Edgar Filing: GEO GROUP INC

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2013

¨	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

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of August 6, 2013, the registrant had 72,000,856 shares of common stock outstanding.

TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION			3
ITEM 1. FINANCIAL STATEMENTS			3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND JULY 1, 2012			3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND JULY 1, 2012			4
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012			5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND JULY 1, 2012			6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS			7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			49
ITEM 4. CONTROLS AND PROCEDURES			49
PART II—OTHER INFORMATION			50
ITEM 1. LEGAL PROCEEDINGS			50
ITEM 1A. RISK FACTORS			50
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			51
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			51
ITEM 4. MINE SAFETY DISCLOSURES			51
ITEM 5. OTHER INFORMATION			51
ITEM 6. EXHIBITS			52
SIGNATURES			53

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2013 AND JULY 1, 2012

(In thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30, 2013			July 1, 2012			June 30, 2013			July 1, 2012
Revenues	$	381,653		$	371,173		$	758,684		$	731,215
Operating expenses		279,246			269,141			560,043			539,861
Depreciation and amortization		23,657			22,962			46,592			45,201
General and administrative expenses		27,363			26,129			59,403			52,715

Operating income		51,387			52,941			92,646			93,438
Interest income		1,165			1,761			2,349			3,568
Interest expense		(21,103	)		(20,618	)		(40,444	)		(41,424	)
Loss on extinguishment of debt		(5,527	)		—			(5,527	)		—

Income before income taxes, equity in earnings of affiliates and discontinued operations		25,922			34,084			49,024			55,582
Income tax (benefit) provision		(7,268	)		13,660			(6,387	)		22,150
Equity in earnings of affiliates, net of income tax provision of $417, $303, $894 and $624, respectively		1,029			430			2,246			1,178

Income from continuing operations		34,219			20,854			57,657			34,610
Income from discontinued operations, net of income tax provision of $0, $973, $0 and $1,729, respectively		—			1,622			—			2,925

Net income		34,219			22,476			57,657			37,535
Net (income) loss attributable to noncontrolling interests		(12	)		25			(30	)		(9	)

Net income attributable to The GEO Group, Inc.	$	34,207		$	22,501		$	57,627		$	37,526

Weighted-average common shares outstanding:
Basic		71,083			60,839			70,967			60,803
Diluted		71,607			61,066			71,510			60,984
Income per common share attributable to The GEO Group, Inc.:
Basic:
Income from continuing operations	$	0.48		$	0.34		$	0.81		$	0.57
Income from discontinued operations		—			0.03			—			0.05

Income per common share attributable to The GEO Group, Inc.—basic	$	0.48		$	0.37		$	0.81		$	0.62

Diluted:
Income from continuing operations	$	0.48		$	0.34		$	0.81		$	0.57
Income from discontinued operations		—			0.03			—			0.05

Income per common share attributable to The GEO Group, Inc.—diluted	$	0.48		$	0.37		$	0.81		$	0.62

The accompanying notes are an integral part of these unaudited consolidated financial statements.

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2013 AND JULY 1, 2012

(In thousands)


	Three Months Ended						Six Months Ended
	June 30, 2013			July 1, 2012			June 30, 2013			July 1, 2012
Net income	$	34,219		$	22,476		$	57,657		$	37,535
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net of tax (benefit) provision of $0, $(195), $0 and $125, respectively		(5,328	)		(2,068	)		(6,661	)		(142	)
Pension liability adjustment, net of tax benefit of $25, $19, $51 and $38, respectively		40			29			81			59
Unrealized gain (loss) on derivative instrument classified as cash flow hedge, net of tax provision (benefit) of $16, ($203), $77 and ($220), respectively		28			(430	)		140			(399	)

Total other comprehensive loss, net of tax		(5,260	)		(2,469	)		(6,440	)		(482	)

Total comprehensive income		28,959			20,007			51,217			37,053
Comprehensive (income) loss attributable to noncontrolling interests		19			58			42			(4	)

Comprehensive income attributable to The GEO Group, Inc.	$	28,978		$	20,065		$	51,259		$	37,049

The accompanying notes are an integral part of these unaudited consolidated financial statements.

THE GEO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2013 AND DECEMBER 31, 2012

(In thousands, except share data)


	June 30, 2013			December 31, 2012
	(Unaudited)
ASSETS
*Current Assets*
Cash and cash equivalents	$	38,511		$	31,755
Restricted cash and investments (including VIEs¹ of $6,308 and $6,182, respectively)		15,646			15,654
Accounts receivable, less allowance for doubtful accounts of $2,163 and $2,546, respectively		239,001			246,635
Current deferred income tax assets		18,290			18,290
Prepaid expenses and other current assets		25,142			24,849

Total current assets		336,590			337,183

Restricted Cash and Investments (including VIEs of $16,943 and $15,521, respectively)		37,748			32,756
Property and Equipment, Net (including VIEs of $25,544 and $25,840, respectively)		1,739,986			1,687,159
*Assets Held for Sale*		1,200			3,243
*Direct Finance Lease Receivable*		20,445			26,757
*Non-Current Deferred Income Tax Assets*		2,532			2,532
*Goodwill*		490,216			490,308
*Intangible Assets, Net*		170,743			178,318
*Other Non-Current Assets*		88,742			80,938

Total Assets	$	2,888,202		$	2,839,194

LIABILITIES AND SHAREHOLDERS’ EQUITY
*Current Liabilities*
Accounts payable	$	47,391		$	50,110
Accrued payroll and related taxes		34,314			39,322
Accrued expenses		109,179			116,557
Current portion of capital lease obligations, long-term debt and non-recourse debt (including VIEs of $5,450 and $5,200, respectively)		22,341			53,882

Total current liabilities		213,225			259,871

*Non-Current Deferred Income Tax Liabilities*		15,703			15,703
*Other Non-Current Liabilities*		74,137			82,025
*Capital Lease Obligations*		11,426			11,926
*Long-Term Debt*		1,444,475			1,317,529
*Non-Recourse Debt (including VIEs of $11,588 and $16,997 respectively)*		93,352			104,836
*Commitments and Contingencies* (Note 12)
*Shareholders’ Equity*
Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued or outstanding		—			—
Common stock, $0.01 par value, 90,000,000 shares authorized, 86,586,630 and 86,007,433 issued and 72,000,856 and 71,417,034 outstanding, respectively		865			860
Additional paid-in capital		841,097			832,230
Earnings in excess of distributions		250,767			264,667
Accumulated other comprehensive income (loss)		(3,698	)		2,670
Treasury stock, 14,585,774 and 14,590,399 shares, at cost, respectively		(53,597	)		(53,615	)

Total shareholders’ equity attributable to The GEO Group, Inc.		1,035,434			1,046,812
Noncontrolling interests		450			492

Total shareholders’ equity		1,035,884			1,047,304

Total Liabilities and Shareholders’ Equity	$	2,888,202		$	2,839,194

¹	Variable interest entities or “VIEs”

The accompanying notes are an integral part of these unaudited consolidated financial statements.

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

FOR THE SIX MONTHS ENDED

JUNE 30, 2013 AND JULY 1, 2012

(In thousands)


	Six Months Ended
	June 30, 2013			July 1, 2012
Cash Flow from Operating Activities:
Net Income	$	57,657		$	37,535
Net income attributable to noncontrolling interests		(30	)		(9	)

Net income attributable to The GEO Group, Inc.		57,627			37,526
Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities:
Stock-based compensation		705			1,433
Loss on extinguishment of debt		5,527			—
Depreciation and amortization expense		46,632			45,201
Amortization of debt issuance costs, discount and/or premium		3,015			1,369
Restricted stock expense		2,640			2,061
Provision for doubtful accounts		158			517
Equity in earnings of affiliates, net of tax		(2,246	)		(1,178	)
Income tax (benefit) provision related to equity compensation		(1,308	)		270
Release of reserve for uncertain tax positions		(6,356	)		—
Loss on sale/disposal of property and equipment		603			915
Changes in assets and liabilities:
Changes in accounts receivable, prepaid expenses and other assets		9,501			23,373
Changes in accounts payable, accrued expenses and other liabilities		(15,184	)		5,445

Cash provided by operating activities—continuing operations		101,314			116,932
Cash provided by operating activities—discontinued operations		—			10,034

Net cash provided by operating activities		101,314			126,966

Cash Flow from Investing Activities:
Proceeds from sale of property and equipment		51			231
Proceeds from sale of assets held for sale		1,968			297
Net working capital adjustment from RTS divestiture		(996	)		—
Change in restricted cash and investments		(5,910	)		553
Capital expenditures		(89,921	)		(69,536	)

Cash used in investing activities—continuing operations		(94,808	)		(68,455	)
Cash used in investing activities—discontinued operations		—			(2,537	)

Net cash used in investing activities		(94,808	)		(70,992	)

Cash Flow from Financing Activities:
Distribution to noncontrolling interests		—			(5,758	)
Proceeds from long term debt		785,000			145,000
Payments on long-term debt		(697,748	)		(169,282	)
Payments for retirement of common stock		—			(1,035	)
Proceeds from reissuance of treasury stock in connection with ESPP		155			—
Debt issuance costs		(17,017	)		(44	)
Income tax benefit (provision) related to equity compensation		1,308			(270	)
Proceeds from the exercise of stock options		4,082			396
Cash dividends paid		(71,527	)		—

Net cash provided by (used in) financing activities		4,253			(30,993	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(4,003	)		(43	)

Net Increase in Cash and Cash Equivalents		6,756			24,938
Cash and Cash Equivalents, beginning of period		31,755			43,378

Cash and Cash Equivalents, end of period	$	38,511		$	68,316

Supplemental Disclosures:
Non-cash Investing and Financing activities:
Capital expenditures in accounts payable and accrued expenses	$	2,739		$	6,801

The accompanying notes are an integral part of these unaudited consolidated financial statements.

