UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended September 30, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission file number 1-14260
The GEO Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Florida | 65-0043078 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) | |
One Park Place, 621 NW 53rd Street, Suite 700, Boca Raton, Florida |
33487 | |
(Address of Principal Executive Offices) | (Zip Code) |
(561) 893-0101
(Registrants Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of November 6, 2012, the registrant had 61,593,137 shares of common stock outstanding.
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ITEM 1. |
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CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2012 (UNAUDITED) AND JANUARY 1, 2012 |
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ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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ITEM 4. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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52 |
2
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED
SEPTEMBER 30, 2012 AND OCTOBER 2, 2011
(In thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
September 30, 2012 |
October 2, 2011 |
September 30, 2012 |
October 2, 2011 |
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Revenues |
$ | 411,524 | $ | 395,683 | $ | 1,225,129 | $ | 1,172,831 | ||||||||
Operating expenses |
305,832 | 297,700 | 919,127 | 885,957 | ||||||||||||
Depreciation and amortization |
23,761 | 21,850 | 70,643 | 61,496 | ||||||||||||
General and administrative expenses |
27,228 | 25,922 | 81,712 | 86,420 | ||||||||||||
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Operating income |
54,703 | 50,211 | 153,647 | 138,958 | ||||||||||||
Interest income |
1,651 | 1,767 | 5,219 | 4,965 | ||||||||||||
Interest expense |
(20,606 | ) | (19,327 | ) | (62,030 | ) | (55,700 | ) | ||||||||
Loss on early extinguishment of debt |
(8,462 | ) | | (8,462 | ) | | ||||||||||
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Income before income taxes, equity in earnings of affiliates and discontinued operations |
27,286 | 32,651 | 88,374 | 88,223 | ||||||||||||
Provision for income taxes |
11,304 | 12,255 | 35,512 | 33,929 | ||||||||||||
Equity in earnings of affiliates, net of income tax provision of $234, $118, $858 and $1,705, respectively |
474 | 272 | 1,652 | 2,352 | ||||||||||||
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Income from continuing operations |
16,456 | 20,668 | 54,514 | 56,646 | ||||||||||||
Income (loss) from discontinued operations, net of income tax provision (benefit) of $(1,088), $394, $(1,418) and $1,379, respectively |
(1,729 | ) | 625 | (2,252 | ) | 2,190 | ||||||||||
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Net income |
14,727 | 21,293 | 52,262 | 58,836 | ||||||||||||
Net loss attributable to noncontrolling interests |
890 | 225 | 881 | 1,050 | ||||||||||||
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Net income attributable to The GEO Group, Inc. |
$ | 15,617 | $ | 21,518 | $ | 53,143 | $ | 59,886 | ||||||||
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Weighted-average common shares outstanding: |
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Basic |
60,906 | 63,340 | 60,838 | 64,028 | ||||||||||||
Diluted |
61,302 | 63,555 | 61,083 | 64,388 | ||||||||||||
Income per Common Share Attributable to The GEO Group, Inc.(1): |
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Basic: |
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Income from continuing operations |
$ | 0.28 | $ | 0.33 | $ | 0.91 | $ | 0.90 | ||||||||
Income (loss) from discontinued operations |
(0.03 | ) | 0.01 | (0.04 | ) | 0.04 | ||||||||||
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Income per common share attributable to The GEO Group, Inc. - basic |
$ | 0.26 | $ | 0.34 | $ | 0.87 | $ | 0.94 | ||||||||
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Diluted: |
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Income from continuing operations |
$ | 0.28 | $ | 0.33 | $ | 0.91 | $ | 0.90 | ||||||||
Income (loss) from discontinued operations |
(0.03 | ) | 0.01 | (0.04 | ) | 0.03 | ||||||||||
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Income per common share attributable to The GEO Group, Inc. - diluted |
$ | 0.25 | $ | 0.34 | $ | 0.87 | $ | 0.93 | ||||||||
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Other comprehensive income, net of tax: |
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Foreign currency translation adjustments, net of tax benefit of $364, $1,714, $239 and $1,151, respectively |
$ | 187 | $ | (6,858 | ) | $ | 33 | $ | (5,718 | ) | ||||||
Pension liability adjustment, net of tax benefit of $19, $5, $56, and $18, respectively |
30 | 9 | 89 | 28 | ||||||||||||
Loss on derivative instrument classified as cash flow hedge, net of tax benefit of $56, $99, $276 and $196, respectively |
(102 | ) | (672 | ) | (502 | ) | (1,029 | ) | ||||||||
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Total other comprehensive income (loss), net of tax |
115 | (7,521 | ) | (380 | ) | (6,719 | ) | |||||||||
Total comprehensive income |
14,842 | 13,772 | 51,882 | 52,117 | ||||||||||||
Comprehensive loss attributable to noncontrolling interests |
903 | 325 | 900 | 1,160 | ||||||||||||
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Comprehensive income attributable to The GEO Group, Inc. |
$ | 15,745 | $ | 14,097 | $ | 52,782 | $ | 53,277 | ||||||||
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(1) | Note that earnings per share tables may contain slight summation differences due to rounding. |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2012 AND JANUARY 1, 2012
(In thousands, except share data)
September 30, 2012 |
January 1, 2012 |
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(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets |
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Cash and cash equivalents |
$ | 69,085 | $ | 44,753 | ||||
Restricted cash and investments (including VIEs1 of $6,182 and $35,435, respectively) |
15,530 | 42,535 | ||||||
Accounts receivable, less allowance for doubtful accounts of $2,294 and $2,453, respectively |
251,459 | 285,810 | ||||||
Deferred income tax assets, net |
31,199 | 28,726 | ||||||
Prepaid expenses and other current assets |
25,046 | 50,346 | ||||||
Current assets of discontinued operations |
6,328 | 7,159 | ||||||
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Total current assets |
398,647 | 459,329 | ||||||
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Restricted Cash and Investments (including VIEs of $20,765 and $38,930, respectively) |
44,284 | 57,912 | ||||||
Property and Equipment, Net (including VIEs of $25,988 and $162,665, respectively) |
1,709,628 | 1,705,306 | ||||||
Assets Held for Sale |
6,590 | 4,363 | ||||||
Direct Finance Lease Receivable |
28,128 | 32,146 | ||||||
Deferred Income Tax Assets, Net |
1,711 | 1,711 | ||||||
Goodwill |
508,078 | 508,066 | ||||||
Intangible Assets, Net |
186,229 | 200,342 | ||||||
Other Non-Current Assets |
84,274 | 79,576 | ||||||
Non-Current Assets of Discontinued Operations |
| 865 | ||||||
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Total Assets |
$ | 2,967,569 | $ | 3,049,616 | ||||
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LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Current Liabilities |
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Accounts payable |
$ | 53,643 | $ | 69,632 | ||||
Accrued payroll and related taxes |
50,416 | 38,130 | ||||||
Accrued expenses |
134,606 | 126,682 | ||||||
Current portion of capital lease obligations, long-term debt and non-recourse debt (including VIEs of $5,200 and $20,770, respectively) |
47,840 | 53,666 | ||||||
Current liabilities of discontinued operations |
319 | 708 | ||||||
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Total current liabilities |
286,824 | 288,818 | ||||||
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Deferred Income Tax Liabilities |
119,470 | 125,209 | ||||||
Other Non-Current Liabilities |
59,206 | 56,381 | ||||||
Capital Lease Obligations |
12,192 | 13,087 | ||||||
Long-Term Debt |
1,324,902 | 1,319,068 | ||||||
Non-Recourse Debt (including VIEs of $16,972 and $108,335, respectively) |
113,136 | 208,532 | ||||||
Commitments and Contingencies (Note 12) |
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Shareholders Equity |
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Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued or outstanding |
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Common stock, $0.01 par value, 90,000,000 shares authorized, 85,578,493 and 85,185,158 issued and 61,592,212 and 61,181,172 outstanding, respectively |
856 | 852 | ||||||
Additional paid-in capital |
714,961 | 727,297 | ||||||
Retained earnings |
547,602 | 507,170 | ||||||
Accumulated other comprehensive income |
1,569 | 1,930 | ||||||
Treasury stock, 23,986,281 and 24,003,986 shares, at cost, respectively |
(213,709 | ) | (214,031 | ) | ||||
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Total shareholders equity attributable to The GEO Group, Inc. |
1,051,279 | 1,023,218 | ||||||
Noncontrolling interests |
560 | 15,303 | ||||||
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Total shareholders equity |
1,051,839 | 1,038,521 | ||||||
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Total Liabilities and Shareholders Equity |
$ | 2,967,569 | $ | 3,049,616 | ||||
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1 | Variable interest entities or VIEs |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
SEPTEMBER 30, 2012 AND OCTOBER 2, 2011
(In thousands)
(Unaudited)
Thirty-nine Weeks Ended | ||||||||
September 30, 2012 |
October 2, 2011 |
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Cash Flow from Operating Activities: |
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Net Income |
$ | 52,262 | $ | 58,836 | ||||
Net loss attributable to noncontrolling interests |
881 | 1,050 | ||||||
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Net income attributable to The GEO Group, Inc. |
53,143 | 59,886 | ||||||
Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities: |
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Depreciation and amortization expense |
70,643 | 61,496 | ||||||
Amortization of debt issuance costs, discount and/or premium |
2,341 | 1,148 | ||||||
Restricted stock expense |
3,195 | 2,642 | ||||||
Stock option expense |
1,918 | 2,201 | ||||||
Loss on early extinguishment of debt |
8,462 | | ||||||
Provision for doubtful accounts |
478 | 1,235 | ||||||
Equity in earnings of affiliates, net of tax |
(1,652 | ) | (2,352 | ) | ||||
Income tax benefit of equity compensation |
(241 | ) | (536 | ) | ||||
Loss on sale of property and equipment |
1,059 | 205 | ||||||
Dividends received from unconsolidated joint venture |
| 5,402 | ||||||
Changes in assets and liabilities, net of acquisition: |
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Changes in accounts receivable, prepaid expenses and other assets |
56,550 | 25,896 | ||||||
Changes in accounts payable, accrued expenses and other liabilities |
29,386 | 4,138 | ||||||
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Cash provided by operating activities - continuing operations |
225,282 | 161,361 | ||||||
Cash provided by operating activities - discontinued operations |
1,113 | 2,763 | ||||||
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Net cash provided by operating activities |
226,395 | 164,124 | ||||||
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Cash Flow from Investing Activities: |
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Acquisition of BI, cash consideration, net of cash acquired |
| (409,607 | ) | |||||
Acquisition of ownership interests in MCF |
(35,154 | ) | | |||||
Proceeds from sale of property and equipment |
608 | 795 | ||||||
Proceeds from sale of assets held for sale |
5,641 | 7,121 | ||||||
Change in restricted cash and investments |
40,778 | (4,126 | ) | |||||
Capital expenditures |
(92,356 | ) | (177,656 | ) | ||||
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Net cash used in investing activities |
(80,483 | ) | (583,473 | ) | ||||
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Cash Flow from Financing Activities: |
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Payments on long-term debt |
(352,131 | ) | (127,544 | ) | ||||
Proceeds from long-term debt |
263,000 | 617,247 | ||||||
Distribution to noncontrolling interests |
(5,758 | ) | (4,012 | ) | ||||
Proceeds from the exercise of stock options |
1,846 | 2,446 | ||||||
Debt issuance costs |
(917 | ) | (11,192 | ) | ||||
Payment of make-whole provision and other fees for early extinguishment of debt |
(14,861 | ) | | |||||
Payments for purchase of treasury shares |
(48 | ) | (49,987 | ) | ||||
Income tax benefit of equity compensation |
241 | 536 | ||||||
Payments for retirement of common stock |
(1,035 | ) | | |||||
Proceeds from reissuance of treasury stock in connection with ESPP |
373 | | ||||||
Cash dividends paid |
(12,304 | ) | | |||||
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Net cash (used in) provided by financing activities |
(121,594 | ) | 427,494 | |||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
14 | (3,853 | ) | |||||
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Net Increase in Cash and Cash Equivalents |
24,332 | 4,292 | ||||||
Cash and Cash Equivalents, beginning of period |
44,753 | 39,664 | ||||||
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Cash and Cash Equivalents, end of period |
$ | 69,085 | $ | 43,956 | ||||
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Supplemental Disclosures: |
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Non-cash Investing and Financing activities: |
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Deferred tax assets recorded in equity in connection with MCF transaction |
$ | 8,213 | $ | | ||||
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Capital expenditures in accounts payable and accrued expenses |
$ | 2,818 | $ | 21,886 | ||||
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The GEO Group, Inc., a Florida corporation, and subsidiaries (the Company or GEO), is a leading provider of government-outsourced services specializing in the management of correctional, detention, mental health, residential treatment and re-entry facilities, and the provision of community based services and youth services domestically and internationally. 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. GEO provides innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants. The Company also provides secure transportation services for offender and detainee populations as contracted domestically and in the United Kingdom through its joint venture GEO Amey PECS Ltd. (GEOAmey). As of September 30, 2012, the Companys worldwide operations included the management and/or ownership of approximately 75,000 beds at 108 correctional, detention and residential treatment facilities, including projects under development, and also included the provision of monitoring of more than 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 Companys unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States and the instructions to Form 10-Q and consequently do not include all disclosures required by Form 10-K. The accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2012 for the fiscal year ended January 1, 2012. The accompanying January 1, 2012 consolidated balance sheet, which has been retrospectively reclassified to reflect the assets and liabilities of discontinued operations (Refer to Note 8), has been derived from those audited financial statements. Additional information may be obtained by referring to the Companys Form 10-K (File No. 001-14260). In the opinion of management, all adjustments (consisting only of normal recurring items) necessary for a fair presentation of the financial information for the interim periods reported in this Form 10-Q have been made. Results of operations for the thirteen and thirty-nine weeks ended September 30, 2012 are not necessarily indicative of the results for the entire fiscal year or the thirteen weeks ending December 30, 2012, or for any other future interim or annual periods.
