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 completionfull integration 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 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.
Forward-Looking Statements — Safe Harbor
This Annual Report onForm 10-K 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;
our ability to fulfill our debt service obligations and its impact on our liquidity;
| | |
| • | our ability to timely buildand/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; |
|
| • | 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; our ability to maintain occupancy rates at our facilities; an increase in unreimbursed labor rates; |
|
| • | our ability to expand, diversify and grow our correctional, mental health and residential treatment services businesses; |
|
| • | 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 government’s 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; |
77
our ability to expand, diversify and grow our correctional, detention, mental health, residential treatment, re-entry, community-based services, youth services, monitoring services, evidence-based supervision and treatment programs and secure transportation services businesses;
our ability to win management contracts for which we have submitted proposals, retain existing management contracts and meet any performance standards required by such management contracts;
our ability to control operating costs associated with contract start-ups;
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 government’s 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 successfully respond to delays encountered by states privatizing correctional services and cost savings initiatives implemented by a number of states;
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, and estimate the synergies to be achieved as a result of such acquisitions;
our exposure to the impairment of goodwill and other intangible assets as a result of our acquisitions;
our ability to successfully conduct our operations through joint ventures;
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 political and economic instability and other risks impacting our international operations;
our exposure to risks impacting our information systems, including those that may cause an interruption, delay or failure in the provision of our services;
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 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 to continue to operate under our existing agreements and/or renew our existing agreements;
our ability to pay quarterly dividends consistent with our expectations;
our ability to comply with government regulations and applicable contractual requirements;
our ability to acquire, protect or maintain our intellectual property; 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 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K filed with the SEC.
| | |
| • | our ability to successfully integrate Cornell and BI 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 acquisition of Cornell and BI; |
|
| • | our ability to successfully address any difficulties encountered in maintaining relationships with customers, employees or suppliers as a result of our acquisition of Cornell and BI; |
|
| • | 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 Annual Report onForm 10-K, our Quarterly Reports onForm 10-Q and our Current Reports onForm 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 report.
| |
| Item 7A. | Quantitative and Qualitative Disclosures About Market 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 as of January 1, 2012 under the Senior Credit Facility of $557.8$783.0 million (net of discount of $1.9$1.5 million) and $57.0 million in outstanding letters of credit, as of January 2, 2011, for every one percent increase in the interest rate applicable to the Senior Credit Facility, our total annual interest expense would increase by $5.6$7.8 million.
In November 2009,As of January 1, 2012, we executed threehad four interest rate swap agreements in the aggregate notional amount of $75.0$100.0 million. These interest rate swaps, which have payment, expiration dates and call provisions that mirror the terms of the 7 3/4% Senior Notes, effectively convert $75.0$100.0 million of the 7 3/4% Senior 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 $75.0$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 $75.0$100.0 million amount. Effective January 6, 2010, we executed a fourth swap agreement relative to a notional amount of $25.0 million of our 73/4% Senior Notes (See Note 9). 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.
78
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 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 as of January 2, 20111, 2012 with respect to our international operations, every 10 percent change in historical currency rates would have a $6.5$6.2 million effect on our financial position and a $1.3 million impact on our results of operations over the next fiscal year.
79
| |
| Item 8. | Financial Statements and Supplementary Data |
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. They include amounts based on judgments and estimates.
Representation in the consolidated financial statements and the fairness and integrity of such statements are the responsibility of management. In order to meet management’s responsibility, the Company maintains a system of internal controls and procedures and a program of internal audits designed to provide reasonable assurance that our assets are controlled and safeguarded, that transactions are executed in accordance with management’s authorization and properly recorded, and that accounting records may be relied upon in the preparation of financial statements.
The consolidated financial statements have been audited by Grant Thornton LLP, independent registered public accountants, whose appointment by our Audit Committee was ratified by our shareholders. Their report expresses a professional opinion as to whether management’s consolidated financial statements considered in their entirety present fairly, in conformity with accounting principles generally accepted in the United States, the Company’s financial position and results of operations. Their audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States). The effectiveness of our internal control over financial reporting as of January 2, 20111, 2012 has been audited by Grant Thornton LLP, independent registered public accountants, as stated in their report which is included in thisForm 10-K.
The Audit Committee of the Board of Directors meets periodically with representatives of management, the independent registered public accountants and our internal auditors to review matters relating to financial reporting, internal accounting controls and auditing. Both the internal auditors and the independent registered certified public accountants have unrestricted access to the Audit Committee to discuss the results of their reviews.
George C. Zoley
Chairman and Chief Executive Officer
Brian R. Evans
Senior Vice President and Chief Financial
Officer
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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer that: (i) pertains to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provides reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements for external reporting in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorization of the Company’s management and directors; and (iii) provides reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of January 2, 2011.1, 2012. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control — Integrated Framework.
On August 12, 2010,February 10, 2011, we acquired Cornell Companies, Inc.,BII Holding Corporation, which we refer to as Cornell,BII Holding, at which time CornellBII Holding became our subsidiary. We are currently in the process of assessing and integrating Cornell’sBII Holding’s internal controls over financial reporting into our financial reporting systems. Management’s assessment of internal control over financial reporting at January 2, 2011,1, 2012, excludes the operations of CornellBII Holding as allowed by SEC guidance related to internal controls of recently acquired entities. Management will include the operations of CornellBII Holding in its assessment of internal control over financial reporting within one year from the date of acquisition. With the exception of Cornell Companies, Inc.,BII Holding Corporation, the Company evaluated, with the participation of its Chief Executive Officer and Chief Financial Officer, its internal control over financial reporting as of January 2, 2011,1, 2012, based on the COSO Internal Control — Integrated Framework. Based on this evaluation, the Company’s management concluded that as of January 2, 2011,1, 2012, its internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Grant Thornton LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report onForm 10-K, has issued an attestation report on our internal control over financial reporting.
81
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders of
We have audited The GEO Group, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of January 2, 2011,1, 2012, based on criteria established inInternal Control — Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. Our audit of, and opinion on, the Company’s internal control over financial reporting does not include internal control over financial reporting of Cornell Companies, Inc.,BII Holding Corporation, a wholly owned subsidiary, whose financial statements reflect total assets and revenues constituting 3715 and 137 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended January 2, 2011.1, 2012. As indicated in Management’s Report, Cornell Companies, Inc.BII Holding Corporation was acquired during 20102011 and therefore, management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Cornell Companies, Inc.
BII Holding Corporation.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The GEO Group, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of January 2, 2011,1, 2012, based on criteria established inInternal Control-Integrated Frameworkissued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The GEO Group, Inc. and subsidiaries as of January 2, 20111, 2012 and January 3, 2010,2, 2011, and the related consolidated statements of income and comprehensive income, shareholders’ equity and comprehensive income and cash flows for each of the three years in the period ended January 2, 2011,1, 2012, and our report dated March 2, 20111, 2012 expressed an unqualified opinion on those financial statements.
821, 2012
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders of The GEO Group, Inc.
We have audited the accompanying consolidated balance sheets of The GEO Group, Inc. and subsidiaries (the “Company”) as of January 2, 20111, 2012 and January 3, 2010,2, 2011, and the related consolidated statements of income and comprehensive income, shareholders’ equity and comprehensive income and cash flows for each of the three years in the period ended January 2, 2011.1, 2012. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The GEO Group, Inc. and subsidiaries as of January 2, 20111, 2012 and January 3, 2010,2, 2011, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 20111, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The GEO Group, Inc. and subsidiaries’ internal control over financial reporting as of January 2, 2011,1, 2012, based on criteria established in Internal Control — Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 2, 20111, 2012 expressed an unqualified opinion thereon.
831, 2012
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
Fiscal Years Ended January 1, 2012, January 2, 2011, and January 3, 2010 and December 28, 2008
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands, except per share data) | |
| |
Revenues | | $ | 1,269,968 | | | $ | 1,141,090 | | | $ | 1,043,006 | |
Operating Expenses | | | 975,020 | | | | 897,099 | | | | 822,053 | |
Depreciation and Amortization | | | 48,111 | | | | 39,306 | | | | 37,406 | |
General and Administrative Expenses | | | 106,364 | | | | 69,240 | | | | 69,151 | |
| | | | | | | | | | | | | |
Operating Income | | | 140,473 | | | | 135,445 | | | | 114,396 | |
Interest Income | | | 6,271 | | | | 4,943 | | | | 7,045 | |
Interest Expense | | | (40,707 | ) | | | (28,518 | ) | | | (30,202 | ) |
Loss on Extinguishment of Debt | | | (7,933 | ) | | | (6,839 | ) | | | — | |
| | | | | | | | | | | | | |
Income Before Income Taxes, Equity in Earnings of Affiliates, and Discontinued Operations | | | 98,104 | | | | 105,031 | | | | 91,239 | |
Provision for Income Taxes | | | 39,532 | | | | 42,079 | | | | 34,033 | |
Equity in Earnings of Affiliates, net of income tax provision (benefit) of $2,212, $1,368 and ($805) | | | 4,218 | | | | 3,517 | | | | 4,623 | |
| | | | | | | | | | | | | |
Income from Continuing Operations | | | 62,790 | | | | 66,469 | | | | 61,829 | |
Loss from Discontinued Operations, net of income tax provision (benefit) of $0, ($216), and $236 | | | — | | | | (346 | ) | | | (2,551 | ) |
| | | | | | | | | | | | | |
Net Income | | $ | 62,790 | | | $ | 66,123 | | | $ | 59,278 | |
Loss (Earnings) Attributable to Noncontrolling Interests | | | 678 | | | | (169 | ) | | | (376 | ) |
| | | | | | | | | | | | | |
Net Income Attributable to The GEO Group, Inc. | | $ | 63,468 | | | $ | 65,954 | | | $ | 58,902 | |
| | | | | | | | | | | | | |
Weighted Average Common Shares Outstanding: | | | | | | | | | | | | |
| Basic | | | 55,379 | | | | 50,879 | | | | 50,539 | |
| | | | | | | | | | | | | |
| Diluted | | | 55,989 | | | | 51,922 | | | | 51,830 | |
| | | | | | | | | | | | | |
Income per Common Share Attributable to The GEO Group, Inc.: | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | |
| Income from continuing operations | | $ | 1.15 | | | $ | 1.30 | | | $ | 1.22 | |
| Loss from discontinued operations | | | — | | | | — | | | | (0.05 | ) |
| | | | | | | | | | | | | |
| Net income per share — basic | | $ | 1.15 | | | $ | 1.30 | | | $ | 1.17 | |
| | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | |
| Income from continuing operations | | $ | 1.13 | | | $ | 1.28 | | | $ | 1.19 | |
| Loss from discontinued operations | | | — | | | | (0.01 | ) | | | (0.05 | ) |
| | | | | | | | | | | | | |
| Net income per share — diluted | | $ | 1.13 | | | $ | 1.27 | | | $ | 1.14 | |
| | | | | | | | | | | | | |
Comprehensive Income (Loss): | | | | | | | | | | | | |
| Net income | | $ | 62,790 | | | $ | 66,123 | | | $ | 59,278 | |
| Total other comprehensive income (loss), net of tax | | | 4,645 | | | | 12,174 | | | | (14,361 | ) |
| | | | | | | | | | | | | |
| Total comprehensive income | | | 67,435 | | | | 78,297 | | | | 44,917 | |
| Comprehensive (income) loss attributable to noncontrolling interests | | | 608 | | | | 428 | | | | (210 | ) |
| | | | | | | | | | | | | |
| Comprehensive income attributable to The GEO Group, Inc. | | $ | 68,043 | | | $ | 78,725 | | | $ | 44,707 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands, except per share data) | |
Revenues | | $ | 1,612,899 | | | $ | 1,269,968 | | | $ | 1,141,090 | |
Operating Expenses | | | 1,221,580 | | | | 975,020 | | | | 897,099 | |
Depreciation and Amortization | | | 85,341 | | | | 48,111 | | | | 39,306 | |
General and Administrative Expenses | | | 113,809 | | | | 106,364 | | | | 69,240 | |
| | | | | | | | | | | | |
Operating Income | | | 192,169 | | | | 140,473 | | | | 135,445 | |
Interest Income | | | 7,038 | | | | 6,271 | | | | 4,943 | |
Interest Expense | | | (75,382 | ) | | | (40,707 | ) | | | (28,518 | ) |
Loss on Extinguishment of Debt | | | — | | | | (7,933 | ) | | | (6,839 | ) |
| | | | | | | | | | | | |
Income Before Income Taxes, Equity in Earnings of Affiliates, and Discontinued Operations | | | 123,825 | | | | 98,104 | | | | 105,031 | |
Provision for Income Taxes | | | 47,925 | | | | 39,532 | | | | 42,079 | |
Equity in Earnings of Affiliates, net of income tax provision of $2,406, $2,212 and $1,368 | | | 1,563 | | | | 4,218 | | | | 3,517 | |
| | | | | | | | | | | | |
Income from Continuing Operations | | | 77,463 | | | | 62,790 | | | | 66,469 | |
Loss from Discontinued Operations, net of income tax benefit of $0, $0, and $216 | | | — | | | | — | | | | (346 | ) |
| | | | | | | | | | | | |
Net Income | | $ | 77,463 | | | $ | 62,790 | | | $ | 66,123 | |
Loss (Earnings) Attributable to Noncontrolling Interests | | | 1,162 | | | | 678 | | | | (169 | ) |
| | | | | | | | | | | | |
Net Income Attributable to The GEO Group, Inc. | | $ | 78,625 | | | $ | 63,468 | | | $ | 65,954 | |
| | | | | | | | | | | | |
Weighted Average Common Shares Outstanding: | | | | | | | | | | | | |
Basic | | | 63,425 | | | | 55,379 | | | | 50,879 | |
| | | | | | | | | | | | |
Diluted | | | 63,740 | | | | 55,989 | | | | 51,922 | |
| | | | | | | | | | | | |
Income per Common Share Attributable to The GEO Group, Inc.: | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | |
Income from continuing operations | | $ | 1.24 | | | $ | 1.15 | | | $ | 1.30 | |
Loss from discontinued operations | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Net income per share — basic | | $ | 1.24 | | | $ | 1.15 | | | $ | 1.30 | |
| | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | |
Income from continuing operations | | $ | 1.23 | | | $ | 1.13 | | | $ | 1.28 | |
Loss from discontinued operations | | | — | | | | — | | | | (0.01 | ) |
| | | | | | | | | | | | |
Net income per share — diluted | | $ | 1.23 | | | $ | 1.13 | | | $ | 1.27 | |
| | | | | | | | | | | | |
Comprehensive Income: | | | | | | | | | | | | |
Net income | | $ | 77,463 | | | $ | 62,790 | | | $ | 66,123 | |
Total other comprehensive income (loss), net of tax | | | (8,253 | ) | | | 4,645 | | | | 12,174 | |
| | | | | | | | | | | | |
Total comprehensive income | | | 69,210 | | | | 67,435 | | | | 78,297 | |
Comprehensive loss attributable to noncontrolling interests | | | 1,274 | | | | 608 | | | | 428 | |
| | | | | | | | | | | | |
Comprehensive income attributable to The GEO Group, Inc. | | $ | 70,484 | | | $ | 68,043 | | | $ | 78,725 | |
| | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
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THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
January 1, 2012 and January 2, 2011 and January 3, 2010
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| | | (In thousands, except
| |
| | | share data) | |
| |
ASSETS |
Current Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 39,664 | | | $ | 33,856 | |
| Restricted cash and investments (including VIEs(1) of $34,049 and $6,212, respectively) | | | 41,150 | | | | 13,313 | |
| Accounts receivable, less allowance for doubtful accounts of $1,308 and $429 | | | 275,484 | | | | 200,756 | |
| Deferred income tax assets, net | | | 32,126 | | | | 17,020 | |
| Prepaid expenses and other current assets | | | 36,710 | | | | 14,689 | |
| | | | | | | | | |
| Total current assets | | | 425,134 | | | | 279,634 | |
| | | | | | | | | |
Restricted Cash and Investments(including VIEs of $33,266 and $8,182, respectively) | | | 49,492 | | | | 20,755 | |
Property and Equipment, Net(including VIEs of $167,209 and $28,282, respectively) | | | 1,511,292 | | | | 998,560 | |
Assets Held for Sale | | | 9,970 | | | | 4,348 | |
Direct Finance Lease Receivable | | | 37,544 | | | | 37,162 | |
Deferred Income Tax Assets, Net | | | 936 | | | | — | |
Goodwill | | | 244,947 | | | | 40,090 | |
Intangible Assets, Net | | | 87,813 | | | | 17,579 | |
Other Non-Current Assets | | | 56,648 | | | | 49,690 | |
| | | | | | | | | |
| Total Assets | | $ | 2,423,776 | | | $ | 1,447,818 | |
| | | | | | | | | |
| |
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 73,880 | | | $ | 51,856 | |
| Accrued payroll and related taxes | | | 33,361 | | | | 25,209 | |
| Accrued expenses | | | 121,647 | | | | 80,759 | |
| Current portion of capital lease obligations, long-term debt and non-recourse debt (including VIEs of $19,365 and $4,575, respectively) | | | 41,574 | | | | 19,624 | |
| | | | | | | | | |
| Total current liabilities | | | 270,462 | | | | 177,448 | |
| | | | | | | | | |
Deferred Income Tax Liabilities | | | 63,546 | | | | 7,060 | |
Other Non-Current Liabilities | | | 46,862 | | | | 33,142 | |
Capital Lease Obligations | | | 13,686 | | | | 14,419 | |
Long-Term Debt | | | 798,336 | | | | 453,860 | |
Non-Recourse Debt(including VIEs of $132,078 and $31,596, respectively) | | | 191,394 | | | | 96,791 | |
Commitments and Contingencies(Note 15) | | | | | | | | |
Shareholders’ Equity | | | | | | | | |
| Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued or outstanding | | | — | | | | — | |
| Common stock, $0.01 par value, 90,000,000 shares authorized, 84,506,772 and 67,704,008 issued and 64,432,459 and 51,629,005 outstanding, respectively | | | 845 | | | | 516 | |
| Additional paid-in capital | | | 718,489 | | | | 351,550 | |
| Retained earnings | | | 428,545 | | | | 365,927 | |
| Accumulated other comprehensive income | | | 10,071 | | | | 5,496 | |
| Treasury stock 20,074,313 and 16,075,003 shares, at cost, at January 2, 2011 and January 3, 2010 | | | (139,049 | ) | | | (58,888 | ) |
| | | | | | | | | |
| Total shareholders’ equity attributable to The GEO Group, Inc. | | | 1,018,901 | | | | 664,601 | |
| Noncontrolling interest | | | 20,589 | | | | 497 | |
| | | | | | | | | |
| Total shareholders’ equity | | | 1,039,490 | | | | 665,098 | |
| | | | | | | | | |
| Total Liabilities and Shareholders’ Equity | | $ | 2,423,776 | | | $ | 1,447,818 | |
| | | | | | | | | |
| | | | | | | | |
| | | 2011 | | | 2010 | |
| | | (In thousands, except share data) | |
| ASSETS | |
Current Assets | | | | | | | | |
Cash and cash equivalents | | $ | 44,753 | | | $ | 39,664 | |
Restricted cash and investments (including VIEs1 of $35,435 and $34,049, respectively) | | | 42,535 | | | | 41,150 | |
Accounts receivable, less allowance for doubtful accounts of $2,453 and $1,308 | | | 292,783 | | | | 275,778 | |
Deferred income tax assets, net | | | 28,726 | | | | 29,115 | |
Prepaid expenses and other current assets | | | 50,532 | | | | 36,377 | |
| | | | | | | | |
Total current assets | | | 459,329 | | | | 422,084 | |
| | | | | | | | |
Restricted Cash and Investments(including VIEs of $38,930 and $33,266, respectively) | | | 57,912 | | | | 49,492 | |
Property and Equipment, Net(including VIEs of $162,665 and $167,209, respectively) | | | 1,706,171 | | | | 1,511,292 | |
Assets Held for Sale | | | 4,363 | | | | 9,970 | |
Direct Finance Lease Receivable | | | 32,146 | | | | 37,544 | |
Deferred Income Tax Assets, Net | | | 1,711 | | | | 936 | |
Goodwill | | | 508,066 | | | | 236,594 | |
Intangible Assets, Net | | | 200,342 | | | | 87,813 | |
Other Non-Current Assets | | | 79,576 | | | | 56,648 | |
| | | | | | | | |
Total Assets | | $ | 3,049,616 | | | $ | 2,412,373 | |
| | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Current Liabilities | | | | | | | | |
Accounts payable | | $ | 69,653 | | | $ | 73,880 | |
Accrued payroll and related taxes | | | 38,642 | | | | 33,361 | |
Accrued expenses | | | 126,857 | | | | 118,472 | |
Current portion of capital lease obligations, long-term debt and non-recourse debt (including VIEs of $20,770 and $19,365, respectively) | | | 53,666 | | | | 41,574 | |
| | | | | | | | |
Total current liabilities | | | 288,818 | | | | 267,287 | |
| | | | | | | | |
Deferred Income Tax Liabilities | | | 125,209 | | | | 55,318 | |
Other Non-Current Liabilities | | | 56,381 | | | | 46,862 | |
Capital Lease Obligations | | | 13,087 | | | | 13,686 | |
Long-Term Debt | | | 1,319,068 | | | | 798,336 | |
Non-Recourse Debt(including VIEs of $108,335 and $132,078, respectively) | | | 208,532 | | | | 191,394 | |
Commitments and Contingencies(Note 15) | | | | | | | | |
Shareholders’ Equity | | | | | | | | |
Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued or outstanding | | | — | | | | — | |
Common stock, $0.01 par value, 90,000,000 shares authorized, 85,185,158 and 84,506,772 issued and 61,181,172 and 64,432,459 outstanding, respectively | | | 852 | | | | 845 | |
Additional paid-in capital | | | 727,297 | | | | 718,489 | |
Retained earnings | | | 507,170 | | | | 428,545 | |
Accumulated other comprehensive income | | | 1,930 | | | | 10,071 | |
Treasury stock 24,003,986 and 20,074,313 shares, at cost, at January 1, 2012 and January 2, 2011 | | | (214,031 | ) | | | (139,049 | ) |
| | | | | | | | |
Total shareholders’ equity attributable to The GEO Group, Inc. | | | 1,023,218 | | | | 1,018,901 | |
Noncontrolling interest | | | 15,303 | | | | 20,589 | |
| | | | | | | | |
Total shareholders’ equity | | | 1,038,521 | | | | 1,039,490 | |
| | | | | | | | |
Total Liabilities and Shareholders’ Equity | | $ | 3,049,616 | | | $ | 2,412,373 | |
| | | | | | | | |
| 1 | | |
(1) | | Variable interest entities or “VIEs” |
The accompanying notes are an integral part of these consolidated financial statements.
85
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended January 1, 2012, January 2, 2011, and January 3, 2010 and December 28, 2008
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | | | | (In thousands) | | | | |
| |
Cash Flow from Operating Activities: | | | | | | | | | | | | |
| Net income | | $ | 62,790 | | | $ | 66,123 | | | $ | 59,278 | |
| Net (income) loss attributable to noncontrolling interests | | | 678 | | | | (169 | ) | | | (376 | ) |
| | | | | | | | | | | | | |
| Net income attributable to The GEO Group, Inc. | | | 63,468 | | | | 65,954 | | | | 58,902 | |
| Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities: | | | | | | | | | | | | |
| Restricted stock expense | | | 3,261 | | | | 3,509 | | | | 3,015 | |
| Stock option plan expense | | | 1,378 | | | | 1,813 | | | | 1,530 | |
| Depreciation and amortization expense | | | 48,111 | | | | 39,306 | | | | 37,406 | |
| Amortization of debt issuance costs and discount | | | 3,209 | | | | 3,412 | | | | 3,042 | |
| Deferred tax provision | | | 17,941 | | | | 10,010 | | | | 2,656 | |
| Provision for doubtful accounts | | | 815 | | | | 139 | | | | 602 | |
| Equity in earnings of affiliates, net of tax | | | (4,218 | ) | | | (3,517 | ) | | | (4,623 | ) |
| Income tax benefit of equity compensation | | | (3,926 | ) | | | (601 | ) | | | (786 | ) |
| (Gain) Loss on sale of property and equipment | | | (646 | ) | | | 119 | | | | 157 | |
| Loss on extinguishment of debt | | | 7,933 | | | | 6,839 | | | | — | |
| Changes in assets and liabilities, net of acquisition: | | | | | | | | | | | | |
| Changes in accounts receivable, prepaid expenses and other assets | | | (14,350 | ) | | | 3,057 | | | | (29,897 | ) |
| Changes in accounts payable, accrued expenses and other liabilities | | | 3,226 | | | | (4,753 | ) | | | 2,478 | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities of continuing operations | | | 126,202 | | | | 125,287 | | | | 74,482 | |
| Net cash (used in) provided by operating activities of discontinued operations | | | — | | | | 5,818 | | | | (3,013 | ) |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 126,202 | | | | 131,105 | | | | 71,469 | |
| | | | | | | | | | | | | |
Cash Flow from Investing Activities: | | | | | | | | | | | | |
| Acquisitions, cash consideration, net of cash acquired | | | (260,255 | ) | | | (38,386 | ) | | | — | |
| Just Care purchase price adjustment | | | (41 | ) | | | — | | | | — | |
| Proceeds from sale of property and equipment | | | 528 | | | | 179 | | | | 1,136 | |
| Purchase of shares in consolidated affiliate | | | — | | | | — | | | | (2,189 | ) |
| Change in restricted cash | | | (11,432 | ) | | | 2,713 | | | | 452 | |
| Capital expenditures | | | (97,061 | ) | | | (149,779 | ) | | | (130,990 | ) |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (368,261 | ) | | | (185,273 | ) | | | (131,591 | ) |
| | | | | | | | | | | | | |
Cash Flow from Financing Activities: | | | | | | | | | | | | |
| Cash dividends to noncontrolling interest | | | — | | | | (176 | ) | | | (125 | ) |
| Proceeds from long-term debt | | | 726,000 | | | | 333,000 | | | | 156,000 | |
| Payments on long-term debt | | | (397,445 | ) | | | (267,474 | ) | | | (100,156 | ) |
| Income tax benefit of equity compensation | | | 3,926 | | | | 601 | | | | 786 | |
| Debt issuance costs | | | (8,400 | ) | | | (17,253 | ) | | | (3,685 | ) |
| Termination of interest rate swap agreements | | | — | | | | 1,719 | | | | — | |
| Payments for purchase of treasury shares | | | (80,000 | ) | | | — | | | | — | |
| Payments for retirement of common stock | | | (7,078 | ) | | | — | | | | — | |
| Proceeds from the exercise of stock options | | | 6,695 | | | | 1,457 | | | | 753 | |
| | | | | | | | | | | | | |
| Net cash provided by financing activities | | | 243,698 | | | | 51,874 | | | | 53,573 | |
| | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | 4,169 | | | | 4,495 | | | | (6,199 | ) |
| | | | | | | | | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | | | 5,808 | | | | 2,201 | | | | (12,748 | ) |
Cash and Cash Equivalents, beginning of period | | | 33,856 | | | | 31,655 | | | | 44,403 | |
| | | | | | | | | | | | | |
Cash and Cash Equivalents, end of period | | $ | 39,664 | | | $ | 33,856 | | | $ | 31,655 | |
| | | | | | | | | | | | | |
Supplemental Disclosures: | | | | | | | | | | | | |
Cash paid during the year for: | | | | | | | | | | | | |
| Income taxes | | $ | 34,475 | | | $ | 34,185 | | | $ | 29,895 | |
| | | | | | | | | | | | | |
| Interest | | $ | 36,310 | | | $ | 32,075 | | | $ | 34,486 | |
| | | | | | | | | | | | | |
Non-cash investing and financing activities: | | | | | | | | | | | | |
| Fair value of assets acquired, net of cash acquired | | $ | 680,378 | | | $ | 44,239 | | | $ | — | |
| | | | | | | | | | | | | |
| Acquisition, equity consideration | | $ | 358,076 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
| Total liabilities assumed | | $ | 246,071 | | | $ | 5,853 | | | $ | — | |
| | | | | | | | | | | | | |
| Capital expenditures in accounts payable and accrued expenses | | $ | 11,237 | | | $ | 10,418 | | | $ | 20,376 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Cash Flow from Operating Activities: | | | | | | | | | | | | |
Net income | | $ | 77,463 | | | $ | 62,790 | | | $ | 66,123 | |
Net (income) loss attributable to noncontrolling interests | | | 1,162 | | | | 678 | | | | (169 | ) |
| | | | | | | | | | | | |
Net income attributable to The GEO Group, Inc. | | | 78,625 | | | | 63,468 | | | | 65,954 | |
Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities: | | | | | | | | | | | | |
Restricted stock expense | | | 3,432 | | | | 3,261 | | | | 3,509 | |
Stock option plan expense | | | 2,681 | | | | 1,378 | | | | 1,813 | |
Depreciation and amortization expense | | | 85,341 | | | | 48,111 | | | | 39,306 | |
Amortization of debt issuance costs, discount and/or premium | | | 1,745 | | | | 3,209 | | | | 3,412 | |
Deferred tax provision | | | 41,020 | | | | 17,941 | | | | 10,010 | |
Provision for doubtful accounts | | | 1,812 | | | | 815 | | | | 139 | |
Equity in earnings of affiliates, net of tax | | | (1,563 | ) | | | (4,218 | ) | | | (3,517 | ) |
Income tax benefit of equity compensation | | | (465 | ) | | | (3,926 | ) | | | (601 | ) |
(Gain) Loss on sale of property and equipment | | | 558 | | | | (646 | ) | | | 119 | |
Loss on extinguishment of debt | | | — | | | | 7,933 | | | | 6,839 | |
Dividends received from unconsolidated joint venture | | | 9,911 | | | | 3,909 | | | | 2,193 | |
Changes in assets and liabilities, net of acquisition: | | | | | | | | | | | | |
Changes in accounts receivable, prepaid expenses and other assets | | | (17,201 | ) | | | (18,259 | ) | | | 864 | |
Changes in accounts payable, accrued expenses and other liabilities | | | (16,984 | ) | | | 3,226 | | | | (4,753 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities of continuing operations | | | 188,912 | | | | 126,202 | | | | 125,287 | |
Net cash provided by operating activities of discontinued operations | | | — | | | | — | | | | 5,818 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 188,912 | | | | 126,202 | | | | 131,105 | |
| | | | | | | | | | | | |
Cash Flow from Investing Activities: | | | | | | | | | | | | |
Acquisitions, cash consideration, net of cash acquired | | | (409,607 | ) | | | (260,255 | ) | | | (38,386 | ) |
Just Care purchase price adjustment | | | — | | | | (41 | ) | | | — | |
Proceeds from sale of property and equipment | | | 1,483 | | | | 528 | | | | 179 | |
Proceeds from sale of assets held for sale | | | 7,121 | | | | — | | | | — | |
Change in restricted cash and investments | | | (9,826 | ) | | | (11,432 | ) | | | 2,713 | |
Capital expenditures | | | (224,713 | ) | | | (97,061 | ) | | | (149,779 | ) |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (635,542 | ) | | | (368,261 | ) | | | (185,273 | ) |
| | | | | | | | | | | | |
Cash Flow from Financing Activities: | | | | | | | | | | | | |
Distribution to noncontrolling interests | | | (4,012 | ) | | | — | | | | (176 | ) |
Proceeds from long-term debt | | | 835,395 | | | | 726,000 | | | | 333,000 | |
Payments on long-term debt | | | (289,832 | ) | | | (397,445 | ) | | | (267,474 | ) |
Income tax benefit of equity compensation | | | 465 | | | | 3,926 | | | | 601 | |
Debt issuance costs | | | (15,462 | ) | | | (8,400 | ) | | | (17,253 | ) |
Termination of interest rate swap agreements | | | — | | | | — | | | | 1,719 | |
Payments for purchase of treasury shares | | | (74,982 | ) | | | (80,000 | ) | | | — | |
Payments for retirement of common stock | | | — | | | | (7,078 | ) | | | — | |
Proceeds from the exercise of stock options | | | 2,446 | | | | 6,695 | | | | 1,457 | |
| | | | | | | | | | | | |
Net cash provided by financing activities | | | 454,018 | | | | 243,698 | | | | 51,874 | |
| | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | (2,299 | ) | | | 4,169 | | | | 4,495 | |
| | | | | | | | | | | | |
Net Increase in Cash and Cash Equivalents | | | 5,089 | | | | 5,808 | | | | 2,201 | |
Cash and Cash Equivalents, beginning of period | | | 39,664 | | | | 33,856 | | | | 31,655 | |
| | | | | | | | | | | | |
Cash and Cash Equivalents, end of period | | $ | 44,753 | | | $ | 39,664 | | | $ | 33,856 | |
| | | | | | | | | | | | |
Supplemental Disclosures: | | | | | | | | | | | | |
Cash paid during the year for: | | | | | | | | | | | | |
Income taxes | | $ | 10,494 | | | $ | 34,475 | | | $ | 34,185 | |
| | | | | | | | | | | | |
Interest | | $ | 60,948 | | | $ | 36,310 | | | $ | 32,075 | |
| | | | | | | | | | | | |
Non-cash investing and financing activities: | | | | | | | | | | | | |
Capital expenditures in accounts payable and accrued expenses | | $ | 26,322 | | | $ | 11,237 | | | $ | 10,418 | |
| | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
86
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
Fiscal Years Ended January 1, 2012, January 2, 2011, and January 3, 2010 and December 28, 2008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | GEO Group Inc. Shareholders | | | | | | | |
| | | | | | | | | | | | | | | Accumulated
| | | | | | | | | | | | | |
| | | Common Stock | | | Additional
| | | | | | Other
| | | Treasury Stock | | | | | | Total
| |
| | | Number
| | | | | | Paid-In
| | | Retained
| | | Comprehensive
| | | Number
| | | | | | Noncontrolling
| | | Shareholders’
| |
| | | of Shares | | | Amount | | | Capital | | | Earnings | | | Income (Loss) | | | of Shares | | | Amount | | | Interest | | | Equity | |
| | | | | | | | | | | | | | | (In thousands) | | | | | | | | | | |
| |
Balance, December 30, 2007 | | | 50,976 | | | $ | 510 | | | $ | 338,092 | | | $ | 241,071 | | | $ | 6,920 | | | | (16,075 | ) | | $ | (58,888 | ) | | $ | 1,642 | | | $ | 529,347 | |
| Proceeds from stock options exercised | | | 171 | | | | 1 | | | | 752 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 753 | |
| Tax benefit related to equity compensation | | | | | | | — | | | | 786 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 786 | |
| Stock based compensation expense | | | | | | | — | | | | 1,530 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 1,530 | |
| Restricted stock granted | | | 24 | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | — | |
| Restricted stock cancelled | | | (48 | ) | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | — | |
| Amortization of restricted stock | | | | | | | — | | | | 3,015 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 3,015 | |
| Purchase of subsidiary shares from noncontrolling interest | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | (626 | ) | | | (626 | ) |
| Dividends paid to noncontrolling interest on subsidiary common stock | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | (125 | ) | | | (125 | ) |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | — | | | | — | | | | 58,902 | | | | — | | | | | | | | — | | | | 376 | | | | | |
| Other comprehensive loss (Note 3) | | | | | | | — | | | | — | | | | — | | | | (14,195 | ) | | | | | | | — | | | | (166 | ) | | | | |
| Total comprehensive income | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | 44,917 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 28, 2008 | | | 51,123 | | | | 511 | | | | 344,175 | | | | 299,973 | | | | (7,275 | ) | | | (16,075 | ) | | | (58,888 | ) | | | 1,101 | | | | 579,597 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from stock options exercised | | | 372 | | | | 3 | | | | 1,454 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 1,457 | |
| Tax benefit related to equity compensation | | | | | | | — | | | | 601 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 601 | |
| Stock based compensation expense | | | | | | | — | | | | 1,813 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 1,813 | |
| Restricted stock granted | | | 168 | | | | 2 | | | | (2 | ) | | | — | | | | — | | | | | | | | — | | | | — | | | | — | |
| Restricted stock cancelled | | | (34 | ) | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | — | |
| Amortization of restricted stock | | | | | | | — | | | | 3,509 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 3,509 | |
| Dividends paid to noncontrolling interest on subsidiary common stock | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | (176 | ) | | | (176 | ) |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | — | | | | — | | | | 65,954 | | | | — | | | | | | | | — | | | | 169 | | | | | |
| Other comprehensive income (Note 3) | | | | | | | — | | | | — | | | | — | | | | 12,771 | | | | | | | | — | | | | (597 | ) | | | | |
| Total comprehensive income | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | 78,297 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 3, 2010 | | | 51,629 | | | | 516 | | | | 351,550 | | | | 365,927 | | | | 5,496 | | | | (16,075 | ) | | | (58,888 | ) | | | 497 | | | | 665,098 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from stock options exercised | | | 1,353 | | | | 14 | | | | 6,681 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 6,695 | |
| Tax benefit related to equity compensation | | | | | | | — | | | | 3,926 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 3,926 | |
| Stock based compensation expense | | | | | | | — | | | | 1,378 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 1,378 | |
| Restricted stock granted | | | 40 | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | — | |
| Restricted stock cancelled | | | (41 | ) | | | (1 | ) | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | (1 | ) |
| Amortization of restricted stock | | | | | | | — | | | | 3,261 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 3,261 | |
| Common stock issued in business combination (Note 2) | | | 15,764 | | | | 158 | | | | 357,918 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 358,076 | |
| Noncontrolling interest acquired in business combination (Note 2) | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | 20,700 | | | | 20,700 | |
| Retirement of common stock | | | (314 | ) | | | 158 | | | | (6,225 | ) | | | (850 | ) | | | — | | | | | | | | (161 | ) | | | — | | | | (7,078 | ) |
| Purchase of treasury shares | | | (3,999 | ) | | | — | | | | — | | | | — | | | | — | | | | (3,999 | ) | | | (80,000 | ) | | | — | | | | (80,000 | ) |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | — | | | | — | | | | 63,468 | | | | — | | | | | | | | — | | | | (678 | ) | | | | |
| Other comprehensive income (Note 3) | | | | | | | — | | | | — | | | | — | | | | 4,575 | | | | | | | | — | | | | 70 | | | | | |
| Total comprehensive income | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | 67,435 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 2, 2011 | | | 64,432 | | | $ | 845 | | | $ | 718,489 | | | $ | 428,545 | | | $ | 10,071 | | | | (20,074 | ) | | $ | (139,049 | ) | | $ | 20,589 | | | $ | 1,039,490 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | GEO Group Inc. Shareholders | | | | | | | |
| | | Common Stock | | | | | | | | | Accumulated
Other
Comprehensive
Income (Loss) | | | Treasury Stock | | | | | | | |
| | | Number
of Shares | | | Amount | | | Additional
Paid-In
Capital | | | Retained
Earnings | | | | Number
of Shares | | | Amount | | | Noncontrolling
Interest | | | Total
Shareholders’
Equity | |
| | | (In thousands) | |
Balance, December 28, 2008 | | | 51,123 | | | $ | 511 | | | $ | 344,175 | | | $ | 299,973 | | | $ | (7,275 | ) | | | 16,075 | | | $ | (58,888 | ) | | $ | 1,101 | | | $ | 579, 597 | |
Proceeds from stock options exercised | | | 372 | | | | 3 | | | | 1,454 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 1,457 | |
Tax benefit related to equity compensation | | | | | | | — | | | | 601 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 601 | |
Stock based compensation expense | | | | | | | — | | | | 1,813 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 1,813 | |
Restricted stock granted | | | 168 | | | | 2 | | | | (2 | ) | | | — | | | | — | | | | | | | | — | | | | — | | | | — | |
Restricted stock cancelled | | | (34 | ) | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | — | |
Amortization of restricted stock | | | | | | | — | | | | 3,509 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 3,509 | |
Dividends paid to noncontrolling interest on subsidiary common stock | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | (176 | ) | | | (176 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | — | | | | — | | | | 65,954 | | | | — | | | | | | | | — | | | | 169 | | | | | |
Other comprehensive income (loss) (Note 3) | | | | | | | — | | | | — | | | | — | | | | 12,771 | | | | | | | | — | | | | (597 | ) | | | | |
Total comprehensive income | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | 78,297 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 3, 2010 | | | 51,629 | | | | 516 | | | | 351,550 | | | | 365,927 | | | | 5,496 | | | | 16,075 | | | | (58,888 | ) | | | 497 | | | | 665,098 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from stock options exercised | | | 1,353 | | | | 14 | | | | 6,681 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 6,695 | |
Tax benefit related to equity compensation | | | | | | | — | | | | 3,926 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 3,926 | |
Stock based compensation expense | | | | | | | — | | | | 1,378 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 1,378 | |
Restricted stock granted | | | 40 | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | — | |
Restricted stock cancelled | | | (41 | ) | | | (1 | ) | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | (1 | ) |
Amortization of restricted stock | | | | | | | — | | | | 3,261 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 3,261 | |
Common stock issued in business combination (Note 2) | | | 15,764 | | | | 158 | | | | 357,918 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 358,076 | |
Noncontrolling interest acquired in business combination (Note 2) | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | 20,700 | | | | 20,700 | |
Retirement of common stock | | | (314 | ) | | | 158 | | | | (6,225 | ) | | | (850 | ) | | | — | | | | | | | | (161 | ) | | | — | | | | (7,078 | ) |
Purchase of treasury shares | | | (3,999 | ) | | | — | | | | — | | | | — | | | | — | | | | 3,999 | | | | (80,000 | ) | | | — | | | | (80,000 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | | | | | — | | | | — | | | | 63,468 | | | | — | | | | | | | | — | | | | (678 | ) | | | | |
Other comprehensive income (Note 3) | | | | | | | — | | | | — | | | | — | | | | 4,575 | | | | | | | | — | | | | 70 | | | | | |
Total comprehensive income | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | 67,435 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 2, 2011 | | | 64,432 | | | | 845 | | | | 718,489 | | | | 428,545 | | | | 10,071 | | | | 20,074 | | | | (139,049 | ) | | | 20,589 | | | | 1,039,490 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from stock options exercised | | | 298 | | | | 3 | | | | 2,443 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 2,446 | |
Tax benefit related to equity compensation | | | | | | | — | | | | 465 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 465 | |
Stock based compensation expense | | | | | | | — | | | | 2,681 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 2,681 | |
Restricted stock granted | | | 381 | | | | 4 | | | | (4 | ) | | | — | | | | — | | | | | | | | — | | | | — | | | | — | |
Amortization of restricted stock | | | | | | | — | | | | 3,432 | | | | — | | | | — | | | | | | | | — | | | | — | | | | 3,432 | |
Purchase of treasury shares | | | (3,930 | ) | | | — | | | | — | | | | — | | | | — | | | | 3,930 | | | | (74,982 | ) | | | — | | | | (74,982 | ) |
Other adjustments to Additional Paid-In Capital | | | | | | | — | | | | (209 | ) | | | — | | | | — | | | | | | | | — | | | | — | | | | (209 | ) |
Distribution to noncontrolling interests | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | (4,012 | ) | | | (4,012 | ) |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | | | | | — | | | | — | | | | 78,625 | | | | — | | | | | | | | — | | | | (1,162 | ) | | | | |
Other comprehensive loss (Note 3) | | | | | | | — | | | | — | | | | — | | | | (8,141 | ) | | | | | | | — | | | | (112 | ) | | | | |
Total comprehensive income | | | | | | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | 69,210 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2012 | | | 61,181 | | | $ | 852 | | | $ | 727,297 | | | $ | 507,170 | | | $ | 1,930 | | | | 24,004 | | | $ | (214,031 | ) | | $ | 15,303 | | | $ | 1,038,521 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
87
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended January 1, 2012, January 2, 2011 and January 3, 2010 and December 28, 2008
| 1. | |
1. | Summary of Business Operations and Significant Accounting Policies |
The GEO Group, Inc., a Florida corporation, and subsidiaries (the “Company”, or “GEO”) is a leading developer and provider of government-outsourced services specializing in the management of correctional, detention, and mental health, residential treatment and re-entry facilities, and the provision of community based services facilitiesand youth services in the United States, Australia, South Africa, the United Kingdom and Canada. On August 12, 2010, the Company acquired Cornell Companies Inc. (“Cornell”), pursuant to a definitive merger agreement (the “Merger”), and as of January 2, 2011, the Company’s worldwide operations included the managementand/or ownership of approximately 81,000 beds at 118 correctional, detention and residential treatment facilities including projects under development. 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 services, youthre-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 is also a provider of innovative compliance technologies, industry-leading monitoring services, and mental healthevidence-based supervision and residential treatment facilities. Weprograms for community-based parolees, probationers and pretrial defendants. Additionally, the Company has an exclusive contract with the U.S. Immigration and Customs Enforcement (“ICE”) to provide supervision and reporting services provided under the Intensive Supervision Appearance Program (“ISAP”), 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 provideprovides secure transportation services for offender and detainee populations as contracted.
contracted domestically and in the United Kingdom through its joint venture GEO Amey PECS Ltd., (“GEOAmey”).As of January 1, 2012, the Company’s worldwide operations included the management and/or ownership of approximately 79,400 beds at 115 correctional, detention and residential treatment facilities, including idle facilities and projects under development, and also included the provision of monitoring of approximately 70,000 offenders in a community-based environment on behalf of approximately 900 federal, state and local correctional agencies located in all 50 states.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. The significant accounting policies of the Company are described below.
