e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 3,
2010
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Commission file number: 1-14260
The GEO Group, Inc.
(Exact name of registrant as
specified in its charter)
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Florida
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65-0043078
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Park Place, Suite 700,
621 Northwest 53rd Street
Boca Raton, Florida
(Address of principal
executive offices)
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33487-8242
(Zip Code)
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Registrants
telephone number (including area code):
(561) 893-0101
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 Par Value
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New York Stock Exchange
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Indicate by a check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by a check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d)
of the
Act. Yes o No þ
Indicate by a 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, and (2) has been subject to such
filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the 51,019,511 shares of
common stock held by non-affiliates of the registrant as of
June 28, 2009 (based on the last reported sales price of
such stock on the New York Stock Exchange on such date of $18.56
per share) was approximately $946,922,124.
As of February 16, 2010, the registrant had
51,629,408 shares of common stock outstanding.
Certain portions of the registrants annual report to
security holders for fiscal year ended January 3, 2010 are
incorporated by reference into Part III of this report.
Certain portions of the registrants definitive proxy
statement pursuant to Regulation 14A of the Securities
Exchange Act of 1934 for its 2010 annual meeting of shareholders
are incorporated by reference into Part III of this report.
PART I
As used in this report, the terms we,
us, our, GEO and the
Company refer to The GEO Group, Inc., its
consolidated subsidiaries and its unconsolidated affiliates,
unless otherwise expressly stated or the context otherwise
requires.
General
We are a leading provider of government-outsourced services
specializing in the management of correctional, detention and
mental health and residential treatment facilities in the United
States, Canada, Australia, South Africa and the United Kingdom.
We operate a broad range of correctional and detention
facilities including maximum, medium and minimum security
prisons, immigration detention centers, minimum security
detention centers and mental health and residential treatment
facilities. We also provide secure transportation services for
offender and detainee populations as contracted. Our
correctional and detention management services involve the
provision of security, administrative, rehabilitation,
education, health and food services, primarily at adult male
correctional and detention facilities. Our mental health and
residential treatment services, which are operated through our
wholly-owned subsidiary GEO Care, Inc., which we refer to as GEO
Care, involve the delivery of quality care, innovative
programming and active patient treatment, primarily at
privatized state mental health facilities. We also develop new
facilities based on contract awards, using our project
development expertise and experience to design, construct and
finance what we believe are
state-of-the-art
facilities that maximize security and efficiency.
As of the fiscal year ended January 3, 2010, we managed 57
facilities totaling approximately 52,800 beds worldwide and we
had an additional 4,325 beds under development at three
facilities, including an expansion and renovation of one vacant
facility which we currently own, the expansion of one facility
we currently own and operate and a new 2,000-bed facility which
we will manage upon completion. We maintained an average
companywide facility occupancy rate of 94.6% for the fiscal year
ended January 3, 2010, excluding facilities that are either
idle or under development.
At our correctional and detention facilities in the
U.S. and internationally, we offer services that go beyond
simply housing offenders in a safe and secure manner. The
services we offer to inmates at most of our managed facilities
include a wide array of in-facility rehabilitative and
educational programs. Such programs include basic education
through academic programs designed to improve inmates
literacy levels and enhance the opportunity to acquire General
Education Development certificates and also include vocational
training for in-demand occupations to inmates who lack
marketable job skills. We offer life skills/transition planning
programs that provide job search training and employment skills,
anger management skills, health education, financial
responsibility training, parenting skills and other skills
associated with becoming productive citizens. We also offer
counseling, education
and/or
treatment to inmates with alcohol and drug abuse problems at
most of the domestic facilities we manage.
Our mental health facilities and residential treatment services
primarily involve the provision of acute mental health and
related administrative services to mentally ill patients that
have been placed under public sector supervision and care. At
these mental health facilities we employ psychiatrists,
physicians, nurses, counselors, social workers and other trained
personnel to deliver active psychiatric treatment designed to
diagnose, treat and rehabilitate patients for community
reintegration.
Business
Segments
We conduct our business through four reportable business
segments: our U.S. corrections segment; our International
services segment; our GEO Care segment; and our Facility
construction and design segment. We have identified these four
reportable segments to reflect our current view that we operate
four distinct business lines, each of which constitutes a
material part of our overall business. The U.S. corrections
segment primarily encompasses our
U.S.-based
privatized corrections and detention business. The International
services segment primarily consists of our privatized
corrections and detention operations in South Africa, Australia
and the
3
United Kingdom. International services reviews opportunities to
further diversify into related foreign-based
governmental-outsourced services on an ongoing basis. Our GEO
Care segment, which is operated by our wholly-owned subsidiary
GEO Care, comprises our privatized mental health and residential
treatment services business, all of which is currently conducted
in the U.S. Our Facility construction and design segment
primarily consists of contracts with various state, local and
federal agencies for the design and construction of facilities
for which we have been, or expect to be, awarded management
contracts. Financial information about these segments for fiscal
years 2009, 2008 and 2007 is contained in
Note 17 Business Segments and Geographic
Information of the Notes to Consolidated Financial
Statements included in this
Form 10-K
and is incorporated herein by this reference.
Recent
Developments
On February 12, 2009, we announced the retirement of John
G. ORourke, our Chief Financial Officer. He retired
effective August 2, 2009 and was succeeded by Brian R.
Evans, our then current Vice President, Finance, Treasurer and
Chief Accounting Officer. On July 31, 2009, Mr. Ronald
A. Brack was appointed as our Vice President, Chief Accounting
Officer and Controller effective August 3, 2009.
Mr. Brack joined us in May 2005 and has held the positions
of Assistant Controller and Vice President and Controller during
his four year tenure.
Just
Care Inc. Acquisition
Our mental health subsidiary, GEO Care, acquired Just Care, Inc.
which we refer to as Just Care, a provider of detention
healthcare focusing on the delivery of medical and mental health
services. Just Care manages the 354-bed Columbia Regional Care
Center located in Columbia, South Carolina. This facility houses
medical and mental health residents for the State of South
Carolina and the State of Georgia as well as special needs
detainees under custody of the U.S. Marshals Service and
U.S. Immigration and Customs Enforcement. This facility is
operated by Just Care under a long-term lease with the State of
South Carolina. We paid $38.4 million, net of cash
acquired, at closing on September 30, 2009.
Liquidity
and capital resources
On October 20, 2009, we completed a private offering of
$250.0 million in aggregate principal amount of our
73/4% Senior
Notes due 2017 which we refer to as the
73/4% Senior
Notes. These senior unsecured notes pay interest semi-annually
in cash in arrears on April 15 and October 15 of each year,
beginning on April 15, 2010. In connection with the
issuance of the
73/4% Senior
Notes, we also executed three interest swap agreements effective
November 3, 2009 for an aggregate notional amount of
$75.0 million and a fourth interest rate swap with a
$25.0 million notional amount effective January 6,
2010. We realized proceeds of $246.4 million at the close
of the private offering, net of the discount on the notes of
$3.6 million. A portion of these proceeds was used to fund
the repurchase of our $150.0 million aggregate principal
amount of
81/4% Senior
Notes due 2013 which we refer to as the
81/4% Senior
Notes for which we commenced a cash tender offer announced on
October 5, 2009. As of November 19, 2009, all of the
81/4% Senior
Notes had been redeemed.
In October 2009, and again in December 2009, we completed
amendments to our Third Amended and Restated Credit Agreement
through the execution of Amendment Nos. 5, 6 and 7, which
we collectively refer to as the Senior Credit Facility. These
amendments, among other things, allowed us to issue up to
$300.0 million of unsecured debt without having to repay
outstanding borrowings on our Senior Credit Facility, modified
the aggregate size of the credit facility from
$240.0 million to $330.0 million, extended the
maturity of the revolving portion of the Senior Credit Facility,
which we refer to as the Revolver, to 2012, modified the
permitted maximum total leverage and maximum senior secured
leverage financial ratios, eliminated the annual capital
expenditures limitation and made several technical revisions to
certain definitions therein. As of January 3, 2010 we had
the ability to borrow approximately $217 million from the
excess capacity on the Revolver after considering our debt
covenants. Upon the execution of Amendment No. 6, we also
had the ability to increase our borrowing capacity under the
Senior Credit Facility by another $200.0 million subject to
lender demand, market conditions and existing borrowings.
4
Facility
activations
The following table sets forth new projects that were activated
during the fiscal year ended January 3, 2010:
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Total
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Facility
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Location
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Activation
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Beds
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Start date
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Robert A. Deyton Detention Facility
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Lovejoy, GA
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192-bed Expansion
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768
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First Quarter 2009
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Broward Transition Center
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Deerfield Beach, FL
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100-bed Expansion and New contract
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700
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Second Quarter 2009
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Florida Civil Commitment Center(1)
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Arcadia, FL
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40-bed Expansion and Replacement facility
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720
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Second Quarter 2009
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Harmondsworth Immigration Removal Centre(2)
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London, England
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New contract
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260
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Third Quarter 2009
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Graceville Correctional Facility
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Graceville, FL
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384-bed Expansion
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1,884
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Third Quarter 2009
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Parklea Correctional Centre
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Parklea, NSW, Australia
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New contract
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823
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Fourth Quarter 2009
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Northwest Detention Center
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Tacoma, WA
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545-bed Expansion and New contract
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1,575
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Fourth Quarter 2009
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Columbia Care Regional Center
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Columbia, SC
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354-bed New contract
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354
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Fourth Quarter 2009
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(1) |
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This 720-bed facility replaced the adjacent 680-bed facility. |
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The Harmondsworth Immigration and Removal Centre will be
expanded by 360 beds bringing its capacity to 620 beds when the
expansion is completed in June 2010. |
In addition to the activations in the table above, we also
announced contract awards during the fiscal year 2009 and 2010
as follows:
In April 2009, The GEO Group Australia Pty. Ltd., our wholly
owned subsidiary which we refer to as GEO Australia, was awarded
a new contract by the New South Wales, Department of Corrective
Services for the continued management and operation of the
790-bed Junee Correctional Centre. GEO Australia has managed the
minimum-to-medium
security Centre since its opening in 1993. The new contract has
a term of 15 years, inclusive of renewal options.
On May 4, 2009, we announced that we executed a contract
with Bexar County, Texas Commissioners Court for the
continued operation of the 688-bed Central Texas Detention
Facility located in San Antonio, Texas. This facility,
which is owned by Bexar County, houses detainees predominately
for the U.S. Marshals Service. We have managed this
facility since 1988. The new contract will have a term of ten
years, effective April 29, 2009.
In Georgia, the Department of Corrections issued an RFP for
1,000 in-state beds. On February 22, 2010, we announced
that the State of Georgia issued a notice of intent to award a
contract to our company for the development and operation of a
new 1,000-bed facility, which is expandable to 2,500 beds. Under
the terms of the intended award, GEO would finance, build, and
operate the new $60 million dollar facility under a
long-term ground lease. The award is subject to obtaining
approval of the proposed ground lease from the General Assembly.
We expect this new 1,000-bed facility to generate approximately
$19 million dollars in annualized operating revenues once
completed.
Contract
terminations
Effective June 15, 2009, our management contract with
Fort Worth Community Corrections Facility located in
Fort Worth, Texas was assigned to another party. Prior to
this termination, we leased this facility (lease was due to
expire August 2009) and the customer was the Texas
Department of Criminal Justice.
On September 8, 2009, we exercised our contractual right to
terminate our contracts for the operation and management of the
Newton County Correctional Center, referred to as Newton County,
located in Newton, Texas and the Jefferson County Downtown Jail,
referred to as Jefferson County, located in Beaumont, Texas.
5
We managed Newton County and Jefferson County until the
contracts terminated effective on November 2, 2009 and
November 9, 2009, respectively.
In October 2009, we received a
60-day
notice from the California Department of Corrections and
Rehabilitation of its intent to terminate the management
contract between us and them for the management of our
company-owned McFarland Community Correctional Facility.
We do not expect that the termination of these contracts will
have a material adverse impact, individually or in aggregate, on
our financial condition, results of operations or cash flows.
Quality
of Operations
We operate each facility in accordance with our company-wide
policies and procedures and with the standards and guidelines
required under the relevant management contract. For many
facilities, the standards and guidelines include those
established by the American Correctional Association, or ACA.
The ACA is an independent organization of corrections
professionals, which establishes correctional facility standards
and guidelines that are generally acknowledged as a benchmark by
governmental agencies responsible for correctional facilities.
Many of our contracts in the United States require us to seek
and maintain ACA accreditation of the facility. We have sought
and received ACA accreditation and re-accreditation for all such
facilities. We achieved a median re-accreditation score of 99.4%
taking into consideration our most recent accreditation hearing
in January 2010. Approximately 70.5%, excluding discontinued
operations, of our 2009 U.S. corrections revenue was
derived from ACA accredited facilities. We have also achieved
and maintained certification by the Joint Commission on
Accreditation for Healthcare Organizations, or JCAHO, for our
mental health facilities and two of our correctional facilities.
We have been successful in achieving and maintaining
accreditation under the National Commission on Correctional
Health Care, or NCCHC, in a majority of the facilities that we
currently operate. The NCCHC accreditation is a voluntary
process which we have used to establish comprehensive health
care policies and procedures to meet and adhere to the ACA
standards. The NCCHC standards, in most cases, exceed ACA Health
Care Standards.
Business
Development Overview
We intend to pursue a diversified growth strategy by winning new
clients and contracts, expanding our government services
portfolio and pursuing selective acquisition opportunities. Our
primary potential customers are governmental agencies
responsible for local, state and federal correctional facilities
in the United States and governmental agencies responsible for
correctional facilities in Australia, South Africa and the
United Kingdom. Other primary customers include state agencies
in the United States responsible for mental health
facilities, and other foreign governmental agencies. We achieve
organic growth through competitive bidding that begins with the
issuance by a government agency of a request for proposal, or
RFP. We primarily rely on the RFP process for organic growth in
our U.S. and international corrections operations as well
as in our mental health and residential treatment services
business.
Our state and local experience has been that a period of
approximately sixty to ninety days is generally required from
the issuance of a request for proposal to the submission of our
response to the request for proposal; that between one and four
months elapse between the submission of our response and the
agencys award for a contract; and that between one and
four months elapse between the award of a contract and the
commencement of facility construction or management of the
facility, as applicable.
Our federal experience has been that a period of approximately
sixty to ninety days is generally required from the issuance of
a request for proposal to the submission of our response to the
request for proposal; that between twelve and eighteen months
elapse between the submission of our response and the
agencys award for a contract; and that between four and
eighteen weeks elapse between the award of a contract and the
commencement of facility construction or management of the
facility, as applicable.
If the state, local or federal facility for which an award has
been made must be constructed, our experience is that
construction usually takes between nine and twenty-four months
to complete, depending on
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the size and complexity of the project. Therefore, management of
a newly constructed facility typically commences between ten and
twenty-eight months after the governmental agencys award.
We believe that our long operating history and reputation have
earned us credibility with both existing and prospective
customers when bidding on new facility management contracts or
when renewing existing contracts. Our success in the RFP process
has resulted in a pipeline of new projects with significant
revenue potential. During 2009, we activated eight new or
expansion projects representing an aggregate of 2,698 additional
beds compared to the activation of eight new or expansion
projects representing an aggregate of 6,120 beds during 2008.
In addition to pursuing organic growth through the RFP process,
we will from time to time selectively consider the financing and
construction of new facilities or expansions to existing
facilities on a speculative basis without having a signed
contract with a known customer. We also plan to leverage our
experience to expand the range of government-outsourced services
that we provide. We will continue to pursue selected acquisition
opportunities in our core services and other government services
areas that meet our criteria for growth and profitability. We
have engaged and intend in the future to engage independent
consultants to assist us in developing privatization
opportunities and in responding to requests for proposals,
monitoring the legislative and business climate, and maintaining
relationships with existing customers.
Facility
Design, Construction and Finance
We offer governmental agencies consultation and management
services relating to the design and construction of new
correctional and detention facilities and the redesign and
renovation of older facilities. As of January 3, 2010, we
had provided services for the design and construction of
forty-five facilities and for the redesign and renovation and
expansion of twenty-eight facilities.
Contracts to design and construct or to redesign and renovate
facilities may be financed in a variety of ways. Governmental
agencies may finance the construction of such facilities through
the following:
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a one time general revenue appropriation by the governmental
agency for the cost of the new facility;
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general obligation bonds that are secured by either a limited or
unlimited tax levy by the issuing governmental entity; or
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revenue bonds or certificates of participation secured by an
annual lease payment that is subject to annual or bi-annual
legislative appropriations.
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We may also act as a source of financing or as a facilitator
with respect to the financing of the construction of a facility.
In these cases, the construction of such facilities may be
financed through various methods including the following:
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funds from equity offerings of our stock;
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cash on hand
and/or cash
flows from our operations;
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borrowings by us from banks or other institutions (which may or
may not be subject to government guarantees in the event of
contract termination); or
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lease arrangements with third parties.
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If the project is financed using direct governmental
appropriations, with proceeds of the sale of bonds or other
obligations issued prior to the award of the project, then
financing is in place when the contract relating to the
construction or renovation project is executed. If the project
is financed using project-specific tax-exempt bonds or other
obligations, the construction contract is generally subject to
the sale of such bonds or obligations. Generally, substantial
expenditures for construction will not be made on such a project
until the tax-exempt bonds or other obligations are sold; and,
if such bonds or obligations are not sold, construction and
therefore, management of the facility, may either be delayed
until alternative financing is procured or the development of
the project will be suspended or entirely cancelled. If the
project is self-financed by us, then financing is generally in
place prior to the commencement of construction.
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Under our construction and design management contracts, we
generally agree to be responsible for overall project
development and completion. We typically act as the primary
developer on construction contracts for facilities and
subcontract with bonded National
and/or
Regional Design Build Contractors. Where possible, we
subcontract with construction companies that we have worked with
previously. We make use of an in-house staff of architects and
operational experts from various correctional disciplines (e.g.
security, medical service, food service, inmate programs and
facility maintenance) as part of the team that participates from
conceptual design through final construction of the project.
This staff coordinates all aspects of the development with
subcontractors and provides site-specific services.
When designing a facility, our architects use, with appropriate
modifications, prototype designs we have used in developing
prior projects. We believe that the use of these designs allows
us to reduce the potential of cost overruns and construction
delays and to reduce the number of correctional officers
required to provide security at a facility, thus controlling
costs both to construct and to manage the facility. Our facility
designs also maintain security because they increase the area
under direct surveillance by correctional officers and make use
of additional electronic surveillance.
The following table sets forth current expansion and development
projects at January 3, 2010:
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Capacity
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Following
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Estimated
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Additional
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Expansion/
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Completion
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Facilities Under Construction
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Beds
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Construction
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Date
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Customer
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Financing
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North Lake Correctional Facility, Michigan(1)
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1,225
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1,755
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Q2 2010
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Federal or
Various States
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GEO
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Northwest Detention Center, Washington(2)
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n/a
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1,575
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Q2 2010
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Federal
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GEO
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Aurora ICE Processing Center, Colorado(3)
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1,100
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1,532
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Q2 2010
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Federal
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GEO
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Broward Transition Center, Florida(4)
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n/a
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n/a
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Q3 2010
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Federal
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GEO
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Blackwater River Correctional Facility, Florida(5)
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2,000
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2,000
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Q2 2010
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DMS
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Third party
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Total
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4,325
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(1) |
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We currently do not have a customer for this facility but are
marketing these beds to various federal and state agencies. |
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(2) |
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Construction of the additional 545 beds was completed in the
fourth quarter 2009. The ongoing construction at this facility
is to renovate the existing building and expand space available
for administrative and medical offices as well as court rooms. |
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(3) |
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We do not yet have customers for these expansion beds. |
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(4) |
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We are currently operating this facility and have a management
contract for 700 beds. The ongoing construction at this facility
is for a new administration building and other renovations to
the existing structure. |
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(5) |
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We do not yet have a signed management contract for this
facility but we expect to have one in place prior to the
facilitys estimated completion date. |
Competitive
Strengths
Long-Term
Relationships with High-Quality Government
Customers
We have developed long-term relationships with our government
customers and have been successful at retaining our facility
management contracts. We have provided correctional and
detention management services to the United States Federal
Government for 23 years, the State of California for
22 years, the State of Texas for approximately
22 years, various Australian state government entities for
18 years and the State of Florida for approximately
16 years. These customers accounted for 63.5% of our
consolidated revenues for the fiscal year ended January 3,
2010. Our strong operating track record has enabled us to
achieve a high renewal rate for contracts, thereby providing us
with a stable source of revenue. Our government customers
typically satisfy their payment obligations to us through
budgetary appropriations.
8
Diverse,
Full-Service Facility Developer and Operator
We have developed comprehensive expertise in the design,
construction and financing of high quality correctional,
detention and mental health facilities. In addition, we have
extensive experience in overall facility operations, including
staff recruitment, administration, facility maintenance, food
service, healthcare, security, supervision, treatment and
education of inmates. We believe that the breadth of our service
offerings gives us the flexibility and resources to respond to
customers needs as they develop. We believe that the
relationships we foster when offering these additional services
also help us win new contracts and renew existing contracts.
Unique
Privatized Mental Health Growth Platform
We are the only publicly-traded U.S. corrections company
currently operating in the privatized mental health and
residential treatment services business. We believe that our
target market of state and county mental health hospitals
represents a significant opportunity. Through our GEO Care
subsidiary, we have been able to grow this business to
approximately 1,900 beds and $121.8 million in revenues
from 325 beds and $31.7 million in revenues in 2004.
Sizeable
International Business
We believe that our international presence gives us a unique
competitive advantage that has contributed to our growth.
Leveraging our operational excellence in the U.S., our
international infrastructure allows us to aggressively target
foreign opportunities that our
U.S.-based
competitors without overseas operations may have difficulty
pursuing. Our International services business generated
$137.2 million revenue in 2009, representing 12.0% of our
consolidated 2009 revenues. We believe we are well positioned to
continue benefiting from foreign governments initiatives
to outsource correctional services.
Experienced,
Proven Senior Management Team
Our Chief Executive Officer, George C. Zoley, and our President,
Wayne H. Calabrese, have worked together at our company for more
than 20 years and have established a track record of growth
and profitability. Under their leadership, our annual
consolidated revenues from continuing operations have grown from
$40.0 million in 1991 to $1.1 billion in 2009.
Dr. Zoley is one of the pioneers of the industry, having
developed and opened what we believe to be one of the first
privatized detention facilities in the U.S. in 1986. In
addition to senior management, our operational and facility
level management has significant operational experience. Brian
R. Evans, who recently became our Chief Financial Officer, has
been with our company for over eight years, mostly serving as
our Chief Accounting Officer and Vice President-Finance during a
period of significant growth.
Regional
Operating Structure
We operate three regional U.S. offices and three
international offices that provide administrative oversight and
support to our correctional and detention facilities and allow
us to maintain close relationships with our customers and
suppliers. Each of our three regional U.S. offices is
responsible for the facilities located within a defined
geographic area. We believe that our regional operating
structure is unique within the U.S. private corrections
industry and provides us with the competitive advantage of
having close proximity and direct access to our customers and
our facilities. We believe this proximity increases our
responsiveness and the quality of our contacts with our
customers. We believe that this regional structure has
facilitated the rapid integration of our prior acquisitions, and
we also believe that our regional structure and international
offices will help with the integration of any future
acquisitions.
Business
Strategies
Provide
High Quality, Essential Services at Lower Costs
Our objective is to provide federal, state and local
governmental agencies with high quality, essential services at a
lower cost than they themselves could achieve. We have developed
considerable expertise in the management of facility security,
administration, rehabilitation, education, health and food
services. Our quality
9
is recognized through many accreditations including that of the
American Correctional Association, which has certified
facilities representing approximately 70.5% of our
U.S. corrections revenue as of year-end 2009.
Maintain
Disciplined Operating Approach
We manage our business on a contract by contract basis in order
to maximize our operating margins. We typically refrain from
pursuing contracts that we do not believe will yield attractive
profit margins in relation to the associated operational risks.
In addition, we generally have not in the past engaged in
extensive facility development without having a corresponding
management contract award in place, although we have
increasingly begun to do so more recently in select situations
to pursue what we believe are attractive business development
opportunities. We have also elected not to enter certain
international markets with a history of economic and political
instability. We believe that our strategy of emphasizing lower
risk, higher profit opportunities helps us to consistently
deliver strong operational performance, lower our costs and
increase our overall profitability.
Expand
Into Complementary Government-Outsourced Services
We intend to capitalize on our long term relationships with
governmental agencies to become a more diversified provider of
government-outsourced services. These opportunities may include
services which leverage our existing competencies and expertise,
including the design, construction and management of large
facilities, the training and management of a large workforce and
our ability to service the needs and meet the requirements of
government customers. We believe that government outsourcing of
currently internalized functions will increase largely as a
result of the public sectors desire to maintain quality
service levels amid governmental budgetary constraints. We
believe that our successful expansion into the mental health and
residential treatment services sector through GEO Care is an
example of our ability to deliver higher quality services at
lower costs in new areas of privatization.
Pursue
International Growth Opportunities
As a global provider of privatized correctional services, we are
able to capitalize on opportunities to operate existing or new
facilities on behalf of foreign governments. We currently have
international operations in Australia, Canada, South Africa and
the United Kingdom. On January 28, 2009 we announced that
our wholly-owned U.K. subsidiary, The GEO Group UK Ltd.,
referred to as GEO UK, signed a contract with the United Kingdom
Border Agency for the management and operation of the
Harmondsworth Immigration Removal Centre in London, England. We
began operating the Harmondsworth Immigration Removal Centre in
June 2009. On October 1, 2009, our wholly-owned Australian
subsidiary announced that it had been selected by Corrective
Services New South Wales to operate and manage the 823-bed
Parklea Correctional Centre in Australia. We began operating the
Parkela Correctional Centre in October 2009. We intend to
further penetrate the current markets we operate in and to
expand into new international markets which we deem attractive.
Selectively
Pursue Acquisition Opportunities
We consider acquisitions that are strategic in nature and
enhance our geographic platform on an ongoing basis. In November
2005, we acquired Correctional Services Corporation, or CSC,
bringing over 8,000 additional adult correctional and detention
beds under our management. In January 2007, we acquired
CentraCore Properties Trust, or CPT, bringing the 7,743 beds we
had been leasing from CPT, as well as an additional 1,126 beds
leased to third parties, under our ownership. In September 2009,
our wholly-owned mental health subsidiary, GEO Care, acquired
Just Care, a provider of detention healthcare focusing on the
delivery of medical and mental health services. Just Care
manages the 354-bed Columbia Regional Care Center in Columbia,
South Carolina. We plan to continue to review acquisition
opportunities that may become available in the future, both in
the privatized corrections, detention, mental health and
residential treatment services sectors, and in complementary
government-outsourced services areas.
