April 3, 2011 and January 2, 2011, respectively (in thousands).
|
|
|
|
|
|
|
|
|
|
|
April 3, 2011 |
|
|
January 2, 2011 |
|
Reportable segment assets |
|
$ |
2,733,755 |
|
|
$ |
2,259,431 |
|
Cash |
|
|
85,894 |
|
|
|
39,664 |
|
Deferred income tax |
|
|
48,919 |
|
|
|
33,062 |
|
Restricted cash and investments |
|
|
87,567 |
|
|
|
90,642 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,956,135 |
|
|
$ |
2,422,799 |
|
|
|
|
|
|
|
|
24
Sources of Revenue
The Company derives most of its Detention & Corrections revenue from the management of privatized
correctional and detention facilities and also receives revenue from related transportation
services. GEO Care derives revenue from the management of residential treatment facilities and
community based re-entry facilities and also from its electronic monitoring and evidence-based
supervision and treatment services. Facility Construction & Design generates its revenue from the
construction and expansion of new and existing correctional, detention and residential treatment
facilities. All of the Companys revenue is generated from external customers (in thousands).
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
|
April 3 , 2011 |
|
|
April 4 , 2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
Detention & Corrections |
|
$ |
294,758 |
|
|
$ |
235,589 |
|
GEO Care |
|
|
96,889 |
|
|
|
37,502 |
|
Facility Construction & Design |
|
|
119 |
|
|
|
14,451 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
391,766 |
|
|
$ |
287,542 |
|
|
|
|
|
|
|
|
Equity in Earnings of Affiliates
Equity in earnings of affiliates includes the Companys joint venture in South Africa, SACS. This
entity is accounted for under the equity method of accounting and the Companys investment in SACS
is presented as a component of other non-current assets in the accompanying consolidated balance
sheets.
A summary of financial data for SACS is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
|
April 3, 2011 |
|
|
April 4, 2010 |
|
Statement of Operations Data |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
12,171 |
|
|
$ |
10,761 |
|
Operating income |
|
|
4,760 |
|
|
|
4,092 |
|
Net income |
|
|
1,323 |
|
|
|
1,180 |
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2011 |
|
|
January 2, 2011 |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
27,815 |
|
|
$ |
40,624 |
|
Non-current assets |
|
|
49,248 |
|
|
|
50,613 |
|
Current liabilities |
|
|
3,627 |
|
|
|
3,552 |
|
Non-current liabilities |
|
|
56,363 |
|
|
|
60,129 |
|
Shareholders equity |
|
|
17,073 |
|
|
|
27,556 |
|
During the thirteen weeks ended April 3, 2011, the Companys consolidated South African subsidiary,
South African Custodial Holdings Pty. Ltd. (SACH) received a dividend of $5.4 million from SACS
which reduced the Companys investment in its joint venture. As of April 3, 2011 and January 2,
2011, the Companys investment in SACS was $8.5 million and $13.8 million, respectively. The
investment is included in other non-current assets in the accompanying consolidated balance sheets.
14. BENEFIT PLANS
The Company has two non-contributory defined benefit pension plans covering certain of the
Companys executives. Retirement benefits are based on years of service, employees average
compensation for the last five years prior to retirement and social security benefits. Currently,
the plans are not funded. The Company purchased and is the beneficiary of life insurance policies
for certain participants enrolled in the plans. There were no significant transactions between the
employer or related parties and the plan during the period.
As of April 3, 2011, the Company had a non-qualified deferred compensation agreement with its Chief
Executive Officer (CEO). The current agreement provides for a lump sum payment upon retirement,
no sooner than age 55.
As of April 3, 2011, the CEO had reached
25
age 55 and was eligible to receive the payment upon
retirement. During the fiscal year ended January 2, 2011, the Company paid a former executive $4.4
million in discounted retirement benefits, including a gross up of $1.6 million for certain taxes,
under the executives non-qualified deferred compensation agreement. The Companys liability
relative to its pension plans and retirement agreements was $14.1 million and $13.8 million as of
April 3, 2011 and January 2, 2011, respectively. The long-term portion of the pension liability as
of April 3, 2011 and January 2, 2011 was $13.9 million and $13.6 million, respectively, and is
included in Other Non-Current liabilities in the accompanying balance sheets.
The following table summarizes key information related to the Companys pension plans and
retirement agreements. The table illustrates the reconciliation of the beginning and ending
balances of the benefit obligation showing the effects during the periods presented attributable to
each of the following: service cost, interest cost, plan amendments, termination benefits,
actuarial gains and losses. The assumptions used in the Companys calculation of accrued pension
costs are based on market information and the Companys historical rates for employment
compensation and discount rates, respectively.
|
|
|
|
|
|
|
|
|
|
|
April 3 , 2011 |
|
|
January 2, 2011 |
|
|
|
(in thousands) |
|
Change in Projected Benefit Obligation |
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of period |
|
$ |
13,830 |
|
|
$ |
16,206 |
|
Service cost |
|
|
161 |
|
|
|
525 |
|
Interest cost |
|
|
167 |
|
|
|
746 |
|
Actuarial gain |
|
|
|
|
|
|
986 |
|
Benefits paid |
|
|
(59 |
) |
|
|
(4,633 |
) |
|
|
|
|
|
|
|
Projected benefit obligation, end of period |
|
$ |
14,099 |
|
|
$ |
13,830 |
|
|
|
|
|
|
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of period |
|
$ |
|
|
|
$ |
|
|
Company contributions |
|
|
59 |
|
|
|
4,633 |
|
Benefits paid |
|
|
(59 |
) |
|
|
(4,633 |
) |
|
|
|
|
|
|
|
Plan assets at fair value, end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Unfunded Status of the Plan |
|
$ |
(14,099 |
) |
|
$ |
(13,830 |
) |
|
|
|
|
|
|
|
Amounts Recognized in Accumulated Other
Comprehensive Income |
|
|
|
|
|
|
|
|
Prior service cost |
|
|
|
|
|
|
|
|
Net loss |
|
|
1,655 |
|
|
|
1,671 |
|
|
|
|
|
|
|
|
Accrued pension cost |
|
$ |
1,655 |
|
|
$ |
1,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
|
April 3 , 2011 |
|
|
April 4 , 2010 |
|
Components of Net Periodic Benefit Cost |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
161 |
|
|
$ |
131 |
|
Interest cost |
|
|
167 |
|
|
|
187 |
|
Amortization of: Prior service cost |
|
|
|
|
|
|
10 |
|
Net loss |
|
|
16 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
344 |
|
|
$ |
336 |
|
|
|
|
|
|
|
|
Weighted Average Assumptions for Expense |
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.50 |
% |
|
|
5.75 |
% |
Expected return on plan assets |
|
|
N/A |
|
|
|
N/A |
|
Rate of compensation increase |
|
Various by Plan |
|
|
4.50 |
% |
The Company expects to pay benefits of $0.2 million in its fiscal year ending January 1, 2012.
15. RECENT ACCOUNTING STANDARDS
The Company implemented the following accounting standards in the thirteen weeks ended April 3,
2011:
In October 2009, the FASB issued ASU No. 2009-13 which provides amendments to revenue recognition
criteria for separating consideration in multiple element arrangements. As a result of these
amendments, multiple deliverable arrangements will be separated more frequently than under existing
GAAP. The amendments, among other things,
establish the selling price of a deliverable, replace
26
the term fair value with selling price and
eliminate the residual method such that consideration can be allocated to the deliverables using
the relative selling price method based on GEOs specific assumptions. This amendment also
significantly expands the disclosure requirements for multiple element arrangements. This guidance
became effective for the Company prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The implementation of this standard
in the thirteen weeks ended April 3, 2011 did not have a material impact on the Companys financial
position, results of operations and cash flows. As a result of the BI acquisition, the Company also
periodically sells its monitoring equipment and other services together in multiple-element
arrangements. In such cases, the Company allocates revenue on the basis of the relative selling
price of the delivered and undelivered elements. The selling price for each of the elements is
estimated based on the price charged by the Company when the elements are sold on a standalone
basis.
In December 2010, the FASB issued ASU No. 2010-28 related to goodwill and intangible assets. Under
current guidance, testing for goodwill impairment is a two-step test. When a goodwill impairment
test is performed, an entity must assess whether the carrying amount of a reporting unit exceeds
its fair value (Step 1). If it does, an entity must perform an additional test to determine whether
goodwill has been impaired and to calculate the amount of that impairment (Step 2). The objective
of ASU No 2010-28 is to address circumstances in which entities have reporting units with zero or
negative carrying amounts. The amendments in this guidance modify Step 1 of the goodwill impairment
test for reporting units with zero or negative carrying amounts to require an entity to perform
Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment
exists after considering certain qualitative characteristics, as described in this guidance. This
guidance became effective for the Company in fiscal years, and interim periods within those years,
beginning after December 15, 2010. The Company currently does not have any reporting units with a
zero or negative carrying value. The implementation of this accounting standard did not have a
material impact on the Companys financial position, results of operations and/or cash flows.
Also, in December 2010, the FASB issued ASU No. 2010-29 related to financial statement disclosures
for business combinations entered into after the beginning of the first annual reporting period
beginning on or after December 15, 2010. The amendments in this guidance specify that if a public
entity presents comparative financial statements, the entity should disclose revenue and earnings
of the combined entity as though the business combination(s) that occurred during the current year
had occurred as of the beginning of the comparable prior annual reporting period only. These
amendments also expand the supplemental pro forma disclosures under current guidance for business
combinations to include a description of the nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination included in the reported pro forma
revenue and earnings. The amendments in this update are effective prospectively for business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2010. The Company acquired BI during the
thirteen weeks ended April 3, 2011 and has implemented this standard, as applicable, to the related
business combination disclosures.
16. SUBSEQUENT EVENTS
During the fourth fiscal quarter of 2009, the Internal Revenue Service (IRS) completed its
examination of the Companys U.S. federal income tax returns for the years 2002 through 2005.
Following the examination, the IRS notified the Companys management that it proposed to disallow a
deduction that the Company realized during the 2005 tax year. In December of 2010, the Company
reached an agreement with the office of the IRS Appeals on the amount of the deduction, subject to
the review by the Joint Committee on Taxation. The review was completed without change on April 18,
2011, subsequent to the end of the First Quarter. As a result of the review, there was no change to
our tax accrual related to this matter.
On May 2, 2011, the Company executed Amendment No. 2 to its Senior Credit Facility. As a result of
this amendment, relative to the Companys Term Loan B, the Applicable Rate was reduced to 2.75% per annum
from 3.25% per annum in the case of
Eurodollar loans and to 1.75% per annum from 2.25% per annum in the case of ABR loans and the LIBOR floor was reduced to 1.00% from 1.50%.
17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
As discussed in Note 11, the Company completed a private offering of $300.0 million aggregate
principal amount of 6.625% senior unsecured notes due 2021 (such 6.625% Senior Notes
collectively with the 73/4% Senior Notes issued October 20, 2009, the
27
Notes). The Notes are fully
and unconditionally guaranteed on a joint and several senior unsecured basis by the Company and
certain of its wholly-owned domestic subsidiaries (the Subsidiary Guarantors). The Companys
newly acquired BI subsidiary has been classified in the Condensed Consolidating Financial
Information as a guarantor to the Companys Notes. On February 10, 2011, the 6.625% Senior Notes
were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act
of 1933, as amended (the Securities Act), and outside the United States only to non-U.S. persons
in accordance with Regulation S promulgated under the Securities Act. In connection with the sale
of the 6.625% Senior Notes, the Company entered into a Registration Rights Agreement with the
initial purchasers of the 6.625% Senior Notes party thereto, pursuant to which the Company and its
Subsidiary Guarantors (as defined below) agreed to file a registration statement with respect to an
offer to exchange the 6.625% Senior Notes for a new issue of substantially identical notes
registered under the Securities Act. As of the date these financial statements were issued, the
Company had filed a registration statement with respect to this offer to exchange the 6.625% Senior
Notes, however the registration statement was not yet effective.
The following condensed consolidating financial information, which has been prepared in accordance
with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the
Securities Act, presents the condensed consolidating financial information separately for:
|
(i) |
|
The GEO Group, Inc., as the issuer of the Notes; |
|
|
(ii) |
|
The Subsidiary Guarantors, on a combined basis, which are 100% owned by The GEO
Group, Inc., and which are guarantors of the Notes; |
|
|
(iii) |
|
The Companys other subsidiaries, on a combined basis, which are not guarantors
of the Notes (the Subsidiary Non-Guarantors); |
|
|
(iv) |
|
Consolidating entries and eliminations representing adjustments to (a) eliminate
intercompany transactions between or among the Company, the Subsidiary Guarantors and
the Subsidiary Non-Guarantors and (b) eliminate the investments in the Companys
subsidiaries; and |
|
|
(v) |
|
The Company and its subsidiaries on a consolidated basis. |
28
CONDENSED CONSOLIDATING BALANCE SHEET
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 3, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
The GEO Group, Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
ASSETS
|
Cash and cash equivalents |
|
$ |
38,601 |
|
|
$ |
3,441 |
|
|
$ |
43,852 |
|
|
$ |
|
|
|
$ |
85,894 |
|
Restricted cash and investments |
|
|
|
|
|
|
|
|
|
|
37,593 |
|
|
|
|
|
|
|
37,593 |
|
Accounts receivable, less allowance for
doubtful accounts |
|
|
102,510 |
|
|
|
153,087 |
|
|
|
23,057 |
|
|
|
|
|
|
|
278,654 |
|
Deferred income tax assets, net |
|
|
15,191 |
|
|
|
28,665 |
|
|
|
4,127 |
|
|
|
|
|
|
|
47,983 |
|
Prepaid expenses and other current assets |
|
|
5,733 |
|
|
|
18,527 |
|
|
|
8,791 |
|
|
|
(1,154 |
) |
|
|
31,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
162,035 |
|
|
|
203,720 |
|
|
|
117,420 |
|
|
|
(1,154 |
) |
|
|
482,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Cash and Investments |
|
|
7,253 |
|
|
|
|
|
|
|
42,721 |
|
|
|
|
|
|
|
49,974 |
|
Property and Equipment, Net |
|
|
474,807 |
|
|
|
883,741 |
|
|
|
209,969 |
|
|
|
|
|
|
|
1,568,517 |
|
Assets Held for Sale |
|
|
3,083 |
|
|
|
7,186 |
|
|
|
|
|
|
|
|
|
|
|
10,269 |
|
Direct Finance Lease Receivable |
|
|
|
|
|
|
|
|
|
|
36,758 |
|
|
|
|
|
|
|
36,758 |
|
Intercompany Receivable |
|
|
395,287 |
|
|
|
14,212 |
|
|
|
1,871 |
|
|
|
(411,370 |
) |
|
|
|
|
Deferred Income Tax Assets, Net |
|
|
|
|
|
|
|
|
|
|
936 |
|
|
|
|
|
|
|
936 |
|
Goodwill |
|
|
34 |
|
|
|
526,311 |
|
|
|
773 |
|
|
|
|
|
|
|
527,118 |
|
Intangible Assets, Net |
|
|
|
|
|
|
208,231 |
|
|
|
2,367 |
|
|
|
|
|
|
|
210,598 |
|
Investment in Subsidiaries |
|
|
1,395,641 |
|
|
|
|
|
|
|
|
|
|
|
(1,395,641 |
) |
|
|
|
|
Other Non-Current Assets |
|
|
32,000 |
|
|
|
68,170 |
|
|
|
22,812 |
|
|
|
(53,038 |
) |
|
|
69,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,470,140 |
|
|
$ |
1,911,571 |
|
|
$ |
435,627 |
|
|
$ |
(1,861,203 |
) |
|
$ |
2,956,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Accounts payable |
|
$ |
47,736 |
|
|
$ |
30,199 |
|
|
$ |
3,377 |
|
|
$ |
(1,154 |
) |
|
$ |
80,158 |
|
Accrued payroll and related taxes |
|
|
20,059 |
|
|
|
12,836 |
|
|
|
15,939 |
|
|
|
|
|
|
|
48,834 |
|
Accrued expenses |
|
|
52,717 |
|
|
|
41,712 |
|
|
|
23,017 |
|
|
|
|
|
|
|
117,446 |
|
Current portion of capital lease
obligations, long-term debt and
non-recourse debt |
|
|
17,000 |
|
|
|
1,360 |
|
|
|
31,687 |
|
|
|
|
|
|
|
50,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
137,512 |
|
|
|
86,107 |
|
|
|
74,020 |
|
|
|
(1,154 |
) |
|
|
296,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Tax Liabilities |
|
|
15,874 |
|
|
|
91,476 |
|
|
|
20 |
|
|
|
|
|
|
|
107,370 |
|
Intercompany Payable |
|
|
1,871 |
|
|
|
391,550 |
|
|
|
17,949 |
|
|
|
(411,370 |
) |
|
|
|
|
Other Non-Current Liabilities |
|
|
23,891 |
|
|
|
39,074 |
|
|
|
51,978 |
|
|
|
(53,038 |
) |
|
|
61,905 |
|
Capital Lease Obligations |
|
|
|
|
|
|
13,888 |
|
|
|
|
|
|
|
|
|
|
|
13,888 |
|
Long-Term Debt |
|
|
1,235,613 |
|
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
1,236,241 |
|
Non-Recourse Debt |
|
|
|
|
|
|
|
|
|
|
184,867 |
|
|
|
|
|
|
|
184,867 |
|
Commitments & Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
1,055,379 |
|
|
|
1,288,848 |
|
|
|
106,793 |
|
|
|
(1,395,641 |
) |
|
|
1,055,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,470,140 |
|
|
$ |
1,911,571 |
|
|
$ |
435,627 |
|
|
$ |
(1,861,203 |
) |
|
$ |
2,956,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
CONDENSED CONSOLIDATING BALANCE SHEET
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 2, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
The GEO Group, Inc. |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,614 |
|
|
$ |
221 |
|
|
$ |
36,829 |
|
|
$ |
|
|
|
$ |
39,664 |
|
Restricted cash and investments |
|
|
|
|
|
|
|
|
|
|
41,150 |
|
|
|
|
|
|
|
41,150 |
|
Accounts receivable, less allowance for
doubtful accounts |
|
|
121,749 |
|
|
|
130,197 |
|
|
|
23,832 |
|
|
|
|
|
|
|
275,778 |
|
Deferred income tax assets, net |
|
|
15,191 |
|
|
|
12,808 |
|
|
|
4,127 |
|
|
|
|
|
|
|
32,126 |
|
Prepaid expenses and other current assets |
|
|
12,325 |
|
|
|
23,222 |
|
|
|
9,256 |
|
|
|
(8,426 |
) |
|
|
36,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
151,879 |
|
|
|
166,448 |
|
|
|
115,194 |
|
|
|
(8,426 |
) |
|
|
425,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Cash and Investments |
|
|
6,168 |
|
|
|
|
|
|
|
43,324 |
|
|
|
|
|
|
|
49,492 |
|
Property and Equipment, Net |
|
|
433,219 |
|
|
|
867,046 |
|
|
|
211,027 |
|
|
|
|
|
|
|
1,511,292 |
|
Assets Held for Sale |
|
|
3,083 |
|
|
|
6,887 |
|
|
|
|
|
|
|
|
|
|
|
9,970 |
|
Direct Finance Lease Receivable |
|
|
|
|
|
|
|
|
|
|
37,544 |
|
|
|
|
|
|
|
37,544 |
|
Intercompany Receivable |
|
|
203,703 |
|
|
|
14,380 |
|
|
|
1,805 |
|
|
|
(219,888 |
) |
|
|
|
|
Deferred Income Tax Assets, Net |
|
|
|
|
|
|
|
|
|
|
936 |
|
|
|
|
|
|
|
936 |
|
Goodwill |
|
|
34 |
|
|
|
243,213 |
|
|
|
762 |
|
|
|
|
|
|
|
244,009 |
|
Intangible Assets, Net |
|
|
|
|
|
|
85,384 |
|
|
|
2,429 |
|
|
|
|
|
|
|
87,813 |
|
Investment in Subsidiaries |
|
|
1,184,297 |
|
|
|
|
|
|
|
|
|
|
|
(1,184,297 |
) |
|
|
|
|
Other Non-Current Assets |
|
|
24,020 |
|
|
|
45,820 |
|
|
|
28,558 |
|
|
|
(41,750 |
) |
|
|
56,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,006,403 |
|
|
$ |
1,429,178 |
|
|
$ |
441,579 |
|
|
$ |
(1,454,361 |
) |
|
$ |
2,422,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Accounts payable |
|
$ |
57,015 |
|
|
$ |
13,254 |
|
|
$ |
3,611 |
|
|
$ |
|
|
|
$ |
73,880 |
|
Accrued payroll and related taxes |
|
|
6,535 |
|
|
|
10,965 |
|
|
|
15,861 |
|
|
|
|
|
|
|
33,361 |
|
Accrued expenses |
|
|
55,081 |
|
|
|
40,391 |
|
|
|
33,624 |
|
|
|
(8,426 |
) |
|
|
120,670 |
|
Current portion of capital lease
obligations, long-term debt and
non-recourse debt |
|
|
9,500 |
|
|
|
782 |
|
|
|
31,292 |
|
|
|
|
|
|
|
41,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
128,131 |
|
|
|
65,392 |
|
|
|
84,388 |
|
|
|
(8,426 |
) |
|
|
269,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Tax Liabilities |
|
|
15,874 |
|
|
|
47,652 |
|
|
|
20 |
|
|
|
|
|
|
|
63,546 |
|
Intercompany Payable |
|
|
1,805 |
|
|
|
199,994 |
|
|
|
18,089 |
|
|
|
(219,888 |
) |
|
|
|
|
Other Non-Current Liabilities |
|
|
22,767 |
|
|
|
25,839 |
|
|
|
40,006 |
|
|
|
(41,750 |
) |
|
|
46,862 |
|
Capital Lease Obligations |
|
|
|
|
|
|
13,686 |
|
|
|
|
|
|
|
|
|
|
|
13,686 |
|
Long-Term Debt |
|
|
798,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
798,336 |
|
Non-Recourse Debt |
|
|
|
|
|
|
|
|
|
|
191,394 |
|
|
|
|
|
|
|
191,394 |
|
Commitments & Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
1,039,490 |
|
|
|
1,076,615 |
|
|
|
107,682 |
|
|
|
(1,184,297 |
) |
|
|
1,039,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,006,403 |
|
|
$ |
1,429,178 |
|
|
$ |
441,579 |
|
|
$ |
(1,454,361 |
) |
|
$ |
2,422,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Thirteen Weeks Ended April 3, 2011 |
|
|
|
|
|
|
Combined |
|
Combined |
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
Non-Guarantor |
|
|
|
|
|
|
The GEO Group, Inc. |
|
Guarantors |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues |
|
$ |
143,391 |
|
|
$ |
211,226 |
|
|
$ |
55,501 |
|
|
$ |
(18,352 |
) |
|
$ |
391,766 |
|
Operating expenses |
|
|
131,874 |
|
|
|
143,703 |
|
|
|
42,061 |
|
|
|
(18,352 |
) |
|
|
299,286 |
|
Depreciation and amortization |
|
|
4,256 |
|
|
|
12,690 |
|
|
|
1,856 |
|
|
|
|
|
|
|
18,802 |
|
General and administrative expenses |
|
|
11,465 |
|
|
|
16,886 |
|
|
|
4,437 |
|
|
|
|
|
|
|
32,788 |
|
|
|
|
Operating
income (loss) |
|
|
(4,204 |
) |
|
|
37,947 |
|
|
|
7,147 |
|
|
|
|
|
|
|
40,890 |
|
Interest income |
|
|
5,736 |
|
|
|
325 |
|
|
|
1,463 |
|
|
|
(5,955 |
) |
|
|
1,569 |
|
Interest expense |
|
|
(13,353 |
) |
|
|
(5,939 |
) |
|
|
(3,624 |
) |
|
|
5,955 |
|
|
|
(16,961 |
) |
|
|
|
Income (loss) before income taxes and equity in
earnings of affiliates |
|
|
(11,821 |
) |
|
|
32,333 |
|
|
|
4,986 |
|
|
|
|
|
|
|
25,498 |
|
Provision for income taxes |
|
|
(4,568 |
) |
|
|
12,493 |
|
|
|
1,855 |
|
|
|
|
|
|
|
9,780 |
|
Equity in earnings of affiliates, net of income
tax provision |
|
|
|
|
|
|
|
|
|
|
662 |
|
|
|
|
|
|
|
662 |
|
|
|
|
Income (loss) before equity income of consolidated
subsidiaries |
|
|
(7,253 |
) |
|
|
19,840 |
|
|
|
3,793 |
|
|
|
|
|
|
|
16,380 |
|
Income from consolidated subsidiaries, net of
income tax provision |
|
|
23,633 |
|
|
|
|
|
|
|
|
|
|
|
(23,633 |
) |
|
|
|
|
|
|
|
Net income |
|
|
16,380 |
|
|
|
19,840 |
|
|
|
3,793 |
|
|
|
(23,633 |
) |
|
|
16,380 |
|
Net loss attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
410 |
|
|
|
410 |
|
|
|
|
Net income attributable to the GEO Group, Inc. |
|
$ |
16,380 |
|
|
$ |
19,840 |
|
|
$ |
3,793 |
|
|
$ |
(23,223 |
) |
|
$ |
16,790 |
|
|
|
|
31
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Thirteen Weeks Ended April 4, 2010 |
|
|
|
|
|
|
Combined |
|
Combined |
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
Non-Guarantor |
|
|
|
|
|
|
The GEO Group, Inc. |
|
Guarantors |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|
|
Revenues |
|
$ |
152,860 |
|
|
$ |
86,996 |
|
|
$ |
60,490 |
|
|
$ |
(12,804 |
) |
|
$ |
287,542 |
|
Operating expenses |
|
|
131,019 |
|
|
|
55,975 |
|
|
|
52,142 |
|
|
|
(12,804 |
) |
|
|
226,332 |
|
Depreciation and amortization |
|
|
4,212 |
|
|
|
4,047 |
|
|
|
979 |
|
|
|
|
|
|
|
9,238 |
|
General and administrative expenses |
|
|
8,880 |
|
|
|
5,055 |
|
|
|
3,513 |
|
|
|
|
|
|
|
17,448 |
|
|
|
|
Operating income |
|
|
8,749 |
|
|
|
21,919 |
|
|
|
3,856 |
|
|
|
|
|
|
|
34,524 |
|
Interest income |
|
|
301 |
|
|
|
346 |
|
|
|
1,169 |
|
|
|
(587 |
) |
|
|
1,229 |
|
Interest expense |
|
|
(5,759 |
) |
|
|
(508 |
) |
|
|
(2,134 |
) |
|
|
587 |
|
|
|
(7,814 |
) |
|
|
|
Income before income taxes and equity in
earnings of affiliates |
|
|
3,291 |
|
|
|
21,757 |
|
|
|
2,891 |
|
|
|
|
|
|
|
27,939 |
|
Provision for income taxes |
|
|
1,323 |
|
|
|
8,750 |
|
|
|
748 |
|
|
|
|
|
|
|
10,821 |
|
Equity in earnings of affiliates, net of
income tax provision |
|
|
|
|
|
|
|
|
|
|
590 |
|
|
|
|
|
|
|
590 |
|
|
|
|
Income before equity income of consolidated
subsidiaries |
|
|
1,968 |
|
|
|
13,007 |
|
|
|
2,733 |
|
|
|
|
|
|
|
17,708 |
|
Income from consolidated subsidiaries, net of
income tax provision |
|
|
15,740 |
|
|
|
|
|
|
|
|
|
|
|
(15,740 |
) |
|
|
|
|
|
|
|
Net income |
|
|
17,708 |
|
|
|
13,007 |
|
|
|
2,733 |
|
|
|
(15,740 |
) |
|
|
17,708 |
|
Net income attributable to noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36 |
) |
|
|
(36 |
) |
|
|
|
Net income attributable to The GEO Group, Inc. |
|
$ |
17,708 |
|
|
$ |
13,007 |
|
|
$ |
2,733 |
|
|
$ |
(15,776 |
) |
|
$ |
17,672 |
|
|
|
|
32
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Thirteen Weeks Ended April 3, 2011 |
|
|
|
|
|
|
Combined |
|
Combined |
|
|
|
|
|
|
|
|
Subsidiary |
|
Non-Guarantor |
|
|
|
|
The GEO Group, Inc. |
|
Guarantors |
|
Subsidiaries |
|
Consolidated |
|
|
|
Cash Flow from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
41,403 |
|
|
$ |
8,025 |
|
|
$ |
19,649 |
|
|
$ |
69,077 |
|
|
|
|
Cash Flow from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition, cash consideration, net of cash acquired |
|
|
(409,607 |
) |
|
|
|
|
|
|
|
|
|
|
(409,607 |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
250 |
|
Change in restricted cash |
|
|
|
|
|
|
|
|
|
|
3,199 |
|
|
|
3,199 |
|
Capital expenditures |
|
|
(33,312 |
) |
|
|
(4,848 |
) |
|
|
(536 |
) |
|
|
(38,696 |
) |
|
|
|
Net cash used in investing activities |
|
|
(442,919 |
) |
|
|
(4,598 |
) |
|
|
2,663 |
|
|
|
(444,854 |
) |
|
|
|
Cash Flow from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(15,375 |
) |
|
|
(207 |
) |
|
|
(6,084 |
) |
|
|
(21,666 |
) |
Proceeds from long-term debt |
|
|
461,000 |
|
|
|
|
|
|
|
|
|
|
|
461,000 |
|
Distribution to MCF partners |
|
|
|
|
|
|
|
|
|
|
(4,012 |
) |
|
|
(4,012 |
) |
Proceeds from the exercise of stock options |
|
|
983 |
|
|
|
|
|
|
|
|
|
|
|
983 |
|
Income tax benefit of equity compensation |
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
172 |
|
Debt issuance costs |
|
|
(9,277 |
) |
|
|
|
|
|
|
|
|
|
|
(9,277 |
) |
|
|
|
Net cash provided by (used in) financing activities |
|
|
437,503 |
|
|
|
(207 |
) |
|
|
(10,096 |
) |
|
|
427,200 |
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents |
|
|
|
|
|
|
|
|
|
|
(5,193 |
) |
|
|
(5,193 |
) |
|
|
|
Net Increase in Cash and Cash Equivalents |
|
|
35,987 |
|
|
|
3,220 |
|
|
|
7,023 |
|
|
|
46,230 |
|
Cash and Cash Equivalents, beginning of period |
|
|
2,614 |
|
|
|
221 |
|
|
|
36,829 |
|
|
|
39,664 |
|
|
|
|
Cash and Cash Equivalents, end of period |
|
$ |
38,601 |
|
|
$ |
3,441 |
|
|
$ |
43,852 |
|
|
$ |
85,894 |
|
|
|
|
33
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Thirteen Weeks Ended April 4 , 2010 |
|
|
|
|
|
|
Combined |
|
Combined |
|
|
|
|
|
|
|
|
Subsidiary |
|
Non-Guarantor |
|
|
|
|
The GEO Group, Inc. |
|
Guarantors |
|
Subsidiaries |
|
Consolidated |
|
|
|
Cash Flow from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
$ |
54,412 |
|
|
$ |
(2,588 |
) |
|
$ |
12,910 |
|
|
$ |
64,734 |
|
|
|
|
Cash Flow from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Just Care purchase price adjustment |
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
(41 |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
100 |
|
Change in restricted cash |
|
|
|
|
|
|
|
|
|
|
(2,257 |
) |
|
|
(2,257 |
) |
Capital expenditures |
|
|
(13,610 |
) |
|
|
(1,918 |
) |
|
|
(209 |
) |
|
|
(15,737 |
) |
|
|
|
Net cash used in investing activities |
|
|
(13,610 |
) |
|
|
(1,859 |
) |
|
|
(2,466 |
) |
|
|
(17,935 |
) |
|
|
|
Cash Flow from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(6,940 |
) |
|
|
(171 |
) |
|
|
(5,688 |
) |
|
|
(12,799 |
) |
Proceeds from long-term debt |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
Payments for purchase of treasury shares |
|
|
(53,845 |
) |
|
|
|
|
|
|
|
|
|
|
(53,845 |
) |
Income tax benefit of equity compensation |
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
112 |
|
Proceeds from the exercise of stock options |
|
|
1,138 |
|
|
|
|
|
|
|
|
|
|
|
1,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(44,535 |
) |
|
|
(171 |
) |
|
|
(5,688 |
) |
|
|
(50,394 |
) |
|
|
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents |
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
15 |
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
(3,733 |
) |
|
|
(4,618 |
) |
|
|
4,771 |
|
|
|
(3,580 |
) |
Cash and Cash Equivalents, beginning of period |
|
|
12,376 |
|
|
|
5,333 |
|
|
|
16,147 |
|
|
|
33,856 |
|
|
|
|
Cash and Cash Equivalents, end of period |
|
$ |
8,643 |
|
|
$ |
715 |
|
|
$ |
20,918 |
|
|
$ |
30,276 |
|
|
|
|
34
THE GEO GROUP, INC.