The Company’s fiscal year ends on the Sunday closest to the calendar year end. Fiscal year 20102011 included 52 weeks. Fiscal year 20092010 included 5352 weeks and fiscal year 20082009 included 5253 weeks. The Company reports the results of its South African equity affiliate, South African Custodial Services Pty. Limited, (“SACS”), its consolidated South African entity, South African Custodial Management Pty. Limited (“SACM”), its joint venture GEOAmey, and the activities of its consolidated special purpose entity, Municipal Correctional Finance, L.P. (“MCF”) on a calendar year end, due to the availability of information.
The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and the Company’s activities relative to the financing of operating facilities (the Company’s variable interest entities are discussed further in Note 1 and also in Notes 3 and 10)Note 3). The equity method of accounting is used for investments in non-controlled affiliates in which the Company’s ownership ranges from 20 to 50 percent, or in instances in which the Company is able to exercise significant influence but not control. The Company reports SACS and its 50% owned joint venture in the United Kingdom, GEOAmey, under the equity method of
accounting. Noncontrolling interests in consolidated entities represent equity that other investors have contributed to MCF and SACM. Non-controlling interests are adjusted for income and losses allocable to the other shareholders in these entities. All significant intercompany balances and transactions have been eliminated.
The Company’s noncontrolling interest in SACM has been reclassified from operating expenses to noncontrolling interest in the consolidated statements of income as this item has become more significant due to the presentation of the noncontrolling interest of MCF acquired from Cornell in the Merger. Also, as a result of the acquisition of Cornell, management’s 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 GEO Care segment and are no longer included with U.S. Detention & Corrections. The segment data has been revised for all periods presented. All prior year amounts have been conformed to the current year presentation.
88
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Discontinued Operations
The termination of any of the Company’s 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. TheWhen material, 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.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include reserves for self-insured retention related to general liability insurance, workers’ compensation insurance, auto liability insurance, medical malpractice insurance, employer group health insurance, percentage of completion and estimated cost to complete for construction projects, estimated useful lives of property and equipment, stock based compensation and allowance for doubtful accounts. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While the Company believes that such estimates are reasonable when considered in conjunction with the consolidated financial statements taken as a whole, the actual amounts of such estimates, when known, will vary from these estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.
During the first quarter of 2010, the Company completed a depreciation study on its owned correctional facilities. In evaluating useful lives of these assets, the Company considered how long the assets will remain functionally efficient and effective, given competitive factors, economic environment, technological advancements and quality of construction. Based on the results of the depreciation study, the Company revised the estimated useful lives of certain buildings from its historical estimate of 40 years to a revised estimate of 50 years, effective January 4, 2010. The basis for the change in the useful life of the Company’s owned correctional facilities is due to the expectation that these facilities are capable of being used for a longer period than previously anticipated based on quality of construction and effective building maintenance. The Company accounted for the change in the useful lives as a change in estimate which was accounted for prospectively beginning January 4, 2010 by depreciating the assets’ carrying values over their revised remaining useful lives. For fiscal year 2010, the change resulted in a reduction in depreciation and amortization expense of $3.7 million, an increase to net income of $2.2 million and an increase in diluted earnings per share of $0.04.
Cash and Cash Equivalents
Cash and cash equivalents include all interest-bearing deposits or investments with original maturities of three months or less. The Company maintains cash and cash equivalents with various financial institutions. These financial institutions are located throughout the United States, Australia, South Africa, Canada and the United Kingdom.
89 As of January 1, 2012, the Company had $25.6 million in cash and cash equivalents held by its international subsidiaries.
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Concentration of Credit Risk
The Company maintains deposits of cash in excess of federally insured limits with certain financial institutions and accordingly, the Company is subject to credit risk. Other than cash, financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable, a direct finance lease receivable, long-term debt and financial instruments used in hedging activities. The Company’s cash management and investment policies restrict investments to low-risk, highly liquid securities, and the Company performs periodic evaluations of the credit standing of the financial institutions with which it deals.
Accounts receivable consists primarily of trade accounts receivable due from federal, state, and local government agencies for operating and managing correctional facilities, providing youth and community based services, providing mental health and residential treatment services, providing electronic monitoring and supervision services, providing construction and design services and providing inmate residential and prisoner transportation services. The Company generates receivables with its governmental clients and with other parties in the normal course of business as a result of billing and receiving payment. The Company regularly reviews outstanding receivables, and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company also performs ongoing credit evaluations for some of its customers’ financial conditionconditions and generally does not require collateral. Generally, the Company receives payment for these services thirty to sixty days in arrears. However, certain of the Company’s accounts receivable some of which relate to receivables purchased in connection with the Cornell acquisition, are paid by customers after the completion of their program year and therefore can be aged in excess of one year. The Company maintains reserves for potential credit losses, and such losses traditionally have been within its expectations. Actual write-offs are charged against the allowance when collection efforts have been unsuccessful. As of January 2, 2011, $3.81, 2012, $1.7 million of the Company’s trade receivables were considered to be long-term and are classified as Other Non-Current Assets in the accompanying Consolidated Balance Sheet.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include assets that are expected to be realized within the next fiscal year. Included in the balance at January 1, 2012 and January 2, 2011 is $22.2 million and $17.3 million, respectively, of federal and state income tax overpayments that will bewere applied against tax payments due in 2011.
2012 and 2011, respectively.Notes Receivable
The Company has notes receivable from its former joint venture partner in the United Kingdom related to a subordinated loan extended to the joint venture partner while an active member of the partnership. The balance outstanding as of January 2, 2011 and January 3, 2010 was $3.2 million and $3.5 million, respectively and is included in other non-current assets in the accompanying balance sheets. The notes bear interest at a rate of 13%, have semi-annual payments due June 15 and December 15 through June 2018.
The Company recognizes interest income on its Notes Receivable as it is earned. The balance outstanding as of January 1, 2012 and January 2, 2011 was $2.7 million and $3.2 million, respectively. This note receivable is included in other assets in the accompanying balance sheets, current and non-current as applicable.Note Receivable from Joint Venture
The GEO Group UK Limited, the Company’s subsidiary in the United Kingdom (“GEO UK”), has extended a non-revolving line of credit facility to GEOAmey in the principal amount of £12 million. Amounts under the line of credit can be drawn down in multiple advances up to the principal amount and accrue interest at LIBOR plus 3%. The Company recognizes interest income on its Notes Receivable as it is earned. The line of credit was executed in May 2011 for the purpose of funding mobilization costs and on-going
start-up and operations of GEOAmey. Principal repayments by GEOAmey under the line of credit are due in March and September, beginning September 2013, with the final payment due no later than March 30, 2018. As of January 1, 2012, the Company was owed £8.4 million, or $13.1 million, including accrued interest of $0.2 million, under the line of credit and has included this balance with Other Non-Current Assets in the accompanying balance sheet.
Restricted Cash and Investments
The Company’s restricted cash balancesand investments are attributable to: (i) amounts held in escrow or in trust in connection with the 1,904-bed South Texas Detention Complex in Frio County, Texas and the 1,575-bed Northwest Detention Center in Tacoma, Washington, (ii) certain cash restriction requirements at the Company’s wholly owned Australian subsidiary related to the non-recourse debt and other guarantees, (iii) MCF’s bond fund payment account, debt servicingservice reserve fund and escrow fund primarily used to
90
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
segregate rental payments from Cornell Companies, Inc. (“Cornell”), the Company’s wholly-owned subsidiary, to MCF for the purposes of servicing the non-recourse debt and making distributions to equity holders, and (iv) amounts restricted investments related to fund theThe GEO Group Inc. Non-qualified Deferred Compensation Plan. The current portion of restricted cash and investments represents the amount expected to be paid within the next twelve months for debt service and amounts that may be paid as distributions to the equity holders of MCF under the Agreement of Limited Partnership.
The Company accounts for the portion of its contracts with certain governmental agencies that represent capitalized lease payments on buildings and equipment as investments in direct finance leases. Accordingly, the minimum lease payments to be received over the term of the leases less unearned income are capitalized as the Company’s investments in the leases. Unearned income is recognized as income over the term of the leases using the effective interest method.
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. The Company performs ongoing evaluations 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. The Company has not made any changes in estimate during the fiscal year ended January 1, 2012. Maintenance and repairs are expensed as incurred. Interest is capitalized in connection with the construction of correctional and detention facilities. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life.
The Company reviews 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, the Company groups its 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, the Company makes assumptions based on historical experience with its 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 the Company. 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. If impairment indicators are present, the Company performs a recoverability test to determine whether or not an impairment loss should be measured. 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. For the purposes of the recoverability test, 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, the Company groups its assets by facility for the purposes of considering whether any impairment exists. When considering the future cash flows of a facility, the Company makes assumptions based on historical experience with its customers, current data related to the pricing of its management contracts, residual value of its facilities, and/or terminal growth rates. 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 the Company due to the investment the Company makes in buildings and improvements for owned and leased facilities. 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.
asset compared to the carrying value.Assets Held Underfor Sale
The Company records its Assets Held for Sale at the lower of cost or estimated fair value and estimates fair value by using third party appraisers or other valuation techniques. The Company does not record depreciation for its Assets Held for Sale. Any gain or loss on the sale of its operating assets is included in the operating income of reportable segment to which it relates.
Assets Held under Capital Leases
Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Amortization expense is recognized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the related lease and is included in depreciation expense.
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Goodwill and Other Intangible Assets
The Company has recorded goodwill as a result of its business combinations. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired. The Company’s goodwill is not amortized and is tested for impairment annually and whenever events or circumstances arise that indicate impairment may have occurred. Impairment testing is performed for all reporting units that contain goodwill. For the purposes of impairment testing, the Company determines the recoverability of goodwill by comparing the carrying value of the reporting unit, including goodwill, to the fair value of the reporting unit. The reporting unit is the same as the operating segment for U.S. DetentionCorrections & CorrectionsDetention and is at a level below the operating segment for GEO Care. The Company has identified its reporting units based on the criteria management uses to make key decisions about the business. IfDuring the fiscal year ended January 1, 2012, the Company elected to early adopt Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-08 and as such, when testing goodwill for impairment, the Company first assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is determined to be less than its carrying amount. If, after assessing the carrying value,totality of events or circumstances, the Company computesdetermines it is more likely than not that the impairment charge as the excess of the carrying value of the reporting unit goodwill over the implied fair value of thea reporting unit goodwill. Foris less than its carrying amount, then the purposesCompany performs the first step of the goodwilltwo-step impairment test by calculating the Company determined fair value of the reporting unit, using a discounted cash flow model. Growth rates for salesmethod, and profits are determined using inputs fromcomparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. The qualitative factors used by the Company’s long term planning process. The Company also makes estimates for discount rates and other factors based on market conditions, historical experience and other environmental factors. Changes in these forecasts could significantly impactmanagement to determine the likelihood that the fair value of the reporting unit.unit is less than the carrying amount include, among other things, a review of overall economic conditions and their current and future impact on the Company’s existing business, the Company’s financial performance, industry outlook and market competition. During the year, management monitors the actual performance of the business relative to the fair value assumptions used during the prior year annual impairment test. For the interim periods in the fiscal year ended January 2, 2011, the Company’s management did not identify any triggering events that would require an update to the annual impairment test. As such, the Company performedtest and updates its annual impairment test, onif needed, to determine the likelihood that the goodwill has been impaired. On the measurement date of October 4, 2010 which is on3, 2011, the first day of the Company’s fourth fiscal quarter, management qualitatively reviewed the Company’s goodwill for impairment and diddetermined that it was not identify any impairment inmore likely than not that the carrying value of its goodwill. The estimated fair valuevalues of the reporting units significantly exceeded thewere less than their carrying value of the reporting units. A 10% decrease in the fair value of any of our reporting units as of October 4, 2010 would have had no impact on the carrying value of our goodwill. There were no impairment charges recorded in the fiscal year ended January 3, 2010. In the fiscal year ended December 28, 2008, the Company wrote off goodwill of $2.3 million associated with the termination of its transportation services business in the United Kingdom. There were no changes since the prior year to the methodology the Company applies to determine the fair value of the reporting units used in its goodwill test.
values.The Company has goodwillalso recorded other finite and otherindefinite lived intangible assets as a result of business combinations and also in connection with the purchase of additional shares in the Company’s consolidated South African joint venture. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisitionOther acquired finite and the fair value of the net tangible assets and other intangible assets acquired. Other acquiredindefinite lived intangible assets are recognized separately if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the Company’s intent to do so. The Company’s other intangible assets have finite lives and include facility management contracts, non-compete agreements, BI trade name and non-compete agreements.technology. The facility management contracts represent customer relationships in the form of management contracts acquired at the time of each business combination andcombination; the non-compete agreements represent the estimated value of contractually restricting certain employees from competing with the Company. TheCompany; the value of BI’s trade name represents, among other intangible benefits, name recognition to its customers and intellectual property rights; and the acquired technology represents BI’s innovation with respect to its GPS tracking monitoring, radio frequency monitoring, voice verification monitoring and alcohol compliance systems. When establishing useful lives, the Company currently amortizes its acquired intangible assets with finite lives over periods ranging from one to seventeen years consideringconsiders the period and the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up; or, if that pattern cannot be reliably determined, using a straight-line amortization method over a period that may be shorter than the ultimate life of such intangible asset. The Company currently amortizes its acquired facility management contracts over periods ranging from three to eighteen years, its covenants not to compete over one to four years, and its acquired technology over seven years. There is no residual value associated with the Company’s finite-lived intangible assets. The Company reviews its finite lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company does not amortize its indefinite lived intangible assets. The Company reviews its indefinite lived intangible assets annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company records the costs associated with renewal and extension of facility management contracts as expenses in the period they are incurred.
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Debt Issuance Costs
Debt issuance costs, totaling $14.8net of accumulated amortization of $5.3 million and $17.9$1.6 million, totaling $26.6 million and $14.8 million at January 2, 20111, 2012 and January 3, 2010,2, 2011, respectively, are included in other non-current assets in the consolidated balance sheets and are amortized to interest expense using the effective interest method, over the term of the related debt.
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 VIE’s 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.
TheAs a result of the acquisition of Cornell in August 2010, the Company does not consolidate its 50% owned South African joint ventureassumed the variable interest in SACS, a VIE. SACS joint venture investors are GEO and Kensani Holdings, Pty. Ltd; each partner owns a 50% share. The Company has determinedMCF of which it is not 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 SACS since it does not haveacquiring, 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% Taxable Revenue Bonds, Series 2001 (“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. MCF’s sole source of revenue is from the Company and as such the Company has the power to direct the activities of SACSthe VIE that most significantly impact its performance. As such, thisThe Company’s risk is generally limited to the rental obligations under the operating leases. This entity is accounted for as an equity affiliate. SACS was establishedincluded in 2001the accompanying consolidated financial statements and was subsequently awarded a25-year contract to design, financeall intercompany transactions are eliminated in consolidation. MCF maintains separate financial statements and build the Kutama Sinthumule Correctional Centre in Louis Trichardt, South Africa. To fund the constructionall of the prison, SACS obtained long-term financing from its equity partnersassets to which MCF has title are included therein. It should be noted that even though the Company consolidates MCF for accounting purposes, this VIE is a separate entity owned by unrelated third parties. MCF’s assets and lenders,credit are not available to satisfy the repaymentdebts and other obligations 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 Company’s maximum exposure for loss under this contract is limited to its investment in joint venture of $27.6 million at January 2, 2011 and its guarantees related to SACS discussed in Note 14.
Company.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 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 14.
AsThe Company does not consolidate its 50% owned South African joint venture in SACS, a result of the acquisition of Cornell in August 2010, theVIE. SACS joint venture investors are GEO and Kensani Corrections, Pty. Ltd; each partner owns a 50% share. The Company assumed the variable interest in MCF of whichhas 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 accounted for as an equity affiliate. SACS was established, and consolidatessubsequently, in 2001, was awarded a 25-year contract to design, finance and build the entity asKutama 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 Company’s maximum exposure for loss under this contract is limited to its investment in joint venture of $5.6 million at January 1, 2012 and its guarantees related to SACS discussed in Note 14.
The Company does not consolidate its 50% owned joint venture in the United Kingdom. In February 2011, The GEO Group Limited, the Company’s wholly-owned subsidiary in the United Kingdom (“GEO UK”), executed a result. MCFShareholders Agreement (the “Shareholders Agreement”) with Amey Community Limited (“Amey”), GEOAmey and Amey UK PLC (“Amey Guarantor”) to form a private company limited by shares incorporated in England and Wales. GEOAmey was created in August 2001 as a special limited partnershipformed by GEO UK and Amey for the purpose of acquiring, owning, leasingperforming prisoner escort and operating lowrelated custody services in the United Kingdom and Wales. In order to medium security adultform this private company, GEOAmey issued share capital of £100 divided into 100 shares of £1 each and juvenile correctionallocated the shares 50/50 to GEO UK and treatment facilities. At its inception, MCF purchased assets representing eleven facilities from CornellAmey. GEO UK 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% Taxable Revenue Bonds, Series 2001 (“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 relatedAmey each have three directors appointed to the eleven facilities. Under the termsBoard of the Lease with Cornell, assumed by the Company, the Company will lease the assets for the remainder of the20-year base term, which ends in 2021,Directors and has options at its sole discretion to renew the Lease for up to approximately 25 additional years. MCF’s sole source of revenue is from the Company and as such the Companyneither party has the power to direct the activities of the VIE that most
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significantly impact its performance. The Company’s risk is generally limitedthe performance of GEOAmey. Both parties provide lines of credit of £12 million or $18.7 million based on exchange rates as of January 1, 2012, to ensure that GEOAmey can comply with future contractual commitments related to the rental obligationsperformance of its operations. As of January 1, 2012, $13.1 million, including accrued interest of $0.2 million, was owed to the Company by GEOAmey under the operating leases. This entity is included in the accompanying consolidated financial statements and all intercompany transactions are eliminated in consolidation.
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 acquisitionline of Cornell, the Company assumed MCF as a variable interest entity and allocated a portion of the purchase price to the noncontrolling interest basedcredit. GEOAmey commenced operations 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 2001.29, 2011. The Company includes the resultshas recorded $2.4 million in losses, net of operations and financial position of MCF, its variable interest entity, 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 South African Custodial Management Pty. Limited (“SACM” or the “joint venture”), its majority-owned subsidiary, in its consolidated financial statements. SACM was established in 2001 to operate correctional centers in South Africa. The joint venture currently provides security and other management servicestax impact, for the Kutama Sinthumule Correctional Centre in the Republic of South Africa under a25-year management contract which commenced in February 2002. The Company’s and the second joint venture partner’s shares in the profits of the joint venture are 88.75% and 11.25%, respectively. There were no changes in the Company’s ownership percentage of the consolidated subsidiaryGEOAmey’s operations during the fiscal year ended January 2, 2011.
1, 2012, which is included in Equity in earnings of affiliates in the accompanying consolidated statement of income and comprehensive income.Fair Value Measurements
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 carries certain of its assets and liabilities at fair value, measured on a recurring basis, in the accompanying consolidated balance sheets. The Company also has certain assets and liabilities which are not carried at fair value in its accompanying balance sheets and discloses the fair value measurements for those assets and liabilitiescompared to the carrying values as of each balance sheet date. The Company’s fair value measurements are disclosed in Note 11 and Note 12. The Company establishes fair value of its assets and liabilities using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels which distinguish between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The level in the fair value hierarchy within which the respective fair value measurement falls is determined based on the lowest level input that is significant to the measurement in its entirety. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities, Level 2 inputs are other than quotable market prices included in Level 1 that are observable for the asset or liability either directly or indirectly through corroboration with observable market data. Level 3 inputs are unobservable inputs for the assets or liabilities that reflect management’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
The Company recognizes transfers between Levels 1, 2 and 3 as of the actual date of the event or change in circumstances that cause the transfer.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 the Company’s 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%1% of the Company’s consolidated annual revenues. These performance targets are based on specific criteria to be met over specific periods of time. Such criteria includes the Company’s ability to achieve certain contractual benchmarks relative to the quality of service it provides, non-occurrence of certain disruptive events, effectiveness of its quality control programs and its responsiveness to customer
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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, the Company is a party to more than one contract with a single entity. In these instances, each contract is accounted for separately. The Company has not recorded any revenue that is at risk due to future performance contingencies.
Construction revenues are recognized from the Company’s contracts with certain customers to perform construction and design services (“project development services”) for various facilities. In these instances, the Company acts as the primary developer and subcontracts with bonded Nationaland/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 the Company determines that such losses and changes are probable. Typically, the Company enters into fixed price contracts and does 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 the Company believes that it is not probable that the costs will be recovered through a change in the contract price. If the Company believes 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, the Company is exposed to the various risks associated with construction,
including the risk of cost overruns. Accordingly, the Company records its construction revenue on a gross basis and includes the related cost of construction activities in Operating Expenses.
When evaluating multiple element arrangements for certain contracts where the Company provides project development services to its clients in addition to standard management services, the Company follows 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 the Company provides 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 fiscal year ended January 1, 2012, 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 GEO’s specific assumptions. BI 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 the Company charges when the elements are sold on a stand alone basis.
Lease Revenue
The Company can determine the fair value of the undelivered management services contract and therefore, the value of the project development deliverable, is determined using the residual method.
Lease Revenue
Prior to the acquisition of Cornell in August 2010, the Company leased twoleases one of its owned facilities to the third parties, one of which was Cornell. There is now only one owned facility that the Company leases to an unrelated third party. The lease has a term of ten years and expires in January 2018 with an option to extend for up to three additional five-year terms. The carrying value of this leased facility as of January 1, 2012 and January 2, 2011 and January 3, 2010 was $36.1$35.2 million and $36.9$36.1 million, respectively, net of accumulated depreciation of $3.2$4.1 million and $2.3$3.2 million, respectively. Rental income, included in Revenues, received on this lease for the fiscal years ended
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THE GEO GROUP, INC.
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January 1, 2012, January 2, 2011 and January 3, 2010 and December 28, 2008 was $4.5 million, $4.5 million and $4.4$4.5 million, respectively. Future minimum rentals on this lease are as follows:
| | | | | |
| Fiscal Year | | Annual Rental | |
| | | (In thousands) | |
| |
| 2011 | | $ | 4,477 | |
| 2012 | | | 4,489 | |
| 2013 | | | 4,623 | |
| 2014 | | | 4,762 | |
| 2015 | | | 4,905 | |
| Thereafter | | | 10,690 | |
| | | | | |
| | | $ | 33,946 | |
| | | | | |
| | | | |
Fiscal Year | | Annual Rental | |
| | | (In thousands) | |
2012 | | $ | 4,489 | |
2013 | | | 4,623 | |
2014 | | | 4,762 | |
2015 | | | 4,905 | |
2016 | | | 5,052 | |
Thereafter | | | 5,638 | |
| | | | |
| | $ | 29,469 | |
| | | | |
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 the Company’s deferred tax assets is dependent upon many factors such as tax regulations applicable to the jurisdictions in which the Company operates, estimates of future taxable income and the character of such taxable income.
Additionally, the Company must use significant judgment in addressing uncertainties in the application of complex tax laws and regulations. If actual circumstances differ from the Company’s 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 its operations and its effective tax rate. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. The Company has not made any significant changes to the way it accounts for its deferred tax assets and liabilities in any year presented in the consolidated financial statements. Based on its estimate of future earnings and its favorable earnings history, the Company currently expects full realization of the deferred tax assets net of any recorded valuation allowances. Furthermore, tax positions taken by the Company 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.
Reserves for Insurance Losses
The nature of the Company’s business exposes it to various types of third-party legal claims, including, but not limited to, civil rights claims relating to conditions of confinementand/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 prisoner’s escape or from a disturbance or riot at a facility. In addition, the Company’s management contracts generally require it to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. The Company maintains a broad program of insurance coverage for these general types of claims, except for claims relating to employment matters, for which the Company carries no insurance. There can be no assurance that the Company’s insurance coverage will be adequate to cover all claims to which it may be exposed. It is the Company’s general practice to bring merged or acquired companies into its corporate master policies in order to take advantage of certain economies of scale.
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The Company currently maintains a general liability policy and excess liability policy forpolicies with total limits of $67.0 million per occurrence and in the aggregate covering the operations of U.S. DetentionCorrections & Corrections,Detention, GEO Care’s Community-Based Services,community based services, GEO Care’s Youth Servicesyouth services and BI, Inc.BI. In addition, GEO Care’s residential treatment services division has a separate claims-made liability insurance program for their mental health facilities with limitsa specific loss limit of $62.0$35.0 million per occurrence and in the aggregate. A separateThat same $35.0 million limit also applies to medical professional liability claims arising out of correctional healthcare services. The Company’s wholly owned subsidiary, GEO Care, Inc., has a separate insurance program for its residential services division, with a specific loss limit of $35.0 million per occurrence and in the aggregate with respect to general liability and medical professional liability. The Company is uninsured for any claims in excess of these limits. The CompanyWe also maintainsmaintain insurance to cover property and other casualty risks including, workers’ compensation, environmental liability and automobile liability.
For most casualty insurance policies, the Company carries substantial deductibles or self-insured retentions —of $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 the Company’s 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 and the Pacific Northwest may prevent the Company from insuring some of its facilities to full replacement value.
With respect to operations in South Africa, the United Kingdom and Australia, the Company utilizes a combination of locally-procured insurance and global policies to meet contractual insurance requirements and protect the Company. TheIn addition to these policies, the Company’s Australian subsidiary is required to carrycarries tail insurance on a general liability policy providing an extended reporting period through 2011 related to a discontinued contract.
Of the reserves discussed above, the Company’s most significant insurance reserves relate to workers’ compensation and general liability claims. These reserves are undiscounted and were $40.2$45.3 million and $27.2$40.2 million as of January 1, 2012 and January 2, 2011, respectively and January 3, 2010, respectively.are included in Accrued expenses in the accompanying balance sheets. The Company uses 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, the Company considers such factors as historical frequency and severity of claims at each of its facilities, claim development, payment patterns and changes in the nature of its business, among other factors. Such factors are analyzed for each of the Company’s business segments. The Company estimates may be impacted by such factors as increases in the market price for medical services and unpredictability of the size of jury awards. The Company also may experience variability between its estimates and the actual settlement due to limitations inherent in the estimation process, including its ability to estimate costs of processing and settling claims in a timely manner as well as its ability to accurately estimate the Company’s exposure at the onset of a claim. Because the Company has high deductible insurance policies, the amount of its insurance expense is dependent on its ability to control its claims experience. If actual losses related to insurance claims significantly differ from the Company’s estimates, its financial condition, results of operations and cash flows could be materially adversely impacted.
Comprehensive Income (Loss)
Comprehensive income (loss) represents the change in shareholders’ equity from transactions and other events and circumstances arising from non-shareholder sources. The Company’s total comprehensive income is comprised of net income attributable to The GEO Group, Inc., net income attributable to noncontrolling interests, foreign currency translation adjustments that arise from consolidating foreign operations that do not impact cash flows, net unrealized lossgains and/ or losses on derivative instruments, and pension liability adjustments in the Consolidated Statements of Shareholders’ Equity and Comprehensive Income.
Foreign Currency Translation
The Company’s foreign operations use their local currencies as their functional currencies. Assets and liabilities of the operations are translated at the exchange rates in effect on the balance sheet date and shareholders’ equity is translated at historical rates. Income statement items are translated at the average exchange rates for the year. The positive (negative) impact of fluctuations in foreign exchange currency fluctuationrates for the Company’s international subsidiaries is includedrecorded in
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shareholders’ equity as a component of accumulated other comprehensive income, netincome. The Company and its foreign subsidiaries also lend and borrow money to and from one another. These loans are measured initially in the functional currency of income tax,the recording entity using the exchange rate in effect on that day. At the balance sheet date, the Company adjusts these balances to reflect the then current exchange rate and totaled $5.1 million, $10.7 million and ($10.7) million forrecords a transaction gain or loss based on the fiscal years ended January 2, 2011, January 3, 2010 and December 28, 2008, respectively.
change in foreign exchange currency rates.Derivatives
The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in interest rates. The Company measures its derivative financial instruments at fair value and records derivatives as either assets or liabilities on the balance sheet. For derivatives that are designed as and qualify as effective cash flow hedges, the portion of gain or loss on the derivative instrument effective at offsetting changes in the hedged item is reported as a component of accumulated other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. For derivative instruments that are designated as and qualify as effective fair value hedges, the gain or loss on the derivative instruments as well as the offsetting gain or loss on the hedged items attributable to the hedged risk is recognized in current earnings as interest income (expense) during the period of the change in fair values.
The Company formally documents all relationships between hedging instruments and hedge items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes attributing all derivatives that are designated as cash flow hedges to floating rate liabilities and attributing all derivatives that are designated as fair value hedges to fixed rate liabilities. The Company also assesses whether each derivative is highly effective in offsetting changes in the cash flows of the hedged item. Fluctuations in the value of the derivative instruments are generally offset by changes in the hedged item; however, if it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the affected derivative.
Stock-Based Compensation Expense
The Company recognizes the cost of stock based compensation awards based upon the grant date fair value of those awards. The Company uses a Black-Scholes option valuation model to estimate the fair value of each option awarded. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.
The fair value of stock-based awards was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for fiscal years ending 2011, 2010 and 2009, and 2008, respectively:
| | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 |
| |
| Risk free interest rates | | | 0.16 | % | | | 2.00 | % | | | 2.87 | % |
| Expected term | | | 3 months | | | | 4-5years | | | | 4-5years | |
| Expected volatility | | | 43 | % | | | 41 | % | | | 41 | % |
| Expected dividend | | | — | | | | — | | | | — | |
The options granted in 2010 were the replacement options granted to former Cornell employees. Expected volatilities are based on the historical and implied volatility of the Company’s common stock. | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Risk free interest rates | | | 2.06 | % | | | 0.16 | % | | | 2.00 | % |
Expected term | | | 4-5years | | | | 3 months | | | | 4-5years | |
Expected volatility | | | 43 | % | | | 43 | % | | | 41 | % |
Expected dividend | | | — | | | | — | | | | — | |
The Company uses historical data to estimate award exercises and employee terminations within the valuation model. The expected term of the awards represents the period of time that awards granted are expected to be outstanding and is based on historical data and expected holding periods. For awards granted as replacement stock options in connection with the Cornell Acquisition in 2010, the risk-free rate is based on the rate for three-month U.S. Treasury Bonds, which is consistent with the expected term of the award. For awards granted in 20092011 and 2008,2009, the risk-free rate is based on the rate for five yearfive-year U.S. Treasury Bonds, which is consistent with the expected term of the awards.
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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Treasury Stock
We account for repurchases of our common stock if any, using the cost method with common stock held in treasury classified in our consolidated balance sheets as a reduction of shareholders’ equity.
On February 22, 2010, the Company announced that its Board of Directors approved a stock repurchase program for up to $80.0 million of the Company’s common stock which was effective through March 31, 2011. During the fiscal year ended January 2, 2011, the Company completed repurchases of shares of its common stock under the share repurchase program. The stock repurchase program was implemented through purchases made from time to timeequity in
the open market or in privately negotiated transactions, in accordance with applicable Securities and Exchange Commission requirements. The program also included repurchases from time to time from executive officers or directors of vested restricted stockour consolidated balance sheets.and/or vested stock options. The stock repurchase program did not obligate the Company to purchase any specific amount of its common stock and could be extended or suspended at any time at the Company’s discretion. During the fiscal year ended January 2, 2011, the Company completed the program and purchased 4.0 million shares of its common stock, at an aggregate cost of $80.0 million, using cash on hand and cash flow from operating activities. Included in the shares repurchased for the fiscal year ended January 2, 2011 were 1.1 million shares repurchased from executive officers at an aggregate cost of $22.3 million.
Earnings Per Share
Basic earnings per share is computed by dividing the income from continuing operations attributable to The GEO Group Inc., by the weighted-averageweighted average number of outstanding shares of common shares outstanding.stock. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator includes dilutive common sharestock equivalents such as sharestock options and shares of restricted shares.
stock.Recent Accounting Pronouncements
The Company implemented the following accounting standards in the fiscal year ended January 2, 2011:
In December 2009, the FASB issued ASUNo. 2009-17, previously known as FAS No. 167, “Amendments to FASB Interpretation No. FIN 46(R)” (SFAS No. 167). ASUNo. 2009-17 amends the manner in which entities evaluate whether consolidation is required for VIEs. The consolidation requirements under the revised guidance require a company to consolidate a VIE if the entity has all three of the following characteristics (i) the power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the entity’s economic performance, (ii) the obligation to absorb the expected losses of the legal entity, and (iii) the right to receive the expected residual returns of the legal entity. Further, this guidance requires that companies continually evaluate VIEs for consolidation, rather than assessing based upon the occurrence of triggering events. As a result of adoption, which was effective for the Company’s interim and annual periods beginning after November 15, 2009, companies are required to enhance disclosures about how their involvement with a VIE affects the financial statements and exposure to risks. The implementation of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.
In January 2010, the FASB issued ASUNo. 2010-2 which addresses implementation issues related to changes in ownership provisions of consolidated subsidiaries, investees and joint ventures. The amendment clarifies that the scope of the decrease in ownership provisions outlined in the current consolidation guidance apply to (i) a subsidiary or group of assets that is a business or nonprofit activity, (ii) a subsidiary that is a business or nonprofit activity and is transferred to an equity method investee or joint venture and (iii) to an exchange of a group of assets that constitute a business or nonprofit activity for a noncontrolling interest in an entity. The amendment also makes certain other clarifications and expands disclosures about the deconsolidation of a subsidiary or derecognition of a group of assets within the scope of the current consolidation guidance. These amendments became effective for the Company’s interim and annual reporting periods
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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
beginning after December 15, 2009. The implementation of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.
In January 2010, the FASB issued ASUNo. 2010-6 which requires additional disclosures relative to transfers of assets and liabilities between Levels 1 and 2 of the fair value hierarchy. Additionally, the amendment requires companies to present activity in the reconciliation for Level 3 fair value measurements on a gross basis rather than on a net basis. This update also provides clarification to existing disclosures relative to the level of disaggregation and disclosure of inputs and valuation techniques for fair value measurements that fall into either Level 2 or Level 3. This amendment became effective for the Company’s interim and annual reporting period after December 15, 2009, except for disclosures related to activity in Level 3 fair value measurements which are effective for the Company’s first reporting period beginning after December 15, 2010. The implementation of this standard, relative to Levels 1 and 2 of the fair value hierarchy, did not have a material impact on the Company’s financial position, results of operations and cash flows. The Company does not expect the adoption of the standard relative to Level 3 investments to have a material impact on the Company’s financial position, results of operations and cash flows.
In July 2010, the FASB issued ASUNo. 2010-20 which affects all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value. The objective of the amendments in this update is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the following: (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses, (iii) the changes and reasons for those changes in the allowance for credit losses. These disclosures are effective for the Company for interim and annual reporting periods ending on or after December 15, 2010. The implementation of this standard did not have a material adverse impact on the Company’s financial position, results of operation and cash flows.
The following accounting standards will be adopted in future periods:
In October 2009, the
FASBFinancial Accounting Standards Board (“FASB”) issued
ASUAccounting Standards Update (“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.Generally Accepted Accounting Principles (“GAAP”). 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 so that consideration would be allocated to the deliverables using the relative selling price method.method based on GEO’s specific assumptions. This amendment also significantly expands the disclosure requirements for multiple element arrangements. This guidance will becomebecame effective for the Company prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company does not believe that the implementation of this standard will have a material adverse impact on its financial position, results of operation and cash flows.
In December 2010,in the FASB issued ASUNo. 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 No2010-28 is to address circumstances in which entities have reporting units with zero or negative carrying amounts. The amendments in this guidance modify Stepfiscal year ended January 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 than2012 did not that a goodwill impairment exists after considering certain qualitative characteristics, as described in this guidance. This guidance will become 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 and does not expect that the impact of this accounting standard will have a material impact on the Company’s financial position, results of operationsand/or and cash flows.
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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Also, in December 2010, the FASB issued ASUNo. 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 does not expect thatacquired BI during the impactfiscal year ended January 1, 2012 and has implemented this standard, as applicable, to the related business combination disclosures. The implementation of this accounting standard willdid not have a material impact on the Company’s financial position, results of operationsoperation and/or cash flows.
In September 2011, the FASB issued ASU 2011-08 which is intended to simplify how an entity tests goodwill for impairment. Under the revised guidance, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. Under the amendments in this update, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company has elected to early adopt ASU 2011-08 for the purposes of performing its annual goodwill impairment test for its fiscal year ended January 1, 2012. The Company’s measurement date for the annual goodwill test is as of the first day of its fourth fiscal quarter. The implementation of this accounting standard did not have a material impact on the Company’s financial position, results of operations and/or cash flows.
The following accounting standards will be adopted in future periods:
In May 2011, the FASB issued ASU No. 2011-04 which provides a consistent definition of fair value in US GAAP and International Financial Reporting Standards (“IFRS”) and ensures that their respective fair value measurement and disclosure requirements are the same (except for minor differences in wording and style). The amendments change certain fair value measurement principles and enhance the disclosure requirements particularly for level 3 fair value measurements. The standard will become effective for the Company during interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The Company does not believe that the implementation of this standard will have a material impact on its financial position, results of operation and cash flows.
In June 2011, the FASB issued ASU No. 2011-05 which requires an entity to present all non-owner changes in stockholders’ equity either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This standard will become effective for the Company in fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. The Company does not believe that the implementation of this standard will have a material impact on its financial position, results of operation and cash flows.
In December 2011, the FASB issued ASU 2011-12 in order to defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments. No other requirements in ASU 2011-05 were affected by this ASU, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. ASU 2011-12 is effective for the Company in fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not believe that the implementation of this standard will have a material impact on its financial position, results of operation and cash flows.
| 2. | |
2. | Business Combinations |
Acquisition of Cornell Companies, Inc.BII Holding
On August 12, 2010,February 10, 2011, the Company completed its acquisition of CornellB.I. Incorporated (“BI”), a Colorado corporation, pursuant to a definitive merger agreement entered into on April 18, 2010, and amended on July 22, 2010, between 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, excluding cash acquired of $12.9 million and including: (i) cash payments for Cornell’s outstanding common stock of $84.9 million, (ii) payments made on behalf of Cornell related to Cornell’s transaction costs accrued prior to the acquisition of $6.4 million, (iii) cash payments for the settlement of certain of Cornell’s debt plus accrued interest of $181.9 million using proceeds from GEO’s senior credit facility, (iv) common stock consideration of $357.8 million, and (v) the fair value of stock option replacement awards of $0.2 million. The value of the equity consideration was based on the closing price of the Company’s common stock on August 12, 2010 of $22.70.