10
Facilities
The following table summarizes certain information as of
January 3, 2010 with respect to facilities that GEO (or a
subsidiary or joint venture of GEO) operated under a management
contract, had an award to manage or was in the process of
expanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commenc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ement
|
|
|
|
|
|
|
Facility Name
|
|
|
|
|
|
Facility
|
|
Security
|
|
of Current
|
|
|
|
Renewal
|
|
Manage Only
|
& Location(1)
|
|
Capacity
|
|
Customer
|
|
Type
|
|
Level
|
|
Contract
|
|
Base Period
|
|
Options
|
|
Lease/ Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen Correctional Center Kinder, LA
|
|
1,538
|
|
LA DPS&C
|
|
State Correctional Facility
|
|
Medium/ Maximum
|
|
October 2008
|
|
2.5 years
|
|
One,
Two-year
|
|
Manage
only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona State Prison Florence West Florence, AZ
|
|
750
|
|
ADC
|
|
State DUI/RTC Correctional Facility
|
|
Minimum
|
|
October 2002
|
|
10 years
|
|
Two,
Five-year
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Arizona Correctional Facility Florence, AZ
|
|
1,280
|
|
ADC
|
|
State Sex Offender Correctional Facility
|
|
Minimum/ Medium
|
|
December 2006
|
|
10 years
|
|
Two,
Five-year
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona State Prison Phoenix West Phoenix, AZ
|
|
450
|
|
ADC
|
|
State DWI Correctional Facility
|
|
Minimum
|
|
July 2002
|
|
10 years
|
|
Two,
Five-year
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aurora ICE Processing Center Aurora, CO
|
|
432 + 1,100 expansion
|
|
ICE
|
|
Federal Detention Facility
|
|
Minimum/ Medium
|
|
October 2006
|
|
8 months
|
|
Four,
One-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeport Correctional Center Bridgeport, TX
|
|
520
|
|
TDCJ
|
|
State Correctional Facility
|
|
Minimum
|
|
September 2005
|
|
3 years
|
|
Two,
One-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bronx Community Re-entry Center Bronx, NY
|
|
110
|
|
BOP
|
|
Federal Halfway House
|
|
Minimum
|
|
October 2007
|
|
2 years
|
|
Three,
One-year
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooklyn Community Re-entry Center Brooklyn, NY
|
|
177
|
|
BOP
|
|
Federal Halfway House
|
|
Minimum
|
|
February 2005
|
|
2 years
|
|
Three,
One-year
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broward Transition Center Deerfield Beach, FL
|
|
700
|
|
ICE
|
|
Federal Detention Facility
|
|
Minimum
|
|
October 2003
|
|
11 months
|
|
Four,
One-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Texas Detention Facility San Antonio, TX(2)
|
|
688
|
|
Bexar County/ICE & USMS
|
|
Local & Federal Detention Facility
|
|
Minimum/ Medium
|
|
April 2009
|
|
10 years
|
|
N/A
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Valley MCCF McFarland, CA
|
|
625
|
|
CDCR
|
|
State Correctional Facility
|
|
Medium
|
|
March 1997
|
|
10 years
|
|
One,
Five year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleveland Correctional Center Cleveland, TX
|
|
520
|
|
TDCJ
|
|
State Correctional Facility
|
|
Minimum
|
|
January 2009
|
|
2.6 years
|
|
Two,
Two-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Desert View MCCF Adelanto, CA
|
|
643
|
|
CDCR
|
|
State Correctional Facility
|
|
Medium
|
|
March 1997
|
|
10 years
|
|
One,
Five-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Mississippi Correctional Facility Meridian, MS
|
|
1,500
|
|
MDOC/IGA
|
|
State Mental Health Correctional Facility
|
|
All Levels
|
|
August 2006
|
|
2 years
|
|
Three,
One-year
|
|
Manage
only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frio County Detention Center Pearsall, TX(2)
|
|
391
|
|
Frio County/BOP/Other Counties
|
|
Local Detention Facility
|
|
All Levels
|
|
November 1997
|
|
12 years
|
|
One,
Five-year
|
|
Lease
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commenc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ement
|
|
|
|
|
|
|
Facility Name
|
|
|
|
|
|
Facility
|
|
Security
|
|
of Current
|
|
|
|
Renewal
|
|
Manage Only
|
& Location(1)
|
|
Capacity
|
|
Customer
|
|
Type
|
|
Level
|
|
Contract
|
|
Base Period
|
|
Options
|
|
Lease/ Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golden State MCCF McFarland, CA
|
|
625
|
|
CDCR
|
|
State Correctional Facility
|
|
Medium
|
|
March 1997
|
|
10 years
|
|
One,
Five-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graceville Correctional Facility Graceville, FL
|
|
1,884
|
|
DMS
|
|
State Correctional Facility
|
|
Medium/
Close
|
|
September 2007
|
|
3 years
|
|
Undefined
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guadalupe County Correctional Facility Santa Rosa, NM(2)
|
|
600
|
|
Guadalupe County/NMCD
|
|
Local/State Correctional Facility
|
|
Medium
|
|
January 1999
|
|
3 years
|
|
One,
Two-year
and Five,
one-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karnes Correctional Center Karnes City, TX(2)
|
|
679
|
|
Karnes County/ICE & USMS
|
|
Local & Federal Detention Facility
|
|
All Levels
|
|
May 1998
|
|
30 years
|
|
N/A
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LaSalle Detention Facility Jena, LA(2)
|
|
1,160
|
|
LEDD/ICE
|
|
Federal Detention Facility
|
|
Minimum/ Medium
|
|
July 2007
|
|
Continuous until terminated
|
|
N/A
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrenceville Correctional Center Lawrenceville, VA
|
|
1,536
|
|
VDOC
|
|
State Correctional Facility
|
|
Medium
|
|
March 2003
|
|
5 years
|
|
Ten,
One-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawton Correctional Facility Lawton, OK
|
|
2,526
|
|
ODOC
|
|
State Correctional Facility
|
|
Medium
|
|
July 2008
|
|
1 year
|
|
Five,
One-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lea County Correctional Facility Hobbs, NM(2),(3)
|
|
1,200
|
|
Lea County/NMCD
|
|
Local/State Correctional Facility
|
|
All Levels
|
|
September 1998
|
|
5 years
|
|
Six,
One-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lockhart Secure Work Program Facilities Lockhart, TX
|
|
1,000
|
|
TDCJ
|
|
State Correctional Facility
|
|
Minimum/ Medium
|
|
January 2009
|
|
2.6 years
|
|
Two,
One-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marshall County Correctional Facility Holly Springs, MS
|
|
1,000
|
|
MDOC
|
|
State Correctional Facility
|
|
Medium
|
|
September 2006
|
|
2 years
|
|
Two,
One-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maverick County Detention Facility Maverick, TX(2)
|
|
688
|
|
USMS/BOP Maverick County
|
|
Local Detention Facility
|
|
Medium
|
|
December 2008
|
|
3 Years
|
|
Unlimited, Two-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Migrant Operations Center Guantanamo Bay NAS, Cuba
|
|
130
|
|
ICE
|
|
Federal Migrant Center
|
|
Minimum
|
|
November 2006
|
|
11 Months
|
|
Four,
One-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moore Haven Correctional Facility Moore Haven, FL
|
|
985
|
|
DMS
|
|
State Correctional Facility
|
|
Medium
|
|
July 2007
|
|
3 years
|
|
Unlimited, Two-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joe Corley Detention Facility Conroe, TX(2)
|
|
1,287
|
|
USMS/ICE/BOP Montgomery County
|
|
Local Correctional Facility
|
|
Medium
|
|
August 2008
|
|
2 years
|
|
Unlimited 2 year options
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Castle Correctional Facility New Castle, IN
|
|
2,524
|
|
IDOC
|
|
State Correctional Facility
|
|
All
|
|
January 2006
|
|
4 years
|
|
Three,
Two-year
|
|
Manage
Only
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commenc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ement
|
|
|
|
|
|
|
Facility Name
|
|
|
|
|
|
Facility
|
|
Security
|
|
of Current
|
|
|
|
Renewal
|
|
Manage Only
|
& Location(1)
|
|
Capacity
|
|
Customer
|
|
Type
|
|
Level
|
|
Contract
|
|
Base Period
|
|
Options
|
|
Lease/ Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast New Mexico Detention Facility Clayton, NM(2)
|
|
625
|
|
Clayton/ NMCD
|
|
Local/State Correctional Facility
|
|
Medium
|
|
August 2008
|
|
5 years
|
|
Five,
One-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Texas ISF Fort Worth, TX
|
|
424
|
|
TDCJ
|
|
State Intermediate Sanction Facility
|
|
Minimum
|
|
March 2004
|
|
3 years
|
|
Four,
One-year
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest Detention Center Tacoma, WA
|
|
1,575
|
|
ICE
|
|
Federal Detention Facility
|
|
All Levels
|
|
October 2009
|
|
1 year
|
|
Four,
One-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Queens Detention Facility Jamaica, NY
|
|
222
|
|
OFDT/USMS
|
|
Federal Detention Facility
|
|
Minimum/ Medium
|
|
January 2008
|
|
2 year
|
|
Four,
two-year
|
|
Own(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reeves County Detention Complex R1/R2 Pecos, TX(2)
|
|
1,720
|
|
Reeves County/BOP
|
|
Federal Correctional Facility
|
|
Low
|
|
Feb 2007
|
|
10 years
|
|
Unlimited
ten year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reeves County Detention Complex R3 Pecos, TX(2)
|
|
1,356
|
|
Reeves County/BOP
|
|
Federal Correctional Facility
|
|
Low
|
|
January 2007
|
|
10 years
|
|
Unlimited
ten year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rio Grande Detention Center Laredo, TX
|
|
1,500
|
|
OFDT/USMS
|
|
Federal Detention Facility
|
|
Medium
|
|
October 2008
|
|
5 years
|
|
Three,
Five-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rivers Correctional Institution Winton, NC
|
|
1,380
|
|
BOP
|
|
Federal Correctional Facility
|
|
Low
|
|
March 2001
|
|
3 years
|
|
Seven,
One-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A. Deyton Detention Facility Lovejoy, GA
|
|
768
|
|
Clayton County/ OFDT/USMS
|
|
Federal Detention Facility
|
|
Medium
|
|
February 2008
|
|
5 years
|
|
Three,
Five year
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Bay Correctional Facility South Bay, FL
|
|
1,862
|
|
DMS
|
|
State Correctional Facility
|
|
Medium/close
|
|
July 2006
|
|
3 years
|
|
Unlimited, Two-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Texas Detention Complex Pearsall, TX
|
|
1,904
|
|
ICE
|
|
Federal Detention Facility
|
|
All
|
|
June 2005
|
|
1 year
|
|
Four,
One-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Texas ISF Houston, TX
|
|
450
|
|
TDCJ
|
|
State Intermediate Sanction Facility
|
|
Medium
|
|
March 2009
|
|
18 months
|
|
N/A
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Val Verde Correctional Facility Del Rio, TX(2)
|
|
1,344
|
|
Val Verde County/USMS
|
|
Local & Federal Detention Facility
|
|
All Levels
|
|
January 2001
|
|
20 years
|
|
Unlimited, Five-year
|
|
Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Region Detention Facility at San Diego
San Diego, CA
|
|
770
|
|
OFDT/USMS
|
|
Federal Detention Facility
|
|
Maximum
|
|
January 2006
|
|
5 years
|
|
One,
Five-year
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur Gorrie Correctional Centre Queensland, Australia
|
|
890
|
|
QLD DCS
|
|
State Remand Prison
|
|
High/ Maximum
|
|
January 2008
|
|
5 years
|
|
One,
Five-year
|
|
Manage
Only
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commenc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ement
|
|
|
|
|
|
|
Facility Name
|
|
|
|
|
|
Facility
|
|
Security
|
|
of Current
|
|
|
|
Renewal
|
|
Manage Only
|
& Location(1)
|
|
Capacity
|
|
Customer
|
|
Type
|
|
Level
|
|
Contract
|
|
Base Period
|
|
Options
|
|
Lease/ Own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Campsfield House Immigration Removal Centre Kidlington, England
|
|
215
|
|
UK Home Office of Immigration
|
|
Detention Centre
|
|
Minimum
|
|
May 2006
|
|
3 years
|
|
One,
Two-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harmondsworth Immigration Removal Centre London, England
|
|
260 + 360 expansion
|
|
United Kingdom Border Agency
|
|
Detention Centre
|
|
Minimum
|
|
June 2009
|
|
3 years
|
|
None
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fulham Correctional Centre & Nalu Challenge Community
Victoria, Australia
|
|
785
|
|
VIC DOJ
|
|
State Prison
|
|
Minimum/ Medium
|
|
April 1997
|
|
20 years
|
|
None
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junee Correctional Centre New South Wales, Australia
|
|
790
|
|
NSW
|
|
State Prison
|
|
Minimum/Medium
|
|
April 2009
|
|
5 years
|
|
Two
Five-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kutama-Sinthumule Correctional Centre Limpopo Province, Republic
of South Africa
|
|
3,024
|
|
RSA DCS
|
|
National Prison
|
|
Maximum
|
|
February 2002
|
|
25 years
|
|
None
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melbourne Custody Centre Melbourne, Australia
|
|
67
|
|
VIC CC
|
|
State Jail
|
|
All Levels
|
|
March 2005
|
|
3 years
|
|
Two,
One-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Brunswick Youth Centre Mirimachi, Canada(4)
|
|
N/A
|
|
PNB
|
|
Provincial Juvenile Facility
|
|
All Levels
|
|
October 1997
|
|
25 years
|
|
One,
Ten-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pacific Shores Healthcare Victoria, Australia(5)
|
|
N/A
|
|
VIC CV
|
|
Health Care Services
|
|
N/A
|
|
January 2002
|
|
3 years
|
|
Four,
One-year
and One, 17 months
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parklea Correctional Centre Sydney, Australia
|
|
823
|
|
NSW
|
|
State Remand Prison
|
|
All Levels
|
|
October 2009
|
|
5 years
|
|
One,
Three-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GEO Care:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia Regional Care Center Columbia, South Carolina(6)
|
|
354
|
|
SCDOH/ GDOC ICE/ USMS
|
|
Correctional Health Care Hospital
|
|
Medical and Mental Health
|
|
July 2005
|
|
8 years
|
|
None
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida Civil Commitment Center Arcadia, FL
|
|
720
|
|
DCF
|
|
State Civil Commitment
|
|
All Levels
|
|
July 2006
|
|
31 Months
|
|
Two,
One-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palm Beach County Jail Palm Beach, FL
|
|
N/A
|
|
PBC as Subcontractor to Armor Healthcare
|
|
Mental Health Services to County Jail
|
|
All Levels
|
|
May 2006
|
|
5 years
|
|
N/A
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Florida State Hospital Pembroke Pines, FL
|
|
335
|
|
DCF
|
|
State Psychiatric Hospital
|
|
Mental Health
|
|
July 2008
|
|
5 years
|
|
Three,
Five-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Florida Evaluation and Treatment Center Miami, FL
|
|
238
|
|
DCF
|
|
State Forensic Hospital
|
|
Mental Health
|
|
July 2005
|
|
5 years
|
|
Three,
Five-year
|
|
Manage
Only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasure Coast Forensic Treatment Center Stuart, FL
|
|
223
|
|
DCF
|
|
State Forensic Hospital
|
|
Mental Health
|
|
April 2007
|
|
5 years
|
|
One,
Five-year
|
|
Manage
Only
|
14
Customer
Legend:
|
|
|
Abbreviation
|
|
Customer
|
|
IGA
|
|
Intergovernmental Agreement
|
LA DPS&C
|
|
Louisiana Department of Public Safety & Corrections
|
LEDD
|
|
LaSalle Economic Development District
|
ADC
|
|
Arizona Department of Corrections
|
ICE
|
|
U.S. Immigration & Customs Enforcement
|
TDCJ
|
|
Texas Department of Criminal Justice
|
CDCR
|
|
California Department of Corrections & Rehabilitation
|
MDOC
|
|
Mississippi Department of Corrections (East Mississippi &
Marshall County)
|
NMCD
|
|
New Mexico Corrections Department
|
VDOC
|
|
Virginia Department of Corrections
|
ODOC
|
|
Oklahoma Department of Corrections
|
DMS
|
|
Florida Department of Management Services
|
BOP
|
|
Federal Bureau of Prisons
|
USMS
|
|
United States Marshals Service
|
IDOC
|
|
Indiana Department of Correction
|
QLD DCS
|
|
Department of Corrective Services of the State of Queensland
|
OFDT
|
|
Office of Federal Detention Trustee
|
VIC DOJ
|
|
Department of Justice of the State of Victoria
|
NSW
|
|
Commissioner of Corrective Services for New South Wales
|
RSA DCS
|
|
Republic of South Africa Department of Correctional Services
|
VIC CC
|
|
The Chief Commissioner of the Victoria Police
|
PNB
|
|
Province of New Brunswick
|
VIC CV
|
|
The State of Victoria represented by Corrections Victoria
|
DCF
|
|
Florida Department of Children & Families
|
SCDOH
|
|
South Carolina Department of Health
|
GDOC
|
|
Georgia Department of Corrections
|
PBC
|
|
Palm Beach County
|
|
|
|
(1) |
|
GEO also owns a facility in Baldwin, Michigan, North Lake
Correctional Facility, that was not in use during fiscal year
2009. This 530-bed facility is undergoing a 1,225-bed expansion. |
|
(2) |
|
GEO provides services at this facility through various
Inter-Governmental Agreements, or IGAs, through the various
counties and other jurisdictions. |
|
(3) |
|
The full term of this contract expired in December 2009 and was
extended until December 12, 2011. |
|
(4) |
|
The contract for this facility only requires GEO to provide
maintenance services. |
|
(5) |
|
GEO provides comprehensive healthcare services to nine
(9) government-operated prisons under this contract. |
|
(6) |
|
GEO Care acquired the management contracts for Columbia Regional
Care Center on September 30, 2009 in connection with its
business acquisition of Just Care |
Government
Contracts Terminations, Renewals and Competitive
Re-bids
Generally, we may lose our facility management contracts due to
one of three reasons: the termination by a government customer
with or without cause at any time; the failure by a customer to
renew a contract with us upon the expiration of the then current
term; or our failure to win the right to continue to operate
under a contract that has been competitively re-bid in a
procurement process upon its termination or expiration. Our
facility management contracts typically allow a contracting
governmental agency to terminate a contract with or without
cause at any time by giving us written notice ranging from 30 to
180 days. If government agencies were to use these
provisions to terminate, or renegotiate the terms of their
agreements with us, our financial condition and results of
operations could be materially adversely affected. See
Risk Factors We are subject to the loss
of our facility management contracts due to terminations,
non-renewals or competitive re-
15
bids, which could adversely affect our results of operations and
liquidity, including our ability to secure new facility
management contracts from other government customers.
Aside from our customers unilateral right to terminate our
facility management contracts with them at any time for any
reason, there are two points during the typical lifecycle of a
contract which may result in the loss by us of a facility
management contract with our customers. We refer to these points
as contract renewals and contract
re-bids. Many of our facility management contracts
with our government customers have an initial fixed term and
subsequent renewal rights for one or more additional periods at
the unilateral option of the customer. We count each government
customers right to renew a particular facility management
contract for an additional period as a separate
renewal. For example, a five-year initial fixed term
contract with customer options to renew for five separate
additional one-year periods would, if fully exercised, be
counted as five separate renewals, with one renewal coming in
each of the five years following the initial term. As of
January 3, 2010, eleven of our facility management
contracts representing 10,407 beds are scheduled to expire on or
before December 31, 2010, unless renewed by the customer at
its sole option. These contracts represented 19.3% of our
consolidated revenues for the fiscal year ended January 3,
2010. We undertake substantial efforts to renew our facility
management contracts. Our historical facility management
contract renewal rate exceeds 90%. However, given their
unilateral nature, we cannot assure you that our customers will
in fact exercise their renewal options under existing contracts.
In addition, in connection with contract renewals, either we or
the contracting government agency have typically requested
changes or adjustments to contractual terms. As a result,
contract renewals may be made on terms that are more or less
favorable to us than those in existence prior to the renewals.
We define competitive re-bids as contracts currently under our
management which we believe, based on our experience with the
customer and the facility involved, will be re-bid to us and
other potential service providers in a competitive procurement
process upon the expiration or termination of our contract,
assuming all renewal options are exercised. Our determination of
which contracts we believe will be competitively re-bid may in
some cases be subjective and judgmental, based largely on our
knowledge of the dynamics involving a particular contract, the
customer and the facility involved. Competitive re-bids may
result from the expiration of the term of a contract, including
the initial fixed term plus any renewal periods, or the early
termination of a contract by a customer. Competitive re-bids are
often required by applicable federal or state procurement laws
periodically in order to encourage competitive pricing and other
terms for the government customer. Potential bidders in
competitive re-bid situations include us, other private
operators and other government entities. While we are pleased
with our historical win rate on competitive re-bids and are
committed to continuing to bid competitively on appropriate
future competitive re-bid opportunities, we cannot in fact
assure you that we will prevail in future competitive re-bid
situations. Also, we cannot assure you that any competitive
re-bids we win will be on terms more favorable to us than those
in existence with respect to the expiring contract.
As of January 3, 2010, six of our facility management
contracts representing 9.1% and $103.4 million of our
fiscal year 2009 consolidated revenues are subject to
competitive re-bid in 2010. The following table sets forth the
number of facility management contracts that we currently
believe will be subject to competitive re-bid in each of the
next five years and thereafter, and the total number of beds
relating to those potential competitive re-bid situations during
each period:
|
|
|
|
|
|
|
|
|
Year
|
|
Re-bid
|
|
|
Total Number of Beds up for Re-bid
|
|
|
2010
|
|
|
6
|
|
|
|
5,537
|
|
2011
|
|
|
6
|
|
|
|
4,119
|
|
2012
|
|
|
4
|
|
|
|
3,122
|
|
2013
|
|
|
1
|
|
|
|
178
|
|
2014
|
|
|
2
|
|
|
|
2,275
|
|
Thereafter
|
|
|
22
|
|
|
|
21,334
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
41
|
|
|
|
36,565
|
|
|
|
|
|
|
|
|
|
|
16
Competition
We compete primarily on the basis of the quality and range of
services we offer; our experience domestically and
internationally in the design, construction, and management of
privatized correctional and detention facilities; our
reputation; and our pricing. We compete directly with the public
sector, where governmental agencies responsible for the
operation of correctional, detention and mental health and
residential treatment facilities are often seeking to retain
projects that might otherwise be privatized. In the private
sector, our U.S. corrections and International services
business segments compete with a number of companies, including,
but not limited to: Corrections Corporation of America; Cornell
Companies, Inc.; Management and Training Corporation; Louisiana
Corrections Services, Inc.; Emerald Companies; Community
Education Centers; LaSalle Corrections; Group 4 Securicor;
Kaylx; and Serco. Our GEO Care business segment competes with a
number of different
small-to-medium
sized companies, reflecting the highly fragmented nature of the
mental health and residential treatment services industry. Some
of our competitors are larger and have more resources than we
do. We also compete in some markets with small local companies
that may have a better knowledge of the local conditions and may
be better able to gain political and public acceptance.
Employees
and Employee Training
At January 3, 2010, we had 13,026 full-time employees.
Of our full-time employees, 248 were employed at our
headquarters and regional offices and 12,778 were employed at
facilities and international offices. We employ management,
administrative and clerical, security, educational services,
health services and general maintenance personnel at our various
locations. Approximately 623 and 1,860 employees are
covered by collective bargaining agreements in the United States
and at international offices, respectively. We believe that our
relations with our employees are satisfactory.
Under the laws applicable to most of our operations, and
internal company policies, our correctional officers are
required to complete a minimum amount of training. We generally
require at least 40 hours of pre-service training before an
employee is allowed to assume their duties plus an additional
120 hours of training during their first year of employment
in our domestic facilities, consistent with ACA standards
and/or
applicable state laws. In addition to the usual 160 hours
of training in the first year, most states require 40 or
80 hours of
on-the-job
training. Florida law requires that correctional officers
receive 520 hours of training. We believe that our training
programs meet or exceed all applicable requirements.
Our training program for domestic facilities typically begins
with approximately 40 hours of instruction regarding our
policies, operational procedures and management philosophy.
Training continues with an additional 120 hours of
instruction covering legal issues, rights of inmates, techniques
of communication and supervision, interpersonal skills and job
training relating to the particular position to be held. Each of
our employees who has contact with inmates receives a minimum of
40 hours of additional training each year, and each manager
receives at least 24 hours of training each year.
At least 160 hours of training are required for our
employees in Australia and South Africa before such employees
are allowed to work in positions that will bring them into
contact with inmates. Our employees in Australia and South
Africa receive a minimum of 40 hours of refresher training
each year. In the United Kingdom, our corrections employees also
receive a minimum of 240 hours prior to coming in contact
with inmates and receive additional training of approximately
25 hours annually.
Business
Regulations and Legal Considerations
Many governmental agencies are required to enter into a
competitive bidding procedure before awarding contracts for
products or services. The laws of certain jurisdictions may also
require us to award subcontracts on a competitive basis or to
subcontract or partner with businesses owned by women or members
of minority groups.
17
Certain states, such as Florida, deem correctional officers to
be peace officers and require our personnel to be licensed and
subject to background investigation. State law also typically
requires correctional officers to meet certain training
standards.
The failure to comply with any applicable laws, rules or
regulations or the loss of any required license could have a
material adverse effect on our business, financial condition and
results of operations. Furthermore, our current and future
operations may be subject to additional regulations as a result
of, among other factors, new statutes and regulations and
changes in the manner in which existing statutes and regulations
are or may be interpreted or applied. Any such additional
regulations could have a material adverse effect on our
business, financial condition and results of operations.
Insurance
The nature of our business exposes us to various types of
third-party legal claims, including, but not limited to, civil
rights claims relating to conditions of confinement
and/or
mistreatment, sexual misconduct claims brought by prisoners or
detainees, medical malpractice claims, claims relating to
employment matters (including, but not limited to, employment
discrimination claims, union grievances and wage and hour
claims), property loss claims, environmental claims, automobile
liability claims, contractual claims and claims for personal
injury or other damages resulting from contact with our
facilities, programs, personnel or prisoners, including damages
arising from a prisoners escape or from a disturbance or
riot at a facility. In addition, our management contracts
generally require us to indemnify the governmental agency
against any damages to which the governmental agency may be
subject in connection with such claims or litigation. We
maintain a broad program of insurance coverage for these general
types of claims, except for claims relating to employment
matters, for which we carry no insurance. There can be no
assurance that our insurance coverage will be adequate to cover
all claims to which we may be exposed.
We currently maintain a general liability policy and excess
liability policy for all U.S. corrections operations with
limits of $62.0 million per occurrence and in the
aggregate. A separate $35.0 million limit applies to
medical professional liability claims arising out of
correctional healthcare services. Our wholly owned subsidiary,
GEO Care, is insured under their own program for general
liability and medical professional liability with a specific
loss limit of $35.0 million per occurrence and in the
aggregate. We are uninsured for any claims in excess of these
limits. For most casualty insurance policies, we carry
substantial deductibles or self-insured retentions
$3.0 million per occurrence for general liability and
hospital professional liability, $2.0 million per
occurrence for workers compensation and $1.0 million
per occurrence for automobile liability. We also maintain
insurance to cover property and other casualty risks including,
workers compensation, environmental liability and
automobile liability.
With respect to our operations in South Africa, United Kingdom
and Australia, we utilize a combination of locally-procured
insurance and global policies to meet contractual insurance
requirements and protect the Company. Our Australian subsidiary
is required to carry tail insurance on a general liability
policy providing an extended reporting period through 2011
related to a discontinued contract.
In addition, certain of our facilities located in Florida and
determined by insurers to be in high-risk hurricane areas carry
substantial windstorm deductibles. Since hurricanes are
considered unpredictable future events, no reserves have been
established to pre-fund for potential windstorm damage. Limited
commercial availability of certain types of insurance relating
to windstorm exposure in coastal areas and earthquake exposure
mainly in California may prevent us from insuring some of our
facilities to full replacement value.
Of the reserves discussed above, our most significant insurance
reserves relate to workers compensation and general
liability claims. These reserves are undiscounted and were
$27.2 million and $25.5 million as of January 3,
2010 and December 28, 2008, respectively. We use
statistical and actuarial methods to estimate amounts for claims
that have been reported but not paid and claims incurred but not
reported. In applying these methods and assessing their results,
we consider such factors as historical frequency and severity of
claims at each of our facilities, claim development, payment
patterns and changes in the nature of our business, among other
factors. Such factors are analyzed for each of our business
segments. Our estimates may be impacted by such factors as
increases in the market price for medical services and
unpredictability of the
18
size of jury awards. We also may experience variability between
our estimates and the actual settlement due to limitations
inherent in the estimation process, including our ability to
estimate costs of processing and settling claims in a timely
manner as well as our ability to accurately estimate our
exposure at the onset of a claim. Because we have high
deductible insurance policies, the amount of our insurance
expense is dependent on our ability to control claims
experience. If actual losses related to insurance claims
significantly differ from estimates, our financial condition,
results of operations and cash flows could be materially
impacted.