THE GEO GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The GEO Group, Inc., a Florida corporation, and subsidiaries (the “Company” or “GEO”), is a real estate investment trust (“REIT”) specializing in the ownership, leasing and management of correctional, detention and re-entry facilities and the provision of community-based services and youth services in the United States, Australia, South Africa, the United Kingdom and Canada. The Company owns, leases and operates a broad range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, as well as community based re-entry facilities. 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 June 30, 2013, the Company’s worldwide operations included the management and/or ownership of approximately 72,000 beds at 95 correctional and detention 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 Company’s unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States and the instructions to Form 10-Q and consequently do not include all disclosures required by Form 10-K. The accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2013 for the fiscal year ended December 31, 2012. The accompanying December 31, 2012 consolidated balance sheet has been derived from those audited financial statements. Additional information may be obtained by referring to the Company’s Form 10-K for the year ended December 31, 2012. 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 three and six months ended June 30, 2013 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2013, or for any other future interim or annual periods.

REIT Conversion - GEO began operating as a REIT for federal income tax purposes effective January 1, 2013. As a result of the REIT conversion, GEO reorganized its operations and moved non-real estate components into taxable REIT subsidiaries (“TRS”). Through the TRS structure, the portion of GEO’s businesses which are non-real estate related, such as its managed-only contracts, international operations, electronic monitoring services, and other non-residential and community based facilities, are part of wholly-owned taxable subsidiaries of the REIT. Most of GEO’s business segments, which are real estate related and involve company-owned and company-leased facilities, are part of the REIT. The TRS structure allows the Company to maintain the strategic alignment of almost all of its diversified business segments under one entity. The TRS assets and operations will continue to be subject to federal and state corporate income taxes and to foreign taxes as applicable in the jurisdictions in which those assets and operations are located. As a REIT, GEO is required to make distributions of its REIT taxable income to its shareholders. Refer to Note 5 - Shareholders’ Equity.

Divestiture of Residential Treatment Services - The operating results of Residential Treatment Services (“RTS”), which was divested on December 31, 2012, have been retroactively reclassified to discontinued operations for the three and six months ended July 1, 2012. Refer to Note 8 - Discontinued Operations.

Change of Reporting Segment Name from GEO Care to GEO Community Services - The Company’s GEO Care reporting segment previously consisted of four aggregated operating segments including Residential Treatment Services, Community Based Services, Youth Services and B.I. Incorporated (“BI”). The GEO Care reporting segment was renamed GEO Community Services concurrent with the divestiture of the Company’s Residential Treatment Services operating segment. All current and prior year financial position and results of operations amounts presented for this reporting segment are referred to as GEO Community Services.

Fiscal Year - In connection with the REIT conversion, effective December 31, 2012, the Company changed to a calendar year from a fiscal year that ended on the Sunday closest to the calendar year end and changed its fiscal quarters to coincide with each calendar quarter. The second fiscal quarter of 2013 began on April 1, 2013 and ended on June 30, 2013, and is referred to as the three months ended June 30, 2013. The six month period of 2013 began on January 1, 2013 and ended on June 30, 2013, and is referred to as the six months ended June 30, 2013. The second fiscal quarter of 2012 began on April 2, 2012 and ended on July 1, 2012, and is referred to as the three months ended July 1, 2012. The six month period of 2012 began on January 2, 2012 and ended on July 1, 2012, and is referred to as the six months ended July 1, 2012.

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 December 31, 2012 to June 30, 2013 are related solely 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 completed prior to 2013. Changes in the gross carrying amounts from December 31, 2012 to June 30, 2013 are solely related to fluctuations in foreign currency exchange rates. The Company’s intangible assets include facility management contracts, non-compete agreements and the trade name and technology of BI, as follows (in thousands):


	June 30, 2013									December 31, 2012
	Weighted Average Useful Life (years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Facility management contracts		13.4	$	151,683	$	(38,897	)	$	112,786	$	151,913	$	(33,141	)	$	118,772
Covenants not to compete		2.0		8,570		(8,570	)		—		8,570		(8,495	)		75
Technology		7.0		21,200		(7,243	)		13,957		21,200		(5,729	)		15,471
Trade name (Indefinite lived)		Indefinite		44,000		—			44,000		44,000		—			44,000

Total acquired intangible assets			$	225,453	$	(54,710	)	$	170,743	$	225,683	$	(47,365	)	$	178,318

Amortization expense was $3.6 million and $7.3 million, respectively, for the three months and six months ended June 30, 2013. Amortization expense was $4.6 million and $9.2 million, respectively, for the three months and six months ended July 1, 2012. Amortization expense was primarily related to the U.S. Corrections & Detention and GEO Community Services segments’ amortization of acquired facility management contracts. As of June 30, 2013, the weighted average period before the next contract renewal or extension for the facility management contracts was approximately 1.3 years. Although the facility management contracts acquired have renewal and extension terms in the near term, the Company has historically maintained these relationships beyond the contractual periods.

Estimated amortization expense related to the Company’s finite-lived intangible assets for the remainder of fiscal year 2013 through fiscal year 2017 and thereafter is as follows (in thousands):


Fiscal Year	Total Amortization Expense
Remainder of 2013	$	7,266
2014		14,531
2015		14,531
2016		14,531
2017		14,531
Thereafter		61,353

	$	126,743

3. FINANCIAL INSTRUMENTS

The following tables provide a summary of the Company’s significant financial assets and liabilities carried at fair value and measured on a recurring basis as of June 30, 2013 and December 31, 2012 (in thousands):


			Fair Value Measurements at June 30, 2013
	Carrying Value at June 30, 2013		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Interest rate swap derivative assets	$	4,599	$	—	$	4,599	$	—
Restricted investments:
Guaranteed Investment Contract		5,742		—		5,742		—
Rabbi Trust		8,163		8,163		—		—
Fixed income securities		1,996		—		1,996		—
Liabilities:
Interest rate swap derivative liabilities	$	490	$	—	$	490	$	—

			Fair Value Measurements at December 31, 2012
	Carrying Value at December 31, 2012		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Interest rate swap derivative assets	$	6,212	$	—	$	6,212	$	—
Restricted investments:
Guaranteed Investment Contract		5,742		—		5,742		—
Rabbi Trust		7,718		7,718		—		—
Fixed income securities		2,152		—		2,152		—
Liabilities:
Interest rate swap derivative liabilities	$	708	$	—	$	708	$	—

The Company’s Level 1 investment included in the tables above as of June 30, 2013 and December 31, 2012 relates to the Company’s rabbi trust established for GEO employee and employer contributions to The GEO Group Inc. Non-qualified Deferred Compensation Plan. These contributions are invested in cash and mutual funds for which quoted market prices in active markets are available.

The Company’s Level 2 financial instruments included in the tables above as of June 30, 2013 and December 31, 2012 consist of an interest rate swap liability held by the Company’s Australian subsidiary, other interest rate swap assets of the Company, an investment in Canadian dollar denominated fixed income securities, and a guaranteed investment contract which is a restricted investment related to CSC of Tacoma LLC (“CSC”). The Australian subsidiary’s interest rate swap liability is valued using a discounted cash flow model based on projected Australian borrowing rates. The Company’s other interest rate swap assets 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.

4. FAIR VALUE OF ASSETS AND LIABILITIES

The Company’s consolidated balance sheets reflect certain financial assets and liabilities at carrying value. The carrying value of certain debt instruments, if applicable, is net of unamortized discount. The following tables present the carrying values of those financial instruments and the estimated corresponding fair values at June 30, 2013 and December 31, 2012 (in thousands):


			Estimated Fair Value Measurements at June 30, 2013
	Carrying Value as of June 30, 2013		Total Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	38,511	$	38,511	$	38,511	$	—	$	—
Restricted cash		39,489		39,489		39,489		—		—
Liabilities:
Borrowings under Senior Credit Facility	$	595,000	$	597,250	$	—	$	597,250	$	—
7³/₄% Senior Notes		247,756		262,345		—		262,345		—
6.625% Senior Notes		300,000		316,314		—		316,314		—
5.125% Senior Notes		300,000		288,375		—		288,375		—
Non-recourse debt, Australian subsidiary		27,817		28,531		—		28,531		—
Other non-recourse debt, including current portion		83,665		86,639		—		86,639		—

			Estimated Fair Value Measurements at December 31, 2012
	Carrying Value as of December 31, 2012		Total Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	31,755	$	31,755	$	31,755	$	—	$	—
Restricted cash		34,949		34,949		34,949		—		—
Liabilities:
Borrowings under Senior Credit Facility	$	797,430	$	803,097	$	—	$	803,097	$	—
7³/₄% Senior Notes		247,543		270,313		—		270,313		—
6.625% Senior Notes		300,000		335,814		—		335,814		—
Non-recourse debt, Australian subsidiary		34,832		34,973		—		34,973		—
Other non-recourse debt, including current portion		88,650		91,345		—		91,345		—

The fair values of the Company’s cash and cash equivalents, and restricted cash approximates the carrying values of these assets at June 30, 2013 and December 31, 2012. Restricted cash consists of debt service funds used for payments on the Company’s non-recourse debt and rabbi trust funds. The fair values of the Company’s 7³/₄% senior unsecured notes due 2017 (“7³/₄% Senior Notes”), 6.625% senior unsecured notes due 2021 (“6.625% Senior Notes”), and the 5.125% senior unsecured notes due 2023 (“5.125% Senior Notes”), although not actively traded, are based on published financial data for these instruments. The fair values of the Company’s non-recourse debt related to South Texas Local Development Corporation (“STLDC”) and Washington Economic Development Finance Authority (“WEDFA”) are based on market prices for similar instruments. The fair value of the non-recourse debt related to the Company’s Australian subsidiary is estimated using a discounted cash flow model based on current Australian borrowing rates for similar instruments. The fair value of borrowings under the Senior Credit Facility is based on an estimate of trading value considering the Company’s borrowing rate, the undrawn spread and similar instruments.