Purchase price allocation
GEO is identified as the acquiring company for US GAAP accounting purposes. Under the purchase method of accounting, the aggregate purchase price is allocated to Cornell’s net tangible and intangible assets based on their estimated fair values as of August 12, 2010, the date of closing and the date that GEO obtained control over Cornell. In order to determine the fair values of a significant portion of the assets acquired and liabilities assumed, the Company engaged third party independent valuation specialists. The preliminary work performed by the third party independent valuation specialists has been considered in management’s estimates of certain of the fair values reflected in the purchase price allocation below. For any other assets acquired and liabilities assumed for which the Company is not considering the work of third party independent valuation specialists, the fair value determined by the Company’s management represents the price management believes would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. For long term assets, liabilities and the noncontrolling interest in MCF for which there was no active market price available for valuation, the Company used Level 3 inputs to estimate the fair market value.
The allocation of the purchase price for this transaction at August 12, 2010 has not been finalized. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair values of certain tangible assets and liabilities acquired, the valuation of certain intangible assets acquired and income taxes. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition. The
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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
purchase price of $618.3 million has been preliminarily allocated to the estimated fair values of the assets acquired and liabilities assumed as of August 12, 2010 as follows (in ’000’s):
| | | | | |
| | | Preliminary
| |
| | | Purchase Price
| |
| | | Allocation | |
| |
| Accounts receivable | | $ | 55,142 | |
| Prepaid and other current assets | | | 13,314 | |
| Deferred income tax assets | | | 21,273 | |
| Restricted assets | | | 44,096 | |
| Property and equipment | | | 462,771 | |
| Intangible assets | | | 75,800 | |
| Out of market lease assets | | | 472 | |
| Other long-term assets | | | 7,510 | |
| | | | | |
| Total assets acquired | | $ | 680,378 | |
| | | | | |
| Accounts payable and accrued expenses | | | (56,918 | ) |
| Fair value of non-recourse debt | | | (120,943 | ) |
| Out of market lease liabilities | | | (24,071 | ) |
| Deferred income tax liabilities | | | (42,771 | ) |
| Other long-term liabilities | | | (1,368 | ) |
| | | | | |
| Total liabilities assumed | | | (246,071 | ) |
| | | | | |
| Total identifiable net assets | | | 434,307 | |
| Goodwill | | | 204,724 | |
| | | | | |
| Fair value of Cornell’s net assets | | | 639,031 | |
| Noncontrolling interest | | | (20,700 | ) |
| | | | | |
| Total consideration for Cornell, net of cash acquired | | $ | 618,331 | |
| | | | | |
As shown above, the Company recorded $204.7 million of goodwill related to the purchase of Cornell. The strategic benefits of the Merger include the combined Company’s increased scale and the diversification of service offerings. These factors contributed to the goodwill that was recorded upon consummation of the transaction. Of the goodwill recorded in relation to the Merger, only $1.5 million of goodwill resulting from a previous Cornell acquisition is deductible for federal income tax purposes; the remainder of goodwill is not deductible. Included in net assets acquired is gross contractual accounts receivable of approximately $62.8 million, of which approximately $7.7 million is expected to be uncollectible. Identifiable intangible assets purchased in the acquisition and their weighted average amortization periods in total and by major intangible asset class, as applicable, are included in the table below (in thousands):
| | | | | | | | | |
| | | Weighted Average
| | | Fair Value
| |
| | | Amortization Period | | | as of August 12, 2010 | |
| |
| Goodwill | | | n/a | | | $ | 204,724 | |
| Identifiable intangible assets | | | | | | | | |
| Facility Management contracts | | | 12.5 years | | | $ | 70,100 | |
| Covenants not to compete | | | 1.8 years | | | | 5,700 | |
| | | | | | | | | |
| Total identifiable intangible assets | | | 11.7 years | | | $ | 75,800 | |
| | | | | | | | | |
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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of January 2, 2011 the weighted average period before the next contract renewal or extension for acquired Cornell contracts was approximately one year. Although the contracts have renewal and extension terms in the near future, Cornell has historically maintained these relationships beyond the contractual periods.
The following table sets forth amortization expense for each of the five succeeding years and thereafter related to the finite-lived intangible assets acquired during the fiscal year ended January 2, 2011:
| | | | | | | | | | | | | |
| | | U.S. Detention &
| | | | | | | |
| Fiscal Year | | Corrections | | | GEO Care | | | Total | |
| |
| 2011 | | $ | 4,448 | | | $ | 4,137 | | | $ | 8,585 | |
| 2012 | | | 3,680 | | | | 3,385 | | | | 7,065 | |
| 2013 | | | 2,950 | | | | 2,669 | | | | 5,619 | |
| 2014 | | | 2,950 | | | | 2,669 | | | | 5,619 | |
| 2015 | | | 2,950 | | | | 2,669 | | | | 5,619 | |
| Thereafter | | | 19,517 | | | | 20,328 | | | | 39,845 | |
| | | | | | | | | | | | | |
| Net carrying value as of January 2, 2011 | | $ | 36,495 | | | $ | 35,857 | | | $ | 72,352 | |
| | | | | | | | | | | | | |
Pro forma financial information
The results of operations of Cornell are included in the Company’s results of operations from August 12, 2010. The following unaudited pro forma information combines the consolidated results of operations of the Company and Cornell as if the acquisition had occurred at the beginning of fiscal year 2009. The pro forma financial information below has been calculated after adjusting primarily for the following: (i) depreciation and amortization expense that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied at the beginning of fiscal year 2009; (ii) the impact of the Company’s $750.0 million Senior Credit Facility which closed on August 4, 2010; (iii) the elimination of $15.7 million in acquisition related expenses recognized in the fiscal year ended January 2, 2011; and (iv) the related tax effects at the estimated statutory income tax rate. The pro forma amounts are included for comparative purposes and may not necessarily reflect the results of operations that would have resulted had the acquisition been completed at a date other than as specified and may not be indicative of the results that will be attained in the future. For the purposes of the table and disclosure below, earnings is the same as net income attributable to the GEO Group Inc., shareholders (in ’000’s):
| | | | | | | | | |
| | | Fiscal Year Ended |
| | | January 2, 2011 | | January 3, 2010 |
| |
| Pro forma revenues | | $ | 1,517.6 | | | $ | 1,551.8 | |
| Pro forma net income attributable to the GEO Group Inc., shareholders | | $ | 90.5 | | | $ | 92.8 | |
The Company has included revenue and earnings of $151.1 million and $9.8 million, respectively, in its consolidated statement of income for fiscal year ended January 2, 2011 for Cornell activity since August 12, 2010, the date of acquisition.
Acquisition of BII Holding
On December 21, 2010, the Company entered into an Agreement and Plan of Merger, dated as of December 21, 2010 (the “Merger Agreement”) with, among GEO, BII Holding (“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. (“AEA”L.P (the “BI Acquisition”). The Merger Agreement provides that, uponUnder the terms and subject to the conditions set forth inof the Merger Agreement, Merger Sub will mergemerged with and into BII Holding, (the “Merger”), with BII Holding (“BI”) continuingemerging as the surviving corporation andof the merger. As a wholly-owned subsidiaryresult of
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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GEO. Pursuant to the
Merger Agreement,BI Acquisition, the Company paid merger consideration of
$415.0$409.6 million in cash,
subjectnet of cash acquired of $9.7 million, excluding transaction related expenses and any potential adjustments, for 100% of BI’s 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
certain adjustments,satisfy any applicable indemnification claims pursuant to the terms of the Merger Agreement by GEO, the Merger Sub or its affiliates. The Company expects to fully settle the indemnification claims prior to June 30, 2012. As of January 1, 2012 and as of the date this Annual Report on Form 10K was filed, the Company was still in arbitration with regards to the amount of the working capital adjustment. At the time of the BI Acquisition, approximately $78.4 million, including
an adjustment for working capital.accrued interest, was outstanding under BI’s 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
waswere repaid by BI with a portion of the
$415.0$409.6 million of merger
consideration. ReferIn connection with the BI Acquisition and included in general and administrative expenses, the Company incurred $4.3 million in nonrecurring acquisition related costs for the fiscal year ended January 1, 2012. 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 identified as the acquiring company for US GAAP accounting purposes and believes its acquisition of BI provides it with the ability to Note 21.
The allocation of the purchase price was complete as of February 10, 2012 and any adjustments to goodwill made up to that date have been recorded in the Company’s balance sheet as of January 1, 2012. The final allocation is presented below. During the measurement period, the Company made $11.6 million in aggregate retrospective adjustments to provisional amounts with respect to the BI 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. These adjustments relate to the Company’s valuation of accounts receivable, property and equipment, intangible assets, other non-current assets, deferred income tax assets and liabilities and other non-current liabilities. During the fourth quarter of 2011, the Company recorded adjustments to deferred income tax assets, deferred income tax liabilities and other non-current liabilities for tax related matters finalized within the measurement period which reduced goodwill by $4.6 million. The purchase price allocation as of February 10, 2011 and as of January 1, 2012 and adjustments made to the estimated acquisition date fair values during the measurement period are as follows (in thousands):
| | | | | | | | | | | | |
| | | Acquisition Date
Estimated Fair Value as
of February 10, 2011 | | | Measurement Period
Adjustments | | | Final Acquisition
Date Fair Value
as of January 1, 2012 | |
Accounts receivable | | $ | 18,321 | | | $ | 1,298 | | | $ | 19,619 | |
Prepaid expenses and other current assets | | | 3,896 | | | | — | | | | 3,896 | |
Deferred income tax assets | | | 15,857 | | | | (7,923 | ) | | | 7,934 | |
Property and equipment | | | 22,359 | | | | 901 | | | | 23,260 | |
Intangible assets | | | 126,900 | | | | 4,900 | | | | 131,800 | |
Other non-current assets | | | 8,884 | | | | — | | | | 8,884 | |
| | | | | | | | | | | | |
Total assets acquired | | $ | 196,217 | | | $ | (824 | ) | | $ | 195,393 | |
| | | | | | | | | | | | |
Accounts payable | | | (3,977 | ) | | | — | | | | (3,977 | ) |
Accrued expenses | | | (8,461 | ) | | | — | | | | (8,461 | ) |
Deferred income tax liabilities | | | (43,824 | ) | | | 7,037 | | | | (36,787 | ) |
Other non-current liabilities | | | (11,431 | ) | | | 5,411 | | | | (6,020 | ) |
Long-term debt | | | (2,014 | ) | | | — | | | | (2,014 | ) |
| | | | | | | | | | | | |
Total liabilities assumed | | | (69,707 | ) | | | 12,448 | | | | (57,259 | ) |
| | | | | | | | | | | | |
Total identifiable net assets | | | 126,510 | | | | 11,624 | | | | 138,134 | |
Goodwill | | | 283,097 | | | | (11,624 | ) | | | 271,473 | |
| | | | | | | | | | | | |
Total cash consideration | | $ | 409,607 | | | $ | — | | | $ | 409,607 | |
| | | | | | | | | | | | |
For fiscal year ended January 1, 2012, the Company has included revenue and earnings, excluding intercompany transactions, of approximately $113.2 million and $10.9 million, respectively, in its consolidated statement of income which represents revenue and earnings since February 10, 2011, the date BI was acquired.
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 (the “Cornell Acquisition”). 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. Of the goodwill recorded in relation to this acquisition, only $1.5 million of goodwill which resulted from a previous acquisition by Cornell, is deductible for federal income tax purposes; the remainder of goodwill is not deductible.
The measurement period ended on August 12, 2011. During the measurement period, the Company 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. Those changes are reflected in the table below. The purchase price allocation as of January 2, 2011 and as of January 1, 2012 and adjustments made to the estimated acquisition date fair values during the fiscal year ended January 1, 2012 are as follows (in thousands):
| | | | | | | | | | | | |
| | | Acquisition Date
Estimated Fair Value as of
January 2, 2011 | | | Measurement Period
Adjustments during the
fiscal year ended
January 1, 2012 | | | Final Acquisition
Date Fair Value
as of January 1, 2012 | |
Accounts receivable | | $ | 55,142 | | | $ | 294 | | | $ | 55,436 | |
Prepaid and other current assets | | | 13,314 | | | | (333 | ) | | | 12,981 | |
Deferred income tax assets | | | 21,273 | | | | (3,011 | ) | | | 18,262 | |
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 | | | | (3,050 | ) | | | 677,328 | |
| | | | | | | | | | | | |
Accounts payable and accrued expenses | | | (56,918 | ) | | | 3,175 | | | | (53,743 | ) |
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 | ) | | | 8,228 | | | | (34,543 | ) |
Other long-term liabilities | | | (1,368 | ) | | | — | | | | (1,368 | ) |
| | | | | | | | | | | | |
Total liabilities assumed | | | (246,071 | ) | | | 11,403 | | | | (234,668 | ) |
| | | | | | | | | | | | |
Total identifiable net assets | | | 434,307 | | | | 8,353 | | | | 442,660 | |
Goodwill | | | 204,724 | | | | (8,353 | ) | | | 196,371 | |
| | | | | | | | | | | | |
Fair value of Cornell’s net assets | | | 639,031 | | | | — | | | | 639,031 | |
Noncontrolling interest | | | (20,700 | ) | | | — | | | | (20,700 | ) |
| | | | | | | | | | | | |
Total consideration for Cornell, net of cash acquired | | $ | 618,331 | | | $ | — | | | $ | 618,331 | |
| | | | | | | | | | | | |
The Company recognized a reduction of operating expenses of $5.9 million during the year ended January 1, 2012 for items related to Cornell that occurred after the measurement period or purchase price allocation period had ended. These adjustments to operating expenses were the result of a recovery of accounts receivable and an insurance settlement for property damage at one of Cornell’s facilities. There were no such amounts recognized in the year ended January 2, 2011.
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 BI Acquisition and the related financing had occurred on January 3, 2010. For comparative purposes, the Company has also included the effect of the Cornell Acquisition and related financing as if it had occurred on January 3, 2010. 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 and amortization expense, (ii) adjustments to eliminate intercompany transactions, (iii) adjustments to remove $6.7 million and $46.4 million for the fiscal years ended January 1, 2012 and January 2, 2011, respectively, in nonrecurring charges directly related to these acquisitions that are 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 are the same as net income attributable to The GEO Group, Inc. shareholders (in thousands):
| | | | | | | | |
| | | 2011 | | | 2010 | |
Pro forma revenues | | $ | 1,626,490 | | | $ | 1,630,155 | |
Pro forma net income attributable to The GEO Group, Inc. shareholders | | $ | 81,954 | | | $ | 84,907 | |
| 3. | |
3. | Shareholders’ Equity |
Each holder of the Company’s common stock is entitled to one vote per share on all matters to be voted upon by the Company’s shareholders. Upon any liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share equally in all assets available for distribution after payment of all liabilities, subject to the liquidation preference of shares of preferred stock, if any, then outstanding. The Company did not pay any cash dividends on its common stock for fiscal years 2011, 2010 2009 or 2008.2009. Future dividends, if any, will depend, on the Company’s future earnings, its capital requirements, its financial condition and on such other factors as the Board of Directors may take into consideration.
In April 1994, the Company’s Board of Directors authorized 30 million shares of “blank check” preferred stock. The Board of Directors is authorized to determine the rights and privileges of any future issuance of preferred stock such as voting and dividend rights, liquidation privileges, redemption rights and conversion privileges.
On October 9, 2003, the Company entered into a rights agreement with EquiServe Trust Company, N.A., as rights agent. Under the terms of the rights agreement, each share of the Company’s common stock carries with it one preferred share purchase right. If the rights become exercisable pursuant to the rights agreement, each right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock at a fixed price, subject to adjustment. Until a right is exercised, the holder of the right has no right to vote or receive dividends or any other rights as a shareholder as a result of holding the right. The rights trade automatically with shares of our common stock, and may only be exercised in connection with certain attempts to acquire the Company. The rights are designed to protect the interests of the Company and its shareholders against coercive acquisition tactics and encourage potential acquirers to negotiate with our Board of Directors before attempting an acquisition. The rights may, but are not intended to, deter acquisition proposals that may be in the interests of the Company’s shareholders.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) represents the change in shareholders’ equity from transactions and other events and circumstances arising from non-shareholder sources. The Company’s comprehensive income (loss) includes net income, effect of foreign currency translation adjustments that arise from consolidating foreign operations that do not impact cash flows, projected benefit obligation recognized in other comprehensive
104
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
income and the change in net unrealized gains or losses on derivative instruments. The components of accumulated other comprehensive income (loss) are as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | Projected Beneftt
| | | | | | | |
| | | | | | Obligation
| | | | | | Accumulated
| |
| | | | | | Recognized in Other
| | | Gains and Losses
| | | Other
| |
| | | Foreign Currency
| | | Comprehensive
| | | on Derivative
| | | Comprehensive
| |
| | | Translation, Net | | | Income (Loss) | | | Instruments | | | Income (Loss) | |
| |
| Balance December 30, 2007 | | $ | 4,930 | | | $ | (1,621 | ) | | $ | 3,611 | | | $ | 6,920 | |
| Change in foreign currency translation, net of tax benefit of $413 | | | (10,742 | ) | | | — | | | | — | | | | (10,742 | ) |
| Pension liabiltiy adjustment, net of tax expense of $17 | | | — | | | | 27 | | | | — | | | | 27 | |
| Unrealized loss on derivative instruments, net of tax benefit of $2,113 | | | — | | | | — | | | | (3,480 | ) | | | (3,480 | ) |
| | | | | | | | | | | | | | | | | |
| Balance December 28, 2008 | | | (5,812 | ) | | | (1,594 | ) | | | 131 | | | | (7,275 | ) |
| | | | | | | | | | | | | | | | | |
| Change in foreign currency translation, net of tax expense of $1,129 | | | 10,658 | | | | — | | | | — | | | | 10,658 | |
| Pension liabiltiy adjustment, net of tax expense of $636 | | | — | | | | 942 | | | | — | | | | 942 | |
| Unrealized gain on derivative instruments, net of income tax benefit of $645 | | | — | | | | — | | | | 1,171 | | | | 1,171 | |
| | | | | | | | | | | | | | | | | |
| Balance January 3, 2010 | | | 4,846 | | | | (652 | ) | | | 1,302 | | | | 5,496 | |
| | | | | | | | | | | | | | | | | |
| Change in foreign currency translation, net of tax expense of $1,313 | | | 5,084 | | | | — | | | | — | | | | 5,084 | |
| Pension liabilty adjustment, net of tax benefit of $232 | | | — | | | | (383 | ) | | | — | | | | (383 | ) |
| Unrealized gain on derivative instruments, net of income tax benefit of $69 | | | — | | | | — | | | | (126 | ) | | | (126 | ) |
| | | | | | | | | | | | | | | | | |
| Balance January 2, 2011 | | $ | 9,930 | | | $ | (1,035 | ) | | $ | 1,176 | | | $ | 10,071 | |
| | | | | | | | | | | | | | | | | |
follows (in thousands): | | | | | | | | | | | | | | | | |
| | | Foreign Currency
Translation, Net | | | Projected Benefit
Obligation
Recognized in Other
Comprehensive
Income (Loss) | | | Gains and Losses
on Derivative
Instruments | | | Accumulated
Other
Comprehensive
Income (Loss) | |
Balance December 28, 2008 | | $ | (5,812 | ) | | $ | (1,594 | ) | | $ | 131 | | | $ | (7,275 | ) |
Change in foreign currency translation, net of tax benefit of $1,129 | | | 10,658 | | | | — | | | | — | | | | 10,658 | |
Pension liability adjustment, net of tax expense of $636 | | | — | | | | 942 | | | | — | | | | 942 | |
Unrealized gain on derivative instruments, net of income tax benefit of $645 | | | — | | | | — | | | | 1,171 | | | | 1,171 | |
| | | | | | | | | | | | | | | | |
Balance January 3, 2010 | | | 4,846 | | | | (652 | ) | | | 1,302 | | | | 5,496 | |
| | | | | | | | | | | | | | | | |
Change in foreign currency translation, net of tax expense of $1,313 | | | 5,084 | | | | — | | | | — | | | | 5,084 | |
Pension liability adjustment, net of tax benefit of $232 | | | — | | | | (383 | ) | | | — | | | | (383 | ) |
Unrealized loss on derivative instruments, net of income tax benefit of $69 | | | — | | | | — | | | | (126 | ) | | | (126 | ) |
| | | | | | | | | | | | | | | | |
Balance January 2, 2011 | | | 9,930 | | | | (1,035 | ) | | | 1,176 | | | | 10,071 | |
| | | | | | | | | | | | | | | | |
Change in foreign currency translation, net of tax expense of $999 | | | (5,852 | ) | | | — | | | | — | | | | (5,852 | ) |
Pension liability adjustment, net of tax benefit of $730 | | | — | | | | (1,131 | ) | | | — | | | | (1,131 | ) |
Unrealized loss on derivative instruments, net of income tax benefit of $638 | | | — | | | | — | | | | (1,158 | ) | | | (1,158 | ) |
| | | | | | | | | | | | | | | | |
Balance January 1, 2012 | | $ | 4,078 | | | $ | (2,166 | ) | | $ | 18 | | | $ | 1,930 | |
| | | | | | | | | | | | | | | | |
Stock repurchasesRepurchases
On July 14, 2011, the Company announced that its Board of Directors approved a stock repurchase program of up to $100.0 million of its common stock effective through December 31, 2012. The stock repurchase program will be funded primarily with cash on hand, free cash flow, and borrowings under the Company’s Revolving Credit Facility. The stock repurchase program is intended to be implemented through purchases made from time to time in the open market or in privately negotiated transactions, in accordance with applicable securities and stock exchange requirements. The program may also include repurchases from time to time from executive officers or directors of vested restricted stock and/or vested stock options. The stock repurchase program does not obligate the Company to purchase any specific amount of its common stock and may be suspended or extended at any time at the Company’s discretion. During the fiscal year ended January 1, 2012, the Company purchased 3.9 million shares of its common stock at a cost of $75.0 million primarily purchased with proceeds from the Company’s Revolving Credit Facility. The Company believes it has the ability to continue to fund the stock repurchase program, its working capital, its debt service requirements, and its maintenance and growth capital expenditure requirements, while maintaining sufficient liquidity for other corporate purposes.
On February 22, 2010, the Company announced that its Board of Directors approved a stock repurchase program for up to $80.0 million of the Company’s common stock which was effective through March 31, 2011. The stock repurchase program was implemented through purchases made from time to time in the open market or in privately negotiated transactions, in accordance with applicable Securities and Exchange Commission
requirements. The program also included repurchases from time to time from executive officers or directors of vested restricted stockand/or vested stock options. The stock repurchase program did not obligate the Company to purchase any specific amount of its common stock and could be suspended or extended at any time at the Company’s discretion. During the fiscal year ended January 2, 2011, the Company completed the program and purchased 4.0 million shares of its common stock at a cost of $80.0 million using cash on hand and cash flow from operating activities. Of the aggregate 4.0 million shares repurchased during the fiscal year ended January 2, 2011, 1.1 million shares were repurchased from executive officers at an aggregate cost of $22.3 million.
Also during the fiscal year ended January 2, 2011, the Company repurchased 0.3 million shares of common stock from certain directors and executives for an aggregate cost of $7.1 million. These shares were retired by the Company immediately upon repurchase.
105
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Noncontrolling Interests
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 its variable interest entity, in its consolidated financial statements. MCF owns eleven facilities which it leases to the Company.
During the fiscal year ended January 1, 2012, a cash distribution was made to the partners of MCF for $4.0 million.The Company includes the results of operations and financial position of South African Custodial Management Pty. Limited (“SACM” or the “joint venture”), its majority-owned subsidiary, in its consolidated financial statements. SACM was established in 2001 to operate correctional centers in South Africa. The joint venture currently provides security and other management services for the Kutama Sinthumule Correctional Centre in the Republic of South Africa under a25-year management contract which commenced in February 2002. The Company’s and the second joint venture partner’s shares in the profits of the joint venture are 88.75% and 11.25%, respectively. There were no changes in the Company’s ownership percentage of the consolidated subsidiary during the fiscal yearyears ended January 2, 2011. The noncontrolling interest as of1, 2012 or January 2, 2011 and January 3, 2010 is included in Total Shareholders’ Equity in the accompanying Consolidated Balance Sheets.2011. There were no contributions from owners or distributions to owners in the fiscal year ended January 2, 20111, 2012 or January 3, 2010.
2, 2011.| 4. | |
4. | Equity Incentive Plans |
The Company had awards outstanding under four equity compensation plans at January 2, 2011:1, 2012: 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 Company’s 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 Company’s 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 rights, that are settled in common stock. The 2006 Plan, as amended, specifies that up to 1,083,0002,166,000 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. See “Restricted Stock” below for further discussion. As of January 2, 2011,1, 2012, under the 2006 Plan, the Company had 952,8501,721,504 shares of common stock available for issuance pursuant to future awards that may be granted under the plan of which up to 351,722944,304 shares were available for the issuance of awards other than stock options. As a result of the acquisition of Cornell, the Company issued 35,750 replacement stock option awards with an aggregate fair value as of August 12, 2010 of $0.2 million which is included in the purchase price consideration. These awards were fully vested at the grant date and had a term of 90 days.
ExceptSee “Restricted Stock” below for 846,186 shares of restricted stock issued under the 2006 Plan as of January 2, 2011, all of the awards previously issued under the Company Plans consisted of stock options. Although awards are currently outstanding under all of the Company Plans, the Company may only grant new awards under the 2006 Plan.
further discussion.Under the terms of the Company Plans, the vesting period and, in the case of stock options, the exercise price per share, are determined by the terms of each plan. All stock options that have been granted under the Company Plans are exercisable at the fair market value of the common stock at the date of the grant. Generally, the stock options vest and become exercisable ratably over a four-year period, beginning immediately on the date of the grant. However, the Board of Directors has exercised its discretion to grant stock options that vest 100% immediately for the Chief Executive Officer. In addition, stock options granted to non-employee directors under the 1995 Plan became exercisable immediately. All stock options awarded under the
106
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company Plans expire no later than ten years after the date of the grant, except for the replacement awards issued in connection with the Cornell acquisition discussed above.
The Company recognized compensation expense related to the Company Plans for the fiscal years ended January 1, 2012, January 2, 2011 and January 3, 2010 as follows (in thousands):
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Stock option plan expense | | $ | 2,681 | | | $ | 1,378 | | | $ | 1,813 | |
Restricted stock expense | | $ | 3,432 | | | $ | 3,261 | | | $ | 3,509 | |
Additional tax benefits realized from tax deductions associated with the exercise of stock options and the vesting of restricted stock activity for 2011, 2010 and 2009 totaled $0.5 million, $3.9 million and $0.6 million, respectively.
Stock Options
A summary of the activity of the Company’s stock options plans is presented below:
| | | | | | | | | | | | | | | | | |
| | | | | | Wtd. Avg.
| | | Wtd. Avg.
| | | Aggregate
| |
| | | | | | Exercise
| | | Remaining
| | | Intrinsic
| |
| | | Shares | | | Price | | | Contractual Term | | | Value | |
| | | (In thousands) | | | | | | | | | (In thousands) | |
| |
| Options outstanding at January 3, 2010 | | | 2,807 | | | $ | 10.26 | | | | 4.80 | | | $ | 32,592 | |
| Granted | | | 36 | | | | 16.33 | | | | | | | | | |
| Exercised | | | (1,353 | ) | | | 4.95 | | | | | | | | | |
| Forfeited/Canceled | | | (89 | ) | | | 19.73 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Options outstanding at January 2, 2011 | | | 1,401 | | | $ | 15.01 | | | | 5.84 | | | $ | 13,517 | |
| | | | | | | | | | | | | | | | | |
| Options exercisable at January 2, 2011 | | | 1,044 | | | $ | 13.22 | | | | 5.04 | | | $ | 11,942 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Shares | | | Wtd. Avg.
Exercise
Price | | | Wtd. Avg.
Remaining
Contractual Term | | | Aggregate
Intrinsic
Value | |
| | | (In thousands) | | | | | | | | | (In thousands) | |
Options outstanding at January 2, 2011 | | | 1,401 | | | $ | 15.01 | | | | 5.84 | | | $ | 13,517 | |
Granted | | | 554 | | | | 24.71 | | | | | | | | | |
Exercised | | | (298 | ) | | | 8.22 | | | | | | | | | |
Forfeited/Canceled | | | (56 | ) | | | 20.33 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Options outstanding at January 1, 2012 | | | 1,601 | | | | 19.44 | | | | 6.73 | | | $ | 2,778 | |
| | | | | | | | | | | | | | | | |
Options exercisable at January 1, 2012 | | | 996 | | | | 17.05 | | | | 5.52 | | | $ | 2,775 | |
| | | | | | | | | | | | | | | | |
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of fiscal year 20102011 and the exercise price, times the number of shares that are “in the money”) that would have been received by the option holders had all option holders exercised their options on January 2, 2011.1, 2012. This amount changes based on the fair value of the company’s stock.
The total intrinsic value of options exercisedfollowing table summarizes information relative to stock option activity during the Company’s fiscal years ended January 1, 2012, January 2, 2011 and January 3, 2010 and December 28, 2008 was $21.1 million, $6.2 million, and $2.9 million, respectively.
(in thousands): | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
Intrinsic value of options exercised | | $ | 4,718 | | | $ | 21,095 | | | $ | 6,218 | |
Fair value of shares vested | | $ | 2,358 | | | $ | 2,054 | | | $ | 1,766 | |
The following table summarizes information about the exercise prices and related information of stock options outstanding under the Company Plans at January 2, 2011:
| | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | | Options Exercisable | |
| | | | | | Wtd. Avg.
| | | Wtd. Avg.
| | | | | | Wtd. Avg.
| |
| | | Number
| | | Remaining
| | | Exercise
| | | Number
| | | Exercise
| |
| Exercise Prices | | Outstanding | | | Contractual Life | | | Price | | | Exercisable | | | Price | |
| |
| 3.17 — 3.98 | | | 37,527 | | | | 1.8 | | | | 3.30 | | | | 37,527 | | | | 3.30 | |
| 4.67 — 4.90 | | | 77,454 | | | | 2.3 | | | | 4.67 | | | | 77,454 | | | | 4.67 | |
| 5.13 — 5.13 | | | 132,000 | | | | 1.1 | | | | 5.13 | | | | 132,000 | | | | 5.13 | |
| 5.30 — 7.70 | | | 210,297 | | | | 4.7 | | | | 6.96 | | | | 210,297 | | | | 6.96 | |
| 7.83 — 20.63 | | | 294,600 | | | | 6.4 | | | | 15.62 | | | | 214,000 | | | | 15.07 | |
| 21.07 — 21.56 | | | 647,700 | | | | 7.6 | | | | 21.26 | | | | 372,600 | | | | 21.34 | |
| 21.64 — 28.24 | | | 1,000 | | | | 8.8 | | | | 21.70 | | | | 400 | | | | 21.70 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | | 1,400,578 | | | | 5.8 | | | $ | 15.01 | | | | 1,044,278 | | | $ | 13.22 | |
| | | | | | | | | | | | | | | | | | | | | |
For the years ended January 2, 2011, January 3, 2010 and December 28, 2008, the amount of stock-based compensation expense related to stock options was $1.4 million, $1.8 million and $1.5 million, respectively. 1, 2012: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | | Options Exercisable | |
Exercise Prices | | Number
Outstanding | | | Wtd. Avg.
Remaining
Contractual
Life | | | Wtd. Avg.
Exercise
Price | | | Number
Exercisable | | | Wtd. Avg.
Remaining
Contractual
Life | | | Wtd. Avg.
Exercise
Price | |
| | | (in thousands) | | | | | | | | | (in thousands) | | | | | | | |
3.17 – 3.98 | | | 26 | | | | 1.1 | | | $ | 3.17 | | | | 26 | | | | 1.1 | | | $ | 3.17 | |
4.67 – 4.90 | | | 77 | | | | 1.3 | | | | 4.67 | | | | 77 | | | | 1.3 | | | | 4.67 | |
5.30 – 7.70 | | | 111 | | | | 2.5 | | | | 6.92 | | | | 111 | | | | 2.5 | | | | 6.92 | |
7.83 – 20.63 | | | 260 | | | | 5.8 | | | | 15.82 | | | | 223 | | | | 5.6 | | | | 15.67 | |
21.07 – 21.56 | | | 591 | | | | 6.7 | | | | 21.26 | | | | 451 | | | | 6.7 | | | | 21.32 | |
21.64 – 28.24 | | | 536 | | | | 9.2 | | | | 24.71 | | | | 108 | | | | 9.1 | | | | 24.70 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 1,601 | | | | 6.7 | | | $ | 19.44 | | | | 996 | | | | 5.5 | | | $ | 17.05 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The weighted average grant date fair value of options granted during the fiscal years ended January 1, 2012 and January 2, 2011 and January 3, 2010 was $9.75, $6.73 and December 28, 2008 was $6.73, $7.41 and $6.58 per share, respectively.
107
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the status of non-vested stock options as of January 2, 20111, 2012 and changes during the fiscal year ending January 2, 2011:
| | | | | | | | | |
| | | | | | Wtd. Avg. Grant
| |
| | | Number of Shares | | | Date Fair Value | |
| |
| Options non-vested at January 3, 2010 | | | 595,758 | | | $ | 7.39 | |
| Granted(a) | | | 35,750 | | | | 6.73 | |
| Vested | | | (227,408 | ) | | | 7.32 | |
| Forfeited | | | (47,800 | ) | | | 7.30 | |
| | | | | | | | | |
| Options non-vested at January 2, 2011 | | | 356,300 | | | $ | 7.37 | |
| | | | | | | | | |
| | |
(a) | | These options were granted as replacement awards to former Cornell option holders. The options were fully vested at the acquisition date and the fair value of the awards was included in purchase price consideration. |
1, 2012: | | | | | | | | |
| | | Number of Shares | | | Wtd. Avg. Grant
Date Fair Value | |
| | | (In thousands) | | | | |
Options non-vested at January 2, 2011 | | | 356 | | | $ | 7.37 | |
Granted | | | 554 | | | | 9.75 | |
Vested | | | (278 | ) | | | 8.47 | |
Forfeited | | | (27 | ) | | | 8.75 | |
| | | | | | | | |
Options non-vested at January 1, 2012 | | | 605 | | | $ | 8.99 | |
| | | | | | | | |
As of January 2, 2011,1, 2012, the Company had $1.9$4.1 million of unrecognized compensation costs related to non-vested stock option awards that are expected to be recognized over a weighted average period of 2.52.8 years. The total fair value of shares vested during the fiscal years ended January 2, 2011, January 3, 2010 and December 28, 2008, was $2.1 million, $1.8 million and $1.2 million, respectively. Proceeds received from stock options exercises for 2010, 2009 and 2008 was $6.7 million, $1.5 million and $0.8 million, respectively. Additional tax benefits realized from tax deductions associated with the exercise of stock options and the vesting of restricted stock activity for 2010, 2009 and 2008 totaled $3.9 million, $0.6 million and $0.8 million, respectively.
Shares of restricted stock become unrestricted shares of common stock upon vesting on aone-for-one basis. The cost of these awards is determined using the fair value of the Company’s 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 is as follows:
| | | | | | | | | |
| | | | | | Wtd. Avg.
| |
| | | | | | Grant date
| |
| | | Shares | | | Fair value | |
| |
| Restricted stock outstanding at January 3, 2010 | | | 383,100 | | | $ | 19.66 | |
| Granted | | | 40,280 | | | | 22.70 | |
| Vested | | | (222,100 | ) | | | 18.84 | |
| Forfeited/Canceled | | | (40,750 | ) | | | 21.38 | |
| | | | | | | | | |
| Restricted stock outstanding at January 2, 2011 | | | 160,530 | | | $ | 21.12 | |
| | | | | | | | | |
During the fiscal year ended January 2, 2011, January 3, 2010 and December 28, 2008, the Company recognized $3.3 million, $3.5 million and $3.0 million, respectively, of compensation expense related to its outstanding shares of restricted stock. | | | | | | | | |
| | | Shares | | | Wtd. Avg.
Grant date
Fair value | |
| | | (In thousands) | | | | |
Restricted stock outstanding at January 2, 2011 | | | 161 | | | $ | 21.12 | |
Granted | | | 381 | | | | 24.48 | |
Vested | | | (95 | ) | | | 22.82 | |
Forfeited/Canceled | | | (5 | ) | | | 24.06 | |
| | | | | | | | |
Restricted stock outstanding at January 1, 2012 | | | 442 | | | $ | 23.62 | |
| | | | | | | | |
As of January 2, 2011,1, 2012, the Company had $2.2$7.7 million of unrecognized compensation expense that is expected to be recognized over a weighted average period of 2.02.4 years.
Employee Stock Purchase Plan
On July 9, 2011, the Company adopted The GEO Group Inc. 2011 Employee Stock Purchase Plan (the “Plan”). The Plan was approved by the Company’s Compensation Committee and Board of Directors on May 4, 2011. The purpose of the Plan, which is qualified under Section 423 of the Internal Revenue Service Code of 1986, as amended, is to encourage stock ownership through payroll deductions by the employees of GEO and designated subsidiaries of GEO in order to increase their identification with the Company’s goals and secure a proprietary interest in its success. These deductions will be used to purchase shares of the Company’s Common Stock at a 5% discount from the then current market price. The Plan is subject to approval by the Company’s shareholders on or before June 29, 2012 and, as such, no shares will be issued until such time as the Plan is approved by the shareholders. If the Plan is approved by the Company’s shareholders, the Company will offer up to 500,000 shares of its common stock for sale to eligible employees.
| 5. | |
5. | Discontinued Operations |
During the fiscal year 2008, the Company discontinued operations at certain of its domestic and international subsidiaries. Where significant, the results of operations, net of taxes, as further described below, have been reflected in the accompanying consolidated financial statements as such for all periods presented.
108
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
U.S. Detention & Corrections.On November 7, 2008, the Company announced its receipt of notice for the discontinuation of its contract with the State of Idaho, Department of Correction (“Idaho DOC”) for the housing of approximately 305out-of-state inmates at the managed-only Bill Clayton Detention Center (the “Detention Center”) effective January 5, 2009. On August 29, 2008, the Company announced its discontinuation of its contract with Delaware County, Pennsylvania for the management of the county-owned 1,883-bed George W. Hill Correctional Facility effective December 31, 2008.
International Services. On December 22, 2008, the The Company announced the closurerecorded revenues of its U.K.-based transportation division, Recruitment Solutions International (“RSI”). As a result$0.2 million and loss before income taxes of the termination of its transportation business in the United Kingdom, the Company wrote off assets of $2.6$0.6 million including goodwill of $2.3 million.
GEO Care. On June 16, 2008, the Company announced the discontinuation by mutual agreement of its contract with the State of New Mexico Department of Healthas discontinued operations for the management of the Fort Bayard Medical Center effective June 30, 2008.
There were no continuing cash flows from the operations in the fiscal year ended January 2, 2011 and as such, there are no amounts reclassified to discontinued operations for this period. The following are the revenues related to discontinued operations for the fiscal years ended December 28, 2008 and January 3, 2010 (in thousands):
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Revenues — International Services | | $ | — | | | $ | — | | | $ | 1,806 | |
| Revenues — U.S. Detention & Corrections | | $ | — | | | $ | 210 | | | $ | 43,784 | |
| Revenues — GEO Care | | $ | — | | | $ | — | | | $ | 1,806 | |
| 6. | |
6. | Property and Equipment |
Property and equipment consist of the following at fiscal year end:
| | | | | | | | | | | | | |
| | | Useful
| | | | | | | |
| | | Life | | | 2010 | | | 2009 | |
| | | (Years) | | | (In thousands) | |
| |
| Land | | | — | | | $ | 97,393 | | | $ | 60,331 | |
| Buildings and improvements | | | 2 to 50 | | | | 1,131,895 | | | | 797,185 | |
| Leasehold improvements | | | 1 to 29 | | | | 260,167 | | | | 95,696 | |
| Equipment | | | 3 to 10 | | | | 77,906 | | | | 63,382 | |
| Furniture and fixtures | | | 3 to 7 | | | | 18,453 | | | | 11,731 | |
| Facility construction in progress | | | | | | | 120,584 | | | | 129,956 | |
| | | | | | | | | | | | | |
| Total | | | | | | $ | 1,706,398 | | | $ | 1,158,281 | |
| Less accumulated depreciation and amortization | | | | | | | (195,106 | ) | | | (159,721 | ) |
| | | | | | | | | | | | | |
| Property and equipment, net | | | | | | $ | 1,511,292 | | | $ | 998,560 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Useful
Life | | | 2011 | | | 2010 | |
| | | (Years) | | | (In thousands) | |
Land | | | — | | | $ | 97,674 | | | $ | 97,393 | |
Buildings and improvements | | | 2 to 50 | | | | 1,380,757 | | | | 1,131,895 | |
Leasehold improvements | | | 1 to 29 | | | | 275,117 | | | | 260,167 | |
Equipment | | | 3 to 10 | | | | 119,808 | | | | 77,906 | |
Furnitures, fixtures and computer software | | | 1 to 7 | | | | 22,583 | | | | 18,453 | |
Facility construction in progress | | | | | | | 63,974 | | | | 120,584 | |
| | | | | | | | | | | | |
Total | | | | | | $ | 1,959,913 | | | $ | 1,706,398 | |
Less accumulated depreciation and amortization | | | | | | | (253,742 | ) | | | (195,106 | ) |
| | | | | | | | | | | | |
Property and equipment, net | | | | | | $ | 1,706,171 | | | $ | 1,511,292 | |
| | | | | | | | | | | | |
The Company depreciates its leasehold improvements over the shorter of their estimated useful lives or the terms of the leases including renewal periods that are reasonably assured. The Company’s construction in progress primarily consists of development costs associated with the Facility Construction & Design segment for contracts with various federal, state and local agencies for which we have management contracts.contracts and also includes facilities under construction that are owned by the Company. Interest capitalized in property and equipment was $4.1$3.1 million and $4.9$4.1 million for the fiscal years ended January 1, 2012 and January 2, 2011, respectively.