2. 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, other intangible assets acquired and liabilities assumed, including noncontrolling interests. Changes in goodwill from January 1, 2012 to September 30, 2012 are related to fluctuations in foreign currency exchange rates.
The Company has also recorded other finite and indefinite lived intangible assets as a result of business combinations. Changes in gross carrying amount from January 1, 2012 to September 30, 2012 are related to fluctuations in foreign currency exchange rates. The Companys intangible assets include facility management contracts, non-compete agreements and the trade name and technology of B.I. Incorporated, which the Company refers to as BI, as follows (in thousands):
September 30, 2012 | January 1, 2012 | |||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
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Facility management contracts |
$ | 158,548 | $ | (32,798 | ) | $ | 125,750 | $ | 158,604 | $ | (22,985 | ) | $ | 135,619 | ||||||||||
Covenants not to compete |
8,570 | (8,319 | ) | 251 | 8,570 | (6,347 | ) | 2,223 | ||||||||||||||||
Technology |
21,200 | (4,972 | ) | 16,228 | 21,200 | (2,700 | ) | 18,500 | ||||||||||||||||
Trade name (Indefinite lived) |
44,000 | | 44,000 | 44,000 | | 44,000 | ||||||||||||||||||
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Total acquired intangible assets |
$ | 232,318 | $ | (46,089 | ) | $ | 186,229 | $ | 232,374 | $ | (32,032 | ) | $ | 200,342 | ||||||||||
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Amortization expense relative to the Companys finite lived intangible assets was $4.5 million and $14.1 million, respectively, for the thirteen and thirty-nine weeks ended September 30, 2012. Amortization expense relative to the Companys finite lived intangible assets was $5.0 million and $14.1 million respectively, for the thirteen and thirty-nine weeks ended October 2, 2011. As of September 30, 2012, the weighted average period before the next contract renewal or extension for all of the facility management contracts was approximately 1.4 years.
6
Estimated amortization expense related to the Companys finite-lived intangible assets for the remainder of fiscal year 2012 through fiscal year 2016 and thereafter is as follows (in thousands):
Fiscal Year |
Total Amortization Expense |
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Remainder of 2012 |
$ | 4,051 | ||
2013 |
15,192 | |||
2014 |
14,977 | |||
2015 |
14,947 | |||
2016 |
14,854 | |||
Thereafter |
78,208 | |||
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$ | 142,229 | |||
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3. FINANCIAL INSTRUMENTS
The following tables provide a summary of the Companys significant financial assets and liabilities carried at fair value and measured on a recurring basis as of September 30, 2012 and January 1, 2012 (in thousands):
Fair Value Measurements at September 30, 2012 | ||||||||||||||||
Total Carrying Value at September 30, 2012 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets: |
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Interest rate swap derivative assets |
$ | 6,997 | $ | | $ | 6,997 | $ | | ||||||||
Restricted investments: |
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Guaranteed Investment Contract |
5,742 | | 5,742 | | ||||||||||||
Rabbi Trust |
9,341 | 9,341 | | | ||||||||||||
Fixed income securities |
2,172 | | 2,172 | | ||||||||||||
Liabilities: |
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Interest rate swap derivative liabilities |
$ | 747 | $ | | $ | 747 | $ | |
Fair Value Measurements at January 1, 2012 | ||||||||||||||||
Total Carrying Value at January 1, 2012 |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets: |
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Interest rate swap derivative assets |
$ | 7,440 | $ | | $ | 7,440 | $ | | ||||||||
Restricted investments: |
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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 | |
The Companys Level 1 investment included in the tables above as of September 30, 2012 and January 1, 2012 relates to the Companys rabbi trust established for GEO employee and employer contributions to The GEO Group Inc. Non-qualified Deferred Compensation Plan. These contributions are invested in mutual funds for which quoted market prices in active markets are available.
The Companys Level 2 financial instruments included in the tables above as of September 30, 2012 and January 1, 2012 consist of an interest rate swap asset held by the Companys 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) related to
7
Municipal Correctional Finance, L.P. (MCF), the Companys formerly consolidated VIE. On August 31, 2012, the Company closed on the purchase of MCF and in connection with the transaction, redeemed the MCF bonds and the Repo Agreement was terminated. Refer to Note 10-Variable Interest Entities and Note 11-Debt. As of January 1, 2012, the Repo Agreement consisted of guaranteed investments of $23.9 million and $9.9 million for the debt service reserve fund and the bond fund payment account, respectively. The Repo Agreement is considered a Level 2 restricted investment since its fair value is estimated by using market interest rates for similar securities. The Australian subsidiarys interest rate swap asset is valued using a discounted cash flow model based on projected Australian borrowing rates. The Companys other interest rate swap assets and liabilities are based on pricing models which consider prevailing interest rates, credit risk and similar instruments. The Canadian dollar denominated securities, not actively traded, are valued using quoted rates for these and similar securities. The restricted investment in the guaranteed investment contract is valued using quoted rates for these and similar securities. As of January 1, 2012, the Companys Level 2 financial instruments included a portion of the Companys rabbi trust which was invested in interest bearing assets, such as long-term bonds, which were valued using market interest rates for similar securities.
4. FAIR VALUE OF ASSETS AND LIABILITIES
The Companys consolidated balance sheets reflect certain financial assets and liabilities at carrying value. The following tables present the carrying values of those financial instruments and the estimated corresponding fair values at September 30, 2012 and January 1, 2012 (in thousands):
Estimated Fair Value Measurements at September 30, 2012 |
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Carrying Value as of September 30, 2012 |
Total Fair Value |
Level 1 | Level 2 | Level 3 | ||||||||||||||||
Assets: |
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Cash and cash equivalents |
$ | 69,085 | $ | 69,085 | $ | 69,085 | $ | | $ | | ||||||||||
Restricted cash |
44,731 | 44,731 | 44,731 | | | |||||||||||||||
Liabilities: |
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Borrowings under Senior Credit Facility |
$ | 798,468 | $ | 804,268 | $ | | $ | 804,268 | $ | | ||||||||||
7 3/4% Senior Notes |
247,439 | 270,938 | | 270,938 | | |||||||||||||||
6.625% Senior Notes |
300,000 | 322,314 | | 322,314 | | |||||||||||||||
Non-recourse debt, Australian subsidiary |
36,411 | 37,331 | | 37,331 | | |||||||||||||||
Other non-recourse debt, including current portion |
94,837 | 97,371 | | 97,371 | |
Estimated Fair Value Measurements at January 1, 2012 |
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Carrying Value as of January 1, 2012 |
Total Fair Value |
Level 1 | Level 2 | Level 3 | ||||||||||||||||
Assets: |
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Cash and cash equivalents |
$ | 44,753 | $ | 44,753 | $ | 44,753 | $ | | $ | | ||||||||||
Restricted cash |
52,868 | 52,868 | 52,868 | | | |||||||||||||||
Liabilities: |
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Borrowings under Senior Credit Facility |
$ | 782,962 | $ | 785,917 | $ | | $ | 785,917 | $ | | ||||||||||
7 3/4% Senior Notes |
247,141 | 262,033 | | 262,033 | | |||||||||||||||
6.625% Senior Notes |
300,000 | 300,375 | | 300,375 | | |||||||||||||||
Non-recourse debt, Australian subsidiary |
40,345 | 41,347 | | 41,347 | | |||||||||||||||
Other non-recourse debt, including current portion |
201,453 | 206,712 | | 206,712 | |
The fair values of the Companys cash and cash equivalents, and restricted cash approximates the carrying values of these assets at September 30, 2012 and January 1, 2012. Restricted cash consists of debt service funds used for payments on the Companys non-recourse debt. The fair values of the Companys 7 3/4% senior unsecured notes due 2017 (7 3/4% Senior Notes) and the 6.625% senior unsecured notes due 2021 (6.625% Senior Notes), although not actively traded, are based on published financial data for these instruments. The fair values of the Companys non-recourse debt related to South Texas Local Development Corporation (STLDC) and Washington Economic Development Finance Authority (WEDFA) are
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based on market prices for similar instruments. The fair value of the non-recourse debt related to the Companys Australian subsidiary is estimated using a discounted cash flow model based on current Australian borrowing rates for similar instruments. The fair value of borrowings under the Senior Credit Facility is based on an estimate of trading value considering the Companys borrowing rate, the undrawn spread and similar instruments.