5. SHAREHOLDERS’ EQUITY

The following table presents the changes in shareholders’ equity that are attributable to the Company’s shareholders and to noncontrolling interests (in thousands):


	Common shares				Additional Paid-In Capital			Earnings in Excess of Distributions			Accumulated Other Comprehensive Income (Loss)			Treasury shares						Noncontrolling Interests			Total Shareholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Earnings in Excess of Distributions						Shares			Amount			Noncontrolling Interests			Total Shareholders’ Equity
*Balance, December 31, 2012*		71,417	$	860	$	832,230		$	264,667		$	2,670			14,590		$	(53,615	)	$	492		$	1,047,304
Proceeds from exercise of stock options		234		2		4,080			—			—			—			—			—			4,082
Tax benefit related to equity compensation		—		—		1,308			—			—			—			—			—			1,308
Stock based compensation expense		—		—		705			—			—			—			—			—			705
Restricted stock granted		345		3		(3	)		—			—						—			—			—
Amortization of restricted stock		—		—		2,640			—			—			—			—			—			2,640
Dividends paid		—		—		—			(71,527	)		—			—			—			—			(71,527	)
Re-issuance of treasury shares (ESPP)		5		—		137			—			—			(5	)		18			—			155
Net income		—		—		—			57,627			—			—			—			30			57,657
Other comprehensive income (loss)		—		—		—			—			(6,368	)		—			—			(72	)		(6,440	)

*Balance, June 30, 2013*		72,001	$	865	$	841,097		$	250,767		$	(3,698	)		14,585		$	(53,597	)	$	450		$	1,035,884

REIT Distributions

As a REIT, GEO is required to distribute annually at least 90% of its REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gain) and began paying regular quarterly REIT dividends in 2013. The amount, timing and frequency of future dividends, however, will be at the sole discretion of GEO’s Board of Directors (“the Board”) and will be declared based upon various factors, many of which are beyond GEO’s control, including, GEO’s financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income taxes that GEO otherwise would be required to pay, limitations on distributions in GEO’s existing and future debt instruments, limitations on GEO’s ability to fund distributions using cash generated through GEO’s TRS and other factors that GEO’s Board may deem relevant. Dividends of $0.50 per share of common stock were paid during the quarter ended March 31, 2013. Dividends of $0.50 per share of common stock were paid during the quarter ended June 30, 2013.

Prospectus Supplement

On May 8, 2013, the Company filed with the Securities and Exchange Commission a prospectus supplement related to the offer and sale from time to time of the Company’s common stock at an aggregate offering price of up to $100 million through sales agents. Sales of shares of the Company’s common stock under the prospectus supplement and equity distribution agreement entered into with the sales agents, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933. There were no sales of shares of the Company’s common stock under the prospectus supplement during the six months ended June 30, 2013.

Comprehensive Income (Loss)

Comprehensive income (loss) represents the change in shareholders’ equity from transactions and other events and circumstances arising from non-shareholder sources. The Company’s total comprehensive income is comprised of net income attributable to GEO, net income attributable to noncontrolling interests, foreign currency translation adjustments that arise from consolidating foreign operations that do not impact cash flows, net unrealized gains and/or losses on derivative instruments, and pension liability adjustments in the consolidated statements of shareholders’ equity and comprehensive income.

The components of accumulated other comprehensive income (loss) attributable to GEO included in the consolidated statement of shareholders’ equity are as follows:


	Six Months Ended June 30, 2013 (In thousands)
	Foreign currency translation adjustments, net of tax attributable to The GEO Group, Inc. [1]			Unrealized (loss)/gain on derivatives, net of tax			Pension adjustments, net of tax			Total
Beginning balance	$	5,755		$	(457	)	$	(2,628	)	$	2,670
Current-period other comprehensive (loss) income		(6,589	)		140			81			(6,368	)

Ending Balance	$	(834	)	$	(317	)	$	(2,547	)	$	(3,698	)

^[1]	The foreign currency translation, net of tax, related to noncontrolling interests was not significant at June 30, 2013 or December 31, 2012, respectively.

6. EQUITY INCENTIVE PLANS

As of June 30, 2013, under the 2006 Stock Incentive Plan (“2006 Plan”), the Company had 1,704,344 shares of common stock available for issuance pursuant to future awards that may be granted under the plan of which up to 404,104 shares were available for the issuance of awards other than stock options.

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 six months ended June 30, 2013:


	Shares			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contractual Term (years)		Aggregate Intrinsic Value
	(in thousands)							(in thousands)
Options outstanding at December 31, 2012		1,198		$	18.92		6.85	$	11,090
Options granted		—			—
Options exercised		(234	)	$	17.43
Options forfeited/canceled/expired		(5	)	$	21.34

Options outstanding at June 30, 2013		959		$	19.28		6.75	$	14,074

Options vested and expected to vest at June 30, 2013		929		$	19.21		6.71	$	13,701

Options exercisable at June 30, 2013		594		$	18.23		6.13	$	9,346

The Company did not grant any stock options during the six months ended June 30, 2013. For the six months ended June 30, 2013 and July 1, 2012, the amount of stock-based compensation expense related to stock options was $0.7 million and $1.4 million, respectively. As of June 30, 2013, the Company had $1.8 million of unrecognized compensation costs related to non-vested stock option awards that are expected to be recognized over a weighted average period of 1.8 years.

Restricted Stock

Compensation expense for nonvested stock awards is recorded over the vesting period based on the fair value at the date of grant. Generally, the restricted stock awards vest in equal increments over either a three or four year period. The Company has issued share-based awards with service-based, performance-based and market-based vesting criteria.

A summary of the activity of restricted stock outstanding is as follows for the six months ended June 30, 2013:


	Shares			Wtd. Avg. Grant Date Fair Value
	(in thousands)
Restricted stock outstanding at December 31, 2012		670		$	18.14
Granted		345			37.40
Vested		(131	)		21.29
Forfeited/canceled		—			—

Restricted stock outstanding at June 30, 2013		884		$	23.00

During the six months ended June 30, 2013, the Company granted 345,060 shares of restricted stock to certain employees and executive officers. Of these awards, 92,810 are performance-based awards which will be forfeited if the Company does not achieve certain annual metrics during 2013, 2014 and 2015.

The vesting of these performance-based restricted stock grants are subject to the achievement by GEO of two annual performance metrics as follows: (i) up to 75% of the shares of restricted stock (“Target Award”) can vest at the end of a three-year performance period if GEO meets certain total shareholder return (“TSR”) performance targets, as compared to the total shareholder return of a peer group of companies, during 2013, 2014 and 2015; and (ii) up to 25% of the shares of restricted stock (“Target Award”) can vest at the end of a three-year period if GEO meets certain return on capital employed (“ROCE”) performance targets in 2013, 2014 and 2015. These performance awards can vest at between 0% and 200% of the Target Awards for both metrics. The number of shares shown for the performance-based awards is based on the Target Awards for both metrics.

The metric related to ROCE is considered to be a performance condition. For share-based awards that contain a performance condition, the achievement of the targets must be probable before any share-based compensation expense is recorded. The Company reviews the likelihood of which target in the range will be achieved and if deemed probable, compensation expense is recorded at that time. If subsequent to initial measurement there is a change in the estimate of the probability of meeting the performance condition, the effect of the change in the estimated quantity of awards expected to vest is recognized by cumulatively adjusting compensation expense. If ultimately the performance targets are not met, for any awards where vesting was previously deemed probable, previously recognized compensation expense will be reversed in the period in which vesting is no longer deemed probable. The fair value of these awards was determined based on the closing price of the Company’s common stock on the date of grant.

The metric related to TSR is considered to be a market condition. For share-based awards that contain a market condition, the probability of satisfying the market condition must be considered in the estimate of grant-date fair value and previously recorded compensation expense is not reversed if the market condition is never met. The fair value of these awards was determined based on a Monte Carlo simulation, which calculates a range of possible outcomes and the probabilities that they will occur, using the following key assumptions: (i) volatility of 26.6%; (ii) beta of 0.681; and (iii) risk free rate of 0.42%.

For the six months ended June 30, 2013 and July 1, 2012, the Company recognized $2.6 million and $2.1 million, respectively, of compensation expense related to its restricted stock awards. As of June 30, 2013, the Company had $18.2 million of unrecognized compensation costs related to non-vested restricted stock awards, including non-vested restricted stock awards with performance-based and market-based vesting, that are expected to be recognized over a weighted average period of 3.1 years.

Employee Stock Purchase Plan

The Company adopted The GEO Group Inc. 2011 Employee Stock Purchase Plan (the “Plan”). The purpose of the Plan, which is qualified under Section 423 of the Internal Revenue Service Code of 1986, as amended, is to encourage stock ownership through payroll deductions by the employees of GEO and designated subsidiaries of GEO in order to increase their identification with the Company’s goals and secure a proprietary interest in the Company’s success. These deductions are used to purchase shares of the Company’s common stock at a 5% discount from the then current market price. The Company has made available 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.

The Plan is considered to be non-compensatory. As such, there is no compensation expense required to be recognized. Share purchases under the Plan are made on the last day of each month. During the six months ended June 30, 2013, 4,625 shares were issued out of the Company’s treasury stock in connection with the Plan.

7. EARNINGS PER SHARE FROM CONTINUING OPERATIONS

Basic earnings per share is computed by dividing the income from continuing operations attributable to The GEO Group, Inc. shareholders by the weighted average number of outstanding shares of common stock. The calculation of diluted earnings per share is similar to that of basic earnings per share except that the denominator includes dilutive common stock equivalents such as stock options and shares of restricted stock. Basic and diluted earnings per share (“EPS”) from continuing operations were calculated for the three and six months ended June 30, 2013 and July 1, 2012 as follows (in thousands, except per share data):


	Three Months Ended					Six Months Ended
	June 30, 2013			July 1, 2012		June 30, 2013			July 1, 2012
Income from continuing operations	$	34,219		$	20,854	$	57,657		$	34,610
Net (income) loss attributable to noncontrolling interests		(12	)		25		(30	)		(9	)

Net income from continuing operations attributable to The GEO Group, Inc.		34,207			20,879		57,627			34,601
Basic earnings per share attributable to The GEO Group, Inc.:
Weighted average shares outstanding		71,083			60,839		70,967			60,803

Per share amount from continuing operations	$	0.48		$	0.34	$	0.81		$	0.57

Diluted earnings per share attributable to The GEO Group, Inc.:
Weighted average shares outstanding		71,083			60,839		70,967			60,803
Effect of dilutive securities: Stock options and restricted stock		524			227		543			181

Weighted average shares assuming dilution		71,607			61,066		71,510			60,984

Per share amount from continuing operations	$	0.48		$	0.34	$	0.81		$	0.57

Three Months

For the three months ended June 30, 2013 no shares of common stock underlying options or shares of restricted stock were anti-dilutive.