Depreciation expense was $65.3 million, $41.4 million and $36.3 million, respectively, for the fiscal years ended January 1, 2012, January 2, 2011 and January 3, 2010, respectively.
109
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Depreciation expense was $41.4 million, $36.3 millionAt January 1, 2012 and $31.9 million for the fiscal years ended January 2, 2011, January 3, 2010 and December 28, 2008, respectively.
At January 2, 2011 and January 3, 2010, the Company had $18.2 million and $18.2 million of assets recorded under capital leases including $17.5 million related to buildings and improvements and $0.7 million related to equipment. Capital leases are recorded net of accumulated amortization of $4.7$5.5 million and $3.9$4.7 million, at January 2, 20111, 2012 and January 3, 2010,2, 2011, respectively. Depreciation expense related to capital leases for the fiscal years ended January 1, 2012, January 2, 2011 and January 3, 2010 and December 28, 2008 was $0.8 million, $0.8 million and $0.9$0.8 million, respectively, and is included in Depreciation and Amortization in the accompanying statements of income.
| 7. | |
7. | Assets Held for Sale |
The Company records its assets held for sale at the lowerAs of cost or estimated fair value. The Company estimates fair value by using third party appraisers or other valuation techniques. The Company does not record depreciation for its assets held for sale.
As ofJanuary 1, 2012 and January 2, 2011, the Company’s assets heldAssets Held for sale consisted of two assets:
Sale by reportable segment were as follows (in thousands): | | | | | | | | |
| | | 2011 | | | 2010 | |
U.S. Corrections & Detention | | $ | 3,455 | | | $ | 3,083 | |
GEO Care | | | 908 | | | | 6,887 | |
| | | | | | | | |
Total | | $ | 4,363 | | | $ | 9,970 | |
On March 17, 2008, the Company purchased its former Coke County Juvenile Justice Center (the “Center”) at a cost of $3.1 million.Center. In October 2008, the Company established a formal plan to sell the asset and began active discussions with certain parties interested in purchasing the Center.this facility. The Company identified a buyer in 2010 and expectsobtained an update to sell the facility in 2011;buyer’s letter of intent effective through July 30, 2012; however, this sale is subject to the buyer obtaining financingand/or government appropriation. If the buyer is unable to obtain the funds necessary to purchase the Center,this facility, the Company will need to locate another buyer. There can be no assurance that the prospective buyer can obtain the financing, no assurance that the Company will be able to locate another buyer in the event that this buyer is not able to obtain the financing and no assurance that the Centerthis facility will be sold for its carrying value. The CenterThis facility is included in the segment assets of U.S. DetentionCorrections & CorrectionsDetention and was recorded at its net realizable value of $3.1 million at January 2, 20111, 2012 and at January 3, 2010.
2, 2011.As of January 1, 2012, the Company has classified four facilities acquired from Cornell on August 12, 2010 as held for sale in its consolidated balance sheet. Three of these facilities have an aggregate carrying value of $0.9 million and are classified with the GEO Care segment assets. One of these facilities, with a carrying value of $0.4 million, is included with the U.S. Corrections & Detention segment assets. Refer to Note 21 —Subsequent Events.
During the fiscal year ended January 1, 2012, the Company sold certain of its facilities classified as Assets Held for Sale as follows:
On August 12, 2010, the Company acquired the International Building in connection with its purchase of Cornell. This facility had a carrying value of $0.5 million and was sold in July 2011 for $0.5 million, net of selling costs.
On August 12, 2010, the Company acquired Washington D.C. Facility in connection with its purchase of Cornell. This facility met the criteriawas classified as held for sale during the Company’s fiscal year ended January 2, 2011, and has been designated as such. Thehad a carrying value of this asset as$6.9 million and was sold in April 2011 for $6.6 million, net of selling costs.
During the fiscal year ended January 2, 2011, was $6.9 million. Thethe Company believes it has found a third party buyer and expects to close on the sale in early 2011. The salesold certain of this property, which is recordedits facilities classified as an asset heldAssets Held for sale with GEO Care segment assets, will not result in a gain or loss.
Sale as follows:In conjunction with the acquisition of CSC in November 2005, the Company acquired land associated with a program that had been discontinued by CSC in October 2003. The land, with a corresponding carrying value of $1.3 million, was sold in October 2010 for $2.1 million, net of salesselling costs. The Company recognized a gain on the sale
None of the land of $0.8 million which is included in operating expenses inCompany’s Assets Held for Sale were sold during the accompanying statement of income. The gain on the sale is reported in the Company’s U.S. Detention & Corrections reportable segment.
fiscal year ended January 3, 2010.| 8. | |
8. | Investment in Direct Finance Leases |
The Company’s investment in direct finance leases relates to the financing and management of one Australian facility. The Company’s wholly-owned Australian subsidiary financed the facility’s development with long-term debt obligations, which are non-recourse to the Company.
110
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The future minimum rentals to be received are as follows:
| | | | | |
| | | Annual
| |
| Fiscal Year | | Repayment | |
| | | (In thousands) | |
| |
| 2011 | | $ | 8,548 | |
| 2012 | | | 8,652 | |
| 2013 | | | 8,792 | |
| 2014 | | | 8,968 | |
| 2015 | | | 9,560 | |
| Thereafter | | | 12,544 | |
| | | | | |
| Total minimum obligation | | $ | 57,064 | |
| Less unearned interest income | | | (14,724 | ) |
| Less current portion of direct finance lease | | | (4,796 | ) |
| | | | | |
| Investment in direct finance lease | | $ | 37,544 | |
| | | | | |
| | | | |
Fiscal Year | | Annual
Repayment | |
| | | (In thousands) | |
2012 | | $ | 8,631 | |
2013 | | | 8,770 | |
2014 | | | 8,946 | |
2015 | | | 9,536 | |
2016 | | | 9,906 | |
Thereafter | | | 2,625 | |
| | | | |
Total minimum obligation | | $ | 48,414 | |
Less unearned interest income | | | (10,944 | ) |
Less current portion of direct finance lease | | | (5,324 | ) |
| | | | |
Investment in direct finance lease | | $ | 32,146 | |
| | | | |
| 9. | |
9. | Derivative Financial Instruments |
In November 2009,As of January 1, 2012, the Company executed threehad four interest rate swap agreements (the “Agreements”) in the aggregate notional amount of $75.0 million. In January 2010, the Company executed a fourth interest rate swap agreement in the notional amount of $25.0$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. The Agreements, which have payment, expiration dates and call provisions that mirror the terms of the 7 3/4% Senior Notes, effectively convert $100.0 million of the 7 3/4% 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 7 3/4% Senior Notes. Total net gains (loss), entirely offset by a corresponding increase (decrease) in the fair value of the variable rate portion of the 7 3/4% Senior Notes, recognized and recorded in earnings related to these fair value hedges was $4.1 million, $5.2 million and $(1.9) million in the fiscal periods ended January 1, 2012, January 2, 2011 and January 3, 2010, respectively. As of January 2, 20111, 2012 and January 3, 2010,2, 2011, the fair value of the swap assets (liabilities) was $3.3$7.4 million and $(1.9)$3.3 million, respectively. There was no material ineffectiveness of these interest rate swaps during the fiscal periods ended January 1, 2012, January 2, 2011.
2011 and January 3, 2010.The Company’s Australian subsidiary is a party to an interest rate swap agreement to fix the interest rate on the 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 income taxes. Total net
unrealized gain (loss) recognized in the periods and recorded in accumulated other comprehensive income (loss), net of tax, related to thesethis cash flow hedgeshedge was $(1.2) million, $(0.1) million $1.2 million and ($3.5)$1.2 million for the fiscal years ended January 2, 2011, January 3, 2010 and December 28, 2008, respectively. The total value of the Australia swap asset as of1, 2012, January 2, 2011 and January 3, 2010, respectively. The total value of the swap asset as of January 1, 2012 and January 2, 2011 was $1.8$0.0 million and $2.0$1.8 million, respectively, and is recorded as a component of other assets in the accompanying consolidated balance sheets. There was no material ineffectiveness of this interest rate swap for the fiscal periods presented. The Company
111
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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).
During the fiscal year ended January 3, 2010, the Company received proceeds of $1.7 million for the settlement of an aggregate notional amount of $50.0 million of interest rate swaps related to its $150.0 million 81/4% Senior Notes due 2013 (“81/4% Senior Notes”). The lenders to these swap agreements elected to prepay their obligations at the call option price which equaled the fair value at the respective call dates.
| 10. | |
10. | Goodwill and Other Intangible Assets, Net |
Adjustments to goodwill
During the fiscal year ended January 1, 2012, the Company retrospectively adjusted a portion of its goodwill with respect to the BI Acquisition. Such adjustments resulted in a net decrease of $11.6 million to the goodwill that was recorded on February 10, 2011, the acquisition date. These adjustments are included below under “Acquisitions”. Refer to Note 2.
During the fiscal year ended January 1, 2012, the Company retrospectively adjusted a portion of its goodwill with respect to the Cornell Acquisition. Such adjustments resulted in a net decrease of $8.4 million to the goodwill that was recorded as of January 2, 2011. As required by US GAAP, adjustments to provisional goodwill recognized in a business combination must be presented as if the accounting had been complete at the acquisition date. As such, the Company has revised comparative information for prior periods presented in the financial statements and has included the impact of these adjustments in the balance as of January 2, 2011 in the table below and on the accompanying consolidated balance sheet as of January 2, 2011. Refer to Note 2.
Changes in the Company’s goodwill balances for 2010recognized during the fiscal year ended January 1, 2012 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Purchase price
| | | Foreign
| | | | |
| | | | | | | | | allocation
| | | currency
| | | | |
| | | January 3, 2010 | | | Acquisitions | | | adjustment | | | translation | | | January 2, 2011 | |
| |
| U.S. Detention & Corrections | | $ | 21,692 | | | $ | 153,882 | | | $ | 1,126 | | | $ | — | | | $ | 176,700 | |
| GEO Care | | | 17,729 | | | | 50,500 | | | | (744 | ) | | | — | | | | 67,485 | |
| International Services | | | 669 | | | | — | | | | — | | | | 93 | | | | 762 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total Goodwill | | $ | 40,090 | | | $ | 204,382 | | | $ | 382 | | | $ | 93 | | | $ | 244,947 | |
| | | | | | | | | | | | | | | | | | | | | |
On August 12, 2010, the Company acquired Cornell and recorded $204.7 million in goodwill representing the | | | | | | | | | | | | | | | | |
| | | January 2, 2011 | | | Acquisitions | | | Foreign
currency
translation | | | January 1, 2012 | |
U.S. Corrections & Detention | | $ | 170,376 | | | $ | — | | | $ | — | | | $ | 170,376 | |
GEO Care | | | 65,456 | | | | 271,473 | | | | — | | | | 336,929 | |
International Services | | | 762 | | | | — | | | | (1 | ) | | | 761 | |
| | | | | | | | | | | | | | | | |
Total Goodwill | | $ | 236,594 | | | $ | 271,473 | | | $ | (1 | ) | | $ | 508,066 | |
| | | | | | | | | | | | | | | | |
The strategic benefits of the Merger includinggoodwill generated in the combined Company’s business combinations include increased scale and the diversification of service offerings. DuringGoodwill resulting from business combinations includes the fiscal year ended January 2, 2011, the Company made adjustments to its purchase accounting in the amountexcess of $0.4 million, net, primarily related to Cornell. Among other adjustments, this change in allocation resulted from the Company’s analyses primarily related to certain receivables, intangiblepurchase price over net assets insurance liabilities and certain income and non-income tax items.
112
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible assets consisted of the following as of January 1, 2012 and January 2, 2011 (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | Useful Life
| | | U.S. Detention &
| | | International
| | | | | | | |
| | | in Years | | | Corrections | | | Services | | | GEO Care | | | Total | |
| |
| Facility management contracts | | | 1-17 | | | $ | 14,450 | | | $ | 2,468 | | | $ | 6,600 | | | $ | 23,518 | |
| Covenants not to compete | | | 4 | | | | 1,470 | | | | — | | | | — | | | | 1,470 | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross carrying value as of January 3, 2010 | | | | | | | 15,920 | | | | 2,468 | | | | 6,600 | | | | 24,988 | |
| | | | | | | | | | | | | | | | | | | | | |
| Changes during fiscal year ended January 2, 2011 due to: | | | | | | | | | | | | | | | | | | | | |
| Facility management contracts acquired | | | 12-13 | | | | 35,400 | | | | — | | | | 34,700 | | | | 70,100 | |
| Covenants not to compete related to Cornell acquisition | | | 1-2 | | | | 2,879 | | | | — | | | | 2,821 | | | | 5,700 | |
| Foreign currency translation | | | | | | | — | | | | 286 | | | | — | | | | 286 | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross carrying value at January 2, 2011 | | | | | | | 54,199 | | | | 2,754 | | | | 44,121 | | | | 101,074 | |
| Accumulated amortization expense | | | | | | | (10,146 | ) | | | (325 | ) | | | (2,790 | ) | | | (13,261 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net carrying value at January 2, 2011 | | | | | | $ | 44,053 | | | $ | 2,429 | | | $ | 41,331 | | | $ | 87,813 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2011 | | | 2010 | |
| | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Carrying
Amount | | | Gross
Carrying
Amount | | | Accumulated
Amortization | | | Net
Carrying
Amount | |
Facility management contracts | | $ | 158,604 | | | $ | (22,985 | ) | | $ | 135,619 | | | $ | 93,904 | | | $ | (10,504 | ) | | $ | 83,400 | |
Covenants not to compete | | | 8,570 | | | | (6,347 | ) | | | 2,223 | | | | 7,170 | | | | (2,757 | ) | | | 4,413 | |
Technology | | | 21,200 | | | | (2,700 | ) | | | 18,500 | | | | — | | | | — | | | | — | |
Trade names | | | 44,000 | | | | — | | | | 44,000 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total acquired intangible assets | | $ | 232,374 | | | $ | (32,032 | ) | | $ | 200,342 | | | $ | 101,074 | | | $ | (13,261 | ) | | $ | 87,813 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
On February 10, 2011, the Company acquired BI and recorded identifiable intangible assets as follows:
| | | | | | | | |
| | | Weighted
Average
Useful Life | | | Intangible
Assets
Acquired | |
| | | (Years) | | | (In thousands) | |
Facility management contracts | | | 13.0 | | | $ | 65,200 | |
Covenants not to compete | | | 2.0 | | | | 1,400 | |
Technology | | | 7.0 | | | | 21,200 | |
Trade names | | | Indefinite | | | | 44,000 | |
| | | | | | | | |
Total acquired intangible assets | | | 11.4 | | | $ | 131,800 | |
| | | | | | | | |
Amortization expense was $18.8 million, $5.7 million and $2.0 million for the fiscal years ended January 1, 2012, January 2, 2011 and January 3, 2010, respectively, and primarily related to the U.S. Corrections & Detention and GEO Care segments’ amortization of intangible assets for acquired management contracts. As of January 2, 2011,1, 2012, the weighted average period before the next contract renewal or extension for all of the Company’s the facility management contracts acquired from BI was approximately 1.51.1 years and for all of the facility management contracts, including BI, 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.
Accumulated amortization expense in total and by asset class is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | | U.S. Detention &
| | | International
| | | | | | | |
| | | Corrections | | | Services | | | GEO Care | | | Total | |
| |
| Facility management contracts | | $ | 9,496 | | | $ | 325 | | | $ | 2,153 | | | $ | 11,974 | |
| Covenants not to compete | | | 650 | | | | — | | | | 637 | | | | 1,287 | |
| | | | | | | | | | | | | | | | | |
| Total accumulated amortization expense | | $ | 10,146 | | | $ | 325 | | | $ | 2,790 | | | $ | 13,261 | |
| | | | | | | | | | | | | | | | | |
Amortization expense was $5.7 million, $2.0 million and $1.8 million for the fiscal years ended January 2, 2011, January 3, 2010 and December 28, 2008, respectively, and primarily related to the U.S. Detention & Corrections amortization of intangible assets for acquired management contracts.
113
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated amortization expense related to the Company’s finite-lived intangible assets for fiscal year 20112012 through fiscal year 20152016 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 | |
| |
| 2011 | | $ | 5,783 | | | $ | 151 | | | $ | 4,984 | | | $ | 10,918 | |
| 2012 | | | 4,894 | | | | 151 | | | | 4,185 | | | | 9,230 | |
| 2013 | | | 3,556 | | | | 151 | | | | 3,236 | | | | 6,943 | |
| 2014 | | | 3,556 | | | | 151 | | | | 3,096 | | | | 6,803 | |
| 2015 | | | 3,556 | | | | 151 | | | | 3,065 | | | | 6,772 | |
| Thereafter | | | 22,708 | | | | 1,674 | | | | 22,765 | | | | 47,147 | |
| | | | | | | | | | | | | | | | | |
| | | $ | 44,053 | | | $ | 2,429 | | | $ | 41,331 | | | $ | 87,813 | |
| | | | | | | | | | | | | | | | | |
| | | | |
Fiscal Year | | Total Expense
Amortization | |
2012 | | $ | 18,108 | |
2013 | | | 15,197 | |
2014 | | | 14,981 | |
2015 | | | 14,950 | |
2016 | | | 14,858 | |
Thereafter | | | 78,248 | |
| | | | |
| | $ | 156,342 | |
| | | | |
| 11. | |
11. Financial Instruments | 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 does not have any financial assets and liabilities which it carries and measures at fair value using Level 1 techniques, as defined above. The investments included in the Company’s Level 2 fair value measurements consist of an interest rate swap held by the Company’s Australian subsidiary, 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 discussed further in Note 14. The Company does not have any Level 3 financial assets or liabilities it measures on a recurring basis.
The following table provides a summary of the Company’s significant financial assets and liabilities carried at fair value and measured on a recurring basis (in thousands):
| | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at January 2, 2011 |
| | | 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 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at January 3, 2010 |
| | | Carrying
| | Quoted Prices in
| | Significant Other
| | Significant
|
| | | Value at
| | Active Markets
| | Observable Inputs
| | Unobservable
|
| | | January 3, 2010 | | (Level 1) | | (Level 2) | | Inputs (Level 3) |
| |
| Assets: | | | | | | | | | | | | | | | | |
| Interest rate swap derivative assets | | $ | 2,020 | | | $ | — | | | $ | 2,020 | | | $ | — | |
| Investments other than derivatives | | $ | 7,269 | | | $ | — | | | $ | 7,269 | | | $ | — | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Interest rate swap derivative liabilities | | $ | 1,887 | | | $ | — | | | $ | 1,887 | | | $ | — | |
114
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at January 1, 2012 | |
| | | Carrying
Value at
January 1, 2012 | | | Quoted Prices in
Active Markets
(Level 1) | | | Significant Other
Observable Inputs
(Level 2) | | | Significant
Unobservable
Inputs (Level 3) | |
Assets: | | | | | | | | | | | | | | | | |
Interest rate swap derivative assets | | $ | 7,440 | | | $ | — | | | $ | 7,440 | | | $ | — | |
Restricted investments: | | | | | | | | | | | | | | | | |
Guaranteed Investment Contract | | $ | 5,742 | | | $ | — | | | $ | 5,742 | | | $ | — | |
Guaranteed Repurchase Agreements | | $ | 33,821 | | | $ | — | | | $ | 33,821 | | | $ | — | |
Rabbi Trust | | $ | 8,016 | | | $ | 5,898 | | | $ | 2,118 | | | $ | — | |
Fixed income securities | | $ | 2,013 | | | $ | — | | | $ | 2,013 | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements at January 2, 2011 | |
| | | Carrying
Value at
January 2, 2011 | | | Quoted Prices in
Active Markets
(Level 1) | | | Significant Other
Observable Inputs
(Level 2) | | | Significant
Unobservable
Inputs (Level 3) | |
Assets: | | | | | | | | | | | | | | | | |
Interest rate swap derivative assets | | $ | 5,131 | | | $ | — | | | $ | 5,131 | | | $ | — | |
Restricted investments: | | | | | | | | | | | | | | | | |
Guaranteed Investment Contract | | $ | 5,742 | | | $ | — | | | $ | 5,742 | | | $ | — | |
Rabbi Trust | | $ | 6,168 | | | $ | 6,168 | | | $ | — | | | $ | — | |
Fixed income securities | | $ | 1,791 | | | $ | — | | | $ | 1,791 | | | $ | — | |
The Company’s Level 1 investment relates to its rabbi trust established for GEO employee and employer contributions to The GEO Group Inc. Non-qualified Deferred Compensation Plan. Although in 2011, a portion of the rabbi trust is considered a Level 2 investment, these contributions are primarily invested in mutual funds for which quoted market prices in active markets are available. The Company’s restricted investment in the rabbi trust is measured at fair value on a recurring basis.
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s Level 2 financial instruments included in the table above as of January 1, 2012 and January 2, 2011 consist of a portion of the company’s rabbi trust, 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, a guaranteed investment contract which is a restricted investment related to CSC of Tacoma LLC and an Investment Repurchase Agreement (“Repo Agreement”) relative to MCF, the Company’s consolidated VIE. During the fiscal year ended January 1, 2012, MCF entered into the Repo Agreement to establish an investment for its debt service reserve fund and bond fund payment account. The Repo Agreement consists of a guaranteed investment in the principal amount of $23.9 million related to the debt service reserve fund and a second guaranteed investment related to the bond fund payment account which was $9.9 million as of January 1, 2012. Both of these investments are restricted to eligible investments as defined in 8.47% Revenue Bond indenture (refer to Note 14) and mature on August 1, 2016. As of January 1, 2012, the Repo Agreement is included above as a Level 2 restricted investment since its fair value is based using market interest rates for similar securities. A portion of the rabbi trust is invested in interest bearing assets, such as long term bonds, which are valued using market interest rates for similar securities. The Australian subsidiary’s interest rate swap asset is valued using a discounted cash flow model based on projected Australian borrowing rates. The Company’s other interest rate swap assets and liabilities are based on pricing models which consider prevailing interest rates, credit risk and similar instruments. All of the Company’s interest rate swap derivatives were in the Company’s favor as of January 1, 2012 and January 2, 2011. 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 instruments.| 12. | |
12. Fair Value of Assets and Liabilities | Financial Instruments |
The Company’s balance sheet reflects certain financial instruments at carrying value. The following table presents the carrying values of those instruments and the corresponding fair values (in thousands):
| | | | | | | | | |
| | | 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 | |
| | | | | | | | | |
| | | January 3, 2010 |
| | | Carrying
| | Estimated
|
| | | Value | | Fair Value |
| |
| Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 33,856 | | | $ | 33,856 | |
| Cash, Restricted, including current portion | | | 34,068 | | | | 34,068 | |
| Liabilities: | | | | | | | | |
| Borrowings under the Senior Credit Facility | | $ | 212,963 | | | $ | 203,769 | |
73/4% Senior Notes | | | 250,000 | | | | 255,000 | |
| Non-recourse debt, including current portion | | | 113,724 | | | | 113,360 | |
| | | | | | | | |
| | | January 1, 2012 | |
| | | Carrying
Value | | | Estimated
Fair Value | |
Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 44,753 | | | $ | 44,753 | |
Restricted cash | | | 52,868 | | | | 52,868 | |
Liabilities: | | | | | | | | |
Borrowings under the Senior Credit Facility | | $ | 782,962 | | | $ | 785,917 | |
7 3/4% Senior Notes | | | 247,141 | | | | 262,033 | |
6.625% Senior Notes | | | 300,000 | | | | 300,375 | |
Non-Recourse Debt, Australian subsidiary | | | 40,345 | | | | 41,347 | |
Other Non-Recourse Debt, including current portion | | | 201,453 | | | | 206,712 | |
| | | | | | | | |
| | | January 2, 2011 | |
| | | Carrying
Value | | | Estimated
Fair Value | |
Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 39,664 | | | $ | 39,664 | |
Restricted cash | | | 78,732 | | | | 78,732 | |
Liabilities: | | | | | | | | |
Borrowings under the Senior Credit Facility | | $ | 557,758 | | | $ | 562,610 | |
7 3/4% 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 Company’s Cash and cash equivalents, and Restricted cash and investments approximate the carrying values of these assets at January 2, 20111, 2012 and January 3, 20102, 2011 due to the short-term nature of these instruments. Restricted cash consists of debt service funds used for payments on the Company’s non-recourse debt. The fair values of 73/4% Senior Notes, our 6.625% senior unsecured notes due 2021 (“6.625% Senior Notes”), and Othercertain non-recourse debt are based on market prices, where available.available, or similar instruments. The fair value of the non-recourse debt related to the Company’s Australian subsidiary is 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 Company’s current borrowing rates for similar instruments. The fair value of the borrowings under the Senior Credit Facility is based on an estimate of trading value considering the company’s borrowing rate, the undrawn spread and similar market instruments.
Accrued expenses consisted of the following (in thousands):
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| |
| Accrued interest | | $ | 12,153 | | | $ | 5,913 | |
| Accrued bonus | | | 12,825 | | | | 8,567 | |
| Accrued insurance | | | 44,237 | | | | 30,661 | |
| Accrued property and other taxes | | | 15,723 | | | | 5,219 | |
| Construction retainage | | | 2,012 | | | | 8,250 | |
| Other | | | 34,697 | | | | 22,149 | |
| | | | | | | | | |
| Total | | $ | 121,647 | | | $ | 80,759 | |
| | | | | | | | | |
115
| | | | | | | | |
| | | 2011 | | | 2010 | |
Accrued interest | | $ | 18,072 | | | $ | 12,153 | |
Accrued bonus | | | 8,849 | | | | 12,825 | |
Accrued insurance | | | 52,437 | | | | 44,237 | |
Accrued property and other taxes | | | 12,959 | | | | 13,526 | |
Construction retainage | | | 8,247 | | | | 2,012 | |
Other | | | 26,293 | | | | 33,719 | |
| | | | | | | | |
Total | | $ | 126,857 | | | $ | 118,472 | |
| | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Debt consisted of the following (in thousands):
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| |
| Capital Lease Obligations | | $ | 14,470 | | | $ | 15,124 | |
Senior Credit Facility: | | | | | | | | |
| Term loans | | | 347,625 | | | | — | |
| Discount on term loan | | | (1,867 | ) | | | 154,963 | |
| Revolver | | | 212,000 | | | | 58,000 | |
| | | | | | | | | |
| Total Senior Credit Facility | | $ | 557,758 | | | $ | 212,963 | |
73/4% Senior Notes | | | | | | | | |
| Notes Due in 2017 | | | 250,000 | | | | 250,000 | |
| Discount on Notes | | | (3,227 | ) | | | (3,566 | ) |
| Swap on Notes | | | 3,305 | | | | (1,887 | ) |
| | | | | | | | | |
Total 73/4% Senior Notes | | $ | 250,078 | | | $ | 244,547 | |
Non-Recourse Debt : | | | | | | | | |
| Non-recourse debt | | $ | 212,445 | | | $ | 113,724 | |
| Premium on non-recourse debt | | | 11,403 | | | | — | |
| Discount on non-recourse debt | | | (1,164 | ) | | | (1,692 | ) |
| | | | | | | | | |
| Total non recourse debt | | | 222,684 | | | | 112,032 | |
| Other debt | | | — | | | | 28 | |
| | | | | | | | | |
| Total debt | | $ | 1,044,990 | | | $ | 584,694 | |
| | | | | | | | | |
| Current portion of capital lease obligations, long-term debt and non-recourse debt | | | (41,574 | ) | | | (19,624 | ) |
| Capital lease obligations, long-term portion | | | (13,686 | ) | | | (14,419 | ) |
| Non-recourse debt | | | (191,394 | ) | | | (96,791 | ) |
| | | | | | | | | |
| Long-term debt | | $ | 798,336 | | | $ | 453,860 | |
| | | | | | | | | |
| | | | | | | | |
| | | 2011 | | | 2010 | |
Capital Lease Obligations | | $ | 14,171 | | | $ | 14,470 | |
Senior Credit Facility: | | | | | | | | |
Term loans | | | 482,500 | | | | 347,625 | |
Discount on term loan | | | (1,538 | ) | | | (1,867 | ) |
Revolver | | | 302,000 | | | | 212,000 | |
| | | | | | | | |
Total Senior Credit Facility | | $ | 782,962 | | | $ | 557,758 | |
6.625% Senior Notes: | | | | | | | | |
Notes Due in 2021 | | $ | 300,000 | | | $ | — | |
7 3/4% Senior Notes: | | | | | | | | |
Notes Due in 2017 | | $ | 250,000 | | | $ | 250,000 | |
Discount on Notes | | | (2,859 | ) | | | (3,227 | ) |
Swap on Notes | | | 7,411 | | | | 3,305 | |
| | | | | | | | |
Total 7 3/4% Senior Notes | | $ | 254,552 | | | $ | 250,078 | |
Non-Recourse Debt : | | | | | | | | |
Non-Recourse Debt | | $ | 235,430 | | | $ | 212,445 | |
Premium on Non-Recourse Debt | | | 8,304 | | | | 11,403 | |
Discount on Non-Recourse Debt | | | (1,936 | ) | | | (1,164 | ) |
| | | | | | | | |
Total Non-Recourse Debt | | | 241,798 | | | | 222,684 | |
Other debt | | | 870 | | | | — | |
| | | | | | | | |
Total debt | | $ | 1,594,353 | | | $ | 1,044,990 | |
| | | | | | | | |
Current portion of capital lease obligations, long-term debt and non-recourse debt | | | (53,666 | ) | | | (41,574 | ) |
Capital Lease Obligations, long-term portion | | | (13,087 | ) | | | (13,686 | ) |
Non-Recourse Debt | | | (208,532 | ) | | | (191,394 | ) |
| | | | | | | | |
Long-Term Debt | | $ | 1,319,068 | | | $ | 798,336 | |
| | | | | | | | |
Senior Credit Facility
On August 4, 2010, the Company executedterminated its Third Amended and Restated Credit Agreement (“Prior Senior Credit Agreement”) and entered into a new $750.0 million senior credit facilityCredit Agreement (the “Senior Credit Facility”), through the execution of a 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 August 4, 2010, the Company borrowed approximately $280.0 million in aggregate proceeds from the Term Loan B and the Revolver primarily to repay existing borrowings and accrued interest under its Prior Senior Credit Agreement of $267.7 million and also used $6.7 million for financing fees related to the Senior Credit Facility. The Company received, as cash, the remaining proceeds of $3.2 million. The Company has accounted for the termination of its Prior Senior Credit Agreement as an extinguishment of debt. In connection with repayment of all outstanding borrowings and the termination of the Prior Senior Credit Agreement, the Company wrote-off $7.9 million of associated deferred financing fees in its third fiscal quarter of 2010. On August 12, 2010, in connection with the Cornell Acquisition, the Company used aggregate proceeds of $290.0 million from the Term Loan A and the Revolver primarily to repay Cornell’s obligations plus accrued interest under its revolving line of credit due December 2011 of $67.5 million, to repay its obligations plus accrued interest under the existing 10.75% senior notes due July 2012 of $114.4 million, to pay $14.0 million in transaction costs and to pay the cash component of the merger consideration of $84.9 million.
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 Company’s borrowing capacity under the Revolver by $100.0 million and increased the term loans, through the issuance of Term Loan A-2, by $150.0 million for an aggregate increase of $250.0 million. On February 10, 2011, incremental borrowings of $150.0 million under the Company’s amended Senior Credit Facility isalong with proceeds from the Company’s $300.0 million offering of the 6.625% Senior Notes were used to finance the acquisition of BI.
On May 2, 2011, the Company executed Amendment No. 2 to its Senior Credit Facility (“Amendment No. 2”). As a result of this amendment, relative to the Company’s Term Loan B, the Applicable Rate, as defined, 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%. As of January 1, 2012, the Senior Credit Facility was comprised ofof: (i) a $150.0 million Term Loan A due August 2015 (“Term Loan A”), initiallycurrently bearing interest at LIBOR plus 2.5%3.00% and maturing August 4, 2015, (ii) a $150.0 million Term Loan A-2 due August 2015 (“Term Loan A-2”), currently bearing interest at LIBOR plus 3.00% and maturing August 4, 2015, (iii) a $200.0 million Term Loan B due August 2016 (“Term Loan B”) initiallycurrently bearing interest at LIBOR plus 3.25%2.75% with a LIBOR floor of 1.50%1.00% and maturing August 4, 2016, and (iii)(iv) a $500.0 million Revolving Credit Facility due August 2015 (“Revolver”) of $400.0 million initiallycurrently bearing interest at LIBOR plus 2.5%3.00% and maturing August 4, 2015.
116
As of January 1, 2012, the Company had $481.0 million in aggregate borrowings outstanding, net of discount, under the Term Loan A, Term Loan A-2 and Term Loan B, $302.0 million in borrowings under the Revolver, approximately $58.6 million in letters of credit and $139.4 million in additional borrowing capacity under the Revolver. The weighted average interest rates on outstanding borrowings under the Senior Credit Facility as of January 1, 2012 and January 2, 2011 was 3.4% and 3.5%, respectively. In connection the borrowings under the Senior Credit Facility, as of January 1, 2012, the Company has $10.2 million of deferred financing fees, net of accumulated amortization, included in Other Non-Current Assets in the accompanying consolidated balance sheet.THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Indebtedness under the Revolver, the Term Loan A and the Term Loan AA-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 and
Term Loan A |
|
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 Company’s 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 3.00 to 1.00,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 Company’s 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:
| | | | |
Period | | | Total Leverage Ratio —
Maximum Ratio | |
| | Total Leverage Ratio -
| |
Period | | Maximum Ratio | |
|
August 4, 2010 throughThrough and including the last day of the fiscal year 2011 | | | 4.505.25 to 1.00 | |
First day of fiscal year 2012 through and including thatthe 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 | |
Thereafter | | | 4.00 to 1.00 | |
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:
| | | | |
Period | | | Senior Secured Leverage
Ratio —
Maximum Ratio | |
| | Senior Secured Leverage Ratio -
| |
Period | | Maximum Ratio | |
|
August 4, 2010 throughThrough and including the last day of the Second Quarter of fiscal year 20112012 | | | 3.25 to 1.00 | |
First day of the Third Quarter of fiscal year 2012 through and including thatthe last day of the Second Quarter of fiscal year 20122013 | | | 3.00 to 1.00 | |
Thereafter | | | 2.75 to 1.00 | |
Additionally, there is an Interest Coverage Ratio under which the lenderlenders 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 Company’s failure to pay principal or interest when due, (ii) the Company’s 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 Company’s subsidiaries and secured by substantially all of the Company’s present and future tangible and intangible assets and all present and future tangible and intangible
117
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 Company’s, and each guarantors, present and future tangible and intangible assets and the present and future tangible and intangible assets of each guarantor. The Company’s 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 of outstanding senior secured indebtedness. The Company believes it was in compliance with all of the covenants of the Senior Credit Facility as of January 2, 2011.
1, 2012.6.625% Senior Notes
On August 4, 2010 in connection with its entry into the $750.0 million Senior Credit Facility,February 10, 2011, the Company terminated its priorcompleted a private offering of $300.0 million in aggregate principal amount of 6.625% senior credit facility, the Third Amendedunsecured notes due 2021. These senior unsecured notes pay interest semi-annually in cash in arrears on February 15 and Restated Credit Agreement (the “Prior Senior Credit Agreement”), dated as of January 24, 2007, as amended. The Prior Senior Credit Agreement, as of August 4, 2010, consisted of a $152.2 million term loan B (“Prior Term Loan B”) and a $330.0 million revolver (“Prior Revolver”) with outstanding borrowings15, beginning on August 4, 201015, 2011. The Company realized net proceeds of $115.0 million. The Prior Term Loan B bore interest at LIBOR plus 2.00%$293.3 million upon the closing of the transaction and used the Prior Revolver bore interest at LIBOR plus 3.25% atnet proceeds of the timeoffering, together with borrowings of terminating the Prior Senior Credit Agreement. The Prior Term Loan B component was scheduled to mature in January 2014 and the Prior Revolver component was scheduled to mature in September 2012. The weighed average interest rate on outstanding borrowings$150.0 million under the Senior Credit Facility, as amended, as of January 2, 2011 was 3.5%.to finance the BI Acquisition. The weighed average interest rate on outstanding borrowings under the, Prior Senior Credit Agreement as of January 3, 2010 was 2.62%.
On August 4, 2010, the Company used approximately $280 million in aggregateremaining net proceeds from the
Term Loan Boffering were used for general corporate purposes. On August 22, 2011, the Company completed its exchange offer for the full $300,000,000 aggregate principal amount of its 6.625% Senior Notes due 2021, and the
Revolver primarily to repay existing borrowings and accrued interestguarantees thereof, which were registered under
its Priorthe Securities Act of 1933, as amended, for a like amount of the outstanding 6.625% Senior
Credit AgreementNotes. The terms of
$267.7 million and also used $6.7 million for financing fees relatedthe notes exchanged are identical to the
Senior Credit Facility.notes originally issued in the private offering, except that the transfer restrictions, registration rights and additional interest provisions relating to a registration rights default will not apply to the registered notes exchanged. The Company
received, as cash,did not receive any proceeds from the
remaining proceedsexchange offer.The 6.625% Senior Notes are guaranteed by certain subsidiaries and are unsecured, senior obligations of $3.2 million. On August 12, 2010, the Company borrowed $290.0 millionand these obligations rank as follows: pari passu with any unsecured, senior indebtedness of the Company and the guarantors, including the 7 3/4% Senior Notes (see below); 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 usedstructurally junior to all obligations of the Company’s 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 | % |
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 primarily for $84.9 millionfrom 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 Company’s assets. As of the date of the indenture, all of the Company’s subsidiaries, other than certain dormant domestic and other subsidiaries and all foreign subsidiaries in cash consideration paymentsexistence on the date of the indenture, were restricted subsidiaries. The Company’s failure to Cornell’s stockholders in connectioncomply with certain of the Merger, transaction costs of approximately $14.0 million,covenants under the repayment of $181.9 million for Cornell’s 10.75%indenture governing the 6.625% Senior Notes due July 2012 plus accrued interestcould cause an event of default of any indebtedness and Cornell’s Revolving Lineresult in an acceleration of Credit due December 2011 plus accrued interest. Assuch indebtedness. In addition, there is a cross-default provision which becomes enforceable upon failure of payment of indebtedness at final maturity. The Company’s 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 January 2, 2011, the Company had $148.1 million outstanding under the Term Loan A, $199.5 million outstanding under the Term Loan B, and its $400.0 million Revolver had $212.0 million outstanding in loans, $57.0 million outstanding in letters of credit and $131.0 million available for borrowings. The Company intends to use future borrowings for the purposes permitted under the Senior Credit Facility, including for general corporate purposes. The Company wrote off $7.9 million in deferred financing costs related to the termination of the Prior Senior Credit Agreement.
1, 2012.73/4% 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. 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 ourits Prior Senior Credit Agreement.
On October 21, 2010, the Company completed its exchange offer for the full $250,000,000 aggregate principal amount of its 7 3/4%Senior Notes due 2017, and the guarantees thereof, which were registered under the Securities Act of 1933, as amended, for a like amount of the outstanding 7 3/4%Senior Notes. The terms of the notes exchanged areidentical to the notes originally issued in the private offering, except that the transfer restrictions, registration rights and additional interest provisions relating to a registration rights default will not apply to the registered notes exchanged. The Company did not receive any proceeds from the exchange offer.
The 73/4% Senior Notes are guaranteed by certain subsidiaries and the guarantees will beare unsecured, unsubordinatedsenior obligations of The GEO Group Inc., and the guarantors and willthese obligations rank as follows: pari passu with any unsecured, unsubordinatedsenior indebtedness of GEO and the guarantors;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 Company’s Senior Credit Facility, to the extent of the value of the assets securing such indebtedness; and effectively junior to all obligations of the Company’s subsidiaries that are not guarantors. After
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
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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(expressed (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 the12-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 described under “Description of Notes — Optional Redemption” together with accrued and unpaid interest.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 principal amount of each note to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.
The indenture governing the notes contains certain covenants, including limitations and restrictions on the Company’s 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 Company’s assets. As of the date of the indenture, all of the Company’s subsidiaries, other than certain dormant domestic subsidiaries and all foreign subsidiaries in existence on the date of the indenture, were restricted subsidiaries. The Company’s unrestricted subsidiaries will not be subject to any of the restrictive covenants in the indenture. The Company’s failure to comply with certain of the 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’s 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 73/4% Senior Notes as of January 2, 2011.
1, 2012.Non-Recourse Debt
South Texas Detention Complex: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 itsthe 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 4.34%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 operation 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
119
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
result. The carrying value of the facility as of January 1, 2012 and January 2, 2011 and January 3, 2010 was $27.0$26.4 million and $27.2$27.0 million, respectively, and is included in property and equipment in the accompanying balance sheets.
On February 1, 2010,2011, STLDC made a payment from its restricted cash account of $4.6$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 January 2, 2011,1, 2012, the remaining balance of the debt service requirement under the STLDC financing agreement is $32.1$27.3 million, of which $4.8$5.0 million is due within the next twelve months. Also, as of January 2, 2011,1, 2012, included in current restricted cash and non-current restricted cash is $6.2 million and $9.3$19.2 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 Centera 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 of CSC in November 2005. 2005 (this facility was expanded by GEO in 2009 to 1,575 beds from the original 1,030 beds). In connection with the original financing, CSC formed a special purpose entity, CSC of Tacoma, LLC, of which CSC is the only member, the sole purpose of which is to own, operate, mortgage, lease, finance, refinance and otherwise deal with this facility. CSC of Tacoma, LLC owns the facility, as well as all of its other assets; the Company provides detention, transportation and related services for the United States Government from this facility pursuant to a Use Agreement between the Company and CSC of Tacoma, LLC. The assets of CSC of Tacoma, LLC are owned by CSC of Tacoma, LLC and are included in the consolidated financial statements of the Company in accordance with generally accepted accounting principles. The assets and liabilities of CSC of Tacoma, LLC are recognized on the CSC of Tacoma, LLC balance sheet.