International
Operations
Our international operations for fiscal years 2009 and 2008
consisted of the operations of our wholly-owned Australian
subsidiaries, our wholly owned subsidiary in the United Kingdom,
and South African Custodial Management Pty. Limited, our
consolidated joint venture in South Africa, which we refer to as
SACM. In Australia, our wholly-owned subsidiary, GEO Australia,
currently manages five facilities and provides comprehensive
healthcare services to nine government operated prisons. We
operate one facility in South Africa through SACM. During Fourth
Quarter 2004, we opened an office in the United Kingdom to
pursue new business opportunities throughout Europe. On
March 6, 2006, we were awarded a contract to manage the
operations of the 198-bed Campsfield House in Kidlington,
England and on June 29, 2009, GEO UK assumed management
functions of the 260-bed Harmondsworth Immigration Removal
Centre in London, England. The Centre will be expanded by 360
beds during fiscal year 2010 and will be managed by our
subsidiary under a three-year contract. See Item 7 for more
discussion related to the results of our international
operations. Financial information about our operations in
different geographic regions appears in Item 8.
Financial Statements Note 17 Business Segment
and Geographic Information.
Business
Concentration
Except for the major customers noted in the following table, no
other single customer made up greater than 10% of our
consolidated revenues, excluding discontinued operations, for
these years.
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Customer
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2009
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2008
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2007
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Various agencies of the U.S. Federal Government
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31
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%
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28
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%
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27
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%
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Various agencies of the State of Florida
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16
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%
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%
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16
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%
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Available
Information
Additional information about us can be found at
www.geogroup.com. We make available on our website, free
of charge, access to our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
our annual proxy statement on Schedule 14A and amendments
to those materials filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities and Exchange Act
of 1934 as soon as reasonably practicable after we
electronically submit such materials to the Securities and
Exchange Commission, or the SEC. In addition, the SEC makes
available on its website, free of charge, reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC, including GEO. The
SECs website is located at
http://www.sec.gov.
Information provided on our website or on the SECs website
is not part of this Annual Report on
Form 10-K.
The following are certain risks to which our business operations
are subject. Any of these risks could materially adversely
affect our business, financial condition, or results of
operations. These risks could also cause our actual results to
differ materially from those indicated in the forward-looking
statements contained herein and elsewhere.
19
Risks
Related to Our High Level of Indebtedness
We are
currently incurring significant indebtedness in connection with
substantial ongoing capital expenditures. Capital expenditures
for these existing and future projects may materially strain our
liquidity.
As of January 3, 2010, we were in the process of
constructing or expanding three facilities representing 4,325
total beds. We are providing the financing for two of the three
facilities representing 2,325 beds. Remaining capital
expenditures related to these and other projects under
development are expected to be $37.7 million, all of which
we expect to spend in 2010. We intend to finance these and
future projects using our own funds, including cash on hand,
cash flow from operations and borrowings under our
$330.0 million Revolver. As of January 3, 2010, we had
$47.5 million outstanding in letters of credit and
$58.0 million in borrowings outstanding under the Revolver.
Consequently, we had the ability to borrow approximately
$217 million under our Revolver after considering our debt
covenants. In addition, we have an ability to borrow
$200.0 million under the accordion feature of our Senior
Credit Facility subject to lender demand and prevailing market
conditions. While we believe we currently have adequate
borrowing capacity under our Senior Credit Facility to fund all
of our committed capital expenditure projects, we may need
additional borrowings or financing from other sources in order
to complete potential capital expenditures related to new
projects in the future. We cannot assure you that such
borrowings or financing will be made available to us on
satisfactory terms, or at all. In addition, the large capital
commitments that these projects will require over the next
12-18 month
period may materially strain our liquidity and our borrowing
capacity for other purposes. Capital constraints caused by these
projects may also cause us to have to entirely refinance our
existing indebtedness or incur more indebtedness. Such financing
may have terms less favorable than those we currently have in
place, or not be available to us at all. In addition, the
concurrent development of these and other large capital projects
exposes us to material risks. For example, we may not complete
some or all of the projects on time or on budget, which could
cause us to absorb any losses associated with any delays.
Our
significant level of indebtedness could adversely affect our
financial condition and prevent us from fulfilling our debt
service obligations.
We have a significant amount of indebtedness. Our total
consolidated long-term indebtedness as of January 3, 2010
was $457.5 million, excluding non-recourse debt of
$112.0 million and capital lease liability balances of
$15.1 million. We had the ability to borrow approximately
$217 million under the Revolver, after considering our debt
covenants, subject to our satisfying the relevant borrowing
conditions under the Senior Credit Facility with respect to the
incurrence of additional indebtedness.
Our substantial indebtedness could have important consequences.
For example, it could:
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require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working
capital, capital expenditures, and other general corporate
purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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increase our vulnerability to adverse economic and industry
conditions;
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place us at a competitive disadvantage compared to competitors
that may be less leveraged; and
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limit our ability to borrow additional funds or refinance
existing indebtedness on favorable terms.
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If we are unable to meet our debt service obligations, we may
need to reduce capital expenditures, restructure or refinance
our indebtedness, obtain additional equity financing or sell
assets. We may be unable to restructure or refinance our
indebtedness, obtain additional equity financing or sell assets
on satisfactory terms or at all. In addition, our ability to
incur additional indebtedness will be restricted by the terms of
our Senior Credit Facility and the indenture governing our
outstanding
73/4% Senior
Notes.
20
Despite
current indebtedness levels, we may still incur more
indebtedness, which could further exacerbate the risks described
above. Future indebtedness issued pursuant to our universal
shelf registration statement could have rights superior to those
of our existing or future indebtedness.
The terms of the indenture governing the
73/4% Senior
Notes and our Senior Credit Facility restrict our ability to
incur but do not prohibit us from incurring significant
additional indebtedness in the future. As of January 3,
2010, we had the ability to borrow approximately
$217 million under the Revolver, subject to our satisfying
the relevant borrowing conditions under the Senior Credit
Facility and the indenture governing the
73/4% Senior
Notes. We also have an ability to borrow an additional
$200.0 million under the accordion feature of our Senior
Credit Facility subject to lender demand, prevailing market
conditions and satisfying relevant borrowing conditions. Also,
we may refinance all or a portion of our indebtedness, including
borrowings under our Senior Credit Facility
and/or the
73/4% Senior
Notes. The terms of such refinancing may be less restrictive and
permit us to incur more indebtedness than we can now. If new
indebtedness is added to our, and our subsidiaries,
current debt levels, the related risks that we, and they, would
face related to our level of indebtedness could intensify.
The
covenants in the indenture governing our
73/4% Senior
Notes and our Senior Credit Facility impose significant
operating and financial restrictions which may adversely affect
our ability to operate our business.
The indenture governing the
73/4% Senior
Notes and our Senior Credit Facility impose significant
operating and financial restrictions on us and certain of our
subsidiaries, which we refer to as restricted subsidiaries.
These restrictions limit our ability to, among other things:
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incur additional indebtedness;
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pay dividends and or distributions on our capital stock,
repurchase, redeem or retire our capital stock, prepay
subordinated indebtedness, make investments;
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issue preferred stock of subsidiaries;
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guarantee other indebtedness;
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create liens on our assets;
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transfer and sell assets;
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make capital expenditures above certain limits;
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create or permit restrictions on the ability of our restricted
subsidiaries to make dividends or make other distributions to us;
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enter into sale/leaseback transactions;
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enter into transactions with affiliates; and
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merge or consolidate with another company or sell all or
substantially all of our assets.
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These restrictions could limit our ability to finance our future
operations or capital needs, make acquisitions or pursue
available business opportunities. In addition, our Senior Credit
Facility requires us to maintain specified financial ratios and
satisfy certain financial covenants, including maintaining our
total leverage ratio, maximum senior secured leverage ratio and
a minimum interest coverage ratio. Some of these financial
ratios become more restrictive over the life of the Senior
Credit Facility. We may be required to take action to reduce our
indebtedness or to act in a manner contrary to our business
objectives to meet these ratios and satisfy these covenants. We
could also incur additional indebtedness having even more
restrictive covenants. Our failure to comply with any of the
covenants under our Senior Credit Facility and the indenture
governing the
73/4% Senior
Notes, or any other indebtedness, could prevent us from being
able to draw on our Revolver, cause an event of default under
such documents and result in an acceleration of all of our
outstanding indebtedness. If all of our outstanding indebtedness
were to be accelerated, we likely would not be
21
able to simultaneously satisfy all of our obligations under such
indebtedness, which would materially adversely affect our
financial condition and results of operations.
Servicing
our indebtedness will require a significant amount of cash. Our
ability to generate cash depends on many factors beyond our
control.
Our ability to make payments on our indebtedness and to fund
planned capital expenditures will depend on our ability to
generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control.
Our business may not be able to generate sufficient cash flow
from operations or future borrowings may not be available to us
under our Senior Credit Facility or otherwise in an amount
sufficient to enable us to pay our indebtedness or new debt
securities, or to fund our other liquidity needs. We may need to
refinance all or a portion of our indebtedness on or before
maturity. However, we may not be able to complete such
refinancing on commercially reasonable terms or at all.
Because
portions of our senior indebtedness have floating interest
rates, a general increase in interest rates will adversely
affect cash flows.
Borrowings under our Senior Credit Facility bear interest at a
variable rate. As a result, to the extent our exposure to
increases in interest rates is not eliminated through interest
rate protection agreements, such increases will result in higher
debt service costs which will adversely affect our cash flows.
We do not currently have any interest rate protection agreements
in place to protect against interest rate fluctuations related
to our Senior Credit Facility. Based on borrowings of
$213.0 million outstanding under the Senior Credit Facility
as of January 3, 2010, a one percent increase in the
interest rate applicable to the Senior Credit Facility, would
increase our annual interest expense by $2.1 million.
We
depend on distributions from our subsidiaries to make payments
on our indebtedness. These distributions may not be
made.
We generate a substantial portion of our revenues from
distributions on the equity interests we hold in our
subsidiaries. Therefore, our ability to meet our payment
obligations on our indebtedness is substantially dependent on
the earnings of our subsidiaries and the payment of funds to us
by our subsidiaries as dividends, loans, advances or other
payments. Our subsidiaries are separate and distinct legal
entities and, unless they expressly guarantee any indebtedness
of ours, they are not obligated to make funds available for
payment of our other indebtedness in the form of loans,
distributions or otherwise. Our subsidiaries ability to
make any such loans, distributions or other payments to us will
depend on their earnings, business results, the terms of their
existing and any future indebtedness, tax considerations and
legal or contractual restrictions to which they may be subject.
If our subsidiaries do not make such payments to us, our ability
to repay our indebtedness may be materially adversely affected.
For the fiscal year ended January 3, 2010, our subsidiaries
accounted for 50.1% of our consolidated revenue, and, as of
January 3, 2010, our subsidiaries accounted for 59.0% of
our total segment assets.
Risks
Related to Our Business and Industry
We do
not have management contracts with clients to operate new beds
at two facilities that we are currently expanding and cannot
assure you that such contracts will be obtained. Failure to
obtain management contracts for these new beds will subject us
to carrying costs with no corresponding management
revenue.
We are currently in the process of expanding two facilities to
add additional beds that we do not yet have corresponding
management contracts to operate. While we are working diligently
with a number of different customers for the use of these
remaining beds, we cannot in fact assure you that contracts for
the beds will be secured on a timely basis, or at all. While
these facilities are vacant, we estimate that we will incur
carrying costs ranging from approximately $1.0 million to
$1.5 million per facility, per fiscal quarter. Failure to
secure management contracts for these projects could have a
material adverse impact on our financial condition,
22
results of operations
and/or cash
flows. In addition, in order to secure management contracts for
these expanded beds, we may need to incur significant capital
expenditures to renovate or further expand these facilities to
meet potential clients needs.
The
prevailing negative conditions in the capital markets could
prevent us from obtaining financing, which could materially harm
our business.
Our ability to obtain additional financing is highly dependent
on the conditions of the capital markets, among other things.
The capital and credit markets have recently been experiencing
significant volatility and disruption. The recent downturn in
the equity and debt markets, the tightening of the credit
markets, the general economic slowdown and other macroeconomic
conditions, such as the current global recession could prevent
us from raising additional capital or obtaining additional
financing on satisfactory terms, or at all. If we need, but
cannot obtain adequate capital as a result of negative
conditions in the capital markets or otherwise, our business,
results of operations and financial condition could be
materially adversely affected. Additionally, such inability to
obtain capital could prevent us from pursuing attractive
business development opportunities, including new facility
constructions or expansions of existing facilities, and business
or asset acquisitions.
We are
subject to the loss of our facility management contracts, due to
terminations, non-renewals or competitive re-bids, which could
adversely affect our results of operations and liquidity,
including our ability to secure new facility management
contracts from other government customers.
We are exposed to the risk that we may lose our facility
management contracts primarily due to one of three reasons: the
termination by a government customer with or without cause at
any time; the failure by a customer to exercise its unilateral
option to renew a contract with us upon the expiration of the
then current term; or our failure to win the right to continue
to operate under a contract that has been competitively re-bid
in a procurement process upon its termination or expiration. Our
facility management contracts typically allow a contracting
governmental agency to terminate a contract with or without
cause at any time by giving us written notice ranging from 30 to
180 days. If government agencies were to use these
provisions to terminate, or renegotiate the terms of their
agreements with us, our financial condition and results of
operations could be materially adversely affected.
Aside from our customers unilateral right to terminate our
facility management contracts with them at any time for any
reason, there are two points during the typical lifecycle of a
contract which may result in the loss by us of a facility
management contract with our customers. We refer to these points
as contract renewals and contract
re-bids. Many of our facility management contracts
with our government customers have an initial fixed term and
subsequent renewal rights for one or more additional periods at
the unilateral option of the customer. We count each government
customers right to renew a particular facility management
contract for an additional period as a separate
renewal. For example, a five-year initial fixed term
contract with customer options to renew for five separate
additional one-year periods would, if fully exercised, be
counted as five separate renewals, with one renewal coming in
each of the five years following the initial term. As of
January 3, 2010, eleven of our facility management
contracts representing 10,407 beds are scheduled to expire on or
before December 31, 2010, unless renewed by the customer at
its sole option. These contracts represented 19.3% of our
consolidated revenues for the fiscal year ended January 3,
2010. We undertake substantial efforts to renew our facility
management contracts. Our historical facility management
contract renewal rate exceeds 90%. However, given their
unilateral nature, we cannot assure you that our customers will
in fact exercise their renewal options under existing contracts.
In addition, in connection with contract renewals, either we or
the contracting government agency have typically requested
changes or adjustments to contractual terms. As a result,
contract renewals may be made on terms that are more or less
favorable to us than those in existence prior to the renewals.
We define competitive re-bids as contracts currently under our
management which we believe, based on our experience with the
customer and the facility involved, will be re-bid to us and
other potential service providers in a competitive procurement
process upon the expiration or termination of our contract,
assuming all renewal options are exercised. Our determination of
which contracts we believe will be competitively re-
23
bid may in some cases be subjective and judgmental, based
largely on our knowledge of the dynamics involving a particular
contract, the customer and the facility involved. Competitive
re-bids may result from the expiration of the term of a
contract, including the initial fixed term plus any renewal
periods, or the early termination of a contract by a customer.
Competitive re-bids are often required by applicable federal or
state procurement laws periodically in order to further
competitive pricing and other terms for the government customer.
Potential bidders in competitive re-bid situations include us,
other private operators and other government entities. As of
January 3, 2010, six of our facility management contracts
representing 9.1% and $103.4 million of our fiscal year
2009 consolidated revenues are subject to competitive re-bid in
2010. While we are pleased with our historical win rate on
competitive re-bids and are committed to continuing to bid
competitively on appropriate future competitive re-bid
opportunities, we cannot in fact assure you that we will prevail
in future re-bid situations. Also, we cannot assure you that any
competitive re-bids we win will be on terms more favorable to us
than those in existence with respect to the expiring contract.
For additional information on facility management contracts that
we currently believe will be competitively re-bid during each of
the next five years and thereafter, please see
Business Government Contracts
Terminations, Renewals and Re-bids. The loss by us of
facility management contracts due to terminations, non-renewals
or competitive re-bids could materially adversely affect our
financial condition, results of operations and liquidity,
including our ability to secure new facility management
contracts from other government customers.
Our
growth depends on our ability to secure contracts to develop and
manage new correctional, detention and mental health facilities,
the demand for which is outside our control.
Our growth is generally dependent upon our ability to obtain new
contracts to develop and manage new correctional, detention and
mental health facilities, because contracts to manage existing
public facilities have not to date typically been offered to
private operators. Public sector demand for new privatized
facilities in our areas of operation may decrease and our
potential for growth will depend on a number of factors we
cannot control, including overall economic conditions,
governmental and public acceptance of the concept of
privatization, government budgetary constraints, and the number
of facilities available for privatization.
In particular, the demand for our correctional and detention
facilities and services could be adversely affected by changes
in existing criminal or immigration laws, crime rates in
jurisdictions in which we operate, the relaxation of criminal or
immigration enforcement efforts, leniency in conviction,
sentencing or deportation practices, and the decriminalization
of certain activities that are currently proscribed by criminal
laws or the loosening of immigration laws. For example, any
changes with respect to the decriminalization of drugs and
controlled substances could affect the number of persons
arrested, convicted, sentenced and incarcerated, thereby
potentially reducing demand for correctional facilities to house
them. Similarly, reductions in crime rates could lead to
reductions in arrests, convictions and sentences requiring
incarceration at correctional facilities. Immigration reform
laws which are currently a focus for legislators and politicians
at the federal, state and local level also could materially
adversely impact us. Various factors outside our control could
adversely impact the growth of our GEO Care business, including
government customer resistance to the privatization of mental
health or residential treatment facilities, and changes to
Medicare and Medicaid reimbursement programs.
We may
not be able to meet state requirements for capital investment or
locate land for the development of new facilities, which could
adversely affect our results of operations and future
growth.
Certain jurisdictions, including California, where we have a
significant amount of operations, have in the past required
successful bidders to make a significant capital investment in
connection with the financing of a particular project. If this
trend were to continue in the future, we may not be able to
obtain sufficient capital resources when needed to compete
effectively for facility management contacts. Additionally, our
success in obtaining new awards and contracts may depend, in
part, upon our ability to locate land that can be leased or
acquired under favorable terms. Otherwise desirable locations
may be in or near populated areas and, therefore, may generate
legal action or other forms of opposition from residents in
areas surrounding a
24
proposed site. Our inability to secure financing and desirable
locations for new facilities could adversely affect our results
of operations and future growth.
We
depend on a limited number of governmental customers for a
significant portion of our revenues. The loss of, or a
significant decrease in business from, these customers could
seriously harm our financial condition and results of
operations.
We currently derive, and expect to continue to derive, a
significant portion of our revenues from a limited number of
governmental agencies. Of our governmental clients, three
customers accounted for over 50% of our consolidated revenues
for the fiscal year ended January 3, 2010. In addition, the
three federal governmental agencies with correctional and
detention responsibilities, the Bureau of Prisons,
U.S. Immigration and Customs Enforcement, which we refer to
as ICE, and the U.S. Marshals Service, accounted for 30.9%
of our total consolidated revenues for the fiscal year ended
January 3, 2010, with the Bureau of Prisons accounting for
5.2% of our total consolidated revenues for such period, ICE
accounting for 11.9% of our total consolidated revenues for such
period, and the U.S. Marshals Service accounting for 13.8%
of our total consolidated revenues for such period. Also,
government agencies from the State of Florida accounted for
16.0% of our total consolidated revenues for the fiscal year
ended January 3, 2010. The loss of, or a significant
decrease in, business from the Bureau of Prisons, ICE,
U.S. Marshals Service, the State of Florida or any other
significant customers could seriously harm our financial
condition and results of operations. We expect to continue to
depend upon these federal and state agencies and a relatively
small group of other governmental customers for a significant
percentage of our revenues.
A
decrease in occupancy levels could cause a decrease in revenues
and profitability.
While a substantial portion of our cost structure is generally
fixed, most of our revenues are generated under facility
management contracts which provide for per diem payments based
upon daily occupancy. Several of these contracts provide minimum
revenue guarantees for us, regardless of occupancy levels, up to
a specified maximum occupancy percentage. However, many of our
contracts have no minimum revenue guarantees and simply provide
for a fixed per diem payment for each inmate/detainee/patient
actually housed. As a result, with respect to our contracts that
have no minimum revenue guarantees and those that guarantee
revenues only up to a certain specified occupancy percentage, we
are highly dependent upon the governmental agencies with which
we have contracts to provide inmates, detainees and patients for
our managed facilities. Under a per diem rate structure, a
decrease in our occupancy rates could cause a decrease in
revenues and profitability. When combined with relatively fixed
costs for operating each facility, regardless of the occupancy
level, a material decrease in occupancy levels at one or more of
our facilities could have a material adverse effect on our
revenues and profitability, and consequently, on our financial
condition and results of operations.
State
budgetary constraints may have a material adverse impact on
us.
According to the Center on Budget and Policy Priorities, the
imbalance between available revenues and the funding needed for
services led most states to face budget gaps in fiscal year
2009. The vast majority of states also faced or are facing
additional shortfalls in fiscal year 2010. At January 3,
2010, we had ten state correctional clients: Florida,
Mississippi, Louisiana, Virginia, Indiana, Texas, Oklahoma, New
Mexico, Arizona, and California. In response to the budget
crisis, the State of California issued payment deferrals, also
called promissory notes or IOUs, to pay its vendors,
creditors, and employees. During our fiscal year ended 2009, we
received IOUs from the State of California that totaled
$6.7 million, all of which were settled in cash by the end
of our fiscal year. Although we received payment for these
IOUs, we cannot assure you that any payment deferrals
received in the future will be repaid timely or at all. If state
budgetary constraints persist or intensify, our ten state
customers ability to pay us may be impaired
and/or we
may be forced to renegotiate our management contracts with those
customers on less favorable terms and our financial condition,
results of operations or cash flows could be materially
adversely impacted. In addition, budgetary constraints at states
that are not our current customers could prevent those states
from outsourcing correctional, detention or mental health
service opportunities that we otherwise could have pursued.
25
Competition
for inmates may adversely affect the profitability of our
business.
We compete with government entities and other private operators
on the basis of cost, quality and range of services offered,
experience in managing facilities, and reputation of management
and personnel. Barriers to entering the market for the
management of correctional and detention facilities may not be
sufficient to limit additional competition in our industry. In
addition, some of our government customers could assume the
management of a facility currently managed by us upon the
termination of the corresponding management contract or, if such
customers have capacity at the facilities which they operate,
they may take inmates currently housed in our facilities and
transfer them to government operated facilities. Since we are
paid on a per diem basis with no minimum guaranteed occupancy
under some of our contracts, the loss of such inmates and
resulting decrease in occupancy could cause a decrease in both
our revenues and our profitability.
We are
dependent on government appropriations, which may not be made on
a timely basis or at all and may be adversely impacted by
budgetary constraints at the federal, state and local
levels.
Our cash flow is subject to the receipt of sufficient funding of
and timely payment by contracting governmental entities. If the
contracting governmental agency does not receive sufficient
appropriations to cover its contractual obligations, it may
terminate our contract or delay or reduce payment to us. Any
delays in payment, or the termination of a contract, could have
a material adverse effect on our cash flow and financial
condition, which may make it difficult to satisfy our payment
obligations on our indebtedness, including the
73/4% Senior
Notes and the Senior Credit Facility, in a timely manner. In
addition, as a result of, among other things, recent economic
developments, federal, state and local governments have
encountered, and may continue to encounter, unusual budgetary
constraints. As a result, a number of state and local
governments are under pressure to control additional spending or
reduce current levels of spending which could limit or eliminate
appropriations for the facilities that we operate. Additionally,
as a result of these factors, we may be requested in the future
to reduce our existing per diem contract rates or forego
prospective increases to those rates. Budgetary limitations may
also make it more difficult for us to renew our existing
contracts on favorable terms or at all. Further, a number of
states in which we operate are experiencing significant budget
deficits for fiscal year 2010. We cannot assure that these
deficits will not result in reductions in per diems, delays in
payment for services rendered or unilateral termination of
contracts.
Public
resistance to privatization of correctional and detention
facilities could result in our inability to obtain new contracts
or the loss of existing contracts, which could have a material
adverse effect on our business, financial condition and results
of operations.
The management and operation of correctional and detention
facilities by private entities has not achieved complete
acceptance by either government agencies or the public. Some
governmental agencies have limitations on their ability to
delegate their traditional management responsibilities for such
facilities to private companies and additional legislative
changes or prohibitions could occur that further increase these
limitations. In addition, the movement toward privatization of
correctional and detention facilities has encountered resistance
from groups, such as labor unions. Changes in governing
political parties could also result in changes to previously
established views of privatization. Increased public resistance
to the privatization of correctional and detention facilities in
any of the markets in which we operate, as a result of these or
other factors, could have a material adverse effect on our
business, financial condition and results of operations.
Our
GEO Care business, which has become a material part of our
consolidated revenues, poses unique risks not associated with
our other businesses.
Our wholly-owned subsidiary, GEO Care, operates our mental
health and residential treatment services division. This
business primarily involves the delivery of quality care,
innovative programming and active patient treatment at
privatized state mental health facilities, jails, sexually
violent offender facilities and long-term care facilities. GEO
Cares business has increased substantially over the last
few years, both in general and as a percentage of our overall
business. For the fiscal year ended January 3, 2010, GEO
Care generated $121.8 million in revenues, representing
10.7% of our consolidated revenues from continuing operations.
GEO Cares business poses several material risks unique to
the operation of privatized mental
26
health facilities and the delivery of mental health and
residential treatment services that do not exist in our core
business of correctional and detention facilities management,
including, but not limited to, the following:
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the concept of the privatization of the mental health and
residential treatment services provided by GEO Care has not yet
achieved general acceptance by either government agencies or the
public, which could materially limit GEO Cares growth
prospects;
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GEO Cares business is highly dependent on the continuous
recruitment, hiring and retention of a substantial pool of
qualified physicians, nurses and other medically trained
personnel which may not be available in the quantities or
locations sought, or on the employment terms offered;
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GEO Cares business model often involves taking over
outdated or obsolete facilities and operating them while it
supervises the construction and development of new, more updated
facilities; during this transition period, GEO Care may be
particularly vulnerable to operational difficulties primarily
relating to or resulting from the deteriorating nature of the
older existing facilities; and
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the facilities operated by GEO Care are substantially dependent
on government funding, including in some cases the receipt of
Medicare and Medicaid funding; the loss of such government
funding for any reason with respect to any facilities operated
by GEO Care could have a material adverse impact on our business.
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Adverse
publicity may negatively impact our ability to retain existing
contracts and obtain new contracts.
Any negative publicity about an escape, riot or other
disturbance or perceived poor conditions at a privately managed
facility may result in publicity adverse to us and the private
corrections industry in general. Any of these occurrences or
continued trends may make it more difficult for us to renew
existing contracts or to obtain new contracts or could result in
the termination of an existing contract or the closure of one or
more of our facilities, which could have a material adverse
effect on our business.
We may
incur significant
start-up and
operating costs on new contracts before receiving related
revenues, which may impact our cash flows and not be
recouped.
