EDGAR 10-K Filing

Company CIK: 923796
Filing Year: 2021
Filename: 923796_10-K_2021_0001564590-21-006003.json

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ITEM 1. BUSINESS
Item 1.
Business
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 fully-integrated real estate investment trust (“REIT”) specializing in the ownership, leasing and management of secure facilities, processing centers and reentry facilities and the provision of community-based services and youth services in the United States, Australia, South Africa and the United Kingdom. We own, lease and operate a broad range of secure facilities including maximum, medium and minimum-security facilities, processing centers, as well as community-based reentry facilities. We develop new facilities based on contract awards, using our project development expertise and experience to design, construct and finance what we believe are state-of-the-art facilities. We provide innovative technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community based programs. We also provide secure transportation services domestically and in the United Kingdom through our joint venture GEOAmey PECS Ltd. (“GEOAmey”). As of December 31, 2020, our worldwide operations included the management and/or ownership of approximately 93,000 beds at 118 secure and community-based facilities, including idle facilities, and also includes the provision of community supervision services for more than 210,000 individuals, including over 100,000 individuals through an array of technology products including radio frequency, GPS, and alcohol monitoring devices.
We provide a diversified scope of services on behalf of our government agency partners:
•
our secure facility management services involve the provision of security, administrative, rehabilitation, education, and food services at secure services facilities;
•
our community based services involve supervision of individuals in community-based programs and re-entry centers and the provision of temporary housing, programming, employment assistance and other services with the intention of the successful reintegration of residents into the community;
•
our youth services include residential, shelter care and community-based services along with rehabilitative and educational programs;
•
we provide comprehensive electronic monitoring and supervision services;
•
we develop new facilities, using our project development experience to design, construct and finance what we believe are state-of-the-art facilities;
•
we provide secure transportation services; and
•
our services are provided at facilities which we either own, lease or are owned by government.
We began operating as a REIT for federal income tax purposes effective January 1, 2013. As a result of the REIT conversion, we reorganized our operations and moved non-real estate components into taxable REIT subsidiaries (“TRSs"). We are a Florida corporation and our predecessor corporation prior to the REIT conversion was originally organized in 1984.
Business Segments
We conduct our business through four reportable business segments: our U.S. Secure Services segment; our GEO Care segment; our International Services segment and our Facility Construction & 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. Our U.S. Secure Services segment primarily encompasses our U.S.-based public-private partnership secure services business. Our GEO Care segment, which conducts its services in the U.S., consists of our community-based services business, our youth services business and our electronic monitoring and supervision service. Our International Services segment primarily consists of our public-private partnership secure services operations in Australia, South Africa and the United Kingdom. Our Facility Construction & Design segment primarily contracts with various states, local and federal agencies, as well as international agencies, for the design and construction of facilities for which we generally have been, or expect to be, awarded management contracts. Financial information about these segments for years 2020, 2019 and 2018 is contained in Note 15 - Business Segments and Geographic Information included in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Recent Developments
COVID-19
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact those entrusted in our care and governmental partners. During the year ended December 31, 2020 we incurred significant disruptions from the COVID-19 pandemic but are unable to predict the overall future impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties related to the pandemic. Refer to further discussion regarding the economic impacts of COVID-19 to our operations in the Outlook section included in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Executive Order