For the three months ended July 1, 2012 57,937 weighted average shares of common stock underlying options and 1,642 shares of restricted stock were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

Six Months

For the six months ended June 30, 2013 no shares of common stock underlying options or shares of restricted stock were anti-dilutive.

For the six months ended July 1, 2012 112,428 weighted average shares of common stock underlying options and 1,584 shares of restricted stock were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

8. DISCONTINUED OPERATIONS

The Company reports the results of operations of a component of an entity that either has been disposed of or is classified as held for sale or where the management contracts with that component have terminated, either by expiration or otherwise, in discontinued operations. The Company presents such events as discontinued operations so long as the financial results can be clearly identified, the future 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.

When a component of an entity has been disposed of or classified as held for sale or a management contract is terminated, the Company looks at its overall relationship with the customer. If the operations or cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the transaction and the entity will not have significant continuing involvement in the operations of the component after the transaction, the results of operations of the component of an entity are reported in discontinued operations. If the Company will continue to maintain a relationship generating significant cash flows and having continuing involvement with the customer, the disposal, the asset held for sale classification or the loss of the management contract(s) is not treated as discontinued operations. If the disposal, the asset held for sale classification or the loss of the management contract(s) results in a loss in the overall customer relationship as no future significant cash flows will be generated and the Company will have no continuing involvement with the customer, the results are classified in discontinued operations.

Divestiture of RTS Operations

On December 31, 2012, the Company completed the divestiture of its RTS operating component, which was purchased by GEO Care Holdings LLC, an entity owned by certain current and former members of GEO’s management team (the “MBO Group”). Cash proceeds received on December 31, 2012 from the divestiture amounted to $33.3 million, net of an initial working capital adjustment, subject to a final working capital adjustment determined within 105 days of the transaction closing date. The final working capital adjustment resulted in a net cash sale price of $32.3 million In accordance with the purchase agreement, the MBO Group would also be obligated to pay up to an additional $5.0 million in purchase price on a contingent earn-out basis if certain potential future contract awards are received by RTS. In addition, the purchase agreement provides for (i) a purchase price adjustment in favor of the MBO Group in the event certain client consents are not obtained within one year following the divestiture, and (ii) a purchase price adjustment in favor of the MBO Group if certain key contracts (as defined in the Purchase Agreement) are terminated up to one year following the divestiture. There were no amounts recorded under these earn-out provisions during the three or six months ended June 30, 2013.

In connection with the RTS divestiture, the Company and GEO Care Holdings LLC entered into a services agreement pursuant to which the Company will provide accounting support, information systems services, legal support services, risk management services, property management and design services and office space for a five-year term in return for an annual fee of $1.8 million payable in equal monthly installments (the “Services Agreement”). The Company and GEO Care Holdings LLC also executed a license agreement pursuant to which the Company granted to GEO Care Holdings LLC an exclusive license for a five-year term to use the GEO Care service mark and domain name in connection with the RTS business in return for an annual fee of $0.4 million payable in equal monthly installments (the “License Agreement”). In addition, the Company and GEO Care Holdings LLC entered into employment agreements with certain executive officers in order to allocate the services to be provided by the executive officers and related compensation and benefits between the Company and GEO Care Holdings LLC. During the three and six months ended June 30, 2013, the Company earned fees under the above noted Services Agreement and License Agreement amounting to an aggregate of $0.6 million and $1.2 million, respectively, which have been recorded as an offset to operating expenses in the accompanying consolidated statements of operations.

During the three months ended July 1, 2012, RTS had revenue and pre-tax income of $41.2 million and $3.5 million, respectively. During the six months ended July 1, 2012, RTS had revenue and pre-tax income of $82.4 million and $5.5 million, respectively. The operating results and cash flows of RTS for the three and six months ended July 1, 2012 have been retrospectively reflected as discontinued operations in the accompanying consolidated statements of operations and cash flows.

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 all other management contracts with the State of Mississippi Department of Corrections (“MDOC”) including its managed-only contracts 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.

During the three months ended July 1, 2012, revenues and a pre-tax loss relating to the operations of MDOC were $11.2 million and $(0.9) million, respectively. During the six months ended July 1, 2012, RTS had revenue and a pre-tax loss of $22.3 million and $(0.9) million, respectively. The operating results and cash flows relating to the operations of MDOC for the three and six months ended July 1, 2012 are reflected as discontinued operations in the accompanying consolidated statements of operations and cash flows.

All income from discontinued operations included in the consolidated statements of operations is attributable to The GEO Group, Inc.

9. DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in interest rates. The Company measures its derivative financial instruments at fair value.

As of June 30, 2013, the Company had four interest rate swap agreements in the aggregate notional amount of $100.0 million. The Company has designated these interest rate swaps as hedges against changes in the fair value of a designated portion of the 7³/₄% Senior Notes due to changes in underlying interest rates. These swap agreements, which have payment, expiration dates and call provisions that mirror the terms of the 7³/₄% Senior Notes, effectively convert $100.0 million of the 7³/₄% Senior Notes into variable rate obligations. Each of the swaps has a termination clause that gives the counterparty the right to terminate the interest rate swaps at fair 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 7³/₄% per year calculated on the notional $100.0 million amount, while it makes a variable interest rate payment to the same counterparties equal to the three-month LIBOR plus a fixed margin of between 4.16% and 4.29%, also calculated on the notional $100.0 million amount. Changes in the fair value of the interest rate swaps are recorded in earnings along with related designated changes in the value of the 7³/₄% Senior Notes. Total net losses, entirely offset by a corresponding increase in the fair value of the variable rate portion of the 7³/₄% Senior Notes, recognized and recorded in earnings related to these fair value hedges were $0.9 million and $1.6 million during the three months and six months ended June 30, 2013, respectively. As of June 30, 2013 and December 31, 2012, the swap assets’ fair values were $4.6 million and $6.2 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 quarters ended June 30, 2013 or July 1, 2012.

The Company’s 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 gains recorded in other comprehensive income, net of tax, related to this cash flow hedge was $0.0 million and $0.1 million for the three months and six months ended June 30, 2013, respectively. The total fair value of the swap liability as of June 30, 2013 and December 31, 2012 was $0.5 million and $0.7 million, respectively, and is recorded as a component of other assets within the accompanying consolidated balance sheets. There was no material ineffectiveness of this interest rate swap for the 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 AND INVESTMENT IN AFFILIATES

The Company evaluates its joint ventures and other entities in which it has a variable interest (a “VIE”), generally in the form of investments, loans, guarantees, or equity in order to determine if it has a controlling financial interest and is required to consolidate the entity as a result. The reporting entity with a variable interest that provides the entity with a controlling financial interest in the VIE will have both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

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 10-year term and are non-recourse to the Company. At the end of the 10-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 June 30, 2013 and December 31, 2012 was $25.7 million and $25.8 million, respectively, and is included in Property and Equipment in the accompanying consolidated balance sheets.

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 Company’s 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 a default by SACS, in which case the government guarantee is reduced to 80%. The Company’s maximum exposure for loss under this contract is limited to its investment in the joint venture of $8.3 million at June 30, 2013 and its guarantees related to SACS that are 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 Company’s 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 Company’s investment in this entity is accounted for under the equity method of accounting. Both parties provide lines of credit of £12 million, or $18.3 million, based on exchange rates in effect as of June 30, 2013, to ensure that GEOAmey can comply with future contractual commitments related to the performance of its operations. As of June 30, 2013, $18.4 million, including accrued interest, was owed to the Company by GEOAmey under the line of credit. GEOAmey commenced operations on August 29, 2011. Refer to Note 11—Debt for further discussion of the Company’s maximum exposure for loss relating to GEOAmey.

11. DEBT

Debt outstanding as of June 30, 2013 and December 31, 2012 consisted of the following (in thousands):


	June 30, 2013			December 31, 2012
Credit Facility:
Term loan	$	300,000		$	563,625
Unamortized discount on term loan		—			(1,195	)
Revolver		295,000			235,000

Total Senior Credit Facility		595,000			797,430
5.125% Senior Notes:
Notes due in 2023		300,000			—
6.625% Senior Notes:
Notes due in 2021		300,000			300,000
7³/₄% Senior Notes:
Notes due in 2017		250,000			250,000
Unamortized discount on Notes		(2,244	)		(2,457	)
Swap on Notes		4,599			6,212

Total 7³/4% Senior Notes		252,355			253,755
Non-Recourse Debt :
Non-Recourse Debt		112,732			124,947
Unamortized discount on Non-Recourse Debt		(1,250	)		(1,465	)

Total Non-Recourse Debt		111,482			123,482
Capital Lease Obligations		12,422			12,994
Other debt		335			512

Total debt		1,571,594			1,488,173
Current portion of capital lease obligations, long-term debt and non-recourse debt		(22,341	)		(53,882	)
Capital Lease Obligations, long-term portion		(11,426	)		(11,926	)
Non-Recourse Debt		(93,352	)		(104,836	)

Long-Term Debt	$	1,444,475		$	1,317,529

New Credit Agreement

On April 3, 2013, the Company terminated its Forth Amended and Restated Credit Agreement (“Prior Senior Credit Facility”), which consisted of a Term Loan A, Term Loan A-2, Term Loan A-3, Term Loan B (“Prior Term Loans) and a Revolver (“Prior Revolver”), and entered into a new credit agreement by and among GEO and GEO Corrections Holdings, Inc., as Borrowers, BNP Paribas, as Administrative Agent, and the lenders who are, or may from time to time become, a party thereto (the “Credit Agreement”). The Credit Agreement consists of a $300 million Term Loan B (the “Term Loan B”) bearing interest at LIBOR plus 2.50% (with a LIBOR floor of 0.75%), and a $700 million revolving credit facility (the “Revolver”) currently bearing interest at LIBOR plus 2.50% (with no LIBOR floor). The Revolver component is scheduled to mature on April 3, 2018 and the Term Loan B component is scheduled to mature on April 3, 2020. The Term Loan B and Revolver may be prepaid in whole or in part by the Company at any time without premium or penalty, subject to certain conditions.