5. SHAREHOLDERS EQUITY
The following table presents the changes in shareholders equity that are attributable to the Companys shareholders and to noncontrolling interests (in thousands):
Common shares | Additional Paid-In |
Retained | Accumulated Other Comprehensive |
Treasury shares | Noncontrolling | Total Shareholders |
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Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | Interests | Equity | ||||||||||||||||||||||||||||
Balance at January 1, 2012 |
61,181 | $ | 852 | $ | 727,297 | $ | 507,170 | $ | 1,930 | 24,004 | $ | (214,031 | ) | $ | 15,303 | $ | 1,038,521 | |||||||||||||||||||
Stock option and restricted stock award transactions |
479 | 5 | 1,841 | | | | | | 1,846 | |||||||||||||||||||||||||||
Tax benefit related to equity compensation |
| | 241 | | | | | | 241 | |||||||||||||||||||||||||||
Stock-based compensation expense |
| | 5,113 | | | | | | 5,113 | |||||||||||||||||||||||||||
Dividends paid |
| | | (12,304 | ) | | | | | (12,304 | ) | |||||||||||||||||||||||||
Cancellation of restricted stock |
(28 | ) | | | | | | | | | ||||||||||||||||||||||||||
Retirement of common stock |
(58 | ) | (1 | ) | (628 | ) | (406 | ) | | | | | (1,035 | ) | ||||||||||||||||||||||
Purchase of treasury shares |
(2 | ) | | | | | 2 | (48 | ) | | (48 | ) | ||||||||||||||||||||||||
Reissuance of treasury stock in connection with the ESPP |
20 | | 4 | (1 | ) | | (20 | ) | 370 | | 373 | |||||||||||||||||||||||||
Acquisition of ownership interests in MCF |
| | (18,856 | ) | | | | | (8,085 | ) | (26,941 | ) | ||||||||||||||||||||||||
Other adjustments to additional paid-in capital |
| | (51 | ) | | | | | | (51 | ) | |||||||||||||||||||||||||
Distribution to noncontrolling interests |
| | | | | | | (5,758 | ) | (5,758 | ) | |||||||||||||||||||||||||
Total comprehensive income |
| | | 53,143 | (361 | ) | | | (900 | ) | 51,882 | |||||||||||||||||||||||||
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Balance at September 30, 2012 |
61,592 | $ | 856 | $ | 714,961 | $ | 547,602 | $ | 1,569 | 23,986 | $ | (213,709 | ) | $ | 560 | $ | 1,051,839 | |||||||||||||||||||
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In February 2012, the Board of Directors adopted a dividend policy. In May 2012, the Board of Directors determined to accelerate the implementation of the dividend policy to Third Quarter 2012. On August 7, 2012, the Board of Directors declared a dividend of $.20 per share to stockholders of record on August 21, 2012 which was paid on September 7, 2012 for a total of $12.3 million.
6. EQUITY INCENTIVE PLANS
As of September 30, 2012, under the 2006 Stock Incentive Plan (2006 Plan), the Company had 1,396,954 shares of common stock available for issuance pursuant to future awards that may be granted under the plan of which up to 651,804 shares were available for the issuance of awards other than stock options. During the thirty-nine weeks ended September 30, 2012, the Company repurchased and retired 57,457 shares of fully vested employee equity awards.
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Stock Options
The Company uses a Black-Scholes option valuation model to estimate the fair value of each option awarded. A summary of the activity of stock option awards issued and outstanding under Company plans is as follows for the thirty-nine weeks ended September 30, 2012:
Shares | Wtd. Avg. Exercise Price |
Wtd. Avg. Remaining Contractual Term (years) |
Aggregate Intrinsic Value |
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(in thousands) | (in thousands) | |||||||||||||||
Options outstanding at January 1, 2012 |
1,601 | $ | 19.44 | 6.73 | $ | 2,778 | ||||||||||
Options granted |
96 | 25.78 | ||||||||||||||
Options exercised |
(164 | ) | 11.27 | |||||||||||||
Options forfeited/canceled/expired |
(64 | ) | 22.77 | |||||||||||||
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Options outstanding at September 30, 2012 |
1,469 | $ | 20.62 | 6.51 | $ | 10,200 | ||||||||||
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Options exercisable at September 30, 2012 |
933 | $ | 18.98 | 5.56 | $ | 8,111 | ||||||||||
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There were 96,000 stock options granted by the Company during the thirty-nine weeks ended September 30, 2012 with an aggregate fair value of $0.7 million and a weighted average exercise price of $25.78. For the thirty-nine weeks ended September 30, 2012 and October 2, 2011, the amount of stock-based compensation expense related to stock options was $1.9 million and $2.2 million, respectively. As of September 30, 2012, the Company had $3.2 million of unrecognized compensation costs related to non-vested stock option awards that are expected to be recognized over a weighted average period of 2.4 years.
Restricted Stock
Shares of restricted stock become unrestricted shares of common stock upon vesting on a one-for-one basis. The cost of these awards is determined using the closing price of the Companys common stock on the date of the grant and compensation expense is recognized over the vesting period. Generally, the restricted stock awards vest in equal increments over either a three or four year period. The Company has issued share-based awards with non-performance and performance-based vesting criteria. For share-based awards that are performance-based, achievement of the milestones must be probable before share-based compensation expense is recorded. At each reporting date, the Company reviews the likelihood that these awards will vest and if the vesting is deemed probable, compensation expense is recorded at that time. If ultimately performance goals are not met, for any awards where vesting was previously deemed probable, previously recognized compensation cost will be reversed.
A summary of the activity of restricted stock outstanding is as follows for the thirty-nine weeks ended September 30, 2012:
Shares | Wtd. Avg. Grant Date Fair Value |
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(in thousands) | ||||||||
Restricted stock outstanding at January 1, 2012 |
442 | $ | 23.32 | |||||
Granted |
315 | 18.39 | ||||||
Vested |
(139 | ) | 23.26 | |||||
Forfeited/canceled |
(23 | ) | 22.52 | |||||
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Restricted stock outstanding at September 30, 2012 |
595 | $ | 20.98 | |||||
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During the thirty-nine weeks ended September 30, 2012, the Company granted 315,000 shares of restricted stock to its Directors and to certain senior employees. Of these awards, 205,000 are performance based awards which will be forfeited if the Company does not achieve certain annual metrics during fiscal years 2012, 2013 and 2014. These performance based awards, which were previously granted on March 12, 2012 to certain executive officers and senior employees, were canceled and new performance based awards were granted on July 20, 2012 in connection with a resolution by the Compensation Committee of the Board of Directors to revise the performance metrics used from targeted revenues to multiple metrics, which include earnings-per-share performance and return on capital employed results. These new restricted awards granted on July 20, 2012 were to the same executive officers and senior employees covering the same number of shares of restricted stock as were granted in March 2012.
The vesting of these new restricted stock grants will be subject to the achievement by GEO of two annual performance metrics as follows: (i) up to 75% of the shares of restricted stock in each award can vest annually or cumulatively if GEO meets certain earnings per share performance targets during years 2012, 2013 and 2014; and (ii) up to 25% of the shares of restricted stock in each award can vest annually if GEO meets certain return on capital performance targets in 2012, 2013 and 2014. Based on the terms of the agreement, there was no incremental compensation cost related to the modified awards.
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For performance based awards granted prior to July 20, 2012, these grants vested over a three year period from the date of the award if the previous metric, targeted revenue, was achieved. The aggregate fair value of the awards issued during the thirty-nine weeks ended September 30, 2012 and the fiscal year ended January 1, 2012, based on the closing price of the Companys common stock on the respective grant dates, was $5.8 million and $9.3 million, respectively.
For the thirty-nine weeks ended September 30, 2012 and October 2, 2011, the Company recognized $3.2 million and $2.6 million, respectively, of compensation expense related to its restricted stock awards. As of September 30, 2012, the Company had $9.6 million of unrecognized compensation costs related to non-vested restricted stock awards, including non-vested restricted stock awards with performance-based vesting, that are expected to be recognized over a weighted average period of 2.5 years.
Employee Stock Purchase Plan
On July 9, 2011, the Company adopted The GEO Group Inc. 2011 Employee Stock Purchase Plan (the Plan), subject to obtaining shareholder approval. The Plan was approved by the Companys Compensation Committee and its 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 Companys goals and secure a proprietary interest in the Companys success. These deductions are used to purchase shares of the Companys Common Stock at a 5% discount from the then current market price.
The Plan, which was approved by the Companys shareholders on May 4, 2012, specifies that the pre-shareholder approval period began on July 9, 2011 with shares being purchased on June 29, 2012. During the pre-shareholder approval periods, which ended on June 29, 2012, the Plan was considered to be compensatory due to an option feature contained in the Plan during that period. Stock-based compensation recorded during the pre-shareholder period was not significant. During the post-shareholder approval periods, the Plan no longer contains an option feature and therefore is considered to be non-compensatory. As such, no compensation expense has been recorded during the post-shareholder approval periods. Share purchases for the post-shareholder approval offering periods begin on the last day of each month. During the thirty-nine weeks ended September 30, 2012, 19,487 shares were issued out of the Companys treasury stock in connection with the Plan. The Company will offer up to 500,000 shares of its common stock, which were registered with the Securities and Exchange Commission on May 4, 2012, for sale to eligible employees.
7. EARNINGS PER SHARE
Stock Repurchase Program
On July 14, 2011, the Company announced that its Board of Directors approved a stock repurchase program of up to $100.0 million of the Companys 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 Companys 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 Companys 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 Companys Revolving Credit Facility. Repurchases of common stock under the stock repurchase program during the thirty-nine weeks ended September 30, 2012 were not significant.
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Earnings per share
Basic earnings per share is computed by dividing the net income attributable to The GEO Group, Inc. shareholders by the weighted average number of outstanding shares of common stock. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator includes dilutive common stock equivalents such as stock options and shares of restricted stock. Basic and diluted earnings per share (EPS) from continuing operations were calculated for the thirteen and thirty-nine weeks ended September 30, 2012 and October 2, 2011 as follows (in thousands, except per share data):
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
September 30, 2012 |
October 2, 2011 |
September 30, 2012 |
October 2, 2011 |
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Income from continuing operations |
$ | 16,456 | $ | 20,668 | $ | 54,514 | $ | 56,646 | ||||||||
Net loss attributable to noncontrolling interests |
890 | 225 | 881 | 1,050 | ||||||||||||
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Net income from continuing operations attributable to The GEO Group, Inc. |
17,346 | 20,893 | 55,395 | 57,696 | ||||||||||||
Basic earnings per share attributable to The GEO Group, Inc.: |
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Weighted average shares outstanding |
60,906 | 63,340 | 60,838 | 64,028 | ||||||||||||
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Per share amount from continuing operations |
$ | 0.28 | $ | 0.33 | $ | 0.91 | $ | 0.90 | ||||||||
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Diluted earnings per share attributable to The GEO Group, Inc.: |
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Weighted average shares outstanding |
60,906 | 63,340 | 60,838 | 64,028 | ||||||||||||
Effect of dilutive securities: Stock options and restricted stock |
396 | 215 | 245 | 360 | ||||||||||||
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Weighted average shares assuming dilution |
61,302 | 63,555 | 61,083 | 64,388 | ||||||||||||
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Per share amount from continuing operations |
$ | 0.28 | $ | 0.33 | $ | 0.91 | $ | 0.90 | ||||||||
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Thirteen Weeks
For the thirteen weeks ended September 30, 2012, 24,303 weighted average shares of common stock underlying options were excluded from the computation of diluted EPS because the effect would be anti-dilutive. No shares of restricted stock were anti-dilutive.