On January 26, 2021, President Biden signed an executive order directing the United States Attorney General not to renew U.S. Department of Justice (“DOJ”) contracts with privately operated criminal detention facilities, as consistent with applicable law (the “Executive Order”). Two agencies of the DOJ, the Federal Bureau of Prisons (“BOP”) and U.S. Marshals Service (“USMS”), utilize our services. The BOP houses inmates who have been convicted of federal crimes, and the USMS is generally responsible for detainees who are awaiting trial or sentencing in U.S. federal courts. Our contracts with the BOP for our company-owned 1,940-bed Great Plains Correctional Facility, our company-owned 1,732-bed Big Spring Correctional Facility, our company-owned 1,800-bed Flightline Correctional Facility, and our company-owned 1,800-bed North Lake Correctional Facility have renewal option periods that expire on May 31, 2021, November 30, 2021, November 30, 2021, and September 30, 2022, respectively. Additionally, the contracts with the BOP for the county owned and managed 1,800-bed Reeves County Detention Center I & II and the 1,376-bed Reeves County Detention Center III have renewal option periods that expire September 30, 2022 and June 30, 2022, respectively. We have a management agreement with Reeves County, Texas for the management oversight of these two county-owned facilities. The Great Plains, Big Spring, Flightline, Northlake Correctional Facilities, Reeves County Detention Center I & II and Reeves County Detention Center III generate annualized revenues for GEO of approximately $35 million, $33 million, $35 million, $35 million, $4 million and $3 million, respectively. The BOP has experienced a decline in federal prison populations over the last several years, a trend that has more recently been accelerated by the COVID-19 global pandemic. As a result of the Executive Order and the decline in federal prison populations, we expect that our above described contracts with the BOP may not be renewed over the coming years. Please see “Risk Factors-Risks Relating to Public-Private Partnerships.” Additionally, please refer to “Contract Expirations” below for a discussion of three other BOP contracts whose expiration we had already announced prior to the signing of the Executive Order. For the year ended December 31, 2020, our secure services contracts with the BOP accounted for approximately 12% of our total revenues.
Unlike the BOP, the USMS does not own and operate its detention facilities. The USMS contracts for the use of facilities, which are generally located in areas near federal courthouses, primarily through intergovernmental service agreements, and to a lesser extent, direct contracts. With respect to the USMS, the agency may determine to conduct a review of the possible application of the Executive Order on its facilities. For the year ended December 31, 2020, our contract and agreements with the USMS accounted for approximately 13% of our total revenues.
President Biden’s administration may implement further executive orders or directives relating to federal criminal justice policies and immigration policies which may impact the federal government’s use of public-private partnerships with respect to correctional and detention needs, including with respect to our contracts, and/or may impact the budget and spending priorities of federal agencies, including the BOP, USMS, and Immigration and Customs Enforcement (“ICE”). For a description of BOP, USMS and ICE facilities, please see “Business-Facilities and Day Reporting Centers.”
Quarterly Dividends
In October 2020, the GEO Board of Directors decided to reduce GEO’s quarterly cash dividend beginning with the quarterly dividend paid on October 23, 2020 from $0.48 per share, or $1.92 per share annualized, to $0.34 per share, or $1.36 per share annualized. The GEO Board of Directors took this action based on a determination that it is in the best interests of GEO and our shareholders to apply excess cash flow to debt reduction. In January 2021, the GEO Board of Directors decided to further reduce GEO’s quarterly cash dividend beginning with the quarterly dividend paid on February 1, 2021 from $0.34 per share, or $1.36 per share annualized, to $0.25 per share, or $1.00 per share annualized. The reduction of GEO’s quarterly dividend payment will allow GEO to continue its focus on paying down debt and to balance its continued creation of value for GEO shareholders with prudent management of its balance sheet. The GEO Board of Directors will continue to evaluate GEO’s dividend policy and capital allocation. The declaration of future quarterly cash dividends is subject to approval by the GEO Board of Directors and to meeting the requirements of all applicable laws and regulations. The GEO Board of Directors retains the power to modify or eliminate GEO’s quarterly dividend as it may deem necessary or appropriate in the future to consider factors including, but not limited to, long-term capital needs and access to the capital markets.
Senior Credit Facility
On November 6, 2020, out of an abundance of caution and as a liquidity management strategy, GEO elected to draw down $250 million in borrowings under its credit facility. In order to maintain maximum financial flexibility, GEO plans to maintain this liquidity on hand.