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 (“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 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. The bonds are non-recourse to the Company and the loan from WEDFA to CSC is non-recourse to the Company. These bonds mature in February 2014 and have fixed coupon rates between 4.00% and 4.10%. On October 1, 2010,3, 2011, CSC of Tacoma, LLC made a payment from its restricted cash account of $5.9$6.1 million for the current portion of its periodic debt service requirement in relation to the WEDFA bond indenture. As of January 2, 2011,1, 2012, the remaining balance of the debt service requirement relative to the original financing is $25.7$19.7 million, of which $6.1$6.3 million is classified as current in the accompanying balance sheet.
On December 9, 2011, WEDFA issued $54.4 million of its Washington Economic Development Finance Authority Taxable Economic Development Revenue Bonds, series 2011 (“2011 Revenue Bonds”). The bonds were rated AA- by Standard & Poor’s Ratings Services and the scheduled payment of principal and interest is guaranteed by municipal bond insurance issued by Assured Guaranty Municipal Corp. The 2011 Revenue Bonds have an average all-in cost of approximately 6.4%, including debt issuance costs and the bond discount, and maturity dates ranging from October 1, 2014 through October 1, 2021. The 2011 Revenue Bonds were issued to provide funds to make a loan to CSC of Tacoma, LLC for purposes of reimbursing GEO for costs incurred by GEO for the 2009 expansion of the Northwest Detention Facility and paying the costs of issuing the 2011 Revenue Bonds. The payment of principal and interest on the bonds is non-recourse to GEO. None of the bonds nor CSC’s obligations under the loan are obligations of GEO nor are they guaranteed by GEO.
As of January 2, 2011,1, 2012, included in current restricted cash and non-current restricted cash is $7.1 million and $1.8$2.2 million, respectively, of funds held in trust with respect to the Northwest Detention Center for debt service and other reserves.
reserves which had not been released to the Company as of January 1, 2012.MCF
Upon completionMCF, one of the acquisitionCompany’s consolidated variable interest entities, is obligated for the outstanding balance of Cornell, the obligations of MCF under its 8.47% Revenue Bonds remained outstanding.Bonds. These 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, nonrecoursenon-recourse 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 January 1, 2012, the aggregate principal amount of these bonds was $77.9 million, excluding premium of $8.3 million and net of the current portion of $15.8 million. As of January 2, 2011, the aggregate principal amount of these bonds was $93.7 million, excluding premium of $11.4 million and net of the current portion of $14.6 million. These balances are included as Non-Recourse Debt on the accompanying consolidated balance sheets.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 January 2, 2011,1, 2012, the debt service reserve fund has a balance of $23.4$23.9 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.
120
As of January 1, 2012, included in current restricted cash and investments and non-current restricted cash and investments is $29.2 million and $19.7 million, respectively, of funds held in trust with respect to MCF for debt service and distributions.Australia
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Australia
The Company’s 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 $40.3 million (AUD 39.5 million) and $46.3 million (AUD 45.2 million) at January 1, 2012 and $45.4 million at January 2, 2011, and January 3, 2010, 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 January 2, 2011,1, 2012, was $5.1 million. This amount is included in non-current restricted cash and the annual maturities of the future debt obligation are included in non-recourse debt.
Non-Recourse Debt.Debt Repayment
Debt repayment schedules under capital lease obligations, long-term debtCapital Lease Obligations, Long-Term Debt, Non-Recourse Debt and non-recourse debtthe Senior Credit Facility are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Capital
| | | Long-Term
| | | Non-
| | | | | | Term
| | | Total Annual
| |
| Fiscal Year | | Leases | | | Debt | | | Recourse | | | Revolver | | | Loan | | | Repayment | |
| | | | | | | | | (In thousands) | | | | | | | |
| |
| 2011 | | $ | 1,950 | | | $ | — | | | $ | 31,290 | | | $ | — | | | $ | 9,500 | | | $ | 42,740 | |
| 2012 | | | 1,950 | | | | — | | | | 33,281 | | | | — | | | | 11,375 | | | | 46,606 | |
| 2013 | | | 1,950 | | | | — | | | | 35,616 | | | | — | | | | 20,750 | | | | 58,316 | |
| 2014 | | | 1,940 | | | | — | | | | 38,002 | | | | — | | | | 47,000 | | | | 86,942 | |
| 2015 | | | 1,932 | | | | — | | | | 33,878 | | | | 212,000 | | | | 116,500 | | | | 364,310 | |
| Thereafter | | | 12,842 | | | | 250,000 | | | | 40,378 | | | | — | | | | 142,500 | | | | 445,720 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 22,564 | | | $ | 250,000 | | | $ | 212,445 | | | $ | 212,000 | | | $ | 347,625 | | | $ | 1,044,634 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Original issuer’s discount | | | — | | | | (3,227 | ) | | | (1,164 | ) | | | — | | | | (1,867 | ) | | | (6,258 | ) |
| Current portion | | | (784 | ) | | | — | | | | (31,290 | ) | | | — | | | | (9,500 | ) | | | (41,574 | ) |
| Interest imputed on Capital Leases | | | (8,094 | ) | | | — | | | | — | | | | — | | | | — | | | | (8,094 | ) |
| Fair value premium on non-recourse debt | | | — | | | | — | | | | 11,403 | | | | — | | | | — | | | | 11,403 | |
| Interest rate swap | | | — | | | | 3,305 | | | | — | | | | — | | | | — | | | | 3,305 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-current portion | | $ | 13,686 | | | $ | 250,078 | | | $ | 191,394 | | | $ | 212,000 | | | $ | 336,258 | | | $ | 1,003,416 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal Year | | Capital
Leases | | | Long-Term
Debt | | | Non-
Recourse
Debt | | | Revolver | | | Term
Loans | | | Total
Annual
Repayment | |
| | | (In thousands) | |
2012 | | $ | 2,185 | | | $ | 441 | | | $ | 33,266 | | | $ | — | | | $ | 18,875 | | | $ | 54,767 | |
2013 | | | 2,181 | | | | 230 | | | | 35,599 | | | | — | | | | 33,875 | | | | 71,885 | |
2014 | | | 1,959 | | | | 168 | | | | 42,960 | | | | — | | | | 73,250 | | | | 118,337 | |
2015 | | | 1,932 | | | | 16 | | | | 40,117 | | | | 302,000 | | | | 214,000 | | | | 558,065 | |
2016 | | | 1,935 | | | | 4 | | | | 43,078 | | | | — | | | | 142,500 | | | | 187,517 | |
Thereafter | | | 10,907 | | | | 550,011 | | | | 40,410 | | | | — | | | | — | | | | 601,328 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 21,099 | | | $ | 550,870 | | | $ | 235,430 | | | $ | 302,000 | | | $ | 482,500 | | | $ | 1,591,899 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest imputed on Capital Leases | | | (6,928 | ) | | | — | | | | — | | | | — | | | | — | | | | (6,928 | ) |
Original issuer’s discount | | | — | | | | (2,859 | ) | | | (1,936 | ) | | | — | | | | (1,538 | ) | | | (6,333 | ) |
Fair value premium on Non-Recourse Debt | | | — | | | | — | | | | 8,304 | | | | — | | | | — | | | | 8,304 | |
Interest rate swap | | | — | | | | 7,411 | | | | — | | | | — | | | | — | | | | 7,411 | |
Current portion | | | (1,084 | ) | | | (441 | ) | | | (33,266 | ) | | | — | | | | (18,875 | ) | | | (53,666 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non-current portion | | $ | 13,087 | | | $ | 554,981 | | | $ | 208,532 | | | $ | 302,000 | | | $ | 462,087 | | | $ | 1,540,687 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 $9.1 million, to SACS’ senior lenders through the issuance of letters of credit.credit for 60.0 million South African Rand. During the fiscal year ended January 1, 2012, the Company was notified by SACS’ lenders that these guarantees were reduced from 60.0 million South African Rand to 34.8 million South African Rand, or $4.3 million. Additionally, SACS iswas required to fund a restricted accountRectification Account for the paymentrepayment of certain costs in the event of contract termination. TheAs such, the Company hashad guaranteed the payment of 60% of amounts which may behave been payable by SACS into the restricted account and providedRectification Account by providing a standby letter of credit of 8.4 million South African Rand or $1.3 million, as security for this guarantee. During the fiscal year ended January 1, 2012, SACS met its guarantee. The Company’s obligations underobligation for the funding of the Rectification Account and the letter of credit for 8.4 million South African Rand relative to this guarantee are indexedwas not renewed. In the event SACS is unable to maintain the CPI and expire upon SACS’ release from its obligationsrequired funding in respect of the restricted account under its debt agreements.Rectification Account, the guarantee for the shortfall will need to be re-instated. No amounts have beenwere drawn against these letters of credit, which arecredit. The remaining guarantee of 34.8 million South African Rand is included inas part of the value of Company’s outstanding letters of credit under its Revolver.
121
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
TheIn addition to the above, the Company has also agreed to provide a loan, of up to 20.0 million South African Rand, or $3.0$2.5 million, (the “Standby Facility”),referred to as the Shareholder’s Loan, 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,Shareholder’s Loan, and the Company does not currently anticipate that such funding will be required by SACS in the future. The Company’s obligations under the Standby FacilityShareholder’s Loan expire upon the earlier of full funding or SACS’SACS’s release from its obligations under its debt agreements. The lenders’ ability to draw on the Standby FacilityShareholder’s Loan 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 Company’s shares in SACS. The Company’s 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, the Company guaranteed certain potential tax obligations of anot-for-profit entity. trust. The potential estimated exposure of these obligations is Canadian Dollar (“CAD”) 2.5 million, or $2.5$2.4 million as of January 1, 2012, commencing in 2017. The Company has a liability of $1.8$2.0 million and $1.5$1.8 million related to this exposure included in Other Non-Current Liabilities as of January 2, 20111, 2012 and January 3, 2010,2, 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 included in Other Non-Current Assets as of January 1, 2012 and January 2, 2011, respectively, on its consolidated balance sheet.sheets. The Company does not currently operate or manage this facility.
At January 2, 2011,1, 2012, the Company also had seveneight letters of guarantee outstanding under separate international facilities relating to performance guarantees of its Australian subsidiary totaling $9.4$9.9 million.
In connection with the creation of GEOAmey, the Company and its joint venture partner guarantee the availability of working capital in equal proportion to ensure that GEOAmey can comply with current and future contractual commitments related to the performance of its operations. The Company and the 50% joint venture partner have each extended a £12 million line of credit of which £8.3 million, or $12.9 million based on exchange rates as of January 1, 2012, was outstanding as of January 1, 2012. The Company’s maximum exposure relative to the joint venture is its note receivable of $13.1 million, including accrued interest of $0.2 million, and future financial support necessary to guarantee performance under the contract.
Except as discussed above, the Company does not have any off balance sheet arrangements.
| 15. | |
15. | Commitments and Contingencies |
The Company leases correctional facilities, office space, computers and transportation equipment under non-cancelable operating leases expiring between 20112012 and 2046.2050. The future minimum commitments under these leases are as follows:
| | | | | |
| Fiscal Year | | Annual Rental | |
| | | (In thousands) | |
| |
| 2011 | | $ | 30,948 | |
| 2012 | | | 29,774 | |
| 2013 | | | 25,019 | |
| 2014 | | | 17,798 | |
| 2015 | | | 16,416 | |
| Thereafter | | | 61,226 | |
| | | | | |
| | | $ | 181,181 | |
| | | | | |
| | | | |
Fiscal Year | | Annual Rental | |
| | | (In thousands) | |
2012 | | $ | 35,826 | |
2013 | | | 33,281 | |
2014 | | | 25,692 | |
2015 | | | 17,486 | |
2016 | | | 14,948 | |
Thereafter | | | 48,707 | |
| | | | |
| | $ | 175,940 | |
| | | | |
The Company’s corporate offices are located in Boca Raton, Florida, under a lease agreement which was amended in September 2010.October 2011. The current lease expires in March 2020 and has two5-year renewal options, forwhich if exercised will result in a fullmaximum term ending March 2030. In addition, the Company leases office space for its regional offices in Charlotte, North Carolina; San Antonio, Texas; and Los Angeles, California. As a result of the Company’s acquisition of Cornell in August 2010, theThe Company is also currently leasing office space in Houston, TexasPittsburgh, Pennsylvania and Pittsburg, Pennsylvania.Boulder, Colorado. The Company also leases office space in Sydney, Australia, Sandton, South
122
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Africa, and Berkshire, England through its overseas affiliates to support its Australian, South African, and UK operations, respectively. In addition, in connection with its acquisition of BI, the Company is also now leasing 35 ISAP service centers and eight electronic monitoring field offices. These rental commitments are included in the table above. Certain of these leases contain leasehold improvement incentives, rent holidays, and scheduled rent increases which are included in the Company’s rent expense recognized on a straight-line basis. Minimum rent expense associated with the Company’s leases having initial or remaining non-cancelable lease terms in excess of one year was $35.9 million, $25.4 million $18.7 million and $18.5$18.7 million for fiscal years 2011, 2010 and 2009, and 2008, respectively.
Litigation, Claims and Assessments
On June 22, 2011, a jury verdict for $6.5 million was returned against the Company in a wrongful death action brought by the Personal Representative of the Estate of Ronald Sites, a former inmate at the Company’s Lawton Oklahoma Correctional Facility. On August 22, 2011, the court entered judgment against GEO in the amount of $8.4 million, which includes pre judgment interest on the amount of the verdict from January 26, 2007, the date of the filing of the lawsuit, through the date of the jury verdict. The lawsuit, Ronald L. Sites, as the administrator of the Estate of Ronald S. Sites, deceased v. The GEO Group, Inc. was filed on January 28, 2007 in the District Court of Comanche County, State of Oklahoma, Case No. CJ-2007-84. It was alleged that on January 29, 2005, Mr. Sites was harmed by his cellmate as a result of the Company’s negligence. The Company disagrees with the judgment and is pursuing an appeal. A supersedeas bond in the amount of $10.0 million was posted on August 29, 2011 by the insurance company of the State of Pennsylvania. The Company intends to vigorously defend its rights and believes its accrual relative to this judgment is adequate. Under its insurance plan, the Company is responsible for the first $3.0 million of liability. Aside from this amount, which the Company would pay directly from general corporate funds, the Company believes it has insurance coverage for this matter.
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 government’s insurance provider and did not specify the amount of damages being sought. In August 2007, a lawsuit (Commonwealth of Australia v. Australasian ConnectionalCorrectional 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 or $18.4 million based on exchange rates as of January 2, 2011, or $18.4 million,1, 2012, 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 Company’s 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 Company’s U.S. federal income tax returns for the years 2002 through 2005. Following the examination, the IRS notified the Company’s 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 IRS Appeals on the amount of the deduction, which is currently being reviewed at a higher level. As a result of the pending agreement, the Company reassessed the probability of potential settlement outcomes and reduced its income tax accrual of $4.9 million by $2.3 million during the fourth quarter of 2010. However, if the disallowed deduction were to be sustained in full, it could result in a potential tax exposure to the Company of $15.4 million. The Company believes in the merits of its position and intends to defend its rights vigorously, including its rights to litigate the matter if it cannot be resolved favorably with the office of IRS Appeals. If this matter is resolved unfavorably, it may have a material adverse effect on the Company’s financial position, results of operations and cash flows.
In October 2010, the IRS audit for the Company’s U.S. income tax returns for fiscal years 2006 through 2008 was concluded and resulted in no changes to the Company’s income tax positions.
The Company’s 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 notice of favorable Tax Court ruling relative to these proceedings. Ifdeductions, which was subsequently appealed by SARS. On March 9, 2011, SARS shouldfiled a notice that it would appeal the lower court’s ruling. The Court of Appeals ruled on November 30, 2011 that the disputed expenses are deductible.
The Company believes it has defensesis a participant in these mattersthe IRS Compliance Assurance Process (“CAP”) for the 2011 fiscal year. Under the IRS CAP 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 intends to defend its rights vigorously. If resolved unfavorably,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 Company’s maximum exposure would be $2.6 million.
On April 27,2009 and 2010
a putative stockholder class actionyears as transition years.During the first quarter, following the Company’s acquisition of BI, BI received notice from the IRS that it will audit its 2008 tax year. The audit was filed in the District Court for Harris County, Texas by Todd Shelby against Cornell, members of Cornell’s board of directors, individually, and the
123
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company. The plaintiff filed an amended complaint on May 28, 2010, alleging, among other things, that the Cornell directors, aided and abetted by Cornell and the Company, breached their fiduciary duties in connection with the Cornell Acquisition. Among other things, the amended complaint sought to enjoin Cornell, its directors and the Company from completing the Cornell Acquisition and sought a constructive trust over any benefits improperly received by the defendants as a result of their alleged wrongful conduct. The parties reached a settlement which has been approved by the court and, as a result, the court dismissed the action with prejudice. The settlement of this matter did not have a material adverse impact on our financial condition, results of operations or cash flows.
The nature of the Company’s business exposes it to various types of
third-party legal 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,product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, indemnification claims by its customers and other third parties, contractual claims and claims for personal injury or other damages resulting from contact with the Company’s facilities, programs, electronic monitoring products, personnel or prisoners, including damages arising from a prisoner’s 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.
Collective Bargaining Agreements
The Company had approximately 17%18% of its workforce covered by collective bargaining agreements at January 2, 2011.1, 2012. Collective bargaining agreements with four percent8% of employees are set to expire in less than one year.
Contracts terminated during the fiscal year ended January 1, 2012 generated aggregate revenue of $48.8 million and a net operating loss of $2.8 million, which includes $3.7 million of depreciation expense and also includes transition costs. The following contracts were terminated during the fiscal year ended January 2, 2011. The Company does not expect that the termination of these contracts will have a material adverse impact, individually or in aggregate, on its financial condition, results of operations or cash flows.
On April 4, 2010,1, 2012:Effective February 28, 2011, the Company’s wholly-owned Australian subsidiary completedcontract for the transition of its management of the Melbourne Custody Center (the “Center”) to another service provider. The Center was operated on behalf of the Victoria Police to house prisoners, escort and guard prisoners for the Melbourne Magistrate Courts and to provide primary healthcare.
On April 14, 2010, the Company announced the results of the re-bids of two of its managed-only contracts. The State of Florida has issued a Notice of Intent to Award contracts for the 1,884-bed Graceville Correctional Facility424-bed North Texas ISF, located in
Graceville, Florida andFort Worth, Texas, terminated.Effective April 30, 2011, the 985-bed Moore Haven Correctional Facility located in Moore Haven, Florida to another operator. These contracts terminated effective September 26, 2010 and August 1, 2010, respectively.
On June 22, 2010, the Company announced the discontinuation of its managed-onlyCompany’s contract for the 520-bed Bridgeportmanagement of the 970-bed Regional Correctional Center, located in Texas following a competitive re-bid process conducted by the State of Texas. The contract was terminated effective August 31, 2010.
Effective September 1, 2010, the Company’s management contract for the operation of the 450-bed South Texas Intermediate Sanction FacilityAlbuquerque, New Mexico, terminated. This facility was not owned by the Company.
Effective May 29, 2011, the Company’s subsidiary in the United Kingdom will no longer managemanaged the 215-bed Campsfield House Immigration Removal Centre in Kidlington, England.
124
On July 11, 2011, the Company announced that the State of California decided to implement its Criminal Justice Realignment Plan, which is expected to delegate tens of thousands of low level state offenders to local county jurisdictions in California effective October 1, 2011. As a result of the implementation of the Realignment Plan, the State of California has decided to discontinue contracts with Community Correctional Facilities which currently house low level state offenders across the state. The Company received written notice from the California Department of Corrections and Rehabilitation regarding the cancellation of its agreements for the housing of low level state offenders at three of its facilities: (i) the company-leased 305-bed Leo Chesney Community Correctional Facility which was terminated effective September 30, 2011; (ii) the company-owned 625-bed Central Valley Modified Community Correctional Facility which was terminated effective October 12, 2011; and (iii) the company-owned 643-bed Desert View Modified Community Correctional Facility which terminated effective November 30, 2011. The Company is in the process of actively marketing these facilities to local county agencies in California. Given that most local county jurisdictions in California are presently operating at or above their correctional capacity, the Company is hopeful that it will be able to market these facilities to local county agencies for the housing of low level offenders who will be the responsibility of local county jurisdictions. Included in revenue for the fiscal year ended January 1, 2012 is $26.4 million of revenue related to these terminated contracts.On July 31, 2011, the Company’s contract for the management of Brooklyn Community Re-entry Center located in Brooklyn, New York terminated.
On September 2, 2011, the Company initiated discussions with the California Department of Corrections & Rehabilitation (“CDCR”) to terminate its management agreement for the operation of the company-owned North Lake Correctional Facility. On September 26, 2011, CDCR notified the Company that its contract would terminate effective October 2, 2011. Included in revenue for the fiscal year ended January 1, 2012 is $2.4 million of revenue related to this terminated contract.In an effort to consolidate existing Youth Services facilities and to maximize overall utilization, the Company terminated its contracts for the management of Contact Interventions, located in Wauconda, Illinois and the Abraxas Center for Adolescent Females located in Pittsburgh, Pennsylvania. Additionally, the Company’s contract to manage Philadelphia Community-Based Programs located in Philadelphia, Pennsylvania terminated June 30, 2011 due to lack of funding.
On October 3, 2011, the Company exercised the termination clause in its contract for the management of the Frio County Detention Center. Effective December 2, 2011, the Company no longer managed this facility.
The Company is currently marketing approximately 7,700 vacant beds at nine of its idle facilities, including Golden State Medium Community Correctional Facility, to potential customers. The carrying values of these idle facilities totaled $297.3 million as of January 1, 2012, excluding equipment and other assets that can be easily transferred for use at other facilities.
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Commitments
The Company is currently developing a number of projects using company financing. The Company’s management estimates that these existing capital projects will cost approximately $282.4$245.8 million, of which $54.9$156.1 million was spent through the end of 2010.2011. The Company estimates the remaining capital requirements related to these capital projects to be approximately $227.5$89.7 million, which will be spent through fiscal years 20112012 and 2012.2013. Capital expenditures related to facility maintenance costs are expected to range between $20.0$30.0 million and $25.0$35.0 million for fiscal year 2010.2012. In addition to these current estimated capital requirements for 20112012 and 2010,2013, 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 20112012 and/or 2013 could materially increase.
Consulting agreement with Wayne H. Calabrese
Wayne H. Calabrese, the Company’s former Vice Chairman, President and Chief Operating Officer retired effective December 31, 2010. Mr. Calabrese’s business development and oversight responsibilities were reassigned throughout the Company’s senior management team and existing corporate structure. Mr. Calabrese will continue to work with the Company in a consulting capacity pursuant to a consulting agreement, dated as of August 26, 2010 for a minimum term of one year. Under the terms of the Consulting Agreement, which began on January 3, 2011, Mr. Calabrese provides services to the Company and its subsidiaries for a monthly consulting fee. Services provided include business development and contract administration assistance relative to new and existing contracts.
| 16. | |
16. | 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.
125
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Basic and diluted earnings per share (“EPS”) were calculated for the fiscal years ended January 1, 2012, January 2, 2011 and January 3, 2010 and December 28, 2008 as follows (in thousands, except per share data):
| | | | | | | | | | | | | |
| Fiscal Year | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands, except per share data) | |
| |
| Income from continuing operations | | $ | 62,790 | | | $ | 66,469 | | | $ | 61,829 | |
| Net (income) loss attributable to noncontrolling interests | | | 678 | | | | (169 | ) | | | (376 | ) |
| | | | | | | | | | | | | |
| Income from continuing operations attributable to The GEO Group, Inc. | | $ | 63,468 | | | $ | 66,300 | | | $ | 61,453 | |
| Basic earnings per share from continuing operations attributable to The GEO Group, Inc.: | | | | | | | | | | | | |
| Weighted average shares outstanding | | | 55,379 | | | | 50,879 | | | | 50,539 | |
| | | | | | | | | | | | | |
| Per share amount | | $ | 1.15 | | | $ | 1.30 | | | $ | 1.22 | |
| | | | | | | | | | | | | |
| Diluted earnings per share from continuing operations attributable to The GEO Group, Inc.: | | | | | | | | | | | | |
| Weighted average shares outstanding | | | 55,379 | | | | 50,879 | | | | 50,539 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Employee and director stock options and restricted stock | | | 610 | | | | 1,043 | | | | 1,291 | |
| | | | | | | | | | | | | |
| Weighted average shares assuming dilution | | | 55,989 | | | | 51,922 | | | | 51,830 | |
| | | | | | | | | | | | | |
| Per share amount | | $ | 1.13 | | | $ | 1.28 | | | $ | 1.19 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fiscal Year | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands, except per share data) | |
Income from continuing operations | | $ | 77,463 | | | $ | 62,790 | | | $ | 66,469 | |
Loss (Earnings) attributable to noncontrolling interests | | | 1,162 | | | | 678 | | | | (169 | ) |
| | | | | | | | | | | | |
Income from continuing operations attributable to The GEO Group, Inc. | | $ | 78,625 | | | $ | 63,468 | | | $ | 66,300 | |
Basic earnings per share from continuing operations attributable to The GEO Group, Inc.: | | | | | | | | | | | | |
Weighted average shares outstanding | | | 63,425 | | | | 55,379 | | | | 50,879 | |
| | | | | | | | | | | | |
Per share amount | | $ | 1.24 | | | $ | 1.15 | | | $ | 1.30 | |
| | | | | | | | | | | | |
Diluted earnings per share from continuing operations attributable to The GEO Group, Inc.: | | | | | | | | | | | | |
Weighted average shares outstanding | | | 63,425 | | | | 55,379 | | | | 50,879 | |
Diluted effect of equity incentive plans | | | 315 | | | | 610 | | | | 1,043 | |
| | | | | | | | | | | | |
Weighted average shares assuming dilution | | | 63,740 | | | | 55,989 | | | | 51,922 | |
| | | | | | | | | | | | |
Per share amount | | $ | 1.23 | | | $ | 1.13 | | | $ | 1.28 | |
| | | | | | | | | | | | |
For the fiscal year ended January 1, 2012, 105,307 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 fiscal year ended January 2, 2011, 25,570 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 fiscal year ended January 3, 2010, 69,492 weighted average shares of stock underlying options and 107 weighted average shares of restricted stock were excluded from the computation of diluted EPS because the effect would be anti-dilutive.
For the fiscal year December 28, 2008, 372,725 weighted average shares of stock underlying options and 8,986 weighted average shares of restricted stock were excluded from the computation of diluted EPS because the effect would be anti-dilutive.
The Company has two non-contributory defined benefit pension plans covering certain of the Company’s 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 January 2, 2011,1, 2012, the Company had a non-qualified deferred compensation agreement with its Chief Executive Officer (“CEO”) which was modified in 2002, and again in 2003.. The current agreement provides for a lump sum payment upon retirement, no sooner than age 55. As of January 2, 2011,1, 2012, the CEO had reached age 55 and was eligible to receive the payment upon retirement. PriorIf the Company’s CEO had retired as of January 1, 2012, the Company would have had to pay him $5.8 million including a tax gross-up relating to the effective retirement date of December 31, 2010, Wayne H. Calabrese, the Company’s former Vice Chairman, President and Chief Operating Officer, also had a deferred compensation agreement under the non-qualified deferred compensation plan. As a result of his retirement, the Company paid $4.4 million in discounted retirement benefits under his non-qualified deferred compensation agreement, including a gross up of $1.6 million for certain taxes as specified in the deferred compensation agreement. As a result of Mr. Calabrese’s retirement, the Company
126
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
recognized $0.3 million in settlement charges.payment equal to $2.1 million. During the fiscal year ended January 2, 2011, the Company repurchased 358,126 shares from Mr. Calabresepaid a former executive $4.4 million, including an income tax gross up of $1.6 million, in discounted retirement benefits under the stock repurchase program for $7.5 million. The Company also purchased 268,475 shares from Mr. Calabrese for $6.1 million which were retired byexecutive’s non-qualified deferred compensation agreement. During the fiscal year ended January 3, 2010, the Company immediately upon repurchase.
paid a former executive $3.2 million, including an income tax gross up of $1.2 million, in discounted retirement benefits under the executive’s non-qualified deferred compensation agreement. As a result of the payments made to these executives, the Company recognized settlement charges during the fiscal years ended January 2, 2011 and January 3, 2010 of $0.3 million and $0.2 million, respectively. The long-term portion of the pension liability as of January 1, 2012 and January 2, 2011 was $16.7 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 Company’s 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 Company’s liability relative to its pension plans and retirement agreements was $13.8 million and $16.2 million as of January 2, 2011 and January 3, 2010, respectively. The long-term portion of the pension liability as of January 2, 2011 and January 3, 2010 was $13.6 million and $16.0 million, respectively, and is included in Other Non-Current liabilities in the accompanying balance sheets. The assumptions used in the Company’s calculation of accrued pension costs are based on market information and the Company’s historical rates for employment compensation and discount rates, respectively.
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| |
Change in Projected Benefit Obligation | | | | | | | | |
| Projected Benefit Obligation, Beginning of Year | | $ | 16,206 | | | $ | 19,320 | |
| Service Cost | | | 525 | | | | 563 | |
| Interest Cost | | | 746 | | | | 717 | |
| Plan Amendments | | | — | | | | — | |
| Actuarial (Gain) Loss | | | 986 | | | | (1,047 | ) |
| Benefits Paid | | | (4,633 | ) | | | (3,347 | ) |
| | | | | | | | | |
| Projected Benefit Obligation, End of Year | | $ | 13,830 | | | $ | 16,206 | |
| | | | | | | | | |
Change in Plan Assets | | | | | | | | |
| Plan Assets at Fair Value, Beginning of Year | | $ | — | | | $ | — | |
| Company Contributions | | | 4,633 | | | | 3,347 | |
| Benefits Paid | | | (4,633 | ) | | | (3,347 | ) |
| | | | | | | | | |
| Plan Assets at Fair Value, End of Year | | $ | — | | | $ | — | |
| | | | | | | | | |
Unfunded Status of the Plan | | $ | (13,830 | ) | | $ | (16,206 | ) |
| | | | | | | | | |
Amounts Recognized in Accumulated Other Comprehensive Income | | | | | | | | |
| Prior Service Cost | | | — | | | | 41 | |
| Net Loss | | | 1,671 | | | | 1,014 | |
| | | | | | | | | |
| Total Pension Cost | | $ | 1,671 | | | $ | 1,055 | |
| | | | | | | | | |
127
| | | | | | | | |
| | | 2011 | | | 2010 | |
Change in Projected Benefit Obligation | | | | | | | | |
Projected Benefit Obligation, Beginning of Year | | $ | 13,830 | | | $ | 16,206 | |
Service Cost | | | 645 | | | | 525 | |
Interest Cost | | | 667 | | | | 746 | |
Actuarial (Gain) Loss | | | 1,922 | | | | 986 | |
Benefits Paid | | | (185 | ) | | | (4,633 | ) |
| | | | | | | | |
Projected Benefit Obligation, End of Year | | $ | 16,879 | | | $ | 13,830 | |
| | | | | | | | |
Change in Plan Assets | | | | | | | | |
Plan Assets at Fair Value, Beginning of Year | | $ | — | | | $ | — | |
Company Contributions | | | 185 | | | | 4,633 | |
Benefits Paid | | | (185 | ) | | | (4,633 | ) |
| | | | | | | | |
Plan Assets at Fair Value, End of Year | | $ | — | | | $ | — | |
| | | | | | | | |
Unfunded Status of the Plan | | $ | (16,879 | ) | | $ | (13,830 | ) |
| | | | | | | | |
Amounts Recognized in Accumulated Other Comprehensive Income | | | | | | | | |
Prior Service Cost | | | — | | | | — | |
Net Loss | | | 3,531 | | | | 1,671 | |
| | | | | | | | |
Total Pension Cost | | $ | 3,531 | | | $ | 1,671 | |
| | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | |
| | | Fiscal 2010 | | | Fiscal 2009 | |
| |
Components of Net Periodic Benefit Cost | | | | | | | | |
| Service Cost | | $ | 525 | | | $ | 563 | |
| Interest Cost | | | 746 | | | | 717 | |
| Amortization of: | | | | | | | | |
| Prior Service Cost | | | 41 | | | | 41 | |
| Net Loss | | | 33 | | | | 249 | |
| Settlements | | | 297 | | | | 241 | |
| | | | | | | | | |
| Net Periodic Pension Cost | | $ | 1,642 | | | $ | 1,811 | |
| | | | | | | | | |
Weighted Average Assumptions for Expense | | | | | | | | |
| Discount Rate | | | 5.75 | % | | | 5.75 | % |
| Expected Return on Plan Assets | | | N/A | | | | N/A | |
| Rate of Compensation Increase | | | 4.50 | % | | | 4.50 | % |
| | | | | | | | |
| | | Fiscal 2011 | | | Fiscal 2010 | |
Components of Net Periodic Benefit Cost | | | | | | | | |
Service Cost | | $ | 645 | | | $ | 525 | |
Interest Cost | | | 667 | | | | 746 | |
Amortization of: | | | | | | | | |
Prior Service Cost | | | — | | | | 41 | |
Net Loss | | | 62 | | | | 33 | |
Settlements | | | — | | | | 297 | |
| | | | | | | | |
Net Periodic Pension Cost | | $ | 1,374 | | | $ | 1,642 | |
| | | | | | | | |
Weighted Average Assumptions for Expense | | | | | | | | |
Discount Rate | | | 5.50 | % | | | 5.75 | % |
Expected Return on Plan Assets | | | N/A | | | | N/A | |
Rate of Compensation Increase | | | 4.29 | % | | | 4.50 | % |
The amount included in other accumulated comprehensive income as of January 2, 20111, 2012 that is expected to be recognized as a component of net periodic benefit cost in fiscal year 20112012 is $0.2 million.
The benefit payments reflected in the table below represent the Company’s obligations to employees that are eligible for retirement or have already retired and are receiving deferred compensation benefits:
| | | | | |
| | | Pension
| |
| Fiscal Year | | Benefits | |
| | | (In thousands) | |
| |
| 2011 | | $ | 5,944 | |
| 2012 | | | 236 | |
| 2013 | | | 234 | |
| 2014 | | | 284 | |
| 2015 | | | 296 | |
| Thereafter | | | 6,836 | |
| | | | | |
| | | $ | 13,830 | |
| | | | | |
| | | | |
Fiscal Year | | Pension
Benefits | |
| | | (In thousands) | |
2012 | | $ | 6,249 | |
2013 | | | 247 | |
2014 | | | 295 | |
2015 | | | 340 | |
2016 | | | 388 | |
Thereafter | | | 9,360 | |
| | | | |
| | $ | 16,879 | |
| | | | |
The Company also maintains the GEO Group Inc., Deferred Compensation Plan (“Deferred Compensation Plan”), a non-qualified deferred compensation plan for employees who are ineligible to participate in its qualified 401(k) plan. Eligible employees may defer a fixed percentage of their salary and the Company matches employee contributions up to a certain amount based on the employee’s years of service. Payments will be made at retirement age of 65, at termination of employment or earlier depending on the employees’ elections. Effective December 18, 2009, the Company established a rabbi trust; the purpose of which is to segregate the assets of the Deferred Compensation Plan from the Company’s cash balances. The funds in the rabbi trust willare included in Restricted Cash and Investments in the accompanying consolidated balance sheets. These funds are not be available to the Company for any purpose other than to fund the Deferred Compensation Plan; however, these funds may be available to the Company’s creditors in the event the Company becomes insolvent. All employee and employer contributions relative to the Deferred Compensation Plan are made directly to the rabbi trust. As of January 2, 2011, the Company has transferred an aggregate of $5.8 million in cash to the rabbi trust to fund the Deferred Compensation Plan, all of which is reflected as restricted cash in the accompanying balance sheet. The Company recognized expense related to its contributions of $0.2$0.3 million, $0.1$0.2 million and $0.1 million in fiscal years 2011, 2010 2009 and 2008,2009, respectively. The total liability, including the current portion, for this plan at January 1, 2012 and January 2, 2011 and January 3, 2010 was $6.2$8.2 million and $4.7$6.2 million, respectively. The liability, excluding current portion of $0.2$0.6 million and $0.4$0.2 million as of January 1, 2012 and January 2, 2011, and
128
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
January 3, 2010, respectively, is included in other non-current liabilities in the accompanying consolidated balance sheets.
| 18. | |
18. | Business SegmentSegments and Geographic Information |
Operating and Reporting Segments
The Company conducts its business through four reportable business segments: the U.S. Corrections & Detention & Corrections segment; the International Services segment; the GEO Care segment; and 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. DetentionCorrections & CorrectionsDetention segment primarily encompassesU.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 Company’s residential treatment services, community-based services, youth services and BI are operating segments aggregated under the GEO Care reporting segment. The GEO Care segment, which is operated byconducts its services in the Company’s wholly-owned subsidiary GEO Care, Inc.,United States, represents services provided to adult offenders and juveniles for mental health, residential and non-residential treatment, educational and community based programs, and pre-release and half-way house programs, all of which is currently conducted in the U.S.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 ofprimarily contracts with various state, local and federal agencies for the design and construction of facilities for which the Company has management contracts. Generally, the assets and revenues from the Facility Construction & Design segment are offset by a similar amount of liabilities and expenses. As a result of the acquisition of Cornell, management’s 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. DetentionCorrections & Corrections.Detention. Segment disclosures below reflect these reclassifications for all periods presented.
129
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The segment information presented in the prior periods has been reclassified to conform to the current presentationand all transactions between segments are eliminated (in thousands):
| | | | | | | | | | | | | |
| Fiscal Year | | 2010 | | | 2009 | | | 2008 | |
| |
| Revenues: | | | | | | | | | | | | |
| U.S. Detention & Corrections | | $ | 842,417 | | | $ | 772,497 | | | $ | 700,587 | |
| International Services | | | 190,477 | | | | 137,171 | | | | 128,672 | |
| GEO Care | | | 213,819 | | | | 133,387 | | | | 127,850 | |
| Facility Construction & Design | | | 23,255 | | | | 98,035 | | | | 85,897 | |
| | | | | | | | | | | | | |
| Total revenues | | $ | 1,269,968 | | | $ | 1,141,090 | | | $ | 1,043,006 | |
| | | | | | | | | | | | | |
| Depreciation and amortization: | | | | | | | | | | | | |
| U.S. Detention & Corrections | | $ | 39,744 | | | $ | 35,855 | | | $ | 33,770 | |
| International Services | | | 1,767 | | | | 1,448 | | | | 1,556 | |
| GEO Care | | | 6,600 | | | | 2,003 | | | | 2,080 | |
| Facility Construction & Design | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total depreciation and amortization | | $ | 48,111 | | | $ | 39,306 | | | $ | 37,406 | |
| | | | | | | | | | | | | |
| Operating Income: | | | | | | | | | | | | |
| U.S. Detention & Corrections | | $ | 204,398 | | | $ | 178,329 | | | $ | 156,317 | |
| International Services | | | 12,311 | | | | 8,017 | | | | 10,737 | |
| GEO Care | | | 27,746 | | | | 17,958 | | | | 16,167 | |
| Facility Construction & Design | | | 2,382 | | | | 381 | | | | 326 | |
| | | | | | | | | | | | | |
| Operating income from segments | | | 246,837 | | | | 204,685 | | | | 183,547 | |
| General and Administrative Expenses | | | (106,364 | ) | | | (69,240 | ) | | | (69,151 | ) |
| | | | | | | | | | | | | |
| Total operating income | | $ | 140,473 | | | $ | 135,445 | | | $ | 114,396 | |
| | | | | | | | | | | | | |
. | | | | | | | | | | | | |
Fiscal Year | | 2011 | | | 2010 | | | 2009 | |
Revenues: | | | | | | | | | | | | |
U.S. Corrections & Detention | | $ | 970,507 | | | $ | 842,417 | | | $ | 772,497 | |
GEO Care | | | 426,759 | | | | 213,819 | | | | 133,387 | |
International Services | | | 215,514 | | | | 190,477 | | | | 137,171 | |
Facility Construction & Design | | | 119 | | | | 23,255 | | | | 98,035 | |
| | | | | | | | | | | | |
Total revenues | | $ | 1,612,899 | | | $ | 1,269,968 | | | $ | 1,141,090 | |
| | | | | | | | | | | | |
Depreciation and amortization: | | | | | | | | | | | | |
U.S. Corrections & Detention | | $ | 55,676 | | | $ | 39,744 | | | $ | 35,855 | |
GEO Care | | | 27,530 | | | | 6,600 | | | | 2,003 | |
International Services | | | 2,135 | | | | 1,767 | | | | 1,448 | |
Facility Construction & Design | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Total depreciation and amortization | | $ | 85,341 | | | $ | 48,111 | | | $ | 39,306 | |
| | | | | | | | | | | | |
Operating Income: | | | | | | | | | | | | |
U.S. Corrections & Detention | | $ | 218,569 | | | $ | 204,398 | | | $ | 178,329 | |
GEO Care | | | 72,932 | | | | 27,746 | | | | 17,958 | |
International Services | | | 14,440 | | | | 12,311 | | | | 8,017 | |
Facility Construction & Design | | | 37 | | | | 2,382 | | | | 381 | |
| | | | | | | | | | | | |
Operating income from segments | | | 305,978 | | | | 246,837 | | | | 204,685 | |
General and Administrative Expenses | | | (113,809 | ) | | | (106,364 | ) | | | (69,240 | ) |
| | | | | | | | | | | | |
Total operating income | | $ | 192,169 | | | $ | 140,473 | | | $ | 135,445 | |
| | | | | | | | | | | | |
The increase in revenues for U.S. DetentionCorrections & CorrectionsDetention and GEO Care in 20102011 compared to 20092010 is primarily due to the acquisition of Cornell in August 2010 which contributed additionala full year of revenues to these segments of $160.4 million and $158.7 million, respectively, compared to the partial year in fiscal 2010 of $85.5 million and $65.7 million, respectively. Additionally, in 2011, revenues increased due to the Company’s acquisition of BI and the related monitoring services, contributing revenue of $86.9 million, and re-entry services at the Day Reporting Centers, which contributed revenue of $26.3 million. The increaseCompany experienced increases in revenues for U.S. Detention & Correctionsfrom International Services in 2009 compared2011 as a result of positive fluctuations in foreign currency translation as well as from increases in population, increases in the inflationary index and increases related to 2008 is primarily attributable to project activations, capacity increases and per diem rate increases at existing facilities and new management contracts.the opening of Dungavel Immigration Removal Centre. The Company experienced increases in revenues from International Services in 2010 as a result of positive fluctuations in foreign currency translation as well as from its new management contracts for the operation of the Parklea Correctional Centre in Sydney, Australia (“Parklea”) and the Harmondsworth Immigration Removal Centre in London, England (“Harmondsworth”). The Company provided services under these contracts for the full year in 2010 compared to a partial period during 2009.