When we are awarded a contract to manage a facility, we may
incur significant
start-up and
operating expenses, including the cost of constructing the
facility, purchasing equipment and staffing the facility, before
we receive any payments under the contract. These expenditures
could result in a significant reduction in our cash reserves and
may make it more difficult for us to meet other cash
obligations, including our payment obligations on the
73/4% Senior
Notes and the Senior Credit Facility. In addition, a contract
may be terminated prior to its scheduled expiration and as a
result we may not recover these expenditures or realize any
return on our investment.
Failure
to comply with extensive government regulation and applicable
contractual requirements could have a material adverse effect on
our business, financial condition or results of
operations.
The industry in which we operate is subject to extensive
federal, state and local regulation, including educational,
environmental, health care and safety laws, rules and
regulations, which are administered by many regulatory
authorities. Some of the regulations are unique to the
corrections industry, and the combination of regulations affects
all areas of our operations. Corrections officers are
customarily required to meet certain training standards and, in
some instances, facility personnel are required to be licensed
and are subject to background investigations. Certain
jurisdictions also require us to award subcontracts on a
competitive basis or to subcontract with businesses owned by
members of minority groups. We may not always successfully
comply with these and other regulations to which we are subject
and failure to comply can result in material penalties or the
non-renewal or termination of facility management contracts. In
addition, changes in existing regulations could require us to
substantially modify the manner in which we conduct our business
and, therefore, could have a material adverse effect on us.
In addition, private prison managers are increasingly subject to
government legislation and regulation attempting to restrict the
ability of private prison managers to house certain types of
inmates, such as inmates
27
from other jurisdictions or inmates at medium or higher security
levels. Legislation has been enacted in several states, and has
previously been proposed in the United States House of
Representatives, containing such restrictions. Although we do
not believe that existing legislation will have a material
adverse effect on us, future legislation may have such an effect
on us.
Governmental agencies may investigate and audit our contracts
and, if any improprieties are found, we may be required to
refund amounts we have received, to forego anticipated revenues
and we may be subject to penalties and sanctions, including
prohibitions on our bidding in response to Requests for
Proposals, or RFPs, from governmental agencies to manage
correctional facilities. Governmental agencies we contract with
have the authority to audit and investigate our contracts with
them. As part of that process, governmental agencies may review
our performance of the contract, our pricing practices, our cost
structure and our compliance with applicable laws, regulations
and standards. For contracts that actually or effectively
provide for certain reimbursement of expenses, if an agency
determines that we have improperly allocated costs to a specific
contract, we may not be reimbursed for those costs, and we could
be required to refund the amount of any such costs that have
been reimbursed. If a government audit asserts improper or
illegal activities by us, we may be subject to civil and
criminal penalties and administrative sanctions, including
termination of contracts, forfeitures of profits, suspension of
payments, fines and suspension or disqualification from doing
business with certain governmental entities. Any adverse
determination could adversely impact our ability to bid in
response to RFPs in one or more jurisdictions.
In addition to compliance with applicable laws and regulations,
our facility management contracts typically have numerous
requirements addressing all aspects of our operations which we
may not be able to satisfy. For example, our contracts require
us to maintain certain levels of coverage for general liability,
workers compensation, vehicle liability, and property loss
or damage. If we do not maintain the required categories and
levels of coverage, the contracting governmental agency may be
permitted to terminate the contract. In addition, we are
required under our contracts to indemnify the contracting
governmental agency for all claims and costs arising out of our
management of facilities and, in some instances, we are required
to maintain performance bonds relating to the construction,
development and operation of facilities. Facility management
contracts also typically include reporting requirements,
supervision and
on-site
monitoring by representatives of the contracting governmental
agencies. Failure to properly adhere to the various terms of our
customer contracts could expose us to liability for damages
relating to any breaches as well as the loss of such contracts,
which could materially adversely impact us.
We may
face community opposition to facility location, which may
adversely affect our ability to obtain new
contracts.
Our success in obtaining new awards and contracts sometimes
depends, in part, upon our ability to locate land that can be
leased or acquired, on economically favorable terms, by us or
other entities working with us in conjunction with our proposal
to construct
and/or
manage a facility. Some locations may be in or near populous
areas and, therefore, may generate legal action or other forms
of opposition from residents in areas surrounding a proposed
site. When we select the intended project site, we attempt to
conduct business in communities where local leaders and
residents generally support the establishment of a privatized
correctional or detention facility. Future efforts to find
suitable host communities may not be successful. In many cases,
the site selection is made by the contracting governmental
entity. In such cases, site selection may be made for reasons
related to political
and/or
economic development interests and may lead to the selection of
sites that have less favorable environments.
Our
business operations expose us to various liabilities for which
we may not have adequate insurance.
The nature of our business exposes us to various types of
third-party legal claims, including, but not limited to, civil
rights claims relating to conditions of confinement
and/or
mistreatment, sexual misconduct claims brought by prisoners or
detainees, medical malpractice claims, claims relating to
employment matters (including, but not limited to, employment
discrimination claims, union grievances and wage and hour
claims), property loss claims, environmental claims, automobile
liability claims, contractual claims and claims for personal
injury or other damages resulting from contact with our
facilities, programs, personnel or prisoners,
28
including damages arising from a prisoners escape or from
a disturbance or riot at a facility. In addition, our management
contracts generally require us to indemnify the governmental
agency against any damages to which the governmental agency may
be subject in connection with such claims or litigation. We
maintain insurance coverage for these general types of claims,
except for claims relating to employment matters, for which we
carry no insurance. However, we generally have high deductible
payment requirements on our primary insurance policies,
including our general liability insurance, and there are also
varying limits on the maximum amount of our overall coverage. As
a result, the insurance we maintain to cover the various
liabilities to which we are exposed may not be adequate. Any
losses relating to matters for which we are either uninsured or
for which we do not have adequate insurance could have a
material adverse effect on our business, financial condition or
results of operations. In addition, any losses relating to
employment matters could have a material adverse effect on our
business, financial condition or results of operations.
We may
not be able to obtain or maintain the insurance levels required
by our government contracts.
Our government contracts require us to obtain and maintain
specified insurance levels. The occurrence of any events
specific to our company or to our industry, or a general rise in
insurance rates, could substantially increase our costs of
obtaining or maintaining the levels of insurance required under
our government contracts, or prevent us from obtaining or
maintaining such insurance altogether. If we are unable to
obtain or maintain the required insurance levels, our ability to
win new government contracts, renew government contracts that
have expired and retain existing government contracts could be
significantly impaired, which could have a material adverse
affect on our business, financial condition and results of
operations.
Our
international operations expose us to risks which could
materially adversely affect our financial condition and results
of operations.
For the fiscal year ended January 3, 2010, our
international operations accounted for 12.0% of our consolidated
revenues from continuing operations. We face risks associated
with our operations outside the United States. These risks
include, among others, political and economic instability,
exchange rate fluctuations, taxes, duties and the laws or
regulations in those foreign jurisdictions in which we operate.
In the event that we experience any difficulties arising from
our operations in foreign markets, our business, financial
condition and results of operations may be materially adversely
affected.
We
conduct certain of our operations through joint ventures, which
may lead to disagreements with our joint venture partners and
adversely affect our interest in the joint
ventures.
We conduct our operations in South Africa through our
consolidated joint venture, SACM, and through our 50% owned
joint venture South African Custodial Services Pty. Limited
referred to as SACS. We may enter into additional joint ventures
in the future. Although we have the majority vote in our
consolidated joint venture, SACM, through our ownership of 62.5%
of the voting shares, we share equal voting control on all
significant matters to come before SACS. These joint venture
partners, as well as any future partners, may have interests
that are different from ours which may result in conflicting
views as to the conduct of the business of the joint venture. In
the event that we have a disagreement with a joint venture
partner as to the resolution of a particular issue to come
before the joint venture, or as to the management or conduct of
the business of the joint venture in general, we may not be able
to resolve such disagreement in our favor and such disagreement
could have a material adverse effect on our interest in the
joint venture or the business of the joint venture in general.
We are
dependent upon our senior management and our ability to attract
and retain sufficient qualified personnel.
We are dependent upon the continued service of each member of
our senior management team, including George C. Zoley, our
Chairman and Chief Executive Officer, Wayne H. Calabrese, our
Vice Chairman and President, and Brian R. Evans, our Chief
Financial Officer. The unexpected loss of Dr. Zoley,
Mr. Calabrese or Mr. Evans could materially adversely
affect our business, financial condition or results of
operations.
29
In addition, the services we provide are labor-intensive. When
we are awarded a facility management contract or open a new
facility, depending on the service we have been contracted to
provide, we may need to hire operating management, correctional
officers, security staff, physicians, nurses and other qualified
personnel. The success of our business requires that we attract,
develop and retain these personnel. Our inability to hire
sufficient qualified personnel on a timely basis or the loss of
significant numbers of personnel at existing facilities could
have a material effect on our business, financial condition or
results of operations.
Our
profitability may be materially adversely affected by
inflation.
Many of our facility management contracts provide for fixed
management fees or fees that increase by only small amounts
during their terms. While a substantial portion of our cost
structure is generally fixed, if, due to inflation or other
causes, our operating expenses, such as costs relating to
personnel, utilities, insurance, medical and food, increase at
rates faster than increases, if any, in our facility management
fees, then our profitability could be materially adversely
affected.
Various
risks associated with the ownership of real estate may increase
costs, expose us to uninsured losses and adversely affect our
financial condition and results of operations.
Our ownership of correctional and detention facilities subjects
us to risks typically associated with investments in real
estate. Investments in real estate, and in particular,
correctional and detention facilities, are relatively illiquid
and, therefore, our ability to divest ourselves of one or more
of our facilities promptly in response to changed conditions is
limited. Investments in correctional and detention facilities,
in particular, subject us to risks involving potential exposure
to environmental liability and uninsured loss. Our operating
costs may be affected by the obligation to pay for the cost of
complying with existing environmental laws, ordinances and
regulations, as well as the cost of complying with future
legislation. In addition, although we maintain insurance for
many types of losses, there are certain types of losses, such as
losses from earthquakes, riots and acts of terrorism, which may
be either uninsurable or for which it may not be economically
feasible to obtain insurance coverage, in light of the
substantial costs associated with such insurance. As a result,
we could lose both our capital invested in, and anticipated
profits from, one or more of the facilities we own. Further,
even if we have insurance for a particular loss, we may
experience losses that may exceed the limits of our coverage.
Risks
related to facility construction and development activities may
increase our costs related to such activities.
When we are engaged to perform construction and design services
for a facility, we typically act as the primary contractor and
subcontract with other companies who act as the general
contractors. As primary contractor, we are subject to the
various risks associated with construction (including, without
limitation, shortages of labor and materials, work stoppages,
labor disputes and weather interference) which could cause
construction delays. In addition, we are subject to the risk
that the general contractor will be unable to complete
construction at the budgeted costs or be unable to fund any
excess construction costs, even though we typically require
general contractors to post construction bonds and insurance.
Under such contracts, we are ultimately liable for all late
delivery penalties and cost overruns.
The
rising cost and increasing difficulty of obtaining adequate
levels of surety credit on favorable terms could adversely
affect our operating results.
We are often required to post performance bonds issued by a
surety company as a condition to bidding on or being awarded a
facility development contract. Availability and pricing of these
surety commitments is subject to general market and industry
conditions, among other factors. Recent events in the economy
have caused the surety market to become unsettled, causing many
reinsurers and sureties to reevaluate their commitment levels
and required returns. As a result, surety bond premiums
generally are increasing. If we are unable to effectively pass
along the higher surety costs to our customers, any increase in
surety costs could adversely affect our operating results. In
addition, we may not continue to have access to surety credit or
be able to secure bonds economically, without additional
collateral, or at the levels required for any potential
30
facility development or contract bids. If we are unable to
obtain adequate levels of surety credit on favorable terms, we
would have to rely upon letters of credit under our Senior
Credit Facility, which would entail higher costs even if such
borrowing capacity was available when desired, and our ability
to bid for or obtain new contracts could be impaired.
We may
not be able to successfully identify, consummate or integrate
acquisitions.
We have an active acquisition program, the objective of which is
to identify suitable acquisition targets that will enhance our
growth. The pursuit of acquisitions may pose certain risks to
us. We may not be able to identify acquisition candidates that
fit our criteria for growth and profitability. Even if we are
able to identify such candidates, we may not be able to acquire
them on terms satisfactory to us. We will incur expenses and
dedicate attention and resources associated with the review of
acquisition opportunities, whether or not we consummate such
acquisitions. Additionally, even if we are able to acquire
suitable targets on agreeable terms, we may not be able to
successfully integrate their operations with ours. We may also
assume liabilities in connection with acquisitions that we would
otherwise not be exposed to.
Adverse developments in our relationship with our
employees could adversely affect our business, financial
condition or results of operations.
At January 3, 2010, approximately 19% of our workforce was
covered by collective bargaining agreements. While only
approximately 19% of our workforce schedule is covered by
collective bargaining agreements, increases in organizational
activity or any future work stoppages could have a material
adverse effect on our business, financial condition, or results
of operations.
Risks
Related to the
73/4% Senior
Notes
The
notes and the related guarantees are effectively subordinated to
our and the subsidiary guarantors senior secured
indebtedness and the indebtedness of our subsidiaries that do
not guarantee the notes.
The notes and the related guarantees are unsecured and therefore
will be effectively subordinated to our secured indebtedness,
including borrowings under our Senior Credit Facility, to the
extent of the value of the assets securing such indebtedness. As
of January 3, 2010, borrowings under our Senior Credit
Facility were $213.0 million. In addition, the indenture
governing the notes will allow us and the subsidiary guarantors
to incur a significant amount of additional indebtedness and to
secure indebtedness, including any indebtedness incurred under
credit facilities. In the event we or the guarantors become the
subject of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding, our assets and the assets
of the guarantors securing indebtedness could not be used to pay
you until after all secured claims against us and the guarantors
have been fully paid. In addition, the notes and the related
guarantees will be effectively subordinated to all existing and
future liabilities of our subsidiaries that do not guarantee the
notes, including the trade payables.
We may
not be able to repurchase the notes in the event of a change of
control because the terms of our indebtedness or lack of funds
may prevent us from doing so.
Upon a change of control, each holder of the notes will have the
right to require us to repurchase their notes at 101% of their
principal amount, plus accrued and unpaid interest, and,
liquidated damages, if any, to the date of repurchase. The terms
of the Senior Credit Facility limit our ability to repurchase
the notes in the event of a change of control. Any future
agreement governing any of our indebtedness may contain similar
restrictions and provisions. Accordingly, it is possible that
restrictions in the Senior Credit Facility or other indebtedness
that may be incurred in the future will not allow the required
repurchase of notes upon a change of control. Even if such
repurchase is permitted by the terms of our then existing
indebtedness, we may not have sufficient funds available to
satisfy our repurchase obligations.
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Fraudulent
conveyance laws may permit courts to void the subsidiary
guarantees of the notes in specific circumstances, which would
interfere with the payment of the subsidiary
guarantees.
Under the federal bankruptcy laws and comparable provisions of
state fraudulent transfer laws, any guarantee made by any of our
subsidiaries could be voided, or claims under the guarantee made
by any of our subsidiaries could be subordinated to all other
obligations of any such subsidiary, if the subsidiary, at the
time it incurred the obligations under any guarantee:
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incurred the obligations with the intent to hinder, delay or
defraud creditors; or
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received less than reasonably equivalent value, or did not
receive fair consideration, in exchange for incurring those
obligations; and
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(1) was insolvent or rendered insolvent by reason of that
incurrence;
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was engaged in a business or transaction for which the
subsidiarys remaining assets constituted unreasonably
small capital; or
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intended to incur, or believed that it would incur, debts beyond
its ability to pay those debts as they mature.
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In addition, any payment by that guarantor pursuant to its
guarantee could be voided and required to be returned to the
guarantor, or to a fund for the benefit of the creditors of the
guarantor. In any such case, your right to receive payments in
respect of the notes from any such guarantor would be
effectively subordinated to all indebtedness and other
liabilities of that guarantor.
A legal challenge to the obligations under any guarantee on
fraudulent conveyance grounds could focus on any benefits
received in exchange for the incurrence of those obligations. We
believe that each of our subsidiaries making a guarantee
received reasonably equivalent value for incurring the
guarantee, but a court may disagree with our conclusion or elect
to apply a different standard in making its determination. The
measures of insolvency for purposes of the fraudulent transfer
laws vary depending on the law applied in the proceeding to
determine whether a fraudulent transfer has occurred. Generally,
however, an entity would be considered insolvent if:
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the sum of its debts, including contingent liabilities, is
greater than the fair saleable value of all of its assets;
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the present fair saleable value of its assets is less than the
amount that would be required to pay its probable liabilities on
its existing debts, including contingent liabilities, as they
become absolute and mature; or
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it cannot pay its debts as they become due.
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We cannot assure you, however, as to what standard a court would
apply in making these determinations. If a guarantee of the
notes is voided as a fraudulent conveyance or is found to be
unenforceable for any other reason, you will not have a claim
against the guarantor.
Risks
Related to our Common Stock
Fluctuations
in the stock market as well as general economic, market and
industry conditions may harm the market price of our common
stock.
The market price of our common stock has been subject to
significant fluctuation. The market price of our common stock
may continue to be subject to significant fluctuations in
response to operating results and other factors, including:
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actual or anticipated quarterly fluctuations in our financial
results, particularly if they differ from investors
expectations;
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changes in financial estimates and recommendations by securities
analysts;
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general economic, market and political conditions, including war
or acts of terrorism, not related to our business;
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actions of our competitors and changes in the market valuations,
strategy and capability of our competitors;
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our ability to successfully integrate acquisitions and
consolidations; and
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changes in the prospects of the privatized corrections and
detention industry.
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In addition, the stock market in recent years has experienced
price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies.
These fluctuations, may harm the market price of our common
stock, regardless of our operating results.
Future
sales of our common stock in the public market could adversely
affect the trading price of our common stock that we may issue
and our ability to raise funds in new securities
offerings.
Future sales of substantial amounts of our common stock in the
public market, or the perception that such sales could occur,
could adversely affect prevailing trading prices of our common
stock and could impair our ability to raise capital through
future offerings of equity or equity-related securities. We
cannot predict the effect, if any, that future sales of shares
of common stock or the availability of shares of common stock
for future sale will have on the trading price of our common
stock.
Various
anti-takeover protections applicable to us may make an
acquisition of us more difficult and reduce the market value of
our common stock.
We are a Florida corporation and the anti-takeover provisions of
Florida law impose various impediments to the ability of a third
party to acquire control of our company, even if a change of
control would be beneficial to our shareholders. In addition,
provisions of our articles of incorporation may make an
acquisition of us more difficult. Our articles of incorporation
authorize the issuance by our Board of Directors of blank
check preferred stock without shareholder approval. Such
shares of preferred stock could be given voting rights, dividend
rights, liquidation rights or other similar rights superior to
those of our common stock, making a takeover of us more
difficult and expensive. We also have adopted a shareholder
rights plan, commonly known as a poison pill, which
could result in the significant dilution of the proportionate
ownership of any person that engages in an unsolicited attempt
to take over our company and, accordingly, could discourage
potential acquirers. In addition to discouraging takeovers, the
anti-takeover provisions of Florida law and our articles of
incorporation, as well as our shareholder rights plan, may have
the impact of reducing the market value of our common stock.
Failure
to maintain effective internal controls in accordance with
Section 404 of the Sarbanes-Oxley Act of 2002 could have an
adverse effect on our business and the trading price of our
common stock.
If we fail to maintain the adequacy of our internal controls, in
accordance with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, as such standards are modified,
supplemented or amended from time to time, our exposure to fraud
and errors in accounting and financial reporting could
materially increase. Also, inadequate internal controls would
likely prevent us from concluding on an ongoing basis that we
have effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of
2002. Such failure to achieve and maintain effective internal
controls could adversely impact our business and the price of
our common stock.
We may
issue additional debt securities that could limit our operating
flexibility and negatively affect the value of our common
stock.
In the future, we may issue additional debt securities which may
be governed by an indenture or other instrument containing
covenants that could place restrictions on the operation of our
business and the execution of our business strategy in addition
to the restrictions on our business already contained in the
agreements governing our existing debt. In addition, we may
choose to issue debt that is convertible or
33
exchangeable for other securities, including our common stock,
or that has rights, preferences and privileges senior to our
common stock. Because any decision to issue debt securities will
depend on market conditions and other factors beyond our
control, we cannot predict or estimate the amount, timing or
nature of any future debt financings and we may be required to
accept unfavorable terms for any such financings. Accordingly,
any future issuance of debt could dilute the interest of holders
of our common stock and reduce the value of our common stock.
Because
we have no current plans to pay dividends, shareholders will
benefit from an investment in our common stock only if it
appreciates in value.
We currently intend to retain our future earnings, if any, to
finance the further expansion and continued growth of our
business and do not have any current plans to pay any cash
dividends. As a result, the success of an investment in our
common stock will depend upon any future appreciation in its
value. There is no guarantee that our common stock will
appreciate in value or even maintain the price at which
shareholders purchase their shares.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our corporate offices are located in Boca Raton, Florida, under
a
101/2
-year lease which was renewed in October 2007. The current lease
has two
5-year
renewal options and expires in March 2018. In addition, we lease
office space for our eastern regional office in Charlotte, North
Carolina; our central regional office in New Braunfels, Texas;
and our western regional office in Carlsbad, California. We also
lease office space in Sydney, Australia, in Sandton, South
Africa, and in Berkshire, England, through our overseas
affiliates to support our Australian, South African, and UK
operations, respectively. We consider our office space adequate
for our current operations.
See the Facilities listing under Item 1 for a list of the
correctional, detention and mental health properties we own or
lease in connection with our operations.
|
|
Item 3.
|
Legal
Proceedings
|
On September 15, 2006, a jury in an inmate wrongful death
lawsuit in a Texas state court awarded a $47.5 million
verdict against us. In October 2006, the verdict was entered as
a judgment against us in the amount of $51.7 million. The
lawsuit, captioned Gregorio de la Rosa, Sr., et
al., v. Wackenhut Corrections Corporation, (cause
no. 02-110)
in the District Court, 404th Judicial District, Willacy
County, Texas, is being administered under the insurance program
established by The Wackenhut Corporation, our former parent
company, in which we participated until October 2002. Policies
secured by us under that program provide $55.0 million in
aggregate annual coverage. In October 2009, this case was
settled in an amount within the insurance coverage limits and
the insurer has now paid the settlement amount. On
February 8, 2010, the Court of Appeals,
13th
District of Texas, entered judgment dismissing the appeal and
the case has been concluded.
In June 2004, we received notice of a third-party claim for
property damage incurred during 2001 and 2002 at several
detention facilities that our Australian subsidiary formerly
operated. The claim (No. SC 656 of 2006 to be heard by the
Supreme Court of the Australian Capital Territory) relates to
property damage caused by detainees at the detention facilities.
The notice was given by the Australian governments
insurance provider and did not specify the amount of damages
being sought. In August 2007, legal proceedings in this matter
were formally commenced when we were served with notice of a
complaint filed against us by the Commonwealth of Australia
seeking damages of up to approximately AUD 18 million or
$16.2 million, plus interest. We believe that we have
several defenses to the allegations underlying the litigation
and the amounts sought and intend to vigorously defend our
rights with respect to this matter. We have established a
reserve based on our estimate of the most probable loss based on
the facts and circumstances known to date and the advice of our
legal counsel in connection with this matter. Although the
outcome of this matter cannot be
34
predicted with certainty, based on information known to date and
our preliminary review of the claim, we believe that, if settled
unfavorably, this matter could have a material adverse effect on
our financial condition, results of operations and cash flows.
We are uninsured for any damages or costs that we may incur as a
result of this claim, including the expenses of defending the
claim.
The nature of our business exposes us to various types of claims
or litigation against us, including, but not limited to, civil
rights claims relating to conditions of confinement
and/or
mistreatment, sexual misconduct claims brought by prisoners or
detainees, medical malpractice claims, claims relating to
employment matters (including, but not limited to, employment
discrimination claims, union grievances and wage and hour
claims), property loss claims, environmental claims, automobile
liability claims, indemnification claims by our customers and
other third parties, contractual claims and claims for personal
injury or other damages resulting from contact with our
facilities, programs, personnel or prisoners, including damages
arising from a prisoners escape or from a disturbance or
riot at a facility. Except as otherwise disclosed above, we do
not expect the outcome of any pending claims or legal
proceedings to have a material adverse effect on our financial
condition, results of operations or cash flows.
During the fourth fiscal quarter of 2009, the Internal Revenue
Service (IRS) completed its examination of our U.S. federal
income tax returns for the years 2002 through 2005. Following
the examination, the IRS notified us that it proposes to
disallow a deduction that we realized during the 2005 tax year.
We have appealed this proposed disallowed deduction with the
IRSs appeals division and believe we have valid defenses
to the IRSs position. However, if the disallowed deduction
were to be sustained on appeal, it could result in a potential
tax exposure of up to $15.4 million. We believe in the
merits of our position and intend to defend our rights
vigorously, including our rights to litigate the matter if it
cannot be resolved favorably at the IRSs appeals level. If
this matter is resolved unfavorably, it may have a material
adverse effect on our financial position, results of operations
and cash flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of our shareholders during
the quarter ended January 3, 2010.
35
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock trades on the New York Stock Exchange under the
symbol GEO. The following table shows the high and
low prices for our common stock, as reported by the New York
Stock Exchange, for each of the four quarters of fiscal years
2009 and 2008. The prices shown have been rounded to the nearest
$1/100. The approximate number of shareholders of record as of
February 16, 2010 is 113, which includes shares held in
street name.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Quarter
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First
|
|
$
|
19.25
|
|
|
$
|
11.18
|
|
|
$
|
28.71
|
|
|
$
|
22.01
|
|
Second
|
|
|
18.56
|
|
|
|
13.06
|
|
|
|
29.48
|
|
|
|
22.10
|
|
Third
|
|
|
20.56
|
|
|
|
17.22
|
|
|
|
26.96
|
|
|
|
18.00
|
|
Fourth
|
|
|
22.41
|
|
|
|
19.75
|
|
|
|
21.62
|
|
|
|
12.65
|
|
We did not buy back any of our common stock during 2009 or 2008.
We did not pay any cash dividends on our common stock for fiscal
years 2009 and 2008. Future dividends, if any, will depend, on
our future earnings, our capital requirements, our financial
condition and on such other factors as our Board of Directors
may take into consideration. On February 22, 2010, we
announced that our Board of Directors approved a stock
repurchase program for up to $80.0 million of GEO common
stock effective through March 31, 2011. See the
Liquidity and Capital Resources section in
Item 7 of Managements Discussion and
Analysis for further description of our stock repurchase
program. In addition to these factors, the indenture governing
our $250.0 million
73/4% Senior
Notes, and our Senior Credit Facility also place material
restrictions on our ability to pay dividends. See the Liquidity
and Capital Resources section in Item 7 of
Managements Discussion and Analysis and
Note 13-Debt
in Item 8Financial Statements and Supplementary
Data, for further description of these restrictions.
Equity
Compensation Plan Information
The following table sets forth information about our common
stock that may be issued upon the exercise of options, warrants
and rights under all of our equity compensation plans as of
January 3, 2010, including our 1994 Second Stock Option
Plan, our 1999 Stock Option Plan, our 2006 Stock Incentive Plan
and our 1995 Non-Employee Director Stock Option Plan. Our
shareholders have approved all of these plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected in
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Column (a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
2,806,957
|
|
|
$
|
10.26
|
|
|
|
553,044
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,806,957
|
|
|
$
|
10.26
|
|
|
|
553,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Performance
Graph
The following performance graph compares the performance of our
common stock to the New York Stock Exchange Composite Index and
to an index of peer companies we selected, and is provided in
accordance with Item 201(e) of
Regulation S-K.