For the thirteen weeks ended October 2, 2011, 123,738 weighted average shares of common stock underlying options were excluded from the computation of diluted EPS because the effect would be anti-dilutive. 106 shares of restricted stock were anti-dilutive.
Thirty-nine Weeks
For the thirty-nine weeks ended September 30, 2012, 59,915 weighted average shares of common stock underlying options were excluded from the computation of diluted EPS because the effect would be anti-dilutive. 538 shares of restricted stock were anti-dilutive.
For the thirty-nine weeks ended October 2, 2011, 79,466 weighted average shares of common 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.
8. DISCONTINUED OPERATIONS
The termination of any of the Companys management contracts by expiration or otherwise, may result in the classification of the assets, liabilities and cash flows associated with, and operating results of such management contracts, net of taxes, as a discontinued operation. The Company presents 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. 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. During the thirty-nine weeks ended September 30, 2012, the Company discontinued operations at certain of its domestic facilities. The results of operations, net of taxes, and the assets and liabilities of these operations, each as further described below, have been retrospectively reflected in the accompanying consolidated financial statements as discontinued operations for all prior periods presented. Assets, primarily consisting of accounts receivable, and liabilities have been presented separately in the accompanying consolidated balance sheets for all prior periods presented.
U.S. Corrections & Detention: On April 19, 2012, the Company announced its discontinuation of its managed-only contract with the State of Mississippi, Department of Corrections for the 1,500-bed East Mississippi Correctional Facility (East Mississippi) effective July 19, 2012. In connection with the discontinuation of East Mississippi, the Company has also discontinued its managed-only contracts with the State of Mississippi, Department of Corrections for the 1,000-bed Marshall County Correctional Facility effective August 13, 2012, and the 1,450-bed Walnut Grove Youth Correctional Facility effective July 1, 2012. Revenues related to the discontinued operations through their respective disposition dates, were $2.4 million and $11.2 million, for the thirteen weeks ended September 30, 2012 and October 2, 2011, respectively and $24.7 million and $33.6 million for the thirty-nine weeks ended September 30, 2012 and October 2, 2011, respectively. Loss from discontinued operations includes a charge of $1.1 million of insurance liability claims for the thirteen weeks and thirty-nine weeks ended September 30, 2012 which are directly related to these discontinued operations. All income (loss) from discontinued operations included in the consolidated statements of comprehensive income is attributable to The Geo Group, Inc.
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9. DERIVATIVE FINANCIAL INSTRUMENTS
The Companys primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in interest rates. The Company measures its derivative financial instruments at fair value.
As of September 30, 2012, the Company had four interest rate swap agreements in the aggregate notional amount of $100.0 million. The Company has designated these interest rate swaps as hedges against changes in the fair value of a designated portion of the 7 3/4% Senior Notes due 2017 (7 3/4% Senior Notes) due to changes in underlying interest rates. These swap agreements, which have payment, expiration dates and call provisions that mirror the terms of the 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 value, as defined in the swap agreements, 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 7 3/4% 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 gain , entirely offset by a corresponding increase 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 $0.3 million and $0.4 million during the thirteen and thirty-nine weeks ended September 30, 2012, respectively. As of September 30, 2012 and January 1, 2012, the swap assets fair values were $7.0 million and $7.4 million, respectively and are included as Other Non-Current Assets in the accompanying consolidated balance sheets. There was no material ineffectiveness of these interest rate swaps during the fiscal periods ended September 30, 2012 or October 2, 2011.
The Companys Australian subsidiary is a party to an interest rate swap agreement to fix the interest rate on its variable rate non-recourse debt to 9.7%. The Company has determined the swap, which has a notional amount of AUD 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 unrealized losses, net of tax, recognized in the periods and recorded in accumulated other comprehensive income, net of tax, related to this cash flow hedge was $0.1 million and $0.5 million for the thirteen and thirty-nine weeks ended September 30, 2012 respectively. The total fair value of the swap (liability) asset as of September 30, 2012 and January 1, 2012 was $(0.7) million and $0.0 million, respectively, and is recorded as a component of other (liabilities) assets within the accompanying consolidated balance sheets. There was no material ineffectiveness of this interest rate swap for the periods presented. The Company does not expect to enter into any transactions during the next twelve months which would result in the reclassification into earnings or losses associated with this swap currently reported in accumulated other comprehensive income (loss).
10. VARIABLE INTEREST ENTITIES
The Company evaluates its joint ventures and other entities in which it has a variable interest (a VIE), generally in the form of investments, loans, guarantees, or equity in order to determine if it has a controlling financial interest and is required to consolidate the entity as a result. The reporting entity with a variable interest that provides the entity with a controlling financial interest in the VIE will have both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and (ii) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company consolidates South Texas Local Development Corporation (STLDC), a VIE. STLDC was created to finance construction for the development of a 1,904-bed facility in Frio County, Texas. STLDC, the owner of the complex, issued $49.5 million in taxable revenue bonds and has an operating agreement with the Company, which provides the Company with the sole and exclusive right to operate and manage the detention center. The operating agreement and bond indenture require the revenue from the contract to be used to fund the periodic debt service requirements as they become due. The net revenues, if any, after various expenses such as trustee fees, property taxes and insurance premiums are distributed to the Company to cover operating expenses and management fees. The Company is responsible for the entire operations of the facility including the payment of all operating expenses whether or not there are sufficient revenues. The bonds have a ten-year term and are non-recourse to the Company. At the end of the ten-year term of the bonds, title and ownership of the facility transfers from STLDC to the Company. The carrying value of the facility as of September 30, 2012 and January 1, 2012 was $26.0 million and $26.4 million, respectively and is included in Property and Equipment in the accompanying consolidated balance sheets.
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MCF was created in August 2001 as a special limited partnership for the purpose of acquiring, owning, leasing and operating low to medium security adult and juvenile correction and treatment facilities. At its inception, MCF purchased assets representing eleven facilities from certain wholly owned subsidiaries of Cornell Companies, Inc. (Cornell), a wholly owned GEO subsidiary, and leased those assets back to Cornell under a Master Lease Agreement (the Lease). These assets were purchased from Cornell using proceeds from the 8.47% Revenue Bonds due 2016 (the MCF bonds). Under the terms of the Lease, the Company would lease the assets for the remainder of the 20-year base term, which ends in 2021, and had options at its sole discretion to renew the Lease for up to approximately 25 additional years. Prior to the transaction discussed below, MCFs sole source of revenue was from the Company and as such the Company had the power to direct the activities of the VIE that most significantly impacted its performance. The Companys risk was generally limited to the rental obligations under the operating leases. This entity was included in the accompanying consolidated financial statements as a VIE. Upon the purchase of the ownership interests in MCF as discussed below, MCF is no longer a VIE but is still included in the accompanying consolidated financial statements and all intercompany transactions are eliminated in consolidation.
On April 24, 2012, the Company signed a definitive agreement to purchase 100% of the partnership interests of MCF from the third party holders of these interests for a total net consideration of $35.2 million. The transaction closed on August 31, 2012. After the purchase, the Company redeemed the MCF bonds. Refer to Note 11 - Debt. As the transaction increased GEOs ownership interest in MCF, from zero to 100%, and GEO retained its controlling interest in MCF, the purchase of the partnership interests has been accounted for as an equity transaction with additional paid-in capital adjusted for the difference between the cumulative balance of the non-controlling interest in MCF of $8.1 million and the $35.2 million consideration paid, net of MCF deferred tax assets of $8.2 million, with no gain or loss recorded in consolidated net income or comprehensive income. Refer to Note 5 - Shareholders Equity. The Company incurred costs related to the purchase of the ownership interests of MCF of $0.4 million and $1.2 million for the thirteen and thirty-nine weeks ended September 30, 2012, respectively. These costs were expensed as incurred and included in general and administrative expenses in the accompanying consolidated statements of comprehensive income.
The Company does not consolidate its 50% owned South African joint venture interest in South African Custodial Services Pty. Limited (SACS), a VIE. SACS joint venture investors are GEO and Kensani Corrections, Pty. Ltd (an independent third party); each partner owns a 50% share. The Company has determined it is not the primary beneficiary of SACS since it does not have the power to direct the activities of SACS that most significantly impact its performance. As such, the Companys investment in this entity is accounted for under the equity method of accounting. SACS was established and subsequently, in 2001, was awarded a 25-year contract to design, finance and build the Kutama Sinthumule Correctional Centre in Louis Trichardt, South Africa. To fund the construction of the prison, SACS obtained long-term financing from its equity partners and lenders, the repayment of which is fully guaranteed by the South African government, except in the event of default, in which case the government guarantee is reduced to 80%. The Companys maximum exposure for loss under this contract is limited to its investment in the joint venture of $9.3 million at September 30, 2012 and its guarantees related to SACS discussed in Note 11 - Debt.
The Company does not consolidate its 50% owned joint venture in the United Kingdom. In February 2011, The GEO Group Limited, the Companys wholly-owned subsidiary in the United Kingdom (GEO UK), executed a Shareholders Agreement (the Shareholders Agreement) with Amey Community Limited (Amey) and Amey UK PLC (Amey Guarantor) to form GEO Amey PECS Limited (GEOAmey), a private company limited by shares incorporated in England and Wales. GEOAmey was formed by GEO UK and Amey (an independent third party) for the purpose of performing prisoner escort and related custody services in England and Wales. In order to form this private company, GEOAmey issued share capital of £100 divided into 100 shares of £1 each and allocated the shares 50/50 to GEO UK and Amey. GEO UK and Amey each have three directors appointed to the Board of Directors and neither party has the power to direct the activities that most significantly impact the performance of GEOAmey. As such, the Companys investment in this entity is accounted for under the equity method of accounting. Both parties provide lines of credit of £12 million, or $19.4 million, based on exchange rates in effect as of September 30, 2012, to ensure that GEOAmey can comply with future contractual commitments related to the performance of its operations. As of September 30, 2012, $19.8 million, including accrued interest, was owed to the Company by GEOAmey under the line of credit. GEOAmey commenced operations on August 29, 2011. The Company has recorded $0.9 million and $2.3 million losses, net of tax impact, for GEOAmeys operations during the thirteen and thirty-nine weeks ended September 30, 2012, respectively, which is included in equity in earnings of affiliates, net of income tax provision, in the accompanying consolidated statements of comprehensive income.