ITEM 2. MANAGEMENTS 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, 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:
|
|
our ability to timely build and/or open facilities as planned, profitably manage such
facilities and successfully integrate such facilities into our operations without substantial
additional costs; |
|
|
|
the instability of foreign exchange rates, exposing us to currency risks in Australia, the
United Kingdom, and South Africa, or other countries in which we may choose to conduct our
business; |
|
|
|
our ability to activate the inactive beds at our idle facilities; |
|
|
|
an increase in unreimbursed labor rates; |
|
|
|
our ability to expand, diversify and grow our correctional, mental health, residential
treatment, re-entry, supervision and monitoring and secure transportation services business; |
|
|
|
our ability to win management contracts for which we have submitted proposals and to retain
existing management contracts; |
|
|
|
our ability to raise new project development capital given the often short-term nature of the
customers commitment to use newly developed facilities; |
|
|
|
our ability to estimate the governments level of dependency on privatized correctional
services; |
|
|
|
our ability to accurately project the size and growth of the U.S. and international
privatized corrections industry; |
|
|
|
our ability to develop long-term earnings visibility; |
|
|
|
our ability to identify suitable acquisitions, and to successfully complete and integrate
such acquisitions on satisfactory terms; |
|
|
|
our ability to successfully integrate Cornell Companies Inc., which we refer to as Cornell,
and BII Holding Corporation, which we refer to as BI Holding into our business within
our expected time-frame and estimates regarding integration costs; |
|
|
|
our ability to accurately estimate the growth to our aggregate annual revenues and the amount
of annual synergies we can achieve as a result of our acquisitions of Cornell and BI Holding; |
|
|
|
our ability to successfully address any difficulties encountered in maintaining relationships
with customers, employees or suppliers as a result of our acquisitions of Cornell and BI Holding; |
35
|
|
our ability to obtain future financing on satisfactory terms or at all, including our ability
to secure the funding we need to complete ongoing capital projects; |
|
|
|
our exposure to rising general insurance costs; |
|
|
|
our exposure to state and federal income tax law changes internationally and domestically and
our exposure as a result of federal and international examinations of our tax returns or tax
positions; |
|
|
|
our exposure to claims for which we are uninsured; |
|
|
|
our exposure to rising employee and inmate medical costs; |
|
|
|
our ability to maintain occupancy rates at our facilities; |
|
|
|
our ability to manage costs and expenses relating to ongoing litigation arising from our
operations; |
|
|
|
our ability to accurately estimate on an annual basis, loss reserves related to general
liability, workers compensation and automobile liability claims; |
|
|
|
the ability of our government customers to secure budgetary appropriations to fund their
payment obligations to us; and |
|
|
|
other factors contained in our filings with the Securities and Exchange Commission, or the
SEC, including, but not limited to, those detailed in this Quarterly Report on Form 10-Q, our
Annual Report on Form 10-K and our Current Reports on Form 8-K filed with the SEC. |
We undertake no obligation to update publicly any forward-looking statements, whether as a result
of new information, future events or otherwise. 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.
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 fiscal year ended January 2, 2011.
The discussion should be read in conjunction with our unaudited consolidated
financial statements and notes thereto included in this Quarterly Report on Form 10-Q. For the
purposes of this discussion and analysis, we refer to the thirteen weeks ended April 3, 2011 as
First Quarter 2011, and we refer to the thirteen weeks ended April 4, 2010 as First Quarter
2010.
We are a leading provider of government-outsourced services specializing in the management of
correctional, detention, mental health, residential treatment and re-entry facilities, and the
provision of community based services and youth services in the United States, Australia, South
Africa, the United Kingdom and Canada. We operate a broad range of correctional and detention
facilities including maximum, medium and minimum security prisons, immigration detention centers,
minimum security detention centers, mental health, residential treatment and community based
re-entry facilities. We offer counseling, education and/or treatment to inmates with alcohol and
drug abuse problems at most of the domestic facilities we manage. Through our acquisition of BI
Holding, we are also a provider of innovative compliance technologies, industry-leading monitoring
services, and evidence-based supervision and treatment programs for community-based parolees,
probationers and pretrial defendants. Additionally, BI Holding has an exclusive contract with U.S.
Immigration and Customs Enforcement, which we refer to as ICE, to provide supervision and reporting
services designed to improve the participation of non-detained aliens in the immigration court
system. 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
36
that maximize security and efficiency. We also provide secure transportation services for offender
and detainee populations as contracted.
Our acquisition of Cornell Companies, Inc., which we refer to this transaction as the Cornell
Acquisition, in August 2010 added scale to our presence in the U.S. correctional and detention
market, and combined Cornells adult community based and youth treatment services into GEO Cares
behavioral healthcare services platform to create a leadership position in this growing market. On
December 21, 2010, we entered into a merger agreement to acquire BII Holding Corporation, which we
refer to this transaction as the BI Acquisition. On February 10, 2011, we completed our acquisition
of BII Holding, the indirect owner of 100% of the equity interests of B.I. Incorporated, which we refer to as BI. We believe
the addition of BI will provide us with the ability to offer turn-key solutions to our customers in
managing the full lifecycle of an offender from arraignment to reintegration into the community,
which we refer to as the corrections lifecycle. As of April 3, 2011, our worldwide operations
included the management and/or ownership of approximately 80,000 beds at 116 correctional,
detention and residential treatment facilities, including idle facilities and projects under
development and also included the provision of monitoring services, tracking more than 60,000
offenders on behalf of approximately 900 federal, state and local correctional agencies located in
all 50 states.
We provide a diversified scope of services on behalf of our government clients:
|
|
|
our correctional and detention management services involve the provision of security,
administrative, rehabilitation, education, health and food services, primarily at adult male
correctional and detention facilities; |
|
|
|
|
our mental health and residential treatment services involve working with governments to
deliver quality care, innovative programming and active patient treatment, primarily in
state-owned mental healthcare facilities; |
|
|
|
|
our community-based services involve supervision of adult parolees and probationers and the
provision of temporary housing, programming, employment assistance and other services with
the intention of the successful reintegration of residents into the community; |
|
|
|
|
our youth services include residential, detention and shelter care and community-based
services along with rehabilitative, educational and treatment programs; |
|
|
|
|
our monitoring services provide our governmental clients with innovative compliance
technologies, industry-leading monitoring services, and evidence-based supervision and
treatment programs for community-based parolees, probationers and pretrial defendants;
including services to ICE for the provision of services designed to improve the participation
of non-detained aliens in the immigration court system; |
|
|
|
|
we develop new facilities, using our project development experience to design, construct
and finance what we believe are state-of-the-art facilities that maximize security and
efficiency; and |
|
|
|
|
we provide secure transportation services for offender and detainee populations as
contracted. |
We maintained an average company-wide facility occupancy rate of 93.4% for the thirteen weeks
ended April 3, 2011. As a result of the acquisitions of Cornell and BI, we will benefit from the
combined Companys increased scale and the diversification of service offerings.
Reference is made to Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on March
2, 2011, for further discussion and analysis of information pertaining to our financial condition
and results of operations for the fiscal year ended January 2, 2011.
Fiscal 2011 Developments
Acquisition of BII Holding
On February 10, 2011, we completed our previously announced acquisition of BI, a Colorado
corporation, pursuant to an Agreement and Plan of Merger, dated as of December 21, 2010 (the
Merger Agreement), with BII Holding, a Delaware corporation, which owns BI, GEO Acquisition IV,
Inc., a Delaware corporation and our wholly-owned subsidiary (Merger Sub), BII Investors IF LP,
in its
37
capacity as the stockholders representative, and AEA Investors 2006 Fund L.P. Under the terms of
the Merger Agreement, Merger Sub merged with and into BII Holding (the Merger), with BII Holding
emerging as the surviving corporation of the merger. As a result of the Merger, we paid merger
consideration of $409.6 million in cash excluding cash acquired, transaction related expenses and
subject to certain adjustments. Under the Merger Agreement, $12.5 million of the merger
consideration was placed in an escrow account for a one-year period to satisfy any applicable
indemnification claims pursuant to the terms of the Merger Agreement by us, the Merger Sub or its
affiliates. At the time of the BI Acquisition, approximately $78.4 million, including accrued
interest was outstanding under BIs senior term loan and $107.5 million, including accrued interest
was outstanding under its senior subordinated note purchase agreement, excluding the unamortized
debt discount. All indebtedness of BI under its senior term loan and senior subordinated note
purchase agreement was repaid by BI with a portion of the $409.6 million merger consideration. We
are in the process of integrating BI into our wholly-owned subsidiary, GEO Care.
Senior Notes due 2021
On February 10, 2011, we completed the issuance
of $300.0 million in aggregate principal amount of
6.625% senior unsecured notes due 2021, which we refer to as the 6.625% Senior Notes, in
a private offering under an Indenture dated as of February 10, 2011 among us, certain of our
domestic subsidiaries, as guarantors, and Wells Fargo Bank, National Association, as trustee. The
6.625% Senior Notes were offered and sold to qualified institutional buyers in accordance with Rule
144A under the Securities Act of 1933, as amended, and outside the United States in accordance with
Regulation S under the Securities Act. The 6.625% Senior Notes were issued at a coupon rate and
yield to maturity of 6.625%. Interest on the 6.625% Senior Notes will accrue at the rate of 6.625%
per annum and will be payable semi-annually in arrears on February 15 and August 15, commencing on
August 15, 2011. The 6.625% Senior Notes mature on February 15, 2021. We used the net proceeds from
this offering along with $150.0 million of borrowings under our senior credit facility to finance
the acquisition of BI and to pay related fees, costs, and expenses. We used the remaining net
proceeds for general corporate purposes.
Amendments to Senior Credit Facility
On February 8, 2011, we entered into Amendment No. 1, which we refer to as Amendment No. 1, to our
Credit Agreement, which we refer to as the Senior Credit Facility, dated as of August 4, 2010, by
and among us, the Guarantors party thereto, the lenders party thereto and BNP Paribas, as
administrative agent. Amendment No. 1, among other things amended certain definitions and covenants
relating to the total leverage ratios and the senior secured leverage ratios set forth in the
Credit Agreement. This amendment increased our borrowing capacity by $250.0 million and is
comprised of $150.0 million in borrowings under a new Term Loan A-2 due August 2015, bearing
interest at LIBOR plus 2.75%, and an incremental $100.0 million in borrowing capacity under the
existing Revolver. Following the amendment, the Senior Credit Facility is comprised of: a $150.0
million Term Loan A due August 2015; a $150.0 million Term Loan A-2 due August 2015; a $200.0
million Term Loan B due August 2016; and a $500.0 million Revolving Credit Facility due August
2015. Incremental borrowings of $150.0 million under our amended Senior Credit Facility along with
proceeds from our $300.0 million offering of the 6.625% Senior Notes were used to finance the
acquisition of BI. As of April 3, 2011, the Company had $493.5 million in aggregate borrowings
outstanding, net of discount, under the Term Loans, $210.0 million in borrowings under the
Revolving Credit Facility due August 2015, which we refer to as the Revolver, approximately $70.4
million in letters of credit and $219.6 million in additional borrowing capacity under the
Revolver.
On May 2, 2011, we executed Amendment No. 2 to our Senior Credit Facility. As a result of this
amendment, relative to our Term Loan B, the Applicable Rate was reduced to 2.75% per annum from 3.25% per annum in the case of
Eurodollar loans and to 1.75% per annum from 2.25% per annum in the case of ABR loans and the
LIBOR floor was reduced to 1.00% from 1.50%.
Facility Construction
The following table sets forth current expansion and development projects at April 3, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity |
|
|
|
|
|
|
|
|
|
|
|
|
Following |
|
Estimated |
|
|
|
|
|
|
Additional |
|
Expansion/ |
|
Completion |
|
|
|
|
Facilities Under Construction |
|
Beds |
|
Construction |
|
Date |
|
Customer |
|
Financing |
Adelanto Facility, California |
|
|
n/a |
|
|
|
650 |
|
|
|
Q2 2011 |
|
|
|
(1 |
) |
|
GEO |
North Lake Correctional Facility, Michigan |
|
|
832 |
|
|
|
2,580 |
|
|
|
(2 |
) |
|
CDCR (2) |
|
GEO |
Karnes County Civil Detention Facility, Texas |
|
|
600 |
|
|
|
600 |
|
|
|
Q1 2012 |
|
|
ICE (3) |
|
GEO |
New Castle Correctional Facility, Indiana |
|
|
512 |
|
|
|
3,196 |
|
|
|
Q1 2012 |
|
|
IDOC |
|
GEO |
Riverbend Correctional Facility, Georgia |
|
|
1,500 |
|
|
|
1,500 |
|
|
|
Q1 2012 |
|
|
GDOC |
|
GEO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
(1) |
|
We currently do not have a customer for this facility but are marketing these beds to various local, state and federal agencies. |
|
(2) |
|
On November 4, 2010, we announced our signing of a contract with the State of California, Department of Corrections and Rehabilitation for the out-of-state
housing of California inmates at the North Lake Correctional Facility. As a result of this new contract, we will complete a cell conversion on the existing
1,748-bed facility in Q3 2011 and expect to complete the expansion of this facility by 832 beds as required to meet the scheduled ramp-up of CDCR inmates. |
|
(3) |
|
We will provide services at this facility through an Inter-Governmental Agreement, or IGA, with Karnes County. |
Contract Terminations
The following contract terminations impact fiscal year 2011. We do not expect that the termination
of these contracts will have a material adverse impact, individually or in the aggregate, on our
financial condition, results of operations or cash flows.
Effective February 28, 2011, our contract for the management of the 424-bed North Texas ISF,
located in Fort Worth, Texas, terminated.
Effective April 30, 2011, our contract for the management of the 970-bed Regional Correctional
Center, located in Albuquerque, New Mexico, terminated.
Effective May 29, 2011, our subsidiary in the United Kingdom will no longer manage the 215-bed
Campsfield House Immigration Removal Centre in Kidlington, England.
Contract Awards and Facility Activations
On March 1, 2011, we opened the 100-bed Montgomery County Mental Health Treatment Facility located
in Conroe, Texas. GEO Care will manage this county-owned facility under a management contract with
Montgomery County, Texas with an initial term effective through August 31, 2011 and unlimited
two-year renewal option periods. Montgomery County in turn has an Intergovernmental Agreement with
the State of Texas for the housing of a mental health forensic population at this facility.
On March 15, 2011, we announced that our wholly-owned U.K. subsidiary, GEO UK Ltd., was selected as
the preferred bidder by the United Kingdom Border Agency for the management and operation of the
217-bed Dungavel House Immigration Removal Centre located near Glasgow, Scotland. The contract for
the management and operation of this existing centre will have a term of five years effective
September 25, 2011.
On March 16, 2011, we announced that our newly formed joint venture, GEO Amey PECS Ltd.
(GEOAmey), has been awarded three contracts by the Ministry of Justice in the United Kingdom for
the provision of prison escort and custody services in Lots 1, 3, and 4 which encompass all of
Wales and all of England except London and the East of England. The contract for the provision of
prison escort and custody services in the three Lots will have a base term of seven years with a
renewal option period of no more than three years. We expect that GEOAmey will commence operations
in August 2011.
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 at 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. A summary of our significant accounting policies is contained in Note 1 to our
financial statements included in our Annual Report on Form 10-K for the fiscal year ended January
2, 2011. Effective January 3, 2011, our policy relative to revenue recognition, as further
discussed below, incorporates
39
amendments in accounting guidance relating to revenue recognition issued by the Financial
Accounting Standards Board, which we refer to as FASB. The amendments did not have a significant
impact on our financial position, results of operations or cash flows. We are still in the process
of reviewing the accounting policies of BI to ensure conformity of such accounting policies to
ours. At this time, we are not aware of any differences in accounting policies that would have a
material impact on the consolidated financial statements as of April 3, 2011.
Reserves for Insurance Losses
The nature of our business exposes us to various types of third-party legal claims, including, but
not limited to, civil rights claims relating to conditions of confinement and/or mistreatment,
sexual misconduct claims brought by prisoners or detainees, medical malpractice claims, 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, contractual
claims and claims for personal injury or other damages resulting from contact with our facilities,
programs, electronic monitoring products, personnel or prisoners, including damages arising from a
prisoners escape or from a disturbance or riot at a facility. In addition, our management
contracts generally require us to indemnify the governmental agency against any damages to which
the governmental agency may be subject in connection with such claims or litigation. We maintain a
broad program of insurance coverage for these general types of claims, except for claims relating
to employment matters, for which we carry no insurance. There can be no assurance that our
insurance coverage will be adequate to cover all claims to which we may be exposed. It is our
general practice to bring merged or acquired companies into our corporate master policies in order
to take advantage of certain economies of scale.
We currently maintain a general liability policy and excess liability policy for U.S. Detention &
Corrections, GEO Cares community based services, GEO Cares youth services and BI with limits of
$62.0 million per occurrence and in the aggregate. A separate $35.0 million limit applies to
medical professional liability claims arising out of correctional healthcare services. Our
wholly-owned subsidiary, GEO Care Inc., has a separate insurance program for their residential
services division with a specific loss limit of $35.0 million per occurrence and in the aggregate.
We are uninsured for any claims in excess of these limits. We also maintain insurance to cover
property and other casualty risks including, workers compensation, environmental liability and
automobile liability.
For most casualty insurance policies, we carry substantial deductibles or self-insured retentions
$3.0 million per occurrence for general liability and hospital professional liability, $2.0
million per occurrence for workers compensation and $1.0 million per occurrence for automobile
liability. In addition, certain of our facilities located in Florida and other high-risk hurricane
areas carry substantial windstorm deductibles. Since hurricanes are considered unpredictable future
events, no reserves have been established to pre-fund for potential windstorm damage. Limited
commercial availability of certain types of insurance relating to windstorm exposure in coastal
areas and earthquake exposure mainly in California may prevent us from insuring some of our
facilities to full replacement value.
With respect to our operations in South Africa, the United Kingdom and Australia, we utilize a
combination of locally-procured insurance and global policies to meet contractual insurance
requirements and protect the Company. Our Australian subsidiary is required to carry tail insurance
on a general liability policy providing an extended reporting period through 2011 related to a
discontinued contract.
Of the reserves discussed above, our most significant insurance reserves relate to workers
compensation and general liability claims. These reserves are undiscounted and were $40.6 million
and $40.2 million as of April 3, 2011 and January 2, 2011, respectively. We use statistical and
actuarial methods to estimate amounts for claims that have been reported but not paid and claims
incurred but not reported. In applying these methods and assessing their results, we consider such
factors as historical frequency and severity of claims at each of our facilities, claim
development, payment patterns and changes in the nature of our business, among other factors. Such
factors are analyzed for each of our business segments. Our estimates may be impacted by such
factors as increases in the market price for medical services and unpredictability of the size of
jury awards. We also may experience variability between our estimates and the actual settlement due
to limitations inherent in the estimation process, including our ability to estimate costs of
processing and settling claims in a timely manner as well as our ability to accurately estimate our
exposure at the onset of a claim. Because we have high deductible insurance policies, the amount of
our insurance expense is dependent on our ability to control our claims experience. If actual
losses related to insurance claims significantly differ from our estimates, our financial
condition, results of operations and cash flows could be materially adversely impacted.
40
Income Taxes
Deferred income taxes are determined based on the estimated future tax effects of differences
between the financial statement and tax basis of assets and liabilities given the provisions of
enacted tax laws. Significant judgments are required to determine the consolidated provision for
income taxes. Deferred income tax provisions and benefits are based on changes to the assets or
liabilities from year to year. Realization of our deferred tax assets is dependent upon many
factors such as tax regulations applicable to the jurisdictions in which we operate, estimates of
future taxable income and the character of such taxable income. Additionally, we must use
significant judgment in addressing uncertainties in the application of complex tax laws and
regulations. If actual circumstances differ from our assumptions, adjustments to the carrying value
of deferred tax assets or liabilities may be required, which may result in an adverse impact on the
results of our operations and our effective tax rate. Valuation allowances are recorded related to
deferred tax assets based on the more likely than not criteria. Management has not made any
significant changes to the way we account for our deferred tax assets and liabilities in any year
presented in the consolidated financial statements. Based on our estimate of future earnings and
our favorable earnings history, management currently expects full realization of the deferred tax
assets net of any recorded valuation allowances. Furthermore, tax positions taken by us may not be
fully sustained upon examination by the taxing authorities. In determining the adequacy of our
provision (benefit) for income taxes, potential settlement outcomes resulting from income tax
examinations are regularly assessed. As such, the final outcome of tax examinations, including the
total amount payable or the timing of any such payments upon resolution of these issues, cannot be
estimated with certainty. To the extent that the provision for income taxes increases/decreases by
1% of income before income taxes, equity in earnings of affiliates, discontinued operations, and
consolidated income from continuing operations would have decreased/increased by $0.3 million for
the thirteen weeks ended April 3, 2011.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the related assets. Buildings and
improvements are depreciated over 2 to 50 years. Equipment and furniture and fixtures are
depreciated over 3 to 10 years. Accelerated methods of depreciation are generally used for income
tax purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the
useful life of the improvement or the term of the lease. We perform ongoing assessments of the
estimated useful lives of the property and equipment for depreciation purposes. The estimated
useful lives are determined and continually evaluated based on the period over which services are
expected to be rendered by the asset. If the assessment indicates that assets will be used for a
longer or shorter period than previously anticipated, the useful lives of the assets are revised,
resulting in a change in estimate. Effective January 4, 2010, we completed a depreciation study on
our owned correctional facilities and revised the estimated useful lives of certain of our
buildings. We have not made any changes in estimate during the thirteen-weeks ended April 3, 2011.
Maintenance and repairs are expensed as incurred. Interest is capitalized in connection with
facility construction. Capitalized interest is recorded as part of the asset to which it relates
and is amortized over the assets estimated useful life.
We review long-lived assets to be held and used for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be fully recoverable. If a
long-lived asset is part of a group that includes other assets, the unit of accounting for the
long-lived asset is its group. Generally, we group our assets by facility for the purposes of
considering whether any impairment exists. Determination of recoverability is based on an estimate
of undiscounted future cash flows resulting from the use of the asset or asset group and its
eventual disposition. When considering the future cash flows of a facility, we make assumptions
based on historical experience with our customers, terminal growth rates and weighted average cost
of capital. While these estimates do not generally have a material impact on the impairment charges
associated with managed-only facilities, the sensitivity increases significantly when considering
the impairment on facilities that are either owned or leased by us. Events that would trigger an
impairment assessment include deterioration of profits for a business segment that has long-lived
assets, or when other changes occur that might impair recovery of long-lived assets such as the
termination of a management contract. Long-lived assets to be disposed of are reported at the lower
of carrying amount or fair value less costs to sell. Measurement of an impairment loss for
long-lived assets that management expects to hold and use is based on the fair value of the asset.
Revenue Recognition
Facility management revenues are recognized as services are provided under facility management
contracts with approved government appropriations based on a net rate per day per inmate or on a
fixed monthly rate. A limited number of our contracts have provisions upon which a small portion of
the revenue for the contract is based on the performance of certain targets. Revenue based on the
performance of certain targets is less than 2% of our consolidated annual revenues. These
performance targets are based on specific criteria to be met
41
over specific periods of time. Such criteria includes our ability to achieve certain contractual
benchmarks relative to the quality of service we provide, non-occurrence of certain disruptive
events, effectiveness of our quality control programs and our responsiveness to customer
requirements and concerns. For the limited number of contracts where revenue is based on the
performance of certain targets, revenue is either (i) recorded pro rata when revenue is fixed and
determinable or (ii) recorded when the specified time period lapses. In many instances, we are a
party to more than one contract with a single entity. In these instances, each contract is
accounted for separately. We have not recorded any revenue that is at risk due to future
performance contingencies.
Construction revenues are recognized from our contracts with certain customers to perform
construction and design services (project development services) for various facilities. In these
instances, we act as the primary developer and subcontract with bonded National and/or Regional
Design Build Contractors. These construction revenues are recognized as earned on a percentage of
completion basis measured by the percentage of costs incurred to date as compared to the estimated
total cost for each contract. Provisions for estimated losses on uncompleted contracts and changes
to cost estimates are made in the period in which we determine that such losses and changes are
probable. Typically, we enter into fixed price contracts and do not perform additional work unless
approved change orders are in place. Costs attributable to unapproved change orders are expensed in
the period in which the costs are incurred if we believe that it is not probable that the costs
will be recovered through a change in the contract price. If we believe that it is probable that
the costs will be recovered through a change in the contract price, costs related to unapproved
change orders are expensed in the period in which they are incurred, and contract revenue is
recognized to the extent of the costs incurred. Revenue in excess of the costs attributable to
unapproved change orders is not recognized until the change order is approved. Changes in job
performance, job conditions, and estimated profitability, including those arising from contract
penalty provisions, and final contract settlements, may result in revisions to estimated costs and
income, and are recognized in the period in which the revisions are determined. As the primary
contractor, we are exposed to the various risks associated with construction, including the risk of
cost overruns. Accordingly, we record our construction revenue on a gross basis and include the
related cost of construction activities in Operating Expenses.
When evaluating multiple element arrangements for certain contracts where we provide project
development services to our clients in addition to standard management services, we follow revenue
recognition guidance for multiple element arrangements. This revenue recognition guidance related
to multiple deliverables in an arrangement provides guidance on determining if separate contracts
should be evaluated as a single arrangement and if an arrangement involves a single unit of
accounting or separate units of accounting and if the arrangement is determined to have separate
units, how to allocate amounts received in the arrangement for revenue recognition purposes. In
instances where we provide these project development services and subsequent management services,
generally, the arrangement results in no delivered elements at the onset of the agreement. The
elements are delivered over the contract period as the project development and management services
are performed. Project development services are not provided separately to a customer without a
management contract. During the thirteen weeks ended April 3, 2011 we implemented ASU No. 2009-13
which provides amendments to revenue recognition criteria for separating consideration in multiple
element arrangements. The amendments, among other things, establish the selling price of a
deliverable, replace the term fair value with selling price and eliminate the residual method such
that consideration can be allocated to the deliverables using the relative selling price method
based on GEOs specific assumptions. As a result of the BI acquisition, we also periodically sell
our monitoring equipment and other services together in multiple-element arrangements. In such
cases, we allocate revenue on the basis of the relative selling price of the delivered and
undelivered elements. The selling price for each of the elements is estimated based on the price we
charge when the elements are sold on a standalone basis.
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 Thirteen Weeks Ended April 3, 2011 and Thirteen Weeks Ended April 4, 2010
For the purposes of the discussion below, First Quarter 2011 refers to the thirteen week period
ended April 3, 2011 and First Quarter 2010 refers to the thirteen week period ended April 4,
2010. As a result of the acquisition of Cornell, managements review of certain segment financial
data was revised with regards to the Bronx Community Re-entry Center and the Brooklyn Community
Re-entry Center. These facilities now report within the GEO Care segment and are no longer included
with U.S. Detention & Corrections. Disclosures for business segments reflect reclassifications for
all periods presented.
42
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
% of Revenue |
|
|
2010 |
|
|
% of Revenue |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
U.S. Detention & Corrections |
|
$ |
241,630 |
|
|
|
61.7 |
% |
|
$ |
189,709 |
|
|
|
66.0 |
% |
|
$ |
51,921 |
|
|
|
27.4 |
% |
International Services |
|
|
53,128 |
|
|
|
13.6 |
% |
|
|
45,880 |
|
|
|
16.0 |
% |
|
|
7,248 |
|
|
|
15.8 |
% |
GEO Care |
|
|
96,889 |
|
|
|
24.7 |
% |
|
|
37,502 |
|
|
|
13.0 |
% |
|
|
59,387 |
|
|
|
158.4 |
% |
Facility Construction & Design |
|
|
119 |
|
|
|
0.0 |
% |
|
|
14,451 |
|
|
|
5.0 |
% |
|
|
(14,332 |
) |
|
|
(99.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
391,766 |
|
|
|
100.0 |
% |
|
$ |
287,542 |
|
|
|
100.0 |
% |
|
$ |
104,224 |
|
|
|
36.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Detention & Corrections
Revenues increased in First Quarter 2011 compared to First Quarter 2010 primarily due to the
acquisition of Cornell which contributed additional revenues of $57.3 million. We also experienced
increases at other facilities in First Quarter 2011 due to: (i) the opening of the Blackwater River
Correctional Facility (Blackwater River) located in Milton, Florida in October 2010 which
contributed revenues of $7.3 million and (ii) an increase of $1.7 million at LaSalle Detention
Facility (LaSalle) located in Jena, Louisiana due to an increase in the population. These
increases were offset by aggregate decreases of $14.2 million due to the termination of our
contracts at the Moore Haven Correctional Facility (Moore Haven) located in Moore Haven, Florida,
Graceville Correctional Facility (Graceville) located in Graceville, Florida, South Texas
Intermediate Sanction Facility (South Texas ISF) in Houston, Texas, North Texas Intermediate
Sanction Facility (North Texas ISF) located in Fort Worth, Texas, and Bridgeport Correctional
Center (Bridgeport) in Bridgeport, Texas.
The number of compensated mandays in U.S. Detention & Corrections facilities was 4.3 million in
First Quarter 2011 compared to 3.5 million in First Quarter 2010. The increase in First Quarter
2011 is due to approximately one million additional mandays from Cornell and is offset by net
decreases in mandays at our other facilities primarily due to the terminated contracts 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. corrections and detention facilities was 93.3% of
capacity in First Quarter 2011. The average occupancy in our U.S. correction and detention
facilities was 93.4% in First Quarter 2010 taking into account the reclassification of our Bronx
Community Re-entry Center and our Brooklyn Community Re-entry Center to GEO Care.
International Services
Revenues for our International Services segment during First Quarter 2011 increased by $7.2 million
over First Quarter 2010 due to several factors. Our contract for the management of the
Harmondsworth Immigration Removal Centre in London, England (Harmondsworth) experienced an
increase in revenues of $1.5 million primarily due to the activation of the 360-bed expansion in
July 2010. In addition, we experienced aggregate increases of $2.4 million at other international
facilities as a result of several factors including the full operation of Parklea Correctional
Centre (Parklea) located in Sydney, Australia, increases in services provided under the other
management contracts at our Australian subsidiary and contractual increases linked to the
inflationary index in South Africa. We experienced an increase in revenues of $4.6 million over
First Quarter 2010 due to foreign currency translation. These increases were partially offset by a
decrease in revenues of $1.3 million related to our terminated contract for the operation of the
Melbourne Custody Centre in Melbourne, Australia.