The Company has accounted for the termination of the Prior Term Loans component of its Prior Senior Credit Facility as an extinguishment of debt and has accounted for the termination of the Prior Revolver component of the Prior Senior Credit Facility based upon the borrowing capacity accounting guidance for modification of revolving credit arrangements. Loan costs of $10.2 million were incurred in connection with the Credit Agreement transaction, of which $1.1 million was expensed as incurred as this amount was associated with the extinguishment of the Prior Term Loan component, and $9.1 million has been capitalized as deferred financing fees and is included in Other Non-Current Assets in the accompanying consolidated balance sheet as of June 30, 2013, and will be amortized to interest expense using an effective interest method throughout the term of the Revolver or Term Loan B as applicable. In addition, the Company wrote off $1.1 million in unamortized debt discount and $3.3 million of unamortized deferred financing costs pertaining to the Prior Term Loans related to the termination of the Prior Senior Credit Facility. The remaining unamortized deferred financing fees pertaining to the Prior Revolver will be amortized to interest expense using an effective interest method throughout the term of the Revolver.

As of June 30, 2013, the Company had $300.0 million in aggregate borrowings outstanding under the Term Loan B, $295.0 million in borrowings under the Revolver, and approximately $58.2 million in letters of credit which left $346.8 million in additional borrowing capacity under the Revolver. The weighted average interest rate on outstanding borrowings under the Credit Agreement as of June 30, 2013 was 3.0%.

Indebtedness under the Revolver bears interest based on the Total Leverage Ratio, as defined in the Credit Agreement, as of the most recent determination date, as defined, in each of the instances below at the stated rate:


LIBOR borrowings		LIBOR plus 1.75% to 2.75%.
Base rate borrowings		Prime Rate plus 0.75% to 1.75%.
Letters of credit		1.75% to 2.75%.
Unused Revolver		0.35% to 0.375%.

The Credit Agreement contains certain customary representations and warranties, and certain customary covenants that restrict the Company’s ability to, among other things, (i) create, incur or assume indebtedness, (ii) create, incur, assume or permit liens, (iii) make loans and investments, (iv) engage in mergers, acquisitions and asset sales, (v) make restricted payments, (vi) issue, sell or otherwise dispose of capital stock, (vii) engage in transactions with affiliates, (viii) allow the total leverage ratio or senior secured leverage ratio to exceed certain maximum ratios or allow the interest coverage ratio to be less than a certain ratio, (ix) cancel, forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for value any senior notes, (x) alter the business the Company conducts, and (xi) materially impair the Company’s lenders’ security interests in the collateral for its loans.

The Credit Agreement requires the Company to meet certain financial covenants as follows: (i) the Company must not exceed a Total Leverage Ratio (as defined) of 5.75 to 1.00; (ii) the Company must not exceed a Senior Secured Leverage Ratio (as defined) of 3.50 to 1.00; (iii) there is an Interest Coverage Ratio (as defined) under which the lenders will not permit a ratio of less than 3.00 to 1.00 relative to (a) Adjusted EBITDA for any period of four consecutive fiscal quarters to (b) Interest Expense, less that attributable to non-recourse debt of unrestricted subsidiaries.

Events of default under the Credit Agreement include, but are not limited to, (i) the Company’s failure to pay principal or interest when due, (ii) the Company’s material breach of any representations or warranty, (iii) covenant defaults, (iv) liquidation, reorganization or other relief relating to bankruptcy or insolvency, (v) cross default under certain other material indebtedness, (vi) unsatisfied final judgments over a specified threshold, (vii) material environmental liability claims which have been asserted against the Company, and (viii) a change in control. All of the obligations under the Credit Agreement are unconditionally guaranteed by certain of the Company’s subsidiaries and secured by substantially all of the Company’s present and future tangible and intangible assets and all present and future tangible and intangible assets of each guarantor, including but not limited to (i) a first-priority pledge of substantially all of the outstanding capital stock owned by the Company and each guarantor, and (ii) perfected first-priority security interests in substantially all of the Company’s, and each guarantors, present and future tangible and intangible assets and the present and future tangible and intangible assets of each guarantor. The

Company’s failure to comply with any of the covenants under its Credit Agreement could cause an event of default under such documents and result in an acceleration of all outstanding senior secured indebtedness. The Company believes it was in compliance with all of the covenants of the Credit Agreement as of June 30, 2013.

5.125% Senior Notes

On March 19, 2013, the Company completed an offering of $300.0 million aggregate principal amount of senior unsecured notes. The notes will mature on April 1, 2023 and have a coupon rate and yield to maturity of 5.125%. Interest is payable semi-annually on April 1 and October 1 each year, beginning October 1, 2013. The 5.125% Senior Notes are guaranteed on a senior unsecured basis by all of the Company’s restricted subsidiaries that guarantee obligations under the amended and restated Senior Credit Facility, the Company’s 6.625% Senior Notes, and the Company’s 7¾% Senior Notes. The 5.125% Senior Notes and the guarantees are the Company’s general unsecured senior obligations and rank equally in right of payment with all of the Company’s and the guarantors’ existing and future unsecured senior debt, including the Company’s 7¾% Senior Notes and 6.625% Senior Notes. The 5.125% Senior Notes and the guarantees are effectively subordinated to any of the Company’s and the guarantors’ existing and future secured debt to the extent of the value of the assets securing such debt, including all anticipated borrowings under the amended and restated Senior Credit Facility. The 5.125% Senior Notes are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that do not guarantee the 5.125% Senior Notes.

At any time on or prior to April 1, 2016, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of outstanding 5.125% Senior Notes issued under the indenture governing the 5.125% Senior Notes (including any additional notes) at a redemption price of 105.125% of their principal amount plus accrued and unpaid interest and Liquidated Damages (as defined in the indenture), if any, to the redemption date, with the net cash proceeds of one or more equity offerings (as defined in the indenture); provided, that: (1) at least 65% of the aggregate principal amount of notes issued under the indenture (including any additional notes) remains outstanding immediately after the occurrence of such redemption (excluding notes held by us and our Subsidiaries); and (2) the redemption occurs within 90 days of the date of the closing of such equity offering.

At any time prior to April 1, 2018, the Company may, at its option, redeem all or a part of the 5.125% Senior Notes upon not less than 30 days nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) the Applicable Premium (as defined in the indenture) as of the date of redemption, plus (iii) accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. On or after April 1, 2018, the Company may, at its option, redeem all or a part of the 5.125% Senior Notes upon not less than 30 days nor more than 60 days’ notice at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Liquidated Damages, if any, on the 5.125% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on April 1 of the years indicated below:


Year	Percentage
2018		102.563
2019		101.708
2020		100.854
2021 and thereafter		100.000

The indenture 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 as of June 30, 2013.

Under the terms of a registration rights agreement dated as of March 19, 2013 among GEO, the guarantors and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the representative of the initial purchasers of the 5.125% Senior Notes (the “Registration Rights Agreement”), GEO has agreed to register under the Securities Act notes having terms identical in all material respects to the 5.125% Senior Notes (the “Exchange Notes”) and to make an offer to exchange the Exchange Notes for the 5.125% Senior Notes. Pursuant to the terms of the Registration Rights Agreement GEO has agreed to file a registration statement with respect to an offer to exchange the Exchange Notes for the 5.125% Senior Notes on or prior to 75 days after the closing of the offering of the 5.125% Senior Notes and to use its reasonable best efforts to have the registration statement declared effective on or prior to 180 days after the closing of the offering of the 5.125% Senior Notes. If GEO fails to satisfy certain filing and other obligations described in the Registration Rights Agreement, GEO will be

obligated to pay additional interest of 0.25% per annum for the first 90-day period and an additional 0.25% per annum with respect to each subsequent 90-day period thereafter, until GEO’s registration obligations are fulfilled, up to a maximum of 1.00% per annum. GEO filed the registration statement on May 30, 2013.

A portion of the proceeds received from the 5.125% Senior Notes were used on the date of financing to repay the Revolver loans outstanding under the Senior Credit Facility. As discussed above, on April 3, 2013, the Company’s Senior Credit Facility was refinanced and a portion of the proceeds of the 5.125% Senior Notes were used to pay a portion of the outstanding term loans and a portion of the Revolver credit draws outstanding under the Senior Credit Facility.

7³/₄% Senior Notes

Interest on the 7³/₄% 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 7³/₄% Senior Notes at the redemption prices set forth in the indenture governing the 7³/₄% Senior Notes. The indenture 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 as of June 30, 2013.

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 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 June 30, 2013.

Non-Recourse Debt

South Texas Detention Complex

As of June 30, 2013, the remaining balance of the debt service requirement under the STLDC financing agreement for the $49.5 million taxable revenue bonds maturing in February 2016 with fixed coupon rates between 4.63% and 5.07%, is $17.2 million, of which $5.5 million is due within the next twelve months. Also, as of June 30, 2013, included in current restricted cash and investments and non-current restricted cash and investments is $6.3 million and $16.9 million, respectively, of funds held in trust with respect to the STLDC for debt service and other reserves.

Northwest Detention Center

As of June 30, 2013, the remaining balance of the debt service requirement under the $57.0 million note payable (“2003 Revenue Bonds”) and the $54.4 million note payable (“2011 Revenue Bonds”) to the Washington Economic Finance Authority (“WEDFA”) maturing in October 2014 and October 2021 with fixed coupon rates ranging from 4.10% to 5.25%, respectively, is $67.7 million, of which $6.5 million is classified as current in the accompanying consolidated balance sheet.

The payment of principal and interest on 2011 Revenue Bonds issued by WEDFA is non-recourse to GEO. None of the bonds nor CSC’s obligations under the loan from WEDFA are obligations of GEO nor are they guaranteed by GEO.