14
11. DEBT
Debt outstanding as of September 30, 2012 and January 1, 2012 consisted of the following (in thousands):
September 30, 2012 |
January 1, 2012 |
|||||||
Capital Lease Obligations |
$ | 13,350 | $ | 14,171 | ||||
Senior Credit Facility: |
||||||||
Term loans |
569,750 | 482,500 | ||||||
Unamortized discount on term loan |
(1,282 | ) | (1,538 | ) | ||||
Revolver |
230,000 | 302,000 | ||||||
|
|
|
|
|||||
Total Senior Credit Facility |
798,468 | 782,962 | ||||||
6.625% Senior Notes: |
||||||||
Notes due in 2021 |
300,000 | 300,000 | ||||||
7 3/4% Senior Notes: |
||||||||
Notes due in 2017 |
250,000 | 250,000 | ||||||
Unamortized discount on Notes |
(2,561 | ) | (2,859 | ) | ||||
Swap on Notes |
6,997 | 7,411 | ||||||
|
|
|
|
|||||
Total 7 3/4% Senior Notes |
254,436 | 254,552 | ||||||
Non-Recourse Debt : |
||||||||
Non-Recourse Debt |
132,826 | 235,430 | ||||||
Unamortized premium on Non-Recourse Debt |
| 8,304 | ||||||
Unamortized discount on Non-Recourse Debt |
(1,578 | ) | (1,936 | ) | ||||
|
|
|
|
|||||
Total Non-Recourse Debt |
131,248 | 241,798 | ||||||
Other debt |
568 | 870 | ||||||
|
|
|
|
|||||
Total debt |
1,498,070 | 1,594,353 | ||||||
Current portion of capital lease obligations, long-term debt and non-recourse debt |
(47,840 | ) | (53,666 | ) | ||||
Capital Lease Obligations, long-term portion |
(12,192 | ) | (13,087 | ) | ||||
Non-Recourse Debt |
(113,136 | ) | (208,532 | ) | ||||
|
|
|
|
|||||
Long-Term Debt |
$ | 1,324,902 | $ | 1,319,068 | ||||
|
|
|
|
Senior Credit Facility
As of September 30, 2012, the Senior Credit Facility, as amended, was comprised of: (i) a $150.0 million Term Loan A (Term Loan A), currently bearing interest at LIBOR plus 2.75% and maturing August 4, 2015, (ii) a $150.0 million Term Loan A-2 (Term Loan A-2), currently bearing interest at LIBOR plus 2.75% and maturing August 4, 2015, (iii) a $100.0 million Term Loan A-3 (Term Loan A-3), currently bearing interest at LIBOR plus 2.75% and maturing August 4, 2015, (iv) a $200.0 million Term Loan B (Term Loan B) currently bearing interest at LIBOR plus 2.75% with a LIBOR floor of 1.00% and maturing August 4, 2016 and (v) a $500.0 million Revolving Credit Facility (Revolver) currently bearing interest at LIBOR plus 2.75% and maturing August 4, 2015.
As of September 30, 2012, the Company had $568.5 million in aggregate borrowings outstanding, net of discount, under the Term Loan A, Term Loan A-2, Term Loan A-3 and Term Loan B, $230.0 million in borrowings under the Revolver, and approximately $56.4 million in letters of credit which leaves $213.6 million in additional borrowing capacity under the Revolver. The weighted average interest rate on outstanding borrowings under the Senior Credit Facility as of September 30, 2012 was 3.2%.
15
Indebtedness under the Revolver, the Term Loan A, Term Loan A-2 and Term Loan A-3 bears interest based on the Total Leverage Ratio, as defined in the Senior Credit Facility, as of the most recent determination date, as defined, in each of the instances below at the stated rate:
Interest Rate under the Revolver, Term Loan A, Term Loan A-2 and Term Loan A-3 | ||
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 requires the Company to meet certain financial covenants, including a maximum Total Leverage Ratio, a maximum Senior Secured Leverage Ratio and an Interest Coverage Ratio, as these terms are defined in the Senior Credit Facility. The Company believes it was in compliance with all of the covenants of the Senior Credit Facility as of September 30, 2012.
7 3/4% Senior Notes
Interest on the 7 3/4% Senior Notes accrues at the stated rate. The Company pays interest semi-annually in arrears on April 15 and October 15 of each year. On or after October 15, 2013, the Company may, at its option, redeem all or a part of the 7 3/4% Senior Notes at the redemption prices set forth in the indenture governing the 7 3/4% Senior Notes. The indenture governing the notes contains certain covenants, including limitations and restrictions on the Company and its subsidiary guarantors (Refer to Note 17-Condensed Consolidating Financial Information.) The Company believes it was in compliance with all of the covenants of the indenture governing the 7 3/4% Senior Notes as of September 30, 2012.
6.625% Senior Notes
Interest on the 6.625% Senior Notes accrues at the stated rate. The Company pays interest semi-annually in arrears on February 15 and August 15 of each year. On or after February 15, 2016, the Company may, at its option, redeem all or part of the 6.625% Senior Notes at the redemption prices set forth in the indenture governing the 6.625% Senior Notes. The indenture governing the notes contains certain covenants, including limitations and restrictions on the Company and its subsidiary guarantors (Refer to Note 17-Condensed Consolidating Financial Information.) The Company believes it was in compliance with all of the covenants of the indenture governing the 6.625% Senior Notes as of September 30, 2012.
Non-Recourse Debt
South Texas Detention Complex
The Company has a debt service requirement related to the development of the South Texas Detention Complex, a 1,904-bed detention complex in Frio County, Texas. In order to finance the construction of the complex, STLDC was created and issued $49.5 million in taxable revenue bonds. These bonds mature in February 2016 and have fixed coupon rates between 4.76% 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 Correctional Services Corporation (CSC) for initial development.
On February 1, 2012, STLDC made a payment from its restricted cash account of $5.0 million for the current principal portion of its periodic debt service requirement in relation to the STLDC operating agreement and bond indenture. As of September 30, 2012, the remaining balance of the debt service requirement under the STLDC financing agreement is $22.4 million, of which $5.2 million is due within the next twelve months. Also, as of September 30, 2012, included in current restricted cash and non-current restricted cash is $6.2 million and $20.8 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 a detention center in Tacoma, Washington, known 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. In connection with this financing, CSC formed a special purpose entity, CSC of Tacoma LLC, of which CSC is the only member, the sole purposes of which are 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. They 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, referred to as WEDFA, an instrumentality of the
16
State of Washington, which issued revenue bonds and subsequently loaned the proceeds of the bond issuance back to CSC for the purposes of constructing the Northwest Detention Center. The bonds are non-recourse to the Company and the loan from WEDFA to CSC is also non-recourse to the Company. These bonds mature in October 2014 and have fixed coupon rates between 4.00% and 4.10%. The proceeds of the loan were disbursed into escrow accounts held in trust to be used to pay the issuance costs for the revenue bonds, to construct the Northwest Detention Center and to establish debt service and other reserves. No principal payments were made during the thirty-nine weeks ended September 30, 2012. As of September 30, 2012, the remaining balance of the debt service requirement is $19.7 million, of which $6.3 million is classified as current in the accompanying consolidated 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 2011 Revenue Bonds were rated AA- by Standard & Poors 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 CSCs obligations under the loan are obligations of GEO nor are they guaranteed by GEO.
As of September 30, 2012, included in current restricted cash and non-current restricted cash is $9.3 million and $7.4 million, respectively, of funds held in trust with respect to the Northwest Detention Center for debt service and other reserves.
MCF
MCF was obligated for the outstanding balance of the MCF Bonds. The bonds bore interest at a rate of 8.47% per annum and were payable in semi-annual installments of interest and annual installments of principal. All unpaid principal and accrued interest on the bonds was due on the earlier of August 1, 2016 (maturity) or as noted under the bond documents. The bonds were limited, non-recourse obligations of MCF and were collateralized by the property and equipment, bond reserves, assignment of subleases and substantially all assets related to the eleven facilities owned by MCF. The bonds were not guaranteed by the Company or its subsidiaries. As of January 1, 2012, the aggregate principal amount of these bonds was $93.7 million, excluding the effect of the unamortized premium of $8.3 million and net of the current portion of $15.8 million. These balances are included as Non-Recourse Debt on the accompanying consolidated balance sheets.
On April 24, 2012, the Company signed a definitive agreement to purchase 100% of the partnership interests of MCF from the third party holders of these interests for a total net consideration of $35.2 million. The transaction closed on August 31, 2012. Subsequent to the acquisition, the indenture relating to the MCF bonds was discharged and the remaining principal balance as of August 31, 2012 of $77.9 million was redeemed, with an effective date of September 4, 2012. GEO financed the acquisition of the partnership interests in MCF and the redemption of the MCF bonds with the proceeds from the above described Term Loan A-3.
The Company incurred a one-time loss on early extinguishment of debt in connection with the early redemption of the MCF bonds of $8.5 million which consisted of a make-whole premium of $14.9 million which includes $0.1 million of bond redemption costs, offset by the effect of the unamortized bond premium of $6.4 million.
Australia
The Companys wholly-owned Australian subsidiary financed the development of a facility and subsequent expansion in 2003 with long-term debt obligations. These obligations are non-recourse to the Company and total $36.4 million (AUD 35.1 million) and $40.3 million (AUD 39.5 million), based on the exchange rates in effect at September 30, 2012 and January 1, 2012, 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, based on exchange rates as of September 30, 2012, was $5.2 million. This amount is included in restricted cash and the annual maturities of the future debt obligation are included in Non-Recourse Debt.
Guarantees
In connection with the creation of SACS, the Company entered into certain guarantees related to the financing, construction and operation of the prison. The Company guaranteed certain obligations of SACS under its debt agreements to SACS senior lenders through the issuance of letters of 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 $4.2 million based on exchange rates as of September 30, 2012. Additionally, SACS
17
was required to fund a restricted account for the payment of certain costs in the event of contract termination. As such, the Company had guaranteed the payment of 60% of amounts which may be payable by SACS into the restricted account by providing a standby letter of credit of 8.4 million South African Rand as security for this guarantee. During the fiscal year ended January 1, 2012, SACS met its obligation for the funding of the Rectification Account and the letter of credit for 8.4 million South African Rand relative to this guarantee was not renewed. In the event SACS is unable to maintain the required funding in the Rectification Account, the guarantee for the shortfall will need to be re-instated. No amounts were drawn against these letters of credit. The remaining guarantee of 34.8 million South African Rand is included as part of the value of Companys outstanding letters of credit under its Revolver as of September 30, 2012.
In addition to the above, the Company has also agreed to provide a loan, of up to 20 million South African Rand, or $2.4 million based on exchange rates as of September 30, 2012, referred to as the Shareholders 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, and the Company does not currently anticipate that such funding will be required by SACS in the future. The Companys obligations under the Shareholders Loan expire upon the earlier of full funding or SACSs release from its obligations under its debt agreements. The lenders ability to draw on the Shareholders 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 Companys shares in SACS. The Companys liability under the guarantee is limited to the cession and pledge of shares. The guarantee expires upon expiration of the cession and pledge agreements.
In connection with a design, build, finance and maintenance contract for a facility in Canada, the Company guaranteed certain potential tax obligations of a trust. The potential estimated exposure of these obligations is Canadian Dollar (CAD) 2.5 million, or $2.5 million, based on exchange rates as of September 30, 2012, commencing in 2017. The Company has a liability of $2.2 million and $2.0 million related to this exposure included in Other Non-Current Liabilities as of September 30, 2012 and January 1, 2012, 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 equal to the current fair value of those securities included in Other Non-Current Assets as of September 30, 2012 and January 1, 2012, respectively, on its consolidated balance sheets. The Company does not currently operate or manage this facility.
At September 30, 2012, the Company also had seven letters of guarantee outstanding under separate international facilities relating to performance guarantees of its Australian subsidiary totaling $10.6 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 £12.3 million, or $19.8 million based on exchange rates as of September 30, 2012, was outstanding as of September 30, 2012. The Companys maximum exposure relative to the joint venture is its note receivable of $19.8 million, including accrued interest of $0.4 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.