Contract Awards
On March 24, 2020, we announced that our wholly owned subsidiary, BI Incorporated, has signed a contract with ICE for the continued provision of case management and supervision services under the federal government’s Intensive Supervision and Appearance Program (“ISAP”). The contract has a term of five years, effective April 1, 2020. Subsequently, a competitor filed a protest challenging the award of the contact. On July 8, 2020, the Government Accountability Office denied the protest and upheld the contract award.
We were also successful in our rebid of the continued operation of our company-owned 1,904-bed South Texas ICE Processing Center contract. The contract became effective on August 6, 2020 and has a ten-year term, inclusive of renewal options.
Contract Expirations
On June 19, 2020, GEO was notified by BOP that the BOP will not be resoliciting the 1,900 beds at GEO’s company-owned D Ray James Correctional Facility in Folkston, Georgia upon the expiration of the facility management contract between GEO and the BOP. The facility management contract was entered into in October 2010 with a base period of four years and with three renewal options for successive two-year periods. The third renewal period concluded on September 30, 2020. During the third quarter of 2020, GEO entered into a four-month extension of this contract through January 31, 2021, as the BOP evaluates its future capacity needs. The facility management contract for the D Ray James Correctional Facility generated approximately $60 million in annualized revenues for GEO.
On November 23, 2020, GEO announced that the BOP has decided to not rebid the contract for the company-owned, 1,450-bed Rivers Correctional Facility in North Carolina, which is set to expire on March 31, 2021. The 10-year contract for the Rivers Correctional Facility generated approximately $43 million in annualized revenues for GEO.
On January 20, 2021, GEO announced that the BOP has decided to not exercise the contract renewal option for the company-owned, 1,878-bed Moshannon Valley Correctional Facility in Pennsylvania, when the contract base period expires on March 31, 2021. The 10-year contract for the Moshannon Valley Correctional Facility generated approximately $42 million in annualized revenues for GEO.
GEO expects to market the D. Ray James Correctional Facility, the Rivers Correctional Facility and the Moshannon Valley Correctional Facility to other federal and state agencies.
Idle Facilities
In our Secure Services segment, we are currently marketing approximately 990 vacant beds with a net book value of approximately $24 million at two of our idle facilities to potential customers. In our GEO Care segment, we are currently marketing approximately 1,100 vacant beds with a net book value of approximately $26 million at two of our idle facilities to potential customers. The combined annual carrying cost of these idle facilities in 2021 is estimated to be $6.3 million, including depreciation expense of $2.3 million. We currently do not have any firm commitments or agreements in place to activate these facilities but have ongoing contact with several potential customers. Historically, some facilities have been idle for multiple years before they received a new contract award. The per diem rates that we charge our clients often vary by contract across our portfolio. However, if the two idle facilities in our Secure Services and GEO Care segments were to be activated using our Secure Services average per diem rate in 2020, (calculated as the Secure Services revenue divided by the number of Secure Services mandays) and based on the average occupancy rate in our facilities for 2020, we would expect to receive annual incremental revenue of approximately $51 million and an increase in annual earnings per share of approximately $.02 to $.05 per share based on our average operating margin. Refer to the discussion under Executive Order and Contract Expirations above for discussion of recent developments.
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 for our facilities. We have sought and received ACA accreditation and re-accreditation for all such facilities. We achieved a median re-accreditation score of 100% as of
December 31, 2020. Approximately 89% of our 2020 U.S. Secure Services revenue was derived from ACA accredited facilities for the year ended December 31, 2020. We have also achieved and maintained accreditation by The Joint Commission at five of our secure service facilities and at seven of our youth services locations. We have been successful in achieving and maintaining accreditation under the National Commission on Correctional Health Care ("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 and we have achieved this accreditation at 14 of our U.S. Secure Services facilities and at one youth services location. Additionally, B.I. Incorporated ("BI") has achieved a certification for ISO 9001:2008 for the design, production, installation and servicing of products and services produced by the electronic monitoring business units, including electronic home arrest and electronic monitoring technology products and monitoring services, installation services, and automated caseload management services.