Comparison
of Five-Year Cumulative Total Return*
The GEO Group, Inc., Wilshire 500 Equity, and
S&P 500 Commercial Services and Supplies Indexes
(Performance through January 3, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
The GEO
|
|
|
Wilshire 5000
|
|
|
Services and
|
Date
|
|
|
Group, Inc.
|
|
|
Equity
|
|
|
Supplies
|
December 31, 2004
|
|
|
$
|
100.00
|
|
|
|
$
|
100.00
|
|
|
|
$
|
100.00
|
|
December 31, 2005
|
|
|
$
|
86.27
|
|
|
|
$
|
106.38
|
|
|
|
$
|
103.49
|
|
December 31, 2006
|
|
|
$
|
211.74
|
|
|
|
$
|
123.16
|
|
|
|
$
|
117.83
|
|
December 31, 2007
|
|
|
$
|
316.03
|
|
|
|
$
|
130.07
|
|
|
|
$
|
117.71
|
|
December 31, 2008
|
|
|
$
|
203.50
|
|
|
|
$
|
81.64
|
|
|
|
$
|
90.28
|
|
December 31, 2009
|
|
|
$
|
246.95
|
|
|
|
$
|
104.74
|
|
|
|
$
|
100.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumes $100 invested on December 31, 2004 in our common
stock and the Index companies.
|
|
|
* |
|
Total return assumes reinvestment of dividends. |
37
|
|
Item 6.
|
Selected
Financial Data
|
The selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the
notes to the consolidated financial statements (in thousands,
except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended:(1)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Results of Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,141,090
|
|
|
|
100.0
|
%
|
|
$
|
1,043,006
|
|
|
|
100.0
|
%
|
|
$
|
976,299
|
|
|
|
100.0
|
%
|
|
$
|
818,439
|
|
|
|
100.0
|
%
|
|
$
|
580,440
|
|
|
|
100.0
|
%
|
Operating income from continuing operations
|
|
|
135,188
|
|
|
|
11.8
|
%
|
|
|
113,790
|
|
|
|
10.9
|
%
|
|
|
90,086
|
|
|
|
9.2
|
%
|
|
|
60,401
|
|
|
|
7.4
|
%
|
|
|
5,742
|
|
|
|
1.2
|
%
|
Income from continuing operations
|
|
$
|
66,300
|
|
|
|
5.8
|
%
|
|
$
|
61,453
|
|
|
|
5.9
|
%
|
|
$
|
38,089
|
|
|
|
3.9
|
%
|
|
$
|
28,000
|
|
|
|
3.4
|
%
|
|
$
|
5,183
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
1.30
|
|
|
|
|
|
|
$
|
1.22
|
|
|
|
|
|
|
$
|
0.80
|
|
|
|
|
|
|
$
|
0.81
|
|
|
|
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
$
|
1.28
|
|
|
|
|
|
|
$
|
1.19
|
|
|
|
|
|
|
$
|
0.77
|
|
|
|
|
|
|
$
|
0.78
|
|
|
|
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,879
|
|
|
|
|
|
|
|
50,539
|
|
|
|
|
|
|
|
47,727
|
|
|
|
|
|
|
|
34,442
|
|
|
|
|
|
|
|
28,740
|
|
|
|
|
|
Diluted
|
|
|
51,922
|
|
|
|
|
|
|
|
51,830
|
|
|
|
|
|
|
|
49,192
|
|
|
|
|
|
|
|
35,744
|
|
|
|
|
|
|
|
30,030
|
|
|
|
|
|
Financial Condition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
279,634
|
|
|
|
|
|
|
$
|
281,920
|
|
|
|
|
|
|
$
|
264,518
|
|
|
|
|
|
|
$
|
322,754
|
|
|
|
|
|
|
$
|
229,292
|
|
|
|
|
|
Current liabilities
|
|
|
177,448
|
|
|
|
|
|
|
|
185,926
|
|
|
|
|
|
|
|
186,432
|
|
|
|
|
|
|
|
173,703
|
|
|
|
|
|
|
|
136,519
|
|
|
|
|
|
Total assets
|
|
|
1,447,818
|
|
|
|
|
|
|
|
1,288,621
|
|
|
|
|
|
|
|
1,192,634
|
|
|
|
|
|
|
|
743,453
|
|
|
|
|
|
|
|
639,511
|
|
|
|
|
|
Long-term debt, including current portion (excluding
non-recourse debt and capital leases)
|
|
|
457,538
|
|
|
|
|
|
|
|
382,126
|
|
|
|
|
|
|
|
309,273
|
|
|
|
|
|
|
|
154,259
|
|
|
|
|
|
|
|
220,004
|
|
|
|
|
|
Total Shareholders equity
|
|
$
|
665,098
|
|
|
|
|
|
|
$
|
579,597
|
|
|
|
|
|
|
$
|
529,347
|
|
|
|
|
|
|
$
|
249,907
|
|
|
|
|
|
|
$
|
110,434
|
|
|
|
|
|
Operational Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts/awards
|
|
|
72
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
Facilities in operation
|
|
|
57
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
Capacity of contracts
|
|
|
52,772
|
|
|
|
|
|
|
|
53,364
|
|
|
|
|
|
|
|
47,913
|
|
|
|
|
|
|
|
46,460
|
|
|
|
|
|
|
|
46,177
|
|
|
|
|
|
Compensated mandays(2)
|
|
|
17,332,696
|
|
|
|
|
|
|
|
15,946,932
|
|
|
|
|
|
|
|
15,026,626
|
|
|
|
|
|
|
|
13,778,031
|
|
|
|
|
|
|
|
10,911,886
|
|
|
|
|
|
|
|
|
(1) |
|
Our fiscal year ends on the Sunday closest to the calendar year
end. The fiscal year ended January 3, 2010 contained
53 weeks. |
|
(2) |
|
Compensated resident days are calculated as follows:
(a) for per diem rate facilities the number of
beds occupied by residents on a daily basis during the fiscal
year; and (b) for fixed rate facilities the
capacity of the facility multiplied by the number of days the
facility was in operation during the fiscal year. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Introduction
The following discussion and analysis provides information which
management believes is relevant to an assessment and
understanding of our consolidated results of operations and
financial condition. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these
forward-looking statements as a result of numerous factors
including, but not limited to, those described above under
Item 1A. Risk Factors, and
Forward-Looking Statements Safe Harbor
below. The discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
We are a leading provider of government-outsourced services
specializing in the management of correctional, detention and
mental health and residential treatment facilities in the United
States, Australia, South Africa, the United Kingdom and Canada.
We operate a broad range of correctional and detention
facilities including maximum, medium and minimum security
prisons, immigration detention centers,
38
minimum security detention centers and mental health and
residential treatment facilities. Our correctional and detention
management services involve the provision of security,
administrative, rehabilitation, education, health and food
services, primarily at adult male correctional and detention
facilities. Our mental health and residential treatment services
involve the delivery of quality care, innovative programming and
active patient treatment, primarily at privatized state mental
health facilities. We also develop new facilities based on
contract awards, using our project development expertise and
experience to design facilities, construct and finance what we
believe are
state-of-the-art
facilities that maximize security and efficiency.
As of the fiscal year ended January 3, 2010, we managed 57
facilities totaling approximately 52,800 beds worldwide and had
an additional 4,325 beds under development at three facilities,
including an expansion and renovation of one vacant facility
which we own, the expansion of one facility we currently own and
operate and a new 2,000-bed facility which we will manage upon
completion. For the fiscal year ended January 3, 2010, we
had consolidated revenues of $1.1 billion and we maintained
an average companywide facility occupancy rate of 94.6%.
Contract
Awards and Facility Activations
On March 29, 2009, we completed the intake of 192 detainees
in the expansion of the 576-bed Robert A. Deyton Detention
Facility in Lovejoy, Georgia. We manage this facility under a
20-year
contract, inclusive of three five-year option periods, with the
Office of the Federal Detention Trustee. We lease this facility
from Clayton County under a
20-year
agreement, with two five-year renewal options and house
detainees under custody of the United States Marshals Service.
In April 2009, GEO Australia, our wholly owned subsidiary, was
awarded a new contract by the New South Wales, Department of
Corrective Services for the continued management and operation
of the 790-bed Junee Correctional Centre. GEO Australia has
managed this
minimum-to-medium
security center since its opening in 1993. The new contract has
a term of 15 years, inclusive of renewal options.
On April 23, 2009, we announced a contract award by ICE for
the continued management of the Broward Transition Center, which
we own, located in Deerfield Beach, Florida. The new contract
has an initial term of one year, effective April 1, 2009,
with four one-year renewal option periods. Under the terms of
the new agreement, the contract capacity at this detention
center was increased from 600 to 700 beds, and the
transportation responsibilities will be expanded.
Also in April 2009, we opened the new $62.0 million Florida
Civil Commitment Center replacement facility in Arcadia,
Florida, which we refer to as FCCC. The new facility has a
capacity of 720 residents, and it was specifically designed to
provide treatment services to sexually violent predators in a
highly secure facility. FCCC is operated by GEO Care, our
wholly-owned subsidiary, under a management contract with the
Florida Department of Children and Families.
On May 4, 2009, we announced that we executed a contract
with Bexar County, Texas Commissioners Court for the
continued operation of the 688-bed Central Texas Detention
Facility located in San Antonio, Texas. This facility,
which is owned by Bexar County, houses detainees predominately
for the U.S. Marshals Service. We have managed this
facility since 1988. The new contract will have a term of ten
years and became effective April 29, 2009.
On June 29, 2009, we announced that our wholly owned U.K.
subsidiary, GEO UK, assumed management functions at the 260-bed
Harmondsworth Immigration Removal Centre located in London,
England. Our subsidiary manages and operates this removal centre
under a three-year contract with the United Kingdom Border
Agency. Additionally, this removal centre will be expanded by
360 beds bringing its capacity to 620 beds when the expansion is
completed in June 2010.
On July 1, 2009, we announced the opening of a 384-bed
expansion of the 1,500-bed Graceville Correctional Facility in
Graceville, Florida. We operate this correctional facility under
a managed-only contract with the State of Florida Department of
Management Services and completed intake of inmates during the
third quarter of 2009.
39
On October 1, 2009, our wholly-owned Australian subsidiary
announced that it had been selected by Corrective Services New
South Wales to operate and manage the 823-bed Parklea
Correctional Centre in Australia. The contract has a term of
five years with one three-year extension option. We began
operating this facility on October 31, 2009.
On October 20, 2009, we announced a contract award by ICE
for the continued management of our Northwest Detention Center
located in Tacoma, Washington. This detention center houses
immigration detainees for ICE. The new contract has an initial
term of one year effective October 24, 2009, with four
one-year renewal option periods. Under the terms of the new
agreement, the contract capacity at this detention center was
increased from 1,030 to 1,575 beds, and the transportation
responsibilities will be expanded.
Critical
Accounting Policies
We believe that the accounting policies described below are
critical to understanding our business, results of operations
and financial condition because they involve the more
significant judgments and estimates used in the preparation of
our consolidated financial statements. We have discussed the
development, selection and application of our critical
accounting policies with the audit committee of our Board of
Directors, and our audit committee has reviewed our disclosure
relating to our critical accounting policies in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Our consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United
States. As such, we are required to make certain estimates,
judgments and assumptions that we believe are reasonable based
upon the information available. These estimates and assumptions
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. We routinely
evaluate our estimates based on historical experience and on
various other assumptions that our management believes are
reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.
If actual results significantly differ from our estimates, our
financial condition and results of operations could be
materially impacted.
Other significant accounting policies, primarily those with
lower levels of uncertainty than those discussed below, are also
critical to understanding our consolidated financial statements.
The notes to our consolidated financial statements contain
additional information related to our accounting policies and
should be read in conjunction with this discussion.
Revenue
Recognition
Facility management revenues are recognized as services are
provided under facility management contracts with approved
government appropriations based on a net rate per day per inmate
or on a fixed monthly rate. Certain of our contracts have
provisions upon which a portion of the revenue is based on our
performance of certain targets, as defined in the specific
contract. In these cases, we recognize revenue when the amounts
are fixed and determinable and the time period over which the
conditions have been satisfied has lapsed.
Construction revenues are recognized from our contracts with
certain customers to perform construction and design services
(project development services) for various
facilities. In these instances, we act as the primary developer
and subcontract with bonded National
and/or
Regional Design Build Contractors. These construction revenues
are recognized as earned on a percentage of completion basis
measured by the percentage of costs incurred to date as compared
to the estimated total cost for each contract. Provisions for
estimated losses on uncompleted contracts and changes to cost
estimates are made in the period in which we determine that such
losses and changes are probable. Typically, we enter into fixed
price contracts and do not perform additional work unless
approved change orders are in place. Costs attributable to
unapproved change orders are expensed in the period in which the
costs are incurred if we believe that it is not probable that
the costs will be recovered through a change in the contract
price. If we believe that it is probable that the costs will be
recovered through a change in the contract price, costs related
to unapproved change orders are expensed in the period in which
they are incurred, and contract revenue is recognized to the
extent of the costs
40
incurred. Revenue in excess of the costs attributable to
unapproved change orders is not recognized until the change
order is approved. Changes in job performance, job conditions,
and estimated profitability, including those arising from
contract penalty provisions, and final contract settlements, may
result in revisions to estimated costs and income, and are
recognized in the period in which the revisions are determined.
As the primary contractor, we are exposed to the various risks
associated with construction, including the risk of cost
overruns. Accordingly, we record our construction revenue on a
gross basis and include the related cost of construction
activities in Operating Expenses.
In instances where we provide project development services and
subsequent management services, we evaluate these arrangements
to determine if there are multiple elements that require
separate accounting treatment and could result in a deferral of
revenues. Generally, our arrangements result in no delivered
elements at the onset of the agreement but rather these elements
are delivered over the contract period as the project
development and management services are performed. Project
development services are not provided separately to a customer
without a management contract and therefore, the value of the
project development deliverable, is determined using the
residual method.
Reserves
for Insurance Losses
The nature of our business exposes us to various types of
third-party legal claims, including, but not limited to, civil
rights claims relating to conditions of confinement
and/or
mistreatment, sexual misconduct claims brought by prisoners or
detainees, medical malpractice claims, claims relating to
employment matters (including, but not limited to, employment
discrimination claims, union grievances and wage and hour
claims), property loss claims, environmental claims, automobile
liability claims, contractual claims and claims for personal
injury or other damages resulting from contact with our
facilities, programs, personnel or prisoners, including damages
arising from a prisoners escape or from a disturbance or
riot at a facility. In addition, our management contracts
generally require us to indemnify the governmental agency
against any damages to which the governmental agency may be
subject in connection with such claims or litigation. We
maintain a broad program of insurance coverage for these general
types of claims, except for claims relating to employment
matters, for which we carry no insurance. There can be no
assurance that our insurance coverage will be adequate to cover
all claims to which we may be exposed.
We currently maintain a general liability policy and excess
liability policy for all U.S. corrections operations with
limits of $62.0 million per occurrence and in the
aggregate. A separate $35.0 million limit applies to
medical professional liability claims arising out of
correctional healthcare services. Our wholly owned subsidiary,
GEO Care, is insured under their own program for general
liability and medical professional liability with a specific
loss limit of $35.0 million per occurrence and in the
aggregate. We are uninsured for any claims in excess of these
limits. For most casualty insurance policies, we carry
substantial deductibles or self-insured retentions
$3.0 million per occurrence for general liability and
hospital professional liability, $2.0 million per
occurrence for workers compensation and $1.0 million
per occurrence for automobile liability. We also maintain
insurance to cover property and other casualty risks including,
workers compensation, environmental liability and
automobile liability.
With respect to our operations in South Africa, the United
Kingdom and Australia, we utilize a combination of
locally-procured insurance and global policies to meet
contractual insurance requirements and protect the Company. Our
Australian subsidiary is required to carry tail insurance on a
general liability policy providing an extended reporting period
through 2011 related to a discontinued contract.
In addition, certain of our facilities located in Florida and
determined by insurers to be in high-risk hurricane areas carry
substantial windstorm deductibles. Since hurricanes are
considered unpredictable future events, no reserves have been
established to pre-fund for potential windstorm damage. Limited
commercial availability of certain types of insurance relating
to windstorm exposure in coastal areas and earthquake exposure
mainly in California may prevent us from insuring some of our
facilities to full replacement value.
Of the reserves discussed above, our most significant insurance
reserves relate to workers compensation and general
liability claims. These reserves are undiscounted and were
$27.2 million and $25.5 million as of January 3,
2010 and December 28, 2008, respectively. We use
statistical and actuarial methods to estimate
41
amounts for claims that have been reported but not paid and
claims incurred but not reported. In applying these methods and
assessing their results, we consider such factors as historical
frequency and severity of claims at each of our facilities,
claim development, payment patterns and changes in the nature of
our business, among other factors. Such factors are analyzed for
each of our business segments. Our estimates may be impacted by
such factors as increases in the market price for medical
services and unpredictability of the size of jury awards. We
also may experience variability between our estimates and the
actual settlement due to limitations inherent in the estimation
process, including our ability to estimate costs of processing
and settling claims in a timely manner as well as our ability to
accurately estimate our exposure at the onset of a claim.
Because we have high deductible insurance policies, the amount
of our insurance expense is dependent on our ability to control
our claims experience. If actual losses related to insurance
claims significantly differ from our estimates, our financial
condition, results of operations and cash flows could be
materially impacted.
Income
Taxes
Deferred income taxes are determined based on the estimated
future tax effects of differences between the financial
statement and tax basis of assets and liabilities given the
provisions of enacted tax laws. Significant judgments are
required to determine the consolidated provision for income
taxes. Deferred income tax provisions and benefits are based on
changes to the assets or liabilities from year to year.
Realization of our deferred tax assets is dependent upon many
factors such as tax regulations applicable to the jurisdictions
in which we operate, estimates of future taxable income and the
character of such taxable income. Based on our estimate of
future earnings and our favorable earnings history, management
currently expects full realization of the deferred tax assets
net of any recorded valuation allowances. Additionally, judgment
must be made as to certain tax positions which may not be fully
sustained upon review by tax authorities. If actual
circumstances differ from our assumptions, adjustments to the
carrying value of deferred tax assets or liabilities may be
required, which may result in an adverse impact on the results
of our operations and our effective tax rate. Valuation
allowances are recorded related to deferred tax assets based on
the more likely than not criteria. Management has
not made any significant changes to the way we account for our
deferred tax assets and liabilities in any year presented in the
consolidated financial statements. To the extent that the
provision for income taxes increases/decreases by 1% of income
before income taxes, equity in earnings of affiliate and
discontinued operations, consolidated income from continuing
operations would have decreased/increased by $1.0 million,
$0.9 million and $0.6 million, respectively, for the
years ended January 3, 2010, December 28, 2008 and
December 30, 2007.
Property
and Equipment
As of January 3, 2010, we had $998.6 million in
long-lived property and equipment held for use. Property and
equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Buildings and
improvements are depreciated over 2 to 40 years. Equipment
and furniture and fixtures are depreciated over 3 to
10 years. Accelerated methods of depreciation are generally
used for income tax purposes. Leasehold improvements are
amortized on a straight-line basis over the shorter of the
useful life of the improvement or the term of the lease. We
perform ongoing evaluations of the estimated useful lives of the
property and equipment for depreciation purposes. The estimated
useful lives are determined and continually evaluated based on
the period over which services are expected to be rendered by
the asset. Maintenance and repairs are expensed as incurred.
Interest is capitalized in connection with the construction of
correctional and detention facilities. Capitalized interest is
recorded as part of the asset to which it relates and is
amortized over the assets estimated useful life.
We review long-lived assets to be held and used for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be fully recoverable. If
a long-lived asset is part of a group that includes other
assets, the unit of accounting for the long-lived asset is its
group. Generally, we group our assets by facility for the
purposes of considering whether any impairment exists.
Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of the
asset or asset group and its eventual disposition. When
considering the future cash flows of a facility, we make
assumptions based on historical experience with our customers,
terminal growth rates and
42
weighted average cost of capital. While these estimates do not
generally have a material impact on the impairment charges
associated with managed-only facilities, the sensitivity
increases significantly when considering the impairment on
facilities that are either owned or leased by us. Events that
would trigger an impairment assessment include deterioration of
profits for a business segment that has long-lived assets, or
when other changes occur that might impair recovery of
long-lived assets such as the termination of a management
contract. Long-lived assets to be disposed of are reported at
the lower of carrying amount or fair value less costs to sell.
Measurement of an impairment loss for long-lived assets that
management expects to hold and use is based on the fair value of
the asset.
Impact of
Future Accounting Pronouncements
The following accounting standards have implementation dates
subsequent to the fiscal year ended January 3, 2010 and as
such, have not yet been adopted by us:
In October 2009, the FASB issued ASU
No. 2009-13
which provides amendments to revenue recognition criteria for
separating consideration in multiple element arrangements. As a
result of these amendments, multiple deliverable arrangements
will be separated more frequently than under existing GAAP. The
amendments, among other things, establish the selling price of a
deliverable, replace the term fair value with selling price and
eliminate the residual method so that consideration would be
allocated to the deliverables using the relative selling price
method. This amendment also significantly expands the disclosure
requirements for multiple element arrangements. This guidance
will become effective for us prospectively for revenue
arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. We do not anticipate
that the adoption of this standard will have a material impact
on our financial position, results of operations or cash flows.
In December 2009, the FASB issued ASU
No. 2009-17,
previously known as FAS No. 167, Amendments to
FASB Interpretation No. FIN 46(R)
(SFAS No. 167). ASU
No. 2009-17
amends the manner in which entities evaluate whether
consolidation is required for VIEs. The consolidation
requirements under the revised guidance require us to
consolidate a VIE if the entity has all three of the following
characteristics (i) the power, through voting rights or
similar rights, to direct the activities of a legal entity that
most significantly impact the entitys economic
performance, (ii) the obligation to absorb the expected losses
of the legal entity (iii) the right to receive the expected
residual returns of the legal entity. Further, this guidance
requires that companies continually evaluate VIEs for
consolidation, rather than assessing based upon the occurrence
of triggering events. As a result of adoption, which becomes
effective for interim and annual periods beginning after
November 15, 2009, companies are required to enhance
disclosures about how their involvement with a VIE affects its
financial statements and exposure to risks. We do not anticipate
that the adoption of this standard will have a material impact
on our financial position, results of operations and cash flows.
Results
of Operations
The following discussion should be read in conjunction with our
consolidated financial statements and the notes to the
consolidated financial statements accompanying this report. This
discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not
limited to, those described under Item 1A. Risk
Factors and those included in other portions of this
report.
The discussion of our results of operations below excludes the
results of our discontinued operations for all periods presented.
For the purposes of the discussion below, 2009 means
the 53 weeks fiscal year ended January 3, 2010,
2008 means the 52 week fiscal year ended
December 28, 2008, and 2007 means the
52 weeks fiscal year ended December 30, 2007. Our
fiscal quarters in the fiscal years discussed below are referred
to as First Quarter, Second Quarter,
Third Quarter and Fourth Quarter.
43
2009
versus 2008
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
% of Revenue
|
|
|
2008
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. corrections
|
|
$
|
784,066
|
|
|
|
68.7
|
%
|
|
$
|
711,038
|
|
|
|
68.2
|
%
|
|
$
|
73,028
|
|
|
|
10.3
|
%
|
International services
|
|
|
137,171
|
|
|
|
12.0
|
%
|
|
|
128,672
|
|
|
|
12.3
|
%
|
|
|
8,499
|
|
|
|
6.6
|
%
|
GEO Care
|
|
|
121,818
|
|
|
|
10.7
|
%
|
|
|
117,399
|
|
|
|
11.3
|
%
|
|
|
4,419
|
|
|
|
3.8
|
%
|
Facility construction and design
|
|
|
98,035
|
|
|
|
8.6
|
%
|
|
|
85,897
|
|
|
|
8.2
|
%
|
|
|
12,138
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,141,090
|
|
|
|
100.0
|
%
|
|
$
|
1,043,006
|
|
|
|
100.0
|
%
|
|
$
|
98,084
|
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corrections
The increase in revenues for U.S. corrections in 2009
compared to 2008 is primarily attributable to project
activations, capacity increases and per diem rate increases at
existing facilities and new management contracts. The most
significant increases to revenue were as follows:
(i) revenues increased $24.1 million in total due to
the activation of three new contracts in Third and Fourth
Quarter 2008 for the management of Joe Corley Detention
Facility in Conroe, Texas, Northeast New Mexico Detention
Facility in Clayton, New Mexico and Maverick County
Detention Facility in Maverick, Texas; (ii) revenues
increased $24.6 million in 2009 as a result of our opening
of our Rio Grande Detention Center in Laredo, Texas in Fourth
Quarter 2008; (iii) revenues increased $6.1 million as
a result of the 500-bed expansion of East Mississippi
Corrections Facility in Meridian, Mississippi, which was
completed in October 2008; (iv) revenues increased
$5.1 million at the Robert A. Deyton Detention Facility in
Lovejoy, Georgia as a result of the 192-bed activation in
January 2009; (v) revenues increased $6.1 million at
the Broward Transition Center due to an increase in per diem
rates and population; (vi) we experienced an increase of
revenues of $9.9 million related to contract modifications
and additional services at our South Texas Detention Complex in
Pearsall, Texas; (vii) approximately $8.2 million of
the increase is attributable to per diem increases, other
contract modifications, award fees and population increases.
Overall, we did experience slight increases over the 52-week
period ended December 28, 2008 related to the additional
week in the 53-week period ended January 3, 2010. These
increases were offset by a decrease in revenues of
$20.6 million due to the termination of our management
contract at the Sanders Estes Unit in Venus, Texas, Newton
County Correctional Center in Newton, Texas, Jefferson County
Downtown Jail in Beaumont, Texas, Fort Worth Community
Corrections Facility in Fort Worth, Texas, and the
Tri-County Justice & Detention Center in Ullin,
Illinois.
The number of compensated mandays in U.S. corrections
facilities increased by 1.2 million to 14.5 million
mandays in 2009 from 13.3 million mandays in 2008 due to
the addition of new facilities and capacity increases. We look
at the average occupancy in our facilities to determine how we
are managing our available beds. The average occupancy is
calculated by taking compensated mandays as a percentage of
capacity. The average occupancy in our U.S. correction and
detention facilities was 94.6% of capacity in 2009, excluding
the terminated contract for Tri-County Justice &
Detention Center which was terminated effective August 2008. The
average occupancy in our U.S. correction and detention
facilities was 96.4% in 2008 not taking into account the 1,221
beds activated in 2009 at four facilities in our
U.S. Corrections segment.
International
services
Revenues for our international services segment during 2009
increased over the prior year due to several reasons including:
(i) new contracts in Australia and in the United Kingdom
for the management of the Parklea Correctional Centre in Sydney,
Australia and the Harmondsworth Immigration Removal Centre in
London, England which contributed an incremental
$4.1 million and $8.1 million of revenues,
respectively, (ii) our contract in South Africa for the
management of Kutama-Sinthumule Correcional Centre contributed
an increase in revenues over the prior year of $1.2 million
mainly due to contractual increases linked to the South African
inflationary index, and (iii) we also experienced an
increase in revenues of $4.8 million, in aggregate,
44
at certain facilities managed by our Australian subsidiary due
to contractual increases linked to the inflationary index. These
increases were offset by unfavorable fluctuations in foreign
exchange currency rates for the Australian Dollar, South African
Rand and British Pound. These unfavorable fluctuations in
foreign exchange rates resulted in a decrease of revenues over
2008 of $9.9 million.