12. COMMITMENTS AND CONTINGENCIES
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 Companys 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 Companys 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, one of the Companys insurers. 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 governments insurance provider and did not specify
18
the amount of damages being sought. In August 2007, a lawsuit (Commonwealth of Australia v. Australasian Correctional Services PTY, Limited No. SC 656) was filed against the Company in the Supreme Court of the Australian Capital Territory seeking damages of up to approximately AUD 18 million or $18.7 million based on exchange rates as of September 30, 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 Companys preliminary review of the claim and related reserve for loss, the Company believes that, if settled unfavorably, this matter could have a material adverse effect on its future 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.
The nature of the Companys 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 Companys facilities, programs, electronic monitoring products, personnel or prisoners, including damages arising from a prisoners escape or from a disturbance or riot at a facility. Except as otherwise disclosed above, the Company does not expect the outcome of any pending claims or legal proceedings to have a material adverse effect on its financial condition, results of operations or cash flows.
Construction Commitments
The Company is currently developing a number of projects using company financing. The Companys management estimates that these existing capital projects will cost $60.7 million, of which $19.2 million was spent through the third quarter of 2012. The Company estimates the remaining capital requirements related to these capital projects to be $41.5 million, which will be spent through fiscal year 2014. Capital expenditures related to facility maintenance costs are expected to range between $30.0 million and $35.0 million for fiscal year 2012. In addition to these current estimated capital requirements for 2012 through 2014, 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 could materially increase.
Contract Terminations
On March 31, 2012, the Companys contract for the management of the 130-bed Migrant Operations Center at Guantanamo Bay NAS, Cuba terminated and was transferred to another operator. The termination of this contract did not have a material impact on its financial position, results of operations and/ or cash flows.
On April 19, 2012, the Company announced the discontinuation of its managed-only contract with the State of Mississippi, Department of Corrections for the 1,500-bed East Mississippi Facility effective July 19, 2012. In connection with the discontinuation of East Mississippi, the Company has also discontinued its managed-only contracts with the State of Mississippi, Department of Corrections for the 1,000-bed Marshall County Correctional Facility effective August 13, 2012, and the 1,450-bed Walnut Grove Youth Correctional Facility effective July 1, 2012. Refer to Note 8 - Discontinued Operations.
The Company is currently marketing approximately 6,000 vacant beds at seven of its idle facilities to potential customers. The carrying values of these idle facilities, which are included in Property and Equipment, Net and Assets Held for Sale in the consolidated balance sheets, totaled $241.6 million as of September 30, 2012, excluding equipment and other assets that can be easily transferred for use at other facilities.
19
13. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
Operating and Reporting Segments
The Company conducts its business through four reportable business segments: the U.S. Corrections & Detention segment; the GEO Care segment; the International Services segment; and the Facility Construction & Design segment. The U.S. Corrections and Detention segment has been retroactively reclassified for the results of discontinued operations. Refer to Note 8-Discontinued Operations. The Companys segment revenues from external customers and a measure of segment profit are as follows (in thousands):
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
September 30, 2012 |
October 2, 2011 |
September 30, 2012 |
October 2, 2011 |
|||||||||||||
Revenues: |
||||||||||||||||
U.S. Corrections & Detention |
$ | 244,102 | $ | 232,788 | $ | 725,196 | $ | 693,657 | ||||||||
GEO Care |
110,186 | 109,729 | 330,199 | 317,475 | ||||||||||||
International Services |
57,236 | 53,166 | 169,734 | 161,580 | ||||||||||||
Facility Construction & Design |
| | | 119 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 411,524 | $ | 395,683 | $ | 1,225,129 | $ | 1,172,831 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss): |
||||||||||||||||
U.S. Corrections & Detention |
$ | 58,795 | $ | 53,187 | $ | 165,755 | $ | 160,786 | ||||||||
GEO Care |
19,945 | 18,326 | 59,772 | 53,616 | ||||||||||||
International Services |
3,191 | 4,663 | 9,832 | 10,939 | ||||||||||||
Facility Construction & Design |
| (43 | ) | | 37 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income from segments |
$ | 81,931 | $ | 76,133 | $ | 235,359 | $ | 225,378 | ||||||||
|
|
|
|
|
|
|
|
Pre-Tax Income Reconciliation of Segments
The following is a reconciliation of the Companys total operating income from its reportable segments to the Companys income before income taxes and equity in earnings of affiliates (in thousands):
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
September 30, 2012 |
October 2, 2011 |
September 30, 2012 |
October 2, 2011 |
|||||||||||||
Total operating income from segments |
$ | 81,931 | $ | 76,133 | $ | 235,359 | $ | 225,378 | ||||||||
Unallocated amounts: |
||||||||||||||||
General and Administrative Expenses |
(27,228 | ) | (25,922 | ) | (81,712 | ) | (86,420 | ) | ||||||||
Net Interest Expense |
(18,955 | ) | (17,560 | ) | (56,811 | ) | (50,735 | ) | ||||||||
Loss on Early Extinguishment of Debt |
(8,462 | ) | | (8,462 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes and equity in earnings of affiliates |
$ | 27,286 | $ | 32,651 | $ | 88,374 | $ | 88,223 | ||||||||
|
|
|
|
|
|
|
|
Equity in Earnings of Affiliates
Equity in earnings of affiliates includes the Companys 50% owned joint ventures in SACS, located in South Africa, and GEOAmey, located in the United Kingdom. Our investments in these entities are accounted for under the equity method of accounting. The Companys investments in these entities are presented as a component of Other Non-Current Assets in the accompanying consolidated balance sheets.
20
As of September 30, 2012 and January 1, 2012 and for the thirteen and thirty-nine weeks ended September 30, 2012 and October 2, 2011, SACS was considered to be a significant subsidiary and as such, summarized financial data is included below as follows (in thousands):
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
September 30, 2012 |
October 2, 2011 |
September 30, 2012 |
October 2, 2011 |
|||||||||||||
Statement of Operations Data |
||||||||||||||||
Revenues |
$ | 11,775 | $ | 12,580 | $ | 35,271 | $ | 37,581 | ||||||||
Operating income |
4,764 | 4,994 | 14,238 | 15,123 | ||||||||||||
Net income |
2,708 | 2,688 | 7,940 | 6,848 |
September 30, 2012 |
January 1, 2012 |
|||||||
Balance Sheet Data |
||||||||
Current assets |
$ | 23,113 | $ | 21,068 | ||||
Non-current assets |
35,821 | 39,110 | ||||||
Current liabilities |
4,252 | 3,645 | ||||||
Non-current liabilities |
36,084 | 45,237 | ||||||
Shareholders equity |
18,598 | 11,296 |
The Company has recorded $1.4 million and $4.0 million in earnings, net of tax impact, for SACS operations during the thirteen and thirty-nine weeks ended September 30, 2012, respectively, and $1.3 million and $3.4 million in earnings, net of tax impact, for SACS operations during the thirteen and thirty-nine weeks ended October 2, 2011, respectively, which are included in equity in earnings of affiliates, net of income tax provision in the accompanying consolidated statements of comprehensive income. As of September 30, 2012 and January 1, 2012, the Companys investment in SACS was $9.3 million and $5.6 million, respectively.
The Company has recorded $0.9 million and $2.3 million in losses, net of tax impact, for GEOAmeys operations during the thirteen and thirty-nine weeks ended September 30, 2012, respectively, and $1.1 million and $1.1 million in losses, net of tax impact, during the thirteen and thirty-nine weeks ended October 2, 2011, respectively, which are included in equity in earnings of affiliates, net of income tax provision, in the accompanying consolidated statements of comprehensive income. As of September 30, 2012 and January 1, 2012, the Companys investment in GEOAmey was $(4.7) million and $(2.4) million, respectively, and represents its share of cumulative reported losses. Losses in excess of the Companys investment have been recognized as the Company has provided certain loans and guarantees to provide financial support to GEOAmey (Refer to Note 11-Debt.)
21
14. BENEFIT PLANS
The following table summarizes key information related to the Companys pension plans and retirement agreements (in thousands):
Thirty-nine weeks ended September 30, 2012 |
Fiscal Year Ended January 1, 2012 |
|||||||
Change in Projected Benefit Obligation |
||||||||
Projected benefit obligation, beginning of period |
$ | 16,879 | $ | 13,830 | ||||
Service cost |
580 | 645 | ||||||
Interest cost |
590 | 667 | ||||||
Actuarial gain |
| 1,922 | ||||||
Benefits paid |
(154 | ) | (185 | ) | ||||
|
|
|
|
|||||
Projected benefit obligation, end of period |
$ | 17,895 | $ | 16,879 | ||||
|
|
|
|
|||||
Change in Plan Assets |
||||||||
Plan assets at fair value, beginning of period |
$ | | $ | | ||||
Company contributions |
154 | 185 | ||||||
Benefits paid |
(154 | ) | (185 | ) | ||||
|
|
|
|
|||||
Plan assets at fair value, end of period |
$ | | $ | | ||||
|
|
|
|
|||||
Unfunded Status of the Plan |
$ | (17,895 | ) | $ | (16,879 | ) | ||
|
|
|
|
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||
September 30, 2012 |
October 2, 2011 |
September 30, 2012 |
October 2, 2011 |
|||||||||||||
Components of Net Periodic Benefit Cost |
||||||||||||||||
Service cost |
$ | 193 | $ | 161 | $ | 580 | $ | 483 | ||||||||
Interest cost |
197 | 167 | 590 | 501 | ||||||||||||
Amortization of prior service cost |
| | | | ||||||||||||
Net loss |
48 | 16 | 145 | 48 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic pension cost |
$ | 438 | $ | 344 | $ | 1,315 | $ | 1,032 | ||||||||
|
|
|
|
|
|
|
|
The long-term portion of the pension liability as of September 30, 2012 and January 1, 2012 was $17.7 million and $16.7 million, respectively, and is included in Other Non-Current Liabilities in the accompanying consolidated balance sheets.
15. RECENT ACCOUNTING STANDARDS
The Company implemented the following accounting standards in the thirty-nine weeks ended September 30, 2012:
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 became effective for the Company during interim and annual periods beginning after December 15, 2011 and has been applied prospectively, where applicable. The implementation of this standard in the thirty-nine weeks ended September 30, 2012 did not 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 became effective for the Company in fiscal years, and interim periods within those years, beginning after December 15, 2011 and was applied retrospectively. The implementation of this standard in the thirty-nine weeks ended September 30, 2012 did not 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
22
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 Companys implementation of ASU 2011-12 in the thirty-nine weeks ended September 30, 2012 did not have a material impact on the Companys financial position, results of operation or cash flows. The Company does not expect the future impact of this standard, once the deferral period is over, to have a material impact on the Companys financial position, results of operation or cash flows.
The following accounting standard will be adopted in future periods:
In July 2012, the FASB issued ASU 2012-02 which is intended to simplify how an entity tests indefinite-lived intangible assets for impairment. Under the revised guidance, an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of facts and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value with the carrying amount in accordance with Subtopic 350-30. Under the amendments in this update, an entity has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entitys financial statements for the most recent annual or interim period have not yet been issued. The Company does not believe that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows.
16. SUBSEQUENT EVENTS
Benefit Plans
In October 2012, the Company began funding its two non-contributory defined benefit pension plans with Company owned life insurance policies. The premium payments in connection with the policies will be reflected as plan assets reducing the unfunded status of the plans.
Contract Awards
On October 2, 2012, the Company signed a ten-year contract with the United States Marshals Service for the housing of up to 320 federal detainees at the Company-owned Aurora Detention Facility in Colorado.