Corporate Social Responsibility
In September 2020, we issued our second Human Rights and ESG report. The Human Rights and ESG report builds on the important milestone we achieved in 2013 when our Board adopted a Global Human Rights Policy by providing disclosures related to how we inform our employees of our commitment to respecting human rights; the criteria we use to assess human rights performance; and our contract compliance program, remedies to shortcomings in human rights performance, and independent verification of our performance by third party organizations. The Human Rights and ESG report also addresses criteria, based on recognized ESG reporting standards, related to the development of our employees; our efforts to advance environmental sustainability in the construction and operation of our facilities; and our adherence to ethical governance practices throughout our company. The report covers the year ended December 31, 2019 with supporting data from 2017-2019 where possible. The report showcases, among other items, our company wide awareness and training programs, our commitment to a safe and humane environment for everyone in our care, employee diversity, addressing recidivism through our GEO Continuum of Care, our engagement efforts with our stakeholders, oversight and contract compliance, conservation measures and enhanced environmental sustainability efforts.
The Human Rights and Environmental, Social and Governance, (“ESG”) report was prepared with reference to the GRI Standards related to General Disclosures, Economic Topics, Environmental Topics and Social Topics based on the Global Reporting Initiative, or GRI, issued by the Global Sustainability Standards Board and the UN Guiding Principles on Business and Human Rights. GRI is an international independent standards organization created to help business, government and other organizations understand and communicate how their operations affect issues of global importance, such as human rights, corruption and climate change. We have referenced the GRI Standards and the UN Guiding Principles on Business and Human Rights as we have recognized the need for a transparent and disciplined enterprise-wide approach. In our pursuit of this approach, we have begun with the following set of ongoing objectives:
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Provide greater transparency for our stakeholders and the general public with respect to our various efforts in all our facilities aimed at respecting human rights.
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Enhance our ability to flag potential issues in all areas of our operations and compress the time it takes to respond with corrective measures.
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Use widely accepted methodologies for evaluating performance and setting objectives for improvements in corporate governance, corporate social policy, environmental impact and energy conservation.
The ESG report may be accessed on our website under "Investors-Latest Reports-Latest ESG Report." The information included in the Human Rights and ESG report is not incorporated by reference into this Annual Report on Form 10-K.
Business Development Overview
Our primary potential customers include: governmental agencies responsible for local, state and federal secure facilities in the United States; governmental agencies responsible for secure facilities in Australia, South Africa and the United Kingdom; federal, state and local government agencies in the United States responsible for community-based services for adult and juvenile offenders; federal, state and local government agencies responsible for monitoring community-based parolees, probationers and pretrial defendants; 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 secure services operations as well as in our community based reentry services and electronic monitoring services business.
For our facility management contracts, our state and local experience has been that a period of approximately 60 to 90 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 agency’s award of 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.
For our facility management contracts, our federal experience has been that a period of approximately 60 to 90 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 12 and 18 months elapse between the submission of our response and the agency’s award of a contract; and that between four and 18 weeks elapse between the award of a contract and the commencement of facility construction or management of the facility, as applicable.
If the local, state or federal facility for which an award has been made must be constructed, our experience is that construction usually takes between nine and 24 months to complete, depending on the size and complexity of the project. Therefore, management of a newly constructed facility typically commences between 10 and 28 months after the governmental agency’s award.
For the services provided by BI, local, state and federal experience has been that a period of approximately 30 to 90 days is generally required from the issuance of an RFP or Invitation to Bid, or ITB, to the submission of our response; that between one and three months elapse between the submission of our response and the agency’s award of a contract; and that between one and three months elapse between the award of a contract and the commencement of a program or the implementation of program operations, as applicable.
The term of our local, state and federal contracts range from one to five years and some contracts include provisions for optional renewal terms beyond the initial contract term. Contracts can, and are periodically, extended beyond the initial contract term and optional renewal terms through alternative procurement processes including sole source justification processes, cooperative procurement vehicles and agency decisions to add extension time periods.