GEO Care
The increase in revenues for GEO Care in First Quarter 2011 compared to First Quarter 2010 is
primarily attributable to our acquisitions of Cornell and BI which contributed $41.5 million and
$17.8 million, respectively, in additional revenues. We also experienced an increase in revenues
of $1.2 million from the opening of Montgomery County Mental Health Treatment Facility (Montgomery
County) in Montgomery, Texas in March 2011. These increases were partially offset by a decrease in
revenues at our Columbia Regional Care Center (Columbia) in Columbia, South Carolina due to a
decrease in population.
Facility Construction & Design
43
Revenues from the Facility Construction & Design segment decreased significantly in First Quarter
2011 compared to First Quarter 2010 due to a decrease in construction activities at Blackwater
River Correctional Facility in Milton, Florida. The Blackwater River Correctional Facility
construction was completed in October 2010 and we began intake of inmates on October 5, 2010.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Segment |
|
|
|
|
|
|
% of Segment |
|
|
|
|
|
|
|
|
|
2011 |
|
|
Revenues |
|
|
2010 |
|
|
Revenues |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
U.S. Detention & Corrections |
|
$ |
172,927 |
|
|
|
71.6 |
% |
|
$ |
136,860 |
|
|
|
72.1 |
% |
|
$ |
36,067 |
|
|
|
26.4 |
% |
International Services |
|
|
48,649 |
|
|
|
91.6 |
% |
|
|
43,604 |
|
|
|
95.0 |
% |
|
|
5,045 |
|
|
|
11.6 |
% |
GEO Care |
|
|
77,694 |
|
|
|
80.2 |
% |
|
|
32,365 |
|
|
|
86.3 |
% |
|
|
45,329 |
|
|
|
140.1 |
% |
Facility Construction & Design |
|
|
16 |
|
|
|
13.4 |
% |
|
|
13,503 |
|
|
|
93.4 |
% |
|
|
(13,487 |
) |
|
|
(99.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
299,286 |
|
|
|
76.4 |
% |
|
$ |
226,332 |
|
|
|
78.7 |
% |
|
$ |
72,954 |
|
|
|
32.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses consist of those expenses incurred in the operation and management of our
correctional, detention and mental health and GEO Care facilities and expenses incurred in our
Facility Construction & Design segment. Overall, operating expense as a percentage of revenues
were lower in First Quarter 2011 compared to First Quarter 2010 primarily due to the significant
decrease in construction activity which has much lower margins.
U.S. Detention & Corrections
The increase in operating expenses for U.S. Detention & Corrections reflects the impact of our
acquisition of Cornell which resulted in an increase in operating expenses of $39.5 million. We
also experienced aggregate increases in operating expenses of $8.8 million due to: (i) the opening
of Blackwater River in October 2010; (ii) increases in population at LaSalle; and (iii) increases
in carrying costs for our newly expanded Aurora ICE Processing Center. These increases were offset
by aggregate decreases in operating expenses of $12.2 million due to the termination of contracts
at Moore Haven, Graceville, South Texas ISF, North Texas ISF and Bridgeport.
International Services
Operating expenses for our International Services segment during First Quarter 2011 increased $5.0
million over the prior year due to several factors including our new management contract for the
operation of the Harmondsworth expansion and an increase in labor costs at the Kutama-Sinthumule
Correctional Centre in South Africa which accounted for an aggregate increase in operating expenses
of $1.7 million. In addition, we experienced an increase in operating expenses at our Australian
subsidiary of $1.2 million primarily associated with the costs to provide additional services under
some of our management contracts. We also experienced overall increases in operating expenses of
$4.2 million in First Quarter 2011 compared to First Quarter 2010 due to the effects of foreign
currency translation. These increases were partially offset by aggregate decreases in operating
expenses of $2.0 million due to the termination of our Melbourne Custody Centre contract in
Melbourne, Australia effective April 2010 and a decrease in costs in First Quarter 2011 primarily
associated with the start-up of Parklea which we incurred in First Quarter 2010.
GEO Care
Operating expenses for residential treatment increased $46.5 million during First Quarter 2011 from
First Quarter 2010 primarily due to the operation of the Cornell facilities and our recent
acquisition of BI which contributed increases of $33.3 million and $13.3 million, respectively.
Facility Construction & Design
Operating expenses for Facility Construction & Design decreased during First Quarter 2011 compared
to First Quarter 2010 primarily due to the decrease in construction activities at Blackwater River
Correctional Facility.
44
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Segment |
|
|
|
|
|
|
% of Segment |
|
|
|
|
|
|
|
|
|
2011 |
|
|
Revenue |
|
|
2010 |
|
|
Revenue |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
U.S. Detention & Corrections |
|
$ |
12,930 |
|
|
|
5.4 |
% |
|
$ |
7,905 |
|
|
|
4.2 |
% |
|
$ |
5,025 |
|
|
|
63.6 |
% |
International Services |
|
|
527 |
|
|
|
1.0 |
% |
|
|
435 |
|
|
|
0.9 |
% |
|
|
92 |
|
|
|
21.1 |
% |
GEO Care |
|
|
5,345 |
|
|
|
5.5 |
% |
|
|
898 |
|
|
|
2.4 |
% |
|
|
4,447 |
|
|
|
495.2 |
% |
Facility Construction & Design |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,802 |
|
|
|
4.8 |
% |
|
$ |
9,238 |
|
|
|
3.2 |
% |
|
$ |
9,564 |
|
|
|
103.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Detention & Corrections
U.S. Detention & Corrections depreciation and amortization expense increased by $5.0 million in
First Quarter 2011 compared to First Quarter 2010 primarily as a result of our acquisition of
Cornell which contributed $4.4 million of the increase. We also experienced aggregate increases of
$0.6 million related to the completion of construction projects at the Broward Transition Center
located in Deerfield Beach, Florida, the Central Texas Detention Facility in San Antonio, Texas and
the completion of the Aurora ICE Processing Center in Aurora, Colorado. These increases were
partially offset by decreases in depreciation expense due to the termination of the management
contracts at Moore Haven and Graceville.
International Services
Depreciation and amortization expense increased slightly in First Quarter 2011 over First Quarter
2010 primarily due to our new management contract for the operation of the Harmondsworth expansion,
as discussed above, and also from changes in the foreign exchange rates.
GEO Care
The increase in depreciation and amortization expense for GEO Care in First Quarter 2011 compared
to First Quarter 2010 is primarily due to our acquisitions of Cornell and BI. Depreciation expense
and amortization expense increased by $1.9 million and $2.6 million, respectively, as a result of
these acquisitions.
Other Unallocated Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
% of Revenue |
|
2010 |
|
% of Revenue |
|
$ Change |
|
% Change |
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
General and Administrative Expenses |
|
$ |
32,788 |
|
|
|
8.4 |
% |
|
$ |
17,448 |
|
|
|
6.1 |
% |
|
$ |
15,340 |
|
|
|
87.9 |
% |
General and administrative expenses comprise substantially all of our other unallocated operating
expenses. General and administrative expenses consist primarily of corporate management salaries
and benefits, professional fees and other administrative expenses. During First Quarter 2011,
general and administrative expenses increased $13.7 million as a result of our acquisitions of
Cornell and BI. In addition to the increase of the general and administrative expenses which we
believe to be recurring, such as rent expense and employee salaries and benefits, we also
experienced an increase in non-recurring acquisition related expenses of $5.7 million. These
acquisition related expenses consist primarily of professional fees, travel costs and other direct
administrative costs related to the acquisitions of Cornell and BI. Excluding the impact of the
non-recurring acquisition related expenses, general and administrative expenses increased slightly
as a percentage of revenues in First Quarter 2011 compared to First Quarter 2010 primarily due to
increases in labor.
Non Operating Expenses
Interest Income and Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
% of Revenue |
|
2010 |
|
% of Revenue |
|
$ Change |
|
% Change |
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
Interest Income |
|
$ |
1,569 |
|
|
|
0.4 |
% |
|
$ |
1,229 |
|
|
|
0.4 |
% |
|
$ |
340 |
|
|
|
27.7 |
% |
Interest Expense |
|
$ |
16,961 |
|
|
|
4.3 |
% |
|
$ |
7,814 |
|
|
|
2.7 |
% |
|
$ |
9,147 |
|
|
|
117.1 |
% |
The majority of our interest income generated in First Quarter 2011 and First Quarter 2010 is from
the cash balances at our Australian subsidiary. The increase in the current period over the same
period last year is mainly attributable to the favorable impact of the foreign currency effects of
a strengthening Australian Dollar.
45
The increase in interest expense of $9.1 million is primarily attributable to more indebtedness
outstanding in First Quarter 2011. We experienced increases in interest expense as a result of: (i)
aggregate increases related to indebtedness under
our 6.625% Senior Notes
of $3.0 million; (ii) an increase of $4.0 million due to greater outstanding borrowings under our
Senior Credit Facility; (iii) additional interest expense of $1.2 million due to less interest
capitalized; and (iv) an increase of $1.4 million, net of premium amortization, in interest expense
related to the non-recourse debt of MCF, one of our variable interest entities. Outstanding
borrowings, net of discount and swap, at April 3, 2011 and April 4, 2010, excluding non-recourse
debt and capital lease liabilities, were $1,252.6 million and $466.0 million, respectively.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
Effective Rate |
|
2010 |
|
Effective Rate |
|
$ Change |
|
% Change |
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
Income Taxes |
|
$ |
9,780 |
|
|
|
38.4 |
% |
|
$ |
10,821 |
|
|
|
38.7 |
% |
|
$ |
(1,041 |
) |
|
|
(9.6 |
)% |
The effective tax rate for the First Quarter 2011 was approximately 38.4% and includes certain
one-time items that favorably impacted the tax rate which were in-part offset by a portion of
transaction expenses related to the BI acquisition that are non-deductible. Without these one-time
items our effective rate would be 39.4%. We estimate our annual effective tax rate for fiscal year
2011 to be in the range of 39% to 40%.
Financial Condition
BI Acquisition
On February 10, 2011, we completed our previously announced acquisition of BI, a Colorado
corporation, pursuant to the Merger Agreement, entered into among GEO, BII Holding, a Delaware
corporation, which owns BI, GEO Acquisition IV, Inc., a Delaware corporation and wholly-owned
subsidiary of GEO (Merger Sub), BII Investors IF LP, in its capacity as the stockholders
representative, and AEA Investors 2006 Fund L.P. Under the terms of the Merger Agreement, Merger
Sub merged with and into BII Holding, with BII Holding emerging as the surviving corporation of the
merger. As a result of the Merger, GEO paid merger consideration of $409.6 million in cash
excluding cash acquired, transaction related expenses and subject to certain adjustments. Under the
Merger Agreement, $12.5 million of the merger consideration was placed in an escrow account for a
one-year period to satisfy any applicable indemnification claims pursuant to the terms of the
Merger Agreement by GEO, the Merger Sub or its affiliates. At the time of the BI Acquisition,
approximately $78.4 million, including accrued interest was outstanding under BIs senior term loan
and $107.5 million, including accrued interest was outstanding under its senior subordinated note
purchase agreement, excluding the unamortized debt discount. All indebtedness of BI under its
senior term loan and senior subordinated note purchase agreement were repaid by BI with a portion
of the $409.6 million of merger consideration.
Capital Requirements
Our current cash requirements consist of amounts needed for working capital, debt service, supply
purchases, investments in joint ventures, and capital expenditures related to either the
development of new correctional, detention, mental health, residential treatment and re-entry
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 are currently developing a number of projects using company financing. We estimate that these
existing capital projects will cost approximately $281.0 million, of which $87.6 million was spent
through First Quarter 2011. We have future committed capital projects for which we estimate our
remaining capital requirements to be approximately $193.4 million, which will be spent in fiscal
years 2011 and 2012. Capital expenditures related to facility maintenance costs are expected to
range between $20.0 million and $25.0 million for fiscal year 2011. In addition to these current
estimated capital requirements for 2011 and 2012, we are currently in the process of bidding on, or
evaluating potential bids for the design, construction and management of a number of new projects.
In the event that we win bids for these projects and decide to self-finance their construction, our
capital requirements in 2011 and/or 2012 could materially increase.
46
Liquidity and Capital Resources
On August 4, 2010, we entered into a new Credit Agreement, which we refer to as our Senior Credit
Facility. On February 8, 2011, we entered into Amendment No. 1 to the Credit Agreement, which we
refer to as Amendment No. 1. Amendment No. 1, among other things, amended certain definitions and
covenants relating to the total leverage ratios and the senior secured leverage ratios set forth in
the Credit Agreement. As of April 3, 2011, the Senior Credit Facility is comprised of (i) a $150.0
million Term Loan A, referred to as Term Loan A, bearing interest at LIBOR plus 2.25% and
maturing August 4, 2015, (ii) a $150.0 million Term Loan A-2, referred to as Term Loan A-2,
bearing interest at LIBOR plus 2.75% and maturing August 4, 2015, (iii) a $200.0 million Term Loan
B, referred to as Term Loan B, bearing interest at LIBOR plus 3.25% with a LIBOR floor of 1.50%
and maturing August 4, 2016 and (iv) a Revolving Credit Facility (Revolver) of $500.0 million
bearing interest at LIBOR plus 2.25% and maturing August 4, 2015.
On February 10, 2011, we used the funds from the new $150.0 million incremental Term Loan A-2 along
with the net cash proceeds from the offering of the 6.625% Senior Notes to finance the acquisition
of BI. As of April 3, 2011, we had $146.3 million outstanding under the Term Loan A, $150.0 million
outstanding under the Term Loan A-2, $199.0 million outstanding under the Term Loan B, and our
$500.0 million Revolving Credit Facility had $210.0 million outstanding in loans, $70.4 million
outstanding in letters of credit and $219.6 million available for borrowings. We also had the
ability to borrow $250.0 million under the accordion feature of our Senior Credit Facility subject
to lender demand and market conditions. Our significant debt obligations could have material
consequences. See Risk Factors Risks Related to Our High Level of Indebtedness in our Annual
Report on Form 10-K for the fiscal year ended January 2, 2011.
We plan to fund all of our capital needs, including our capital expenditures, from cash on hand,
cash from operations, borrowings under our Senior Credit Facility and any other financings which
our management and Board of Directors, in their discretion, may consummate. Currently, our primary
source of liquidity to meet these requirements is cash flow from operations and borrowings from the
$500.0 million Revolver.
Our management believes that cash on hand, cash flows from operations and availability under our
Senior Credit Facility will be adequate to support our capital
requirements through 2012 disclosed in Capital Requirements above. In addition to additional capital requirements which
will be required relative to the acquisitions of Cornell and BI, we are also in the process of
bidding on, or evaluating potential bids for, the design, construction and management of a number
of new projects. In the event that we win bids for some or all of these projects and decide to
self-finance their construction, our capital requirements in 2011 and/or 2012 could materially
increase. In that event, our cash on hand, cash flows from operations and borrowings under the
existing Senior Credit Facility may not provide sufficient liquidity to meet our capital needs
through 2011 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 73/4% Senior Notes, the indenture governing the 6.625% Senior Notes and
our Senior Credit Facility. A substantial decline in our financial performance could limit our
access to capital pursuant to these covenants and have a material adverse affect 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 expect to be in
compliance with our debt covenants, if these constraints were to intensify, our liquidity could be
materially adversely impacted as could our compliance with these debt covenants.
Executive Retirement Agreement
As of April 3, 2011, we had a non-qualified deferred compensation agreement with our Chief
Executive Officer (CEO). The current agreement provides for a lump sum payment upon retirement,
no sooner than age 55. As of April 3, 2011, the CEO had reached age 55 and was eligible to receive
the payment upon retirement. If our CEO had retired as of April 3,
2011, we would have had to pay him $5.8 million including a tax
gross-up relating to the retirement payment equal to $2.1 million. Based on our current capitalization, we do not believe that making
this payment would materially adversely impact our liquidity.
We are also exposed to various commitments and contingencies which may have a material adverse
effect on our liquidity. See Part II Item 1. Legal Proceedings.
47
Senior Credit Facility
On August 4, 2010, we terminated our Third Amended and Restated Credit Agreement, which we refer to
as the Prior Senior Credit Agreement, and entered into a new Credit Agreement by and among GEO,
as Borrower, BNP Paribas, as Administrative Agent, and the lenders who are, or may from time to
time become, a party thereto. On February 8, 2011, we entered into Amendment No. 1 to the Senior
Credit Facility. Amendment No. 1, among other things amended certain definitions and covenants
relating to the total leverage ratios and the senior secured leverage ratios set forth in the
Senior Credit Facility. This amendment increased our borrowing capacity by $250.0 million. As of
April 3, 2011, the Senior Credit Facility was comprised of: (i) a $150.0 million Term Loan A due
August 2015, bearing interest at LIBOR plus 2.25%, (ii) a $150.0 million Term Loan A-2 due August
2015, bearing interest at LIBOR plus 2.75%, (iii) a $200.0 million Term Loan B due August 2016,
bearing interest at LIBOR plus 3.25% with a LIBOR floor of 1.50%, and (iv) a $500.0 million
Revolving Credit Facility due August 2015 bearing interest at
LIBOR plus 2.25%. On May 2, 2011, we executed Amendment No. 2 to our Senior Credit Facility. As a result of this
amendment, relative to our Term Loan B, the Applicable Rate was reduced to 2.75% per annum from
3.25% per annum in the case of Eurodollar loans and to 1.75% per annum from 2.25% per annum in the
case of ABR loans and the LIBOR floor was reduced to 1.00% from 1.50%.
Incremental borrowings of $150.0 million under our amended Senior Credit Facility along with
proceeds from our $300.0 million offering of the 6.625% Senior Notes were used to finance the
acquisition of BI. As of April 3, 2011, we had $493.5 million in aggregate borrowings outstanding,
net of discount, under the Term Loan A, Term Loan A-2 and Term Loan B, $210.0 million in borrowings
under the Revolver, approximately $70.4 million in letters of credit and $219.6 million in
additional borrowing capacity under the Revolver. The weighed average interest rate on outstanding
borrowings under the Senior Credit Facility, as amended, as of April 3, 2011 was 3.3%.
Indebtedness under the Revolver, the Term Loan A and the Term Loan A-2 bears interest based on the
Total Leverage Ratio as of the most recent determination date, as defined, in each of the instances
below at the stated rate:
|
|
|
|
|
Interest Rate under the Revolver, |
|
|
Term Loan A and Term Loan A-2 |
LIBOR borrowings
|
|
LIBOR plus 2.00% to 3.00%. |
Base rate borrowings
|
|
Prime Rate plus 1.00% to 2.00%. |
Letters of credit
|
|
2.00% to 3.00%. |
Unused Revolver
|
|
0.375% to 0.50%. |
The Senior Credit Facility contains certain customary representations and warranties, and certain
customary covenants that restrict our ability to, among other things as permitted (i) create, incur
or assume indebtedness, (ii) create, incur, assume or permit liens, (iii) make loans and
investments, (iv) engage in mergers, acquisitions and asset sales, (v) make restricted payments,
(vi) issue, sell or otherwise dispose of capital stock, (vii) engage in transactions with
affiliates, (viii) allow the total leverage ratio or senior secured leverage ratio to exceed
certain maximum ratios or allow the interest coverage ratio to be less than a certain ratio, (ix)
cancel, forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for
value any senior notes, (x) alter the business we conduct, and (xi) materially impair our lenders
security interests in the collateral for our loans.
We must not exceed the following Total Leverage Ratios, as computed at the end of each fiscal
quarter for the immediately preceding four quarter-period:
|
|
|
|
|
Total Leverage Ratio |
Period |
|
Maximum Ratio |
Through and including the last day of the fiscal year 2011 |
|
5.25 to 1.00 |
First day of fiscal year 2012 through and including the last day of fiscal year 2012 |
|
5.00 to 1.00 |
First day of fiscal year 2013 through and including the last day of fiscal year 2013 |
|
4.75 to 1.00 |
Thereafter |
|
4.25 to 1.00 |
The Senior Credit Facility also does not permit us to exceed the following Senior Secured Leverage
Ratios, as computed at the end of each fiscal quarter for the immediately preceding four
quarter-period:
48
|
|
|
|
|
Senior Secured Leverage Ratio |
Period |
|
Maximum Ratio |
Through and including the last day of the second quarter of the fiscal year 2012 |
|
3.25 to 1.00 |
First day of the third quarter of fiscal year 2012 through and including the last
day of the second quarter of the fiscal year 2013 |
|
3.00 to 1.00 |
Thereafter |
|
2.75 to 1.00 |
Additionally, there is an Interest Coverage Ratio under which the lender will not permit a ratio of
less than 3.00 to 1.00 relative to (a) Adjusted EBITDA for any period of four consecutive fiscal
quarters to (b) Interest Expense, less that attributable to non-recourse debt of unrestricted
subsidiaries.
Events of default under the Senior Credit Facility include, but are not limited to, (i) our failure
to pay principal or interest when due, (ii) our material breach of any representations or warranty,
(iii) covenant defaults, (iv) liquidation, reorganization or other relief relating to bankruptcy or
insolvency, (v) cross default under certain other material indebtedness, (vi) unsatisfied final
judgments over a specified threshold, (vii) material environmental liability claims which have been
asserted against us, and (viii) a change in control. All of the obligations under the Senior Credit
Facility are unconditionally guaranteed by certain of our subsidiaries and secured by substantially
all of our present and future tangible and intangible assets and all present and future tangible
and intangible assets of each guarantor, including but not limited to (i) a first-priority pledge
of substantially all of the outstanding capital stock owned by us and each guarantor, and (ii)
perfected first-priority security interests in substantially all of ours, and each guarantors,
present and future tangible and intangible assets and the present and future tangible and
intangible assets of each guarantor. Our failure to comply with any of the covenants under our
Senior Credit Facility could cause an event of default under such documents and result in an
acceleration of all outstanding senior secured indebtedness. We believe we were in compliance
with all of the covenants of the Senior Credit Facility as of April 3, 2011.
6.625% Senior Notes
On February 10, 2011, we completed a private offering of $300.0 million in aggregate principal
amount of 6.625% senior unsecured notes due 2021. These senior unsecured notes pay
interest semi-annually in cash in arrears on February 15 and August 15, beginning on August 15,
2011. We realized net proceeds of $293.3 million at the close of the transaction. We used the net
proceeds of the offering together with borrowings of $150.0 million under the Senior Credit
Facility to finance the acquisition of BI. The remaining net proceeds from the offering were used
for general corporate purposes.
The 6.625% Senior Notes are guaranteed by certain subsidiaries and are unsecured, senior
obligations of GEO and these obligations rank as follows: pari passu with any unsecured, senior
indebtedness of GEO and the guarantors, including the 73/4% Senior Notes; senior to any future
indebtedness of GEO and the guarantors that is expressly subordinated to the 6.625% Senior Notes
and the guarantees; effectively junior to any secured indebtedness of GEO and the guarantors,
including indebtedness under our Senior Credit Facility, to the extent of the value of the assets
securing such indebtedness; and structurally junior to all obligations of our subsidiaries that are
not guarantors.
On or after February 15, 2016, we may, at our option, redeem all or part of the 6.625% Senior Notes
upon not less than 30 nor more than 60 days notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid interest and liquidated
damages, if any, on the 6.625% Senior Notes redeemed, to the applicable redemption date, if
redeemed during the 12-month period beginning on February 15 of the years indicated below:
|
|
|
|
|
Year |
|
Percentage |
|
2016 |
|
|
103.3125 |
% |
2017 |
|
|
102.2083 |
% |
2018 |
|
|
101.1042 |
% |
2019 and thereafter |
|
|
100.0000 |
% |
Before February 15, 2016, we may redeem some or all of the 6.625% Senior Notes at a redemption
price equal to 100% of the principal amount of each note to be redeemed plus a make whole
premium, together with accrued and unpaid interest and liquidated damages, if any, to the date of
redemption. In addition, at any time before February 15, 2014, we may redeem up to 35% of the
aggregate principal amount of the 6.625% Senior Notes with the net cash proceeds from specified
equity offerings at a redemption price equal to 106.625%
49
of the principal amount of each note to be
redeemed, plus accrued and unpaid interest and liquidated damages, if any, to the date of
redemption.
The indenture governing the notes contains certain covenants, including limitations and
restrictions on us and our restricted subsidiaries ability to: incur additional indebtedness or
issue preferred stock; make dividend payments or other restricted payments; create liens; sell
assets; enter into transactions with affiliates; and enter into mergers, consolidations or sales of
all or substantially all of our assets. As of the date of the indenture, all of our subsidiaries,
other than certain dormant domestic and other subsidiaries and all foreign subsidiaries in
existence on the date of the indenture, were restricted subsidiaries. Our failure to comply with
certain of the covenants under the indenture governing the 6.625% Notes could cause an event of
default of any indebtedness and result in an acceleration of such indebtedness. In addition, there
is a cross-default provision which becomes enforceable upon failure of payment of indebtedness at
final maturity. Our unrestricted subsidiaries will not be subject to any of the restrictive
covenants in the indenture. We believe we were in compliance with all of the covenants of the
Indenture governing the 6.625% Senior Notes as of April 3, 2011.
73/4% Senior Notes
On October 20, 2009, we completed a private offering of $250.0 million in aggregate principal
amount of our 73/4% Senior Notes due 2017. These senior unsecured notes pay interest semi-annually in
cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2010. We realized
net proceeds of $246.4 million at the close of the transaction, net of the discount on the notes of
$3.6 million. We used the net proceeds of the offering to fund the repurchase of all of our 81/4%
Senior Notes due 2013 and pay down part of the Revolver under the Prior Senior Credit Agreement.
The 73/4% Senior Notes are guaranteed by certain subsidiaries and are unsecured, senior obligations
of GEO and these obligations rank as follows: pari passu with any unsecured, senior indebtedness of
GEO and the guarantors, including the 6.625% Senior Notes; senior to any future indebtedness of GEO and the guarantors that is
expressly subordinated to the notes and the guarantees; effectively junior to any secured
indebtedness of GEO and the guarantors, including indebtedness under our Credit Agreement, to the
extent of the value of the assets securing such indebtedness; and effectively junior to all
obligations of our subsidiaries that are not guarantors.
On or after October 15, 2013, we may, at our option, redeem all or a part of the 73/4% Senior Notes
upon not less than 30 nor more than 60 days notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid interest and liquidated
damages, if any, on the 73/4% Senior Notes redeemed, to the applicable redemption date, if redeemed
during the 12-month period beginning on October 15 of the years indicated below:
|
|
|
|
|
Year |
|
Percentage |
|
2013 |
|
|
103.875 |
% |
2014 |
|
|
101.938 |
% |
2015 and thereafter |
|
|
100.000 |
% |
Before October 15, 2013, we may redeem some or all of the 73/4% Senior Notes at a redemption price
equal to 100% of the principal amount of each note to be redeemed plus a make-whole premium
together with accrued and unpaid interest and liquidated damages, if any. In addition, at any time
on or prior to October 15, 2012, we may redeem up to 35% of the aggregate principal amount of the
notes with the net cash proceeds from specified equity offerings at a redemption price equal to
107.750% of the principal amount of each note to be redeemed, plus accrued and unpaid interest and
liquidated damages, if any, to the date of redemption.
The indenture governing the notes contains certain covenants, including limitations and
restrictions on us and our restricted subsidiaries ability to: incur additional indebtedness or
issue preferred stock; make dividend payments or other restricted payments; create liens; sell
assets; enter into transactions with affiliates; and enter into mergers, consolidations, or sales
of all or substantially all of our assets. As of the date of the indenture, all of our
subsidiaries, other than certain dormant and other domestic subsidiaries and all foreign
subsidiaries in existence on the date of the indenture, were restricted subsidiaries. Our
restricted subsidiaries will not be subject to any of the restrictive covenants in the indenture.
In addition, there is a cross-default provision which becomes enforceable upon failure of payment
of indebtedness at final maturity. We believe we were in compliance with all of the covenants of
the Indenture governing the 73/4% Senior Notes as of April 3, 2011.
50
Non-Recourse Debt
South Texas Detention Complex
We have a debt service requirement related to the development of the South Texas Detention Complex,
a 1,904-bed detention complex in Frio County, Texas acquired in November 2005 from Correctional
Services Corporation, which we refer to as CSC. CSC was awarded the contract in February 2004 by
the Department of Homeland Security, ICE, for development and operation of the detention center. In
order to finance the construction of the complex, South Texas Local Development Corporation, which
we refer to as STLDC, was created and issued $49.5 million in taxable revenue bonds. These bonds
mature in February 2016 and have fixed coupon rates between 4.63% and 5.07%. Additionally, we are
owed $5.0 million in the form of subordinated notes by STLDC which represents the principal amount
of financing provided to STLDC by CSC for initial development.
We have an operating agreement with STLDC, the owner of the complex, which provides us with the
sole and exclusive right to operate and manage the detention center. The operating agreement and
bond indenture require the revenue from our contract with ICE to be used to fund the periodic debt
service requirements as they become due. The net revenues, if any, after various expenses such as
trustee fees, property taxes and insurance premiums are distributed to us to cover operating
expenses and management fees. We are responsible for the entire operations of the facility
including the payment of all operating expenses whether or not there are sufficient revenues. STLDC
has no liabilities resulting from its ownership. The bonds have a ten-year term and are
non-recourse to us and STLDC. The bonds are fully insured and the sole source of payment for the
bonds is the operating revenues of the center. At the end of the ten-year term of the bonds, title
and ownership of the facility transfers from STLDC to us. We have determined that we are the
primary beneficiary of STLDC and consolidate the entity as a result. The carrying value of the
facility as of April 3, 2011 and January 2, 2011 was $26.9 million and $27.0 million, respectively.
On February 1, 2011, STLDC made a payment from its restricted cash account of $4.8 million for the
current portion of its periodic debt service requirement in relation to the STLDC operating
agreement and bond indenture. As of April 3, 2011, the remaining balance of the debt service
requirement under the STLDC financing agreement is $27.3 million, of which $5.0 million is due
within the next twelve months. Also, as of April 3, 2011, included in current restricted cash and
non-current restricted cash is $6.3 million and $5.6 million, respectively, of funds held in trust
with respect to the STLDC for debt service and other reserves.
Northwest Detention Center
On June 30, 2003, CSC arranged financing for the construction of the Northwest Detention Center in
Tacoma, Washington, referred to as the Northwest Detention Center, which was completed and opened
for operation in April 2004 and acquired by us in November 2005. In connection with the original
financing, CSC of Tacoma LLC, a wholly-owned subsidiary of CSC, issued a $57.0 million note payable
to the Washington Economic Development Finance Authority, referred to as WEDFA, an instrumentality
of the State of Washington, which issued revenue bonds and subsequently loaned the proceeds of the
bond issuance back to CSC for the purposes of constructing the Northwest Detention Center. The
bonds are non-recourse to us and the loan from WEDFA to CSC is also non-recourse to us. These bonds
mature in February 2014 and have fixed coupon rates between 3.80% and 4.10%.
The proceeds of the loan were disbursed into escrow accounts held in trust to be used to pay the
issuance costs for the revenue bonds, to construct the Northwest Detention Center and to establish
debt service and other reserves. No payments were made during the thirteen weeks ended April 3,
2011. As of April 3, 2011, the remaining balance of the debt service requirement is $25.7 million,
of which $6.1 million is due within the next 12 months.
As of April 3, 2011, included in current restricted cash and non-current restricted cash is $7.0
million and $3.8 million, respectively, as funds held in trust with respect to the Northwest
Detention Center for debt service and other reserves.
Municipal Correctional Finance, L.P.
Municipal Correctional Finance, L.P., which we refer to as MCF, one of our consolidated variable
interest entities, is obligated for the outstanding balance of the 8.47% Revenue Bonds. The bonds
bear interest at a rate of 8.47% per annum and are payable in semi-annual installments of interest
and annual installments of principal. All unpaid principal and accrued interest on the bonds is due
on the earlier of August 1, 2016 (maturity) or as noted under the bond documents. The bonds are
limited, nonrecourse obligations of MCF and are
51
collateralized by the property and equipment, bond
reserves, assignment of subleases and substantially all assets related to the facilities owned by
MCF. The bonds are not guaranteed by us or our subsidiaries.