GEO
Care
The increase in revenues for GEO Care in 2009 compared to 2008
is primarily attributable to the revenues from our newly
acquired contract for the management of Columbia Regional Care
Center in Columbia, South Carolina which generated
$7.5 million of revenues. We also experienced combined
increases of $3.1 million at South Florida Evaluation and
Treatment in Miami, Florida and Treasure Coast Forensic
Treatment Center in Stuart, Florida as a result of increases in
population. These increases were offset by the loss of revenues
from the termination of our management contract with the South
Florida Evaluation and Treatment Center Annex in
July 2008. This contract generated $7.5 million of revenues
in 2008.
Facility
construction and design
The increase in revenues from the Facility construction and
design segment in 2009 compared to 2008 is mainly due to an
increase of $91.3 million related to the construction of
Blackwater River Correctional Facility, in Milton, Florida which
commenced in First Quarter 2009. This increase over the same
period in the prior year was offset by decreases in construction
activities at four facilities: (i) the completion of
construction for the South Florida Evaluation and Treatment
Center in Miami, Florida in Third Quarter 2008 decreased
revenues by $6.8 million; (ii) the completion of
construction of our Northeast New Mexico Detention Facility in
Clayton, New Mexico in Third Quarter 2008 decreased revenues by
$15.4 million, (iii) the completion of Florida Civil
Commitment Center in Second Quarter decreased revenues by
$33.9 million and (iv) the completion of Graceville
Correctional Facility in Third Quarter 2009 which decreased
revenues by $21.9 million.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Segment
|
|
|
|
|
|
% of Segment
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. corrections
|
|
$
|
565,291
|
|
|
|
72.1
|
%
|
|
$
|
516,963
|
|
|
|
72.7
|
%
|
|
$
|
48,328
|
|
|
|
9.3
|
%
|
International services
|
|
|
127,964
|
|
|
|
93.3
|
%
|
|
|
116,985
|
|
|
|
90.9
|
%
|
|
|
10,979
|
|
|
|
9.4
|
%
|
GEO Care
|
|
|
106,447
|
|
|
|
87.4
|
%
|
|
|
103,140
|
|
|
|
87.9
|
%
|
|
|
3,307
|
|
|
|
3.2
|
%
|
Facility construction and design
|
|
|
97,654
|
|
|
|
99.6
|
%
|
|
|
85,571
|
|
|
|
99.6
|
%
|
|
|
12,083
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
897,356
|
|
|
|
78.6
|
%
|
|
$
|
822,659
|
|
|
|
78.9
|
%
|
|
$
|
74,697
|
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses consist of those expenses incurred in the
operation and management of our correctional, detention and
mental health and GEO Care facilities and expenses incurred in
our Facility construction and design segment.
U.S.
corrections
Overall, operating expenses remained fairly consistent with
fiscal 2008 with slight decreases as a percentage of revenues
due to decreases in travel costs of $3.3 million in fiscal
2009. The most significant increases to operating expense were
related to new management contracts, new facility activations
and increases in population from expansion beds which were
activated during the fiscal year. Such projects include Joe
Corley Detention Facility, Northeast New Mexico Detention
Facility, Maverick County Detention Facility, Rio Grande
Detention Center, East Mississippi Corrections Facility and
Robert A. Deyton Detention Facility. These contracts contributed
$40.8 million of the increase to our operating expenses.
Certain of our other facilities also experienced increases in
expenses associated with increases in population and contract
modifications resulting in additional services. These increases
were partially offset by decreases in expenses as a
45
result of facility closures for Jefferson County Downtown Jail,
Newton County Correctional Center, Fort Worth Community
Corrections Facility, Sanders Estes Unit and Tri County
Justice & Detention Center.
International
services
Expenses increased at all of our international subsidiaries
consistent with the revenue increases. The costs associated with
the new contracts in the United Kingdom and Australia accounted
for a combined increase of $15.1 million, including start
up costs of $3.0 million. Start up costs are non-recurring
costs for training, additional staffing requirements, overtime
and other costs of transitioning a new management contract. The
increase in expenses in 2009 was significantly offset by the
impact of foreign exchange currency rates. Overall, operating
expenses for international services facilities increased
slightly as a percentage of segment revenues in 2009 compared to
2008 mainly due to the start up costs in Australia and the
United Kingdom.
GEO
Care
Operating expenses for residential treatment increased
$3.3 million in 2009 as compared to 2008. The increase in
expenses in 2009 was primarily due to our acquisition of
Columbia Regional Care Center in Fourth Quarter. We also
experienced higher costs at Florida Civil Commitment Center due
to start up costs associated with the transfer of patients into
the new facility.
Facility
construction and design
Generally, the operating expenses from the Facility construction
and design segment are offset by a similar amount of revenues.
Our overall increase in operating expenses relates to the
construction of the Blackwater River Correctional Facility which
increased expenses by $91.3 million. This increase was
offset by decreases related to the completion of several
facilities and expansions including South Florida Evaluation and
Treatment Center, Northeast New Mexico Detention Facility,
Florida Civil Commitment Center and Graceville Correctional
Facility.
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Segment
|
|
|
|
|
|
% of Segment
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Revenue
|
|
|
2008
|
|
|
Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. corrections
|
|
$
|
35,955
|
|
|
|
4.6
|
%
|
|
$
|
34,010
|
|
|
|
4.8
|
%
|
|
$
|
1,945
|
|
|
|
5.7
|
%
|
International services
|
|
|
1,448
|
|
|
|
1.1
|
%
|
|
|
1,556
|
|
|
|
1.2
|
%
|
|
|
(108
|
)
|
|
|
(6.9
|
)%
|
GEO Care
|
|
|
1,903
|
|
|
|
1.6
|
%
|
|
|
1,840
|
|
|
|
1.6
|
%
|
|
|
63
|
|
|
|
3.4
|
%
|
Facility construction and design
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,306
|
|
|
|
3.4
|
%
|
|
$
|
37,406
|
|
|
|
3.6
|
%
|
|
$
|
1,900
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Corrections
The increase in depreciation and amortization for
U.S. corrections in 2009 compared to 2008 is primarily
attributable to the opening of our Rio Grande Detention Center
in Fourth Quarter 2008 which increased depreciation expense by
$1.9 million.
International
Services
Depreciation and amortization as a percentage of segment revenue
in 2009 was consistent with 2008.
GEO
Care
The increase in depreciation and amortization for GEO Care in
2009 compared to 2008 is primarily due to our acquisition of
Just Care.
46
Other
Unallocated Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
% of Revenue
|
|
|
2008
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
General and Administrative Expenses
|
|
$
|
69,240
|
|
|
|
6.1
|
%
|
|
$
|
69,151
|
|
|
|
6.6
|
%
|
|
$
|
89
|
|
|
|
0.1
|
%
|
General and administrative expenses comprise substantially all
of our other unallocated expenses. General and administrative
expenses consist primarily of corporate management salaries and
benefits, professional fees and other administrative expenses.
General and administrative expenses remained consistent in the
fiscal year ended January 3, 2010 as compared to the fiscal
year ended December 28, 2008 but decreased as a percentage
of revenues. The decrease as a percentage of revenues is
primarily due to corporate cost savings initiatives including
those to reduce travel costs which were $2.3 million less
in 2009 and also by the increase in revenues which increased at
a higher rate than general and administrative expenses. These
savings were partially offset by increases in employee benefits
and labor costs.
Non
Operating Income and Expense
Interest
Income and Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
% of Revenue
|
|
|
2008
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Interest Income
|
|
$
|
4,943
|
|
|
|
0.4
|
%
|
|
$
|
7,045
|
|
|
|
0.7
|
%
|
|
$
|
(2,102
|
)
|
|
|
(29.8
|
)%
|
Interest Expense
|
|
$
|
28,518
|
|
|
|
2.5
|
%
|
|
$
|
30,202
|
|
|
|
2.9
|
%
|
|
$
|
(1,684
|
)
|
|
|
(5.6
|
)%
|
The majority of our interest income generated in 2009 and 2008
is from the cash balances at our Australian subsidiary. The
decrease in the current period over the same period last year is
mainly attributable to currency exchange rates and, to a lesser
extent, lower interest rates.
The decrease in interest expense of $1.7 million is
primarily attributable to a decrease in LIBOR rates which
reduced the interest expense on our Term Loan B by
$4.0 million. This decrease was offset by increased expense
related to the amortization of deferred financing fees
associated with the amendments to our Senior Credit Facility.
This increase resulted in incremental amortization of
$1.6 million. In addition, we also had more indebtedness
outstanding in 2009 related to our
73/4% Senior
Notes which resulted in an increase to interest expense of
$1.9 million. Capitalized interest in 2009 and 2008 was
$4.9 million and $4.3 million, respectively. Total
borrowings at January 3, 2010 and December 28, 2008,
excluding non-recourse debt and capital lease liabilities, were
$457.5 million and $382.1 million, respectively.
In November 2009, we entered into interest rate swap agreements
with respect to a notional amount of $75.0 million of the
73/4% Senior
Notes which resulted in a savings in interest expense of
approximately $0.5 million for the fiscal quarter ended
January 3, 2010.
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Effective Rate
|
|
|
2008
|
|
|
Effective Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Income Tax Provision
|
|
$
|
41,991
|
|
|
|
40.1
|
%
|
|
$
|
33,803
|
|
|
|
37.3
|
%
|
The effective tax rate during 2009 was 40.1%, compared to 37.3%
in 2008, due to an increase in the reserve for uncertain tax
positions. The effective tax rate in 2008 included one-time
state tax benefits.
Equity in
Earnings of Affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
% of Revenue
|
|
|
2008
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Equity in Earnings of Affiliate
|
|
$
|
3,517
|
|
|
|
0.3
|
%
|
|
$
|
4,623
|
|
|
|
0.4
|
%
|
|
$
|
(1,106
|
)
|
|
|
(23.9
|
)%
|
47
Equity in earnings of affiliates represent the earnings of SACS
in 2009 and 2008 and reflects an overall decrease in earnings
related to unfavorable foreign currency exchange rates partially
offset by additional revenues due to contractual increases.
2008
versus 2007
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
% of Revenue
|
|
|
2007
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. corrections
|
|
$
|
711,038
|
|
|
|
68.2
|
%
|
|
$
|
629,339
|
|
|
|
64.5
|
%
|
|
$
|
81,699
|
|
|
|
13.0
|
%
|
International services
|
|
|
128,672
|
|
|
|
12.3
|
%
|
|
|
127,991
|
|
|
|
13.1
|
%
|
|
|
681
|
|
|
|
0.5
|
%
|
GEO Care
|
|
|
117,399
|
|
|
|
11.3
|
%
|
|
|
110,165
|
|
|
|
11.3
|
%
|
|
|
7,234
|
|
|
|
6.6
|
%
|
Facility construction and design
|
|
|
85,897
|
|
|
|
8.2
|
%
|
|
|
108,804
|
|
|
|
11.1
|
%
|
|
|
(22,907
|
)
|
|
|
(21.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,043,006
|
|
|
|
100.0
|
%
|
|
$
|
976,299
|
|
|
|
100.0
|
%
|
|
$
|
66,707
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corrections
The increase in revenues for U.S. corrections in 2008
compared to 2007 is primarily attributable to new facility
openings, capacity increases at existing facilities and full
year operations relative to recent openings and expansions from
2007. The most significant increases to revenue were as follows:
(i) revenues increased $56.2 million in total due to
the opening or expansion of seven facilities in 2008 which
include activations at the Robert A. Deyton Detention Facility,
Rio Grande Detention Center, Joe Corley Detention Facility and
the Northeast New Mexico Detention Facility and expansions of
the LaSalle Detention Facility, Central Arizona Correctional
Facility and at the East Mississippi Correctional Facility;
(ii) revenues increased $28.8 million in 2008 due to
increases at our California facilities, South Texas Detention
Complex, New Castle Correctional Facility and at the Northwest
Detention Center related to contract modifications and enhanced
services; (iii) revenues increased by $21.6 million
due to the full year operation of 2007 activations and
expansions that occurred at the Graceville Correctional
Facility, Val Verde Correctional Facility and the Moore Haven
Correctional Facility. These and other increases were offset by
decreases in revenues of $34.8 million due to the
termination of our management contracts at Taft Correctional
Institution, Coke County Juvenile Justice Center and Dickens
County Correctional Center.
The number of compensated mandays in U.S. corrections
facilities increased by 805,200 to 13.3 million mandays in
2008 from 12.5 million mandays in 2007 due to the addition
of new facilities and capacity increases. We look at the average
occupancy in our facilities to determine how we are managing our
available beds. The average occupancy is calculated by taking
compensated mandays as a percentage of capacity. The average
occupancy in our U.S. correction and detention facilities
was 95.7% of capacity in 2008, excluding the terminated
contracts for the Coke County Juvenile Justice Center, the
Dickens County Correctional Center, and the Taft Correctional
Institution. The average occupancy in our U.S. correction
and detention facilities was 96.1% in 2007, excluding our new
contracts at the Joe Corley Detention Facility, Rio Grande
Detention Center, Robert A. Deyton Detention Facility and the
Maverick County Detention Facility.
International
services
Revenues for our International services segment during fiscal
year 2008 increased by $4.8 million over fiscal year 2007
due to increases in contractual rates at some of our facilities
in Australia and also in South Africa. We also experienced a
favorable increase in revenues of $1.9 million over the
prior year due to the overall strengthening of the Australian
dollar during fiscal year 2008. This favorable variance was
offset during fiscal year 2008 by a decrease in revenues of
$2.9 million related to the expansion in 2007 of the
Campsfield House Immigration Removal Centre which was completed
in September 2008. We also experienced a decrease in revenues in
fiscal year 2008 compared to fiscal year 2007 due to unfavorable
foreign
48
exchange currency fluctuations in the South African Rand and the
British Pound which resulted in a combined decrease of
$3.2 million.
GEO
Care
The increase in revenues for GEO Care in 2008 compared to 2007
is primarily attributable to two items: (i) the Treasure
Coast Forensic Center in Stuart, Florida which commenced
operation in March 2007, increased revenues by
$7.5 million; and (ii) the Florida Civil Commitment
Center in Arcadia, Florida contributed an increase of
$2.6 million, both due to increases in population. This
favorable increase was partially offset by $2.4 million due
to the loss of the contract with the SFETC Annex.
Facility
construction and design
The decrease in revenues from construction activities is
primarily attributable to the completion of construction at two
facilities: (i) the South Florida Evaluation and Treatment
Center in Miami, Florida, which was completed in Second Quarter
2008, decreased revenues by $19.3 million; and
(ii) the Northeast New Mexico Detention Facility in
Clayton, New Mexico which was completed in Third Quarter 2008
and decreased revenues by $25.6 million. These decreases
over the same period in the prior year were offset by increases
in construction revenue for the expansion of the Graceville
Correctional Facility in Graceville, Florida which commenced in
First Quarter 2008 and increased revenues by $4.0 million
and the construction of the Florida Civil Commitment Center in
Arcadia, Florida which increased revenues by $22.1 million.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Segment
|
|
|
|
|
|
% of Segment
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. corrections
|
|
$
|
516,963
|
|
|
|
72.7
|
%
|
|
$
|
464,617
|
|
|
|
73.8
|
%
|
|
$
|
52,346
|
|
|
|
11.3
|
%
|
International services
|
|
|
116,985
|
|
|
|
90.9
|
%
|
|
|
116,259
|
|
|
|
90.8
|
%
|
|
|
726
|
|
|
|
0.6
|
%
|
GEO Care
|
|
|
103,140
|
|
|
|
87.9
|
%
|
|
|
98,557
|
|
|
|
89.5
|
%
|
|
|
4,583
|
|
|
|
4.7
|
%
|
Facility construction and design
|
|
|
85,571
|
|
|
|
99.6
|
%
|
|
|
109,070
|
|
|
|
100.2
|
%
|
|
|
(23,499
|
)
|
|
|
(21.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
822,659
|
|
|
|
78.9
|
%
|
|
$
|
788,503
|
|
|
|
80.8
|
%
|
|
$
|
34,156
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses consist of those expenses incurred in the
operation and management of our correctional, detention and
mental health and GEO Care facilities and expenses incurred in
our Facility construction and design segment.
U.S.
corrections
The increase U.S. corrections operating expenses in 2008
compared to 2007 is primarily attributable to new facility
openings, capacity increases at existing facilities and the
normalization of openings and expansions from 2007. The most
significant increases to operating expenses were as follows:
(i) operating expenses increased $43.3 million in
total due to the opening or expansion of seven facilities in
2008 which include activations at the Robert A. Deyton Detention
Facility, Rio Grande Detention Facility, Joe Corley Detention
Facility and the Northeast New Mexico Detention Facility and
expansions of the LaSalle Detention Center, Central Arizona
Correctional Facility and at the East Mississippi Correctional
Facility; (ii) operating expenses increased
$19.2 million in 2008 due to increases at our California
facilities, South Texas Detention Center, New Castle
Correctional Facility and at the Northwest Detention Center
related to contract modifications and enhanced services;
(iii) operating expenses increased by $17.9 million
due to the normalization of 2007 activations and expansions that
occurred at the Graceville Correctional Facility, Val Verde
Correctional Facility and the Moore Haven Correctional Facility;
(iv) operating expenses increased by $3.6 million for
the year ended December 28, 2008 due to changes in general
liability and workers compensation reserves. The remaining
increase in operating expenses is the result of increases in
wages and employee benefits as well as general increases in
operating costs. These increases were partially offset by
decreases of $31.0 million related
49
to the termination of our management contracts at Coke County
Juvenile Justice Center, Taft Correctional Institution and
Dickens County Correctional Center which were terminated prior
to fiscal 2008. Beginning 2008, we changed our vacation policy
for certain employees allowing these employees to use their
vacation regardless of their service period but within the
fiscal year. The 2008 change in our vacation policy resulted in
a $3.7 million decrease in vacation expense in the fiscal
year ended 2008 compared to the fiscal year ended 2007.
International
services
Operating expenses for international services facilities
remained consistent as a percentage of segment revenues in 2008
compared to 2007. On December 22, 2008, we announced the
closure of our U.K.-based transportation division, Recruitment
Solutions International which we refer to as RSI. We purchased
RSI, which provided transportation services to The Home Office
Nationality and Immigration Directorate, for $2.3 million,
including transaction costs, in 2006. The operating loss of this
business are reported as discontinued operations and is not
presented in the segment information above.
GEO
Care
Operating expenses for residential treatment increased
$4.6 million in 2008 as compared to 2007 primarily
attributable to increased population at the Treasure Coast
Forensic Center and Florida Civil Commitment Center as mentioned
above. This positive variance was offset by a decrease due to
the closure of our 100-bed South Florida Evaluation and
Treatment Center Annex which was effective July 31, 2008.
Overall, expenses as a percentage of revenue partly decreased as
a result of a decrease in startup costs which were
$0.6 million in 2008 compared to $1.9 million in 2007.
Facility
construction and design
Operating expenses for facility construction and design
decreased $23.5 million during fiscal year 2008 compared to
fiscal year 2007 primarily due to a decrease in costs associated
with our facilities under construction as a result of reduced
activity as discussed above.
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Segment
|
|
|
|
|
|
% of Segment
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Revenue
|
|
|
2007
|
|
|
Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. corrections
|
|
$
|
34,010
|
|
|
|
4.8
|
%
|
|
$
|
30,401
|
|
|
|
4.8
|
%
|
|
$
|
3,609
|
|
|
|
11.9
|
%
|
International services
|
|
|
1,556
|
|
|
|
1.2
|
%
|
|
|
1,351
|
|
|
|
1.1
|
%
|
|
|
205
|
|
|
|
15.2
|
%
|
GEO Care
|
|
|
1,840
|
|
|
|
1.6
|
%
|
|
|
1,466
|
|
|
|
1.3
|
%
|
|
|
374
|
|
|
|
25.5
|
%
|
Facility construction and design
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,406
|
|
|
|
3.6
|
%
|
|
$
|
33,218
|
|
|
|
3.4
|
%
|
|
$
|
4,188
|
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Corrections
The increase in depreciation and amortization for
U.S. corrections in 2008 compared to 2007 is primarily
attributable to the following items: (i) depreciation
increased $0.9 million due to the reactivation and
expansion of the LaSalle Detention Facility discussed above,
(ii) depreciation increased $0.7 million related to
the opening of the Rio Grande Detention Center discussed above
and, (iii) depreciation increased $0.8 million due to
the expansion of the Val Verde Correctional Facility discussed
above.
International
Services
Depreciation and amortization as a percentage of segment revenue
in 2008 was consistent with 2007.
50
GEO
Care
The increase in depreciation and amortization for GEO Care in
2008 compared to 2007 is primarily due to the Treasure Coast
Forensic Treatment Center expansion in September 2007.
Other
Unallocated Operating Expenses
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
% of Revenue
|
|
|
2007
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
General and Administrative Expenses
|
|
$
|
69,151
|
|
|
|
6.6
|
%
|
|
$
|
64,492
|
|
|
|
6.6
|
%
|
|
$
|
4,659
|
|
|
|
7.2
|
%
|
General and administrative expenses comprise substantially all
of our other unallocated expenses. General and administrative
expenses consist primarily of corporate management salaries and
benefits, professional fees and other administrative expenses.
General and administrative expenses increased by
$4.7 million in the fiscal year ended December 28,
2008 as compared to the fiscal year ended December 30,
2007, and remained consistent as a percentage of revenues. The
increase in general and administrative costs is mainly due to
increases in corporate travel and increases in direct labor
costs as a result of increased wages and related increases in
employee benefits.
Non
Operating Income and Expense
Interest
Income and Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
% of Revenue
|
|
|
2007
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Interest Income
|
|
$
|
7,045
|
|
|
|
0.7
|
%
|
|
$
|
8,746
|
|
|
|
0.9
|
%
|
|
$
|
(1,701
|
)
|
|
|
(19.4
|
)%
|
Interest Expense
|
|
$
|
30,202
|
|
|
|
2.9
|
%
|
|
$
|
36,051
|
|
|
|
3.7
|
%
|
|
$
|
(5,849
|
)
|
|
|
(16.2
|
)%
|
The decrease in interest income in 2008 compared to 2007 is
primarily attributable to the decrease in interest rates for the
period as well as the decrease in cash in 2008 as compared to
2007. In First Quarter 2009, one of the lenders elected to
prepay its interest rate swap obligation to us at the call
option price which approximated the fair value of the interest
rate swap on the call dates.
The decrease in interest expense is primarily attributable to a
significant decrease in LIBOR rates. We also experienced an
increase in the amount of interest capitalized in connection
with the construction of our correctional and detention
facilities. Capitalized interest is recorded as part of the
asset to which it relates and is amortized over the assets
estimated useful life. During fiscal years ended 2008 and 2007,
we capitalized $4.3 million and $2.9 million of
interest expense, respectively. This was partially offset by an
increase in debt in 2008 as compared to 2007.
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Effective Rate
|
|
|
2007
|
|
|
Effective Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Income Tax Provision
|
|
$
|
33,803
|
|
|
|
37.3
|
%
|
|
$
|
22,049
|
|
|
|
38.0
|
%
|
The effective tax rate during 2008 was 37.3% as a result of
one-time state tax benefits of $1.6 million. We expect our
tax rate in the future to increase to 38.7% as these benefits
are non-recurring in nature.
Equity in
Earnings of Affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
% of Revenue
|
|
|
2007
|
|
|
% of Revenue
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Equity in Earnings of Affiliate
|
|
$
|
4,623
|
|
|
|
0.4
|
%
|
|
$
|
2,151
|
|
|
|
0.2
|
%
|
|
$
|
2,472
|
|
|
|
114.9
|
%
|
51
Equity in earnings of affiliates represent the earnings of SACS
in 2008 and 2007 and reflect contractual increases partially
offset by unfavorable foreign currency translation. These
results also include the impact of a one-time tax benefit of
$1.9 million.
Financial
Condition
Capital
Requirements
Our current cash requirements consist of amounts needed for
working capital, debt service, supply purchases, investments in
joint ventures, and capital expenditures related to the
development of new correctional, detention
and/or
mental health facilities. In addition, some of our management
contracts require us to make substantial initial expenditures of
cash in connection with opening or renovating a facility.
Generally, these initial expenditures are subsequently fully or
partially recoverable as pass-through costs or are billable as a
component of the per diem rates or monthly fixed fees to the
contracting agency over the original term of the contract.
Additional capital needs may also arise in the future with
respect to possible acquisitions, other corporate transactions
or other corporate purposes.
We are currently developing a number of projects using company
financing. We estimate that the remaining capital expenditures
related to these existing capital projects will be
$37.7 million to be spent in 2010. Capital expenditures
related to facility maintenance costs are expected to range
between $10.0 million and $15.0 million. In addition
to these current estimated capital requirements for 2010, we are
currently in the process of bidding on, or evaluating potential
bids for the design, construction and management of a number of
new projects. In the event that we win bids for these projects
and decide to self-finance their construction, our capital
requirements in 2010
and/or 2011
could materially increase.
Liquidity
and Capital Resources
We plan to fund all of our capital needs, including our capital
expenditures, from cash on hand, cash from operations,
borrowings under our Senior Credit Facility and any other
financings which our management and Board of Directors, in their
discretion, may consummate. Our primary source of liquidity to
meet these requirements is cash flow from operations and
borrowings from the $330.0 million Revolver under our
Senior Credit Facility (see discussion below).
As of January 3, 2010, we had a total of
$457.5 million of consolidated debt outstanding, excluding
$112.0 million of non-recourse debt and capital lease
liability balances of $15.1 million. As of January 3,
2010, we also had outstanding eight letters of guarantee
totaling $8.9 million under separate international credit
facilities. Based on our debt covenants and the amount of
indebtedness we have outstanding, as of February 16, 2010,
we had the ability to borrow an additional approximately
$217 million under our Revolver after considering debt
covenants. We also have the ability to borrow
$200.0 million under the accordion feature of our Senior
Credit Facility subject to lender demand and market conditions.
Our significant debt service obligations could have material
consequences. See Risk Factors Risks Related
to Our High Level of Indebtedness.
Our management believes that cash on hand, cash flows from
operations and borrowings under our Senior Credit Facility will
be adequate to support our capital requirements for 2010 and
2011 disclosed above. However, we are currently in the process
of bidding on, or evaluating potential bids for, the design,
construction and management of a number of new projects. In the
event that we win bids for these projects and decide to
self-finance their construction, our capital requirements in
2010 and/or
2011 could materially increase. In that event, our cash on hand,
cash flows from operations and borrowings under the Senior
Credit Facility may not provide sufficient liquidity to meet our
capital needs through 2010 and 2011 and we could be forced to
seek additional financing or refinance our existing
indebtedness. There can be no assurance that any such financing
or refinancing would be available to us on terms equal to or
more favorable than our current financing terms, or at all.
In the future, our access to capital and ability to compete for
future capital-intensive projects will also be dependent upon,
among other things, our ability to meet certain financial
covenants in the indenture governing
52
the
73/4% Senior
Notes and in our Senior Credit Facility. A substantial decline
in our financial performance could limit our access to capital
pursuant to these covenants and have a material adverse affect
on our liquidity and capital resources and, as a result, on our
financial condition and results of operations. In addition to
these foregoing potential constraints on our capital, a number
of state government agencies have been suffering from budget
deficits and liquidity issues. While the company expects to be
in compliance with its debt covenants, if these constraints were
to intensify, our liquidity could be materially adversely
impacted as could our compliance with these debt covenants.
We have entered into individual executive retirement agreements
with our two top executives. These agreements provide each
executive with a lump sum payment upon retirement. Under the
agreements, the executives may retire at any time after reaching
the age of 55. Both of the executives reached the eligible
retirement age of 55 in 2005. However, under the retirement
agreements, retirement may be taken at any time at the
individual executives discretion. In the event that both
executives were to retire in the same year, we believe we will
have funds available to pay the retirement obligations from
various sources, including cash on hand, operating cash flows or
borrowings under our Revolver. Based on our current
capitalization, we do not believe that making these payments in
any one period, whether in separate installments or in the
aggregate, would materially adversely impact our liquidity.