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.
We also plan to leverage our experience and scale of service offerings to expand the range of public-private partnership services that we provide. We have engaged and intend in the future to engage independent consultants to assist us in developing public-private partnership 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 secure facilities and the redesign and renovation of older facilities including facilities we own, lease or manage as well as facilities we do not own, lease or manage. Domestically, as of December 31, 2020, we have provided services for the design and construction of approximately 57 facilities and for the redesign, renovation and expansion of approximately 78 facilities. Internationally, as of December 31, 2020, we have provided services for the design and construction of 11 facilities and for the redesign, renovation and expansion of two 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 any of the following methods:
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a one time general revenue appropriation by the governmental agency for the cost of the new facility;
•
general obligation bonds that are secured by either a limited or unlimited tax levy by the issuing governmental entity; or
•
revenue bonds or certificates of participation secured by an annual lease payment that is subject to annual or bi-annual legislative appropriations.
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);
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funds from debt offerings of our notes; or
•
lease arrangements with third parties.
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 canceled. If the project is self-financed by us, then financing is generally in place prior to the commencement of construction.
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 service disciplines (e.g. security, medical service, food service, 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, 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.
Competitive Strengths
Attractive REIT Profile
We believe the key characteristics of our business make us a highly attractive REIT. We are in a real estate intensive industry. Since our inception, we have financed and developed dozens of facilities. We have a diversified set of investment grade customers in the form of government agencies which are required to pay us on time by law. Our occupancy rates have historically generated a stable and sustainable stream of revenue. The REIT structure also allows us to pursue growth opportunities due to the capital-intensive nature of our business.
Long-Term Relationships with High-Quality Government Customers
We have developed long-term relationships with our federal, state and other governmental customers, which we believe enhance our ability to win new contracts and retain existing business. We have provided secure management services to the United States Federal Government for 34 years, the State of California for 32 years, prior to the new California law AB 32 that went into effect on January 1, 2020 (aimed at phasing out public-private partnership contracts for the operation of secure facilities within California and facilities outside of the State of California housing State of California inmates), the State of Texas for approximately 33 years, various Australian state government entities for 29 years and the State of Florida for approximately 27 years. These customers accounted for approximately 73% of our consolidated revenues for the fiscal year ended December 31, 2020.
Recurring Revenue with Strong Cash Flow
Our revenue base has historically been derived from our long-term customer relationships. We have historically been able to expand our revenue base by continuing to reinvest our strong operating cash flow into expansionary projects and through strategic acquisitions that provide scale and further enhance our service offerings. Our consolidated revenues have grown to $2.4 billion in 2020. We expect our operating cash flow to be well in excess of our anticipated annual maintenance capital expenditure needs, which would provide us significant flexibility for the repayment of indebtedness and future dividend payments in connection with operating as a REIT.
Sizeable International Business
Our international infrastructure, which leverages our operational excellence in the U.S., allows us to aggressively target foreign opportunities that our U.S. based competitors without overseas operations may have difficulty pursuing. We currently have international operations in Australia, South Africa and the United Kingdom. Our international services business, including our facility construction and design business currently in Australia, generated approximately $227.5 million of revenues, representing approximately 10% of our consolidated revenues for the year ended December 31, 2020. Included in our international revenues in 2020, 2019 and 2018 are construction revenues related to the expansion of our Fulham facility in Victoria, Australia which are also presented in our Facility Design & Construction segment. We believe we are well positioned to continue benefiting from foreign governments’ initiatives to enter into public-private partnerships for secure services.
Experienced, Proven Senior Management Team
Our Chief Executive Officer and founder, George C. Zoley, Ph.D., has led our Company for 36 years and has established a track record of growth and profitability. Under his leadership, our annual consolidated revenues from operations have grown from $207.0 million in 1997 to $2.4 billion in 2020. Dr. Zoley is one of the pioneers of the industry, having developed and opened what we believe to be one of the first public-private partnership secure services facilities in the U.S. in 1986. Our Chief Financial Officer, Brian R. Evans, has been with our Company for over 20 years and led our conversion to a REIT as well as the integration of our recent acquisitions and financing activities. Our top seven senior executives have an average tenure with our Company of over 10 years.