In 2010, the Company experienced significant decreases in revenues reported in its Facility Construction & Design segment as a result of the completion of Blackwater River Correctional Facility in Milton Florida (“Blackwater River”).
In 2010,2011, a significant increase in operating income for the U.S. DetentionCorrections & CorrectionsDetention and GEO Care reporting segments was the result of the Company’s acquisition of Cornell in August 2010 which resulted incontributed a full year of additional operating income of $39.7 million and $34.5 million, respectively compared to a partial year of operating income in 2010 of $15.9 million and $10.9 million, respectively. Additional increases related to GEO Care in 2010, and to a lesser extent in 2009,2011, are associated with the Company’s acquisition of Just Care, Inc., September 30, 2009. In 2010, the Company experienced significant decreasesBI in operating income reported in its Facility Construction & Design segment as a result of the completion of Blackwater River.
130
| | | | | | | | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Segment assets: | | | | |
U.S. Corrections & Detention | | $ | 2,027,717 | | | $ | 1,849,423 | |
GEO Care | | | 747,656 | | | | 299,563 | |
International Services | | | 98,449 | | | | 103,004 | |
Facility Construction & Design | | | 157 | | | | 26 | |
| | | | | | | | |
Total segment assets | | $ | 2,873,979 | | | $ | 2,252,016 | |
| | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| |
| Segment assets: | | | | | | | | |
| U.S. Detention & Corrections | | $ | 1,855,777 | | | $ | 1,143,248 | |
| International Services | | | 103,004 | | | | 95,659 | |
| GEO Care | | | 301,601 | | | | 110,231 | |
| Facility Construction & Design | | | 26 | | | | 13,736 | |
| | | | | | | | | |
| Total segment assets | | $ | 2,260,408 | | | $ | 1,362,874 | |
| | | | | | | | | |
Assets in the Company’s Facility Construction & Design segment are primarily made up of accounts receivable, which includes trade receivables and construction retainage receivable.
Pre-Tax Income Reconciliation of Segments
The following is a reconciliation of the Company’s total operating income from its reportable segments to the Company’s income before income taxes, equity in earnings of affiliates and discontinued operations, in each case, during the fiscal years ended January 1, 2012, January 2, 2011, and January 3, 2010, and December 28, 2008, respectively.
| | | | | | | | | | | | | |
| Fiscal Year Ended | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Operating income from segments | | $ | 246,837 | | | $ | 204,685 | | | $ | 183,547 | |
| Unallocated amounts: | | | | | | | | | | | | |
| General and administrative expense | | | (106,364 | ) | | | (69,240 | ) | | | (69,151 | ) |
| Net interest expense | | | (34,436 | ) | | | (23,575 | ) | | | (23,157 | ) |
| Costs related to early extinguishment of debt | | | (7,933 | ) | | | (6,839 | ) | | | — | |
| | | | | | | | | | | | | |
| Income before income taxes, equity in earnings of affiliates and discontinued operations | | $ | 98,104 | | | $ | 105,031 | | | $ | 91,239 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fiscal Year Ended | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Operating income from segments | | $ | 305,978 | | | $ | 246,837 | | | $ | 204,685 | |
Unallocated amounts: | | | | | | | | | | | | |
General and administrative expense | | | (113,809 | ) | | | (106,364 | ) | | | (69,240 | ) |
Net interest expense | | | (68,344 | ) | | | (34,436 | ) | | | (23,575 | ) |
Costs related to early extinguishment of debt | | | — | | | | (7,933 | ) | | | (6,839 | ) |
| | | | | | | | | | | | |
Income before income taxes, equity in earnings of affiliates and discontinued operations | | $ | 123,825 | | | $ | 98,104 | | | $ | 105,031 | |
| | | | | | | | | | | | |
Asset Reconciliation
The following is a reconciliation of the Company’s reportable segment assets to the Company’s total assets as of January 1, 2012 and January 2, 2011, and January 3, 2010, respectively.
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| |
| Reportable segment assets | | $ | 2,260,408 | | | $ | 1,362,874 | |
| Cash | | | 39,664 | | | | 33,856 | |
| Deferred income tax | | | 33,062 | | | | 17,020 | |
| Restricted cash and investments | | | 90,642 | | | | 34,068 | |
| | | | | | | | | |
| Total assets | | $ | 2,423,776 | | | $ | 1,447,818 | |
| | | | | | | | | |
| | | | | | | | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Reportable segment assets | | $ | 2,873,979 | | | $ | 2,252,016 | |
Cash | | | 44,753 | | | | 39,664 | |
Deferred income tax | | | 30,437 | | | | 30,051 | |
Restricted cash and investments | | | 100,447 | | | | 90,642 | |
| | | | | | | | |
Total assets | | $ | 3,049,616 | | | $ | 2,412,373 | |
| | | | | | | | |
Geographic Information
During each of the fiscal years ended January 1, 2012, January 2, 2011 and January 3, 2010, and December 28, 2008, the Company’s international operations were conducted through (i) the Company’s wholly owned Australian subsidiary, The GEO Group Australia Pty. Ltd., through which the Company has management contracts for four correctional facilities and also provides comprehensive healthcare services to nineseveral government-operated prisons; (ii) the Company’s consolidated joint venture in South Africa, SACM, through which the Company manages one correctional facility; and (iii) the Company’s wholly-owned subsidiary in the United Kingdom,
131
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The GEO Group UK Ltd., through which the Company manages two facilities includingmanaged both the Dungavel House Immigration Removal Centre and the Harmondsworth Immigration Removal Centre as of January 1, 2012 and managed both the Campsfield House Immigration Removal Centre and the Harmondsworth Immigration Removal Centre.
| | | | | | | | | | | | | |
| Fiscal Year | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Revenues: | | | | | | | | | | | | |
| U.S. operations | | $ | 1,079,491 | | | $ | 1,003,919 | | | $ | 914,334 | |
| Australia operations | | | 142,648 | | | | 103,197 | | | | 101,995 | |
| South African operations | | | 19,231 | | | | 16,843 | | | | 15,316 | |
| United Kingdom | | | 28,598 | | | | 17,131 | | | | 11,361 | |
| | | | | | | | | | | | | |
| Total revenues | | $ | 1,269,968 | | | $ | 1,141,090 | | | $ | 1,043,006 | |
| | | | | | | | | | | | | |
| Long-lived assets: | | | | | | | | | | | | |
| U.S. operations | | $ | 1,506,666 | | | $ | 994,327 | | | $ | 875,703 | |
| Australia operations | | | 3,603 | | | | 2,887 | | | | 2,000 | |
| South African operations | | | 439 | | | | 447 | | | | 492 | |
| United Kingdom | | | 584 | | | | 899 | | | | 421 | |
| | | | | | | | | | | | | |
| Total long-lived assets | | $ | 1,511,292 | | | $ | 998,560 | | | $ | 878,616 | |
| | | | | | | | | | | | | |
Centre as of January 2, 2011 and January 3, 2010. | | | | | | | | | | | | |
Fiscal Year | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Revenues: | | | | | | | | | | | | |
U.S. operations | | $ | 1,397,385 | | | $ | 1,079,491 | | | $ | 1,003,919 | |
Australia operations | | | 164,870 | | | | 142,648 | | | | 103,197 | |
South African operations | | | 21,357 | | | | 19,231 | | | | 16,843 | |
United Kingdom operations | | | 29,287 | | | | 28,598 | | | | 17,131 | |
| | | | | | | | | | | | |
Total revenues | | $ | 1,612,899 | | | $ | 1,269,968 | | | $ | 1,141,090 | |
| | | | | | | | | | | | |
Long-lived assets: | | | | | | | | | | | | |
U.S. operations | | $ | 1,700,766 | | | $ | 1,506,666 | | | $ | 994,327 | |
Australia operations | | | 4,469 | | | | 3,603 | | | | 2,887 | |
South African operations | | | 334 | | | | 439 | | | | 447 | |
United Kingdom operations | | | 602 | | | | 584 | | | | 899 | |
| | | | | | | | | | | | |
Total long-lived assets | | $ | 1,706,171 | | | $ | 1,511,292 | | | $ | 998,560 | |
| | | | | | | | | | | | |
Sources of Revenue
The Company derives most of its revenue from the management of privatized correction and detention facilities. The Company also derives revenue from GEO Care and from the construction and expansion of new and existing correctional, detention and GEO Care facilities. All of the Company’s revenue is generated from external customers.
| | | | | | | | | | | | | |
| Fiscal Year | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Revenues: | | | | | | | | | | | | |
| Detention & Corrections | | $ | 1,032,894 | | | $ | 909,668 | | | $ | 829,259 | |
| GEO Care | | | 213,819 | | | | 133,387 | | | | 127,850 | |
| Facility Construction & Design | | | 23,255 | | | | 98,035 | | | | 85,897 | |
| | | | | | | | | | | | | |
| Total revenues | | $ | 1,269,968 | | | $ | 1,141,090 | | | $ | 1,043,006 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fiscal Year | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Revenues: | | | | | | | | | | | | |
Corrections & Detention | | $ | 1,186,021 | | | $ | 1,032,894 | | | $ | 909,668 | |
GEO Care | | | 426,759 | | | | 213,819 | | | | 133,387 | |
Facility Construction & Design | | | 119 | | | | 23,255 | | | | 98,035 | |
| | | | | | | | | | | | |
Total revenues | | $ | 1,612,899 | | | $ | 1,269,968 | | | $ | 1,141,090 | |
| | | | | | | | | | | | |
Equity in Earnings of Affiliates
Equity in earnings of affiliates for 2011, 2010 2009 and 20082009 includes the operating results from one of the Company’s joint ventures in South Africa, SACS. This joint venture is accounted for under the equity method and the Company’s investment in SACS is presented as a component of other non-current assets in the accompanying consolidated balance sheets.
132
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of financial data for SACS is as follows:
| | | | | | | | | | | | | |
| Fiscal Year | | 2010 | | 2009 | | 2008 |
| | | (In thousands) |
| |
| Statement of Operations Data | | | | | | | | | | | | |
| Revenues | | $ | 46,005 | | | $ | 37,736 | | | $ | 35,558 | |
| Operating income | | | 18,350 | | | | 14,958 | | | | 13,688 | |
| Net income | | | 8,435 | | | | 7,034 | | | | 9,247 | |
| Balance Sheet Data | | | | | | | | | | | | |
| Current assets | | | 40,624 | | | | 33,808 | | | | 18,421 | |
| Noncurrent assets | | | 50,613 | | | | 47,453 | | | | 37,722 | |
| Current liabilities | | | 3,552 | | | | 2,888 | | | | 2,245 | |
| Non-current liabilities | | | 60,129 | | | | 53,877 | | | | 41,321 | |
| Shareholders’ equity | | | 27,556 | | | | 24,496 | | | | 12,577 | |
| | | | | | | | | | | | |
Fiscal Year | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Statement of Operations Data | | | | | | | | | | | | |
Revenues | | $ | 48,844 | | | $ | 46,005 | | | $ | 37,736 | |
Operating income | | | 19,613 | | | | 18,350 | | | | 14,958 | |
Net income | | | 7,856 | | | | 8,435 | | | | 7,034 | |
Balance Sheet Data | | | | | | | | | | | | |
Current assets | | | 21,068 | | | | 40,624 | | | | 33,808 | |
Noncurrent assets | | | 39,110 | | | | 50,613 | | | | 47,453 | |
Current liabilities | | | 3,645 | | | | 3,552 | | | | 2,888 | |
Non-current liabilities | | | 45,237 | | | | 60,129 | | | | 53,877 | |
Shareholders’ equity | | | 11,296 | | | | 27,556 | | | | 24,496 | |
As of January 2, 20111, 2012 and January 3, 2010,2, 2011, the Company’s investment in SACS was $13.8$5.6 million and $12.2$13.8 million, respectively. The investment is included in other non-current assets in the accompanying consolidated balance sheets.
Except for the major customers noted in the following table, no other single customer made up greater than 10% of the Company’s consolidated revenues for the following fiscal years.
| | | | | | | | | | | | | |
| Customer | | 2010 | | 2009 | | 2008 |
| |
| Various agencies of the U.S Federal Government: | | | 35 | % | | | 31 | % | | | 28 | % |
| Various agencies of the State of Florida: | | | 14 | % | | | 16 | % | | | 17 | % |
| | | | | | | | | | | | |
Customer | | 2011 | | | 2010 | | | 2009 | |
Various agencies of the U.S Federal Government: | | | 40 | % | | | 35 | % | | | 31 | % |
Various agencies of the State of Florida: | | | 11 | % | | | 14 | % | | | 16 | % |
Credit risk related to accounts receivable is reflective of the related revenues.
The United States and foreign components of income (loss) before income taxes and equity income from affiliates are as follows:
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Income (loss) before income taxes, equity earnings in affiliates, and discontinued operations | | | | | | | | | | | | |
| United States | | $ | 84,531 | | | $ | 96,651 | | | $ | 78,542 | |
| Foreign | | | 13,573 | | | | 8,380 | | | | 12,697 | |
| | | | | | | | | | | | | |
| | | | 98,104 | | | | 105,031 | | | | 91,239 | |
| | | | | | | | | | | | | |
| Discontinued operations: | | | | | | | | | | | | |
| Income (loss) from operation of discontinued business | | | — | | | | (562 | ) | | | (2,316 | ) |
| | | | | | | | | | | | | |
| Total | | $ | 98,104 | | | $ | 104,469 | | | $ | 88,923 | |
| | | | | | | | | | | | | |
133
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Income before income taxes, equity earnings in affiliates, and discontinued operations | | | | | | | | | | | | |
United States | | $ | 107,743 | | | $ | 84,531 | | | $ | 96,651 | |
Foreign | | | 16,082 | | | | 13,573 | | | | 8,380 | |
| | | | | | | | | | | | |
| | | 123,825 | | | | 98,104 | | | | 105,031 | |
| | | | | | | | | | | | |
Discontinued operations: | | | | | | | | | | | | |
Loss from operation of discontinued business | | | — | | | | — | | | | (562 | ) |
| | | | | | | | | | | | |
Total | | $ | 123,825 | | | $ | 98,104 | | | $ | 104,469 | |
| | | | | | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Taxes on income (loss) consist of the following components:
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Federal income taxes: | | | | | | | | | | | | |
| Current | | $ | 13,316 | | | $ | 24,443 | | | $ | 24,164 | |
| Deferred | | | 16,070 | | | | 10,734 | | | | 2,621 | |
| | | | | | | | | | | | | |
| | | | 29,386 | | | | 35,177 | | | | 26,785 | |
| | | | | | | | | | | | | |
| State income taxes: | | | | | | | | | | | | |
| Current | | | 2,713 | | | | 2,889 | | | | 2,626 | |
| Deferred | | | 3,136 | | | | 310 | | | | (558 | ) |
| | | | | | | | | | | | | |
| | | | 5,849 | | | | 3,199 | | | | 2,068 | |
| | | | | | | | | | | | | |
| Foreign: | | | | | | | | | | | | |
| Current | | | 5,562 | | | | 4,737 | | | | 4,587 | |
| Deferred | | | (1,265 | ) | | | (1,034 | ) | | | 593 | |
| | | | | | | | | | | | | |
| | | | 4,297 | | | | 3,703 | | | | 5,180 | |
| | | | | | | | | | | | | |
| Total U.S. and foreign | | | 39,532 | | | | 42,079 | | | | 34,033 | |
| | | | | | | | | | | | | |
| Discontinued operations: | | | | | | | | | | | | |
| Taxes (benefit) from operations of discontinued business | | | — | | | | (216 | ) | | | 236 | |
| | | | | | | | | | | | | |
| Total | | $ | 39,532 | | | $ | 41,863 | | | $ | 34,269 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Federal income taxes: | | | | | | | | | | | | |
Current | | $ | (474 | ) | | $ | 13,316 | | | $ | 24,443 | |
Deferred | | | 36,650 | | | | 16,070 | | | | 10,734 | |
| | | | | | | | | | | | |
| | | 36,176 | | | | 29,386 | | | | 35,177 | |
| | | | | | | | | | | | |
State income taxes: | | | | | | | | | | | | |
Current | | | 2,673 | | | | 2,713 | | | | 2,889 | |
Deferred | | | 4,803 | | | | 3,136 | | | | 310 | |
| | | | | | | | | | | | |
| | | 7,476 | | | | 5,849 | | | | 3,199 | |
| | | | | | | | | | | | |
Foreign: | | | | | | | | | | | | |
Current | | | 4,706 | | | | 5,562 | | | | 4,737 | |
Deferred | | | (433 | ) | | | (1,265 | ) | | | (1,034 | ) |
| | | | | | | | | | | | |
| | | 4,273 | | | | 4,297 | | | | 3,703 | |
| | | | | | | | | | | | |
Total U.S. and foreign | | | 47,925 | | | | 39,532 | | | | 42,079 | |
| | | | | | | | | | | | |
Discontinued operations: | | | | | | | | | | | | |
Tax benefit from operations of discontinued business | | | — | | | | — | | | | (216 | ) |
| | | | | | | | | | | | |
Total | | $ | 47,925 | | | $ | 39,532 | | | $ | 41,863 | |
| | | | | | | | | | | | |
A reconciliation of the statutory U.S. federal tax rate (35.0%)35.0% and the effective income tax rate is as follows:
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Continuing operations: | | | | | | | | | | | | |
| Provisions using statutory federal income tax rate | | $ | 34,336 | | | $ | 36,761 | | | $ | 31,934 | |
| State income taxes, net of federal tax benefit | | | 3,671 | | | | 2,949 | | | | 2,635 | |
| Change in contingent tax liabilities | | | (2,366 | ) | | | 1,591 | | | | — | |
| Impact of nondeductible transaction costs | | | 3,230 | | | | 283 | | | | — | |
| Other, net | | | 661 | | | | 495 | | | | (536 | ) |
| | | | | | | | | | | | | |
| Total continuing operations | | | 39,532 | | | | 42,079 | | | | 34,033 | |
| | | | | | | | | | | | | |
| Discontinued operations: | | | | | | | | | | | | |
| Taxes (benefit) from operations of discontinued business | | | — | | | | (216 | ) | | | 236 | |
| | | | | | | | | | | | | |
| Provision (benefit) for income taxes | | $ | 39,532 | | | $ | 41,863 | | | $ | 34,269 | |
| | | | | | | | | | | | | |
134
| | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Continuing operations: | | | | | | | | | | | | |
Provisions using statutory federal income tax rate | | $ | 43,339 | | | $ | 34,336 | | | $ | 36,761 | |
State income taxes, net of federal tax benefit | | | 4,907 | | | | 3,671 | | | | 2,949 | |
Change in contingent tax liabilities | | | (337 | ) | | | (2,366 | ) | | | 1,591 | |
Impact of nondeductible transaction costs | | | 65 | | | | 3,230 | | | | 283 | |
Other, net | | | (49 | ) | | | 661 | | | | 495 | |
| | | | | | | | | | | | |
Total continuing operations | | | 47,925 | | | | 39,532 | | | | 42,079 | |
| | | | | | | | | | | | |
Discontinued operations: | | | | | | | | | | | | |
Tax benefit from operations of discontinued business | | | — | | | | — | | | | (216 | ) |
| | | | | | | | | | | | |
Provision for income taxes | | $ | 47,925 | | | $ | 39,532 | | | $ | 41,863 | |
| | | | | | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of the net current deferred income tax asset as of January 2, 20111, 2012 and January 3, 20102, 2011 are as follows:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Accrued liabilities | | $ | 20,277 | | | $ | 11,938 | |
| Accrued compensation | | | 8,805 | | | | 4,438 | |
| Other, net | | | 3,044 | | | | 644 | |
| | | | | | | | | |
| Total asset | | $ | 32,126 | | | $ | 17,020 | |
| | | | | | | | | |
| | | | | | | | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Accrued liabilities | | $ | 21,179 | | | $ | 20,768 | |
Accrued compensation | | | 6,005 | | | | 5,351 | |
Other, net | | | 1,542 | | | | 2,996 | |
| | | | | | | | |
Total asset | | $ | 28,726 | | | $ | 29,115 | |
| | | | | | | | |
The components of the net non-current deferred income tax asset as of January 2, 20111, 2012 and January 3, 20102, 2011 are as follows:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Depreciation | | $ | 936 | | | $ | — | |
| | | | | | | | | |
| Total asset | | $ | 936 | | | $ | — | |
| | | | | | | | | |
| | | | | | | | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Depreciation | | $ | 1,711 | | | $ | 936 | |
| | | | | | | | |
Total asset | | $ | 1,711 | | | $ | 936 | |
| | | | | | | | |
The components of the net non-current deferred income tax liability as of January 2, 20111, 2012 and January 3, 20102, 2011 are as follows:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| |
| Deferred compensation | | $ | 7,628 | | | $ | 7,955 | |
| Net operating losses | | | 7,988 | | | | 6,150 | |
| Tax credits | | | 4,414 | | | | 4,203 | |
| Deferred loan costs | | | 2,143 | | | | 2,211 | |
| Equity Awards | | | 2,047 | | | | 1,638 | |
| Other, net | | | 223 | | | | 1,700 | |
| Bond discount | | | (780 | ) | | | (916 | ) |
| Residual U.S. tax liability on unrepatriated foreign earnings | | | (3,052 | ) | | | (1,775 | ) |
| Valuation allowance | | | (7,793 | ) | | | (5,587 | ) |
| Deferred Rent | | | (10,630 | ) | | | ( 684 | ) |
| Intangible assets | | | (28,657 | ) | | | (5,521 | ) |
| Depreciation | | | (37,077 | ) | | | (16,434 | ) |
| | | | | | | | | |
| Total liability | | $ | (63,546 | ) | | $ | (7,060 | ) |
| | | | | | | | | |
| | | | | | | | |
| | | 2011 | | | 2010 | |
| | | (In thousands) | |
Deferred compensation | | $ | 9,614 | | | $ | 7,628 | |
Net operating losses | | | 17,541 | | | | 7,988 | |
Tax credits | | | 6,136 | | | | 4,414 | |
Deferred loan costs | | | 2,073 | | | | 2,143 | |
Equity Awards | | | 2,881 | | | | 2,047 | |
Other, net | | | 1,879 | | | | 1,187 | |
Bond discount | | | (657 | ) | | | (780 | ) |
Residual U.S. tax liability on unrepatriated foreign earnings | | | (3,668 | ) | | | (3,052 | ) |
Valuation allowance | | | (8,217 | ) | | | (7,793 | ) |
Deferred Rent | | | (6,212 | ) | | | (672 | ) |
Intangible assets | | | (72,579 | ) | | | (29,606 | ) |
Depreciation | | | (74,000 | ) | | | (38,822 | ) |
| | | | | | | | |
Total liability | | $ | (125,209 | ) | | $ | (55,318 | ) |
| | | | | | | | |
Deferred income taxes should be reduced by a valuation allowance if it is not more likely than not that some portion or all of the deferred tax assets will be realized. On a periodic basis, management evaluates and determines the amount of the valuation allowance required and adjusts such valuation allowance accordingly. At fiscal year end 20102011 and 2009,2010, the Company has a valuation allowance of $7.9$8.2 million and $6.0$7.8 million, respectively related to deferred tax assets for foreign net operating losses, state net operating losses and state tax credits. The valuation allowance increased by $1.9$0.3 million during the fiscal year ended January 2, 2011 primarily due to additional state net operating losses acquired as part of the merger with Cornell. In the fiscal year ended January 3, 2010, the Company implemented new guidance relative to the accounting for business combinations and as such, for years beginning after December 15, 2008, the Company records the reduction of a valuation allowance related to business acquisitions as a reduction of income tax expense.
1, 2012.The Company provides income taxes on the undistributed earnings ofnon-U.S. subsidiaries except to the extent that such earnings are indefinitely invested outside the United States. At January 2, 2011, $13.11, 2012, $17.0 million of accumulated undistributed earnings ofnon-U.S. subsidiaries were indefinitely invested. At the existing
135
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
U.S. federal income tax rate, additional taxes (net of foreign tax credits) of $4.1$2.4 million would have to be provided if such earnings were remitted currently.
AtAs of the fiscal year end 2010,ended January 1, 2012, the Company had $3.9$26.6 million of Federal net operating loss carryforwards which begin to expire in 20202022 and $50.3$99.7 million of combined net operating loss carryforwards in various states which begin to expire in 2011.
2012. The Company has recorded a partial valuation allowance against the deferred tax assets related to the state operating losses.Also atas of the fiscal year end 2010,ended January 1, 2012, the Company had $11.8$10.6 million of foreign operating losses which carry forward indefinitely and $6.8$6.9 million of state tax credits which begin to expire in 2011.2012. The Company has recorded a full and partial valuation allowance against the deferred tax assets related to the foreign operating losses and state tax credits, respectively.
In fiscal 2008, the Company’s equity affiliate SACS recognized a one time tax benefit of $1.9 million related to a change in the tax treatment applicable to the affiliate with retroactive effect. Under the tax treatment, expenses which were previously disallowed are now deductible for South African tax purposes. The one time tax benefit relates to an increase in the deferred tax assets of the affiliate as a result of the change in tax treatment.
The Company recognizes the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. The exercise of non-qualified stock options which have been granted under the Company’s stock option plans give rise to compensation income which is includable in the taxable income of the applicable employees and deducted by the Company for federal and state income tax purposes. Such compensation income results from increases in the fair market value of the Company’s common stock subsequent to the date of grant. At fiscal year end 2010,2011, the deferred tax asset net of a valuation allowance related to unexercised stock options and restricted stock grants for which the company has recorded a book expense was $2.5$3.8 million.
The Company implemented guidance relative to accounting for uncertainties in income taxes, effective at the beginning of the Company’s fiscal year ended December 30, 2007. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
| | | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| |
| Balance at Beginning of Period | | $ | 5,947 | | | $ | 5,889 | | | $ | 5,417 | |
| Additions based on tax positions related to the current year | | | 3,251 | | | | 479 | | | | 1,877 | |
| Additions for tax positions of prior years | | | 200 | | | | 4,854 | | | | 659 | |
| Additions from current year acquisitions | | | 2,928 | | | | — | | | | — | |
| Reductions for tax positions of prior years | | | (2,891 | ) | | | (1,877 | ) | | | (1,809 | ) |
| Reductions as result of a lapse of applicable statutes of limitations | | | — | | | | — | | | | (169 | ) |
| Settlements | | | (173 | ) | | | (3,398 | ) | | | (86 | ) |
| | | | | | | | | | | | | |
| Balance at End of Period | | $ | 9,262 | | | $ | 5,947 | | | $ | 5,889 | |
| | | | | | | | | | | | | |
follows: | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands) | |
Balance at Beginning of Period | | $ | 9,262 | | | $ | 5,947 | | | $ | 5,889 | |
Additions based on tax positions related to the current year | | | 13 | | | | 3,251 | | | | 479 | |
Additions for tax positions of prior years | | | 43 | | | | 200 | | | | 4,854 | |
Additions from current year acquisitions | | | 3,848 | | | | 2,928 | | | | — | |
Reductions for tax positions of prior years | | | (3,237 | ) | | | (2,891 | ) | | | (1,877 | ) |
Reductions as result of a lapse of applicable statutes of limitations | | | (845 | ) | | | — | | | | — | |
Settlements | | | (2,356 | ) | | | (173 | ) | | | (3,398 | ) |
| | | | | | | | | | | | |
Balance at End of Period | | $ | 6,728 | | | $ | 9,262 | | | $ | 5,947 | |
| | | | | | | | | | | | |
All amounts in the reconciliation are reported on a gross basis and do not reflect a federal tax benefit on state income taxes. InclusiveThe Company has accrued $5.1 million of accrued uncertain tax benefits as of January 1, 2012 which is inclusive of the federal tax benefit on state income taxes the ending balance as of January 2, 2011 is $8.0 million. Included in the balance at January 2, 2011 is $3.2 million related to tax
136
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Under deferred tax accounting, the timing of a deduction does not affect the annual effective tax rate but does affect the timing of tax payments. In addition to a decrease in the unrecognized tax benefits related to the reversal of these timing related tax positions, thetaxes. The Company also anticipates a significant decrease in the unrecognized tax benefits within 12 months of the reporting date of approximately $2.3$0.6 million. Reductions for tax positions of prior yearsSettlements reported in the reconciliation for 20102011 include amounts related to proposed federal audit adjustments for the years 2002 through 2005, for which the company reached an agreement with the office of IRS Appeals which is currently being reviewed at a higher level.settlement was finalized in 2011. The accrued uncertain tax balance at January 2, 20111, 2012 includes $4.0$5.1 million of unrecognized tax benefits which, if ultimately recognized, will reduce the Company’s annual effective tax rate.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, ornon-U.S. income tax examinations by tax authorities for the years before 2002. In2009. The company participates in the fourth quarter ofvoluntary IRS real-time tax audit Compliance Assurance Process (“CAP”) beginning in 2011. The 2009 and 2010 years are under audit as transition years as provided under the U.S. Internal Revenue Service commenced an examination of the Company’s U.S. income tax returns for 2006 through 2008. In October 2010, the audit was concluded and resulted in no changes to the Company’s income tax positions.
IRS CAP program.During the fourth fiscal quarter of 2009, the IRS completed its examination of the Company’s U.S. federal income tax returns for the years 2002 through 2005. Following the examination, the IRS notified the Company that it proposed to disallow a deduction that the Company realized during the 2005 tax year. The Company appealed this proposed disallowed deduction with the IRS’s appeals division. In December 2010, the Company reached an agreement with the office of IRS Appeals on the amount of the deduction which is currently being
reviewed at a higher level. The Company previously reported that if the disallowed deduction were to be sustained on appeal, it could result in a potential tax exposure to the Company of up to $15.4 million. The Company believes inIn the merits of its position and intends to defend its rights vigorously, including its rights to litigatesecond quarter 2011, the matter if it cannot bewas resolved favorably at the IRS’s appeals level. If this matter is resolved unfavorably, it may have a material adverse effect on the Company’s financial position, results of operations and cash flows.
with no change.The calculation of the Company’s provision (benefit) for income taxes requires the use of significant judgment and involves dealing with uncertainties in the application of complex tax laws and regulations. In determining the adequacy of the Company’s 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.
During the fiscal years ended January 1, 2012, January 2, 2011 and January 3, 2010, and December 28, 2008, the Company recognized $0.0 million, $(0.8) million $0.1 million and $0.4$0.1 million in interest and penalties, respectively. The Company had accrued $1.5$0.4 million and $2.0$1.5 million for the payment of interest and penalties at January 2, 2011,1, 2012, and January 3, 2010,2, 2011, respectively. The Company classifies interest and penalties as interest expense and other expense, respectively.
137
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| 20. | |
20. | Selected Quarterly Financial Data (Unaudited) |
The Company’s selected quarterly financial data is as follows (in thousands, except per share data):
| | | | | | | | | | | | | | | | | |
| | | First
| | | Second
| | | Third
| | | Fourth
| |
| | | Quarter | | | Quarter | | | Quarter | | | Quarter(4) | |
| |
2010 | | | | | | | | | | | | | | | | |
| Revenues(1) | | $ | 287,542 | | | $ | 280,095 | | | $ | 327,933 | | | $ | 374,398 | |
| Operating income(2) | | | 34,524 | | | | 33,050 | | | | 29,524 | | | | 43,375 | |
| Income from continuing operations(3) | | | 17,708 | | | | 17,025 | | | | 5,010 | | | | 23,047 | |
| Income (loss) from discontinued operations, net of tax | | | — | | | | — | | | | — | | | | — | |
| Basic earnings per share: | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.35 | | | $ | 0.35 | | | $ | 0.09 | | | $ | 0.37 | |
| Income (loss) from discontinued operations | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Net income per share | | $ | 0.35 | | | $ | 0.35 | | | $ | 0.09 | | | $ | 0.37 | |
| Diluted earnings per share: | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.34 | | | $ | 0.35 | | | $ | 0.09 | | | $ | 0.36 | |
| Income (loss) from discontinued operations | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Net income per share | | $ | 0.34 | | | $ | 0.35 | | | $ | 0.09 | | | $ | 0.36 | |
| | | | | | | | | | | | | | | | | |
| | | First
| | | Second
| | | Third
| | | Fourth
| |
| | | Quarter | | | Quarter | | | Quarter | | | Quarter(4) | |
| |
2009 | | | | | | | | | | | | | | | | |
| Revenues(1) | | $ | 259,061 | | | $ | 276,379 | | | $ | 294,865 | | | $ | 310,785 | |
| Operating income(2) | | | 29,723 | | | | 30,954 | | | | 35,217 | | | | 39,551 | |
| Income from continuing operations(3) | | | 15,096 | | | | 16,551 | | | | 19,302 | | | | 15,520 | |
| Income (loss) from discontinued operations, net of tax | | | (366 | ) | | | 20 | | | | — | | | | — | |
| Basic earnings per share: | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.30 | | | $ | 0.32 | | | $ | 0.38 | | | $ | 0.30 | |
| Income (loss) from discontinued operations | | | (0.01 | ) | | | 0.01 | | | | 0.00 | | | | 0.00 | |
| | | | | | | | | | | | | | | | | |
| Net income per share | | $ | 0.29 | | | $ | 0.33 | | | $ | 0.38 | | | $ | 0.30 | |
| Diluted earnings per share: | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.29 | | | $ | 0.32 | | | $ | 0.37 | | | $ | 0.30 | |
| Income (loss) from discontinued operations | | | (0.01 | ) | | | 0.00 | | | | 0.00 | | | | 0.00 | |
| | | | | | | | | | | | | | | | | |
| Net income per share | | $ | 0.28 | | | $ | 0.32 | | | $ | 0.37 | | | $ | 0.30 | |
| | | | | | | | | | | | | | | | |
| | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | |
2011 | | | | | | | | | | | | | | | | |
Revenues(1) | | $ | 391,766 | | | $ | 407,817 | | | $ | 406,847 | | | $ | 406,469 | |
Operating income(2) | | | 40,890 | | | | 50,407 | | | | 51,230 | | | | 49,642 | |
Net income(3) | | | 16,380 | | | | 21,163 | | | | 21,293 | | | | 18,627 | |
Net income attributable to The GEO Group Inc. | | | 16,790 | | | | 21,578 | | | | 21,518 | | | | 18,739 | |
Net income per common share attributable to The GEO Group Inc.—Basic | | $ | 0.26 | | | $ | 0.33 | | | $ | 0.34 | | | $ | 0.30 | |
Net income per common share attributable to The GEO Group Inc.—Diluted | | $ | 0.26 | | | $ | 0.33 | | | $ | 0.34 | | | $ | 0.30 | |
| | | | | | | | | | | | | | | | |
| | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | |
2010 | | | | | | | | | | | | | | | | |
Revenues(1) | | $ | 287,542 | | | $ | 280,095 | | | $ | 327,933 | | | $ | 374,398 | |
Operating income(2) | | | 34,524 | | | | 33,050 | | | | 29,524 | | | | 43,375 | |
Net income | | | 17,708 | | | | 17,025 | | | | 5,010 | | | | 23,047 | |
Net income attributable to The GEO Group Inc. | | | 17,672 | | | | 17,017 | | | | 5,281 | | | | 23,498 | |
Net income per common share attributable to The GEO Group Inc.—Basic | | $ | 0.35 | | | $ | 0.35 | | | $ | 0.09 | | | $ | 0.37 | |
Net income per common share attributable to The GEO Group Inc.—Diluted | | $ | 0.34 | | | $ | 0.35 | | | $ | 0.09 | | | $ | 0.36 | |
| | |
| (1) | | Revenues increased in First, Second and SecondThird Quarters of 20102011 compared to 20092010 primarily as a result of contributions from the Company’s acquisitions of Cornell and BI in August 2010 and February 2011, respectively. The most significant increase in revenue occurred in Second Quarter 2011 which was the result of the BI acquisition. The Company also activated several projects in 2010 and 2011 which contributed to the increase in revenues in 2011. These activations include: D. Ray James Correctional Facility and Blackwater River Correctional Facility which were both activated in October 2010, Indiana Short Term Offender Program which began operations in March 2011, Adelanto Processing Center East which began operations in August 2011. Revenues for U.S. Corrections & Detention during Third and Fourth Quarters were negatively impacted by |
| our terminated contracts in California. Revenues for International Services segment which benefited from changes in foreign currency translation ratesduring Third and new contractsFourth Quarters 2011 were negatively impacted by the terminated contract for the operation of Parklea Correctional Centre in Australia and HarmondsworthCampsfield House Immigration Removal Centre offset by the opening of Dungavel House Immigration Removal Centre and positive foreign currency exchange rate fluctuations. |
| (2) | Operating income in First Quarter 2011 includes aggregate costs of approximately $9.2 million for transaction related expenses associated with the United Kingdom.Company’s acquisitions; start-up costs associated with North Lake, Montgomery County Mental Health Treatment Facility and Indiana Short Term Offender Program; and transition costs related to the termination of certain of its management contracts. The Company also experienced increasesdid not have any material costs associated with acquisitions, project activations or contract terminations in its GEO Care segment during these same periods due2010. During Second Quarter 2011, the Company incurred $5.6 million in start-up costs primarily related to the operationactivation of the Columbia Regional Care Center in Columbia, South Carolina. The primary increases in the Third and Fourth Quarters of 2010North Lake compared to the same periodscosts in 2009 were primarily attributable toSecond Quarter 2010 associated with the Company’s acquisition of Cornell of $2.1 million. Operating income in August 2010. RevenuesThird Quarter 2011 was significantly higher than operating income in Third Quarter 2010 and Fourth Quarter 2010 include $53.6 million and $97.6 million, respectively,due to acquisition related costs incurred in Cornell revenues. Second Quarter 2010, Third Quarter 2010 andof approximately $13.5 million that did not reoccur in 2011. In Fourth Quarter 2010 revenues for2011, the Facility Construction & Design segment were significantly |
138
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
| | lower than revenues generated in these same periods during 2009Company incurred startup costs of approximately $7.1 million primarily duerelated to the completionactivation of Blackwater RiverRiverbend Correctional Facility. The decrease in revenues related to this segment for these periods was $20.1 million, $36.2 millionFacility and $19.9 million, respectively. |
|
(2) | | Operating income for Third Quarter 2010 and Fourth Quarter 2010 includes the impact of non-recurring transaction expenses of $15.7 million and $9.7 million, respectively, associated with the Company’s acquisition of Cornelljoint venture in August 2010 and its acquisition of BI completed in February 2011. Operating income for approximately half of Third Quarter 2010 and for the entire Fourth Quarter 2010 includes $7.6 million and $19.2 million, respectively, of Cornell’s results. Operating income for First, Second, Third and Fourth Quarters 2009 includes start upUnited Kingdom compared to costs of $1.2 million, $0.6 million, $1.0 million and $2.1 million, respectively for new facility management contracts. |
|
(3) | | Income from continuing operations in Fourth Quarter 2010 and Fourth Quarter 2009 includes losses of $7.9$9.7 million and $6.8 million, respectively, associated with the extinguishment of debt. Cornell Acquisition. |
| (3) | In October 2010,addition to the Company terminated its Third Amendedfactors discussed in notes (1) and Restated Credit Agreement and entered into a new(2) above, net income in Fourth Quarter 2011 was negatively impacted by interest expense which was higher due to the greater outstanding borrowings under the Company’s Senior Credit Facility. In October 2009,Facility and also due to the Company repaid its 81/4%6.625% Senior Notes and wrote offwhich were issued in February 2011. Additionally, the related deferred financing costs. |
|
(4) | | Company’s net income in Fourth Quarter 2009 was a fourteen-week fiscal periodnegatively impacted by the Company’s loss related to GEOAmey, which commenced operations in August 2011. The negative impact of GEOAmey and the fifty-three week fiscal year ended January 3, 2010. All of the other fiscal quarters presented had thirteen-week reporting periods.increase in outstanding borrowings was partially offset by an increase in operating income for Fourth Quarter 2011. |
Acquisition of B.I. Incorporated
On February 10, 2011,August 12, 2010, the Company completed its previously announced acquisition of B.I., 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 wholly-owned subsidiary of GEO (“Merger Sub”), BII Investors IF LP, in its capacity asacquired 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, the Company paid merger consideration of $415.0 million in cash excluding 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 BI’s 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 $415.0 million of merger consideration. BI will be integrated into the Company’s wholly-owned subsidiary, GEO Care.