On October 18, 2012, the Company signed a contract extension with the California Department of Corrections and Rehabilitation for the continued management of the 625-bed Golden State Correctional Facility through June 30, 2016.
On October 30, 2012, the Company announced that the State of Florida extended our contract for the 2,000-bed Blackwater River Correctional Facility through October 2015.
Dividends
On November 5, 2012, the Company announced that on October 31, 2012, its Board of Directors declared a quarterly cash dividend of $.20 per share which will be paid on November 30, 2012 to shareholders of record as of the close of business on November 16, 2012.
17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Companys 6.625% Senior Notes and 7 3/4% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the Company and certain of its wholly-owned domestic subsidiaries (the Subsidiary Guarantors). The following condensed consolidating financial information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the Securities Act, presents the condensed consolidating financial information separately for:
(i) | The GEO Group, Inc., as the issuer of the Notes; |
23
(ii) | The Subsidiary Guarantors, on a combined basis, which are 100% owned by The GEO Group, Inc., and which are guarantors of the Notes; |
(iii) | The Companys other subsidiaries, on a combined basis, which are not guarantors of the Notes (the Non-Guarantor Subsidiaries); |
(iv) | Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among the Company, the Subsidiary Guarantors and the Subsidiary Non-Guarantors and (b) eliminate the investments in the Companys subsidiaries; and |
(v) | The Company and its subsidiaries on a consolidated basis. |
24
CONDENSED CONSOLIDATING BALANCE SHEET
(dollars in thousands)
(unaudited)
As of September 30, 2012 | ||||||||||||||||||||
The GEO Group, Inc. | Combined Subsidiary Guarantors |
Combined Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and cash equivalents |
$ | 45,827 | $ | 4,402 | $ | 18,856 | $ | | $ | 69,085 | ||||||||||
Restricted cash and investments |
| | 15,530 | | 15,530 | |||||||||||||||
Accounts receivable, less allowance for doubtful accounts |
117,313 | 113,123 | 21,023 | | 251,459 | |||||||||||||||
Deferred income tax assets, net |
14,063 | 13,348 | 3,788 | | 31,199 | |||||||||||||||
Prepaid expenses and other current assets |
5,781 | 6,425 | 13,994 | (1,154 | ) | 25,046 | ||||||||||||||
Current assets of discontinued operations |
5,346 | 982 | | | 6,328 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
188,330 | 138,280 | 73,191 | (1,154 | ) | 398,647 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Restricted Cash and Investments |
9,460 | | 34,824 | | 44,284 | |||||||||||||||
Property and Equipment, Net |
633,794 | 961,568 | 114,266 | | 1,709,628 | |||||||||||||||
Assets Held for Sale |
3,083 | 3,507 | | | 6,590 | |||||||||||||||
Direct Finance Lease Receivable |
| | 28,128 | | 28,128 | |||||||||||||||
Intercompany Receivable |
475,241 | 14,212 | 9,866 | (499,319 | ) | | ||||||||||||||
Deferred Income Tax Assets, Net |
| | 1,711 | | 1,711 | |||||||||||||||
Goodwill |
34 | 507,272 | 772 | | 508,078 | |||||||||||||||
Intangible Assets, Net |
| 184,513 | 1,716 | | 186,229 | |||||||||||||||
Investment in Subsidiaries |
1,264,286 | 38,702 | | (1,302,988 | ) | | ||||||||||||||
Other Non-Current Assets |
38,329 | 86,930 | 37,995 | (78,980 | ) | 84,274 | ||||||||||||||
Non-Current Assets of Discontinued Operations |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Assets |
$ | 2,612,557 | $ | 1,934,984 | $ | 302,469 | $ | (1,882,441 | ) | $ | 2,967,569 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||||||||||
Accounts payable |
$ | 12,846 | $ | 37,950 | $ | 2,847 | $ | | $ | 53,643 | ||||||||||
Accrued payroll and related taxes |
20,218 | 11,039 | 19,159 | | 50,416 | |||||||||||||||
Accrued expenses |
89,808 | 23,645 | 22,307 | (1,154 | ) | 134,606 | ||||||||||||||
Current portion of capital lease obligations, long-term debt and non-recourse debt |
28,328 | 1,400 | 18,112 | | 47,840 | |||||||||||||||
Current liabilities of discontinued operations |
315 | 4 | | | 319 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
151,515 | 74,038 | 62,425 | (1,154 | ) | 286,824 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Deferred Income Tax Liabilities |
42,879 | 76,557 | 34 | | 119,470 | |||||||||||||||
Intercompany Payable |
9,866 | 472,038 | 17,415 | (499,319 | ) | | ||||||||||||||
Other Non-Current Liabilities |
32,365 | 103,393 | 2,428 | (78,980 | ) | 59,206 | ||||||||||||||
Capital Lease Obligations |
| 12,192 | | | 12,192 | |||||||||||||||
Long-Term Debt |
1,324,653 | 249 | | | 1,324,902 | |||||||||||||||
Non-Recourse Debt |
| | 113,136 | | 113,136 | |||||||||||||||
Commitments & Contingencies |
||||||||||||||||||||
Shareholders Equity: |
||||||||||||||||||||
The GEO Group, Inc. Shareholders Equity |
1,051,279 | 1,196,510 | 106,478 | (1,302,988 | ) | 1,051,279 | ||||||||||||||
Noncontrolling Interests |
| 7 | 553 | | 560 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Shareholders Equity |
1,051,279 | 1,196,517 | 107,031 | (1,302,988 | ) | 1,051,839 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Liabilities and Shareholders Equity |
$ | 2,612,557 | $ | 1,934,984 | $ | 302,469 | $ | (1,882,441 | ) | $ | 2,967,569 | |||||||||
|
|
|
|
|
|
|
|
|
|
25
CONDENSED CONSOLIDATING BALANCE SHEET
(dollars in thousands)
(unaudited)
As of January 1, 2012 | ||||||||||||||||||||
The GEO Group, Inc. | Combined Subsidiary Guarantors |
Combined Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
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 |
123,426 | 139,574 | 22,810 | | 285,810 | |||||||||||||||
Deferred income tax assets, net |
14,063 | 10,875 | 3,788 | | 28,726 | |||||||||||||||
Prepaid expenses and other current assets |
17,170 | 23,791 | 10,539 | (1,154 | ) | 50,346 | ||||||||||||||
Current assets of discontinued operations |
5,021 | 2,138 | | | 7,159 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
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 |
620,124 | 834,345 | 250,837 | | 1,705,306 | |||||||||||||||
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 |
1,333,885 | 9,784 | | (1,343,669 | ) | | ||||||||||||||
Other Non-Current Assets |
40,695 | 73,480 | 31,022 | (65,621 | ) | 79,576 | ||||||||||||||
Non-Current Assets of Discontinued Operations |
697 | 168 | | | 865 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Assets |
$ | 2,567,325 | $ | 1,818,644 | $ | 488,450 | $ | (1,824,803 | ) | $ | 3,049,616 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||||||||||
Accounts payable |
$ | 47,159 | $ | 18,531 | $ | 3,942 | $ | | $ | 69,632 | ||||||||||
Accrued payroll and related taxes |
2,855 | 18,273 | 17,002 | | 38,130 | |||||||||||||||
Accrued expenses |
69,585 | 33,500 | 24,751 | (1,154 | ) | 126,682 | ||||||||||||||
Current portion of capital lease obligations, long-term debt and non-recourse debt |
19,037 | 1,363 | 33,266 | | 53,666 | |||||||||||||||
Current liabilities of discontinued operations |
542 | 166 | | | 708 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
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 |
||||||||||||||||||||
Shareholders Equity: |
||||||||||||||||||||
The GEO Group, Inc. Shareholders Equity |
1,023,218 | 1,229,553 | 114,116 | (1,343,669 | ) | 1,023,218 | ||||||||||||||
Noncontrolling Interests |
| 14,787 | 516 | | 15,303 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Shareholders Equity |
1,023,218 | 1,244,340 | 114,632 | (1,343,669 | ) | 1,038,521 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Liabilities and Shareholders Equity |
$ | 2,567,325 | $ | 1,818,644 | $ | 488,450 | $ | (1,824,803 | ) | $ | 3,049,616 | |||||||||
|
|
|
|
|
|
|
|
|
|
26
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
For the Thirteen Weeks Ended September 30, 2012 | ||||||||||||||||||||
The GEO Group, Inc. | Combined Subsidiary Guarantors |
Combined Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Revenues |
$ | 152,627 | $ | 217,333 | $ | 61,846 | $ | (20,282 | ) | $ | 411,524 | |||||||||
Operating expenses |
129,012 | 144,573 | 52,529 | (20,282 | ) | 305,832 | ||||||||||||||
Depreciation and amortization |
7,328 | 14,465 | 1,968 | | 23,761 | |||||||||||||||
General and administrative expenses |
9,625 | 13,703 | 3,900 | | 27,228 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
6,662 | 44,592 | 3,449 | | 54,703 | |||||||||||||||
Interest income |
8,178 | 385 | 1,640 | (8,552 | ) | 1,651 | ||||||||||||||
Interest expense |
(17,289 | ) | (8,433 | ) | (3,436 | ) | 8,552 | (20,606 | ) | |||||||||||
Loss on early extinguishment of debt |
| (8,462 | ) | | | (8,462 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes and equity in earnings of affiliates |
(2,449 | ) | 28,082 | 1,653 | | 27,286 | ||||||||||||||
Provision (benefit) for income taxes |
(993 | ) | 10,981 | 1,316 | | 11,304 | ||||||||||||||
Equity in earnings of affiliates, net of income tax provision |
| | 474 | | 474 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before equity in income of consolidated subsidiaries |
(1,456 | ) | 17,101 | 811 | | 16,456 | ||||||||||||||
Income from consolidated subsidiaries, net of income tax provision |
17,912 | | | (17,912 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
16,456 | 17,101 | 811 | (17,912 | ) | 16,456 | ||||||||||||||
Net income (loss) from discontinued operations |
(1,729 | ) | (36 | ) | | 36 | (1,729 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
14,727 | 17,065 | 811 | (17,876 | ) | 14,727 | ||||||||||||||
Net loss attributable to noncontrolling interests |
| | 890 | | 890 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to The GEO Group, Inc. |
$ | 14,727 | $ | 17,065 | $ | 1,701 | $ | (17,876 | ) | $ | 15,617 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 14,727 | $ | 17,065 | $ | 811 | $ | (17,876 | ) | $ | 14,727 | |||||||||
Other comprehensive income, net of tax |
30 | | 85 | | 115 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
$ | 14,757 | $ | 17,065 | $ | 896 | $ | (17,876 | ) | $ | 14,842 | |||||||||
Comprehensive loss attributable to noncontrolling interests |
| 903 | | 903 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to The GEO Group, Inc. |
$ | 14,757 | $ | 17,065 | $ | 1,799 | $ | (17,876 | ) | $ | 15,745 | |||||||||
|
|
|
|
|
|
|
|
|
|
27
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
For the Thirteen Weeks Ended October 2, 2011 | ||||||||||||||||||||
The GEO Group, Inc. | Combined Subsidiary Guarantors |
Combined Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Revenues |
$ | 141,084 | $ | 218,972 | $ | 55,389 | $ | (19,762 | ) | $ | 395,683 | |||||||||