Business Strategies
Provide High Quality, Comprehensive Services and Cost Savings Throughout the Corrections Lifecycle
Our objective is to provide federal, state and local governmental agencies with a comprehensive offering of high quality, essential services at a lower cost than they themselves could achieve. We believe government agencies facing budgetary constraints will increasingly seek to outsource a greater proportion of their correctional needs to reliable providers that can enhance quality of service at a reduced cost. We believe our expanded and diversified service offerings uniquely position us to bundle our high quality services and provide a comprehensive continuum of care for our clients, which we believe will lead to lower cost outcomes for our clients and larger scale business opportunities for us.
Maintain Disciplined Operating Approach
We refrain from pursuing contracts that we do not believe will yield attractive profit margins in relation to the associated operational risks. In addition, although we engage in facility development from time to time without having a corresponding management contract award in place, we endeavor to do so only where we have determined that there is medium to long-term client demand for a facility in that geographical area. 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 and higher profit opportunities helps us to consistently deliver strong operational performance, lower our costs and increase our overall profitability.
Pursue International Growth Opportunities
As a global provider of public-private partnership secure services, we are able to capitalize on opportunities to operate existing or new facilities on behalf of foreign governments. We have seen increased business development opportunities including opportunities to cross sell our expanded service offerings in recent years in the international markets in which we operate. We will continue to actively bid on new international projects in our current markets and in new markets that fit our target profile for profitability and operational risk.
Selectively Pursue Acquisition Opportunities
We intend to continue to supplement our organic growth by selectively identifying, acquiring and integrating businesses that fit our strategic objectives and enhance our geographic platform and service offerings. Since 2005, and including the acquisitions of Community Education Centers, Protocol Criminal Justice, Inc., Soberlink, Inc. and the correctional and detention facilities of LCS Corrections Services, Inc. we have completed nine acquisitions for total consideration, including debt assumed, in excess of $2.0 billion. Our management team utilizes a disciplined approach to analyze and evaluate acquisition opportunities, which we believe has contributed to our success in completing and integrating our acquisitions.
Intellectual Property and Patents
We have numerous United States and foreign patents issued as well as a number of United States patents pending in the electronic monitoring space. These patents protect our intellectual property rights and provide us with a competitive advantage by seeking to prevent our competitors from duplicating our technology and/or products in the electronic monitoring line of business. The remaining duration of our patents range from 18 months to 20 years.
Facilities and Day Reporting Centers
The following table summarizes certain information with respect to: (i) U.S. and international secure services facilities; (ii) community-based services facilities; and (iii) residential and non-residential youth services facilities. The information in the table includes the facilities that we (or a subsidiary or joint venture of GEO) owned, operated under a management contract, had an agreement to provide services, had an award to manage or was in the process of constructing or expanding during the year ended December 31, 2020:
Facility Name & Location