As of June 30, 2013, included in current restricted cash and investments and non-current restricted cash and investments is $9.3 million and $4.1 million, respectively, of funds held in trust with respect to the Northwest Detention Center for debt service and other reserves.

Australia

The non-recourse obligations to the Company total $27.8 million (AUD 30.4 million) and $34.8 million (AUD 33.6 million), based on the exchange rates in effect at June 30, 2013 and December 31, 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 June 30, 2013, was $4.6 million. This amount is included in non-current restricted cash and investments 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. As of June 30, 2013, the Company guaranteed obligations amounting to 34.8 million South African Rand, or $3.5 million based on exchange rates as of June 30, 2013. In the event SACS is unable to maintain the required funding in a rectification account maintained for the payment of certain costs in the event of contract termination, a previously existing guarantee by the Company for the shortfall will need to be re-instated. The remaining guarantee of 34.8 million South African Rand is secured by outstanding letters of credit under the Company’s Revolver as of June 30, 2013.

In addition to the above, the Company has also agreed to provide a loan, if required, of up to 20 million South African Rand, or $2.0 million based on exchange rates as of June 30, 2013, referred to as the Shareholder’s Loan, to SACS for the purpose of financing SACS’ obligations under its contract with the South African government. No amounts have been funded under the standby facility, and the Company does not currently anticipate that such funding will be required by SACS in the future. The Company’s obligations under the Shareholder’s Loan expire upon the earlier of full funding or SACS’s release from its obligations under its debt agreements. The lenders’ ability to draw on the Shareholder’s Loan is limited to certain circumstances, including termination of the contract.

The Company has also guaranteed certain obligations of SACS to the security trustee for SACS’ lenders. The Company secured its guarantee to the security trustee by ceding its rights to claims against SACS in respect of any loans or other finance agreements, and by pledging the Company’s shares in SACS. The Company’s liability under the guarantee is limited to the cession and pledge of shares. The guarantee expires upon expiration of the cession and pledge agreements.

In connection with a design, build, finance and maintenance contract for a facility in Canada, the Company guaranteed certain potential tax obligations of a trust. The potential estimated exposure of these obligations is Canadian Dollar (“CAD”) 2.5 million, or $2.4 million, based on exchange rates as of June 30, 2013, 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 June 30, 2013 and December 31, 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 June 30, 2013 and December 31, 2012, respectively, on its consolidated balance sheets. The Company does not currently operate or manage this facility.

At June 30, 2013, the Company also had eight letters of guarantee outstanding under separate international facilities relating to performance guarantees of its Australian subsidiary totaling $11.1 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 £12.1 million, or $18.4 million based on exchange rates as of June 30, 2013, was outstanding as of June 30, 2013. The Company’s maximum exposure relative to the joint venture is its note receivable of $18.4 million, including accrued interest of $0.2 million, and future financial support necessary to guarantee performance under the contract.

Except as discussed above, the Company does not have any off balance sheet arrangements.

12. COMMITMENTS, CONTINGENCIES AND OTHER TAX MATTERS

Litigation, Claims and Assessments

In June 2004, the Company received notice of a third-party claim for property damage incurred during 2001 and 2002 at several detention facilities formerly operated by its Australian subsidiary. The claim relates to property damage caused by detainees at the detention facilities. The notice was given by the Australian government’s insurance provider and did not specify the amount of damages being sought. In August 2007, a lawsuit (Commonwealth of Australia v. Australasian Correctional Services PTY, Limited No. SC 656) was filed against the Company in the Supreme Court of the Australian Capital Territory seeking damages of up to approximately AUD 18 million or $16.5 million based on exchange rates as of June 30, 2013, plus interest. The pre-judgment interest rate in Australia is currently 7.00%. The Company had 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. In May 2013, the case was settled. The settlement was within the Company’s reserves and did not have a material impact on the Company’s consolidated balance sheet or results of operations as of and for the three and six months ended June 30, 2013.

The nature of the Company’s business exposes it to various types of third-party legal claims or litigation against the Company, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct claims brought by prisoners or detainees, medical malpractice claims, product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, indemnification claims by its customers and other third parties, contractual claims and claims for personal injury or other

damages resulting from contact with the Company’s facilities, programs, electronic monitoring products, personnel or prisoners, including damages arising from a prisoner’s escape or from a disturbance or riot at a facility. 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 currently has contractual commitments for a number of projects using Company financing. The Company’s management estimates that the cost of these existing capital projects will range from $31.0 million to $35.0 million of which $24.0 million was spent through the second quarter of 2013. The Company estimates the remaining capital requirements related to these capital projects will range from $7.0 million to $11.0 million which will be spent through fiscal year 2013. Capital expenditures related to facility maintenance costs are expected to range between $30.0 million and $35.0 million for fiscal year 2013.

Facility Purchase

On May 7, 2013, the Company executed a definitive agreement for the purchase of the land, buildings and improvements, and tangible personal property and fixtures of the 1,287 bed Joe Corley Detention Center (the “Center”) located in Montgomery County, Texas for a purchase price of approximately $65.0 million. The Center was previously managed by the Company under a managed-only contract with Montgomery County and will continue to house federal detainees for U.S. Immigration and Customs Enforcement and the U.S. Marshals Service under an Intergovernmental Services Agreement. The transaction closed on June 7, 2013.

Employment Agreement

On April 29, 2013, GEO and Mr. George C. Zoley, the Company’s Chief Executive Officer, entered into the First Amendment to Third Amended and Restated Executive Employment Agreement (the “Amendment”). The Amendment modifies Mr. Zoley’s employment agreement by eliminating the automatic cost of living increase applicable to his annual base salary and instead provides that his annual base salary may be increased in the sole discretion of the Board for cost of living increases to be determined by the Board. Additionally, the Amendment modifies the termination payment Mr. Zoley would receive in the event of a termination of employment other than a termination by GEO for cause (as defined in the Third Amended and Restated Executive Employment Agreement) or a termination by Mr. Zoley without good reason (as defined in the Third Amended and Restated Executive Employment Agreement) from three times the amount of Mr. Zoley’s base salary plus annual bonus to two times the amount of Mr. Zoley’s base salary plus annual bonus.

On May 29, 2013, the Company and the Chief Executive Officer entered into the Second Amendment to Third Amended and Restated Executive Employment Agreement (the “Amendment”). The Amendment modifies the Chief Executive Officer’s employment agreement by decreasing the maximum target annual performance award he may receive from 150% of his annual base salary to 100% of his annual base salary.

Idle Facilities

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 $237.3 million as of June 30, 2013, excluding equipment and other assets that can be easily transferred for use at other facilities.

Other Tax Matters

•

As a result of the REIT conversion as more fully discussed in Note 1—Basis of Presentation, the Company reorganized its operations and moved non-real estate components into TRS. The TRS structure requires the provisions of services between affiliated companies which are conducted at arm’s length subject to applicable tax law and promulgated tax regulations. The Company has, with the assistance of its tax advisors, undertaken substantial analysis to determine and document the appropriateness of the arm’s length compensation used in compliance with such tax rules which is reviewed on a periodic basis.

•

During 2013 GEO had a tax benefit relating to its REIT conversion as well as a net release of tax reserves primarily due to the settlement of IRS audit years 2010 and 2011, partially offset by an initial reserve for uncertain tax positions relating to the REIT conversion. Together these items had a favorable impact to the effective tax rate and resulted in a tax benefit of $7.3 million and $6.4 million for the three months and six months ended June 30, 2013, respectively.

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 Community Services segment; the International Services segment; and the Facility Construction & Design segment. The Facility Construction & Design segment did not have any operating activity during the 2013 and 2012 periods presented. The GEO Community Services segment was previously referred to as the GEO Care segment but was renamed concurrent with the divestiture of RTS. The U.S. Corrections and Detention and the GEO Community Services segments have been retroactively reclassified during the three and six months ended July 1, 2012 for the results of discontinued operations. Refer to Note 8—Discontinued Operations. In addition, the Company has reclassified the results of it’s operations in Canada to the International Services segment for all periods presented. Canada’s results, which were previously included in the U.S. Corrections &

Detention segment, were not significant during 2013 or 2012. The Company’s segment revenues from external customers and a measure of segment profit are as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30, 2013		July 1, 2012		June 30, 2013		July 1, 2012
Revenues:
U.S. Corrections & Detention	$	254,043	$	245,916	$	502,815	$	480,710
GEO Community Services		75,072		72,767		149,013		145,025
International Services		52,538		52,490		106,856		105,480

Total revenues	$	381,653	$	371,173	$	758,684	$	731,215

Operating income:
U.S. Corrections & Detention	$	56,631	$	59,762	$	110,723	$	106,861
GEO Community Services		18,854		17,093		36,259		33,342
International Services		3,265		2,215		5,067		5,950

Operating income from segments	$	78,750	$	79,070	$	152,049	$	146,153

Pre-Tax Income Reconciliation of Segments

The following is a reconciliation of the Company’s total operating income from its reportable segments to the Company’s income before income taxes and equity in earnings of affiliates (in thousands):


	Three Months Ended						Six Months Ended
	June 30, 2013			July 1, 2012			June 30, 2013			July 1, 2012
Total operating income from segments	$	78,750		$	79,070		$	152,049		$	146,153
Unallocated amounts:
General and Administrative Expenses		(27,363	)		(26,129	)		(59,403	)		(52,715	)
Net Interest Expense		(19,938	)		(18,857	)		(38,095	)		(37,856	)
Loss on Extinguishment of Debt		(5,527	)		—			(5,527	)		—

Income before income taxes and equity in earnings of affiliates, and discontinued operations	$	25,922		$	34,084		$	49,024		$	55,582

Equity in Earnings of Affiliates

Equity in earnings of affiliates includes the Company’s 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 Company’s investments in these entities are presented as a component of Other Non-Current Assets in the accompanying consolidated balance sheets.

The Company has recorded $1.3 million and $2.5 million in earnings, net of tax, for SACS operations during the three months and six months ended June 30, 2013, respectively, and $1.3 million and $2.6 million in earnings, net of tax, during the three months and six months ended July 1, 2012, respectively. SACS earnings are included in equity in earnings of affiliates, net of income tax provision in the accompanying consolidated statements of operations. As of June 30, 2013 and December 31, 2012, the Company’s investment in SACS was $8.3 million and $7.8 million, respectively.