The 8.47% Revenue Bond indenture provides for the establishment and maintenance by MCF for the
benefit of the trustee under the indenture of a debt service reserve
fund. As of April 13, 2011,
the debt service reserve fund has a balance of $23.8 million. The debt service reserve fund is
available to the trustee to pay debt service on the 8.47% Revenue Bonds when needed, and to pay
final debt service on the 8.47% Revenue Bonds. If MCF is in default in its obligation under the
8.47% Revenue Bonds indenture, the trustee may declare the principal outstanding and accrued
interest immediately due and payable. MCF has the right to cure a default of non-payment
obligations. The 8.47% Revenue Bonds are subject to extraordinary mandatory redemption in certain
instances upon casualty or condemnation. The 8.47% Revenue Bonds may be redeemed at the option of
MCF prior to their final scheduled payment dates at par plus accrued interest plus a make-whole
premium.
Australia
In connection with the financing and management of one Australian facility, our wholly-owned
Australian subsidiary financed the facilitys development and subsequent expansion in 2003 with
long-term debt obligations. These obligations are non-recourse to us and total $45.6 million and
$46.3 million at April 3, 2011 and January 2, 2011, respectively. As a condition of the loan, we
are required to maintain a restricted cash balance of AUD 5.0 million, which, at April 3, 2011, was
$5.2 million. The restricted cash balance is included in the non-current portion of restricted cash
and the annual maturities of the long-term portion of the future debt obligation are included in
non-recourse debt. The term of the non-recourse debt is through 2017 and it bears interest at a
variable rate quoted by certain Australian banks plus 140 basis points. Any obligations or
liabilities of the subsidiary are matched by a similar or corresponding commitment from the
government of the State of Victoria.
Guarantees
In connection with the creation of South African Custodial Services Ltd., referred to as SACS, we
entered into certain guarantees related to the financing, construction and operation of the prison.
We guaranteed certain obligations of SACS under its debt agreements up to a maximum amount of 60.0
million South African Rand, or $9.0 million, to SACS senior lenders through the issuance of
letters of credit. Additionally, SACS is required to fund a restricted account for the payment of
certain costs in the event of contract termination. We have guaranteed the payment of 60% of
amounts which may be payable by SACS into the restricted account and provided a standby letter of
credit of 8.4 million South African Rand, or $1.3 million, as security for our guarantee. Our
obligations under this guarantee expire upon the release from SACS of its obligations in respect to
the restricted account under its debt agreements. No amounts have been drawn against these letters
of credit, which are included as part of the value of outstanding letters of credit under our
Revolver.
We have agreed to provide a loan, if necessary, of up to 20.0 million South African Rand, or $3.0
million, referred to as the Standby Facility, to SACS for the purpose of financing SACS
obligations under its contract with the South African government. No amounts have been funded under
the Standby Facility, and we do not currently anticipate that such funding will be required by SACS
in the future. Our obligations under the Standby Facility expire upon the earlier of full funding
or release from SACS of its obligations under its debt agreements. The lenders ability to draw on
the Standby Facility is limited to certain circumstances, including termination of the contract.
We have also guaranteed certain obligations of SACS to the security trustee for SACS lenders. We
have secured our guarantee to the security trustee by ceding our rights to claims against SACS in
respect of any loans or other finance agreements, and by pledging our shares in SACS. Our liability
under the guarantee is limited to the cession and pledge of shares. The guarantee expires upon
expiration of the cession and pledge agreements.
In connection with a design, build, finance and maintenance contract for a facility in Canada, we
guaranteed certain potential tax obligations of a not-for-profit entity. The potential estimated
exposure of these obligations is CAD 2.5 million, or $2.6 million commencing in 2017. We have a
liability of $1.8 million and $1.8 million related to this exposure as of April 3, 2011 and January
2, 2011, respectively. To secure this guarantee, we purchased Canadian dollar denominated
securities with maturities matched to the estimated tax obligations in 2017 to 2021. We have
recorded an asset and a liability equal to the current fair market value of those securities on our
consolidated balance sheet. We do not currently operate or manage this facility.
52
At April 3, 2011, we also had eight letters of guarantee outstanding totaling $10.0 million under
separate international facilities relating to performance guarantees of our Australian subsidiary.
Except as discussed above, we dont have any off balance sheet arrangements.
We are also exposed to various commitments and contingencies which may have a material adverse
effect on our liquidity. See Part II Item 1. Legal Proceedings.
Derivatives
As of April 3, 2011, we have four interest rate swap agreements in the aggregate notional amount of
$100.0 million. We have designated these interest rate swaps as hedges against changes in the fair
value of a designated portion of the 73/4% Senior Notes due to changes in underlying interest rates.
These interest rate swaps, which have payment, expiration dates and call provisions that mirror the
terms of the 73/4% Senior Notes, effectively convert $100.0 million of the 73/4% Senior Notes into
variable rate obligations. Each of the swaps has a termination clause that gives the counterparty
the right to terminate the interest rate swaps at fair market value, under certain circumstances.
In addition to the termination clause, these interest rate swaps also have call provisions which
specify that the lender can elect to settle the swap for the call option price. Under these
interest rates swaps, we receive a fixed interest rate payment from the financial counterparties to
the agreements equal to 73/4% per year calculated on the notional $100.0 million amount, while we
make a variable interest rate payment to the same counterparties equal to the three-month LIBOR
plus a fixed margin of between 4.16% and 4.29%, also calculated on the notional $100.0 million
amount. Changes in the fair value of the interest rate swaps are recorded in earnings along with
related designated changes in the value of the 73/4% Senior Notes. Total net gains (losses)
recognized and recorded in earnings related to these fair value hedges was $(1.0) million and $0.4
million in the thirteen weeks ended April 3, 2011 and April 4, 2010, respectively. As of April 3,
2011 and January 2, 2011, the swap assets fair values were $2.3 million and $3.3 million,
respectively. There was no material ineffectiveness of these interest rate swaps during the fiscal
periods ended April 3, 2011 or April 4, 2010.
Our Australian subsidiary is a party to an interest rate swap agreement to fix the interest rate on
its variable rate non-recourse debt to 9.7%. We have determined the swap, which has a notional
amount of $50.9 million, payment and expiration dates, and call provisions that coincide with the
terms of the non-recourse debt to be an effective cash flow hedge. Accordingly, we record the
change in the value of the interest rate swap in accumulated other comprehensive income, net of
applicable income taxes. Total unrealized loss recognized and recorded in accumulated other
comprehensive income, net of tax, related to these cash flow hedges was $0.2 million and $0.0
million for the thirteen weeks ended April 3, 2011 and April 4, 2010, respectively. The total value
of the swap asset as of April 3, 2011 and January 2, 2011 was $1.6 million and $1.8 million,
respectively, and is recorded as a component of other assets within the accompanying consolidated
balance sheets. There was no material ineffectiveness of this interest rate swap for the fiscal
periods presented. We do not expect to enter into any transactions during the next twelve months
which would result in the reclassification into earnings or losses associated with this swap
currently reported in accumulated other comprehensive income (loss).
Cash Flow
Cash and cash equivalents as of April 3, 2011 was $85.9 million, an increase of $46.2 million from
January 2, 2011.
Cash provided by operating activities of continuing operations amounted to $69.1 million in First
Quarter 2011 versus cash provided by operating activities of continuing operations of $64.7 million
in First Quarter 2010. Cash provided by operating activities of continuing operations in First
Quarter 2011 was positively impacted by the increase of depreciation, which is a non-cash expense
and increased by $9.6 million primarily due to our acquisitions of Cornell and BI. This increase
was more than offset by an increase in cash payments made toward accounts payable, accrued expenses
and other liabilities. Cash provided by operating activities of continuing operations in First
Quarter 2010 was positively impacted by an increase in accounts payable, accrued expenses and other
liabilities of $10.7 million due to the timing of cash payments to our customers and our employees,
and a decrease in accounts receivable and other assets of $21.5 million primarily due to the timing
of cash collections from our customers.
Cash used in investing activities amounted to $444.9 million in First Quarter 2011 compared to cash
used in investing activities of $17.9 million in First Quarter 2010. Cash used in investing
activities in First Quarter 2011 primarily reflects our cash consideration for the purchase of BI
for $409.6 million. In addition, we used $38.7 million for capital expenditures. Cash used in
investing activities in the First Quarter 2010 primarily reflects capital expenditures of $15.7
million.
53
Cash provided by financing activities in First Quarter 2011 amounted to $427.2 million compared to
cash used in financing activities of $50.4 million in First Quarter 2010. Cash provided by
financing activities in the First Quarter 2011 reflects proceeds from our Senior Credit Facility of
$161.0 million and proceeds of $300.0 million from the issuance of our 6.625% Senior Notes offset by payments on our Senior Credit Facility of $15.4 million and payments on
non-recourse debt of $6.1 million. We also made a cash distribution of $4.0 million to the partners
of MCF and paid $9.3 million in debt issuance costs
associated with the financing of the BI Acquisition. Cash used in financing activities in the
First Quarter 2010 of $50.4 million reflects payments for the repurchase of our common stock of
$53.9 million, payments on long-term debt and non-recourse debt of $12.8 million offset by proceeds
received from borrowings under the revolving portion of our Prior Senior Credit Agreement of $15.0
million.
Outlook
The following discussion contains statements that are not 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
statement. Please refer to Part I Item 1A. Risk Factors in our Annual Report on Form 10-K for
the fiscal year ended January 2, 2011, the Forward-Looking Statements Safe
Harbor section in our Annual Report on Form 10-K, as well as the other disclosures contained in
our Annual Report on Form 10-K, 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.
Revenue
Domestically, we continue to be encouraged by the number of opportunities that have recently
developed in the privatized corrections and detention industry. Overcrowding at corrections
facilities in various states and increased demand for bed space at federal prisons and detention
facilities are two of the factors that have contributed to the opportunities for privatization.
However, these positive trends may in the future be impacted by government budgetary constraints.
Recently, we have experienced a delay in cash receipts from California and other states may follow
suit. While the mid-year budget shortages faced by states in fiscal year 2011 have been less severe
than in prior years, several states still face ongoing budget shortfalls. According to the National
Conference of State Legislatures, 31 states currently project budget gaps in fiscal year 2012 while
19 states currently anticipate budget gaps in fiscal year 2013. As a result of budgetary pressures,
state correctional agencies may pursue a number of cost savings initiatives which may include the
early release of inmates, changes to parole laws and sentencing guidelines, and reductions in per
diem rates and/or the scope of services provided by private operators. 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, 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. Although we are pleased with the overall industry outlook, positive trends in the industry
may be offset by several factors, including budgetary constraints, unanticipated contract
terminations, contract non-renewals, and/or contract re-bids. Although we have historically had a
relative high contract renewal rate, 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.
Internationally, during the second half of fiscal year 2009 our subsidiaries in the United Kingdom
and Australia began the operation and management under two new contracts with an aggregate of 1,083
beds. In July 2010, our subsidiary in the United Kingdom (referred to as the UK) began operating
the 360-bed expansion at Harmondsworth increasing the capacity of that facility to 620 beds from
260 beds. In March 2011, we executed a contract with the United Kingdom Border Agency for the
management and operation of the 217-bed Dungavel House Immigration Removal Centre located near
Glasgow, Scotland. GEO will commence operation of this Center on September 25, 2011. Also in
March 2011, our newly formed joint venture in the United Kingdom, GEO Amey PECS, Ltd., which we
refer to as GEOAmey, was awarded three contracts by the Ministry of Justice in the United Kingdom
for the provision of prison escort and custody services. We believe there are additional
opportunities in the UK such as additional market testing of prisons, electronic monitoring of
offenders and community corrections. Finally, the UK government had announced plans to develop
five new 1,500-bed prisons to be financed, built and managed by the private sector. GEO has gone
through the prequalification process for this procurement and has been invited to compete on these
opportunities. We are currently awaiting a revised timeline from the governmental agency in the UK
so we may continue to pursue this project. We are continuing to monitor this opportunity and, at
this time, we believe the government in the UK is reviewing this plan to determine the best way to
proceed. In South Africa, we have bid on projects for the
54
design, construction and operation of
four 3,000-bed prison projects totaling 12,000 beds. Requests for proposal were issued in December
2008 and we submitted our bids on the projects at the end of May 2009. The South African government
has announced that it intends to complete its evaluation of four existing bids (including ours) by
November 2011. No more than two prison projects can be awarded to any one bidder. The New Zealand
government has also solicited expressions of interest for a new design, build, finance and
management contract for a new correctional center for 960 beds and our GEO Australia subsidiary has
been short-listed for participation in this procurement. We believe that additional opportunities
will become available in international markets and we plan to actively bid on any opportunities
that fit our target profile for profitability and operational risk.
With respect to our mental health, residential treatment, youth services and re-entry services
business conducted through our wholly-owned subsidiary, GEO Care, we are currently pursuing a
number of business development opportunities. In connection with our merger with Cornell in August
2010 and our acquisition of BI in February 2011, we have significantly expanded our operations by
adding 44 facilities and also the service offerings of GEO Care by adding electronic monitoring
services and community re-entry and immigration related supervision services. Through both organic
growth and acquisitions, and subsequent to our acquisition of BI in February 2011, we have been
able to grow GEO Cares business to approximately 6,500 beds and 60,000 offenders under community
supervision.
GEO Care assumed management and operation of the new 100-bed Montgomery County Mental Health
Treatment Facility in Texas in March 2011. We continue to expend resources on informing state and
local governments about the benefits of privatization and we anticipate that there will be new
opportunities in the future as those efforts begin 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 cost represented 59.1%
of our operating expenses in First Quarter 2011. Additional significant operating expenses include
food, utilities and inmate medical costs. In First Quarter 2011, operating expenses totaled 76.4%
of our consolidated revenues. Our operating expenses as a percentage of revenue in 2011 will be
impacted by the opening of any new facilities. We also expect increases to depreciation expense as
a percentage of revenue due to carrying costs we will incur for a newly constructed and expanded
facility for which we have no corresponding management contract for the expansion beds and
potential carrying costs of certain facilities we acquired from Cornell with no corresponding
management contracts. Additionally, we will experience increases as a result of the amortization of
intangible assets acquired in connection with our acquisitions of Cornell and BI. In addition to
the factors discussed relative to our current operations, we expect to experience overall increases
in operating expenses as a result of the acquisitions of Cornell and BI. As of April 3, 2011, our
worldwide operations include the management and/or ownership of approximately 80,000 beds at 116
correctional, detention and residential treatment, youth services and community-based facilities
including idle facilities and projects under development. See the discussion below regarding
Synergies and Cost Savings.
General and Administrative Expenses
General and administrative expenses consist primarily of corporate management salaries and
benefits, professional fees and other administrative expenses. In First Quarter 2011, general and
administrative expenses totaled 8.4% of our consolidated revenues including the impact of non
recurring acquisition related expenses. We expect general and administrative expenses as a
percentage of revenue in 2011 to increase slightly over historical results. In connection with our
merger with Cornell, we incurred approximately $25 million in
acquisition related costs, including $7.9
million in debt extinguishment costs, during fiscal year ended 2010
and $1.8 million in the thirteen weeks ended April 3, 2011. In connection with our
acquisition of BI, we incurred $7.7 million of acquisition related costs during fiscal year 2010,
$3.9 million in First Quarter 2011 and expect to incur between
$1 million and $2 million during the
remainder of 2011. We expect business development costs to remain consistent as we pursue
additional business development opportunities in all of our business lines and build the corporate
infrastructure necessary to support our mental health residential treatment services business. We
also plan to continue expending resources from time to time on the evaluation of potential
acquisition targets.
Synergies and Cost Savings
Our management anticipates annual synergies of approximately $12-$15 million during the year
following the completion of the merger with Cornell and approximately $3-$5 million during the year
following our acquisition of BI. There may be potential to achieve additional synergies thereafter.
We believe any such additional synergies would be achieved primarily from greater operating
55
efficiencies, capturing inherent economies of scale and leveraging corporate resources. Any
synergies achieved should further enhance cash provided by operations and return on invested
capital of the combined company.
|
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ITEM 3. |
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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 Senior
Credit Facility. Payments under the Senior Credit Facility are indexed to a variable interest rate.
Based on borrowings outstanding under the Senior Credit Facility of $703.0 million and $70.5
million in outstanding letters of credit, as of May 5, 2011, for every one percent increase in the
average interest rate applicable to the Senior Credit Facility, our total annual interest expense would
increase by $7.0 million.
As of April 3, 2011, we had four interest rate swap agreements in the aggregate notional amount of
$100.0 million. These interest rate swaps, which have payment, expiration dates and call provisions
that mirror the terms of the 73/4% Senior Notes, effectively convert $100.0 million of the Notes into
variable rate obligations. Under these interest rate swaps, we receive a fixed interest rate
payment from the financial counterparties to the agreements equal to 73/4% per year calculated on the
notional $100.0 million amount, while we make a variable interest rate payment to the same
counterparties equal to the three-month LIBOR plus a fixed margin of between 4.16% and 4.29% also
calculated on the notional $100.0 million amount. For every one percent increase in the interest
rate applicable to our aggregate notional $100.0 million of swap agreements relative to the 73/4%
Senior Notes, our annual interest expense would increase by $1.0 million.
We have entered into certain interest rate swap arrangements for hedging purposes, fixing the
interest rate on our Australian non-recourse debt to 9.7%. The difference between the floating rate
and the swap rate on these instruments is recognized in interest expense within the respective
entity. Because the interest rates with respect to these instruments are fixed, a hypothetical 100
basis point change in the current interest rate would not have a material impact on our financial
condition or results of operations.
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, the Australian dollar, the Canadian dollar, the South African Rand and the
British Pound currency exchange rates. Based upon our foreign currency exchange rate exposure at
April 3, 2011, every 10 percent change in historical currency rates would have approximately a $6.5
million effect on our financial position and approximately a $0.4 million impact on our results of
operations during 2011.
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ITEM 4. |
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CONTROLS AND PROCEDURES. |
(a) |
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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
56
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 managements
control objectives.
On August 12, 2010, we acquired Cornell, at which time Cornell became our subsidiary. See Note 2 to
the condensed consolidated financial statements contained in this Quarterly Report for further
details of the transaction. We are currently in the process of assessing and integrating Cornells
internal controls over financial reporting into our financial reporting systems. Managements
assessment of internal control over financial reporting at April 3, 2011, excludes the operations
of Cornell as allowed by SEC guidance related to internal controls of recently acquired entities.
Management will include the operations of Cornell in its assessment of internal control over
financial reporting within one year from the date of acquisition.
On February 10, 2011, we acquired BI Holding, at which time BI Holding and its subsidiaries became
our subsidiaries. See Note 2 to the consolidated financial statements contained in this Quarterly
Report for further details of the transaction. We are currently in the process of assessing and
integrating BI Holdings internal controls over financial reporting into our financial reporting
systems. Managements assessment of internal control over financial reporting at April 3, 2011,
excludes the operations of BI Holding as allowed by SEC guidance related to internal controls of
recently acquired entities. Management will include the operations of BI Holding in its assessment
of internal control over financial reporting within one year from the date of acquisition.
(b) |
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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, other than those related to our assessment and integration of Cornell
and BI Holding as discussed above, 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.
PART II OTHER INFORMATION
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ITEM 1. |
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LEGAL PROCEEDINGS. |
In June 2004, we received notice of a third-party claim for property damage incurred during 2001
and 2002 at several detention facilities formerly operated by our Australian subsidiary. The claim
relates to property damage caused by detainees at the detention facilities. The notice was given by
the Australian governments insurance provider and did not specify the amount of damages being
sought. In August 2007, a lawsuit (Commonwealth of Australia v. Australasian Correctional Services
PTY, Limited No. SC 656) was filed against us in the Supreme Court of the Australian Capital
Territory seeking damages of up to approximately AUD 18 million or $18.7 million based on exchange
rates as of April 3, 2011, plus interest. We believe that we have several defenses to the
allegations underlying the litigation and the amounts sought and intend to vigorously defend our
rights with respect to this matter. We have established a reserve based on our estimate of the most
probable loss based on the facts and circumstances known to date and the advice of legal counsel in
connection with this matter. Although the outcome of this matter cannot be predicted with
certainty, based on information known to date and our preliminary review of the claim and related
reserve for loss, we believe that, if settled unfavorably, this matter could have a material
adverse effect on our financial condition, results of operations or cash flows. We are uninsured
for any damages or costs that we may incur as a result of this claim, including the expenses of
defending the claim.
During the fourth fiscal quarter of 2009, the Internal Revenue Service (IRS) completed its
examination of our U.S. federal income tax returns for the years 2002 through 2005. Following the
examination, the IRS notified us that it proposed to disallow a deduction that we realized during
the 2005 tax year. In December of 2010, we reached an agreement with the office of the IRS Appeals
on the amount of the deduction, subject to the review by the Joint Committee on Taxation. The
review was completed without change on April 18, 2011, subsequent to the end of the First Quarter.
As a result of the review, there was no change to our tax accrual related to this matter.
Our South Africa joint venture had been in discussions with the South African Revenue Service
(SARS) with respect to the deductibility of certain expenses for the tax periods 2002 through
2004. The joint venture operates the Kutama Sinthumule Correctional Centre and accepted inmates
from the South African Department of Correctional Services in 2002. During 2009, SARS notified us
that
57
it proposed to disallow these deductions. We appealed these proposed disallowed deductions
with SARS and in October 2010 received a favorable Tax Court ruling relative to these deductions.
On March 9, 2011 SARS filed a notice that it would appeal the lower courts ruling. We continue to
believe in the merits of our position and will defend our rights vigorously as the case proceeds to
the Court of Appeals. If resolved unfavorably, our maximum exposure would be $2.6 million.
GEO is a
participant in the IRS Compliance Assurance Process (CAP) for the 2011 fiscal year.
Under the IRS CAP principally transactions that meet certain materiality thresholds are reviewed
on a real-time basis shortly after their completion. Additionally, all transactions that are part
of certain IRS tier and similar initiatives are audited regardless of
their materiality. The program also
provides for the audit of transition years that have not previously been audited. The IRS will be
reviewing our 2009 and 2010 years as transition years.
During the First Quarter following its acquisition, BI received notice from the IRS that it will
audit its 2008 tax year. The audit is currently in progress.
The nature of our business exposes us to various types of claims or litigation against us,
including, but not limited to, civil rights claims relating to conditions of confinement and/or
mistreatment, sexual misconduct claims brought by prisoners or detainees, medical malpractice
claims, 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 our customers and other third parties, contractual
claims and claims for personal injury or other damages resulting from contact with our facilities,
programs, electronic monitoring products, personnel or prisoners, including damages arising from a
prisoners escape or from a disturbance or riot at a facility. Except as otherwise disclosed above,
we do not expect the outcome of any pending claims or legal proceedings to have a material adverse
effect on our financial condition, results of operations or cash flows.
Not applicable.
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ITEM 2. |
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Not applicable.
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ITEM 3. |
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DEFAULTS UPON SENIOR SECURITIES. |
Not applicable.
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ITEM 4. |
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REMOVED AND RESERVED. |
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ITEM 5. |
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OTHER INFORMATION. |
Not applicable.
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4.3
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Indenture, dated
as of February 10, 2011, by and among GEO, the Guarantors party thereto,
and Wells Fargo Bank, National Association as Trustee relating to
the 6 5/8% Senior Notes due 2021 (incorporated by reference to Exhibit 4.1 to the
Companys report on Form 8-K, filed on February 16, 2011). |
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10.31
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Amended and Restated Senior Officer Employment Agreement,
effective December 17, 2008, by and between the GEO Group, Inc.
and Jorge A. Dominicis (filed herewith). |
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10.32
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First Amendment to Amended and Restated Senior Officer Employment
Agreement, effective March 1, 2011, by and between the GEO Group,
Inc. and Jorge A. Dominicis (filed herewith). |
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10.33
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First Amendment, dated as of February 8, 2011,
to the Credit Agreement between the Company, as
Borrower, certain of GEOs subsidiaries, as Guarantors,
the lenders signatory thereto and BNP Paribas, as Administrative Agent. |
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10.34
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Series A-2 Incremental Loan Agreement, dated as of February 8, 2011, between the Company, as
Borrower, certain of GEOs subsidiaries, as Guarantors, the lenders signatory thereto and BNP
Paribas, as Administrative Agent. |
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10.35
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Registration Rights Agreement, dated as of February 10, 2011, by and among
GEO, the Guarantors party thereto, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Barclays Capital Inc., J.P. Morgan Securities LLC and SunTrust
Robinson Humphrey, Inc. as representatives of the Initial Purchasers (incorporated herein by
reference to Exhibit 10.1 to the Companys report on Form 8-K, filed on February 16, 2011).
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31.1
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SECTION 302 CEO Certification. |
58
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31.2
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SECTION 302 CFO Certification. |
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32.1
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SECTION 906 CEO Certification. |
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32.2
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SECTION 906 CFO Certification. |
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101.INS
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XBRL Instance Document |
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101.SCH
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XBRL Taxonomy Extension Schema |
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase |
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101.LAB
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XBRL Taxonomy Extension Label Linkbase |
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase |
59
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: May 10, 2011 |
/s/ Brian R. Evans
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Brian R. Evans |
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Senior Vice President & Chief Financial Officer
(duly authorized officer and principal financial officer) |
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60
exv10w31
Exhibit 10.31
AMENDED AND RESTATED
SENIOR OFFICER EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED SENIOR OFFICER EMPLOYMENT AGREEMENT (this Agreement) is entered
into effective the 17th day of December 2008 by and between The GEO Group, Inc. (the
Company) and Jorge A. Dominicis (the Employee and, together with the Company, the Parties).
WHEREAS, the Employee and the Company have previously entered into a Senior Officer Employment
Agreement, effective March 23, 2005 (the Prior Employment Agreement), which set forth the
Parties rights and obligations with respect to the Employees employment with the Company in order
to facilitate the continued employment of the Employee as Senior Vice President, The GEO Group,
Inc., President, GEO Care, Inc.; and
WHEREAS, the Employee and the Company wish to amend and restate the Prior Employment Agreement
to, among other things, make it compliant with Section 409A of the Internal Revenue Code of 1986,
as amended from time to time (the Code), and its implementing regulations and guidance
(collectively, Code Section 409A), and to ensure that certain provisions of this Agreement comply
with guidance recently issued under Section 162(m) of the Code; and
WHEREAS, the terms of this Agreement have been reviewed and approved by the members of the
Compensation Committee of the Board of Directors of the Company (the Board).
NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and
for other valuable consideration the receipt and adequacy of which is hereby acknowledged, the
Parties hereby agree as follows:
1. Position and Duties. The Company hereby agrees to continue to employ the Employee and the
Employee hereby accepts continued employment and agrees to continue to serve as Senior Vice
President, The GEO Group, Inc., President, GEO Care, Inc. of the Company. The Employee will
perform all duties and responsibilities and will have all authority inherent in the position of
Senior Vice President, The GEO Group, Inc., President, GEO Care, Inc.
2. Term of Agreement and Employment. The term of the Employees employment under this
Agreement will be for an initial period of two (2) years, beginning on the effective date of this
Agreement, and terminating two years thereafter. The term of employment under this Agreement will
be automatically extended by one day every day such that it has a continuous rolling two-year
term until the age of 67 years, unless otherwise terminated pursuant to Section 6 or 7 of this
Agreement.
3. Definition Cause. For purposes of this Agreement, Cause for the termination of the
Employees employment hereunder shall be deemed to exist if, in the reasonable judgment of the
Companys Chief Executive Officer (CEO): (i) the Employee commits fraud, theft or embezzlement
against the Company or any subsidiary or affiliate thereof; (ii) the Employee commits a felony or a
crime involving moral turpitude; (iii) the Employee breaches any non-
competition, confidentiality or non-solicitation agreement with the Company or any subsidiary
or affiliate thereof; (iv) the Employee breaches any of the terms of this Agreement and fails to
cure such breach within 30 days after the receipt of written notice of such breach from the
Company; or (v) the Employee engages in gross negligence or willful misconduct that causes harm to
the business and operations of the Company or a subsidiary or affiliate thereof.
4. Compensation.
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A. |
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Annual Base Salary. The Employee shall be paid his current
annual base salary of $375,000.00 for the remainder of calendar year 2008 (as
such may be amended from time to time, the Annual Base Salary). The Company
may increase the Annual Base Salary paid to the Employee in an amount to be
determined by the Chief Executive Officer of the Company. The Annual Base
Salary shall be payable at such regular times and intervals as the Company
customarily pays its employees from time to time. |
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B. |
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Annual Performance Award. For each fiscal year of employment
during which the Company employs the Employee, the Employee shall be entitled
to receive a target annual performance award in accordance with the terms of
any plan governing employee performance awards then in effect as established by
the Board (the Annual Performance Award). |
5. Employee Benefits. The Employee will be entitled to twenty-one (21) paid-time-off (PTO)
days of vacation per fiscal year during his/her first ten (10) years of service, and twenty-six
(26) paid-time-off (PTO) days of vacation per fiscal year thereafter. The Employee, the Employees
spouse, and qualifying members of the Employees family will be eligible for and will participate
in any benefits and perquisites available to other senior vice presidents of the Company, including
any group health, dental, life insurance, disability, or other form of employee benefit plan or
program of the Company now existing or that may be later adopted by the Company (collectively, the
Employee Benefits).
6. Death or Disability. The Employees employment will terminate immediately upon the
Employees death. If the Employee becomes physically or mentally disabled so as to become unable
for a period of more than five consecutive months or for shorter periods aggregating at least five
months during any twelve-month period to perform the Employees duties hereunder on a substantially
full-time basis, the Employees employment will terminate as of the end of such five-month or
twelve-month period and this shall be considered a disability under this Agreement. Such
termination shall not affect the Employees benefits under the Companys disability insurance
program, if any, then in effect.
7. Termination. Either the Employee or the Company may terminate this Agreement for any
reason upon not less than thirty (30) days written notice.
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A. |
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Termination of Employment Without Cause or Upon the Death or
Disability of the Employee. Upon the termination of the Employees
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2
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employment under this Agreement by the Company without Cause or the death or
disability of the Employee, the following shall apply: |
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(i) |
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Termination Payment. The Employee shall be
entitled to and paid a termination payment (the Termination Payment)
equal to two (2) years Annual Base Salary as set forth in Section 4
based upon the then current salary level. The Termination Payment
shall be made within 10 days of any termination pursuant to this
Section 7(A). |
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(ii) |
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Termination Benefits. The Company shall
continue to provide the Employee and any covered dependents of the
Employee (and if applicable, his beneficiaries) with the Employee
Benefits (as described in Section 5 hereof) for a period of 2 years
after the date of termination of the Employees employment with the
Company. Such Employee Benefits shall be provided at no cost to the
Employee in no less than the same amount, and on the same terms and
conditions, as in effect on the date on which the termination of
employment occurs. If the Employee dies during the 2-year period
following a termination pursuant to this Section 7(A), the Company
shall continue to provide the Employee Benefits to the Employees
covered dependents under the same terms as were being provided prior to
the Employees death and, to the extent applicable, to the Employees
estate. |
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(iii) |
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Termination Automobile. Within 10 days
following termination, the Company shall transfer all of its interest
in any automobile used by the Employee pursuant to the Companys
Employee Automobile Policy (the Employee Automobile Policy) and shall
pay the balance of any outstanding loans or leases on such automobile
(whether such obligations are those of the Employee or the Company) so
that the Employee owns the automobile outright (in the event such
automobile is leased, the Company shall pay the residual cost of such
lease). |
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(iv) |
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Termination Stock Options. All of the
outstanding unvested stock options granted to the Employee prior to
termination will fully vest immediately upon termination. |
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B. |
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Termination of Employment by Resignation of Employee or by the
Company With Cause. Upon the termination of the Employees employment by the
voluntary resignation of the Employee or by the Company with Cause, the
Employee shall be due no further compensation under this Agreement related to
Annual Base Salary, Annual Performance Award, Employee Benefits, or Termination
Payment other than what is due and owing through the effective date of the
Employees resignation or termination. |
3
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C. |
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Retirement Plan Rights Unaffected. Termination of the
Employees employment under this Agreement for any reason whatsoever shall not
affect the Employees rights under the Companys retirement plan applicable to
the Employee. |
8. Restrictive Covenants.
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A. |
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General. The Company and the Employee hereby acknowledge and
agree that (i) the Employee is in possession of trade secrets (as defined in
Section 688.002(4) of the Florida Statutes) of the Company (the Trade
Secrets), (ii) the restrictive covenants contained in this Section 8 are
justified by legitimate business interests of the Company, including, but not
limited to, the protection of the Trade Secrets, in accordance with Section
542.335(1)(e) of the Florida Statutes, and (iii) the restrictive covenants
contained in this Section 8 are reasonably necessary to protect such legitimate
business interests of the Company. |
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B. |
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Non-Competition. During the period of the Employees
employment with the Company and until two (2) years after the termination of
the Employees employment with the Company, the Employee will not, directly or
indirectly, either (i) on the Employees own behalf or as a partner, officer,
director, trustee, employee, agent, consultant or member of any person, firm or
corporation, or otherwise, enter into the employ of, render any service to, or
engage in any business or activity which is the same as or competitive with any
business or activity conducted by the Company or any of its affiliates or
majority-owned subsidiaries or (ii) become an officer, employee or consultant
of, or otherwise assume a substantial role or relationship with, any
governmental entity, agency or political subdivision that is a client or
customer of the Company or any subsidiary or affiliate of the Company;
provided, however, that the foregoing shall not be deemed to prevent the
Employee from investing in securities of any company having a class of
securities which is publicly traded, so long as through such investment
holdings in the aggregate, the Employee is not deemed to be the beneficial
owner of more than 5% of the class of securities that is so publicly traded.