The Company is identified as the acquiring company for US GAAP accounting purposes. Under the purchase method of accounting, the purchase price for BI will be allocated to BI’s 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 a significant portion of the assets acquired and liabilities assumed, the Company will likely engage a third party independent valuation specialist. For any other assets acquired and liabilities assumed for which the Company is not obtaining an independent valuation, the fair value determined by the Company’s management will represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. With the exception of any adjustments which may occur during the one-year measurement period proscribed by GAAP, the Company expects to establish a preliminary purchase price allocation with respect to the acquisition of BI by the end of the first quarter of the fiscal year 2011. The accounting for this acquisition was
139
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
not complete at the time of this filing and accordingly, the Company has not presented the required business combination disclosures. The Company expects to record goodwillBaker Community Correctional Facility in connection with
this transaction however, due to the
timingCornell Acquisition. This facility, an asset of the
closingU.S. Corrections & Detention reportable segment, was classified as an Asset Held For Sale as of
the transaction and the filing date of the Company’s Annual Report onForm 10-K, it was impracticable for the Company to determine theJanuary 1, 2012, had a carrying value of
any goodwill. As$0.4 million and was sold in January 2012 for $0.4 million, net of
the date of this filing, several significant inputs to the purchase accounting model had not been completed such as valuations for: (i) intangible assets related to acquired service contracts, (ii) property and equipment acquired, (iii) intangible assets related to any research and development projectsand/or technology, (iv) intangible assets relative to trade names and patents, (vi) income taxes, (vii) other assets and liabilities for which the Company has not yet determined fair value. Additionally, it was impracticable to include meaningful pro forma financial results for the Company and BI on a combined basis as BI has a different fiscal year end than the Company and has not yet completed the close process around its quarterly financial information or its compilation for financial statements for a twelve-month period. selling costs.The Company expects the pro forma adjustments to primarily consist of incremental interest expense related to the cash paid to the BI shareholders, estimates for the amortization of acquisition intangible assets, depreciation expense based on the fair value of property and equipment acquired, income tax effects, and other expenses which will result from the purchase price allocation and determination of fair value for assets acquired and liabilities assumed.
Stock-Based Awards
On February 28, 2011, the Company’s Board of Directors
approveddetermined in February 2012 to adopt a dividend policy. Under the
awarddividend policy, the Company anticipates it will pay quarterly dividends beginning in the fourth quarter of
205,000 performance based shares2012 in the amount of $.10 per share for a total of $.40 per share in annual dividends, subject to capital availability and periodic determinations by the Board of Directors that cash dividends are in the best interests of its shareholders and are in compliance with all laws and the Company’s agreements applicable to the
declaration of cash dividends, including the Company’s
Chief Executive Officerindentures and Senior
Vice Presidents which will vest over a3-year period. These awards will be forfeited ifCredit Facility.Contracts terminated after January 1, 2012 generated aggregate revenue during the Company does not achieve certain targeted revenue in its fiscal year ended January 1, 2012.
Senior Notes due 2021
2012 of $14.4 million and a pre tax operating profit of $4.7 million, which includes $0.8 million of depreciation expense. The following contracts terminated after January 1, 2012:On or about January 31, 2012, the Company was formally notified by the California Department of Corrections of their intention to exercise the right to terminate the Company’s contract for the management of the Golden State Medium Community Correctional Facility. Effective July 1, 2012, the Company will no longer manage this facility.
In February 10, 2011,2012, the Company was notified that its contract for the management of the Migrant Operations Center in Guantanamo Bay NAS, Cuba would terminate effective March 31, 2012.
| 22. | Condensed Consolidating Financial Information |
As discussed in Note 14, the Company completed the issuancea private offering of $300.0 million in aggregate principal amount of ten-year, 6.625% senior unsecured notes due 2021 (the “6.625% Senior Notes”) in a private offering under an Indenture dated as of February 10, 2011 among the Company, certain of its domestic subsidiaries, as guarantors, and Wells Fargo Bank, National Association, as trustee. The 2021 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 Regulations S under the Securities Act. The(such 6.625% Senior Notes were issued at a coupon rate and yield to maturity of 6.625%. Interest oncollectively with the 6.625%7 3/4% 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. The Company used the net proceeds from this offering along with $150.0 million of borrowings under its Senior Credit Facility to finance the acquisition of BI and to pay related fees, costs, and expenses. The Company used the remaining net proceeds for general corporate purposes.
Amendment to Senior Credit Facility
On February 8, 2011, the Company entered into Amendment No. 1, dated as of February 8, 2011, to the Credit Agreement dated as of August 4, 2010, by and among the Company, the Guarantors party thereto, the lenders party thereto and BNP Paribas, as administrative agent, (“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. This amendment increased the Company’s borrowing capacity by $250.0 million and is comprised of $150.0 million in borrowings under a new Term LoanA-2 due August 2015, initially 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 now comprised of: $150.0 million Term Loan A due August 2015; $150.0 million Term LoanA-2 due August 2015; $200.0 million Term Loan B due August 2016; and $500.0 million Revolving Credit Facility due August
140
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 February 10, 2011 and following the BI acquisition, the Company had $493.4 million in borrowings outstanding, net of discount, under the Term Loans, $210.0 million in borrowings under the Revolving Credit Facility, approximately $56.2 million in letters of credit and $233.8 million in additional borrowing capacity under the Revolving Credit Facility.
| |
22. | Condensed Consolidating Financial Information |
Onissued October 20, 2009, the “Notes”). The Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the Company completed an offering of $250.0 million aggregate principal amountand certain of its 73/4% Senior Notes due 2017wholly-owned domestic subsidiaries (the “Original Notes”“Subsidiary Guarantors”). The OriginalBII Holding has been classified in the Condensed Consolidating Financial Information as a guarantor to the Company’s 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 tonon-U.S. persons in accordance with Regulation S promulgated under the Securities Act. In connection with the sale of the Original6.625% Senior Notes, the Company entered into a Registration Rights Agreement with the initial purchasers of the Original6.625% 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 Original6.625% Senior Notes for a new issue of substantially identical notes registered under the Securities Act (the “Exchange Notes”, and togetherAct. The Company filed a registration statement with respect to this offer to exchange the Original Notes, the “73/4% Senior Notes”). The 73/4%6.625% Senior Notes are fully and unconditionally guaranteedwhich became effective on a joint and several senior unsecured basis by the Company and certain of its wholly-owned domestic subsidiaries (the “Subsidiary Guarantors”).
July 22, 2011.The following condensed consolidating financial information, which has been prepared in accordance with the requirements for presentation ofRule 3-10(d) ofRegulation 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 73/4% Senior Notes;
(ii) The Subsidiary Guarantors, on a combined basis, which are 100% owned by The Geo Group, Inc., and which are guarantors of the 73/4% Senior Notes;
(iii) The Company’s other subsidiaries, on a combined basis, which are not guarantors of the 73/4% Senior Notes (the “Subsidiary Non-Guarantors”);
(iv) Consolidating entries and eliminations representing adjustments toto: (a) eliminate intercompany transactions between or among the Company, the Subsidiary Guarantors and the Subsidiary Non-Guarantors and (b) eliminate the investments in the Company’s subsidiaries; and
(v) The Company and its subsidiaries on a consolidated basis.
141
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
| | | | | | | | | | | | | | | | | | | | | |
| | | As of January 2, 2011 | |
| | | | | | Combined
| | | Combined
| | | | | | | |
| | | | | | Subsidiary
| | | Non-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 | | | | 129,903 | | | | 23,832 | | | | — | | | | 275,484 | |
| Deferred income tax assets, net | | | 15,191 | | | | 12,808 | | | | 4,127 | | | | — | | | | 32,126 | |
| Prepaid expenses and other current assets | | | 12,325 | | | | 23,555 | | | | 9,256 | | | | (8,426 | ) | | | 36,710 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 151,879 | | | | 166,487 | | | | 115,194 | | | | (8,426 | ) | | | 425,134 | |
| | | | | | | | | | | | | | | | | | | | | |
| 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 | | | | 244,151 | | | | 762 | | | | — | | | | 244,947 | |
| 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 | | | $ | 1,430,155 | | | $ | 441,579 | | | $ | (1,454,361 | ) | | $ | 2,423,776 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
| 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 | | | | 41,368 | | | | 33,624 | | | | (8,426 | ) | | | 121,647 | |
| 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 | | | | 66,369 | | | | 84,388 | | | | (8,426 | ) | | | 270,462 | |
| | | | | | | | | | | | | | | | | | | | | |
| 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 | | | $ | 1,430,155 | | | $ | 441,579 | | | $ | (1,454,361 | ) | | $ | 2,423,776 | |
| | | | | | | | | | | | | | | | | | | | | |
142
| | | | | | | | | | | | | | | | | | | | |
| | | As of January 1, 2012 | |
| | | The GEO
Group, Inc. | | | Combined
Subsidiary
Guarantors | | | Combined
Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (Dollars in thousands) | |
| ASSETS | |
Cash and cash equivalents | | $ | 15,085 | | | $ | 3,155 | | | $ | 26,513 | | | | — | | | $ | 44,753 | |
Restricted cash and investments | | | — | | | | — | | | | 42,535 | | | | — | | | | 42,535 | |
Accounts receivable, less allowance for doubtful accounts | | | 128,302 | | | | 141,671 | | | | 22,810 | | | | — | | | | 292,783 | |
Deferred income tax assets, net | | | 14,063 | | | | 10,875 | | | | 3,788 | | | | — | | | | 28,726 | |
Prepaid expenses and other current assets | | | 17,315 | | | | 23,832 | | | | 10,539 | | | | (1,154 | ) | | | 50,532 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 174,765 | | | | 179,533 | | | | 106,185 | | | | (1,154 | ) | | | 459,329 | |
| | | | | | | | | | | | | | | | | | | | |
Restricted Cash and Investments | | | 8,016 | | | | — | | | | 49,896 | | | | — | | | | 57,912 | |
Property and Equipment, Net | | | 620,821 | | | | 834,513 | | | | 250,837 | | | | — | | | | 1,706,171 | |
Assets Held for Sale | | | 3,083 | | | | 1,280 | | | | — | | | | — | | | | 4,363 | |
Direct Finance Lease Receivable | | | — | | | | — | | | | 32,146 | | | | — | | | | 32,146 | |
Intercompany Receivable | | | 386,026 | | | | 14,305 | | | | 14,028 | | | | (414,359 | ) | | | — | |
Deferred Income Tax Assets, Net | | | — | | | | | | | | 1,711 | | | | | | | | 1,711 | |
Goodwill | | | 34 | | | | 507,272 | | | | 760 | | | | — | | | | 508,066 | |
Intangible Assets, Net | | | — | | | | 198,477 | | | | 1,865 | | | | — | | | | 200,342 | |
Investment in Subsidiaries | | | 1,349,188 | | | | 9,784 | | | | — | | | | (1,358,972 | ) | | | — | |
Other Non-Current Assets | | | 40,695 | | | | 73,480 | | | | 31,022 | | | | (65,621 | ) | | | 79,576 | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 2,582,628 | | | $ | 1,818,644 | | | $ | 488,450 | | | $ | (1,840,106 | ) | | $ | 3,049,616 | |
| | | | | | | | | | | | | | | | | | | | |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Accounts payable | | $ | 47,162 | | | $ | 18,549 | | | $ | 3,942 | | | | — | | | $ | 69,653 | |
Accrued payroll and related taxes | | | 3,223 | | | | 18,417 | | | | 17,002 | | | | — | | | | 38,642 | |
Accrued expenses | | | 69,756 | | | | 33,504 | | | | 24,751 | | | | (1,154 | ) | | | 126,857 | |
Current portion of capital lease obligations, long-term debt and non-recourse debt | | | 19,037 | | | | 1,363 | | | | 33,266 | | | | — | | | | 53,666 | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 139,178 | | | | 71,833 | | | | 78,961 | | | | (1,154 | ) | | | 288,818 | |
| | | | | | | | | | | | | | | | | | | | |
Deferred Income Tax Liabilities | | | 42,879 | | | | 82,296 | | | | 34 | | | | — | | | | 125,209 | |
Intercompany Payable | | | 14,027 | | | | 378,005 | | | | 22,327 | | | | (414,359 | ) | | | — | |
Other Non-Current Liabilities | | | 29,384 | | | | 28,654 | | | | 63,964 | | | | (65,621 | ) | | | 56,381 | |
Capital Lease Obligations | | | — | | | | 13,087 | | | | — | | | | — | | | | 13,087 | |
Long-Term Debt | | | 1,318,639 | | | | 429 | | | | — | | | | — | | | | 1,319,068 | |
Non-Recourse Debt | | | — | | | | — | | | | 208,532 | | | | — | | | | 208,532 | |
Commitments & Contingencies | | | | | | | | | | | | | | | | | | | | |
Total Shareholders’ Equity | | | 1,038,521 | | | | 1,244,340 | | | | 114,632 | | | | (1,358,972 | ) | | | 1,038,521 | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 2,582,628 | | | $ | 1,818,644 | | | $ | 488,450 | | | $ | (1,840,106 | ) | | $ | 3,049,616 | |
| | | | | | | | | | | | | | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
| | | | | | | | | | | | | | | | | | | | | |
| | | As of January 3, 2010 | |
| | | | | | Combined
| | | Combined
| | | | | | | |
| | | | | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | The GEO Group Inc. | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | (Dollars in thousands) | |
| |
ASSETS |
| Cash and cash equivalents | | $ | 12,376 | | | $ | 5,333 | | | $ | 16,147 | | | | — | | | $ | 33,856 | |
| Restricted cash and investments | | | — | | | | — | | | | 13,313 | | | | — | | | | 13,313 | |
| Accounts receivable, less allowance for doubtful accounts | | | 110,643 | | | | 53,457 | | | | 36,656 | | | | — | | | | 200,756 | |
| Deferred income tax assets, net | | | 12,197 | | | | 1,354 | | | | 3,469 | | | | — | | | | 17,020 | |
| Prepaid expenses and other current assets | | | 4,428 | | | | 2,311 | | | | 7,950 | | | | — | | | | 14,689 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 139,644 | | | | 62,455 | | | | 77,535 | | | | — | | | | 279,634 | |
| | | | | | | | | | | | | | | | | | | | | |
| Restricted Cash and Investments | | | 2,900 | | | | — | | | | 17,855 | | | | — | | | | 20,755 | |
| Property and Equipment, Net | | | 438,504 | | | | 489,586 | | | | 70,470 | | | | — | | | | 998,560 | |
| Assets Held for Sale | | | 3,083 | | | | 1,265 | | | | — | | | | — | | | | 4,348 | |
| Direct Finance Lease Receivable | | | — | | | | — | | | | 37,162 | | | | — | | | | 37,162 | |
| Intercompany Receivable | | | 3,324 | | | | 13,000 | | | | 1,712 | | | | (18,036 | ) | | | — | |
| Goodwill | | | 34 | | | | 39,387 | | | | 669 | | | | — | | | | 40,090 | |
| Intangible Assets, Net | | | — | | | | 15,268 | | | | 2,311 | | | | — | | | | 17,579 | |
| Investment in Subsidiaries | | | 650,605 | | | | — | | | | — | | | | (650,605 | ) | | | — | |
| Other Non-Current Assets | | | 23,431 | | | | — | | | | 26,259 | | | | — | | | | 49,690 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 1,261,525 | | | $ | 620,961 | | | $ | 233,973 | | | $ | (668,641 | ) | | $ | 1,447,818 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
| Accounts payable | | $ | 35,949 | | | $ | 6,622 | | | $ | 9,285 | | | | — | | | $ | 51,856 | |
| Accrued payroll and related taxes | | | 6,729 | | | | 5,414 | | | | 13,066 | | | | — | | | | 25,209 | |
| Accrued expenses | | | 55,720 | | | | 2,890 | | | | 22,149 | | | | — | | | | 80,759 | |
| Current portion of capital lease obligations, long-term debt and non-recourse debt | | | 3,678 | | | | 705 | | | | 15,241 | | | | — | | | | 19,624 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 102,076 | | | | 15,631 | | | | 59,741 | | | | — | | | | 177,448 | |
| | | | | | | | | | | | | | | | | | | | | |
| Deferred Income Tax Liabilities | | | 6,652 | | | | — | | | | 408 | | | | — | | | | 7,060 | |
| Intercompany Payable | | | 1,712 | | | | — | | | | 16,324 | | | | (18,036 | ) | | | — | |
| Other Non-Current Liabilities | | | 32,127 | | | | 1,015 | | | | — | | | | — | | | | 33,142 | |
| Capital Lease Obligations | | | — | | | | 14,419 | | | | — | | | | — | | | | 14,419 | |
| Long-Term Debt | | | 453,860 | | | | — | | | | — | | | | — | | | | 453,860 | |
| Non-Recourse Debt | | | — | | | | — | | | | 96,791 | | | | — | | | | 96,791 | |
| Commitments & Contingencies | | | | | | | | | | | | | | | | | | | | |
| Total Shareholders’ Equity | | | 665,098 | | | | 589,896 | | | | 60,709 | | | | (650,605 | ) | | | 665,098 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 1,261,525 | | | $ | 620,961 | | | $ | 233,973 | | | $ | (668,641 | ) | | $ | 1,447,818 | |
| | | | | | | | | | | | | | | | | | | | | |
143
| | | | | | | | | | | | | | | | | | | | |
| | | As of January 2, 2011 | |
| | | The GEO
Group, Inc. | | | Combined
Subsidiary
Guarantors | | | Combined
Non-Guarantor
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 | | | | 9,797 | | | | 4,127 | | | | — | | | | 29,115 | |
Prepaid expenses and other current assets | | | 12,325 | | | | 23,222 | | | | 9,256 | | | | (8,426 | ) | | | 36,377 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 151,879 | | | | 163,437 | | | | 115,194 | | | | (8,426 | ) | | | 422,084 | |
| | | | | | | | | | | | | | | | | | | | |
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 | | | | 235,798 | | | | 762 | | | | — | | | | 236,594 | |
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 | | | $ | 1,418,752 | | | $ | 441,579 | | | $ | (1,454,361 | ) | | $ | 2,412,373 | |
| | | | | | | | | | | | | | | | | | | | |
|
| 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 | | | | 38,193 | | | | 33,624 | | | | (8,426 | ) | | | 118,472 | |
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 | | | | 63,194 | | | | 84,388 | | | | (8,426 | ) | | | 267,287 | |
| | | | | | | | | | | | | | | | | | | | |
Deferred Income Tax Liabilities | | | 15,874 | | | | 39,424 | | | | 20 | | | | — | | | | 55,318 | |
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 | | | $ | 1,418,752 | | | $ | 441,579 | | | $ | (1,454,361 | ) | | $ | 2,412,373 | |
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
| | | | | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 1, 2012 | |
| | | The GEO
Group, Inc. | | | Combined
Subsidiary
Guarantors | | | Combined
Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Revenues | | $ | 589,250 | | | $ | 876,450 | | | $ | 234,468 | | | $ | (87,269 | ) | | $ | 1,612,899 | |
Operating Expenses | | | 534,464 | | | | 589,967 | | | | 184,418 | | | | (87,269 | ) | | | 1,221,580 | |
Depreciation and Amortization | | | 20,935 | | | | 56,865 | | | | 7,541 | | | | — | | | | 85,341 | |
General and Administrative Expenses | | | 39,445 | | | | 58,669 | | | | 15,695 | | | | — | | | | 113,809 | |
| | | | | | | | | | | | | | | | | | | | |
Operating Income (Loss) | | | (5,594 | ) | | | 170,949 | | | | 26,814 | | | | — | | | | 192,169 | |
Interest Income | | | 29,087 | | | | 2,614 | | | | 6,462 | | | | (31,125 | ) | | | 7,038 | |
Interest Expense | | | (61,447 | ) | | | (30,724 | ) | | | (14,336 | ) | | | 31,125 | | | | (75,382 | ) |
| | | | | | | | | | | | | | | | | | | | |
Income (Loss) Before Income Taxes and Equity in Earnings of Affiliates | | | (37,954 | ) | | | 142,839 | | | | 18,940 | | | | — | | | | 123,825 | |
Provision (Benefit) for Income Taxes | | | (14,517 | ) | | | 55,427 | | | | 7,015 | | | | — | | | | 47,925 | |
Equity in Earnings of Affiliates, net of income tax provision | | | — | | | | — | | | | 1,563 | | | | — | | | | 1,563 | |
| | | | | | | | | | | | | | | | | | | | |
Income (Loss) Before Equity Income of Consolidated Subsidiaries | | | (23,437 | ) | | | 87,412 | | | | 13,488 | | | | — | | | | 77,463 | |
Income from Consolidated Subsidiaries, net of income tax provision | | | 100,900 | | | | — | | | | — | | | | (100,900 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Net Income | | | 77,463 | | | | 87,412 | | | | 13,488 | | | | (100,900 | ) | | | 77,463 | |
Net Loss Attributable to Noncontrolling Interests | | | — | | | | — | | | | — | | | | 1,162 | | | | 1,162 | |
| | | | | | | | | | | | | | | | | | | | |
Net Income Attributable to The GEO Group, Inc. | | $ | 77,463 | | | $ | 87,412 | | | $ | 13,488 | | | $ | (99,738 | ) | | $ | 78,625 | |
| | | | | | | | | | | | | | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIALCONDENSED CONSOLIDATING STATEMENTS — (Continued)OF INCOME
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 2, 2011 | |
| | | | | | Combined
| | | Combined
| | | | | | | |
| | | | | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | The GEO Group, Inc. | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| |
| Revenues | | $ | 589,009 | | | $ | 522,526 | | | $ | 226,005 | | | $ | (67,572 | ) | | $ | 1,269,968 | |
| Operating Expenses | | | 518,387 | | | | 344,046 | | | | 180,159 | | | | (67,572 | ) | | | 975,020 | |
| Depreciation and Amortization | | | 17,011 | | | | 25,787 | | | | 5,313 | | | | — | | | | 48,111 | |
| General and Administrative Expenses | | | 46,840 | | | | 41,552 | | | | 17,972 | | | | — | | | | 106,364 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating Income | | | 6,771 | | | | 111,141 | | | | 22,561 | | | | — | | | | 140,473 | |
| Interest Income | | | 5,309 | | | | 1,326 | | | | 5,836 | | | | (6,200 | ) | | | 6,271 | |
| Interest Expense | | | (29,484 | ) | | | (6,126 | ) | | | (11,297 | ) | | | 6,200 | | | | (40,707 | ) |
| Loss on Extinguishment of Debt | | | (7,933 | ) | | | — | | | | — | | | | — | | | | (7,933 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income (Loss) Before Income Taxes, Equity in Earnings of Affiliates, and Discontinued Operations | | | (25,337 | ) | | | 106,341 | | | | 17,100 | | | | — | | | | 98,104 | |
| Provision for Income Taxes | | | (6,775 | ) | | | 41,090 | | | | 5,217 | | | | — | | | | 39,532 | |
| Equity in Earnings of Affiliates, net of income tax provision | | | — | | | | — | | | | 4,218 | | | | — | | | | 4,218 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations Before Equity Income of Consolidated Subsidiaries | | | (18,562 | ) | | | 65,251 | | | | 16,101 | | | | — | | | | 62,790 | |
| Income from Consolidated Subsidiaries, net of income tax provision | | | 81,352 | | | | | | | | | | | | (81,352 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations | | | 62,790 | | | | 65,251 | | | | 16,101 | | | | (81,352 | ) | | | 62,790 | |
| Add (Subtract): Loss (Earnings) Attributable to Noncontrolling Interests | | | — | | | | — | | | | — | | | | 678 | | | | 678 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net Income Attributable to The GEO Group, Inc. | | $ | 62,790 | | | $ | 65,251 | | | $ | 16,101 | | | $ | (80,674 | ) | | $ | 63,468 | |
| | | | | | | | | | | | | | | | | | | | | |
144
| | | | | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 2, 2011 | |
| | | The GEO
Group, Inc. | | | Combined
Subsidiary
Guarantors | | | Combined
Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Revenues | | $ | 589,009 | | | $ | 522,526 | | | $ | 226,005 | | | $ | (67,572 | ) | | $ | 1,269,968 | |
Operating Expenses | | | 518,387 | | | | 344,046 | | | | 180,159 | | | | (67,572 | ) | | | 975,020 | |
Depreciation and Amortization | | | 17,011 | | | | 25,787 | | | | 5,313 | | | | — | | | | 48,111 | |
General and Administrative Expenses | | | 46,840 | | | | 41,552 | | | | 17,972 | | | | — | | | | 106,364 | |
| | | | | | | | | | | | | | | | | | | | |
Operating Income | | | 6,771 | | | | 111,141 | | | | 22,561 | | | | — | | | | 140,473 | |
Interest Income | | | 5,309 | | | | 1,326 | | | | 5,836 | | | | (6,200 | ) | | | 6,271 | |
Interest Expense | | | (29,484 | ) | | | (6,126 | ) | | | (11,297 | ) | | | 6,200 | | | | (40,707 | ) |
Loss on Extinguishment of Debt | | | (7,933 | ) | | | — | | | | — | | | | — | | | | (7,933 | ) |
| | | | | | | | | | | | | | | | | | | | |
Income (Loss) Before Income Taxes and Equity in Earnings of Affiliates | | | (25,337 | ) | | | 106,341 | | | | 17,100 | | | | — | | | | 98,104 | |
Provision (Benefit) for Income Taxes | | | (6,775 | ) | | | 41,090 | | | | 5,217 | | | | — | | | | 39,532 | |
Equity in Earnings of Affiliates, net of income tax provision | | | — | | | | — | | | | 4,218 | | | | — | | | | 4,218 | |
| | | | | | | | | | | | | | | | | | | | |
Income (Loss) Before Equity Income of Consolidated Subsidiaries | | | (18,562 | ) | | | 65,251 | | | | 16,101 | | | | — | | | | 62,790 | |
Income from Consolidated Subsidiaries, net of income tax provision | | | 81,352 | | | | | | | | | | | | (81,352 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Net Income | | | 62,790 | | | | 65,251 | | | | 16,101 | | | | (81,352 | ) | | | 62,790 | |
Net Loss Attributable to Noncontrolling Interests | | | — | | | | — | | | | — | | | | 678 | | | | 678 | |
| | | | | | | | | | | | | | | | | | | | |
Net Income Attributable to The GEO Group, Inc. | | $ | 62,790 | | | $ | 65,251 | | | $ | 16,101 | | | $ | (80,674 | ) | | $ | 63,468 | |
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 3, 2010 | |
| | | | | | Combined
| | | Combined
| | | | | | | |
| | | | | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | The GEO Group Inc. | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| |
| Revenues | | $ | 620,271 | | | $ | 335,588 | | | $ | 235,747 | | | $ | (50,516 | ) | | $ | 1,141,090 | |
| Operating Expenses | | | 523,820 | | | | 218,679 | | | | 205,116 | | | | (50,516 | ) | | | 897,099 | |
| Depreciation and Amortization | | | 17,877 | | | | 17,128 | | | | 4,301 | | | | — | | | | 39,306 | |
| General and Administrative Expenses | | | 36,042 | | | | 19,500 | | | | 13,698 | | | | — | | | | 69,240 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating Income | | | 42,532 | | | | 80,281 | | | | 12,632 | | | | — | | | | 135,445 | |
| Interest Income | | | 202 | | | | 12 | | | | 4,729 | | | | — | | | | 4,943 | |
| Interest Expense | | | (19,709 | ) | | | — | | | | (8,809 | ) | | | — | | | | (28,518 | ) |
| Loss on Extinguishment of Debt | | | (6,839 | ) | | | — | | | | — | | | | — | | | | (6,839 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income (Loss) Before Income Taxes, Equity in Earnings of Affiliates, and Discontinued Operations | | | 16,186 | | | | 80,293 | | | | 8,552 | | | | — | | | | 105,031 | |
| Provision for Income Taxes | | | 6,439 | | | | 31,937 | | | | 3,703 | | | | — | | | | 42,079 | |
| Equity in Earnings of Affiliates, net of income tax provision | | | — | | | | — | | | | 3,517 | | | | | | | | 3,517 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations Before Equity Income of Consolidated Subsidiaries | | | 9,747 | | | | 48,356 | | | | 8,366 | | | | — | | | | 66,469 | |
| Income from Consolidated Subsidiaries, net of income tax provision | | | 56,722 | | | | | | | | | | | | (56,722 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations | | | 66,469 | | | | 48,356 | | | | 8,366 | | | | (56,722 | ) | | | 66,469 | |
| Loss from Discontinued Operations, net of income tax provision | | | (346 | ) | | | (193 | ) | | | — | | | | 193 | | | | (346 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net Income | | | 66,123 | | | | 48,163 | | | | 8,366 | | | | (56,529 | ) | | | 66,123 | |
| Add (Subtract): Loss (Earnings) Attributable to Noncontrolling Interests | | | — | | | | — | | | | — | | | | (169 | ) | | | (169 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net Income Attributable to The GEO Group, Inc. | | $ | 66,123 | | | $ | 48,163 | | | $ | 8,366 | | | $ | (56,698 | ) | | $ | 65,954 | |
| | | | | | | | | | | | | | | | | | | | | |
145
| | | | | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 3, 2010 | |
| | | The GEO
Group Inc. | | | Combined
Subsidiary
Guarantors | | | Combined
Non-Guarantor
Subsidiaries | | | Eliminations | | | Consolidated | |
Revenues | | $ | 620,271 | | | $ | 335,588 | | | $ | 235,747 | | | $ | (50,516 | ) | | $ | 1,141,090 | |
Operating Expenses | | | 523,820 | | | | 218,679 | | | | 205,116 | | | | (50,516 | ) | | | 897,099 | |
Depreciation and Amortization | | | 17,877 | | | | 17,128 | | | | 4,301 | | | | — | | | | 39,306 | |
General and Administrative Expenses | | | 36,042 | | | | 19,500 | | | | 13,698 | | | | — | | | | 69,240 | |
| | | | | | | | | | | | | | | | | | | | |
Operating Income | | | 42,532 | | | | 80,281 | | | | 12,632 | | | | — | | | | 135,445 | |
Interest Income | | | 202 | | | | 12 | | | | 4,729 | | | | — | | | | 4,943 | |
Interest Expense | | | (19,709 | ) | | | — | | | | (8,809 | ) | | | — | | | | (28,518 | ) |
Loss on Extinguishment of Debt | | | (6,839 | ) | | | — | | | | — | | | | — | | | | (6,839 | ) |
| | | | | | | | | | | | | | | | | | | | |
Income Before Income Taxes, Equity in Earnings of Affiliates, and Discontinued Operations | | | 16,186 | | | | 80,293 | | | | 8,552 | | | | — | | | | 105,031 | |
Provision for Income Taxes | | | 6,439 | | | | 31,937 | | | | 3,703 | | | | — | | | | 42,079 | |
Equity in Earnings of Affiliates, net of income tax provision | | | — | | | | — | | | | 3,517 | | | | | | | | 3,517 | |
| | | | | | | | | | | | | | | | | | | | |
Income from Continuing Operations Before Equity Income of Consolidated Subsidiaries | | | 9,747 | | | | 48,356 | | | | 8,366 | | | | — | | | | 66,469 | |
Income from Consolidated Subsidiaries, net of income tax provision | | | 56,722 | | | | | | | | | | | | (56,722 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Income from Continuing Operations | | | 66,469 | | | | 48,356 | | | | 8,366 | | | | (56,722 | ) | | | 66,469 | |
Loss from Discontinued Operations, net of income tax provision | | | (346 | ) | | | (193 | ) | | | — | | | | 193 | | | | (346 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net Income | | | 66,123 | | | | 48,163 | | | | 8,366 | | | | (56,529 | ) | | | 66,123 | |
Net Loss Attributable to Noncontrolling Interests | | | — | | | | — | | | | — | | | | (169 | ) | | | (169 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net Income Attributable to The GEO Group, Inc. | | $ | 66,123 | | | $ | 48,163 | | | $ | 8,366 | | | $ | (56,698 | ) | | $ | 65,954 | |
| | | | | | | | | | | | | | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended December 28, 2008 | |
| | | | | | Combined
| | | Combined
| | | | | | | |
| | | | | | Subsidiary
| | | Non-Guarantor
| | | | | | | |
| | | The GEO Group Inc. | | | Guarantors | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| |
| Revenues | | $ | 545,590 | | | $ | 327,079 | | | $ | 215,157 | | | $ | (44,820 | ) | | $ | 1,043,006 | |
| Operating Expenses | | | 469,903 | | | | 216,380 | | | | 180,590 | | | | (44,820 | ) | | | 822,053 | |
| Depreciation and Amortization | | | 16,284 | | | | 16,120 | | | | 5,002 | | | | — | | | | 37,406 | |
| General and Administrative Expenses | | | 34,682 | | | | 20,792 | | | | 13,677 | | | | — | | | | 69,151 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating Income | | | 24,721 | | | | 73,787 | | | | 15,888 | | | | — | | | | 114,396 | |
| Interest Income | | | 323 | | | | 84 | | | | 6,638 | | | | — | | | | 7,045 | |
| Interest Expense | | | (20,505 | ) | | | — | | | | (9,697 | ) | | | — | | | | (30,202 | ) |
| Loss on Extinguishment of Debt | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (Loss) Before Income Taxes, Equity in Earnings of Affiliates, and Discontinued Operations | | | 4,539 | | | | 73,871 | | | | 12,829 | | | | — | | | | 91,239 | |
| Provision for Income Taxes | | | 1,670 | | | | 27,183 | | | | 5,180 | | | | — | | | | 34,033 | |
| Equity in Earnings of Affiliates, net of income tax provision | | | — | | | | — | | | | 4,623 | | | | — | | | | 4,623 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations Before Equity Income of Consolidated Subsidiaries | | | 2,869 | | | | 46,688 | | | | 12,272 | | | | — | | | | 61,829 | |
| Income from Consolidated Subsidiaries, net of income tax provision | | | 58,960 | | | | | | | | | | | | (58,960 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations | | | 61,829 | | | | 46,688 | | | | 12,272 | | | | (58,960 | ) | | | 61,829 | |
| Loss from Discontinued Operations, net of income tax provision | | | (2,551 | ) | | | (628 | ) | | | (2,929 | ) | | | 3,557 | | | | (2,551 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net Income | | | 59,278 | | | | 46,060 | | | | 9,343 | | | | (55,403 | ) | | | 59,278 | |
| Add (Subtract): Loss (Earnings) Attributable to Noncontrolling Interests | | | — | | | | — | | | | — | | | | (376 | ) | | | (376 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net Income Attributable to The GEO Group, Inc. | | $ | 59,278 | | | $ | 46,060 | | | $ | 9,343 | | | $ | (55,779 | ) | | $ | 58,902 | |
| | | | | | | | | | | | | | | | | | | | | |
146
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 2, 2011 | |
| | | | | | Combined
| | | Combined
| | | | |
| | | | | | Subsidiary
| | | Non-Guarantor
| | | | |
| | | The GEO Group Inc. | | | Guarantors | | | Subsidiaries | | | Consolidated | |
| | | (Dollars in thousands)
| |
| |
| Cash Flow From Operating Activities: | | | | | | | | | | | | | | | | |
| Net cash provided by operating activities | | $ | 75,651 | | | $ | 10,922 | | | $ | 39,629 | | | $ | 126,202 | |
| | | | | | | | | | | | | | | | | |
| Cash Flow from Investing Activities: | | | | | | | | | | | | | | | | |
| Acquisition, cash consideration, net of cash acquired | | | (260,255 | ) | | | — | | | | — | | | | (260,255 | ) |
| Just Care purchase price adjustment | | | — | | | | (41 | ) | | | — | | | | (41 | ) |
| Proceeds from sale of property and equipment | | | — | | | | 528 | | | | — | | | | 528 | |
| Change in restricted cash | | | — | | | | — | | | | (11,432 | ) | | | (11,432 | ) |
| Capital expenditures | | | (80,016 | ) | | | (15,801 | ) | | | (1,244 | ) | | | (97,061 | ) |
| | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (340,271 | ) | | | (15,314 | ) | | | (12,676 | ) | | | (368,261 | ) |
| | | | | | | | | | | | | | | | | |
| Cash Flow from Financing Activities: | | | | | | | | | | | | | | | | |
| Proceeds from long-term debt | | | 726,000 | | | | — | | | | — | | | | 726,000 | |
| Payments on long-term debt | | | (386,285 | ) | | | (720 | ) | | | (10,440 | ) | | | (397,445 | ) |
| Income tax benefit of equity compensation | | | 3,926 | | | | — | | | | — | | | | 3,926 | |
| Debt issuance costs | | | (8,400 | ) | | | — | | | | — | | | | (8,400 | ) |
| Payments for purchase of treasury shares | | | (80,000 | ) | | | — | | | | — | | | | (80,000 | ) |
| Payments on retirement of common stock | | | (7,078 | ) | | | — | | | | — | | | | (7,078 | ) |
| Proceeds from the exercise of stock options | | | 6,695 | | | | — | | | | — | | | | 6,695 | |
| | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 254,858 | | | | (720 | ) | | | (10,440 | ) | | | 243,698 | |
| | | | | | | | | | | | | | | | | |
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | — | | | | — | | | | 4,169 | | | | 4,169 | |
| | | | | | | | | | | | | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | | (9,762 | ) | | | (5,112 | ) | | | 20,682 | | | | 5,808 | |
| Cash and Cash Equivalents, beginning of period | | | 12,376 | | | | 5,333 | | | | 16,147 | | | | 33,856 | |
| | | | | | | | | | | | | | | | | |
| Cash and Cash Equivalents, end of period | | $ | 2,614 | | | $ | 221 | | | $ | 36,829 | | | $ | 39,664 | |
| | | | | | | | | | | | | | | | | |
147
| | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 1, 2012 | |
| | | The GEO
Group, Inc. | | | Combined
Subsidiary
Guarantors | | | Combined
Non-Guarantor
Subsidiaries | | | Consolidated | |
Cash Flow from Operating Activities: | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 176,913 | | | $ | 25,877 | | | $ | (13,878 | ) | | $ | 188,912 | |
| | | | | | | | | | | | | | | | |
Cash Flow from Investing Activities: | | | | | | | | | | | | | | | | |
Acquisitions, cash consideration, net of cash acquired | | | (409,607 | ) | | | — | | | | — | | | | (409,607 | ) |
Proceeds from sale of property and equipment | | | — | | | | 1,450 | | | | 33 | | | | 1,483 | |
Proceeds from sale of assets held for sale | | | — | | | | 7,121 | | | | — | | | | 7,121 | |
Change in restricted cash and investments | | | — | | | | — | | | | (9,826 | ) | | | (9,826 | ) |
Capital expenditures | | | (192,339 | ) | | | (30,239 | ) | | | (2,135 | ) | | | (224,713 | ) |
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (601,946 | ) | | | (21,668 | ) | | | (11,928 | ) | | | (635,542 | ) |
| | | | | | | | | | | | | | | | |
Cash Flow from Financing Activities: | | | | | | | | | | | | | | | | |
Payments on long-term debt | | | (257,210 | ) | | | (1,275 | ) | | | (31,347 | ) | | | (289,832 | ) |
Proceeds from long-term debt | | | 782,247 | | | | — | | | | 53,148 | | | | 835,395 | |
Distribution to noncontrolling interests | | | — | | | | — | | | | (4,012 | ) | | | (4,012 | ) |
Payments for purchases of treasury shares | | | (74,982 | ) | | | — | | | | — | | | | (74,982 | ) |
Proceeds from the exercise of stock options | | | 2,446 | | | | — | | | | — | | | | 2,446 | |
Income tax benefit of equity compensation | | | 465 | | | | — | | | | — | | | | 465 | |
Debt issuance costs | | | (15,462 | ) | | | — | | | | — | | | | (15,462 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 437,504 | | | | (1,275 | ) | | | 17,789 | | | | 454,018 | |
| | | | | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | — | | | | — | | | | (2,299 | ) | | | (2,299 | ) |
| | | | | | | | | | | | | | | | |
Net Increase in Cash and Cash Equivalents | | | 12,471 | | | | 2,934 | | | | (10,316 | ) | | | 5,089 | |
Cash and Cash Equivalents, beginning of period | | | 2,614 | | | | 221 | | | | 36,829 | | | | 39,664 | |
| | | | | | | | | | | | | | | | |
Cash and Cash Equivalents, end of period | | $ | 15,085 | | | $ | 3,155 | | | $ | 26,513 | | | $ | 44,753 | |
| | | | | | | | | | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 3, 2010 | |
| | | | | | Combined
| | | Combined
| | | | |
| | | | | | Subsidiary
| | | Non-Guarantor
| | | | |
| | | The GEO Group Inc. | | | Guarantors | | | Subsidiaries | | | Consolidated | |
| | | (Dollars in thousands) | |
| |
| Cash Flow From Operating Activities: | | | | | | | | | | | | | | | | |
| Net cash provided by operating activities | | $ | (5,448 | ) | | $ | 119,792 | | | $ | 16,761 | | | $ | 131,105 | |
| | | | | | | | | | | | | | | | | |
| Cash Flow from Investing Activities: | | | | | | | | | | | | | | | | |
| Acquisition, cash consideration, net of cash acquired | | | — | | | | (38,386 | ) | | | — | | | | (38,386 | ) |
| Proceeds from sale of property and equipment | | | 150 | | | | 29 | | | | — | | | | 179 | |
| Dividends from subsidiary | | | 7,400 | | | | — | | | | (7,400 | ) | | | — | |
| Change in restricted cash | | | — | | | | — | | | | 2,713 | | | | 2,713 | |
| Capital expenditures | | | (72,379 | ) | | | (75,556 | ) | | | (1,844 | ) | | | (149,779 | ) |
| | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (64,829 | ) | | | (113,913 | ) | | | (6,531 | ) | | | (185,273 | ) |
| | | | | | | | | | | | | | | | | |
| Cash Flow from Financing Activities: | | | | | | | | | | | | | | | | |
| Cash dividends to noncontrolling interests | | | — | | | | — | | | | (176 | ) | | | (176 | ) |
| Proceeds from long-term debt | | | 333,000 | | | | — | | | | — | | | | 333,000 | |
| Payments on long-term debt | | | (252,678 | ) | | | (676 | ) | | | (14,120 | ) | | | (267,474 | ) |
| Income tax benefit of equity compensation | | | 601 | | | | — | | | | — | | | | 601 | |
| Debt issuance costs | | | (17,253 | ) | | | — | | | | — | | | | (17,253 | ) |
| Termination of interest rate swap agreements | | | 1,719 | | | | — | | | | — | | | | 1,719 | |
| Proceeds from the exercise of stock options | | | 1,457 | | | | — | | | | — | | | | 1,457 | |
| | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 66,846 | | | | (676 | ) | | | (14,296 | ) | | | 51,874 | |
| | | | | | | | | | | | | | | | | |
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | — | | | | — | | | | 4,495 | | | | 4,495 | |
| | | | | | | | | | | | | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | | (3,431 | ) | | | 5,203 | | | | 429 | | | | 2,201 | |
| Cash and Cash Equivalents, beginning of period | | | 15,807 | | | | 130 | | | | 15,718 | | | | 31,655 | |
| | | | | | | | | | | | | | | | | |
| Cash and Cash Equivalents, end of period | | $ | 12,376 | | | $ | 5,333 | | | $ | 16,147 | | | $ | 33,856 | |
| | | | | | | | | | | | | | | | | |
148
| | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 2, 2011 | |
| | | The GEO
Group Inc. | | | Combined
Subsidiary
Guarantors | | | Combined
Non-Guarantor
Subsidiaries | | | Consolidated | |
| | | (Dollars in thousands) | |
Cash Flow from Operating Activities: | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | $ | 75,651 | | | $ | 10,922 | | | $ | 39,629 | | | $ | 126,202 | |
| | | | | | | | | | | | | | | | |
Cash Flow from Investing Activities: | | | | | | | | | | | | | | | | |
Cornell acquisition, cash consideration, net of cash acquired | | | (260,255 | ) | | | — | | | | — | | | | (260,255 | ) |
Just Care purchase price adjustment | | | — | | | | (41 | ) | | | — | | | | (41 | ) |
Proceeds from sale of property and equipment | | | — | | | | 528 | | | | — | | | | 528 | |
Change in restricted cash | | | — | | | | — | | | | (11,432 | ) | | | (11,432 | ) |
Capital expenditures | | | (80,016 | ) | | | (15,801 | ) | | | (1,244 | ) | | | (97,061 | ) |
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (340,271 | ) | | | (15,314 | ) | | | (12,676 | ) | | | (368,261 | ) |
| | | | | | | | | | | | | | | | |
Cash Flow from Financing Activities: | | | | | | | | | | | | | | | | |
Proceeds from long-term debt | | | 726,000 | | | | — | | | | — | | | | 726,000 | |
Payments on long-term debt | | | (386,285 | ) | | | (720 | ) | | | (10,440 | ) | | | (397,445 | ) |
Income tax benefit of equity compensation | | | 3,926 | | | | — | | | | — | | | | 3,926 | |
Debt issuance costs | | | (8,400 | ) | | | — | | | | — | | | | (8,400 | ) |
Payments for purchase of treasury shares | | | (80,000 | ) | | | — | | | | — | | | | (80,000 | ) |
Payments on retirement of common stock | | | (7,078 | ) | | | — | | | | — | | | | (7,078 | ) |
Proceeds from the exercise of stock options | | | 6,695 | | | | — | | | | — | | | | 6,695 | |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 254,858 | | | | (720 | ) | | | (10,440 | ) | | | 243,698 | |
| | | | | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | — | | | | — | | | | 4,169 | | | | 4,169 | |
| | | | | | | | | | | | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | | | (9,762 | ) | | | (5,112 | ) | | | 20,682 | | | | 5,808 | |
Cash and Cash Equivalents, beginning of period | | | 12,376 | | | | 5,333 | | | | 16,147 | | | | 33,856 | |
| | | | | | | | | | | | | | | | |
Cash and Cash Equivalents, end of period | | $ | 2,614 | | | $ | 221 | | | $ | 36,829 | | | $ | 39,664 | |
| | | | | | | | | | | | | | | | |
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended December 28, 2008 | |
| | | | | | Combined
| | | Combined
| | | | |
| | | | | | Subsidiary
| | | Non-Guarantor
| | | | |
| | | The GEO Group Inc. | | | Guarantors | | | Subsidiaries | | | Consolidated | |
| | | (Dollars in thousands) | |
| |
| Cash Flow From Operating Activities: | | | | | | | | | | | | | | | | |
| Net cash provided by operating activities | | $ | 42,322 | | | $ | 3,374 | | | $ | 25,773 | | | $ | 71,469 | |
| | | | | | | | | | | | | | | | | |
| Cash Flow from Investing Activities: | | | | | | | | | | | | | | | | |
| Proceeds from sale of property and equipment | | | — | | | | 1,029 | | | | 107 | | | | 1,136 | |
| Purchase of shares in consolidated affiliate | | | — | | | | — | | | | (2,189 | ) | | | (2,189 | ) |
| Dividend from subsidiary | | | 2,676 | | | | — | | | | (2,676 | ) | | | — | |
| Change in restricted cash | | | — | | | | 29 | | | | 423 | | | | 452 | |
| Capital expenditures | | | (123,401 | ) | | | (3,615 | ) | | | (3,974 | ) | | | (130,990 | ) |
| | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | (120,725 | ) | | | (2,557 | ) | | | (8,309 | ) | | | (131,591 | ) |
| | | | | | | | | | | | | | | | | |
| Cash Flow from Financing Activities: | | | | | | | | | | | | | | | | |
| Cash dividends to noncontrolling interests | | | — | | | | — | | | | (125 | ) | | | (125 | ) |
| Proceeds from long-term debt | | | 156,000 | | | | — | | | | — | | | | 156,000 | |
| Payments on long-term debt | | | (85,678 | ) | | | (822 | ) | | | (13,656 | ) | | | (100,156 | ) |
| Income tax benefit of equity compensation | | | 786 | | | | — | | | | — | | | | 786 | |
| Debt issuance costs | | | (3,685 | ) | | | — | | | | — | | | | (3,685 | ) |
| Proceeds from the exercise of stock options | | | 753 | | | | — | | | | — | | | | 753 | |
| | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 68,176 | | | | (822 | ) | | | (13,781 | ) | | | 53,573 | |
| | | | | | | | | | | | | | | | | |
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | — | | | | — | | | | (6,199 | ) | | | (6,199 | ) |
| | | | | | | | | | | | | | | | | |
| Net Increase (Decrease) in Cash and Cash Equivalents | | | (10,227 | ) | | | (5 | ) | | | (2,516 | ) | | | (12,748 | ) |
| Cash and Cash Equivalents, beginning of period | | | 26,034 | | | | 135 | | | | 18,234 | | | | 44,403 | |
| | | | | | | | | | | | | | | | | |
| Cash and Cash Equivalents, end of period | | $ | 15,807 | | | $ | 130 | | | $ | 15,718 | | | $ | 31,655 | |
| | | | | | | | | | | | | | | | | |
149
| | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended January 3, 2010 | |
| | | The GEO
Group Inc. | | | Combined
Subsidiary
Guarantors | | | Combined
Non-Guarantor
Subsidiaries | | | Consolidated | |
| | | (Dollars in thousands) | |
Cash Flow from Operating Activities: | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | (5,448 | ) | | $ | 119,792 | | | $ | 16,761 | | | $ | 131,105 | |
| | | | | | | | | | | | | | | | |
Cash Flow from Investing Activities: | | | | | | | | | | | | | | | | |
Just Care acquisition, cash consideration, net of cash acquired | | | — | | | | (38,386 | ) | | | — | | | | (38,386 | ) |
Proceeds from sale of property and equipment | | | 150 | | | | 29 | | | | — | | | | 179 | |
Dividends from subsidiary | | | 7,400 | | | | — | | | | (7,400 | ) | | | — | |
Change in restricted cash | | | — | | | | — | | | | 2,713 | | | | 2,713 | |
Capital expenditures | | | (72,379 | ) | | | (75,556 | ) | | | (1,844 | ) | | | (149,779 | ) |
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (64,829 | ) | | | (113,913 | ) | | | (6,531 | ) | | | (185,273 | ) |
| | | | | | | | | | | | | | | | |
Cash Flow from Financing Activities: | | | | | | | | | | | | | | | | |
Cash dividends to noncontrolling interests | | | — | | | | — | | | | (176 | ) | | | (176 | ) |
Proceeds from long-term debt | | | 333,000 | | | | — | | | | — | | | | 333,000 | |
Payments on long-term debt | | | (252,678 | ) | | | (676 | ) | | | (14,120 | ) | | | (267,474 | ) |
Income tax benefit of equity compensation | | | 601 | | | | — | | | | — | | | | 601 | |
Debt issuance costs | | | (17,253 | ) | | | — | | | | — | | | | (17,253 | ) |
Termination of interest rate swap agreements | | | 1,719 | | | | — | | | | — | | | | 1,719 | |
Proceeds from the exercise of stock options | | | 1,457 | | | | — | | | | — | | | | 1,457 | |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 66,846 | | | | (676 | ) | | | (14,296 | ) | | | 51,874 | |
| | | | | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | | | — | | | | — | | | | 4,495 | | | | 4,495 | |
| | | | | | | | | | | | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | | | (3,431 | ) | | | 5,203 | | | | 429 | | | | 2,201 | |
Cash and Cash Equivalents, beginning of period | | | 15,807 | | | | 130 | | | | 15,718 | | | | 31,655 | |
| | | | | | | | | | | | | | | | |
Cash and Cash Equivalents, end of period | | $ | 12,376 | | | $ | 5,333 | | | $ | 16,147 | | | $ | 33,856 | |
| | | | | | | | | | | | | | | | |
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
| |
| Item 9A. | Controls and Procedures |
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 inRules 13a-15(e) and15d-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 Securities and Exchange Commission, or 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.