The Company has recorded $0.2 million and $0.3 million in losses, net of tax, for GEOAmey’s operations during the three months and six months ended June 30, 2013, respectively, and $0.9 million and $1.4 million in losses, net of tax, during both the three months and six months ended July 1, 2012, respectively. GEOAmey’s earnings are included in equity in earnings of affiliates, net of income tax provision, in the accompanying consolidated statements of operations. As of June 30, 2013 and December 31, 2012, the Company’s investment in GEOAmey was $(4.4) million and $(4.1) million, respectively, and represents its share of cumulative reported losses. Losses in excess of the Company’s investment have been recognized as the Company has provided certain loans and guarantees to provide financial support to GEOAmey (Refer to Note 11-Debt.)

14. BENEFIT PLANS

The following table summarizes key information related to the Company’s pension plans and retirement agreements (in thousands):


	Six months ended June 30, 2013			Fiscal Year Ended December 31, 2012
Change in Projected Benefit Obligation
Projected benefit obligation, beginning of period	$	19,761		$	16,879
Service cost		462			774
Interest cost		415			787
Plan amendments		—			569
Actuarial loss		—			945
Benefits paid		(120	)		(193	)

Projected benefit obligation, end of period	$	20,518		$	19,761

Change in Plan Assets
Plan assets at fair value, beginning of period	$	—		$	—
Company contributions		120			193
Benefits paid		(120	)		(193	)
Plan assets at fair value, end of period	$	—		$	—

Unfunded Status of the Plan	$	(20,518	)	$	(19,761	)


	Three Months Ended				Six Months Ended
	June 30, 2013		July 1, 2012		June 30, 2013		July 1, 2012
Components of Net Periodic Benefit Cost
Service cost	$	231	$	193	$	462	$	387
Interest cost		207		197		415		393
Net loss		66		48		131		97

Net periodic pension cost	$	504	$	438	$	1,008	$	877

The long-term portion of the pension liability as of June 30, 2013 and December 31, 2012 was $20.3 million and $19.5 million, respectively, and is included in Other Non-Current Liabilities in the accompanying consolidated balance sheets.

15. RECENT ACCOUNTING STANDARDS

In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-05”). The objective of ASU 2013-05 is to resolve diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The Company is currently evaluating the potential impact of this ASU on its condensed unaudited consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not, or are not expected to, have a material effect on the Company’s results of operations or financial position.

16. SUBSEQUENT EVENTS

Dividend

On July 30, 2013 the Board of Directors declared a quarterly cash dividend of $0.50 per share of common stock, which is to be paid on August 29, 2013 to shareholders of record as of the close of business on August 19, 2013.

17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company’s 6.625% Senior Notes, 7³/₄% Senior Notes, and 5.125% 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;

(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 Company’s 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 Company’s subsidiaries; and

(v)

The Company and its subsidiaries on a consolidated basis.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)


	For the Three Months Ended June 30, 2013
	The GEO Group, Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	118,859		$	314,120		$	55,585		$	(106,911	)	$	381,653
Operating expenses		102,108			239,194			44,855			(106,911	)		279,246
Depreciation and amortization		5,875			16,556			1,226			—			23,657
General and administrative expenses		8,156			15,420			3,787			—			27,363

Operating income (loss)		2,720			42,950			5,717			—			51,387
Interest income		4,029			359			1,123			(4,346	)		1,165
Interest expense		(10,373	)		(12,708	)		(2,368	)		4,346			(21,103	)
Loss on extinguishment of debt		(2,600	)		(2,927	)		—			—			(5,527	)

Income (loss) before income taxes and equity in earnings of affiliates		(6,224	)		27,674			4,472			—			25,922
Income tax (benefit) provision		(8,339	)		226			845			—			(7,268	)
Equity in earnings of affiliates, net of income tax provision		—			—			1,029			—			1,029

Income (loss) before equity in income of consolidated subsidiaries		2,115			27,448			4,656			—			34,219
Income from consolidated subsidiaries, net of income tax provision		32,104			—			—			(32,104	)		—

Income from continuing operations		34,219			27,448			4,656			(32,104	)		34,219
Net income (loss) from discontinued operations		—			—			—			—			—

Net income		34,219			27,448			4,656			(32,104	)		34,219
Net income attributable to noncontrolling interests		—			—			(12	)		—			(12	)

Net income attributable to The GEO Group, Inc.	$	34,219		$	27,448		$	4,644		$	(32,104	)	$	34,207

Net income	$	34,219		$	27,448		$	4,656		$	(32,104	)	$	34,219
Other comprehensive income (loss), net of tax		—			40			(5,300	)		—			(5,260	)

Total comprehensive income	$	34,219		$	27,488		$	(644	)	$	(32,104	)	$	28,959
Comprehensive loss attributable to noncontrolling interests		—			—			19			—			19

Comprehensive income attributable to The GEO Group, Inc.	$	34,219		$	27,488		$	(625	)	$	(32,104	)	$	28,978

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)


	For the Three Months Ended July 1, 2012
	The GEO Group, Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	153,753		$	177,301		$	57,780		$	(17,661	)	$	371,173
Operating expenses		130,454			110,339			46,009			(17,661	)		269,141
Depreciation and amortization		7,389			13,433			2,140			—			22,962
General and administrative expenses		9,384			12,783			3,962			—			26,129

Operating income		6,526			40,746			5,669			—			52,941
Interest income		7,847			394			1,661			(8,141	)		1,761
Interest expense		(16,837	)		(7,926	)		(3,996	)		8,141			(20,618	)

Income (loss) before income taxes and equity in earnings of affiliates		(2,464	)		33,214			3,334			—			34,084
Income tax (benefit) provision		(667	)		12,860			1,467			—			13,660
Equity in earnings of affiliates, net of income tax provision		—			—			430			—			430

Income (loss) from continuing operations before equity in income of consolidated subsidiaries		(1,797	)		20,354			2,297			—			20,854
Income from consolidated subsidiaries, net of income tax provision		22,651			—			—			(22,651	)		—

Income from continuing operations		20,854			20,354			2,297			(22,651	)		20,854
Net income from discontinued operations		1,622			2,046			233			(2,279	)		1,622

Net income		22,476			22,400			2,530			(24,930	)		22,476
Net income attributable to noncontrolling interests		—			—			25			—			25

Net income attributable to The GEO Group, Inc.	$	22,476		$	22,400		$	2,555		$	(24,930	)	$	22,501

Net income	$	22,476		$	22,400		$	2,530		$	(24,930	)	$	22,476
Other comprehensive income (loss), net of tax		29			—			(2,498	)		—			(2,469	)

Total comprehensive income	$	22,505		$	22,400		$	32		$	(24,930	)	$	20,007
Comprehensive income attributable to noncontrolling interests		—			—			58			—			58

Comprehensive income attributable to The GEO Group, Inc.	$	22,505		$	22,400		$	90		$	(24,930	)	$	20,065

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)


	For the Six Months Ended June 30, 2013
	The GEO Group, Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	232,348		$	626,649		$	112,970		$	(213,283	)	$	758,684
Operating expenses		201,518			479,671			92,137			(213,283	)		560,043
Depreciation and amortization		11,697			32,438			2,457			—			46,592
General and administrative expenses		17,354			33,612			8,437			—			59,403

Operating income (loss)		1,779			80,928			9,939			—			92,646
Interest income		7,989			909			2,219			(8,768	)		2,349
Interest expense		(20,292	)		(24,139	)		(4,781	)		8,768			(40,444	)
Loss on extinguishment of debt		(2,600	)		(2,927	)		—			—			(5,527	)

Income (loss) before income taxes and equity in earnings of affiliates		(13,124	)		54,771			7,377			—			49,024
Income tax (benefit) provision		(9,006	)		632			1,987			—			(6,387	)
Equity in earnings of affiliates, net of income tax provision		—			—			2,246			—			2,246

Income (loss) from continuing operations before equity in income of consolidated subsidiaries		(4,118	)		54,139			7,636			—			57,657
Income from consolidated subsidiaries, net of income tax provision		61,775			—			—			(61,775	)		—

Income from continuing operations		57,657			54,139			7,636			(61,775	)		57,657
Net income loss from discontinued operations		—			—			—			—			—

Net income		57,657			54,139			7,636			(61,775	)		57,657
Net income attributable to noncontrolling interests		—			—			(30	)		—			(30	)

Net income attributable to The GEO Group, Inc.	$	57,657		$	54,139		$	7,606		$	(61,775	)	$	57,627

Net income	$	57,657		$	54,139		$	7,636		$	(61,775	)	$	57,657
Other comprehensive income (loss), net of tax		—			80			(6,520	)		—			(6,440	)

Total comprehensive income		57,657			54,219			1,116			(61,775	)		51,217
Comprehensive loss attributable to noncontrolling interests		—			—			42			—			42

Comprehensive income attributable to The GEO Group, Inc.	$	57,657		$	54,219		$	1,158		$	(61,775	)	$	51,259

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)


	For the Six Months Ended July 1, 2012
	The GEO Group, Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	294,370		$	361,488		$	115,772		$	(40,415	)	$	731,215
Operating expenses		261,460			228,005			90,811			(40,415	)		539,861
Depreciation and amortization		14,244			26,685			4,272			—			45,201
General and administrative expenses		18,780			26,077			7,858			—			52,715

Operating income (loss)		(114	)		80,721			12,831			—			93,438
Interest income		15,655			886			3,262			(16,235	)		3,568
Interest expense		(33,754	)		(15,837	)		(8,068	)		16,235			(41,424	)

Income (loss) before income taxes and equity in earnings of affiliates		(18,213	)		65,770			8,025			—			55,582
Income tax (benefit) provision		(6,323	)		25,172			3,301			—			22,150

Equity in earnings of affiliates, net of income tax provision		—			—			1,178			—			1,178