During the period of the Employees employment and until two (2) years after
the termination of the Employees employment, the Employee will not, directly
or indirectly, on the Employees own behalf or as a partner, shareholder,
officer, employee, director, trustee, agent, consultant or member of any
person, firm or corporation or otherwise, seek to employ or otherwise seek the
services of any employee of the Company or any of its affiliates or
majority-owned subsidiaries. |
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C. |
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Confidentiality. During and following the period of the
Employees employment with the Company, the Employee will not use for the
Employees own benefit or for the benefit of others, or divulge to others, any
information, Trade Secrets, knowledge or data of a secret or |
4
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confidential nature and otherwise not available to members of the general
public that concerns the business or affairs of the Company or its
subsidiaries or affiliates and which was acquired by the Employee at any
time prior to or during the term of the Employees employment with the
Company, except with the specific prior written consent of the Company. |
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D. |
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Work Product. The Employee agrees that all programs,
inventions, innovations, improvements, developments, methods, designs,
analyses, reports and all similar or related information which relate to the
business of the Company and its subsidiaries and affiliates, actual or
anticipated, or to any actual or anticipated research and development conducted
in connection with the business of the Company and its subsidiaries affiliates,
and all existing or future products or services, which are conceived, developed
or made by the Employee (alone or with others) during the term of this
Agreement (Work Product) belong to the Company. The Employee will cooperate
fully in the establishment and maintenance of all rights of the Company and its
subsidiaries and affiliates in such Work Product. The provisions of this
Section 8(D) will survive termination of this Agreement indefinitely to the
extent necessary to require actions to be taken by the Employee after the
termination of the Agreement with respect to Work Product created during the
term of this Agreement. |
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E. |
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Enforcement. The Parties agree and acknowledge that the
restrictions contained in this Section 8 are reasonable in scope and duration
and are necessary to protect the Company or any of its subsidiaries or
affiliates. If any covenant or agreement contained in this Section 8 is found
by a court having jurisdiction to be unreasonable in duration, geographical
scope or character of restriction, the covenant or agreement will not be
rendered unenforceable thereby but rather the duration, geographical scope or
character of restriction of such covenant or agreement will be reduced or
modified with retroactive effect to make such covenant or agreement reasonable,
and such covenant or agreement will be enforced as so modified. The Employee
agrees and acknowledges that the breach of this Section 8 will cause
irreparable injury to the Company or any of its subsidiaries or affiliates and
upon the breach of any provision of this Section 8, the Company or any of its
subsidiaries or affiliates shall be entitled to injunctive relief, specific
performance or other equitable relief, without being required to post a bond;
provided, however, that, this shall in no way limit any other remedies which
the Company or any of its subsidiaries or affiliates may have (including,
without limitation, the right to seek monetary damages). |
9. Representations. The Employee hereby represents and warrants to the Company that (i) the
execution, delivery and full performance of this Agreement by the Employee does not and will not
conflict with, breach, violate or cause a default under any agreement, contract or instrument to
which the Employee is a party or any judgment, order or decree to which the
5
Employee is subject; (ii) the Employee is not a party or bound by any employment agreement,
consulting agreement, agreement not to compete, confidentiality agreement or similar agreement with
any other person or entity; and (iii) upon the execution and delivery of this Agreement by the
Employee and the Company, this Agreement will be the Employees valid and binding obligation,
enforceable in accordance with its terms.
10. Arbitration. In the event of any dispute between the Company and the Employee with
respect to this Agreement, either party may, in its sole discretion by notice to the other, require
such dispute to be submitted to arbitration. The arbitrator will be selected by agreement of the
Parties or, if they cannot agree on an arbitrator or arbitrators within 30 days after the giving of
such notice, the arbitrator will be selected by the American Arbitration Association. The
determination reached in such arbitration will be final and binding on both Parties without any
right of appeal. Execution of the determination by such arbitrator may be sought in any court
having jurisdiction. Unless otherwise agreed by the Parties, any such arbitration will take place
in West Palm Beach, Florida and will be conducted in accordance with the rules of the American
Arbitration Association. If the Employee is the prevailing party in any such arbitration, he will
be entitled to reimbursement by the Company of all reasonable costs and expenses (including
attorneys fees incurred in such arbitration).
11. Assignment. The Employee may not assign, transfer, convey, mortgage, hypothecate, pledge
or in any way encumber the compensation or other benefits payable to the Employee or any rights
which the Employee may have under this Agreement. Neither the Employee nor the Employees
beneficiary or beneficiaries will have any right to receive any compensation or other benefits
under this Agreement, except at the time, in the amounts and in the manner provided in this
Agreement. This Agreement will inure to the benefit of and will be binding upon any successor to
the Company, and any successor to the Company shall be authorized to enforce the terms and
conditions of this Agreement, including the terms and conditions of the restrictive covenants
contained in Section 8 hereof. As used in this Agreement, the term successor means any person,
firm, corporation or other business entity which at any time, whether by merger, purchase or
otherwise, acquires all or substantially all of the capital stock or assets of the Company. This
Agreement may not otherwise be assigned by the Company.
12. Governing Law. This Agreement shall be governed by the laws of the State of Florida
without regard to the application of conflicts of laws.
13. Entire Agreement. This Agreement constitutes the only agreement between the Company and
the Employee regarding the Employees employment by the Company. This Agreement supersedes any and
all other agreements and understandings, written or oral, between the Company and the Employee
regarding the subject matter hereof and thereof. A waiver by either party of any provision of this
Agreement or any breach of such provision in an instance will not be deemed or construed to be a
waiver of such provision for the future, or of any subsequent breach of such provision. This
Agreement may be amended, modified or changed only by further written agreement between the Company
and the Employee, duly executed by both Parties.
6
14. Severability; Survival. In the event that any provision of this Agreement is found to be
void and unenforceable by a court of competent jurisdiction, then such unenforceable provision
shall be deemed modified so as to be enforceable (or if not subject to modification then eliminated
herefrom) to the extent necessary to permit the remaining provisions to be enforced in accordance
with the Parties intention. The provisions of Section 8 (and the restrictive covenants contained
therein) shall survive the termination for any reason of this Agreement and/or the Employees
relationship with the Company.
15. Notices. Any and all notices required or permitted to be given hereunder will be in
writing and will be deemed to have been given when deposited in United States mail, certified or
registered mail, postage prepaid. Any notice to be given by the Employee hereunder will be
addressed to the Company to the attention of its General Counsel at its main offices, One Park
Place, Suite 700, 621 Northwest 53rd Street, Boca Raton, Florida 33487. Any notice to be given to
the Employee will be addressed to the Employee at the Employees residence address last provided by
the Employee to Company. Either party may change the address to which notices are to be addressed
by notice in writing to the other party given in accordance with the terms of this Section.
16. Headings. Section headings are for convenience of reference only and shall not limit or
otherwise affect the meaning or interpretation of this Agreement or any of its terms and
conditions.
17. Cancellation of the Prior Employment Agreement. The Prior Employment Agreement is hereby
cancelled and terminated as of the effective date of this Agreement.
18. SECTION 409A COMPLIANCE.
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A. |
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GENERAL. It is the intention of both the Company and the Employee that
the benefits and rights to which the Employee is entitled pursuant to this Agreement
comply with Code Section 409A, to the extent that the requirements of Code Section 409A
are applicable thereto, and the provisions of this Agreement shall be construed in a
manner consistent with that intention. If the Employee or the Company believes, at any
time, that any such benefit or right that is subject to Code Section 409A does not so
comply, it shall promptly advise the other and shall negotiate reasonably and in good
faith to amend the terms of such benefits and rights such that they comply with Code
Section 409A (with the most limited possible economic effect on the Employee and on the
Company). |
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B. |
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DISTRIBUTIONS ON ACCOUNT OF SEPARATION FROM SERVICE. To the extent
required to comply with Code Section 409A, any payment or benefit required to be paid
under this Agreement on account of termination of the Employees service (or any other
similar term) shall be made only in connection with a separation from service with
respect to the Employee within the meaning of Code Section 409A. |
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C. |
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NO ACCELERATION OF PAYMENTS. Neither the Company nor the Employee,
individually or in combination, may accelerate any payment or benefit
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7
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that is subject to Code Section 409A, except in compliance with Code Section 409A
and the provisions of this Agreement, and no amount that is subject to Code Section
409A shall be paid prior to the earliest date on which it may be paid without
violating Code Section 409A. |
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D. |
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SIX MONTH DELAY FOR SPECIFIED EMPLOYEES. In the event that the
Employee is a specified employee (as described in Code Section 409A), and any payment
or benefit payable pursuant to this Agreement constitutes deferred compensation under
Code Section 409A, then the Company and the Employee shall cooperate in good faith to
undertake any actions that would cause such payment or benefit not to constitute
deferred compensation under Code Section 409A. In the event that, following such
efforts, the Company determines (after consultation with its counsel) that such payment
or benefit is still subject to the six-month delay requirement described in Code
Section 409A(2)(b) in order for such payment or benefit to comply with the requirements
of Code Section 409A, then no such payment or benefit shall be made before the date
that is six months after the Employees separation from service (as described in Code
Section 409A) (or, if earlier, the date of the Employees death). Any payment or
benefit delayed by reason of the prior sentence shall be paid out or provided in a
single lump sum at the end of such required delay period in order to catch up to the
original payment schedule. |
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E. |
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TREATMENT OF EACH INSTALLMENT AS A SEPARATE PAYMENT. For purposes of
applying the provisions of Code Section 409A to this Agreement, each separately
identified amount to which the Employee is entitled under this Agreement shall be
treated as a separate payment. In addition, to the extent permissible under Code
Section 409A, any series of installment payments under this Agreement shall be treated
as a right to a series of separate payments. |
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F. |
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REIMBURSEMENTS AND IN-KIND BENEFITS. With respect to reimbursements
and in-kind benefits that may be provided under the Agreement (the Reimbursement
Plans), to the extent any benefits provided under the Reimbursement Plans are subject
to Section 409A, the Reimbursement Plans shall meet the following requirements: |
(i) Reimbursement Plans shall use an objectively determinable, nondiscretionary
definition of the expenses eligible for reimbursement or of the in-kind benefits to
be provided;
(ii) Reimbursement Plans shall provide that the amount of expenses eligible for
reimbursement, or in-kind benefits provided, during the Employees taxable year may
not affect the expenses eligible for reimbursement, or in-kind benefits to be
provided, in any other taxable year, provided, however, that Reimbursement Plans
providing for reimbursement of expenses referred to in Code Section 105(b) shall not
fail to meet the requirement of this Section 18(G)(ii) solely because such
Reimbursement Plans provide for a limit on the
8
amount of expenses that may be reimbursed under such arrangements over some or
all of the period in which Reimbursement Plans remain in effect;
(iii) The reimbursement of an eligible expense is made on or before the last
day of the Employees taxable year following the taxable year in which the expense
was incurred; and
(iv) The right to reimbursement or in-kind benefits under the Reimbursement
Plans shall not be subject to liquidation or exchange for another benefit.
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G. |
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EMPLOYEE BENEFITS. With respect to any Employee Benefits that do not
comply with (or are not exempt from) Code Section 409A, to the extent applicable, the
Employee shall be deemed to receive from the Company a monthly payment necessary for
the Employee to purchase the benefit in question. |
IN WITNESS WHEREOF, the Parties hereto have executed and delivered this Agreement under seal
as of the date first above written.
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THE GEO GROUP, INC.
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By: |
/s/ George C. Zoley
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Name: |
George C. Zoley |
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Title: |
Chairman & Chief Executive Officer |
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EMPLOYEE
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By: |
/s/ Jorge A. Dominicis
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Name: |
Jorge A. Dominicis |
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Title: |
Senior Vice President, The GEO Group,
Inc., President, GEO Care, Inc.
The GEO Group, Inc. |
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9
exv10w32
Exhibit 10.32
FIRST AMENDMENT TO
AMENDED AND RESTATED SENIOR OFFICER EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED SENIOR OFFICER EMPLOYMENT AGREEMENT (this
Amendment) is entered into effective the 1st day of March, 2011 by and between The GEO
Group, Inc., a Florida Corporation, (the Company) and Jorge A. Dominicis (the Employee).
WITNESSETH:
WHEREAS, the Company and the Employee (collectively the Parties) have previously entered
into an Amended and Restated Senior Officer Employment Agreement effective as of December 31, 2008
(the Employment Agreement); and
WHEREAS, the Parties wish to amend the Employment Agreement as provided herein to employ the
Employee in accordance with the provisions herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and
for other valuable consideration the receipt and adequacy of which is hereby acknowledged, the
Parties hereby agree as follows:
1. Section 4.A.of the Employment Agreement is deleted in its entirety and replaced with the
following:
Annual Base Salary. The Employee shall be paid an annual base salary of $500,000 (as such
may be amended from time to time, the Annual Base Salary). The Company may increase the
Annual Base Salary paid to the Employee in an amount to be determined by the Chief Executive
Officer of the Company. The Annual Base Salary shall be payable at such regular times and
intervals as the Company customarily pays its employees from time to time.
2. Section 7.A.(iv) of the Employment Agreement is deleted in its entirety and replaced with
the following:
Termination Stock Options and Restricted Stock. All of the outstanding unvested stock
options and restricted stock granted to the Employee prior to termination will fully vest
immediately upon termination, provided however, that any restricted stock that is still
subject to performance based vesting at the time of such termination shall only vest when
and to the extent the Compensation Committee of the Board certifies that the performance
goals are actually met.
Except as otherwise specifically amended herein, the terms and provisions of the Employment
Agreement remain in full force and effect. This Amendment may be executed in counterparts.
[SIGNATURES ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, the Parties hereto have executed and delivered this Amendment under seal
as of the date first above written.
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THE GEO GROUP, INC.
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By: |
/s/ George C. Zoley
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Name: |
George C. Zoley |
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Title: |
Chairman and Chief Executive Officer |
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EMPLOYEE
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By: |
/s/ Jorge A. Dominicis
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Name: |
Jorge A. Dominicis |
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2
exv10w33
Exhibit
10.33
EXECUTION COPY
AMENDMENT NO. 1 *
AMENDMENT NO. 1 dated as of February 8, 2011 between The GEO Group, Inc., a Florida
corporation (the Borrower), its Subsidiaries listed on the signature pages hereto, the
Lenders that are signatory hereto and BNP Paribas, in its capacity as Administrative Agent under
the Credit Agreement referred to below (the Administrative Agent).
The Borrower, the Lenders party thereto and the Administrative Agent are parties to a Credit
Agreement dated as of August 4, 2010 (as modified and supplemented and in effect from time to time,
the Credit Agreement), providing, subject to the terms and conditions thereof, for
extensions of credit (by means of loans and letters of credit) to be made by the Lenders to the
Borrower in an aggregate principal or face amount not exceeding $750,000,000.
The Borrower has requested, and the Lenders party hereto have agreed, that the Credit
Agreement, the Disclosure Supplement and the Collateral Assignment be amended in certain respects
on the terms and conditions hereof, and accordingly the parties hereto hereby agree as follows:
Section 1. Definitions; Section References. Except as otherwise defined in this
Amendment No. 1 or as the context requires, terms defined in the Credit Agreement are used herein
as defined therein, and references to Sections and Schedules mean the respective Sections and
Schedules of the Credit Agreement.
Section 2. Amendments.
2.01. References Generally. References in the Loan Documents to the Credit Agreement,
the Disclosure Supplement and the Collateral Assignment shall be deemed to be references to such
documents as amended hereby.
2.02. Amendments to the Credit Agreement. Subject to the satisfaction of the
conditions precedent specified in Section 3 below, but effective as of the date hereof, the Credit
Agreement shall be amended as follows:
(a) Definitions.
(i) The following new defined terms shall be inserted into Section 1.01 in the appropriate
alphabetical order:
Amendment No. 1 means Amendment No. 1 to this Agreement dated as of
February 8, 2011.
Amendment No. 1 Effective Date means the date on which the amendments
contemplated by Amendment No. 1 become effective.
New Senior Unsecured Notes means $300,000,000 6.625% senior unsecured
notes due 2021 issued by the Borrower.
(ii) The definition of EBITDA in Section 1.01 shall be amended to read as follows:
EBITDA means, for any period, Net Income for such period plus
the sum of the following determined on a consolidated basis, without duplication,
for the Borrower and its Subsidiaries and Other Consolidated Persons in accordance
with GAAP: (a) the sum of the
*
Certain portions
of this Amendment No. 1 to the Credit Agreement have been omitted
based upon a request for confidential treatment filed with the
Securities and Exchange Commission. The non-public information has
been filed with the Securities and Exchange Commission.
Amendment No. 1
-2-
following to the extent deducted in determining Net Income: (i) income and
franchise taxes, (ii) Interest Expense, (iii) amortization, depreciation and other
non-cash charges (excluding insurance reserves), (iv) extraordinary charges and (v)
an amount (not exceeding $20,000,000) equal to the aggregate amount of start-up and
transition costs incurred during such period in connection with Facilities and
operations less (b) to the extent added in determining Net Income, interest
income and any extraordinary gains. If the Acquisition or any Permitted Acquisition
is consummated at any time during a period for which EBITDA is calculated, EBITDA
for such period shall be calculated on a Pro Forma Basis and, to the extent deducted
in determining Net Income for such period, the amount of transaction costs and
expenses and extraordinary charges relating to the Acquisition or such Permitted
Acquisition (or relating to any acquisition consummated by the acquired entity prior
to the closing of the Acquisition or such Permitted Acquisition but during the
period of computation), as the case may be, shall be added to EBITDA for such
period.
(iii) The definition of Guarantee in Section 1.01 shall be amended by replacing
guaranteeing any Indebtedness or other obligation with guaranteeing any Indebtedness or other
payment obligation.
(iv) The definition of Interest Period in Section 1.01 shall be amended by replacing the
first occurrence of Effective Date with Effective Date, one, two or three weeks thereafter, in
each case, as specified in the applicable Borrowing Request or Interest Election Request, or for
any period ending on or prior to the 30th day following
the Amendment No.
1 Effective Date.
(v) The definition of Material Real Property in Section 1.01 shall be amended by replacing
$20,000,000 with $30,000,000.
(vi) The definition of Mortgages in Section 1.01 shall be amended by deleting (including
any amendment to any Mortgage existing on the Effective Date recorded in connection with the
Existing Credit Agreement) and replacing Effective Date with Amendment No. 1 Effective Date in
the clause (i) thereof.
(vii) The definition of Permitted Business in Section 1.01 shall be amended to read as
follows:
Permitted Business means a business, a line of business or a facility
in the same line of business as is conducted by the Borrower and its Restricted
Subsidiaries on the date hereof (or conducted by BII Holding Corporation and its
Subsidiaries on the Amendment No. 1 Effective Date), or a business reasonably
related thereto or ancillary or incidental thereto, or a reasonable extension
thereof, including the privatization of governmental services.
(viii) The definition of Pro Forma Basis in Section 1.01 shall be amended to read as
follows:
Pro Forma Basis means, in making any determination of EBITDA or
Adjusted EBITDA for any period, that pro forma effect shall be given to any
acquisition permitted hereunder (including the Acquisition) that occurred during
such period and to any acquisition by the Person acquired by Borrower or its
Restricted Subsidiary that occurred during such period, in each case, taking into
account both revenues (excluding revenues
created by synergies) and estimated cost-savings, as determined reasonably and
in good faith by a Financial Officer and approved by the Administrative Agent,
provided that
-3-
Borrower delivers to the Administrative Agent a certificate of
a Financial Officer setting forth such pro forma calculations and all assumptions
that are material to such calculations.
(ix) The definition of Pro Forma Senior Secured Leverage Ratio in Section 1.01 shall be
amended to as follows:
Pro Forma Senior Secured Leverage Ratio means, on any date, (a) if
such date is the last day of a fiscal quarter of the Borrower, the Senior Secured
Leverage Ratio on such date and (b) if such date is not the last day of a fiscal
quarter of the Borrower, the Senior Secured Leverage Ratio on the last day of the
Borrowers fiscal quarter then most recently ended, (i) after giving pro forma
effect since such last day through and including such date to: (x) all payments,
prepayments, redemptions, retirements, sinking fund payments, and borrowings,
issuances and other incurrences, of secured Indebtedness and (y) any changes to the
amount of Unrestricted Cash held by the Borrower and its Subsidiaries and (ii)
calculating EBITDA for the period of computation on a Pro Forma Basis as if any
acquisition permitted hereunder that was consummated after such period ended was
consummated on the first day of such period.
(x) The definition of Pro Forma Total Leverage Ratio in Section 1.01 shall be amended to
read as follows:
Pro Forma Total Leverage Ratio means, on any date, (a) if such date
is the last day of a fiscal quarter of the Borrower, the Total Leverage Ratio on
such date and (b) if such date is not the last day of a fiscal quarter of the
Borrower, the Total Leverage Ratio on the last day of the Borrowers fiscal quarter
then most recently ended, (i) after giving pro forma effect since such last day
through and including such date to: (x) all payments, prepayments, redemptions,
retirements, sinking fund payments, and borrowings, issuances and other incurrences,
of Indebtedness and (y) any changes to the amount of Unrestricted Cash held by the
Borrower and its Subsidiaries and to the amount of cash and Permitted Investments
on deposit in the MCF Debt Service Reserve Fund and the MCF Bond Fund Payment
Account and (ii) calculating EBITDA for the period of computation on a Pro Forma
Basis as if any acquisition permitted hereunder that was consummated after such
period ended was consummated on the first day of such period.
(b) The second paragraph of Section 2.01(d) shall be amended to read as follows:
Anything herein to the contrary notwithstanding, (i) the minimum aggregate
principal amount of Incremental Loan Commitments entered into pursuant to any such
request (and, accordingly, the minimum aggregate principal amount of any Series of
Incremental Loans) shall be (A) $20,000,000 or a larger multiple of $1,000,000 or
(B) any other amount consented to by the Administrative Agent and (ii) the aggregate
principal amount of all Incremental Loan Commitments established after the Amendment
No. 1 Effective Date plus the aggregate principal amount of all Revolving
Credit Commitment Increases obtained after the Amendment No. 1 Effective Date shall
not exceed $250,000,000. Except as otherwise expressly provided herein, the
Incremental Loans of any Series shall have the interest rate, participation and
other fees, commitment reduction schedule (if any), amortization and maturity date,
and be subject to such conditions to effectiveness and initial credit extension, as
shall be agreed upon by the respective Incremental Lenders of such Series, the
Borrower and the Administrative Agent (which agreement by the Administrative Agent
shall not be
unreasonably withheld in the case of interest rates and participation and other
fees), provided that in any event (i) the Incremental Loans shall be subject
to, and entitled to the
-4-
benefits of, the collateral security and Guarantees provided
for herein and in the other Loan Documents on an equal and ratable basis with each
other Loan, (ii) the maturity for Incremental Loans shall not be earlier than the
Term Loan Maturity Date for Tranche A Term Loans and may be later than such Term
Loan Maturity Date to the extent so agreed by the Borrower and such Incremental
Lenders and (iii) the weighted average-life-to-maturity for such Series of
Incremental Loans shall not be shorter than the weighted average-life-to-maturity
for the Tranche A Term Loans and may be longer than the weighted
average-life-to-maturity for the Tranche A Term Loans to the extent so agreed by the
Borrower and such Incremental Lenders.
(c) Section 2.08(e)(i)(B) shall be amended to read as follows:
(B) the aggregate principal amount of all Incremental Loan Commitments
established after the Amendment No. 1 Effective Date plus the aggregate
principal amount of all Revolving Credit Commitment Increases obtained after the
Amendment No. 1 Effective Date shall not exceed $250,000,000;
(d) Section 2.09(g) shall be amended by deleting the last sentence thereof.
(e) Section 3.17 shall be amended to read as follows:
SECTION 3.17. Real Property. Set forth on Schedule 3.17 of
the Disclosure Supplement is a list, as of the Amendment No. 1 Effective Date, of
all of the real property interests held by the Borrower and its Restricted Domestic
Subsidiaries, indicating in each case whether the respective property is owned or
leased, the identity of the owner or lessee and the location of the respective
property. None of the real property owned by BII Holding Corporation and its
Subsidiaries, is, as of the Amendment No. 1 Effective Date, required to be mortgaged
pursuant to clause (ii) of the definition of Mortgages in Section
1.01. Except as set forth in said Schedule 3.17, no Mortgage encumbers
real property which is located in an area that has been identified as an area having
special flood hazards and in which flood insurance has been made available under the
National Flood Insurance Act of 1968 (the Flood Act).
(f) Section 3.19 shall be amended by replacing Schedule 3.19 with Schedule
3.19 of the Disclosure Supplement.
(g) Section 5.11(c) shall be amended to read as follows:
(c) Post-Closing Deliverables for Increases of the Revolving Credit
Commitment and Incremental Loans. The Borrower will and will cause each
Restricted Subsidiary to, no later than 120 days (or such longer period as the
Administrative Agent may agree in its sole and absolute discretion) after any
Revolving Credit Commitment Increase and Incremental Loan, deliver to the
Administrative Agent such amendments to Mortgages (each, a Mortgage
Amendment), title insurance and opinions of counsel as reasonably requested by
the Administrative Agent in connection with such Revolving Credit Commitment
Increase and Incremental Loan; provided, however, notwithstanding
anything herein or in any of the Loan Documents to the contrary, the Administrative
Agent may waive the requirement for the Borrower or any Restricted Subsidiary to
obtain new mortgagee title insurance policies, or to obtain date-down endorsements
to previously issued
mortgagee title insurance policies, and opinions of counsel in connection with
the Mortgage Amendments entered into from time to time, which waiver may be made in
Administrative
-5-
Agents sole and absolute discretion for any reason (including but
not limited to, in the event that (x) the applicable title insurance regulations for
the State (including, but not limited to, Texas, New Mexico and New Jersey) in which
the related real property is located do not provide for the issuance of the
requested endorsement such that a new mortgagee title insurance policy would
otherwise be required (or premium charges substantially equivalent thereto would be
incurred by the Borrower or any Restricted Subsidiary in connection with any
endorsement); provided, that, in such event, the Borrower or Restricted Subsidiary
shall endeavor to obtain an endorsement, if available, to such previously issued
mortgagee title insurance policies that insures that the title insurance coverage
provided by the original mortgagee title insurance policy is not affected by the
recording of any Mortgage Amendment, provided the cost for such endorsement is
nominal or (y) the relevant property subject to a Mortgage does not qualify as a
Material Real Property).
(h) Section 6.01(e) shall be amended to read as follows:
(e) Guarantees by the Borrower and its Restricted Subsidiaries of Unrestricted
Subsidiary Debt, provided that the aggregate principal amount of such
Guarantees (other than the assignment of rights under any Government Contract by the
Borrower or any of its Restricted Subsidiaries to secure Unrestricted Subsidiary
Debt related to such Government Contract) of Unrestricted Subsidiary Debt shall not
exceed $30,000,000 at any time outstanding; and the assignment of rights under
Government Contracts by the Borrower or any of its Restricted Subsidiaries to secure
Unrestricted Subsidiary Debt related to the respective Government Contracts;
(i) Section 6.01 is further amended by deleting and at the end of clause (i) thereof,
replacing a period at the end of clause (j) thereof with ; and, and inserting a new clause (k) at
the end thereof to read as follows:
(k) New Senior Unsecured Notes, the proceeds of which are used to fund the
acquisition of BII Holding Corporation and its Subsidiaries and related costs.
(j) Section 6.03 shall be amended by deleting and at the end of clause (j)
thereof, replacing a period at the end of clause (k) thereof with ; and, and inserting a new
clause (l) at the end thereof to read as follows:
(l) BII Holding Corporation or any of its Subsidiaries may sell Investments
referred to in Section 6.04(o), and amounts owing to it or any of them under
operating leases, in the ordinary course of business substantially as conducted by
it or any of them prior to the time that BII Holding Corporation became a Subsidiary
of the Borrower.
(k) Section 6.04(j) shall be amended to read as follows:
(j) Investments in Unrestricted Subsidiaries, joint ventures and/or Other
Consolidated Persons (x) in an aggregate amount for all such Investments made after
the date hereof not to exceed $60,000,000 (the Cumulative Cap) or (y) made
for the purpose of constructing Facilities or improvements to Facilities for so long
as such Investments are not outstanding more than two years from the date of the
Investment, provided that (i) the Cumulative Cap shall be increased from
time to time by the aggregate amount of dividends, distributions, returns of capital
or other payments received in cash after the Amendment No.
1 Effective Date by the Borrower and the Restricted Subsidiaries from
Unrestricted Subsidiaries in respect of Equity Interests of Unrestricted
Subsidiaries (except that any such
-6-
amount included in Net Income shall increase the
Cumulative Cap by only 50% of such amount) and (ii) in the case of Investments made
as permitted by the foregoing clause (y) (A) all such Investments made in Persons
that are not wholly-owned Unrestricted Subsidiaries shall be in the form of senior
secured or unsecured loans, shall have no contractual restrictions or limitations on
repayment and shall be evidenced by promissory notes delivered in pledge under the
Collateral Agreement, (B) not later than the second anniversary of each such
Investment, the amount thereof shall be recovered by the Borrower or the relevant
Restricted Subsidiary, as the case may be, in cash in the form of repayment of
principal (in the case of loans) or return of capital (in the case of equity) and
(C) the aggregate amount of such Investments shall not exceed $75,000,000 at any
time outstanding (calculated as the aggregate amount invested minus the
aggregate amount recovered (as described in the foregoing clause (B));
(l) Section 6.04 shall be further amended by deleting and at the end of clause (m) thereof,
replacing a period at the end of clause (n) thereof with ; and, and inserting a new clause (o) at
the end thereof to read as follows:
(o) Investments made in the ordinary course of business in customers constituting
capital leases entered into with such customers in connection with contracts for services
entered into by the Borrower and/or any Restricted Subsidiary with such customers.