On August 12, 2010,February 10, 2011, we acquired Cornell,BII Holding, at which time CornellBII Holding and its subsidiaries became our subsidiary.subsidiaries. See Note 2 to the condensed consolidated financial statements contained in this Annual Report for further details of the transaction. We are currently in the process of assessing and integrating Cornell’sBII Holding’s internal controls over financial reporting into our financial reporting systems. Management’s assessment of internal controlscontrol over financial reporting at January 2, 2011,1, 2012, excludes the operations of CornellBII Holding as allowed by SEC guidance related to internal controls of recently acquired entities. Management will include the operations of CornellBII Holding in its assessment of internal controlscontrol over financial reporting within one year from the date of acquisition.
It should be noted that the effectiveness of our system of disclosure controls and procedures is subject to certain limitations inherent in any system of disclosure controls and procedures, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. Accordingly, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. As a result, by its nature, our system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.
Internal Control Over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
| |
(a) | Management’s Annual Report on Internal Control Over Financial Reporting |
See “Item 8. — Financial Statements and Supplemental Data — Management’s Annual Report on Internal Control over Financial Reporting” for management’s report on the effectiveness of our internal control over financial reporting as of January 2, 2011.
| |
(b) | Attestation Report of the Registered Public Accounting Firm |
1, 2012.(b) Attestation Report of the Registered Public Accounting Firm
See “Item 8. — Financial Statements and Supplemental Data — Report of Independent Registered
Certified Public Accountants”Accounting Firm” for the report of our independent registered public accounting firm
on the effectiveness of our internal control over financial reporting as of January 2, 2011.
| |
(c) | Changes in Internal Control over Financial Reporting |
1, 2012.(c) Changes in Internal Control over Financial Reporting
Our management is responsible for reporting any changes in our internal control over financial reporting (as such terms is defined inRules 13a-15(f) and15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. Management believes that there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management believes that there have not been any changes in our internal
150
control over financial reporting (as such term is defined inRules 13a-15(f) and15d-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.
| |
| Item 9B. | Other Information |
Effective March 1, 2011, we amended the following executive employment agreements with our named executive officers, as determined as of the end of fiscal year 2009 and reflected in our proxy statement for the 2010 annual meeting of shareholders filed on March 24, 2010:
| | |
| • | Second Amended and Restated Executive Employment Agreement, effective December 31, 2008, by and between GEO and George C. Zoley; |
|
| • | Senior Officer Employment Agreement, effective August 3, 2009, by and between GEO and Brian R. Evans; |
|
| • | Senior Officer Employment Agreement, dated March 23, 2005, by and between GEO and John M. Hurley; and |
|
| • | Amended and Restated Senior Officer Employment Agreement, effective December 31, 2008, by and between GEO and John J. Bulfin. |
We amended the above executive employment agreements to reflect the new 2011 annual base salaries approved by the Compensation Committee for Messrs. Zoley, Evans, Hurley and Bulfin of $1,145,000, $500,000, $500,000 and $435,000, respectively. Additionally, we amended the above executive employment agreements to add a provision that all outstanding unvested stock options and restricted stock granted to each of Messrs. Zoley, Evans, Hurley and Bulfin fully vest immediately upon a “termination without cause” as such term is defined in each of their employment agreements, as approved by the Compensation Committee.
The foregoing description of the amendments to each of the executive employment agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the amendments, copies of which are filed herewith as Exhibits 10.33, 10.34, 10.35 and 10.36, respectively, and are incorporated herein by reference.
Items 10, 11, 12, 13 and 14
The information required by Items 10, 11, 12, 13 and 14 ofForm 10-K will be contained in, and is incorporated by reference from, the proxy statement for our 20112012 annual meeting of shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.
| |
| Item 15. | Exhibits and Financial Statement Schedules |
(a)(1)Financial Statements.
The consolidated financial statements of GEO are filed under Item 8 of Part II of this report.
(2) Financial Statement Schedules.
Schedule II — Valuation and Qualifying Accounts — Page 154
161All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required.
151
(3) Exhibits Required by Item 601 ofRegulation S-K. The following exhibits are filed as part of this Annual Report:
| | | | | | | |
Exhibit
| | | | |
| Number | | | | Description |
| |
| | 2 | .1 | | — | | Agreement and Plan of Merger, dated as of September 19, 2006, among the Company, GEO Acquisition II, Inc. and CentraCore Properties Trust (incorporated herein by reference to Exhibit 2.1 of the Company’s report onForm 8-K, filed on September 21, 2006) |
| | 2 | .2 | | — | | Agreement and Plan of Merger, dated as of August 28, 2009 by and among Just Care, Inc., GEO Care, Inc. and GEO Care Acquisition, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s report onForm 8-K, filed on September 3, 2009) |
| | 2 | .3 | | — | | Agreement and Plan of Merger, dated as of April 18, 2010, by and among The GEO Group, Inc., GEO Acquisition III, Inc. and Cornell Companies, Inc. (incorporated herein by reference to Exhibit 2.1 of the Company’s report onForm 8-K, filed on April 20, 2010) |
| | 2 | .3A | | — | | Amendment to Agreement and Plan of Merger, dated as of July 22, 2010, by and among The GEO Group, Inc., GEO Acquisition III, Inc. and Cornell Companies, Inc. (incorporated herein by reference to Exhibit 2.1A of the Company’s report onForm 8-K, filed on July 22, 2010). |
| | 2 | .4 | | — | | Agreement and Plan of Merger, dated as of December 21, 2010, by and among The GEO Group, Inc., GEO Acquisition IV, Inc., BII Holding Corporation, BII Investors IF LP, in its capacity as the stockholders’ representative, and AEA Investors 2006 Fund L.P. (incorporated by reference to Exhibit 2.1 to the Company’s report onForm 8-K, filed on December 28, 2010) |
| | 3 | .1 | | — | | Amended and Restated Articles of Incorporation of the Company, dated May 16, 1994 (incorporated herein by reference to Exhibit 3.1 to the Company’s registration statement onForm S-1, filed on May 24, 1994) |
| | 3 | .2 | | — | | Articles of Amendment to the Amended and Restated Articles of Incorporation, dated October 30, 2003 (incorporated herein by reference to Exhibit 3.2 to the Company’s report onForm 10-K, filed on February 15, 2008) |
| | 3 | .3 | | — | | Articles of Amendment to the Amended and Restated Articles of Incorporation, dated November 25, 2003 (incorporated herein by reference to Exhibit 3.3 to the Company’s report onForm 10-K, filed on February 15, 2008) |
| | 3 | .4 | | — | | Articles of Amendment to the Amended and Restated Articles of Incorporation, dated September 29, 2006 (incorporated herein by reference to Exhibit 3.4 to the Company’s report onForm 10-K, filed on February 15, 2008) |
| | 3 | .5 | | — | | Articles of Amendment to the Amended and Restated Articles of Incorporation, dated May 30, 2007 (incorporated herein by reference to Exhibit 3.5 to the Company’s report onForm 10-K, filed on February 15, 2008) |
| | 3 | .6 | | — | | Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s report onForm 8-K, filed on April 2, 2008) |
| | 4 | .1 | | — | | Rights Agreement, dated as of October 9, 2003, between the Company and EquiServe Trust Company, N.A., as the Rights Agent (incorporated herein by reference to Exhibit 4.3 to the Company’s report onForm 8-K, filed on July 29, 2003) |
| | 4 | .2 | | — | | Indenture dated as of October 20, 2009 among the Company, the Guarantors party thereto and Wells Fargo Bank, National Association, as Trustee, relating to 73/4% Senior Notes Due 2017 (incorporated by reference to Exhibit 4.1 to the Company’s report onForm 8-K, filed on October 20, 2009) |
| | 4 | .3 | | — | | Indenture, dated as of February 10, 2011, by and among the Company, the Guarantors party thereto, and Wells Fargo Bank, National Association as Trustee relating to the 65/8% Senior Notes due 2021 (incorporated by reference to Exhibit 4.1 to the Company’s report onForm 8-K, filed on February 16, 2011) |
| | 10 | .1 | | — | | Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s registration statement onForm S-1, filed on May 24, 1994)† |
| | 10 | .2 | | — | | 1994 Stock Option Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s registration statement onForm S-1, filed on May 24, 1994)† |
152
| | | | | | | |
Exhibit
| | | | |
| Number | | | | Description |
| |
| | 10 | .3 | | — | | Form of Indemnification Agreement between the Company and its Officers and Directors (incorporated herein by reference to Exhibit 10.3 to the Company’s registration statement onForm S-1, filed on May 24, 1994)† |
| | 10 | .4 | | — | | Senior Officer Retirement Plan (incorporated herein by reference to Exhibit 10.4 to the Company’s registration statement onForm S-1/A, filed on December 22, 1995)† |
| | 10 | .5 | | — | | Amendment to the Company’s Senior Officer Retirement Plan (incorporated herein by reference to Exhibit 10.5 to the Company’s report onForm 10-K, filed on March 23, 2005)† |
| | 10 | .6 | | — | | 1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.12 to the Company’s report onForm 10-K, filed on March 30, 2000)† |
| | 10 | .7 | | — | | Executive Retirement Agreement, dated March 7, 2002, between the Company and Dr. George C. Zoley (incorporated herein by reference to Exhibit 10.18 to the Company’s report onForm 10-Q, filed on May 15, 2002)† |
| | 10 | .8 | | — | | Executive Retirement Agreement, dated March 7, 2002, between the Company and Wayne H. Calabrese (incorporated herein by reference to Exhibit 10.19 to the Company’s report onForm 10-Q, filed on May 15, 2002)† |
| | 10 | .9 | | — | | Amended Executive Retirement Agreement, dated January 17, 2003, by and between the Company and George C. Zoley (incorporated herein by reference to Exhibit 10.18 to the Company’s report onForm 10-K, filed on March 20, 2003)† |
| | 10 | .10 | | — | | Amended Executive Retirement Agreement, dated January 17, 2003, by and between the Company and Wayne H. Calabrese (incorporated herein by reference to Exhibit 10.19 to the Company’s report onForm 10-K, filed on March 20, 2003)† |
| | 10 | .11 | | — | | Senior Officer Employment Agreement, dated March 23, 2005, by and between the Company and John M. Hurley (incorporated herein by reference to Exhibit 10.24 to the Company’s report onForm 10-K, filed on March 23, 2005)† |
| | 10 | .12 | | — | | Office Lease, dated September 12, 2002, by and between the Company and Canpro Investments Ltd. (incorporated herein by reference to Exhibit 10.22 to the Company’s report onForm 10-K, filed on March 20, 2003) |
| | 10 | .13 | | — | | The Geo Group, Inc. Senior Management Performance Award Plan.*† |
| | 10 | .14 | | — | | Second Amended and Restated Executive Employment Agreement, effective December 31, 2008, by and between The GEO Group, Inc. and George C. Zoley (incorporated by reference to Exhibit 10.1 to the Company’s report onForm 8-K January 7, 2009)† |
| | 10 | .15 | | — | | Second Amended and Restated Executive Employment Agreement, effective December 31, 2008, by and between The GEO Group, Inc. and Wayne H. Calabrese (incorporated by reference to Exhibit 10.2 to the Company’s report onForm 8-K January 7, 2009)† |
| | 10 | .16 | | — | | Amended and Restated Senior Officer Employment Agreement, effective December 31, 2008, by and between The GEO Group, Inc. and John J. Bulfin (incorporated by reference to Exhibit 10.4 to the Company’s report onForm 8-K January 7, 2009)† |
| | 10 | .17 | | — | | Amended and Restated The GEO Group, Inc. Senior Officer Retirement Plan, effective December 31, 2008 (incorporated by reference to Exhibit 10.8 to the Company’s report onForm 8-K January 7, 2009)† |
| | 10 | .18 | | — | | Senior Officer Employment Agreement, dated August 3, 2009, by and between the Company and Brian Evans (incorporated by reference to Exhibit 10.1 to the Company’s report onForm 10-Q, filed on August 3, 2009)† |
| | 10 | .19 | | — | | Registration Rights Agreement dated as of October 20, 2009 by and among the Company, the Guarantors party thereto and Banc of America Securities LLC, on behalf of itself and the other Initial Purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Company’s report onForm 8-K, filed on October 20, 2009) |
| | 10 | .20 | | — | | Credit Agreement dated as of August 4, 2010 between the Company, as Borrower, certain of GEO’s subsidiaries, as Grantors and BNP Paribas, as Lender and as Administrative Agent (incorporated by reference to Exhibit 10.44 to the Company’s report onForm 8-K/A, filed on December 27, 2010) |
153
| | | | | | | |
Exhibit
| | | | |
| Number | | | | Description |
| |
| | 10 | .21 | | — | | Voting Agreement, dated as of April 18, 2010, by and among The Company, Inc. and certain stockholders of Cornell Companies, Inc. named therein (incorporated by reference to Exhibit 10.43 to the Company’s report onForm 8-K, filed on April 20, 2010) |
| | 10 | .22 | | — | | Amended and Restated The GEO Group, Inc. 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.45 to the Company’s Registration Statement on Form S-8 (FileNo. 333-169198)).† |
| | 10 | .23 | | — | | Amendment No. 1 to the Amended and Restated The GEO Group, Inc. 2006 Stock Incentive Plan.*† |
| | 10 | .24 | | — | | Voting Agreement, dated as of December 21, 2010, by and among the Company, Inc., GEO Acquisition IV, Inc. and certain stockholders of BII Holding Corporation (incorporated by reference to Exhibit 10.47 to the Company’s report onForm 8-K, filed on December 28, 2010) |
| | 10 | .25 | | — | | Registration Rights Agreement, dated as of February 10, 2011, by and among the Company, 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 by reference to Exhibit 10.1 to the Company’s report onForm 8-K, filed on February 16, 2011). |
| | 10 | .26 | | — | | Cornell Companies, Inc. Amended and Restated 2006 Incentive Plan (incorporated by reference to Exhibit 10.46 to the Company’s Registration Statement onForm S-8 (FileNo. 333-169199), filed on September 3, 2010).† |
| | 10 | .27 | | — | | First Amendment to Second Amended and Restated Executive Employment Agreement, effective March 1, 2011, by and between the Company and George C. Zoley*† |
| | 10 | .28 | | — | | First Amendment to Senior Officer Employment Agreement, effective March 1, 2011, by and between the Company and Brian R. Evans*† |
| | 10 | .29 | | — | | First Amendment to Senior Officer Employment Agreement, effective March 1, 2011, by and between the Company and John M. Hurley*† |
| | 10 | .30 | | — | | First Amendment to Amended and Restated Senior Officer Employment Agreement, effective March 1, 2011, by and between the Company and John J. Bulfin*† |
| | 21 | .1 | | — | | Subsidiaries of the Company* |
| | 23 | .1 | | — | | Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm* |
| | 31 | .1 | | — | | Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.* |
| | 31 | .2 | | — | | Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.* |
| | 32 | .1 | | — | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| | 32 | .2 | | — | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| | 101 | .INS | | — | | XBRL Instance Document |
| | 101 | .SCH | | — | | XBRL Taxonomy Extension Schema |
| | 101 | .CAL | | — | | XBRL Taxonomy Extension Calculation Linkbase |
| | 101 | .DEF | | — | | XBRL Taxonomy Extension Definition Linkbase |
| | 101 | .LAB | | — | | XBRL Taxonomy Extension Label Linkbase |
| | 101 | .PRE | | — | | XBRL Taxonomy Extension Presentation Linkbase |
| | | | |
Exhibit Number | | | | Description |
| | |
2.1 | | — | | Agreement and Plan of Merger, dated as of August 28, 2009 by and among Just Care, Inc., GEO Care, Inc. and GEO Care Acquisition, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s report on Form 8-K, filed on September 3, 2009) |
| | |
2.2 | | — | | Agreement and Plan of Merger, dated as of April 18, 2010, by and among The GEO Group, Inc., GEO Acquisition III, Inc. and Cornell Companies, Inc. (incorporated herein by reference to Exhibit 2.1 of the Company’s report on Form 8-K, filed on April 20, 2010) |
| | |
2.3 | | — | | Amendment to Agreement and Plan of Merger, dated as of July 22, 2010, by and among The GEO Group, Inc., GEO Acquisition III, Inc. and Cornell Companies, Inc. (incorporated herein by reference to Exhibit 2.1A of the Company’s report on Form 8-K, filed on July 22, 2010). |
| | |
2.4 | | — | | Agreement and Plan of Merger, dated as of December 21, 2010, by and among The GEO Group, Inc., GEO Acquisition IV, Inc., BII Holding Corporation, BII Investors IF LP, in its capacity as the stockholders’ representative, and AEA Investors 2006 Fund L.P. (incorporated by reference to Exhibit 2.1 to the Company’s report on Form 8-K, filed on December 28, 2010) |
| | |
3.1 | | — | | Amended and Restated Articles of Incorporation of the Company, dated May 16, 1994 (incorporated herein by reference to Exhibit 3.1 to the Company’s registration statement on Form S-1, filed on May 24, 1994) |
| | |
3.2 | | — | | Articles of Amendment to the Amended and Restated Articles of Incorporation, dated October 30, 2003 (incorporated herein by reference to Exhibit 3.2 to the Company’s report on Form 10-K, filed on February 15, 2008) |
| | | | |
3.3 | | — | | Articles of Amendment to the Amended and Restated Articles of Incorporation, dated November 25, 2003 (incorporated herein by reference to Exhibit 3.3 to the Company’s report on Form 10-K, filed on February 15, 2008) |
| | |
3.4 | | — | | Articles of Amendment to the Amended and Restated Articles of Incorporation, dated September 29, 2006 (incorporated herein by reference to Exhibit 3.4 to the Company’s report on Form 10-K, filed on February 15, 2008) |
| | |
3.5 | | — | | Articles of Amendment to the Amended and Restated Articles of Incorporation, dated May 30, 2007 (incorporated herein by reference to Exhibit 3.5 to the Company’s report on Form 10-K, filed on February 15, 2008) |
| | |
3.6 | | — | | Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s report on Form 8-K, filed on May 6, 2011) |
| | |
4.1 | | — | | Rights Agreement, dated as of October 9, 2003, between the Company and EquiServe Trust Company, N.A., as the Rights Agent (incorporated herein by reference to Exhibit 4.3 to the Company’s report on Form 8-K, filed on July 29, 2003) |
| | |
4.2 | | — | | Indenture dated as of October 20, 2009 among the Company, the Guarantors party thereto and Wells Fargo Bank, National Association, as Trustee, relating to 7 3/4% Senior Notes Due 2017 (incorporated by reference to Exhibit 4.1 to the Company’s report on Form 8-K, filed on October 20, 2009) |
| | |
4.3 | | — | | Indenture, dated as of February 10, 2011, by and among the Company, 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 Company’s report on Form 8-K, filed on February 16, 2011) |
| | |
10.1 | | — | | Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s registration statement on Form S-1, filed on May 24, 1994)† |
| | |
10.2 | | — | | 1994 Stock Option Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s registration statement on Form S-1, filed on May 24, 1994)† |
| | |
10.3 | | — | | Form of Indemnification Agreement between the Company and its Officers and Directors (incorporated herein by reference to Exhibit 10.3 to the Company’s registration statement on Form S-1, filed on May 24, 1994)† |
| | |
10.4 | | — | | Senior Officer Retirement Plan (incorporated herein by reference to Exhibit 10.4 to the Company’s registration statement on Form S-1/A, filed on December 22, 1995)† |
| | |
10.5 | | — | | Amendment to the Company’s Senior Officer Retirement Plan (incorporated herein by reference to Exhibit 10.5 to the Company’s report on Form 10-K, filed on March 23, 2005)† |
| | |
10.6 | | — | | 1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.12 to the Company’s report on Form 10-K, filed on March 30, 2000)† |
| | |
10.7 | | — | | Executive Retirement Agreement, dated March 7, 2002, between the Company and Dr. George C. Zoley (incorporated herein by reference to Exhibit 10.18 to the Company’s report on Form 10-Q, filed on May 15, 2002)† |
| | |
10.8 | | — | | Executive Retirement Agreement, dated March 7, 2002, between the Company and Wayne H. Calabrese (incorporated herein by reference to Exhibit 10.19 to the Company’s report on Form 10-Q, filed on May 15, 2002)† |
| | |
10.9 | | — | | Amended Executive Retirement Agreement, dated January 17, 2003, by and between the Company and George C. Zoley (incorporated herein by reference to Exhibit 10.18 to the Company’s report on Form 10-K, filed on March 20, 2003)† |
| | | | |
| | |
10.10 | | — | | Amended Executive Retirement Agreement, dated January 17, 2003, by and between the Company and Wayne H. Calabrese (incorporated herein by reference to Exhibit 10.19 to the Company’s report on Form 10-K, filed on March 20, 2003)† |
| | |
10.11 | | — | | Senior Officer Employment Agreement, dated March 23, 2005, by and between the Company and John M. Hurley (incorporated herein by reference to Exhibit 10.24 to the Company’s report on Form 10-K, filed on March 23, 2005)† |
| | |
10.12 | | — | | Office Lease, dated September 12, 2002, by and between the Company and Canpro Investments Ltd. (incorporated herein by reference to Exhibit 10.22 to the Company’s report on Form 10-K, filed on March 20, 2003) |
| | |
10.13 | | — | | The Geo Group, Inc. Senior Management Performance Award Plan (incorporated by reference to Exhibit 10.13 to the Company’s report on Form 10-K, filed on March 2, 2011).† |
| | |
10.14 | | — | | Second Amended and Restated Executive Employment Agreement, effective December 31, 2008, by and between The GEO Group, Inc. and George C. Zoley (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K January 7, 2009)† |
| | |
10.15 | | — | | Second Amended and Restated Executive Employment Agreement, effective December 31, 2008, by and between The GEO Group, Inc. and Wayne H. Calabrese (incorporated by reference to Exhibit 10.2 to the Company’s report on Form 8-K January 7, 2009)† |
| | |
10.16 | | — | | Amended and Restated Senior Officer Employment Agreement, effective December 31, 2008, by and between The GEO Group, Inc. and John J. Bulfin (incorporated by reference to Exhibit 10.4 to the Company’s report on Form 8-K January 7, 2009)† |
| | |
10.17 | | — | | Amended and Restated The GEO Group, Inc. Senior Officer Retirement Plan, effective December 31, 2008 (incorporated by reference to Exhibit 10.8 to the Company’s report on Form 8-K January 7, 2009)† |
| | |
10.18 | | — | | Senior Officer Employment Agreement, dated August 3, 2009, by and between the Company and Brian Evans (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q, filed on August 3, 2009)† |
| | |
10.20 | | — | | Credit Agreement dated as of August 4, 2010 between the Company, as Borrower, certain of GEO’s subsidiaries, as Grantors and BNP Paribas, as Lender and as Administrative Agent (incorporated by reference to Exhibit 10.44 to the Company’s report on Form 8-K/A, filed on December 27, 2010) (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment) |
| | |
10.21 | | — | | Voting Agreement, dated as of April 18, 2010, by and among The Company, Inc. and certain stockholders of Cornell Companies, Inc. named therein (incorporated by reference to Exhibit 10.43 to the Company’s report on Form 8-K, filed on April 20, 2010) |
| | |
10.22 | | — | | Amended and Restated The GEO Group, Inc. 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.45 to the Company’s Registration Statement on Form S-8 (File No. 333-169198)).† |
| | |
10.23 | | — | | Amendment No. 1 to the Amended and Restated The GEO Group, Inc. 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.23 to the Company’s report on Form 10-K, filed on March 2, 2011).† |
| | |
10.24 | | — | | Voting Agreement, dated as of December 21, 2010, by and among the Company, Inc., GEO Acquisition IV, Inc. and certain stockholders of BII Holding Corporation (incorporated by reference to Exhibit 10.47 to the Company’s report on Form 8-K, filed on December 28, 2010) |
| | | | |
| | |
10.25 | | — | | Registration Rights Agreement, dated as of February 10, 2011, by and among the Company, 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 by reference to Exhibit 10.1 to the Company’s report on Form 8-K, filed on February 16, 2011). |
| | |
10.26 | | — | | Cornell Companies, Inc. Amended and Restated 2006 Incentive Plan (incorporated by reference to Exhibit 10.46 to the Company’s Registration Statement on Form S-8 (File No. 333-169199), filed on September 3, 2010).† |
| | |
10.27 | | — | | First Amendment to Second Amended and Restated Executive Employment Agreement, effective March 1, 2011, by and between the Company and George C. Zoley (incorporated by reference to Exhibit 10.27 to the Company’s report on Form 10-K, filed on March 2, 2011)† |
| | |
10.28 | | — | | First Amendment to Senior Officer Employment Agreement, effective March 1, 2011, by and between the Company and Brian R. Evans (incorporated by reference to Exhibit 10.28 to the Company’s report on Form 10-K, filed on March 2, 2011)† |
| | |
10.29 | | — | | First Amendment to Senior Officer Employment Agreement, effective March 1, 2011, by and between the Company and John M. Hurley (incorporated by reference to Exhibit 10.29 to the Company’s report on Form 10-K, filed on March 2, 2011)† |
| | |
10.30 | | — | | First Amendment to Amended and Restated Senior Officer Employment Agreement, effective March 1, 2011, by and between the Company and John J. Bulfin (incorporated by reference to Exhibit 10.30 to the Company’s report on Form 10-K, filed on March 2, 2011)† |
| | |
10.31 | | | | Amended and Restated Senior Officer Employment Agreement, effective December 17, 2008, by and between the GEO Group, Inc. and Jorge A. Dominicis (incorporated by reference to Exhibit 10.31 to the Company’s report on Form 10-Q, filed on May 10, 2011)† |
| | |
10.32 | | | | 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 (incorporated by reference to Exhibit 10.32 to the Company’s report on Form 10-Q, filed on May 10, 2011) † |
| | |
10.33 | | | | Amendment No. 1, dated as of February 8, 2011, to the Credit Agreement between the Company, as Borrower, certain of GEO’s subsidiaries, as Guarantors, the lenders signatory thereto and BNP Paribas, as Administrative Agent (incorporated by reference to Exhibit 10.33 to the Company’s report on Form 10-Q, filed on May 10, 2011) (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment) |
| | |
10.34 | | | | Amendment No. 2, dated as of May 2, 2011, to the Credit Agreement dated as of August 4, 2010 between the Company, as Borrower, certain of GEO’s subsidiaries, as Guarantors and BNP Paribas, as Lender and as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K, filed on May 6, 2011) |
| | |
10.35 | | | | Series A-2 Incremental Loan Agreement, dated as of February 8, 2011, between the Company, as Borrower, certain of GEO’s subsidiaries, as Guarantors, the lenders signatory thereto and BNP Paribas, as Administrative Agent (incorporated by reference to Exhibit 10.34 to the Company’s report on Form 10-Q, filed on May 10, 2011) (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment) |
| | |
10.36 | | | | Amended and Restated The GEO Group, Inc. Executive Retirement Plan (effective January 1, 2008)*† |
| | | | |
| | |
10.37 | | | | Amendment to The GEO Group, Inc. Executive Retirement Plan*† |
| | |
10.38 | | | | The GEO Group, Inc. Deferred Compensation Plan (as amended and restated effective January 1, 2008)*† |
| | |
10.39 | | | | Amendment to The GEO Group, Inc. Deferred Compensation Plan*† |
| | |
10.40 | | | | Amendment to The GEO Group, Inc. Deferred Compensation Plan*† |
| | |
21.1 | | — | | Subsidiaries of the Company* |
| | |
23.1 | | — | | Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm* |
| | |
31.1 | | — | | Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.* |
| | |
31.2 | | — | | Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.* |
| | |
32.1 | | — | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| | |
32.2 | | — | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| | |
101.INS | | — | | XBRL Instance Document |
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101.SCH | | — | | XBRL Taxonomy Extension Schema |
| | |
101.CAL | | — | | XBRL Taxonomy Extension Calculation Linkbase |
| | |
101.DEF | | — | | XBRL Taxonomy Extension Definition Linkbase |
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101.LAB | | — | | XBRL Taxonomy Extension Label Linkbase |
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101.PRE | | — | | XBRL Taxonomy Extension Presentation Linkbase |
| † | | Management contract or compensatory plan, contract or agreement as defined in Item 402 (a)(3) ofRegulation S-K. |
154
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE GEO GROUP, INC.
| | |
THE GEO GROUP, INC. |
|
|
Brian R. Evans |
Senior Vice President & Chief Financial Officer |
Brian R. Evans
Senior Vice President &
Chief Financial Officer
1, 2012Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | Date |
| | |
/s/ GEORGE C. ZOLEY George C. Zoley | | |
Signature | | Title | | Date |
|
| | | | |
/s/ GEORGE C. ZOLEY
George C. Zoley | | Chairman of the Board & Chief Executive Officer
(principal executive officer) | | March 2, 20111, 2012 |
| | |
/s/ BRIAN R. EVANS Brian R. Evans | | | | |
/s/ BRIAN R. EVANS
Brian R. Evans | | Senior Vice President &
Chief Financial Officer
(principal financial officer) | | March 2, 20111, 2012 |
| | |
/s/ RONALD A. BRACK Ronald A. Brack | | | | |
/s/ RONALD A. BRACK
Ronald A. Brack | | Vice President, Chief Accounting Officer
and Controller
(principal accounting officer) | | March 2, 20111, 2012 |
| | |
/s/ CLARENCE E. ANTHONY Clarence E. Anthony | | | | |
/s/ CLARENCE E. ANTHONY
Clarence E. Anthony | | Director | | March 2, 20111, 2012 |
| | |
/s/ NORMAN A. CARLSON Norman A. Carlson | | | | |
/s/ NORMAN A. CARLSON
Norman A. Carlson | | Director | | March 2, 20111, 2012 |
| | |
/s/ ANNE N. FOREMAN Anne N. Foreman | | | | |
/s/ ANNE N. FOREMAN
Anne N. Foreman | | Director | | March 2, 20111, 2012 |
| | |
/s/ RICHARD H. GLANTON Richard H. Glanton | | | | |
/s/ RICHARD H. GLANTON
Richard H. Glanton | | Director | | March 2, 20111, 2012 |
| | |
/s/ CHRISTOPHER C. WHEELER Christopher C. Wheeler | | | | |
/s/ CHRISTOPHER C. WHEELER
Christopher C. Wheeler | | Director | | March 2, 20111, 2012 |
156
SCHEDULE VALUATION AND QUALIFYING ACCOUNTSSchedule
THE GEO GROUP, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended January 1, 2012, January 2, 2011, and January 3, 2010 and December 28, 2008
| | | | | | | | | | | | | | | | | | | | | |
| | | Balance at
| | Charged to
| | Charged
| | Deductions,
| | Balance at
|
| | | Beginning
| | Cost and
| | to Other
| | Actual
| | End of
|
| Description | | of Period | | Expenses | | Accounts | | Charge-Offs | | Period |
| | | (In thousands) |
| |
| YEAR ENDED JANUARY 2, 2011: | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 429 | | | $ | 932 | | | $ | — | | | $ | (53 | ) | | $ | 1,308 | |
| YEAR ENDED JANUARY 3, 2010: | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 625 | | | $ | 485 | | | $ | (346 | ) | | $ | (335 | ) | | $ | 429 | |
| YEAR ENDED DECEMBER 28, 2008: | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 445 | | | $ | 602 | | | $ | (302 | ) | | $ | (120 | ) | | $ | 625 | |
| YEAR ENDED JANUARY 2, 2011: | | | | | | | | | | | | | | | | | | | | |
| Asset Replacement Reserve | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| YEAR ENDED JANUARY 3, 2010: | | | | | | | | | | | | | | | | | | | | |
| Asset Replacement Reserve | | $ | 623 | | | $ | (613 | ) | | $ | — | | | $ | (10 | ) | | $ | — | |
| YEAR ENDED DECEMBER 28, 2008: | | | | | | | | | | | | | | | | | | | | |
| Asset Replacement Reserve | | $ | 885 | | | $ | 54 | | | $ | — | | | $ | (316 | ) | | $ | 623 | |
157
| | | | | | | | | | | | | | | | | | | | |
Description | | Balance at
Beginning
of Period | | | Charged to
Cost and
Expenses | | | Charged
to Other
Accounts | | | Deductions,
Actual
Charge-Offs | | | Balance at
End of
Period | |
| | | (In thousands) | |
YEAR ENDED JANUARY 1, 2012: | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 1,308 | | | $ | 1,812 | | | $ | 3 | | | $ | (670 | ) | | $ | 2,453 | |
YEAR ENDED JANUARY 2, 2011: | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 429 | | | $ | 932 | | | $ | — | | | $ | (53 | ) | | $ | 1,308 | |
YEAR ENDED JANUARY 3, 2010: | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 625 | | | $ | 485 | | | $ | (346 | ) | | $ | (335 | ) | | $ | 429 | |
YEAR ENDED JANUARY 1, 2012: | | | | | | | | | | | | | | | | | | | | |
Asset Replacement Reserve | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
YEAR ENDED JANUARY 2, 2011: | | | | | | | | | | | | | | | | | | | | |
Asset Replacement Reserve | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
YEAR ENDED JANUARY 3, 2010: | | | | | | | | | | | | | | | | | | | | |
Asset Replacement Reserve | | $ | 623 | | | $ | (613 | ) | | $ | — | | | $ | (10 | ) | | $ | — | |