On February 22, 2010, we announced that our Board of
Directors approved a stock repurchase program for up to
$80.0 million of our common stock effective through
March 31, 2011. The stock repurchase is intended to be
implemented through purchases made from time to time in the open
market or in privately negotiated transactions, in accordance
with applicable Securities and Exchange requirements. The
program may also include repurchases from time to time from
executive officers or directors of vested restricted stock
and/or
vested stock options. The stock repurchase program does not
obligate us to purchase any specific amount of our common stock
and may be suspended or extended at any time at the our
discretion. As of February 16, 2010, GEO had
51.6 million shares outstanding.
We are also exposed to various commitments and contingencies
which may have a material adverse effect on our liquidity. See
Item 3. Legal Proceedings.
The
Senior Credit Facility
On October 5, 2009, on October 15, 2009, and again on
December 4, 2009, we completed certain amendments to our
Senior Credit Facility. These amendments, among other things,
modified the aggregate size of the Revolver from
$240.0 million to $330.0 million, extended the
maturity of the Revolver to 2012, modified the permitted maximum
total leverage and maximum senior secured leverage financial
ratios, eliminated the annual capital expenditures limitation
and made several technical revisions to certain definitions
therein. Our Senior Credit Facility is now comprised of a
$155.0 million Term Loan B bearing interest at LIBOR plus
2.00% and maturing in January 2014 and the $330.0 million
Revolver which currently bears interest at LIBOR plus 3.25% and
matures in September 2012. Also, upon the execution these
amendments we have the ability to increase our borrowing
capacity under the Senior Credit facility by another
$200.0 million subject to lender demand, market conditions
and existing borrowings.
As of January 3, 2010, we had $155.0 million
outstanding under the Term Loan B, and our $330.0 million
Revolver had $58.0 million outstanding in loans,
$47.5 million outstanding in letters of credit and
approximately $217 million available for borrowings, which
we refer to as our Unused Revolver, after considering our debt
covenants. We intend to use future borrowings from the Revolver
for the purposes permitted under the Senior Credit Facility,
including for general corporate purposes.
Indebtedness under the Revolver bears interest in each of the
instances below at the stated rate:
|
|
|
|
|
Interest Rate under the Revolver
|
|
LIBOR borrowings
|
|
LIBOR plus 2.75% to 3.50%.
|
Base rate borrowings
|
|
Prime Rate plus 1.75% to 2.50%.
|
Letters of credit
|
|
2.75% to 3.50%.
|
Unused Revolver
|
|
0.50% to 0.75%.
|
53
We are required to maintain the following Total Leverage Ratios,
as computed at the end of each fiscal quarter for the
immediately preceding four quarter-period:
|
|
|
Period
|
|
Total Leverage Ratio
|
|
Through the penultimate day of fiscal year 2010
|
|
≤ 4.00 to 1.00
|
From the last day of the fiscal year 2010 through the
penultimate day of fiscal year 2011
|
|
≤ 3.75 to 1.00
|
From the last day of the fiscal year 2011 through the
penultimate day of fiscal year 2012
|
|
≤ 3.25 to 1.00
|
Thereafter
|
|
≤ 3.00 to 1.00
|
The Credit Agreement also requires us to maintain the following
Senior Secured Leverage Ratios, as computed at the end of each
fiscal quarter for the immediately preceding four quarter-period:
|
|
|
Period
|
|
Senior Secured Leverage Ratio
|
|
Through the penultimate day of fiscal year 2011
|
|
≤ 3.00 to 1.00
|
From the last day of the fiscal year 2011 through the
penultimate day of fiscal year 2012
|
|
≤ 2.50 to 1.00
|
From the last day of the fiscal year 2012 through the
penultimate day of fiscal year 2013
|
|
≤ 2.25 to 1.00
|
Thereafter
|
|
≤ 2.00 to 1.00
|
The foregoing covenants replace the corresponding covenants
previously included in the credit agreement governing our Senior
Credit Facility (referred to as the Credit
Agreement).
All of the obligations under the Senior Credit Facility are
unconditionally guaranteed by each of our existing material
domestic subsidiaries. The Senior Credit Facility and the
related guarantees are secured by substantially all of our
present and future tangible and intangible assets and all
present and future tangible and intangible assets of each
guarantor, as specified in the Credit Agreement. In addition,
the Senior Credit Facility contains certain customary
representations and warranties, and certain customary covenants
that restrict our ability to be party to certain transactions,
as further specified in the Credit Agreement. Events of default
under the Senior Credit Facility include, but are not limited
to, (i) our failure to pay principal or interest when due,
(ii) our material breach of any representation or warranty,
(iii) covenant defaults, (iv) bankruptcy,
(v) cross default to certain other indebtedness,
(vi) unsatisfied final judgments over a specified
threshold, (vii) material environmental state of claims
which are asserted against it, and (viii) a change of
control. Our failure to comply with any of the covenants under
its Senior Credit Facility could cause an event of default under
such documents and result in an acceleration of all of
outstanding senior secured indebtedness. We believe we were in
compliance with all of the covenants of the Senior Credit
Facility as of January 3, 2010.
81/4% Senior
Notes
On October 5, 2009, we announced the commencement of a cash
tender offer for our $150.0 million aggregate principal
amount of
81/4% Senior
Notes. Holders who validly tendered their Notes before the early
tender date, which expired at 5:00 p.m. Eastern Standard
time on October 19, 2009, received a 103% cash payment for
their note which included an early tender premium of 3%. Holders
who tendered their notes after the early tender date, but before
the expiration date of 11:59 p.m., Eastern Standard time on
November 2, 2009 which we refer to as the Early Expiration
Date, received 100% cash payment for their note. Holders of the
81/4% Senior
Notes accepted for purchase received accrued and unpaid interest
up to, but not including, the applicable payment date. Valid
early tenders received by us represented $130.2 million
aggregate principal amount of the
81/4% Senior
Notes which was 86.8% of the outstanding principal balance. We
settled these notes on October 20, 2009 by paying
$136.9 million to the trustee. Also on October 20,
2009, we announced the call for redemption for all notes not
tendered by the Expiration Date. We financed the tender offer
and redemption with a portion of the net cash proceeds from our
offering of $250.0 million aggregate principal
73/4% Senior
Notes, which closed on October 20, 2009. As of
November 19, 2009, all of the
81/4% Senior
Notes had been redeemed.
54
73/4% Senior
Notes
On October 20, 2009, we completed a private offering of
$250.0 million in aggregate principal amount of our
73/4% Senior
Notes due 2017. These senior unsecured notes pay interest
semi-annually in cash in arrears on April 15 and October 15 of
each year, beginning on April 15, 2010. We realized net
proceeds of $246.4 million at the close of the transaction,
net of the discount on the notes of $3.6 million. We used
the net proceeds of the offering to fund the repurchase of all
of its
81/4% Senior
Notes due 2013 and pay down part the Revolver.
The
73/4% Senior
Notes and the guarantees will be unsecured, unsubordinated
obligations of GEO and the guarantors and will rank as follows:
pari passu with any unsecured, unsubordinated indebtedness of
GEO and the guarantors; senior to any future indebtedness of GEO
and the guarantors that is expressly subordinated to the notes
and the guarantees; effectively junior to any secured
indebtedness of GEO and the guarantors, including indebtedness
under the our Senior Credit Facility, to the extent of the value
of the assets securing such indebtedness; and effectively junior
to all obligations of our subsidiaries that are not guarantors
After October 15, 2013, we may, at our option, redeem all
or a part of the
73/4% Senior
Notes upon not less than 30 nor more than 60 days
notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, on the
73/4% Senior
Notes redeemed, to the applicable redemption date, if redeemed
during the
12-month
period beginning on October 15 of the years indicated below:
|
|
|
Year
|
|
Percentage
|
|
2013
|
|
103.875%
|
2014
|
|
101.938%
|
2015 and thereafter
|
|
100.000%
|
Before October 15, 2013, we may redeem some or all of the
73/4% Senior
Notes at a redemption price equal to 100% of the principal
amount of each note to be redeemed plus a make-whole premium
described under Description of Notes Optional
Redemption together with accrued and unpaid interest. In
addition, at any time prior to October 15, 2012, we may
redeem up to 35% of the notes with the net cash proceeds from
specified equity offerings at a redemption price equal to
107.750% of the principal amount of each note to be redeemed,
plus accrued and unpaid interest, if any, to the date of
redemption.
The indenture governing the notes contains certain covenants,
including limitations and restrictions on us and our restricted
subsidiaries ability to: incur additional indebtedness or
issue preferred stock; make dividend payments or other
restricted payments; create liens; sell assets; enter into
transactions with affiliates; and enter into mergers,
consolidations, or sales of all or substantially all of our
assets. As of the date of the indenture, all of our
subsidiaries, other than CSC of Tacoma, LLC, GEO International
Holdings, Inc., certain dormant domestic subsidiaries and all
foreign subsidiaries in existence on the date of the indenture,
were restricted subsidiaries. In addition, there is a
cross-default provision which becomes enforceable upon failure
of payment of indebtedness at final maturity. Our unrestricted
subsidiaries will not be subject to any of the restrictive
covenants in the indenture. We believe we were in compliance
with all of the covenants of the Indenture governing the
73/4% Senior
Notes as of January 3, 2010.
Non-Recourse
Debt
South
Texas Detention Complex
We have a debt service requirement related to the development of
the South Texas Detention Complex, a 1,904-bed detention complex
in Frio County, Texas acquired in November 2005 from CSC. CSC
was awarded the contract in February 2004 by the Department of
Homeland Security, ICE, for development and operation of the
detention center. In order to finance its construction, South
Texas Local Development Corporation, which we refer to as STLDC,
was created and issued $49.5 million in taxable revenue
bonds. Additionally, we have outstanding $5.0 million of
subordinated notes which represents the principal amount of
financing provided to STLDC by CSC for initial development.
These bonds mature in February 2016 and have fixed coupon rates
between 4.11% and 5.07%.
55
We have an operating agreement with STLDC, the owner of the
complex, which provides us with the sole and exclusive right to
operate and manage the detention center. The operating agreement
and bond indenture require the revenue from our contract with
ICE be used to fund the periodic debt service requirements as
they become due. The net revenues, if any, after various
expenses such as trustee fees, property taxes and insurance
premiums are distributed to us to cover operating expenses and
management fees. We are responsible for the entire operations of
the facility including all operating expenses and are required
to pay all operating expenses whether or not there are
sufficient revenues. STLDC has no liabilities resulting from its
ownership. The bonds have a ten year term and are non-recourse
to us. The bonds are fully insured and the sole source of
payment for the bonds is the operating revenues of the center.
At the end of the ten year term of the bonds, title and
ownership of the facility transfers from STLDC to us. We have
determined that we are the primary beneficiary of STLDC and
consolidate the entity as a result.
On February 2, 2009, we made a payment of $4.4 million
for the current portion of our periodic debt service requirement
in relation to STLDC operating agreement and bond indenture. As
of January 3, 2010, the remaining balance of the debt
service requirement is $36.7 million, of which
$4.6 million is due within the next twelve months. Also as
of January 3, 2010, included in current restricted cash and
non-current restricted cash is $6.2 million and
$8.2 million, respectively, as funds held in trust with
respect to the STLDC for debt service and other reserves.
Northwest
Detention Center
On June 30, 2003, CSC arranged financing for the
construction of the Northwest Detention Center in Tacoma,
Washington, referred to as the Northwest Detention Center, which
was completed and opened for operation in April 2004 and
acquired by us in November 2005. In connection with the original
financing, CSC of Tacoma LLC, a wholly owned subsidiary of CSC,
issued a $57.0 million note payable to the Washington
Economic Development Finance Authority, which we refer to as
WEDFA, an instrumentality of the State of Washington, which
issued revenue bonds and subsequently loaned the proceeds of the
bond issuance back to CSC for the purposes of constructing the
Northwest Detention Center. The bonds are non-recourse to us and
the loan from WEDFA to CSC is non-recourse to us. These bonds
mature in February 2014 and have fixed coupon rates between
3.20% and 4.10%.
The proceeds of the loan were disbursed into escrow accounts
held in trust to be used to pay the issuance costs for the
revenue bonds, to construct the Northwest Detention Center and
to establish debt service and other reserves. On October 1,
2009, CSC of Tacoma LLC made a payment from its restricted cash
account of $5.7 million for the current portion of its
periodic debt service requirement in relation to the WEDFA bid
indenture. As of January 3, 2010, the remaining balance of
the debt service requirement is $31.6 million, of which
$5.9 million is classified as current in the accompanying
balance sheet.
As of January 3, 2010, included in current restricted cash
and non-current restricted cash is $7.1 million and
$2.2 million, respectively, of funds held in trust with
respect to the Northwest Detention Center for debt service and
other reserves.
Australia
In connection with the financing and management of one
Australian facility, our wholly owned Australian subsidiary
financed the facilitys development and subsequent
expansion in 2003 with long-term debt obligations, which are
non-recourse to us and total $45.4 million and
$38.1 million at January 3, 2010 and December 28,
2008, respectively. As a condition of the loan, we are required
to maintain a restricted cash balance of AUD 5.0 million,
which, at January 3, 2010, was $4.5 million. 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.
56
Guarantees
In connection with the creation of SACS, we entered into certain
guarantees related to the financing, construction and operation
of the prison. We guaranteed certain obligations of SACS under
its debt agreements up to a maximum amount of 60.0 million
South African Rand, or $8.2 million, to SACS senior
lenders through the issuance of letters of credit. Additionally,
SACS is required to fund a restricted account for the payment of
certain costs in the event of contract termination. We have
guaranteed the payment of 60% of amounts which may be payable by
SACS into the restricted account and provided a standby letter
of credit of 8.4 million South African Rand, or
$1.1 million, as security for our guarantee. Our
obligations under this guarantee are indexed to the CPI and
expire upon the release from SACS of its obligations in respect
of the restricted account under its debt agreements. No amounts
have been drawn against these letters of credit, which are
included in our outstanding letters of credit under the Revolver.
We have agreed to provide a loan, if necessary, of up to
20.0 million South African Rand, or $2.7 million,
referred to as the Standby Facility, to SACS for the purpose of
financing the obligations under the contract between SACS and
the South African government. No amounts have been funded under
the Standby Facility, and we do not currently anticipate that
such funding will be required by SACS in the future. Our
obligations under the Standby Facility expire upon the earlier
of full funding or release from SACS of its obligations under
its debt agreements. The lenders ability to draw on the
Standby Facility is limited to certain circumstances, including
termination of the contract.
We have also guaranteed certain obligations of SACS to the
security trustee for SACS lenders. We have secured our guarantee
to the security trustee by ceding our rights to claims against
SACS in respect of any loans or other finance agreements, and by
pledging our shares in SACS. Our liability under the guarantee
is limited to the cession and pledge of shares. The guarantee
expires upon expiration of the cession and pledge agreements.
In connection with a design, build, finance and maintenance
contract for a facility in Canada, we guaranteed certain
potential tax obligations of a
not-for-profit
entity. The potential estimated exposure of these obligations is
CAD 2.5 million, or $2.4 million commencing in 2017.
We have a liability of $1.5 million and $1.3 million
related to this exposure as of January 3, 2010 and
December 28, 2008, respectively. To secure this guarantee,
we purchased Canadian dollar denominated securities with
maturities matched to the estimated tax obligations in 2017 to
2021. We have recorded an asset and a liability equal to the
current fair market value of those securities on our balance
sheet. We do not currently operate or manage this facility.
At January 3, 2010, we also had outstanding eight letters
of guarantee totaling $8.9 million under separate
international facilities. We do not have any off balance sheet
arrangements.
Derivatives
In November 2009, we executed three interest rate swap
agreements in the aggregate notional amount of
$75.0 million. We have designated these interest rate swaps
as hedges against changes in the fair value of a designated
portion of the
73/4% Senior
Notes due 2017
(73/4% Senior
Notes) due to changes in underlying interest rates. These
interest rate swaps, which have payment, expiration dates and
call provisions that mirror the terms of the
73/4% Senior
Notes, effectively convert $75.0 million of the
73/4% Senior
Notes into variable rate obligations. Each of the swaps has a
termination clause that gives the lender the right to terminate
the interest rate swaps at fair market value if they are no
longer a lender under the Credit Agreement. In addition to the
termination clause, these interest rate swaps also have call
provisions which specify that the lender can elect to settle the
swap for the call option price. Under these interest rates
swaps, we receive a fixed interest rate payment from the
financial counterparties to the agreements equal to
73/4%
per year calculated on the notional $75.0 million amount,
while we make a variable interest rate payment to the same
counterparties equal to the three-month LIBOR plus a fixed
margin of between 4.24% and 4.29%, also calculated on the
notional $75.0 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 Notes. Effective
January 6, 2010, we executed a
57
fourth swap agreement relative to a notional amount of
$25.0 million of the
73/4% Senior
Notes. (See Note 20). There was no material ineffectiveness
of our interest rate swaps for the fiscal years presented.
Our Australian subsidiary is a party to an interest rate swap
agreement to fix the interest rate on the variable rate
non-recourse debt to 9.7%. We have determined the swap to be an
effective cash flow hedge. Accordingly, we record the value of
the interest rate swap in accumulated other comprehensive
income, net of applicable income taxes. There was no
ineffectiveness of this interest rate swap for the fiscal years
presented. The Company does not expect to enter into any
transactions during the next twelve months which would result in
the reclassification into earnings or losses associated with
this swap currently reported in accumulated other comprehensive
loss.
Contractual
Obligations and Off Balance Sheet Arrangements
The following is a table of certain of our contractual
obligations, as of January 3, 2010, which requires us to
make payments over the periods presented.
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Payments Due by Period
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Less Than
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More Than
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Contractual Obligations
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Total
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1 Year
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1-3 Years
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3-5 Years
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5 Years
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(In thousands)
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Long-term debt obligations
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$
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250,028
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$
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28
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$
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$
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$
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250,000
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Term Loan B
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154,963
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3,650
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7,300
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144,013
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Revolver
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58,000
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58,000
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Capital lease obligations (includes imputed interest)
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24,437
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1,930
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3,866
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3,868
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14,773
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Operating lease obligations
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134,460
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18,041
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31,982
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18,501
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65,936
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Non-recourse debt
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113,724
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15,241
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32,697
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36,130
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29,656
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Estimated interest payments on debt(a)
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188,242
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30,144
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56,087
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43,287
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58,724
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Estimated funding of pension and other post retirement benefits
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16,206
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10,223
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406
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543
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5,034
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Estimated construction commitments
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37,700
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37,700
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Estimated tax payments for uncertain tax positions(b)
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5,116
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5,116
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Total
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$
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982,876
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$
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116,957
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$
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195,454
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$
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246,342
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$
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424,123
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(a) |
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Due to the uncertainties of future LIBOR rates, the variable
interest payments on our credit facility and swap agreements
were calculated using a LIBOR rate of .30% based on our
estimated interest rates for fiscal 2010. |
(b) |
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State income tax payments are reflected net of the federal
income tax benefit. |
We do not have any additional off balance sheet arrangements
which would subject us to additional liabilities.
Cash
Flow
Cash and cash equivalents as of January 3, 2010 was
$33.9 million, compared to $31.7 million as of
December 28, 2008. During Fiscal 2009 we used cash flows
from operations to fund all of our operating expenses and used
cash on hand, net cash proceeds from the issuance of our
73/4% Senior
Notes and cash flow from operations to fund $149.8 million
in capital expenditures
Cash provided by operating activities of continuing operations
in 2009, 2008 and 2007 was $125.1 million,
$74.4 million, and $75.0 million, respectively. Cash
provided by operating activities of continuing operations in
2009 was positively impacted by an increase in net income of
$7.1 million in addition to $39.3 million of
depreciation and amortization expense. These increases reflect
the opening of new facilities as previously discussed and
improved financial performance at existing facilities. Cash
provided by operating activities of continuing operations in
2008 was positively impacted by an increase in net income of
$17.1 million in
58
addition to $37.4 million of depreciation and amortization
expense. Cash provided by operating activities of continuing
operations in 2007 was positively impacted by an increase in net
income of $11.8 million in addition to $33.2 million
of depreciation and amortization expense.
Cash provided by operating activities of continuing operations
was positively impacted in 2009 by a decrease in accounts
receivable of $6.9 million, an increase in our deferred
income tax benefits of $10.0 million, and non-cash expense
of $6.8 million related to the write-off of deferred financing
fees and the expenses associated with the tender offer for our
81/4%
Senior Notes. Cash provided by operating activities of
continuing operations was negatively impacted in 2008 by an
increase in accounts receivable of $29.6 million and more
non-cash earnings in the prior year attributable to our
investment in our South Africa joint venture, SACS. Cash
provided by operating activities of continuing operations was
negatively impacted in 2007 by an increase in accounts
receivable of $10.6 million and increases in our deferred
income tax provision of $5.1 million.
Cash used in investing activities of continuing operations in
2009 of $185.3 million consists of our investment in Just
Care Inc, of $38.4 million as well as capital expenditures of
$149.8 million. Of the aggregate $149.8 million in capital
expenditures, $138.3 million related to development capital
expenditures and approximately $11.5 million related to
maintenance capital expenditures. We are currently developing a
number of projects using company financing. We estimate our
remaining capital requirements for these projects to be
$37.7 million, which will be spent through 2010.
Cash used in investing activities of continuing operations in
2008 of $131.6 million includes capital expenditures of
$131.0 million, of which $119.3 million related to
development capital expenditures and approximately
$11.7 million related maintenance capital expenditures.
Cash used in investing activities of continuing operations in
2007 was $518.9 million due to our cash investment in CPT
of $410.5 million and capital expenditures of
$115.2 million.
Cash provided by financing activities in 2009 was
$52.0 million and reflects cash proceeds from the issuance
of our
73/4% Senior
Notes of $250.0 million and Revolver borrowings of $83.0
million. These proceeds were offset by payments of $150.0
million for repayment of our
81/4% Senior
Notes, payments of $99.0 million on our Revolver and payments on
non-recourse debt and Term Loan B of $17.8 million. Cash
proceeds from our
73/4% Senior
Notes were primarily used to pay down our
81/4%
Senior Notes and our Revolver and to pay down our Revolver. We
intend to use cash flows from operations and future borrowings
under our Revolver to fund the project discussed above and other
projects we may announce during fiscal 2010. We believe the
institutions and banks included in our lender group will be able
to fund their commitment to our Revolver. However, we can
provide no assurance regarding their solvency or ability to
honor their commitments. Failure to honor a commitment could
materially impact our ability to meet our future capital needs
and complete the projects discussed above.
Cash provided by financing activities in 2008 was
$53.7 million and reflects proceeds received from net
borrowings of $74.0 million under our Revolver. Borrowings under
our $240.0 million Revolver were primarily used to fund
$119.3 million of development capital expenditures in
fiscal 2008. Cash provided by financing activities in 2007 was
$372.3 million and reflects proceeds received from the
equity offering of $227.5 million as well as cash proceeds
of $387.0 million from our Term Loan B and the Revolver.
These cash flows from financing activities are offset by
payments on the Term Loan B of $202.7 million, payments on
the Revolver of $22.0 million and payments on other long
term debt of $12.6 million.
Inflation
We believe that inflation, in general, did not have a material
effect on our results of operations during 2009, 2008 and 2007.
While some of our contracts include provisions for inflationary
indexing, inflation could have a substantial adverse effect on
our results of operations in the future to the extent that wages
and salaries, which represent our largest expense, increase at a
faster rate than the per diem or fixed rates received by us for
our management services.
Outlook
The following discussion of our future performance contains
statements that are not historical statements and, therefore,
constitute forward-looking statements within the meaning of the
Private Securities Litigation
59
Reform Act of 1995. Our forward-looking statements are subject
to risks and uncertainties that could cause actual results to
differ materially from those stated or implied in the
forward-looking statement. Please refer to Item 1A.
Risk Factors in this Annual Report on
Form 10-K,
the Forward-Looking Statements Safe
Harbor, as well as the other disclosures contained in this
Annual Report on
Form 10-K,
for further discussion on forward-looking statements and the
risks and other factors that could prevent us from achieving our
goals and cause the assumptions underlying the forward-looking
statements and the actual results to differ materially from
those expressed in or implied by those forward-looking
statements.
With state and federal prison populations growing by
approximately 16% since 2000, the private corrections industry
has played an increasingly important role in addressing
U.S. detention and correctional needs. The number of State
and Federal prisoners housed in private facilities has increased
by 47% since the year 2000 with the Federal government and
states such as Arizona, Texas and Florida accounting for a
significant portion of the increase. At year-end 2008, 8.0% of
the estimated 1.6 million State and Federal prisoners
incarcerated in the United States were held in private
facilities, up from 6.3% in 2000. In addition to our strong
positions in Texas and Florida and in the U.S. market in
general, we believe we are the only publicly traded
U.S. correctional company with international operations.
With the existing operations in South Africa, Australia, and the
United Kingdom beginning, we believe that our international
presence positions us to capitalize on growth opportunities
within the private corrections and detention industry in new and
established international markets.
We intend to pursue a diversified growth strategy by winning new
customers and contracts, expanding our government services
portfolio and pursuing selective acquisition opportunities. We
achieve organic growth through competitive bidding that begins
with the issuance by a government agency of a request for
proposal, or RFP. We primarily rely on the RFP process for
organic growth in our U.S. and international corrections
operations as well as in our mental health and residential
treatment services. We believe that our long operating history
and reputation have earned us credibility with both existing and
prospective clients when bidding on new facility management
contracts or when renewing existing contracts. Our success in
the RFP process has resulted in a pipeline of new projects with
significant revenue potential. In 2009, we activated eight new
or expansion projects representing 2,698 additional beds. This
compares to the eight new or expansion projects activated in
2008 representing 6,120 new beds. As of January 3, 2010, we
have three facilities under various stages of development or
pending commencement of operations which represent 4,325 beds.
In addition to pursuing organic growth through the RFP process,
we will from time to time selectively consider the financing and
construction of new facilities or expansions to existing
facilities on a speculative basis without having a signed
contract with a known customer. We also plan to leverage our
experience to expand the range of government-outsourced services
that we provide. We will continue to pursue selected acquisition
opportunities in our core services and other government services
areas that meet our criteria for growth and profitability.
Revenue
Domestically, we continue to be encouraged by the number of
opportunities that have recently developed in the privatized
corrections and detention industry. Overcrowding at corrections
facilities in various states, most recently California and
Arizona and increased demand for bed space at federal prisons
and detention facilities are two of the factors that have
contributed to the greater number of opportunities for
privatization. However, these positive trends may in the future
be impacted by government budgetary constraints. According to
the National Conference on State Legislatures, as of
November 30, 2009, thirty-nine states were projecting that
general fund revenues in fiscal year 2010 will be lower than in
fiscal year 2009 and 35 states projected budget gaps in
fiscal year 2011 with the sum of those budget imbalances
totaling $55.5 billion. As a result of budgetary pressures,
state correctional agencies may pursue a number of cost savings
initiatives which may include the early release of inmates,
changes to parole laws and sentencing guidelines, and reductions
in per diem rates
and/or the
scope services provided by private operators. These potential
cost savings initiatives could have a material adverse impact on
our current operations
and/or our
ability to pursue new business opportunities. Additionally, if
state budgetary constraints, as discussed above, persist or
intensify, our state customers ability to pay us may be
impaired
and/or we
may be forced to renegotiate our management contracts on less
favorable terms and our financial condition results of
operations or cash flows could be
60
materially adversely impacted. We plan to actively bid on any
new projects that fit our target profile for profitability and
operational risk. Although we are pleased with the overall
industry outlook, positive trends in the industry may be offset
by several factors, including budgetary constraints,
unanticipated contract terminations, contract non-renewals,
and/or
contract re-bids. Additionally, several of our management
contracts are up for renewal
and/or
re-bid in 2010. Although we have historically had a relative
high contract renewal rate, there can be no assurance that we
will be able to renew our management contracts scheduled to
expire in 2010 on favorable terms, or at all. Also, while we are
pleased with our track record in re-bid situations, we cannot
assure that we will prevail in any such future situations.