(m) Section 6.05(c) shall be amended to read as follows:
(c) if no Default shall have occurred and be continuing or would result
therefrom, the Borrower may declare, pay and make Restricted Payments in an
aggregate amount after the date hereof not exceeding the sum of (i) $50,000,000
plus (ii) the lesser of $50,000,000 or the sum of (x) the aggregate amount
of Net Available Proceeds from Equity Issuances received by the Borrower after the
Amendment No. 1 Effective Date not required to prepay Loans pursuant to Section
2.10 hereof and not used for any other purpose plus (y) 50% of the
aggregate value of all capital stock issued by the Borrower after the Amendment No.
1 Effective Date as consideration for Permitted Acquisitions; and
(n) Clause (d)(ii) of Section 6.05 shall be amended by deleting and not used to make
Permitted Acquisitions.
(o) Clauses (a) and (b) of Section 6.09 shall be amended to read as follows:
(a) Total Leverage Ratio. The Borrower will not permit the Total
Leverage Ratio on the last day of any of its fiscal quarters to exceed the ratio set
forth below opposite the period in which such last day falls:
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Period |
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Maximum Ratio |
Effective Date through and including the last day of the
fiscal year 2011
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5.25 to 1.00 |
First day of the fiscal year 2012 through and including
the last day of the fiscal year 2012
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5.00 to 1.00 |
First day of the fiscal year 2013 through and including
the last day of the fiscal year 2013
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4.75 to 1.00 |
Thereafter
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4.25 to 1.00 |
-7-
(b) Senior Secured Leverage Ratio. The Borrower will not permit the
Senior Secured Leverage Ratio on the last day of any of its fiscal quarters to
exceed the ratio set forth below opposite the period in which such last day falls:
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Period |
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Maximum Ratio |
Effective Date through and including the last day of the
second quarter of the fiscal year 2012
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3.25 to 1.00 |
First day of the third quarter of the fiscal year 2012
through and including the last day of the second quarter
of the fiscal year 2013
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3.00 to 1.00 |
Thereafter
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2.75 to 1.00 |
(p) Section 6.13 is amended by: (i) replacing any Senior Notes with any Senior Notes or any
New Senior Unsecured Notes and (ii) replacing the Senior Notes with the Senior Notes and the
New Senior Unsecured Notes.
2.03. Amendments to the Disclosure Supplement. Subject to the satisfaction of the
conditions precedent specified in Section 3 below, but effective as of the date hereof, the
Disclosure Supplement shall be amended by replacing Schedule 3.17 thereto with Schedule 3.17
hereto.
2.04. Amendments to the Collateral Assignment. Subject to the satisfaction of the
conditions precedent specified in Section 3 below, but effective as of the date hereof, the
Collateral Assignment shall be amended to read as set forth in the Exhibit A hereto.
Section 3. Representations and Warranties. The Borrower represents and warrants to
the Lenders and the Administrative Agent, that: (a) the representations and warranties set forth in
Article III (as hereby amended) of the Credit Agreement, and in each of the other Loan Documents,
are true and complete on the date hereof as if made on and as of the date hereof (or, if any such
representation or warranty is expressly stated to have been made as of a specific date, such
representation or warranty shall be true and correct as of such specific date), and as if each
reference in said Article III to this Agreement included reference to this Amendment No. 1 and
(b) no Default has occurred and is continuing. All references herein to the date hereof mean
references to the date of the Credit Agreement.
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Section 4. Conditions Precedent. The amendments set forth in Section 2 hereof shall
become effective on the date that each of the following conditions shall have been satisfied: |
(a) the Administrative Agent shall have received counterparts of this Amendment No. 1
executed by the Borrower, the Guarantors, the Administrative Agent and the Required Lenders (as
defined before giving effect to the transactions referred to in Section 3(b) hereof);
(b) the Administrative Agent shall be satisfied that, immediately after giving effect to such
amendments, new Incremental Loan Commitments shall become effective under Section 2.01(d) in an
aggregate amount equal to $150,000,000, the Revolving Credit Commitments shall be increased under
Section 2.08(e), in an aggregate amount equal to $100,000,000 and the Borrower shall borrow
Incremental Loans and Revolving Credit Loans in an aggregate principal amount of not less than
$150,000,000; and
-8-
(c) the Borrower shall have paid to each Lender that executed and delivered a counterpart
hereof on or before February 2, 2011, and that is not undertaking a new Incremental Loan Commitment
and not increasing its Revolving Credit Commitment as contemplated by the preceding paragraph (b),
a consent fee equal to 0.05% of the sum of (x) its Revolving Credit Commitment as in effect on such
date and (y) the aggregate principal amount of its Term Loans outstanding on such date.
Section 4. Security Documents. The Borrower and the Guarantors hereby ratify and
confirm their respective obligations, and the Liens respectively granted by them, under the Loan
Documents.
Section 5. Miscellaneous. Except as herein provided, the Loan Documents shall remain
unchanged and in full force and effect. This Amendment No. 1 may be executed in any number of
counterparts, all of which taken together shall constitute one and the same amendatory instrument
and any of the parties hereto may execute this Amendment No. 1 by signing any such counterpart.
This Amendment No. 1 shall be governed by, and construed in accordance with, the law of the State
of New York.
[Signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed
and delivered as of the day and year first above written.
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THE GEO GROUP, INC.,
as Borrower
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R.EVANS |
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Title: |
Sr. VP & CFO
The GEO Group, Inc. |
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Amendment No. 1
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GUARANTORS:
CORRECTIONAL SERVICES CORPORATION
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP & Treasurer
Correctional Services Corp. |
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CORRECTIONAL PROPERTIES PRISON FINANCE LLC
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, Finance
Correctional Prperties
Prison Finance LLC |
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CPT LIMITED PARTNER, LLC
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, Finance
CPT Limited Partner, LLC
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CPT OPERATING PARTNERSHIP L.P.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, Finance
CPT Operating Partnership L.P. |
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GEO ACQUISITION II, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, Finance
GEO Acquisition II, Inc. |
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GEO ACQUISITION IV, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
Vice President-Finance |
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Amendment No. 1
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GEO CARE, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
Treasurer
GEO Care, Inc. |
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GEO HOLDINGS I, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, Finance
GEO Holdings I, Inc. |
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GEO RE HOLDINGS LLC
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
SVP & Treasurer
GEO RE Holdings LLC |
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GEO TRANSPORT, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP & Treasurer
BEO Transport Inc. |
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JUST CARE, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP & Treasurer
Just Care, Inc. |
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PUBLIC PROPERTIES DEVELOPMENT AND LEASING LLC
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
Public Properties Development &
Leasing LLC |
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CORNELL COMPANIES, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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Amendment No. 1
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CCG I CORPORATION
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL ABRAXAS GROUP, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL COMPANIES ADMINISTRATION, LLC
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL COMPANIES MANAGEMENT HOLDINGS, LLC
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL COMPANIES MANAGEMENT, LP
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL COMPANIES MANAGEMENT SERVICES, LIMITED PARTNERSHIP
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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Amendment No. 1
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CORNELL CORRECTIONS MANAGEMENT, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL CORRECTIONS OF ALASKA, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL CORRECTIONS OF CALIFORNIA, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL CORRECTIONS OF RHODE ISLAND, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL CORRECTIONS OF TEXAS, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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CORNELL INTERVENTIONS, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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Amendment No. 1
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CORRECTIONAL SYSTEMS, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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WBP LEASING, INC.
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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WBP LEASING, LLC
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By: |
/s/ Brian R. Evans
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Name: |
BRIAN R. EVANS |
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Title: |
VP, CFO |
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Amendment No. 1
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BNP PARIBAS,
as Administrative Agent
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By: |
/s/ Brendan Heneghan
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Name: |
BRENDAN HENEGHAN |
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Title: |
Vice President |
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By: |
/s/ John Treadwell, Jr.
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Name: |
John Treadwell, Jr. |
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Title: |
Vice President |
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Lender Signatories Hereto
*
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Amendment No. 1
*
Confidential terms omitted and provided separately to the Securities
and Exchange Commission.
Schedule 3.17
See attached
Amendment No. 1
SCHEDULE 3.17
to
Credit Agreement
Dated as of February 10, 2011
Real Estate Owned
Guadalupe County Correctional Facility
P.O. Box 520
South Highway 54
Santa Rosa, NM 88435
Owner: The GEO Group, Inc.
*Subject to Mortgage as of the Effective Date
Northlake Correctional Facility
1805 West 32nd Street
Baldwin, MI 49304
Owner: The GEO Group, Inc.
*Subject to Mortgage as of the Effective Date
Rivers Correctional Institution
145 Parkers Fishers Road
Winton, NC 27986
Owner: The GEO Group, Inc.
*Subject to Mortgage as of the Effective Date
Val Verde Correctional Facility
253 FM 2523 Hamilton Lane
Del Rio, TX 78840
Owner: The GEO Group, Inc.
*Subject to Mortgage as of the Effective Date
Central Valley Community Correctional Facility
254 Taylor Avenue
McFarland, CA 93250
Owner: CPT Operating Partnership, L.P.
*Subject to Mortgage as of the Effective Date
***Located within Flood Zone
Golden State Modified Community Correctional Facility
611 Frontage Road
McFarland, CA 93250
Owner: CPT Operating Partnership, L.P.
*Subject to Mortgage as of the Effective Date
***Located within Flood Zone
Desert View Community Correctional Facility
P.O. Box 3000
10450 Rancho Road
Adelanto, CA 92301
Owner: CPT Operating Partnership, L.P.
*Subject to Mortgage as of the Effective Date
Adelanto Correctional Facility 10400
Rancho Road
Adelanto, CA 92301
Owner: The GEO Group, Inc.
*Subject to Mortgage as of the Effective Date
Mesa Verde Modified Community Correctional Facility
425 Golden State Highway
Bakersfield, CA
Owner: CPT Operating Partnership, L.P.
McFarland Community Correctional Facility
120 Taylor Road
McFarland, CA 92350
Owner: CPT Operating Partnership, L.P.
***Located within Flood Zone
Karnes County Correctional Center
810 Commerce Street
Karnes City, TX 78118
Owner: CPT Operating Partnership, L.P.
*Subject to Mortgage as of the Effective Date
Lawton Correctional Facility
8607 South East Flower Mound Road
Lawton, OK 73501
Owner: CPT Operating Partnership, L.P.
*Subject to Mortgage as of the Effective Date
Aurora/I.C.E. Processing Center
11901 East 30th Avenue
Aurora, CO 80010
Owner: CPT Operating Partnership, L.P. (main parcel), The Geo Group, Inc. (parking lot)
*Subject to Mortgage as of the Effective Date
***Located within Flood Zone
Queens Private Correctional Facility
182-22 150th Avenue
Jamaica, NY 11413
Owner: CPT Operating Partnership, L.P.
Jena Juvenile Justice Center
830 Pine Hill Road
Jena, LA 71342
Owner: CPT Operating Partnership, L.P.
*Subject to Mortgage as of the Effective Date
Broward Transitional Center
3900 North Powerline Road
Pompano Beach, FL 33073
Owner: The GEO Group, Inc.
*Subject to Mortgage as of the Effective Date
***Located within Flood Zone
Rio Grande Detention Center
1001 San Rio Blvd.
Laredo, TX 78046
Owner: Correctional Services Corporation and The GEO Group, Inc.
*Subject to Mortgage as of the Effective Date
Delaney Hall
451-479 Doremus Avenue
Newark, NJ
Owner: CPT Operating Partnership, L.P.
*Subject to Mortgage as of the Effective Date
***Located within Flood Zone
Oak Creek Confinement Center
7055 South 277
Bronte, TX 76933
Owner: The GEO Group, Inc or a Restricted Domestic Subsidiary
Moshannon Valley Correctional Center
555 Cornell Drive
Phillipsburg, PA 16866
Owner: WBP Leasing, Inc.
*Subject to Mortgage as of the Effective Date
Baker Community Correctional Facility
10 Lakeview Road
Baker, CA 92309
Owner: WBP Leasing, Inc.
High Plains Correctional Facility
901 Industrial Park Road
Brush, CO 80723
Owner: WBP Leasing, Inc.
Abraxas II
502 West 6th Street
Erie, PA 16507
Owner: WBP Leasing, Inc.
Erie Residential Behavioral Health Program
437 West 6th Street
Erie, PA 16507
Owner: WBP Leasing, Inc.
Psychosocial Rehabilitation Unit
429 West 6th Street
Erie, PA 16507
Owner: WBP Leasing, Inc.
Abraxas III
437 Turrett Street
Pittsburgh, PA 15206
Owner: WBP Leasing, Inc.
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Abraxas Academy |
|
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Mailing:
|
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Site: |
P.O. Box 645
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|
1000 Academy Drive |
Morgantown, PA 19543
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New Morgan, PA 19543 |
Owner: WBP Leasing, Inc. |
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Abraxas Center for Adolescent Females
306 Penn Avenue
Pittsburgh, PA 15221
Owner: Cornell Companies, Inc.
Beaumont Transitional Center
2495 Gulf Street
Beaumont, TX 77703
Owners: WBP Leasing, Inc. & Correctional Systems, Inc.
Contact Interventions Chicago Alt Ed
26991 Anderson Road
Wauconda, IL 60084
Owner: WBP Leasing, Inc.
Contact Interventions Residential School (Woodridge)
2221 64th Street
Woodridge, IL 60517
Owner: WBP Leasing, Inc.
Dupage Adolescent Center
11 South 250 Illinois Route 83
Hinsdale, IL 60514
Owner: WBP Leasing, Inc.
Jos Arz Washington
220 Taylor Drive, NE.
Washington, DC 20017
Owner: WBP Leasing, Inc.
Las Vegas Community Correctional Center
2901 Industrial Road
Las Vegas, NV 89109
Owner: WBP Leasing, Inc.
McCabe Center
1915 E. Martin Luther King Jr.
Austin, TX 78702
Owner: WBP Leasing, Inc.
Midtown Center
2508 Margies Place
Anchorage, AK 99501
Owner: WBP Leasing, Inc.
Oakland Center
205 MacArthur Boulevard
Oakland, CA 94610
Owner: WBP Leasing, Inc.
Philadelphia Community Based Programs
3121 W. Hunting Park
Philadelphia, PA 19132
Owner: WBP Leasing, Inc.
Reality House
405 E. Washington Street
Brownsville, TX 78520
Owner: Correctional Systems, Inc.
Southern Peaks Regional Treatment Center
700 Four Mile Parkway
Canon City, CO 81212
Owner: Cornell Corrections of California, Inc.
Southwood Interventions
5701 South Wood
Chicago, IL 60636
Owner: WBP Leasing, Inc.
Taylor Street Center
111 Taylor Street
San Francisco, CA 94102
Owner: Atlantic Financial Group, Ltd. (dba. AFG, Equity, L.P.)
Texas Adolescent Treatment Center
8550 Huebner Road
San Antonio, TX 78240
Owner: Cornell Companies, Inc.
International Building
5202 A Street
Anchorage Alaska
Owner: Cornell Companies, Inc or a Restricted Subsidiary
Lea County
6900 West Millen Drive
Hobbs, NM 88240
Owner of leasehold improvements: CPT Operating Partnership, LLC
*Subject to Mortgage as of the Effective Date
OTHER REAL ESTATE:
Industrial Building
182-11 150th Road
Springfield Gardens, NY 11413
Owner: The GEO Group, Inc.
VACANT LAND:
*
160 Acres
*
Owner: The GEO Group, Inc.
* Confidential
terms omitted and provided separately to the Securities and Exchange
Commission.
23 Acres
*
*
Owner: The GEO Group, Inc.
6 Acres
*
*
Owner: The GEO Group, Inc.
*
40-Acre Land Purchase
*
Assessors Parcel # *
Owner: The GEO Group, Inc.
4.4 Acres
*
*
Owner: The GEO Group, Inc.
4.3 Acres
*
*
Owner: The GEO Group, Inc.
11.1 Acres
*
*
Owner: The GEO Group, Inc.
10.9 Acres
*
*
Owner: The GEO Group, Inc.
*
34 Acres
*
*
Owner: The GEO Group, Inc.
70 Acres
*
*
Owner: CPT Operating Partnership, L.P.
* Confidential
terms omitted and provided separately to the Securities and Exchange
Commission.
*
*
*
Owner: Borrower or a Restricted Domestic Subsidiary
*
51 Acres
*
Owner: The GEO Group, Inc.
70 Acres
*
Owner: The GEO Group, Inc.
*
*
*
*
Owner: Borrower or a Restricted Domestic Subsidiary
*
440 Acres
*
*
Owner: The GEO Group, Inc.
68 Acres
*
Owner: The GEO Group, Inc.
*
Vacant Lot *
*
*
Owner: The GEO Group, Inc.
*
250 Acres
*
Owner: The GEO Group, Inc.
*
*
160 Acres
Owner: The GEO Group, Inc.
* Confidential
terms omitted and provided Separately to the Securities and Exchange
commission.
200 Acres
Owner: The GEO Group, Inc.
40 Acres
Owner: The GEO Group, Inc.
*
21 Acres
*
*
Owner: The GEO Group, Inc.
29 Acres
*
*
Owner: The GEO Group, Inc.
*
108 Acres
*
Owner: The GEO Group, Inc.
22.21 Acres
*
*
*
Owner: Borrower or a Restricted Domestic Subsidiary
22.9 Acre,
*
*
*
*
*
*
Owner: Correctional Services Corporation
200 Acres
*
*
Owner: The GEO Group, Inc.
Leased Property
1. (CPT Master Lease) That certain Master Agreement to Lease between CPT Operating Partnership
L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections Corporation), as Tenant,
dated April 28, 1998 (the CPT Master Lease) including the following agreements that are subject
to the CPT Master Lease:
* Confidential
terms omitted and provided separately to the Securities and Exchange
Commission.
(a) (Central Valley, CA) That certain Lease Agreement between CPT Operating Partnership L.P.,
as Landlord, and GEO RE Holdings LLC (f.k.a. WCC RE Holdings, Inc.), as Tenant, dated April 28,
1998 for the Central Valley Correctional Facility located in McFarland, Kern County, California.
*Subject to Mortgage as of the Effective Date
(i) (Central Valley, CA) That certain First Amendment to Lease Agreement between
CPT Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated April 28, 2008 for the Central Valley
Correctional Facility located in McFarland, Kern County, California.
(ii) (Central Valley, CA) That certain Second Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated June 20, 2008 for the Central Valley
Correctional Facility located in McFarland, Kern County, California.
(b) (Desert View, CA) That certain Lease Agreement between CPT Operating Partnership L.P., as
Landlord, and GEO RE Holdings LLC (f.k.a. WCC RE Holdings, Inc.), as Tenant, dated April 28, 1998
for the Desert View Correctional Facility located in Adelanto, San Bernardino County, California.
*Subject to Mortgage as of the Effective Date
(i) (Desert View, CA) That certain First Amendment to Lease Agreement between WCC RE
Holdings, LLC (f.k.a. WCC RE Holdings, Inc.), as Landlord, and The GEO Group, Inc. (f.k.a
Wackenhut Corrections Corporation), as Tenant, dated April 28, 2008 for the Desert View
Correctional Facility located in Adelanto, San Bernardino County, California.
(ii) (Desert View, CA) That certain Second Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a Wackenhut
Corrections Corporation), as Tenant, dated June 20, 2008 for the Desert View Correctional
Facility located in Adelanto, San Bernardino County, California.
(c) (Golden State, CA) That certain Lease Agreement between CPT Operating Partnership L.P., as
Landlord, and GEO RE Holdings LLC (f.k.a. WCC RE Holdings, Inc.), as Tenant, dated April 28, 1998
for the Golden State Correctional Facility located in McFarland, Kern County, California.
*Subject to Mortgage as of the Effective Date
(i) (Golden State, CA) That certain First Amendment to Lease Agreement between WCC RE
Holdings, LLC (f.k.a. WCC RE Holdings, Inc.), as Landlord, and The GEO Group Inc. (f.k.a.
Wackenhut Corrections Corporation), as Tenant, dated April 28, 2008 for the Golden State
Correctional Facility located in McFarland, Kern County, California.
(ii) (Golden State, CA) That certain Second Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated June 20, 2008 for the Golden State Correctional
Facility located in McFarland, Kern County, California.
(d) (McFarland, CA) That certain Lease Agreement between CPT Operating Partnership L.P., as
Landlord, and GEO RE Holdings LLC (f.k.a. WCC RE Holdings, Inc.), as Tenant, dated April 28, 1998
for the McFarland Community Correctional Facility located in McFarland, Kern County, California.
(i) (McFarland, CA) That certain Third Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated November 2008 for the McFarland Community
Correctional Facility located in McFarland, Kern County, California.
(e) (Aurora, CO) That certain Lease Agreement between CPT Operating Partnership L.P., as
Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections Corporation), as Tenant, dated
April 28, 1998 for the Aurora INS Processing Center located in Aurora, Adams County, Colorado.
*Subject to Mortgage as of the Effective Date
(i) (Aurora, CO) That certain First Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated April 28, 2008 for the Aurora INS Processing
Center located in Aurora, Adams County, Colorado.
(ii) (Aurora, CO) That certain Second Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated June 20, 2008 for the Aurora INS Processing
Center located in Aurora, Adams County, Colorado.
(iii) (Aurora, CO) That certain Third Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated November 8, 2010 for the Aurora INS Processing
Center located in Aurora, Adams County, Colorado.
(f) (Lea County, NM) That certain Lease Agreement between CPT Operating Partnership L.P., as
Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections Corporation), as Tenant, dated
October 30, 1998, as amended by that certain First Amendment to Lease Agreement and Memorandum of
Lease between CPT Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a.
Wackenhut Corrections Corporation), as Tenant, dated January 15, 1999 for the Hobbs, New Mexico
Correctional and Detention Facility, Lea County, New Mexico.
*Subject to Mortgage as of the Effective Date
(i) (Lea County, NM) That certain Second Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated June 20, 2008 for the Hobbs, New Mexico
Correctional and Detention Facility.
(ii) (Lea County, NM) That certain Third Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated December 1, 2008 for the Hobbs, New Mexico
Correctional and Detention Facility.
(g) (Queens, NY) That certain Lease Agreement between CPT Operating Partnership L.P., as
Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections Corporation), as Tenant, dated
April 28, 1998 for the Queens Private Correctional Facility, New York, Queens County, New York.
(i) (Queens, NY) That certain First Amendment Lease Agreement between CPT Operating
Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections
Corporation), as Tenant, dated June 20, 2008 for the Queens Private Correctional Facility,
New York, Queens County, New York.
(h) (Karnes County, TX) That certain Lease Agreement between CPT Operating Partnership L.P.,
as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections Corporation), as Tenant, dated
April 28, 1998 for the Karnes County Correctional Facility, Karnes County, Texas.
*Subject to Mortgage as of the Effective Date
(i) (Karnes County, TX) That certain First Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated April 28, 2008 for the Karnes County
Correctional Facility, Karnes County, Texas.
(ii) (Karnes County, TX) That certain Second Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated June 20 2008 for the Karnes County Correctional
Facility, Karnes County, Texas.
(i) (Lawton, OK) That certain Lease Agreement between CPT Operating Partnership L.P., as
Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections Corporation), as Tenant, dated
January 15, 1999 for the Lawton, Oklahoma Correction and Detention Facility, Comanche County,
Oklahoma.
*Subject to Mortgage as of the Effective Date
(i) (Lawton, OK) That certain First Amendment to Lease Agreement between CPT Operating
Partnership L.P., as Landlord, and The GEO Group, Inc.
(f.k.a. Wackenhut Corrections Corporation), as Tenant, dated May 27, 2005 for the Lawton,
Oklahoma Correction and Detention Facility, Comanche County, Oklahoma.
(ii) (Lawton, OK) That certain Third Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated November 2008 for the Lawton, Oklahoma
Correction and Detention Facility, Comanche County, Oklahoma.
(j) (LaSalle, LA) That certain Lease Agreement between CPT Operating Partnership L.P., as
Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections Corporation), as Tenant, dated
January 7, 2000 for the LaSalle Correctional Facility in Jena, Louisiana.
*Subject to Mortgage as of the Effective Date
(i) (LaSalle, LA) That certain Third Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated November 2008 for the LaSalle Correctional
Facility in Jena, Louisiana.
(ii) (LaSalle, LA) That certain Fourth Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated June 3, 2009 for the LaSalle Correctional
Facility in Jena, Louisiana.
(iii) (LaSalle, LA) That certain Fifth Amendment to Lease Agreement between CPT
Operating Partnership L.P., as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Tenant, dated February 8, 2010 for the LaSalle Correctional
Facility in Jena, Louisiana.
2. (Western Region Detention Facility) That certain Standard Form Lease Agreement (Ground
Lease of Undeveloped Property), as may be amended, between the County of San Diego, as Lessor, and
The GEO Group, Inc. (f.k.a. Wackenhut Corrections Corporation), as Lessee, dated March 19, 1999 for
the Central Jail Detention Facility, San Diego County, California.
3. (North Texas) That certain Lease Agreement, as may be amended, between Fort Worth
Industrial Development, Inc., as Lessor, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections
Corporation), as Lessee, effective as of October 1, 1996 for that certain premises located in
Tarrant County, Texas, as more particularly described in the Lease Agreement.
(i) (North Texas) That certain Second Amendment to Lease Agreement between Fort Worth
Industrial Development, Inc., as Lessor, and The GEO Group, Inc. (f.k.a. Wackenhut
Corrections Corporation), as Lessee, effective as of June 2008 for that certain premises
located in Tarrant County, Texas, as more particularly described in the Lease Agreement.
4. (Central, Texas) That certain Lease Agreement, as may be amended, between Bexar County,
Texas, as Landlord, and The GEO Group, Inc. (f.k.a. Wackenhut Corrections Corporation), as Tenant,
dated October 1, 1996 for that certain premises located in Bexar County, Texas, as more
particularly described in the Lease Agreement.
5. (Bronx, NY) That certain Lease Agreement, as may be amended, between Creston Realty
Associates, as Landlord, and Correctional Services Corporation, as Tenant, dated October 1, 1996
for that certain premises located in Bronx, New York, as more particularly described in the Lease
Agreement.
(a) (Bronx, NY) That certain First Amendment to Lease Agreement between Creston Realty
Associates, as Landlord, and Correctional Services Corporation, as Tenant, dated October 1, 2001
for that certain premises located in Bronx, New York, as more particularly described in the Lease
Agreement.
(b) (Bronx, NY) That certain Second Amendment to Lease Agreement between Creston Realty
Associates, as Landlord, and Correctional Services Corporation, as Tenant, dated October 1, 2006
for that certain premises located in Bronx, New York, as more particularly described in the Lease
Agreement.
6. (Brooklyn, NY) That certain Lease Agreement, as may be amended, between Myrtle Avenue
Family Center, Inc., as Owner, and Correctional Services Corporation, as Tenant, dated January 1,
1994 for that certain premises located in Brooklyn, New York, as more particularly described in the
Lease Agreement.
(a) (Brooklyn, NY) That certain First Amendment to Lease Agreement between Myrtle Avenue
Family Center, Inc., as Owner, and Correctional Services Corporation, as Tenant, dated December 31,
2003 for that certain premises located in Brooklyn, New York, as more particularly described in the
Lease Agreement.
7. (Ft. Worth, TX) That certain Lease Agreement, as may be amended, between Regions
Enterprises, Inc., as Landlord, and Correctional Services Corporation, as Tenant, dated May 16,
1994 for that certain premises located in Ft. Worth, Texas, as more particularly described in the
Lease Agreement.
8. (Frio County, TX) That certain Lease Agreement, as may be amended, between Frio County as
Lessor, and Correctional Services Corporation, as Lessee, dated November 26, 1997 for that certain
premises located in Pearsall, Texas, as more particularly described in the Lease Agreement.
(a) (Frio County, TX) That certain First Amendment to Lease Agreement, as may be amended,
between Frio County, as Lessor, and Correctional Services Corporation, as Lessee, dated January 1,
2001 for that certain premises located in Pearsall, Texas, as more particularly described in the
Lease Agreement.
(b) (Frio County, TX) That certain Second Amendment to Lease Agreement, as may be amended,
between Frio County, as Lessor, and Correctional Services
Corporation, as Lessee, dated February 22, 2001 for that certain premises located in
Pearsall, Texas, as more particularly described in the Lease Agreement.
9. (Florence West) That certain Management Agreement, as may be amended, between Florence West
Prison LLC, as Owner, and Correctional Services Corporation, as Manager, dated December 1, 2002 for
that certain premises located in Florence, Arizona, as more particularly described in the
Management Agreement.
10. (Phoenix West) That certain Operating Agreement, as may be amended, between Phoenix West
Prison, LLC, as Owner, and Correctional Services Corporation, as Manager, dated July 1, 2002 for
that certain premises located in West Phoenix, AZ, as more particularly described in the Lease
Agreement.
11. (Val Verde, TX) That certain Lease Agreement by and between Val Verde County, Texas, as
Lessor, and Wackenhut Corrections Corporation, as Lessee, dated December 18, 1998, recorded on
December 31, 1998, in Volume 701, Pages 646-657, Official Public Records, Val Verde County, Texas,
as corrected by that certain Lease Agreement by and between Val Verde County, Texas, as Lessor, and
Wackenhut Corrections Corporation, as Lessee, dated December 18, 1998, recorded on January 6, 1999,
in Volume 702, Pages 7-21, Official Public Records, Val Verde County, Texas, and as restated in
that certain Novated Lease Agreement by and between Val Verde County, Texas, as Lessor, and
Wackenhut Corrections Corporation, as Lessee, dated May 24, 1999, recorded on August 12, 1999, in
Volume 719, Pages 375-387, Official Public Records, Val Verde County, Texas; as assigned by that
certain Assignment of Leasehold Interest dated September 30, 1999, by Wackenhut Corrections
Corporation, as Assignor, to First Security Bank, N.A., not individually but solely as owner
trustee of Wackenhut Corrections Trust 1977-1, as Assignee, recorded on September 30, 1999, in
Volume 723, Pages 221-226, Official Public Records, Val Verde County, Texas; and further assigned
by that certain Assignment of Leasehold Interest dated December 12, 2002, by Wells Fargo Bank
Northwest, N.A., f/k/a First Security Bank, N.A., not individually but solely as owner trustee of
Wackenhut Corrections Trust 1997-1, as Assignor, to Wackenhut Corrections Corporation, as Assignee,
recorded on December 13, 2002, in Volume 830, Pages 895-200, Official Public Records, Val Verde
County, Texas, for that certain premises located in Val Verde County, Texas, as more particularly
described in the Lease Agreement. (Note: In 2003 Wackenhut Corrections Corporation filed articles
of amendment in the State of Florida to change its name to The GEO Group, Inc., however, we are not
certain if the Val Verde public records reflect the name change).
*Subject to Mortgage as of the Effective Date
12. (R. A. Deyton) That certain Lease Agreement, as may be amended, between Clayton County, as
Lessor, and The GEO Group Inc., as Lessee, dated April 23, 2007 for that certain premises located
in Jonesboro, Georgia as more particularly described in the Lease Agreement.
13. (Just Care) That certain Lease Agreement, as may be amended, between South Carolina
Department of Mental Health, as Lessor, and Just Care Inc., as Lessee, dated May 2, 1997 for that
certain premises located in Columbia, South Carolina, as more particularly described in the Lease
Agreement, as amended thereafter from time to time by ten amendments
to the Lease Agreement, a memorandum of which was recorded on December 22, 2009 in Book 1577, Page
1611 in the County Clerks Office of Richland County, South Carolina.
*Subject to Mortgage as of the Effective Date
(a) (Just Care) That certain Tenth Amendment to Lease Agreement, as may be
amended, between South Carolina Department of Mental Health, as Lessor, and Just Care
Inc., as Lessee, dated June 26, 2008 for that certain premises located in Columbia, South
Carolina, as more particularly described in the Lease Agreement.