Income (loss) from continuing operations before equity in income of consolidated subsidiaries		(11,890	)		40,598			5,902			—			34,610
Income from consolidated subsidiaries, net of income tax provision		46,500			—			—			(46,500	)		—

Income from continuing operations		34,610			40,598			5,902			(46,500	)		34,610

Net income from discontinued operations		2,925			3,118			553			(3,671	)		2,925
Net income		37,535			43,716			6,455			(50,171	)		37,535

Net income attributable to noncontrolling interests		—			—			(9	)		—			(9	)

Net income attributable to The GEO Group, Inc.	$	37,535		$	43,716		$	6,446		$	(50,171	)	$	37,526

Net income	$	37,535		$	43,716		$	6,455		$	(50,171	)	$	37,535
Other comprehensive income (loss), net of tax		59			—			(541	)		—			(482	)

Total comprehensive income	$	37,594		$	43,716		$	5,914		$	(50,171	)	$	37,053
Comprehensive income attributable to noncontrolling interests		—			—			(4	)		—			(4	)

Comprehensive income attributable to The GEO Group, Inc.	$	37,594		$	43,716		$	5,910		$	(50,171	)	$	37,049

CONDENSED CONSOLIDATING BALANCE SHEET

(dollars in thousands)

(unaudited)


	As of June 30, 2013
	The GEO Group, Inc.		Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	5,736	$	1,084	$	31,691		$	—		$	38,511
Restricted cash and investments		—		—		15,646			—			15,646
Accounts receivable, less allowance for doubtful accounts		82,406		137,948		18,647			—			239,001
Deferred income tax assets, net		—		14,604		3,686			—			18,290
Prepaid expenses and other current assets		1,168		13,253		11,875			(1,154	)		25,142

Total current assets		89,310		166,889		81,545			(1,154	)		336,590

Restricted Cash and Investments		134		9,410		28,204			—			37,748
Property and Equipment, Net		654,956		973,246		111,784			—			1,739,986
Assets Held for Sale		—		1,200		—			—			1,200
Direct Finance Lease Receivable		—		—		20,445			—			20,445
Intercompany Receivable		937,073		128,058		(1,300	)		(1,063,831	)		—
Deferred Income Tax Assets, Net		16,230		—		2,532			(16,230	)		2,532
Goodwill		34		489,502		680			—			490,216
Intangible Assets, Net		—		169,375		1,368			—			170,743
Investment in Subsidiaries		954,156		442,679		—			(1,396,835	)		—
Other Non-Current Assets		26,815		107,330		34,018			(79,421	)		88,742

Total Assets	$	2,678,708	$	2,487,689	$	279,276		$	(2,557,471	)	$	2,888,202

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	5,290	$	38,898	$	3,203		$	—		$	47,391
Accrued payroll and related taxes		1,827		15,868		16,619			—			34,314
Accrued expenses		61,014		30,678		18,641			(1,154	)		109,179
Current portion of capital lease obligations, long-term debt and non-recourse debt		3,000		1,212		18,129			—			22,341

Total current liabilities		71,131		86,656		56,592			(1,154	)		213,225

Deferred Income Tax Liabilities		—		31,933		—			(16,230	)		15,703
Intercompany Payable		113,567		930,800		19,457			(1,063,824	)		—
Other Non-Current Liabilities		14,101		136,207		3,257			(79,428	)		74,137
Capital Lease Obligations		—		11,426		—			—			11,426
Long-Term Debt		1,444,475		—		—			—			1,444,475
Non-Recourse Debt		—		—		93,352			—			93,352
Commitments & Contingencies Shareholders’ Equity:
The GEO Group, Inc. Shareholders’ Equity		1,035,434		1,290,667		106,168			(1,396,835	)		1,035,434
Noncontrolling Interests		—		—		450			—			450

Total Shareholders’ Equity		1,035,434		1,290,667		106,618			(1,396,835	)		1,035,884

Total Liabilities and Shareholders’ Equity	$	2,678,708	$	2,487,689	$	279,276		$	(2,557,471	)	$	2,888,202

CONDENSED CONSOLIDATING BALANCE SHEET

(dollars in thousands)


	As of December 31, 2012
	The GEO Group, Inc.		Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	4,764	$	1,917	$	25,074	$	—		$	31,755
Restricted cash and investments		—		—		15,654		—			15,654
Accounts receivable, less allowance for doubtful accounts		124,670		102,704		19,261		—			246,635
Deferred income tax assets, net		13,106		1,498		3,686		—			18,290
Prepaid expenses and other current assets		8,657		5,890		11,456		(1,154	)		24,849

Total current assets		151,197		112,009		75,131		(1,154	)		337,183

Restricted Cash and Investments		7,953		—		24,803		—			32,756
Property and Equipment, Net		633,458		939,995		113,706		—			1,687,159
Assets Held for Sale		—		3,243		—		—			3,243
Direct Finance Lease Receivable		—		—		26,757		—			26,757
Intercompany Receivable		591,273		14,305		—		(605,578	)		—
Deferred Income Tax Assets, Net		16,230		—		2,532		(16,230	)		2,532
Goodwill		34		489,502		772		—			490,308
Intangible Assets, Net		—		176,666		1,652		—			178,318
Investment in Subsidiaries		1,151,998		41,356		—		(1,193,354	)		—
Other Non-Current Assets		38,574		84,931		36,584		(79,151	)		80,938

Total Assets	$	2,590,717	$	1,862,007	$	281,937	$	(1,895,467	)	$	2,839,194

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	29,889	$	17,407	$	2,814	$	—		$	50,110
Accrued payroll and related taxes		4,774		16,264		18,284		—			39,322
Accrued expenses		94,350		5,515		17,846		(1,154	)		116,557
Current portion of capital lease obligations, long-term debt and non-recourse debt		33,925		1,311		18,646		—			53,882

Total current liabilities		162,938		40,497		57,590		(1,154	)		259,871

Deferred Income Tax Liabilities		—		31,933		—		(16,230	)		15,703
Intercompany Payable		—		586,428		19,150		(605,578	)		—
Other Non-Current Liabilities		63,657		96,822		697		(79,151	)		82,025
Capital Lease Obligations		—		11,926		—		—			11,926
Long-Term Debt		1,317,310		219		—		—			1,317,529
Non-Recourse Debt		—		—		104,836		—			104,836
Commitments & Contingencies Shareholders’ Equity:
The GEO Group, Inc. Shareholders’ Equity		1,046,812		1,094,182		99,172		(1,193,354	)		1,046,812
Noncontrolling Interests		—		—		492		—			492

Total Shareholders’ Equity		1,046,812		1,094,182		99,664		(1,193,354	)		1,047,304

Total Liabilities and Shareholders’ Equity	$	2,590,717	$	1,862,007	$	281,937	$	(1,895,467	)	$	2,839,194

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(dollars in thousands)

(unaudited)


	For the Six Months Ended June 30, 2013
	The GEO Group, Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Consolidated
Cash Flow from Operating Activities:
Net cash provided by operating activities	$	58,343		$	18,932		$	24,039		$	101,314

Cash Flow from Investing Activities:
Proceeds from sale of property and equipment		—			51			—			51
Proceeds from sale of assets held for sale		—			1,968			—			1,968
Net working capital adjustment from RTS divestiture		(996	)		—			—			(996	)
Change in restricted cash and investments		(134	)		(1,457	)		(4,319	)		(5,910	)
Capital expenditures		(69,567	)		(19,666	)		(688	)		(89,921	)

Net cash used in investing activities		(70,697	)		(19,104	)		(5,007	)		(94,808	)

Cash Flow from Financing Activities:
Proceeds from long-term debt		785,000			—			—			785,000
Income tax benefit of equity compensation		1,308			—			—			1,308
Debt issuance costs		(17,017	)		—			—			(17,017	)
Payments on long-term debt		(688,675	)		(661	)		(8,412	)		(697,748	)
Proceeds from the exercise of stock options		4,082			—			—			4,082
Cash dividends paid		(71,527	)		—			—			(71,527	)
Proceeds from reissuance of treasury stock in connection with ESPP		155			—			—			155

Net cash provided by (used in) financing activities		13,326			(661	)		(8,412	)		4,253

Effect of Exchange Rate Changes on Cash and Cash Equivalents		—			—			(4,003	)		(4,003	)

Net Increase (Decrease) in Cash and Cash Equivalents		972			(833	)		6,617			6,756
Cash and Cash Equivalents, beginning of period		4,764			1,917			25,074			31,755

Cash and Cash Equivalents, end of period	$	5,736		$	1,084		$	31,691		$	38,511

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(dollars in thousands)

(unaudited)


	For the Six Months Ended July 1, 2012
	The GEO Group, Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Consolidated
Cash Flow from Operating Activities:
Cash provided by operating activities—continuing operations	$	98,442		$	11,721		$	6,769		$	116,932
Cash provided by operating activities—discontinued operations		752			6,827			2,455			10,034

Net cash provided by operating activities		99,194			18,548			9,224			126,966

Cash Flow from Investing Activities:
Proceeds from sale of assets held for sale		—			297			—			297
Proceeds from sale of property and equipment		—			162			69			231
Change in restricted cash and investments		(484	)		(1,350	)		2,387			553
Capital expenditures		(53,933	)		(13,363	)		(2,240	)		(69,536	)

Cash (used in) provided by investing activities—continuing operations		(54,417	)		(14,254	)		216			(68,455	)
Cash used in investing activities—discontinued operations		(311	)		(2,226	)		—			(2,537	)

Net cash (used in) provided by investing activities		(54,728	)		(16,480	)		216			(70,992	)

Cash Flow from Financing Activities:
Proceeds from long-term debt		145,000			—			—			145,000
Payments on long-term debt		(160,556	)		(693	)		(8,033	)		(169,282	)
Income tax provision of equity compensation		(270	)		—			—			(270	)
Debt issuance costs		(6	)		—			(38	)		(44	)
Distribution to noncontrolling interests		—			—			(5,758	)		(5,758	)
Proceeds from the exercise of stock options		396			—			—			396
Payments for retirement of common stock		(1,035	)		—			—			(1,035	)

Net cash used in financing activities		(16,471	)		(693	)		(13,829	)		(30,993	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company