Operating expenses |
126,613 | 148,313 | 42,536 | (19,762 | ) | 297,700 | ||||||||||||||
Depreciation and amortization |
5,420 | 14,574 | 1,856 | | 21,850 | |||||||||||||||
General and administrative expenses |
9,091 | 13,483 | 3,348 | | 25,922 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
(40 | ) | 42,602 | 7,649 | | 50,211 | ||||||||||||||
Interest income |
7,754 | 405 | 1,648 | (8,040 | ) | 1,767 | ||||||||||||||
Interest expense |
(15,805 | ) | (8,065 | ) | (3,497 | ) | 8,040 | (19,327 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes and equity in earnings of affiliates |
(8,091 | ) | 34,942 | 5,800 | | 32,651 | ||||||||||||||
Provision (benefit) for income taxes |
(3,127 | ) | 13,502 | 1,880 | | 12,255 | ||||||||||||||
Equity in earnings of affiliates, net of income tax provision |
| | 272 | | 272 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before equity in income of consolidated subsidiaries |
(4,964 | ) | 21,440 | 4,192 | | 20,668 | ||||||||||||||
Income from consolidated subsidiaries, net of income tax provision |
25,632 | | | (25,632 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
20,668 | 21,440 | 4,192 | (25,632 | ) | 20,668 | ||||||||||||||
Net income from discontinued operations |
625 | 207 | | (207 | ) | 625 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
21,293 | 21,647 | 4,192 | (25,839 | ) | 21,293 | ||||||||||||||
Net loss attributable to noncontrolling interests |
| (1 | ) | 226 | | 225 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to The GEO Group, Inc. |
$ | 21,293 | $ | 21,646 | $ | 4,418 | $ | (25,839 | ) | $ | 21,518 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 21,293 | $ | 21,647 | $ | 4,192 | $ | (25,839 | ) | $ | 21,293 | |||||||||
Other comprehensive income (loss), net of tax |
9 | | (7,530 | ) | | (7,521 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
$ | 21,302 | $ | 21,647 | $ | (3,338 | ) | $ | (25,839 | ) | $ | 13,772 | ||||||||
Comprehensive loss attributable to noncontrolling interests |
| | 325 | | 325 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to The GEO Group, Inc. |
$ | 21,302 | $ | 21,647 | $ | (3,013 | ) | $ | (25,839 | ) | $ | 14,097 | ||||||||
|
|
|
|
|
|
|
|
|
|
28
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
For the Thirty-nine Weeks Ended September 30, 2012 | ||||||||||||||||||||
The GEO Group, Inc. | Combined Subsidiary Guarantors |
Combined Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Revenues |
$ | 446,997 | $ | 653,809 | $ | 185,020 | $ | (60,697 | ) | $ | 1,225,129 | |||||||||
Operating expenses |
390,472 | 439,448 | 149,904 | (60,697 | ) | 919,127 | ||||||||||||||
Depreciation and amortization |
21,572 | 42,783 | 6,288 | | 70,643 | |||||||||||||||
General and administrative expenses |
28,405 | 41,549 | 11,758 | | 81,712 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
6,548 | 130,029 | 17,070 | | 153,647 | |||||||||||||||
Interest income |
23,833 | 1,271 | 4,902 | (24,787 | ) | 5,219 | ||||||||||||||
Interest expense |
(51,043 | ) | (24,270 | ) | (11,504 | ) | 24,787 | (62,030 | ) | |||||||||||
Loss on early extinguishment of debt |
| (8,462 | ) | | | (8,462 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes and equity in earnings of affiliates |
(20,662 | ) | 98,568 | 10,468 | | 88,374 | ||||||||||||||
Provision (benefit) for income taxes |
(7,316 | ) | 37,974 | 4,854 | | 35,512 | ||||||||||||||
Equity in earnings of affiliates, net of income tax provision |
| | 1,652 | | 1,652 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before equity in income of consolidated subsidiaries |
(13,346 | ) | 60,594 | 7,266 | | 54,514 | ||||||||||||||
Income from consolidated subsidiaries, net of income tax provision |
67,860 | | | (67,860 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
54,514 | 60,594 | 7,266 | (67,860 | ) | 54,514 | ||||||||||||||
Net income (loss) from discontinued operations |
(2,252 | ) | 187 | | (187 | ) | (2,252 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
52,262 | 60,781 | 7,266 | (68,047 | ) | 52,262 | ||||||||||||||
Net loss attributable to noncontrolling interests |
| | 881 | | 881 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to The GEO Group, Inc. |
$ | 52,262 | $ | 60,781 | $ | 8,147 | $ | (68,047 | ) | $ | 53,143 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 52,262 | $ | 60,781 | $ | 7,266 | $ | (68,047 | ) | $ | 52,262 | |||||||||
Other comprehensive income (loss), net of tax |
89 | | (469 | ) | | (380 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
$ | 52,351 | $ | 60,781 | $ | 6,797 | $ | (68,047 | ) | $ | 51,882 | |||||||||
Comprehensive loss attributable to noncontrolling interests |
| | 900 | | 900 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to The GEO Group, Inc. |
$ | 52,351 | $ | 60,781 | $ | 7,697 | $ | (68,047 | ) | $ | 52,782 | |||||||||
|
|
|
|
|
|
|
|
|
|
29
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
For the Thirty-nine Weeks Ended October 2, 2011 | ||||||||||||||||||||
The GEO Group, Inc. | Combined Subsidiary Guarantors |
Combined Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Revenues |
$ | 414,896 | $ | 646,942 | $ | 168,404 | $ | (57,411 | ) | $ | 1,172,831 | |||||||||
Operating expenses |
377,637 | 434,589 | 131,142 | (57,411 | ) | 885,957 | ||||||||||||||
Depreciation and amortization |
14,275 | 41,633 | 5,588 | | 61,496 | |||||||||||||||
General and administrative expenses |
30,055 | 44,850 | 11,515 | | 86,420 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
(7,071 | ) | 125,870 | 20,159 | | 138,958 | ||||||||||||||
Interest income |
21,258 | 1,142 | 4,673 | (22,108 | ) | 4,965 | ||||||||||||||
Interest expense |
(45,044 | ) | (21,987 | ) | (10,777 | ) | 22,108 | (55,700 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes and equity in earnings of affiliates |
(30,857 | ) | 105,025 | 14,055 | | 88,223 | ||||||||||||||
Provision (benefit) for income taxes |
(11,836 | ) | 40,582 | 5,183 | | 33,929 | ||||||||||||||
Equity in earnings of affiliates, net of income tax provision |
| | 2,352 | | 2,352 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before equity in income of consolidated subsidiaries |
(19,021 | ) | 64,443 | 11,224 | | 56,646 | ||||||||||||||
Income from consolidated subsidiaries, net of income tax provision |
75,667 | | | (75,667 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations |
56,646 | 64,443 | 11,224 | (75,667 | ) | 56,646 | ||||||||||||||
Net income from discontinued operations |
2,190 | 710 | | (710 | ) | 2,190 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
58,836 | 65,153 | 11,224 | (76,377 | ) | 58,836 | ||||||||||||||
Net loss attributable to noncontrolling interests |
| 1 | 1,049 | | 1,050 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to The GEO Group, Inc. |
$ | 58,836 | $ | 65,154 | $ | 12,273 | $ | (76,377 | ) | $ | 59,886 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 58,836 | $ | 65,153 | $ | 11,224 | $ | (76,377 | ) | $ | 58,836 | |||||||||
Other comprehensive income (loss), net of tax |
28 | | (6,747 | ) | | (6,719 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
58,864 | 65,153 | 4,477 | (76,377 | ) | 52,117 | ||||||||||||||
Comprehensive loss attributable to noncontrolling interests |
| | 1,160 | | 1,160 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to The GEO Group, Inc. |
$ | 58,864 | $ | 65,153 | $ | 5,637 | $ | (76,377 | ) | $ | 53,277 | |||||||||
|
|
|
|
|
|
|
|
|
|
30
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
For the Thirty-nine Weeks Ended September 30, 2012 | ||||||||||||||||
The GEO Group, Inc. | Combined Subsidiary Guarantors |
Combined Non-Guarantor Subsidiaries |
Consolidated | |||||||||||||
Cash Flow from Operating Activities: |
||||||||||||||||
Net cash provided by operating activities |
$ | 85,762 | $ | 76,993 | $ | 63,640 | $ | 226,395 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash Flow from Investing Activities: |
||||||||||||||||
Acquisition of ownership interests in MCF |
| (35,154 | ) | | (35,154 | ) | ||||||||||
Proceeds from sale of property and equipment |
302 | 203 | 103 | 608 | ||||||||||||
Proceeds from sale of assets held for sale |
| 5,641 | | 5,641 | ||||||||||||
Change in restricted cash and investments |
119 | | 40,659 | 40,778 | ||||||||||||
Capital expenditures |
(58,800 | ) | (30,537 | ) | (3,019 | ) | (92,356 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash (used in) provided by investing activities |
(58,379 | ) | (59,847 | ) | 37,743 | (80,483 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash Flow from Financing Activities: |
||||||||||||||||
Payments on long-term debt |
(247,834 | ) | (1,038 | ) | (103,259 | ) | (352,131 | ) | ||||||||
Proceeds from long-term debt |
263,000 | | | 263,000 | ||||||||||||
Distribution to noncontrolling interests |
| | (5,758 | ) | (5,758 | ) | ||||||||||
Proceeds from the exercise of stock options |
1,846 | | | 1,846 | ||||||||||||
Debt issuance costs |
(880 | ) | | (37 | ) | (917 | ) | |||||||||
Payment of make-whole provision and other fees for early extinguishment of debt |
| (14,861 | ) | | (14,861 | ) | ||||||||||
Payments for purchase of treasury shares |
(48 | ) | | | (48 | ) | ||||||||||
Income tax provision of equity compensation |
241 | | | 241 | ||||||||||||
Payments for retirement of common stock |
(1,035 | ) | | | (1,035 | ) | ||||||||||
Proceeds from reissuance of treasury stock in connection with ESPP |
373 | | | 373 | ||||||||||||
Cash dividends paid |
(12,304 | ) | | | (12,304 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities |
3,359 | (15,899 | ) | (109,054 | ) | (121,594 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
| | 14 | 14 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (Decrease) Increase in Cash and Cash Equivalents |
30,742 | 1,247 | (7,657 | ) | 24,332 | |||||||||||
Cash and Cash Equivalents, beginning of period |
15,085 | 3,155 | 26,513 | 44,753 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and Cash Equivalents, end of period |
$ | 45,827 | $ | 4,402 | $ | 18,856 | $ | 69,085 | ||||||||
|
|
|
|
|
|
|
|
31
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
For the Thirty-nine Weeks Ended October 2, 2011 | ||||||||||||||||
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 |
$ | 118,955 | $ | 7,802 | $ | 37,367 | $ | 164,124 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash Flow from Investing Activities: |
||||||||||||||||
Acquisition of BI, cash consideration, net of cash acquired |
(409,607 | ) | | | (409,607 | ) | ||||||||||
Proceeds from sale of property and equipment |
| 781 | 14 | 795 | ||||||||||||
Proceeds from assets held for sale |
| 7,121 | | 7,121 | ||||||||||||
Change in restricted cash and investments |
| |