14. (Hobbs, NM Lea County Correctional Facility) That certain Lease Agreement dated December
2, 1997 by and between Lea County, New Mexico, a Political Subdivision, as Lessor, and First
Security Bank, National Association not individually but solely as Owner Trustee under Wackenhut
Corrections Trust 1997-1, as Lessee, for that certain premises located in Hobbs, New Mexico, as
more particularly described in the Lease Agreement, as amended by that certain Amended and Restated
Lease Agreement dated October 19, 1998, as further assigned in that certain Assignment and
Conveyance of Leasehold Interest Under 98 Year Lease dated October 30, 1998, by and between First
Security Bank, National Association, not individually but solely as Owner Trustee under the
Wackenhut Corrections Trust 1997-1, as Assignor and CPT Operating Partnership L.P., as Assignee, as
amended and restated by that certain Amended and Restated Lease Agreement dated as of October
19,1998 between Lea County, New Mexico, a Political Subdivision, as Lessor and CPT Operating
Partnership L.P., as Lessee, recorded in Book 916, Page 546 of the County Clerks Office of Lea
County, New Mexico on November 2, 1998.
*Subject to Mortgage as of the Effective Date
15. (Tacoma, WA Northwest Detention Center) That certain Use Agreement, as may be amended,
between CSC of Tacoma, LLC, as Owner / Lesser, and Correctional Services Corporation., as Lessee /
Operator, dated June 30, 2003 for that certain premises located in Tacoma, Washington as more
particularly described in the Lease Agreement.
16. (Central Arizona) That certain Management Agreement, as may be amended, between Florence
West Prison Expansion, LLC, as Owner / Lesser, and Correctional Services Corporation., as Lessee /
Operator, dated August 1, 2004 for that certain premises located in Florence, Arizona as more
particularly described in the Lease Agreement.
17. (South Texas Detention) That certain Operating Agreement, as may be amended, between South
Texas Detention Complex Local Corporation, as Borrower / Owner / Lesser, and Correctional Services
Corporation., as Lessee / Manager, dated February 10, 2006 for that certain premises located in
Pearsall, Texas as more particularly described in the Lease Agreement.
18. (Western Region Office) That certain Lease Agreement, as may be amended, between TRIZEC
6100 HHC, LLC, as Lessor, and The GEO Group Inc., as Lessee, dated March, 2010 for that certain
premises located in Los Angeles, California as more particularly described in the Lease Agreement.
19. (Eastern Office) That certain Lease Agreement, as may be amended, between Ballantyne Two,
LLC., as Lessor, and The GEO Group Inc., as Lessee, dated April 1, 2007 for that certain premises
located in Charlotte, North Carolina as more particularly described in the Lease Agreement.
20. (Central Region Office New) That certain Lease Agreement, as may be amended, between
EQUASTONE 1777 TOWER, LP, as Lessor, and The GEO Group Inc., as Lessee, dated July 26, 2010 for
that certain premises located in San Antonio, Texas as more particularly described in the Lease
Agreement.
21. (Corporate Office) That certain Lease Agreement, as may be amended, between Campro
Investments, Ltd., as Lessor, and The GEO Group Inc., as Lessee, dated September 12, 2002 for that
certain premises located in Boca Raton, Florida as more particularly described in the Lease
Agreement.
(a) (Corporate Office) That certain Ninth Amendment to Lease Agreement, as may be amended,
between Campro Investments, Ltd., as Lessor, and The GEO Group Inc., as Lessee, dated October 27,
2010 for that certain premises located in Boca Raton, Florida as more particularly described in the
Lease Agreement.
22. (MCF Master Lease) That certain Master Agreement to Lease between Municipal Corrections
Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated August 14, 2001 (the MCF
Master Lease) including the following agreements that are subject to the MCF Master Lease:
(a) (D. Ray James, GA) That certain Addendum to the Master Lease Agreement between Municipal
Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated August 14,
2001 for the D. Ray James Prison located in Folkston, Georgia. **Borrower has taken commercially
reasonable efforts to obtain consent to a Mortgage in accordance with the terms of the Credit
Agreement.
(b) (Big Spring, TX) That certain Addendum [Subleased Premises] to the Master Lease Agreement
between Municipal Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as
Sub-Tenant, dated August 14, 2001 for Big Spring Correctional Facility located in Big Spring,
Texas.
(i) (Big Spring Airpark Unit, TX) That certain Lease Agreement between the City of
Big Spring, Texas as Landlord, and Cornell Companies of Texas, Inc. (assigned from Ed
Davenport July 1, 1996), as Lessee, dated August 7, 1990 for Big Spring Correctional
Facility located in Big Spring, Texas. [Assigned to MCF]
(ii) (Big Spring Interstate Unit, TX) That Lease Agreement between the City of Big
Spring, Texas as Landlord, and Cornell Companies of Texas, Inc. (assigned from Ed Davenport
July 1, 1996), as Lessee, dated July 1, 1996 for Big Spring Correctional Facility located
in Big Spring, Texas. [Assigned to MCF]
(iii) (Big Spring Cedar Hill Unit, TX) That certain Lease Agreement between the City of Big
Spring, Texas as Landlord, and Cornell Companies of Texas, Inc. as Lessee, dated May 7, 1997 for
Big Spring Correctional Facility located in Big Spring, Texas. [Assigned to MCF]
(iv) (Big Spring Flightline Unit, TX) That certain Lease Agreement between the City of Big
Spring, Texas as Landlord, and Cornell Companies of Texas, Inc. (assigned from Ed Davenport July 1,
1996), as Lessee, dated February 18, 1994 for Big Spring Correctional Facility located in Big
Spring, Texas. [Assigned to MCF]
(c) (Great Plains, OK) That certain Addendum [Subleased Premises] to the Master Lease
Agreement between Municipal Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as
Sub-Tenant, dated August 14, 2001 for the Great Plains Correctional Facility located in Hinton,
Oklahoma. **Borrower has taken commercially reasonable efforts to obtain consent to a Mortgage in
accordance with the terms of the Credit Agreement.
(i) (Great Plains, OK) That certain Lease Agreement between the Town of Hinton, Oklahoma, as
Landlord, and Cornell Corrections of Oklahoma, Inc., as Tenant, dated December 31, 1999 for the
certain premises located in Hinton, Oklahoma as more particularly described in the Lease Agreement.
[Assigned to MCF]
(d) (Abraxas I, PA) That certain Addendum to the Master Lease Agreement between Municipal
Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated August 14,
2001 for the Abraxas I facility located in Marienville, Pennsylvania.
(e) (Abraxas of Ohio, OH) That certain Addendum to the Master Lease Agreement between
Municipal Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated
August 14, 2001 for Abraxas of Ohio facility located in Columbus, Ohio.
(f) (Cordova Center, AK) That certain Addendum to the Master Lease Agreement between Municipal
Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated August 14,
2001 for the Cordova Center facility located in Anchorage, Alaska.
(g) (Hector Garza, TX) That certain Addendum to the Master Lease Agreement between Municipal
Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated August 14,
2001 for the Hector Garza Residential Treatment Center located in San Antonio, Texas.
(h) (Leidel, TX) That certain Addendum to the Master Lease Agreement between Municipal
Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated August 14,
2001 for the Leidel Comprehensive Sanction Center located in Houston, Texas.
(i) (Parkview Center, AK) That certain Addendum to the Master Lease Agreement between
Municipal Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated
August 14, 2001 for the Parkview Center located in Anchorage, Alaska.
(j) (Reid Center, TX) That certain Addendum to the Master Lease Agreement between Municipal
Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated August 14,
2001 for the Reid Center located in Houston, Texas.
(k) (Tundra Center, AK) That certain Addendum to the Master Lease Agreement between Municipal
Corrections Finance, L.P., as Landlord, and Cornell Companies, Inc., as Tenant, dated August 14,
2001 for the Tundra Center located in Bethel, Alaska.
23. (Abraxas Columbus, OH) That certain Lease Agreement between Columbus Area, Inc., as
Landlord, and Cornell Abraxas Group, Inc., as Tenant, dated March, 2008 for the certain premises
located in Columbus, Ohio as more particularly described in the Lease Agreement.
24. (Abraxas II Palace Center, PA) That certain Lease Agreement between Thomas Kennedy
(dba. Palace Center), as Landlord, and Cornell Abraxas Group, Inc., as Tenant, dated August 26,
2009 for the certain premises located in Erie, Pennsylvania as more particularly described in the
Lease Agreement.
25. (Abraxas Youth Center, PA) That certain Lease Agreement between The Commonwealth of
Pennsylvania (Department of General Services as agent for the Department of Public Welfare), as
Landlord, and Cornell Abraxas Group, Inc., as Tenant, dated September 20, 1999 for the certain
premises located in Erie, Pennsylvania as more particularly described in the Lease Agreement.
26. (Cordova Center, AK) That certain Lease Agreement between WBP Leasing, Inc., as Landlord,
and Cornell Correction of Alaska, Inc., as Tenant, dated December 31, 2007 for the certain premises
located in Anchorage, Alaska as more particularly described in the Lease Agreement.
27. (Corporate, Texas) That certain Lease Agreement between CMD Realty Investment Fund III,
L.P., as Landlord, and Cornell Corrections, Inc., as Tenant, dated August 4, 1998 for the certain
premises located in Houston, Texas as more particularly described in the Lease Agreement.
(a) (Corporate, Texas) That certain First Amendment to the Lease Agreement between CMD Realty
Investment Fund III, L.P., as Landlord, and Cornell Corrections, Inc., as Tenant, dated December
18, 1998 for the certain premises located in Houston, Texas as more particularly described in the
Lease Agreement.
(b) (Corporate, Texas) That certain Second Amendment to the Lease Agreement between CMD Realty
Investment Fund III, L.P., as Landlord, and Cornell
Corrections, Inc., as Tenant, dated January 29, 1999 for the certain premises located in Houston,
Texas as more particularly described in the Lease Agreement.
(c) (Corporate, Texas) That certain Third Amendment to the Lease Agreement between CMD Realty
Investment Fund III, L.P., as Landlord, and Cornell Corrections, Inc., as Tenant, dated June 28,
2004 for the certain premises located in Houston, Texas as more particularly described in the Lease
Agreement.
28. (Delaware Community Based) That certain Lease Agreement between 1001 MattLind Way LLC., as
Landlord, and Cornell Abraxas, Inc., as Tenant, dated February 19, 2003 for the certain premises
located in Smynra, Delaware as more particularly described in the Lease Agreement.
(a) (Delaware Community Based) That certain Lease Renewal between 1001 MattLind Way LLC., as
Landlord, and Cornell Abraxas, Inc., as Tenant, dated February 25, 2008 for the certain premises
located in Smynra, Delaware as more particularly described in the Lease Agreement.
29. (El Monte, CA) That certain Lease Agreement between Clark Moseley, Stephene F. Moseley,
husband and wife, as to a undivided 1/2 interest, and Virginia R. Moseley and E. Clark Moseley,
Co-Trustees of The JS and VR Moseley Family Trust as Landlord, and Cornell Corrections of
California, Inc., as Tenant, dated May 1, 2001 for the certain premises located in El Monte,
California as more particularly described in the Lease Agreement.
(a) (El Monte, CA) That certain Subordination, Non-disturbance & Attornment Agreement between
1st Central Bank, as Bank and Cornell Corrections of California, Inc., as
Tenant, dated September 21 2006 for the certain premises located in El Monte, California as more
particularly described in the Lease Agreement.
28. (Grossman, KS) That certain Lease Agreement between James B. Studdard Transfer & Storage
Company, Inc., as Landlord, and The Canyon Mitchell Group, Inc., as Tenant, dated June 27, 2002 for
the certain premises located in Leavenworth, Kansas as more particularly described in the Lease
Agreement.
(a) (Grossman, KS) That certain Lease Agreement between The Canyon Mitchell Group, Inc., as
Lessee, and Correctional Systems, Inc., as Sub-Lessee, dated June 27,2002 for the certain premises
located in Leavenworth, Kansas as more particularly described in the Lease Agreement.
29. (Abraxas of Harrisburg 2950 7th Street) That certain Lease
Agreement between Italian Lake Office Center as Landlord, and Cornell Abraxas Group, Inc., as
Tenant, dated August 31, 2001 for the certain premises located in Harrisburg, PA as more
particularly described in the Lease Agreement.
(a) (Abraxas of Harrisburg 2950 7th Street That certain Lease
Agreement between Capital Property Investments, LP., as Landlord, and Cornell Abraxas Group, Inc.,
as Tenant, dated February 11, 2005 for the certain premises located in Harrisburg, PA as more
particularly described in the Lease Agreement.
(b) (Abraxas of Harrisburg 2950 7th Street) That certain
Lease Agreement between Capital Property Investments, LP., as Landlord, and Cornell Abraxas
Group, Inc., as Tenant, dated February 23, 2010 for the certain premises located in
Harrisburg, PA as more particularly described in the Lease Agreement.
30. (Leadership Development Program) That certain Lease Agreement between The Commonwealth of
Pennsylvania (Department of General Services as agent for the Department of Public Welfare), as
Landlord, and Abraxas Foundation, Inc., as Tenant, dated July 21, 1994 for the certain premises
located in South Mountain, PA as more particularly described in the Lease Agreement.
31. (Lehigh Valley, PA) That certain Lease Agreement between Hotel Taylor, LLC., as Landlord,
and Cornell Abraxas Group, Inc., as Tenant, dated April 29, 2009 for the certain premises located
in Allentown, PA as more particularly described in the Lease Agreement.
32. (Leo Chesney, CA) That certain Lease Agreement between Correction Corporation of America.,
as Landlord, and Cornell Corrections of California, Inc., as Tenant, dated September 1, 2002 for
the certain premises located in Live Oak, CA as more particularly described in the Lease Agreement.
(a). (Leo Chesney, CA) That certain First Amendment to the Lease Agreement between
Correction Corporation of America., as Landlord, and Cornell Corrections of California,
Inc., as Tenant, dated October 1, 2005 for the certain premises located in Live Oak, CA as
more particularly described in the Lease Agreement.
(b) (Leo Chesney, CA) That certain Second Amendment to the Lease Agreement between
Correction Corporation of America., as Landlord, and Cornell Corrections of California,
Inc., as Tenant, dated June 23, 2007 for the certain premises located in Live Oak, CA as
more particularly described in the Lease Agreement.
(c) (Leo Chesney, CA) That certain Third Amendment to the Lease Agreement between
Correction Corporation of America., as Landlord, and Cornell Corrections of California,
Inc., as Tenant, dated April 16, 2010 for the certain premises located in Live Oak, CA as
more particularly described in the Lease Agreement.
33. (Lifeworks, IL) That certain Lease Agreement between John V. Bays, as Landlord, and
Interventions, as Tenant, dated September 14, 1998 for the certain premises located in Joliet, IL
as more particularly described in the Lease Agreement.
(a) (Lifeworks, IL) That certain Lease Agreement between John V. Bays, as Landlord, and
Cornell Interventions, Inc., as Tenant, dated June 6, 2003 for the certain premises located
in Joliet, IL as more particularly described in the Lease Agreement.
(b) (Lifeworks, IL) That certain Lease Agreement between John V. Bays, as Landlord, and
Cornell Interventions, Inc., as Tenant, dated August 28, 2008 for the certain premises
located in Joliet, IL as more particularly described in the Lease Agreement.
(c) . (Lifeworks, IL) That certain Lease Agreement between John V. Bays, as Landlord, and
Cornell Interventions, Inc., as Tenant, dated December 18, 2008 for the certain premises located in
Joliet, IL as more particularly described in the Lease Agreement.
(d) (Lifeworks, IL) That certain Lease Agreement between John V. Bays, as Landlord, and
Cornell Interventions, Inc., as Tenant, dated November 30, 2009 for the certain premises located in
Joliet, IL as more particularly described in the Lease Agreement.
34. (Marvin Gardens, CA) That certain Lease Agreement between Thomas T. Anderson, as Landlord,
and Cornell Companies, Inc., as Tenant, dated February 21, 2002 for the certain premises located in
Los Angeles, California as more particularly described in the Lease Agreement.
(a) (Marvin Gardens, CA) That certain Extension to the Lease Agreement between Thomas T.
Anderson, as Landlord, and Cornell Companies, Inc., as Tenant, dated February 7, 2007 for the
certain premises located in Los Angeles, California as more particularly described in the Lease
Agreement.
35. (McCabe, TX) That certain Lease Agreement between WBP Leasing, Inc., as Landlord, and
Correctional Systems, Inc., as Tenant, dated December 31, 2005 for the certain premises located in
Austin, Texas as more particularly described in the Lease Agreement.
36. (Mesa Verde, CA) That certain Lease Agreement between CPT Operating Partnership, LP., as
Landlord, and Cornell Corrections of California, Inc., as Tenant, dated December 29, 2005 for the
certain premises located in Bakersfield, California as more particularly described in the Lease
Agreement.
37. (Mid Valley, TX) That certain Lease Agreement between T. Warren Investments, Inc., as
Landlord, and Correctional Systems, Inc., as Tenant, dated January 1, 1999 for the certain premises
located in Edinburg, TX as more particularly described in the Lease Agreement.
(a) (Mid Valley, TX) That certain First Amendment to the Lease Agreement between T. Warren
Investments, Inc., as Landlord, and Correctional Systems, Inc., as Tenant, dated September 26, 2000
for the certain premises located in Edinburg, TX as more particularly described in the Lease
Agreement.
(b) (Mid Valley, TX) That certain First Amendment to the Lease Agreement between T. Warren
Investments, Inc., as Landlord, and Correctional Systems, Inc., as Tenant, dated February 1, 2008
for the certain premises located in Edinburg, TX as more particularly described in the Lease
Agreement.
38. (Midtown, AK) That certain Lease Agreement between WBP Leasing, Inc., as Landlord, and
Cornell Corrections of Alaska, Inc., as Tenant, dated January 1, 2000 for the certain premises
located in Anchorage, AK as more particularly described in the Lease Agreement.
39. (Northstar Center, AK) That certain Lease Agreement between Parks Hiway Enterprises, LLC
and Cornell Corrections Inc., as Tenant, dated October 31, 2007 for the certain premises located in
Fairbanks, AK as more particularly described in the Lease Agreement.
40. (Oakland, CA) That certain Lease Agreement between WBP Leasing, Inc., as Landlord, and
Cornell Corrections of California, Inc., as Tenant, dated _______ for the certain premises located
in Oakland, CA as more particularly described in the Lease Agreement.
41. (Parkview, AK) That certain Lease Agreement between Parkview Manor Apartments., as
Landlord, and St. John Investments, as Tenant, dated February 26, 1992 for the certain premises
located in Anchorage, AK as more particularly described in the Lease Agreement.
42. (Regional CC, NM) That certain Lease Agreement between The County of Bernalillo, as
Landlord, and Cornell Companies, Inc., as Tenant, dated October 14, 2003 for the certain premises
located in Albuquerque, NM as more particularly described in the Lease Agreement.
(a) (Regional CC, NM) That certain First Amendment to the Lease Agreement between The
County of Bernalillo, as Landlord, and Cornell Companies, Inc., as Tenant, dated March 1,
2008 for the certain premises located in Albuquerque, NM as more particularly described in
the Lease Agreement.
(b) (Regional CC, NM) That certain First Option to the Lease Agreement between The
County of Bernalillo, as Landlord, and Cornell Companies, Inc., as Tenant, dated April 15,
2009 for the certain premises located in Albuquerque, NM as more particularly described in
the Lease Agreement.
43. (Salt Lake City, UT) That certain Lease Agreement between Kimwell Corporation, as
Landlord, and Cornell Corrections, Inc., as Tenant, dated 1995 for the certain premises located in
Salt Lake City, Utah as more particularly described in the Lease Agreement.
(a) (Salt Lake City, UT) That certain First Amendment to the Lease Agreement between
Kimwell Corporation, as Landlord, and Cornell Corrections, Inc., as Tenant, dated October 1,
2000 for the certain premises located in Salt Lake City, Utah as more particularly described
in the Lease Agreement.
(b). (Salt Lake City, UT) That certain Second Amendment to the Lease Agreement between
Kimwell Corporation, as Landlord, and Cornell Corrections, Inc., as Tenant, dated November
7, 2005 for the certain premises located in Salt Lake City, Utah as more particularly
described in the Lease Agreement.
44. (Taylor St, CA) That certain Lease Agreement between WBP Leasing, as Landlord, and Cornell
Corrections, Inc., as Tenant, dated December 1, 1998 for the certain premises located in San
Francisco, CA as more particularly described in the Lease Agreement.
45. (York County, PA) That certain Lease Agreement between Barbra J. Buffington, as Landlord,
and Abraxas Foundation, Inc., as Tenant, dated January 10, 2007 for the certain premises located in
York, PA as more particularly described in the Lease Agreement.
(a) (York County, PA) That certain Lease Agreement between Barbra J. Buffington, as Landlord,
and Abraxas Foundation, Inc., as Tenant, dated July 21, 2008 for the certain premises located in
York, PA as more particularly described in the Lease Agreement.
(b) (York County, PA) That certain Lease Agreement between Barbra J. Buffington, as Landlord,
and Abraxas Foundation, Inc., as Tenant, dated June 29, 2009 for the certain premises located in
York, PA as more particularly described in the Lease Agreement.
46. (Seaside, AK) That certain Lease Agreement between the WMS, LLC., as Landlord, and St.
Johns Investments, Inc., as Tenant, dated August 12, 1998 for the certain premises located in Nome,
Alaska as more particularly described in the Lease Agreement.
(a) (Seaside, AK) That certain First Amendment to the Lease Agreement between the WMS, LLC, as
Landlord, and WBP Leasing, Inc., as Tenant, dated July 12, 1999 for the certain premises located in
Nome, Alaska as more particularly described in the Lease Agreement.
(b) (Seaside, AK) That certain Second Amendment to the Lease Agreement between the WMS, LLC,
as Landlord, and WBP Leasing, Inc., as Tenant, dated July 20, 1999 for the certain premises located
in Nome, Alaska as more particularly described in the Lease Agreement.
(c) (Seaside, AK) That certain Renewal to the Lease Agreement between the WMS, LLC, as
Landlord, and WBP Leasing, Inc., as Tenant, dated June 3, 2002 for the certain premises located in
Nome, Alaska as more particularly described in the Lease Agreement.
(d) (Seaside, AK) That certain Third Amendment to the Lease Agreement between the WMS, LLC, as
Landlord, and WBP Leasing, Inc., as Tenant, dated April 1, 2003 for the certain premises located in
Nome, Alaska as more particularly described in the Lease Agreement.
(e) (Seaside, AK) That certain Fourth Amendment to the Lease Agreement between the WMS, LLC,
as Landlord, and WBP Leasing, Inc., as Tenant, dated January 1, 2006 for the certain premises
located in Nome, Alaska as more particularly described in the Lease Agreement.
(f) (Seaside, AK) That certain Renewal to the Lease Agreement between the WMS, LLC, as
Landlord, and WBP Leasing, Inc., as Tenant, dated August 3, 2009 for the certain premises located
in Nome, Alaska as more particularly described in the Lease Agreement.
47. (Hudson Land Tract, CO) That certain Lease Agreement between the PPD Hudson Associates,
LLC, as Landlord, and WBP Leasing, Inc., as Tenant, dated June 9, 2010 for the certain premises
located in Hudson, Colorado as more particularly described in the Lease Agreement.
48. (Youth Admin Pittsburg, PA) That certain Lease Agreement between SJS Development
Company, as Landlord, and Cornell Companies, Inc., as Tenant, dated June 6, 2003 for the certain
premises located in Pittsburg, Pennsylvania as more particularly described in the Lease Agreement.
(a) (Youth Admin Pittsburg, PA) That certain First Amendment to the Lease Agreement between
SJS Development Company, as Landlord, and Cornell Companies, Inc., as Tenant, dated April 23, 2008
for the certain premises located in Pittsburg, Pennsylvania as more particularly described in the
Lease Agreement.
(a) (Youth Admin Pittsburg, PA) That certain Second Amendment to the Lease Agreement
between SJS Development Company, as Landlord, and Cornell Companies, Inc., as Tenant, dated June 5,
2008 for the certain premises located in Pittsburg, Pennsylvania as more particularly described in
the Lease Agreement.
49. (Riverbend Milledgeville, GA) That certain Lease Agreement between The State of Georgia
acting by and through The State Properties Commission, as Landlord, and The Geo Group, Inc., as
Tenant, dated July, 2010 for the use of certain real property located in Milledgeville, Georgia as
more particularly described in the Lease Agreement.
50. (RCC Warehouse Albuquerque, NM) That certain Lease Agreement between James R.
McClintock (dba McClintock), as Landlord, and Cornell Companies, Inc., as Tenant, dated June 9,
2004 for the certain premises located in Albuquerque, New Mexico as more particularly described in
the Lease Agreement.
51. (Florida City Land Miami-Dade County, FL) That certain Lease Agreement between The City
of Florida City, Florida, as Landlord, and GEO Design Services, Inc., as Tenant, dated October 28,
2010 for the certain premises located in Miami-Dade County, Florida as more particularly described
in the Lease Agreement.
52. (One Citizens Plaza, 800 Main Street, Anderson, Indiana, 46016) Amendment to Indenture of
Lease Agreement dated August 7, 2008 between Citizens Plaza Building, LLC, as landlord, and B.I.
Incorporated, as tenant.
53. (6400 Lookout Road, Suite 101, Boulder, Colorado 80301) Lease Agreement dated March ___,
2009 between Point II, LLC, a Colorado limited liability company, as landlord, and B.I.
Incorporated, as tenant.
54. (Suite 140, 26461 Crown Valley Parkway, Mission Viejo, California) Office Lease dated
November 13, 2001 between Albert M. Wray and Evelyn Wray, as Trustees for the Wray Family Living
Trust of 1992, dated June 28, 1992 and Richard K. Wray and Virginia R. Wray, as Trustees for the
Wray Family Trust of 1998, dated May 7, 1998 (collectively, Original LL), and BI Incorporated, as
tenant, as amended by First Amendment to Lease dated November
19, 2001, Second Amendment not provided, Third Amendment to Lease dated October 20, 2004 between
Joe and Eileen Boswell, Trustees of the Boswell Family Trust dated September 17, 1993, and Michelle
L. Boswell, as successors in interest to Original LL (collectively, LL), and BI Incorporated;
Fourth Amendment to Lease dated August 7, 2005; Fifth Amendment to Lease dated August 27, 2007;
Exercise Letter dated October 27, 2009 from BI Incorporated to WRA Property Management, Inc.; and
Exercise Letter dated July 16, 2010 from BI Incorporated to WRA Property Management Inc.
55. (55 Marietta St., Suite 300, Atlanta, Georgia 30303) Office Lease Agreement dated July 2,
2009 between First Amendment to Lease dated August 1, 2009 between Bank Building Limited
Partnership, as landlord, and B.I. Incorporated, as tenant.
56. (231 East Baltimore Street, Suite 1002 Baltimore, Maryland 21202) Office Lease dated May
19, 2004 between Orion Properties I, LLC, a Maryland limited liability company, as landlord, and
B.I. Incorporated, as tenant, as amended by Extension and Amendment to Lease dated June ___, 2007
and Second Extension and Amendment to Lease dated June 8, 2009.
57. (7850 Metro Parkway, Suite 203, Bloomington, Minnesota) (Standard Office) Lease Agreement
dated May 3, 2004 between Metropolitan Airports Commission, as landlord, and BI Incorporated, as
tenant, as amended by Amendment No. 1 to Lease dated August 15, 2006.
58. (129 Portland Street, 5th Floor, Boston, Massachusetts 02114) Lease dated
__________ 2009 between Olympia Group Limited Partnership, as landlord, and B.I. Incorporated.
59. (Suite 2B, 410 E. 189th Street, Bronx, City of New York, New York 10458) Standard Form of
Office Lease dated December 1, 2009 between Banner Realty Company, LLC, as landlord, and BI
Incorporated, as tenant.
60. (408 Jay Street, 5th Floor, Brooklyn, New York 11201) Office Lease
dated January 19, 2010 between Jay Street Realty Associates, as landlord, and B.I. Incorporated, as
tenant.
61. (465 Main Street, Annex Building, Buffalo, New York 14203) Lease Agreement dated August
17, 2009 between Upwood Associates, LLC, as landlord, and B.I. Incorporated, as tenant, as amended
by First Amendment to Lease dated August 17, 2009.
62. (Suite #230, 5000 Nations Crossing Road, Charlotte, North Carolina 28217) Office Lease
dated June 29, 2009 between TAC Holdings, LP, as landlord, and B.I. Incorporated, as tenant.
63. (Suite 240, 820 West Jackson Boulevard, Chicago, Illinois 60607) Office Building Lease
dated June 29, 2009, between 820 West Jackson L.L.C., as landlord, and B.I. Incorporated, as
tenant.
64. (Suite 620, 7929 Brookriver Drive, Dallas Texas 75427) Lease Agreement dated June, 2009
between 7929 Brookriver, LP, as landlord, and B.I. Incorporated, as tenant, as amended by First
Amendment to Lease dated July 8, 2010.
65. (4723 West Atlantic Avenue, Building A, Suites 15, 16 & 17, Delray Beach, Florida 33445)
Delray Office Plaza Standard Lease between Delray Office Plaza Ltd, as landlord, and B.I.
Incorporated, as tenant.
66. (6551 South Revere Parkway Centennial, Colorado 80111) Office Space Lease dated June 9,
2009 between Eaglecreek Associates IV, as landlord, and BI Incorporated, as tenant.
67. (Chene Square Shopping Center, 2636 East Jefferson Avenue, Detroit, Michigan) Lease dated
July 2009 between Ammori Investments, Inc., as landlord, and B.I. Incorporated, as tenant.
68. (1535 Hawkins Boulevard, Suites D & E, El Paso, Texas 79925-2648) Standard Shopping Center
Lease Marios Holdings, LLC, as landlord, and B.I. Incorporated, as tenant dated June 18, 2009.
69. (Suite #2-101, 75 Charter Oak Avenue, Hartford, Connecticut 06106) Lease dated September
1, 2009 between 75 Charter Oak, L.P., as landlord, and B.I. Incorporated, as tenant.
70. (Suite Nos. 150, 151 and a portion of 160, 450 N. Sam Houston Parkway E., Houston, Texas
77060) Office Building Lease dated July 8, 2009 between Shomer VI, Ltd., as landlord, and B.I.
Incorporated, as tenant.
71. (4613 N.W. Gateway Riverside, Missouri 64150) Commercial Lease between G. Winston Peeler
II and Brenda J. Peeler, as landlord, and BI Incorporated, as tenant.
72. (Suite 400, 316 West Second Street, Los Angeles, California 90012) Lease dated October 5,
2007 between Broadway Civic Center, L.P., as landlord, and BI Incorporated, as tenant, as amended
by First Amendment to Lease dated July 30, 2008 and Second Amendment to Lease dated June 7, 2010.
73. (52 Duane Street, Suite B, Lower Level, New York, New York) Standard Form of Office Lease
- The Real Estate Board of New York, Inc. dated January 29, 2010 between 52 Duane Associates LLC,
as landlord, and B.I. Incorporated, as tenant.
74. (Units 500-505, 12550 Biscayne Boulevard, Miami, Florida 33181) Lease dated October 13,
2009 between NRD Investments, LLC, as landlord, and BI Incorporated, as tenant.
75. (318 South Broad Street, New Orleans, Louisiana 70119) Gross Commercial Lease Agreement
dated June 30, 2009 between Elite Acquisitions, Inc., as landlord, and BI Incorporated, as tenant.
76. (7th floor, 972 Broad Street, Newark, New Jersey 07102) Lease Agreement dated as of July
2009 between Sunrise Newark Development, Inc., as landlord, and BI Incorporated, as tenant.
77. (Suite 160, 9500 Satellite Boulevard, Orlando, Florida 32827) Commercial Lease Agreement
effective as of October 1, 2010 between 9500 Satellite Boulevard, LLC, as landlord, and BI
Incorporated, as tenant.