Internationally, in the United Kingdom and in Australia, we
recently began the operation and management under two new
contracts with an aggregate of 1,083 beds. These projects
commenced operations the second half of fiscal year 2009. In
South Africa, we have bid on projects for the design,
construction and operation of four 3,000-bed prison projects
totaling 12,000 beds. Requests for Proposal were issued in
December 2008 and we submitted our bids on the projects at the
end of May 2009. We expect preferred bidders to be announced in
the first half of 2010 and anticipate final close to occur
within six months thereafter. No more than two prison projects
can be awarded to any one bidder. We believe that additional
opportunities will become available in international markets and
plan to actively bid on any opportunities that fit our target
profile for profitability and operational risk.
With respect to our mental health/residential treatment services
business conducted through our wholly-owned subsidiary, GEO
Care, we are currently pursuing a number of business development
opportunities. In September 2009, we acquired Just Care, and
began management of the 354-bed Columbia Care Regional Center in
the fourth fiscal quarter. In addition, we continue to expend
resources on informing state and local governments about the
benefits of privatization and we anticipate that there will be
new opportunities in the future as those efforts begin to yield
results. We believe we are well positioned to capitalize on any
suitable opportunities that become available in this area.
Operating
Expenses
Operating expenses consist of those expenses incurred in the
operation and management of our correctional, detention and
mental health facilities. Labor and related cost represented
52.4% of our operating expenses in the fiscal year 2009.
Additional significant operating expenses include food,
utilities and inmate medical costs. In 2009, operating expenses
totaled 78.6% of our consolidated revenues. Our operating
expenses as a percentage of revenue in 2010 will be impacted by
the opening of any new facilities. We also expect our results in
2010 to reflect increases to interest expense due to higher
rates related to incremental borrowings on our Senior Credit
Facility, more average indebtedness and less capitalized
interest due to a decrease in construction activity. We also
expect increases to depreciation expense due to the carrying
costs we will incur for two newly constructed and expanded
facilities for which we have no corresponding management
contract for the expansion beds. We expect that a portion of
these increases may be offset by a savings to depreciation
expense. We are currently reviewing the useful lives for our
owned facilities and expect that some of the lives of these
assets may increase as a result. Overall, excluding any
start-up
expenses, depreciation expense and interest expense, we
anticipate that operating expenses as a percentage of our
revenue will remain relatively flat, consistent with our fiscal
year ended January 3, 2010.
General
and Administrative Expenses
General and administrative expenses consist primarily of
corporate management salaries and benefits, professional fees
and other administrative expenses. In 2009, general and
administrative expenses totaled 6.1% of our consolidated
revenues. We expect general and administrative expenses as a
percentage of revenue in 2010 to be generally consistent with
our general and administrative expenses for 2009. We expect
business development costs to remain consistent as we pursue
additional business development opportunities in all of our
business lines and build the corporate infrastructure necessary
to support our mental health residential treatment services
business. We also plan to continue expending resources from time
to time on the evaluation of potential acquisition targets.
61
Forward-Looking
Statements Safe Harbor
This report and the documents incorporated by reference herein
contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements are any
statements that are not based on historical information.
Statements other than statements of historical facts included in
this report, including, without limitation, statements regarding
our future financial position, business strategy, budgets,
projected costs and plans and objectives of management for
future operations, are forward-looking statements.
Forward-looking statements generally can be identified by the
use of forward-looking terminology such as may,
will, expect, anticipate,
intend, plan, believe,
seek, estimate or continue
or the negative of such words or variations of such words and
similar expressions. These statements are not guarantees of
future performance and involve certain risks, uncertainties and
assumptions, which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements and
we can give no assurance that such forward-looking statements
will prove to be correct. Important factors that could cause
actual results to differ materially from those expressed or
implied by the forward-looking statements, or cautionary
statements, include, but are not limited to:
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our ability to timely build
and/or open
facilities as planned, profitably manage such facilities and
successfully integrate such facilities into our operations
without substantial additional costs;
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the instability of foreign exchange rates, exposing us to
currency risks in Australia, the United Kingdom, and South
Africa, or other countries in which we may choose to conduct our
business;
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our ability to reactivate the North Lake Correctional Facility;
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an increase in unreimbursed labor rates;
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our ability to expand, diversify and grow our correctional and
mental health and residential treatment services;
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our ability to win management contracts for which we have
submitted proposals and to retain existing management contracts;
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our ability to raise new project development capital given the
often short-term nature of the customers commitment to use
newly developed facilities;
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|
our ability to estimate the governments level of
dependency on privatized correctional services;
|
|
|
|
our ability to accurately project the size and growth of the
U.S. and international privatized corrections industry;
|
|
|
|
our ability to develop long-term earnings visibility;
|
|
|
|
our ability to obtain future financing at competitive rates;
|
|
|
|
our exposure to rising general insurance costs;
|
|
|
|
our exposure to state and federal income tax law changes
internationally and domestically;
|
|
|
|
our exposure to claims for which we are uninsured;
|
|
|
|
our exposure to rising employee and inmate medical costs;
|
|
|
|
our ability to maintain occupancy rates at our facilities;
|
|
|
|
our ability to manage costs and expenses relating to ongoing
litigation arising from our operations;
|
|
|
|
our ability to accurately estimate on an annual basis, loss
reserves related to general liability, workers compensation and
automobile liability claims;
|
|
|
|
our ability to identify suitable acquisitions, and to
successfully complete and integrate such acquisitions on
satisfactory terms;
|
62
|
|
|
|
|
the ability of our government customers to secure budgetary
appropriations to fund their payment obligations to us; and
|
|
|
|
other factors contained in our filings with the Securities and
Exchange Commission, or the SEC, including, but not limited to,
those detailed in this annual report on
Form 10-K,
our
Form 10-Qs
and our
Form 8-Ks
filed with the SEC.
|
We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new
information, future events or otherwise. All subsequent written
and oral forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their
entirety by the cautionary statements included in this report.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rate Risk
We are exposed to market risks related to changes in interest
rates with respect to our Senior Credit Facility. Payments under
the Senior Credit Facility are indexed to a variable interest
rate. Based on borrowings outstanding under the Senior Credit
Facility portion of $213.0 million as of January 3,
2010 for every one percent increase in the interest rate
applicable to the Senior Credit Facility, our total annual
interest expense would increase by $2.1 million.
In November 2009, we executed three interest rate swap
agreements in the aggregate notional amount of
$75.0 million. These interest rate swaps, which have
payment, expiration dates and call provisions that mirror the
terms of the Notes, effectively convert $75.0 million of
the Notes into variable rate obligations. Under these interest
rate swaps, we receive a fixed interest rate payment from the
financial counterparties to the agreements equal to
73/4%
per year calculated on the notional $75.0 million amount,
while we make a variable interest rate payment to the same
counterparties equal to the three-month LIBOR plus a fixed
margin of between 4.235% and 4.29%, also calculated on the
notional $75.0 million amount. Effective January 6,
2010, we executed a fourth swap agreement relative to a notional
amount of $25.0 million of our
73/4% Senior
Notes (See Note 20). For every one percent increase in the
interest rate applicable to our aggregate notional
$100 million of swap agreements relative to the
73/4% Senior
Notes, our annual interest expense would increase by
$1.0 million.
We have entered into certain interest rate swap arrangements for
hedging purposes, fixing the interest rate on our Australian
non-recourse debt to 9.7%. The difference between the floating
rate and the swap rate on these instruments is recognized in
interest expense within the respective entity. Because the
interest rates with respect to these instruments are fixed, a
hypothetical 100 basis point change in the current interest
rate would not have a material impact on our financial condition
or results of operations.
Additionally, we invest our cash in a variety of short-term
financial instruments to provide a return. These instruments
generally consist of highly liquid investments with original
maturities at the date of purchase of three months or less.
While these instruments are subject to interest rate risk, a
hypothetical 100 basis point increase or decrease in market
interest rates would not have a material impact on our financial
condition or results of operations.
Foreign
Currency Exchange Rate Risk
We are exposed to market risks related to fluctuations in
foreign currency exchange rates between the U.S. Dollar,
the Australian Dollar, the Canadian Dollar, the South African
Rand and the British Pound currency exchange rates. Based upon
our foreign currency exchange rate exposure as of
January 3, 2010 with respect to our international
operations, every 10 percent change in historical currency
rates would have a $5.0 million effect on our financial
position and a $0.8 million impact on our results of
operations over the next fiscal year.
63
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
MANAGEMENTS
RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Shareholders of
The GEO Group, Inc.:
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States. They include amounts based on
judgments and estimates.
Representation in the consolidated financial statements and the
fairness and integrity of such statements are the responsibility
of management. In order to meet managements
responsibility, the Company maintains a system of internal
controls and procedures and a program of internal audits
designed to provide reasonable assurance that our assets are
controlled and safeguarded, that transactions are executed in
accordance with managements authorization and properly
recorded, and that accounting records may be relied upon in the
preparation of financial statements.
The consolidated financial statements have been audited by Grant
Thornton LLP, independent registered public accountants, whose
appointment by our Audit Committee was ratified by our
shareholders. Their report expresses a professional opinion as
to whether managements consolidated financial statements
considered in their entirety present fairly, in conformity with
accounting principles generally accepted in the United States,
the Companys financial position and results of operations.
Their audit was conducted in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
The effectiveness of our internal control over financial
reporting as of January 3, 2010 has been audited by Grant
Thornton LLP, independent registered public accountants, as
stated in their report which is included in this
Form 10-K.
The Audit Committee of the Board of Directors meets periodically
with representatives of management, the independent registered
public accountants and our internal auditors to review matters
relating to financial reporting, internal accounting controls
and auditing. Both the internal auditors and the independent
registered certified public accountants have unrestricted access
to the Audit Committee to discuss the results of their reviews.
George C. Zoley
Chairman and Chief Executive Officer
Wayne H. Calabrese
Vice Chairman, President
and Chief Operating Officer
Brian R. Evans
Senior Vice President and Chief Financial
Officer
64
MANAGEMENTS
ANNUAL REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934. The Companys
internal control over financial reporting is a process designed
under the supervision of the Companys Chief Executive
Officer and Chief Financial Officer that: (i) pertains to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the Companys assets; (ii) provides reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements for external reporting in
accordance with accounting principles generally accepted in the
United States, and that receipts and expenditures are being made
only in accordance with authorization of the Companys
management and directors; and (iii) provides reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Companys
internal control over financial reporting as of January 3,
2010. In making its assessment of internal control over
financial reporting, management used the criteria set forth by
the Committee of Sponsoring Organizations (COSO) of
the Treadway Commission in Internal Control
Integrated Framework.
The Company evaluated, with the participation of its Chief
Executive Officer and Chief Financial Officer, its internal
control over financial reporting as of January 3, 2010,
based on the COSO Internal Control Integrated
Framework. Based on this evaluation, the Companys
management concluded that as of January 3, 2010, its
internal control over financial reporting is effective in
providing reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles.
Grant Thornton LLP, the independent registered public accounting
firm that audited the financial statements included in this
Annual Report on
Form 10-K,
has issued an attestation report on our internal control over
financial reporting.
65
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders of
The GEO Group, Inc.
We have audited The GEO Group, Inc. and subsidiaries (the
Company) internal control over financial reporting
as of January 3, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Managements Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, The GEO Group, Inc. and subsidiaries maintained,
in all material respects, effective internal control over
financial reporting as of January 3, 2010, based on
criteria established in Internal Control-Integrated Framework
issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of The GEO Group, Inc. and
subsidiaries as of January 3, 2010 and December 28,
2008, and the related consolidated statements of income,
shareholders equity and comprehensive income and cash
flows for each of the three years in the period ended
January 3, 2010, and our report dated February 22,
2010 expressed an unqualified opinion on those financial
statements.
Miami, Florida
February 22, 2010
66
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of The GEO Group, Inc.
We have audited the accompanying consolidated balance sheets of
The GEO Group, Inc. and subsidiaries (the Company)
as of January 3, 2010 and December 28, 2008, and the
related consolidated statements of income, shareholders
equity and comprehensive income and cash flows for each of the
three years in the period ended January 3, 2010. Our audits
of the basic financial statements included the financial
statement schedule listed in the index appearing under
Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of The GEO Group, Inc. and subsidiaries as of
January 3, 2010 and December 28, 2008, and the results
of their operations and their cash flows for each of the three
years in the period ended January 3, 2010 in conformity
with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 18, the Company adopted new accounting
guidance on January 1, 2007 related to the accounting for
uncertainty in income tax reporting.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), The
GEO Group, Inc. and subsidiaries internal control over
financial reporting as of January 3, 2010, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) and our report dated
February 22, 2010 expressed an unqualified opinion thereon.
Miami, Florida
February 22, 2010
67
THE GEO
GROUP, INC.
CONSOLIDATED
STATEMENTS OF INCOME
Fiscal
Years Ended January 3, 2010, December 28, 2008, and
December 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
1,141,090
|
|
|
$
|
1,043,006
|
|
|
$
|
976,299
|
|
Operating Expenses
|
|
|
897,356
|
|
|
|
822,659
|
|
|
|
788,503
|
|
Depreciation and Amortization
|
|
|
39,306
|
|
|
|
37,406
|
|
|
|
33,218
|
|
General and Administrative Expenses
|
|
|
69,240
|
|
|
|
69,151
|
|
|
|
64,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
135,188
|
|
|
|
113,790
|
|
|
|
90,086
|
|
Interest Income
|
|
|
4,943
|
|
|
|
7,045
|
|
|
|
8,746
|
|
Interest Expense
|
|
|
(28,518
|
)
|
|
|
(30,202
|
)
|
|
|
(36,051
|
)
|
Loss on Extinguishment of Debt
|
|
|
(6,839
|
)
|
|
|
|
|
|
|
(4,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes, Equity in Earnings of
Affiliates, and Discontinued Operations
|
|
|
104,774
|
|
|
|
90,633
|
|
|
|
57,987
|
|
Provision for Income Taxes
|
|
|
41,991
|
|
|
|
33,803
|
|
|
|
22,049
|
|
Equity in Earnings of Affiliates, net of income tax
provision (benefit) of $1,368, ($805), and $1,030
|
|
|
3,517
|
|
|
|
4,623
|
|
|
|
2,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
66,300
|
|
|
|
61,453
|
|
|
|
38,089
|
|
Income (loss) from Discontinued Operations, net of tax
provision (benefit) of ($216), $236, and $2,310
|
|
|
(346
|
)
|
|
|
(2,551
|
)
|
|
|
3,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
65,954
|
|
|
$
|
58,902
|
|
|
$
|
41,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,879
|
|
|
|
50,539
|
|
|
|
47,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
51,922
|
|
|
|
51,830
|
|
|
|
49,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.30
|
|
|
$
|
1.22
|
|
|
$
|
0.80
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(0.05
|
)
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
1.30
|
|
|
$
|
1.17
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.28
|
|
|
$
|
1.19
|
|
|
$
|
0.77
|
|
Income (loss) from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.05
|
)
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
1.27
|
|
|
$
|
1.14
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
68
THE GEO
GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
January 3,
2010 and December 28, 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except
|
|
|
|
share data)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,856
|
|
|
$
|
31,655
|
|
Restricted cash
|
|
|
13,313
|
|
|
|
13,318
|
|
Accounts receivable, less allowance for doubtful accounts of
$429 and $625
|
|
|
200,756
|
|
|
|
199,665
|
|
Deferred income tax asset, net
|
|
|
17,020
|
|
|
|
17,340
|
|
Other current assets
|
|
|
14,689
|
|
|
|
12,911
|
|
Current assets of discontinued operations
|
|
|
|
|
|
|
7,031
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
279,634
|
|
|
|
281,920
|
|
|
|
|
|
|
|
|
|
|
Restricted Cash
|
|
|
20,755
|
|
|
|
19,379
|
|
Property and Equipment, Net
|
|
|
998,560
|
|
|
|
878,616
|
|
Assets Held for Sale
|
|
|
4,348
|
|
|
|
4,348
|
|
Direct Finance Lease Receivable
|
|
|
37,162
|
|
|
|
31,195
|
|
Deferred Income Tax Assets, Net
|
|
|
|
|
|
|
4,417
|
|
Goodwill
|
|
|
40,090
|
|
|
|
22,202
|
|
Intangible Assets, Net
|
|
|
17,579
|
|
|
|
12,393
|
|
Other Non-Current Assets
|
|
|
49,690
|
|
|
|
33,942
|
|
Non-Current Assets of Discontinued Operations
|
|
|
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,447,818
|
|
|
$
|
1,288,621
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
51,856
|
|
|
$
|
56,143
|
|
Accrued payroll and related taxes
|
|
|
25,209
|
|
|
|
27,957
|
|
Accrued expenses
|
|
|
80,759
|
|
|
|
82,442
|
|
Current portion of capital lease obligations, long-term debt and
non-recourse debt
|
|
|
19,624
|
|
|
|
17,925
|
|
Current liabilities of discontinued operations
|
|
|
|
|
|
|
1,459
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
177,448
|
|
|
|
185,926
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Tax Liability
|
|
|
7,060
|
|
|
|
14
|
|
Other Non-Current Liabilities
|
|
|
33,142
|
|
|
|
28,876
|
|
Capital Lease Obligations
|
|
|
14,419
|
|
|
|
15,126
|
|
Long-Term Debt
|
|
|
453,860
|
|
|
|
378,448
|
|
Non-Recourse Debt
|
|
|
96,791
|
|
|
|
100,634
|
|
Commitments and Contingencies (Note 14)
|
|
|
|
|
|
|
|
|
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, 67,704,008 and 67,197,775 issued and 51,629,005 and
51,122,775 outstanding, respectively
|
|
|
516
|
|
|
|
511
|
|
Additional paid-in capital
|
|
|
351,550
|
|
|
|
344,175
|
|
Retained earnings
|
|
|
365,927
|
|
|
|
299,973
|
|
Accumulated other comprehensive income (loss)
|
|
|
5,496
|
|
|
|
(7,275
|
)
|
Treasury stock 16,075,000 shares, at cost, at
January 3, 2010 and December 28, 2008
|
|
|
(58,888
|
)
|
|
|
(58,888
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity attributable to The GEO Group,
Inc.
|
|
|
664,601
|
|
|
|
578,496
|
|
Noncontrolling interest
|
|
|
497
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
665,098
|
|
|
|
579,597
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,447,818
|
|
|
$
|
1,288,621
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
69
THE GEO
GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Fiscal
Years Ended January 3, 2010, December 28, 2008, and
December 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash Flow from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
65,954
|
|
|
$
|
58,902
|
|
|
$
|
41,845
|
|
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock-based compensation
|
|
|
3,509
|
|
|
|
3,015
|
|
|
|
2,474
|
|
Stock-based compensation expense
|
|
|
1,813
|
|
|
|
1,530
|
|
|
|
935
|
|
Depreciation and amortization expenses
|
|
|
39,306
|
|
|
|
37,406
|
|
|
|
33,218
|
|
Amortization of debt issuance costs and discount
|
|
|
3,412
|
|
|
|
3,042
|
|
|
|
2,524
|
|
Deferred tax provision (benefit)
|
|
|
10,010
|
|
|
|
2,656
|
|
|
|
(5,077
|
)
|
Provision (Recovery) for doubtful accounts
|
|
|
139
|
|
|
|
602
|
|
|
|
(176
|
)
|
Equity in earnings of affiliates, net of tax
|
|
|
(3,517
|
)
|
|
|
(4,623
|
)
|
|
|
(2,151
|
)
|
Dividend to minority interest
|
|
|
(176
|
)
|
|
|
(125
|
)
|
|
|
(389
|
)
|
Income tax benefit of equity compensation
|
|
|
(601
|
)
|
|
|
(786
|
)
|
|
|
(3,061
|
)
|
Loss on sale of fixed assets
|
|
|
119
|
|
|
|
157
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
6,839
|
|
|
|
|
|
|
|
4,794
|
|
Changes in assets and liabilities, net of acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6,852
|
|
|
|
(29,599
|
)
|
|
|
(10,604
|
)
|
Other current assets
|
|
|
(2,678
|
)
|
|
|
2,120
|
|
|
|
(57
|
)
|
Other assets
|
|
|
(1,117
|
)
|
|
|
(2,418
|
)
|
|
|
3,211
|
|
Accounts payable and accrued expenses
|
|
|
(4,089
|
)
|
|
|
7,775
|
|
|
|
(2,457
|
)
|
Accrued payroll and related taxes
|
|
|
(5,509
|
)
|
|
|
(4,483
|
)
|
|
|
1,517
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
Other liabilities
|
|
|
4,845
|
|
|
|
(814
|
)
|
|
|
8,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing
operations
|
|
|
125,111
|
|
|
|
74,357
|
|
|
|
74,977
|
|
Net cash (used in) provided by operating activities of
discontinued operations
|
|
|
5,818
|
|
|
|
(3,013
|
)
|
|
|
3,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
130,929
|
|
|
|
71,344
|
|
|
|
78,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
(38,386
|
)
|
|
|
|
|
|
|
(410,473
|
)
|
CSC purchase price adjustment
|
|
|
|
|
|
|
|
|
|
|
2,291
|
|
Proceeds from sale of assets
|
|
|
179
|
|
|
|
1,136
|
|
|
|
4,476
|
|
Purchase of shares in consolidated affiliate
|
|
|
|
|
|
|
(2,189
|
)
|
|
|
|
|
Change in restricted cash
|
|
|
2,713
|
|
|
|
452
|
|
|
|
(20
|
)
|
Capital expenditures
|
|
|
(149,779
|
)
|
|
|
(130,990
|
)
|
|
|
(115,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(185,273
|
)
|
|
|
(131,591
|
)
|
|
|
(518,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from equity offering, net
|
|
|
|
|
|
|
|
|
|
|
227,485
|
|
Proceeds from long-term debt
|
|
|
333,000
|
|
|
|
156,000
|
|
|
|
387,000
|
|
Income tax benefit of equity compensation
|
|
|
601
|
|
|
|
786
|
|
|
|
3,061
|
|
Debt issuance costs
|
|
|
(17,253
|
)
|
|
|
(3,685
|
)
|
|
|
(9,210
|
)
|
Payments on long-term debt
|
|
|
(267,474
|
)
|
|
|
(100,156
|
)
|
|
|
(237,299
|
)
|
Termination of interest rate swap agreements
|
|
|
1,719
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
|
1,457
|
|
|
|
753
|
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
52,050
|
|
|
|
53,698
|
|
|
|
372,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
|
|
|
4,495
|
|
|
|
(6,199
|
)
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash and Cash
Equivalents
|
|
|
2,201
|
|
|
|
(12,748
|
)
|
|
|
(67,117
|
)
|
Cash and Cash Equivalents, beginning of period
|
|
|
31,655
|
|
|
|
44,403
|
|
|
|
111,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, end of period
|
|
$
|
33,856
|
|
|
$
|
31,655
|
|
|
$
|
44,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
34,185
|
|
|
$
|
29,895
|
|
|
$
|
26,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
32,075
|
|
|
$
|
34,486
|
|
|
$
|
28,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds receivable from insurance claim
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired, net of cash acquired
|
|
$
|
44,239
|
|
|
$
|
|
|
|
$
|
406,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extinguishment of pre-acquisition liabilities, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
5,853
|
|
|
$
|
|
|
|
$
|
2,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,386
|
|
|
$
|
|
|
|
$
|
410,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term borrowings for deposit on asset
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
70
THE GEO
GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
AND COMPREHENSIVE INCOME
Fiscal Years Ended January 3, 2010, December 28, 2008,
and December 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GEO Group Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Treasury Stock
|
|
|
|
|
|
Total
|
|
|
|
Number
|
|
|
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Number
|
|
|
|
|
|
Noncontrolling
|
|
|
Shareholders
|
|
|
|
of Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
of Shares
|
|
|
Amount
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
39,497
|
|
|
$
|
395
|
|
|
$
|
143,035
|
|
|
$
|
201,697
|
|
|
$
|
2,393
|
|
|
|
(27,000
|
)
|
|
$
|
(98,910
|
)
|
|
$
|
1,297
|
|
|
$
|
249,907
|
|
Adoption of FIN 48 January 1, 2007 (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,471
|
)
|
Proceeds from stock options exercised
|
|
|
267
|
|
|
|
3
|
|
|
|
1,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,239
|
|
Tax benefit related to equity compensation
|
|
|
|
|
|
|
|
|
|
|
3,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,061
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
935
|
|
Restricted stock granted
|
|
|
300
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock cancelled
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
2,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,474
|
|
Issuance of treasury stock in conjunction with offering
|
|
|
10,925
|
|
|
|
109
|
|
|
|
187,354
|
|
|
|
|
|
|
|
|
|
|
|
10,925
|
|
|
|
40,022
|
|
|
|
|
|
|
|
227,485
|
|
Dividends paid to noncontrolling interest on subsidiary common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(389
|
)
|
|
|
(389
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
|
|
|
|
Change in foreign currency translation, net of income tax
expense of $180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,898
|
|
|
|
|
|
|
|
|
|
|
|
337
|
|
|
|
|
|
Pension liability adjustment, net of income tax benefit of $203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative instruments, net of income tax
expense of $807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 30, 2007
|
|
|
50,976
|
|
|
|
510
|
|
|
|
338,092
|
|
|
|
241,071
|
|
|
|
6,920
|
|
|
|
(16,075
|
)
|
|
|
(58,888
|
)
|
|
|
1,642
|
|
|
|
529,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options exercised
|
|
|
171
|
|
|
|
1
|
|
|
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
753
|
|
Tax benefit related to equity compensation
|
|
|
|
|
|
|
|
|
|
|
786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
786
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,530
|
|
Restricted stock granted
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock cancelled
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
3,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,015
|
|
Purhcase of subsidiary shares from noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(626
|
)
|
|
|
(626
|
)
|
Dividends paid to noncontrolling interest on subsidiary common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
(125
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376
|
|
|
|
|
|
Change in foreign currency translation, net of income tax
benefit of $413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,742
|
)
|
|
|
|
|
|
|
|
|
|
|
(166
|
)
|
|
|
|
|
Pension liability adjustment, net of income tax benefit of $17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivative instruments, net of income tax
benefit of $2,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 28, 2008
|
|
|
51,123
|
|
|
|
511
|
|
|
|
344,175
|
|
|
|
299,973
|
|
|
|
(7,275
|
)
|
|
|
(16,075
|
)
|
|
|
(58,888
|
)
|
|
|
1,101
|
|
|
|
579,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options exercised
|
|
|
372
|
|
|
|
3
|
|
|
|
1,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,457
|
|
Tax benefit related to equity compensation
|
|
|
|
|
|
|
|
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
601
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,813
|
|
Restricted stock granted
|
|
|
168
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock cancelled
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
3,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,509
|
|
Dividends paid to noncontrolling interest on subsidiary common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
|
|
(176
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
Change in foreign currency translation, net of income tax
benefit of $1,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,658
|
|
|
|
|
|
|
|
|
|
|
|
(597
|
)
|
|
|
|
|
Pension liability adjustment, net of income tax benefit of $636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative instruments, net of income tax
benefit of $645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 3, 2010
|
|
|
51,629
|
|
|
$
|
516
|
|
|
$
|
351,550
|
|
|
$
|
365,927
|
|
|
$
|
5,496
|
|
|
|
(16,075
|
)
|
|
$
|
(58,888
|
)
|
|
$
|
497
|
|
|
$
|
665,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
71