78. (42 South 15th Street, Suite 1010, Philadelphia, Pennsylvania) Office Lease [undated]
between 15th & Chestnut, L.P., as landlord, and BI Incorporated, as tenant, as amended by First
Amendment to Lease dated November 18, 2009.
79. (Suite #1215, One Thomas Office Building, 2828 N. Central Avenue, Phoenix, Arizona 85004)
Office Lease dated as of July 14, 2009 between Eldan Properties, LLC, as landlord, and BI
Incorporated, as tenant.
80. (Suite 500, 10 NW 3rd Avenue, Portland, Oregon 97209) Office Lease
dated as of April 28, 2004 between Fritz Hotel Building, LLC, as landlord, and BI Incorporated, as
tenant, with Addendum to Lease, as amended by First Amendment to Lease dated March 16, 2010.
81. (7th floor, Suites 17 and 18, 163-18 Jamaica Avenue, Jamaica, New
York) Agreement of Lease dated December 4, 2007 between 163-18 Jamaica Realty Corp., as landlord,
and BI Incorporated, as tenant, together with Rider to Lease, as amended by Lease Modification and
Extension Agreement dated June 22, 2010.
82. (Suite 105, 5296 South Commerce Drive, Murray, Utah) Lease dated as of July 2, 2009
between 5300 South Commerce Dr. Assoc., L.C., as landlord, and BI Incorporated, as tenant.
83. (Suite 160, 1800 N.E. Loop 410, San Antonio, Texas 78218) Lease Agreement dated as of July
22, 2009 between James F. Cotter, as landlord, and BI Incorporated, as tenant.
84. (Suite 313 and Suite 308, 255 North D Street, San Bernardino, California) Commercial Lease
dated as of March 21, 2008 between Luxor Properties, Inc. (as successor-in-interest to Eugene
Sussli), as landlord, and BI Incorporated, as tenant, as amended by Amendment to the Commercial
Lease dated November 18, 2008, as amended by Lease Extension/Month to Month Tenancy dated May 26,
2009, Third Amendment to Lease dated August 19, 2009 and Fourth Amendment to Lease dated December
22, 2009.
85. (Suite 101, 520 West Ash Street, San Diego, California 92101) Standard Multi-Tenant Office
Lease dated June 29, 2009 between D&A Semi-Annual Mortgage Fund III, LP, as landlord, and BI
Incorporated, as tenant , together with Addendum.
86. (323-325 Pacific Avenue, 1st Floor, San Francisco, California)
Standard Multi-Tenant Office Lease dated June 9, 2009 between 325 Pacific Avenue Partners, as
landlord, and BI Incorporated, as tenant , together with Addendum.
87. (Suite 160, 901 Civic Center Drive, Santa Ana, California 92702) Office Lease Agreement
dated May 12, 2008 between NNN VF 901 Civic, LLC, as landlord, and BI Incorporated, as tenant.
88. (Suite A-160, 14220 Interurban Avenue South, Tukwila, Washington 98188) Office Lease dated
July 9, 2009 between Principle Equity Properties, LP on behalf of the tenant in common owners of
Fairway Center, as landlord, and BI Incorporated, as tenant.
89. (Suite 200, 2721 Prosperity Avenue, Fairfax, Virginia 22031) Industrial Lease Agreement
dated June 26, 2009 between PS Business Parks, LP, as landlord, and BI Incorporated, as tenant.
90. (26 South Pennsylvania Avenue, 4th Floor, Atlantic City, New
Jersey) Lease Agreement Business and Commercial between 26 South Pennsylvania Avenue Realty Co., as
landlord, and B.I. Incorporated, as tenant.
91. (15290 E. 6th Avenue, Suite #160, Chambers Office Centre, Aurora,
Colorado 80011) Office Lease (Chambers Centre Shopping Center Office Building) aka Chambers Office
Centre dated April 23, 2003, between Chambers Center LLC, as landlord, and B.I. Incorporated, as
amended by Lease Extension and Amendment Agreement (Chambers Centre) dated May 28, 2008.
92. (402 Beavercreek Road, Suite 105, Oregon City, Oregon 97045) Commercial Lease dated
September 26, 2007 between Red Soils Business and Industrial Park, L.L.C., as landlord, and B.I.
Inc., as tenant.
93. (Green Front Center, 341 W. Compton Boulevard, Compton, California 90220) Standard
Industrial/Commercial Multi-Tenant Lease Gross-Modified dated as of September 27, 2010 between
Mac R. Esfandi and the Mac R. Esfandi Trust, as landlord, and BI Incorporated, as tenant , together
with, Option to Extend Addendum and Addendum.
94. (876 West Grand Avenue, Decatur, Illinois 62522) Lease dated December 2, 2004 between
William P. Glasscock, as landlord, and B.I. Incorporated, as tenant, as amended by that certain
Amendment to Lease dated March 11, 2008 and that certain Second Amendment to Lease dated October
22, 2009.
95. (700 W. Colfax Avenue, Denver, Colorado 80204) Standard Commercial Lease dated _______
between RMO, Inc. (d/b/a Rocky Mountain Orthodontics, Inc.), as landlord, and B.I. Incorporated, as
tenant.
96. (Certain areas in St. Pauls Episcopal Church, 161 Mansion Street, Poughkeepsie, New York
12601) Lease dated as of September 1, 1997 between the Vicar, Church Wardens and
Vestrypersons of St. Pauls Episcopal Church, as landlord, and BI Incorporated, as tenant, as
amended by Letter Agreement dated December 15, 2009 and First Amendment to Lease dated September
14, 2010.
97. (Unit B204, 960 Chambers Avenue in Building B of Chambers Avenue Professional Center,
Eagle, Colorado 81631) Lease Agreement dated January 21, 2009 between Roberts Family LLC, as
landlord, and B.I. Incorporated, as tenant.
98. (208 Commerce Place, 2nd Floor, Elizabeth, New Jersey 07201)
Business Lease dated August 1, 2007 between 208 Commerce LLC, as landlord, and B.I. Industries, as
tenant.
99. (699 Summit Boulevard, Suite J, Frisco, Colorado 80443) Commercial Lease effective as of
July 1, 2009 between Glynd McDowell, Edith M. McDowell, as landlord, and Behavioral Interventions,
as tenant.
100. (Suites 1319C and 1319D, 1319 Grand Avenue, Glenwood Springs, Colorado 81602) Commercial
Lease Agreement dated June 4, 2010 between Roaring Fork Counseling Center, as landlord, and BI,
Inc., as tenant.
101. (810 9th Street, Greely, Colorado 80631) Lease Agreement dated
July 19, 2005 between Thomas and Tyler, LLC, as landlord, and BI Incorporated, as tenant, as
amended by that certain Amendment of Lease Agreement dated September 19, 2005, that certain
Amendment to Lease Agreement dated August 24, 2006 and that certain Amendment of Lease Agreement
dated March 31, 2008.
102. (500 Baker Street, Bakersfield, California) Agreement for Sublease dated as of October
26, 2010 between the County of Kern, State of California, as sublandlord, and BI Incorporated, as
subtenant, subject to that certain Agreement for Lease dated October 15, 2009 between the landlord
thereunder and the County of Kern, State of California.
103. (Units P-R, 2099 Wadsworth Boulevard, Lakewood, Colorado) Parkridge Plaza Lease between
R.M.T.O limited liability company, as landlord, and BI Incorporated, as tenant, executed October
28, 2002, as amended by Lease Addendum for Relocation and Reduction and Extension of Term of the
Demised Premises (addendum to Lease Agreement dated October 28, 2002 as amended by that certain
Addendum to Lease Extension dated October 28, 2005 between JB One, LLC, as landlord, and BI
Incorporated, as tenant, and Addendum for Lease Extension dated October 28, 2002.
104. (Suite 2, 125 North Wilkes-Barre Boulevard, Wilkes-Barre, Pennsylvania 18702) Lease dated
August 8, 2007 between Joseph J. Bennett and/or Debra Kay Bennett, as landlord, and BI
Incorporated, as tenant.
105. (Suite 4, 125 North Wilkes-Barre Boulevard, Wilkes-Barre, Pennsylvania 18702) Lease dated
May 25, 2010 between Joseph J. Bennett and/or Debra Kay Bennett, as landlord, and BI Incorporated,
as tenant.
106. (3345 M Street, Merced, California 95348) Commercial Lease Agreement dated January 9,
2008 between John A. Lucas, Ila A. Lucas, Trustees, as landlord, and BI Incorporated, as tenant, as
amended by Third Amendment to Lease dated January 14, 2010.
107. (Lower Level, East End, Door A, 2040 Sixth Avenue, Neptune City, New Jersey 07753 ) Lease
Agreement dated July 30, 2008 between Jersey Shore Plaza, L.L.C., as landlord, and BI Incorporated,
as tenant.
108. (530 Malley Drive, Suite 506, Northglenn, Colorado 80233) Shopping Center Lease dated as
of August 15, 2007 between Malley Heights, LLC, as landlord, and BI Inc., as tenant.
109. (4750 N. Sheridan Road, Suite 200, Chicago, Illinois 60640) Memorandum of Understanding
dated as of November 1, 2009 between The Institute of Cultural Affairs (Ecumenical Institute), as
landlord, and BI Incorporated, as tenant.
110. (205-207 New Brunswick Avenue, Suite C, Perth Amboy, New Jersey 08861) Agreement of Lease
dated as of February 10, 2006 between 203 New Brunswick, LLC, as landlord, and BI Incorporated, as
tenant, as amended by First Amendment to Lease dated February 24, 2010 and Letter Amendment dated
December 9, 2010.
111. (1224 Tacoma Avenue, Tacoma, Washington 98402) Lease Agreement dated as of October 6,
2010 between Roberson Building Company, as landlord, and BI Incorporated, as tenant, together with
(i) Addendum/ Amendment to CBA Leases, (ii) Rent Rider, (iii) Parking Rider, and (iv) Option to
Extend Rider.
112. (1430-F Railroad Avenue, Rifle, Colorado 81650) Commercial Lease Agreement dated as of
June 4, 2010 between Roaring Fork Counseling Center, as landlord, and BI, Inc., as tenant.
113. (Suites 213 & 217 located at 119 Church Street, Rockford, Illinois 61101) Office Lease
dated as of December 1, 2004 between The Chicago Trust Company, as successor trustee to First
America Trust Co, under Trust #669, as landlord, and BI Incorporated, as tenant , together with
Rider, and amended by Amendment to Lease dated March 14, 2008 and Amendment to Lease dated November
5, 2009.
114. (Suite 1, 427 Pajaro Street, Salinas, California 93901) Standard Multi-Tenant Office
Lease dated as of November 3, 2009 between Beverly Peterson and Rose Marie Pozas, as landlord, and
BI Incorporated, as tenant.
115. (3211 Jefferson Street, San Diego, California) Commercial Building Lease dated as of
August 31, 2010 between P and G Company, as landlord, and BI Incorporated, as tenant.
116. (Suite 225, 1513 Line Avenue, Shreveport, Louisiana) P&S Building Lease dated as of May
11, 2010 between Mid-City Plaza, L.L.C., as landlord, and BI Incorporated, as tenant.
117. (Honor Farm Barracks A, B and C located at 7000 Michael N. Canlis Road, French Camp,
California 95231 aka 1003 W. Matthew Road, French Camp, California 95231) Office Lease dated March
1, 2008 between San Joaquin County, California, as landlord, and BI Incorporated, as tenant, as
amended by Letter re: Exercise of First Lease Option dated January 5, 2010.
118. (3311 S. Fairway, Visalia, California 9327) Commercial Lease and Deposit Receipt dated
January 7, 2010 between Jon E. Marling & Tamara Marling Family Partnership, as landlord, and BI
Incorporated, as tenant.
119. (3490 W. Grand Avenue, Chicago, Illinois) Office Lease dated April __, 2005 between
Millennium Properties, Inc., as agent for landlord, and BI Incorporated, as tenant, as amended by
First Amendment to Lease dated April 30, 2008 and Second Amendment to Lease dated April 28, 2010.
120. (703 East 21st North, Wichita, Kansas 67214) Commercial Lease
dated as of May 31, 2002 between Webb Road Development, Inc., as landlord (WRD), and
Community Solutions, Inc. (CSI); Lease Guaranty Agreement/Construction Funding dated May
31, 2002 between the City of Wichita, Kansas (City), WRD and CSI; Assignment and
Assumption of Lease and Landlords Consent dated November __, 2005 between CSI, BI Incorporated,
and WRD; Agreement Regarding Lease and Guaranty dated December 13, 2005 between City, WRD, CSI and
BI Incorporated; Second Agreement Regarding Lease and Guaranty dated December __, 2008 between BI
Incorporated and City; Services Agreement dated June 1, 2006 between Sedgwick County, Kansas and BI
Incorporated, together with Amendment to Services Agreement dated December 14, 2006, Addendum to
Services Agreement dated December 19, 2007 and Second Addendum to Services Agreement dated June 17,
2008.
And, any other owned or leased real estate interests which in the aggregate are not material.
Exhibit A
See attached
Amendment No. 1
exv10w34
Exhibit 10.34
EXECUTION COPY
SERIES A-2 INCREMENTAL LOAN AGREEMENT*
dated as of
February 8, 2011
between
THE GEO GROUP, INC.,
As Borrower
The Lenders referred to herein
and
BNP Paribas,
as Administrative Agent
BNP PARIBAS SECURITIES CORP.,
as Lead Arranger
|
|
|
* |
|
Certain portions of the Series A-2 Incremental Loan Agreement have been omitted based upon a
request for confidential treatment filed with the Securities and Exchange Commission. The
non-public information has been filed with the Securities and Exchange Commission. |
SERIES A-2 INCREMENTAL LOAN AGREEMENT
SERIES A-2 INCREMENTAL LOAN AGREEMENT dated as of February 8, 2011 between THE GEO GROUP,
INC., (the Borrower), the GUARANTORS party hereto (the Guarantors), the SERIES
A-2 INCREMENTAL LENDERS party hereto and BNP PARIBAS., as Administrative Agent for the lenders (in
such capacity, together with its successors in such capacity, the Administrative Agent).
The Borrower, the lenders party thereto and BNP Paribas as the Administrative Agent, are
parties to a Credit Agreement dated as of August 4, 2010 (as amended by Amendment No. 1, the
Credit Agreement).
Pursuant to Section 2.01(d) of the Credit Agreement, the Borrower may request that one
or more Persons (which may include the Lenders under the Credit Agreement) offer to enter into
commitments to make Incremental Loans under and as defined in said Section 2.01(d),
subject to the conditions specified in said Section 2.01(d). The Borrower accordingly has
requested that Incremental Loans under said Section 2.01(d) be made available to it in an
aggregate principal amount equal to $150,000,000 in a single series of term loans to be designated
the Series A-2 Incremental Loans. The Series A-2 Incremental Lenders (as defined below) are
willing to make such loans on the terms and conditions set forth below and in accordance with the
applicable provisions of the Credit Agreement, and accordingly, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINED TERMS
Terms defined in the Credit Agreement are used herein as defined therein, except to the extent
the same term is defined herein, in which case this Agreement shall control. The following terms
have the meanings specified below:
Acquisition means the acquisition by the Borrower of the Target Company
through its wholly-owned subsidiary GEO Acquisition IV, Inc., pursuant to the Merger
Agreement.
Closing Date means the date when the Acquisition and transactions
contemplated thereby are consummated.
Merger Agreement means the Agreement and Plan of Merger dated as of December
21, 2010 among the Borrower, GEO Acquisition IV, Inc. and Target Company.
Principal Payment Dates means the Principal Payment Dates for Tranche A Term
Loans as in the effect on the date hereof.
Required Series A-2 Incremental Lenders means, at any time, Series A-2
Incremental Lenders having Series A-2 Incremental Commitments representing at least a
majority of the sum of the total Series A-2 Incremental Commitments at such time.
Series A-2 Incremental Commitment means, with respect to each Series A-2
Incremental Lender, the commitment of such Lender to make Series A-2 Incremental Loans
hereunder. The amount of each Series A-2 Incremental Lenders Series A-2 Incremental
Commitment is on record with the Administrative Agent. The aggregate original amount of the
Series A-2 Incremental Commitments is $150,000,000.
Series A-2 Incremental Lender means on the date hereof, the Persons listed on
the signature pages hereto under the caption Series A-2 Incremental Lender.
Series A-2 Incremental Loan Effective Date means the date on which the
conditions specified in Article IV are satisfied (or waived by the Required Series A-2
Incremental Lenders in accordance with Section 9.02).
Series A-2 Incremental Loans means the Loans made to the Borrower pursuant to
this Agreement which shall constitute a single Series of Incremental Loans under Section
2.01(d) of the Credit Agreement.
Target Company means BII Holding Corporation, a corporation organized under
the laws of the State of Delaware.
ARTICLE II
SERIES A-2 INCREMENTAL LOANS
Section 2.01. Series A-2 Incremental Commitments. Subject to the terms and
conditions set forth herein and in the Credit Agreement, each Series A-2 Incremental Lender agrees
to make Series A-2 Incremental Loans to the Borrower, in an aggregate principal amount equal to
such Series A-2 Incremental Lenders Series A-2 Incremental Commitment. Proceeds of Series A-2
Incremental Loans shall be used in accordance with Section 5.08 of the Credit Agreement, to
pay expenses related to the Acquisition, and to repay certain Indebtedness of the Target Company.
Section 2.02. Termination of Series A-2 Incremental Commitments. Unless previously
terminated, the Series A-2 Incremental Commitments shall terminate after the borrowing of the
Series A-2 Incremental Loans on the Series A-2 Incremental Loan Effective Date.
Section 2.03. Repayment of Series A-2 Incremental Loans. The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of the Series A-2
Incremental Lenders the outstanding principal amount of the Series A-2 Incremental Loans on each
Principal Payment Date set forth below in the aggregate principal amount set forth opposite such
Principal Payment Date:
|
|
|
|
|
Principal Payment Date |
|
Principal Amount |
Each of the Principal Payment Dates falling after the
Amendment No. 1 Effective Date and on or before the
second anniversary of the Amendment No. 1 Effective Date |
|
$ |
1,875,000 |
|
|
|
|
|
|
Each of the Principal Payment Dates falling after the
second anniversary of the Amendment No. 1 Effective Date
and on or before the third anniversary of the Amendment
No. 1 Effective Date |
|
$ |
3,750,000 |
|
|
|
|
|
|
Each of the Principal Payment Dates falling after the
third anniversary of the Amendment No. 1 Effective Date
and on or before the fourth anniversary of the Amendment
No. 1 Effective Date |
|
$ |
7,500,000 |
|
|
|
|
|
|
Each of the Principal Payment Dates falling after the
fourth anniversary of the Amendment No. 1 Effective Date
and on or before the fifth anniversary of the Effective
Date |
|
$ |
45,000,000 |
|
To the extent not previously paid, all Series A-2 Incremental Loans shall be due and payable on the
Term Loan Maturity Date with respect to Tranche A Term Loans.
Section 2.04. Applicable Rate. The Applicable Rate means, in the case of
any Type of Series A-2 Incremental Loans, applicable rate per annum set forth below, based upon the
Total Leverage Ratio as of the most recent determination date:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABR |
|
Eurodollar |
|
|
|
|
|
|
Applicable |
|
Applicable |
|
Commitment |
Category |
|
Total Leverage Ratio |
|
Rate |
|
Rate |
|
Fee Rate |
1 |
|
>4.25 to 1.00 |
|
|
2.00 |
% |
|
|
3.00 |
% |
|
|
0.500 |
% |
2 |
|
>3.75 to 1.00
and £4.25 to
1.00 |
|
|
1.75 |
% |
|
|
2.75 |
% |
|
|
0.500 |
% |
3 |
|
>3.25 to 1.00
and £3.75 to
1.00 |
|
|
1.50 |
% |
|
|
2.50 |
% |
|
|
0.500 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABR |
|
Eurodollar |
|
|
|
|
|
|
Applicable |
|
Applicable |
|
Commitment |
Category |
|
Total Leverage Ratio |
|
Rate |
|
Rate |
|
Fee Rate |
4 |
|
>2.50 to 1.00
and £3.25 to
1.00 |
|
|
1.25 |
% |
|
|
2.25 |
% |
|
|
0.500 |
% |
5 |
|
<2.50 to 1.00 |
|
|
1.00 |
% |
|
|
2.00 |
% |
|
|
0.375 |
% |
For purposes of the foregoing, (i) the Total Leverage Ratio shall be Category 2 as of the
Series A-2 Incremental Loan Effective Date, and shall thereafter be determined as of the end of
each fiscal quarter of the Borrower (starting with its fiscal quarter ending nearest to December
30, 2010) based upon the Borrowers consolidated financial statements delivered pursuant to
Section 5.01(a) or (b) of the Credit Agreement and (ii) each change in the
Applicable Rate resulting from a change in the Total Leverage Ratio shall be effective on the date
10 Business Days after delivery to the Administrative Agent of such consolidated financial
statements indicating such change and ending on the date immediately preceding the effective date
of the next such change; provided that the Total Leverage Ratio shall be deemed to be in Category 1
(A) at any time that an Event of Default has occurred and is continuing and (B) if the Borrower
fails to deliver the consolidated financial statements required to be delivered by it pursuant to
Section 5.01(a) or (b) of the Credit Agreement, during the period from the
expiration of the time for delivery thereof until such consolidated financial statements are
delivered.
Notwithstanding anything to the contrary contained in this definition, the determination of
the Applicable Rate for any period shall be subject to the provisions of Section 2.12(f) of
the Credit Agreement.
Section 2.05. Status of Agreement. Series A-2 Incremental Commitments of each Series
A-2 Incremental Lender constitute Incremental Loan Commitments and each Series A-2 Incremental
Lender constitutes an Incremental Loan Lender, in each case under and for all purposes of the
Credit Agreement. The Series A-2 Incremental Loans constitute a single Series of Incremental
Loans under Section 2.01(d) of the Credit Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; NO DEFAULTS
Borrower represents and warrants to the Administrative Agent and the Lenders as to itself and
each of its Restricted Subsidiaries that, after giving effect to the provisions hereof, (i) each of
the representations and warranties set forth in the Credit Agreement and the other Loan Documents
is true and correct on and as of the date hereof as if made on and as of the date hereof (or, if
any such representation or warranty is expressly stated to have been made as of a specific date,
such representation or warranty is true and correct as of such specific date) and as if each
reference therein to the Credit Agreement or Loan Documents included reference to this Agreement
and (ii) no Default has occurred and is continuing. All references herein to the date hereof
mean references to the date of the Credit Agreement.
ARTICLE IV
CONDITIONS
The obligation of each Series A-2 Incremental Lender to make its Series A-2 Incremental
Commitment is subject to the conditions precedent that each of the following conditions shall have
been satisfied (or waived by the Required Series A-2 Incremental Lenders) on or prior to February
10, 2011:
(a) Acquisition. Evidence that the Acquisition and transactions contemplated
thereby shall be consummated in all material respects simultaneously in accordance with the
Merger Agreement and applicable law; and all closing documentation related to the Merger
Agreement shall be reasonably satisfactory to the Administrative Agent. The Acquisition
shall have been approved by the Board of Directors of the Borrower and the Target Company
and shall otherwise be regarded as a friendly acquisition.
(b) Additional Subsidiaries. Evidence that requirements of Section
5.09(a) of the Credit Agreement with respect to additional Subsidiaries have been
satisfied.
(c) Opinions, Corporate Documentation. The Administrative Agent shall have
received such legal opinions, corporate documentation, certificates and similar documents as
shall be customary for a transaction of this type.
(d) Fees and Expenses. Evidence that all fees and expenses have been paid in
full on or prior to the Closing Date to the Administrative Agent, BNP Paribas Securities
Corp. and the Lenders as the Borrower has agreed to pay in connection with the increase of
Series A-2 Incremental Commitments.
(e) Ratings. The Borrowers senior secured debt shall be rated by Standard &
Poors Ratings Services, a Division of the McGraw-Hill Companies, Inc. and Moodys Investors
Service, Inc.
(f) No Default. No Default or Event of Default under the Credit Agreement
shall have occurred and be continuing at the time of the increase of Series A-2 Incremental
Commitments after giving effect to the Acquisition.
(g) Representations and Warranties. The representations and warranties of the
Borrower set forth in the Credit Agreement shall be true and correct as of such time (or, to
the extent any such representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date), provided that neither the Borrower nor any
Guarantor shall be required to make any such representation or warranty that is inaccurate
(and the accuracy of any such representation or warranty shall not constitute a condition
precedent if both (a) the Borrower shall have notified the Administrative Agent at least
three Business Days prior to the consummation of the Acquisition of which such
representation or warranty it cannot make, and describing the inaccuracy in reasonable
detail, and (b) such inaccuracy is not materially adverse with respect to (i) the
properties, business, operations, or condition (financial or otherwise) of the Borrower and
its Subsidiaries taken as a whole, (ii) the ability of the Borrower or any Guarantors to
perform its payment and other material obligations under the Loan Documents or (iii) the
validity or enforceability of any Loan Document or the rights and remedies of the Lenders
thereunder).
(h) Counterparts of Agreement. The Administrative Agent (or Special Counsel)
shall have received from each party hereto either (i) a counterpart of this Agreement signed
on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent
(which may include telecopy transmission of a signed signature page of this Agreement) that
such party has signed a counterpart of this Agreement.
(i) Notes. The Administrative Agent (or Special Counsel) shall have received
for each Series A-2 Incremental Lender that shall have requested a promissory note, a duly
completed and executed promissory note for such Series A-2 Incremental Lender.
(j) Additional Conditions. Each of the conditions precedent set forth in
Sections 2.01(d) and 4.02(a) and (c) (giving effect to paragraph (h)
of Article IV hereof) of the Credit Agreement to the increase of Series A-2 Incremental
Commitments and the making of Series A-2 Incremental Loans on the Series A-2 Incremental
Loan Effective Date shall have been satisfied, and the Administrative Agent (or Special
Counsel) shall have received a certificate to such effect, dated the Series A-2 Incremental
Loan Effective Date and signed by the President, Vice President or a Financial Officer of
the Borrower.
ARTICLE V
MISCELLANEOUS
SECTION 6.01. Expenses. The Credit Parties jointly and severally agree to pay, or
reimburse BNP Paribas Securities Corp. for paying, all reasonable out-of-pocket expenses incurred
by BNP Paribas Securities Corp. and its Affiliates, including the reasonable fees, charges and
disbursements of Special Counsel, in connection with the syndication of the Series A-2 Incremental
Commitments provided for herein and the preparation of this Agreement.
SECTION 6.02. Counterparts; Integration; Effectiveness. This Agreement may be
executed in counterparts (and by different parties hereto on different counterparts), each of which
shall constitute an original, but all of which when taken together shall constitute a single
contract. This Agreement shall become effective when this Agreement shall have been executed by
the Administrative Agent and when the Administrative Agent shall have received counterparts hereof
which, when taken together, bear the signatures of each of the other parties hereto, and thereafter
shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page of
this Agreement by telecopy shall be effective as delivery of a manually executed counterpart
of this Agreement.
SECTION 6.03. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York.
SECTION 6.04. Headings. Article and Section headings used herein are for convenience
of reference only, are not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.
SECTION 6.05. USA Patriot Act. Each Series A-2 Incremental Lender hereby notifies
the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)), such Series A-2 Incremental Lender may be required to obtain,
verify and record information that identifies the Borrower, which information includes the name and
address of the Borrower and other information that will allow such Series A-2 Incremental Lender to
identify the Borrower in accordance with said Act.
[Signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
|
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|
|
|
THE GEO GROUP, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
Sr. VP & CFO |
|
|
GUARANTORS
By its signature below, the undersigned hereby consents to the foregoing Series A-2
Incremental Loan Agreement and confirms that the Series A-2 Incremental Loans shall constitute
Guaranteed Obligations under and as defined in the Guarantee Agreement and shall be entitled to
the benefits of the Guarantee and security provided under Guarantee Agreement.
|
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|
|
|
CORRECTIONAL SERVICES CORPORATION
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP & Treasurer |
|
|
|
CORRECTIONAL PROPERTIES PRISON FINANCE LLC
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, Finance |
|
|
|
CPT LIMITED PARTNER, LLC
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, Finance |
|
|
|
CPT OPERATING PARTNERSHIP L.P.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, Finance |
|
|
|
GEO ACQUISITION II, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, Finance |
|
|
|
GEO ACQUISITION IV, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP-Finance |
|
|
|
GEO CARE, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
Treasurer |
|
|
|
GEO HOLDINGS I, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, Finance |
|
|
|
GEO RE HOLDINGS LLC
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
SVP & Treasurer |
|
|
|
GEO TRANSPORT, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP & Treasurer |
|
|
|
JUST CARE, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP & Treasurer |
|
|
|
PUBLIC PROPERTIES DEVELOPMENT AND LEASING LLC
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, Finance |
|
|
|
|
|
|
|
|
CORNELL COMPANIES, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CCG I CORPORATION
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL ABRAXAS GROUP, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL COMPANIES ADMINISTRATION, LLC
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL COMPANIES MANAGEMENT HOLDINGS, LLC
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL COMPANIES MANAGEMENT, LP
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
|
|
|
|
|
CORNELL COMPANIES MANAGEMENT SERVICES, LIMITED PARTNERSHIP
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL CORRECTIONS MANAGEMENT, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL CORRECTIONS OF ALASKA, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL CORRECTIONS OF CALIFORNIA, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL CORRECTIONS OF RHODE ISLAND, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL CORRECTIONS OF TEXAS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORNELL INTERVENTIONS, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
CORRECTIONAL SYSTEMS, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
WBP LEASING, INC.
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
WBP LEASING, LLC
|
|
|
By: |
/s/ Brian R. Evans
|
|
|
|
Name: |
Brian R. Evans |
|
|
|
Title: |
VP, CFO |
|
|
|
|
|
|
|
|
ADMINISTRATIVE AGENT
BNP PARIBAS, as Administrative Agent
|
|
|
By: |
/s/ Brendan Heneghan
|
|
|
|
Name: |
Brendan Heneghan |
|
|
|
Title: |
Vice President |
|
|
|
|
|
|
By: |
/s/ John Treadwell, Jr.
|
|
|
|
Name: |
John Treadwell, Jr. |
|
|
|
Title: |
Vice President |
|
|
SERIES A-2 INCREMENTAL LENDERS SIGNATORIES HERETO*
|
|
|
* |
|
Confidential terms omitted and provided separately to the Securities and Exchange
Commission. |
exv31w1
EXHIBIT 31.1
THE GEO GROUP, INC.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, George C. Zoley, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of The GEO Group, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
|
|
(d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
|
Date:
May 10, 2011 |
/s/ George C. Zoley
|
|
|
George C. Zoley |
|
|
Chief Executive Officer |
|
exv31w2
EXHIBIT 31.2
THE GEO GROUP, INC.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Brian R. Evans, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of The GEO Group, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
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Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
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(b) |
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Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
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(c) |
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Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
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(d) |
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Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
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(a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
|
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(b) |
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Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
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Date:
May 10, 2011 |
/s/ Brian R. Evans
|
|
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Brian R. Evans |
|
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Chief Financial Officer |
|
exv32w1
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 April 3, 2011 as filed with the Securities and Exchange Commission on the date hereof
(the Form 10-Q), I, George C. Zoley, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:
(1) |
|
The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and |
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(2) |
|
The information contained in the Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
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|
|
|
|
|
|
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/s/ George C. Zoley
|
|
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George C. Zoley |
|
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Chief Executive Officer |
|
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Date:
May 10, 2011
exv32w2
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 April 3, 2011 as filed with the Securities and Exchange Commission on the date hereof
(the Form 10-Q), I, Brian R. Evans, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:
(1) |
|
The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and |
|
(2) |
|
The information contained in the Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
|
|
|
|
|
|
|
/s/ Brian R. Evans
|
|
|
Brian R. Evans |
|
|
Chief Financial Officer |
|
|
Date:
May 10, 2011