Capacity(1)
Primary
Customer
Facility
Type
Security
Level
Commencement
of Current
Contract (2)
Base
Period
Renewal
Options
Managed
Leased/
Owned
Secure Services - Western Region:
Adelanto ICE Processing Center, Adelanto, CA (3)
1,940
ICE
Federal Detention
Minimum/Medium
December 2019
5 years
Two, 5 years
Owned
Aurora/CE Processing Center Aurora, CO
1,532
ICE / USMS
Federal Detention
All Levels
September 2011/October 2012
2 years /2 years
Four, Two-year / Four, Two-year
Owned
Central Arizona Correctional and Rehabilitation Facility Florence, AZ
1,280
AZ DOC
State Sex Offender Correctional
Minimum/Medium
December 2006
10 years
Two, Five-year
Managed
Central Valley Annex McFarland, CA
ICE / USMS
Federal Detention
Medium
December 2019/January 2021
5 years/1 year
Two, Five-year/None
Owned
Desert View Annex Adelanto, CA
ICE
Federal Detention
Medium
December 2019
5 years
Two, Five-year
Owned
Facility Name & Location
Capacity(1)
Primary
Customer
Facility
Type
Security
Level
Commencement
of Current
Contract (2)
Base
Period
Renewal
Options
Managed
Leased/
Owned
El Centro Detention Facility, CA
USMS
Federal Detention
Medium
December 2019
2 years
Three, Two-year options, plus one, nine-month
Managed
Florence West Correctional and Rehabilitation Florence, AZ
AZ DOC
State DUI/RTC Correctional
Minimum
October 2002
10 years
Two, Five-year
Managed
Golden State Annex McFarland, CA
ICE
Federal Detention
Medium
December 2019
5 years
Two, Five-year
Owned
Guadalupe County Correctional Facility Santa Rosa, NM (3)
NMCD - IGA
Local/State Correctional
Medium
January 1999
Perpetual
None
Owned
Kingman Correctional and Rehabilitation facility, Kingman, AZ
3,400
AZ DOC
State Correctional Facility
Minimum/Medium
January 2008
10 years
Two, Five-year
Managed
Lea County Correctional Facility Hobbs, NM (3)
1,200
NMCD - IGA
Local/State Correctional
Medium
January 1999
Perpetual
None
Owned
McFarland Female Community Reentry Facility McFarland, CA
Idle
Owned
Mesa Verde ICE Processing Center Bakersfield, CA (3)
ICE
State Correctional
Minimum
December 2019
5 Years
Two, Five year
Owned
Northwest ICE Processing Center Tacoma, WA
1,575
ICE
Federal Detention
All Levels
September 2015
1 Year
Nine, One-Year
Owned
Phoenix West Correctional and Rehabilitation Phoenix, AZ
AZ DOC
State DWI Correctional
Minimum
July 2002
10 years
Two, Five-year
Managed
Western Region Detention Facility San Diego, CA
USMS
Federal Detention
Maximum
November 2017
1 Year, 10 Months
Four, Two-year
Leased
Facility Name & Location
Capacity(1)
Primary
Customer
Facility
Type
Security
Level
Commencement
of Current
Contract (2)
Base
Period
Renewal
Options
Managed
Leased/
Owned
Secure Services - Central Region:
Big Spring Correctional Facility Big Spring, TX
1,732
BOP
Federal Correctional
Medium
December 2017
2 Years
Eight, One-Year
Owned
Flightline Correctional Facility, TX
1,800
BOP
Federal Correctional
Medium
December 2017
2 Years
Eight, One-Year
Owned
Brooks County Detention Center, TX (3)
USMS - IGA
Local & Federal Detention
Medium
March 2013
Perpetual
None
Owned
Coastal Bend Detention Center,TX (3)
1,176
USMS - IGA
Local & Federal Detention
Medium
July 2012
Perpetual
None
Owned
Eagle Pass Correctional Facility, Eagle Pass, TX
USMS
Federal Detention
Medium
October 2020
Perpetual
None
Owned
East Hidalgo Detention Center (3)
1,346
USMS - IGA
Local & Federal Detention
Medium
July 2012
Perpetual
None
Owned
Great Plains Correctional Facility Hinton, OK
1,940
BOP
Federal Correctional
Minimum
June 2015
5 years
Five, One-Year Plus One Six-Month Extension
Owned
Joe Corley Processing Center Conroe, TX
1,517
USMS / ICE
Local Correctional
Medium
July 2008/ September 2018
Perpetual/5 Years
None/Five-year
Owned
Karnes Detention Facility Karnes City, TX (3)
USMS - IGA
Local & Federal Detention
All Levels
February 1998
Perpetual
None
Owned
Karnes County Family Residential Center,TX (3)
1,300
ICE - IGA
Federal Detention
All Levels
December 2010
5 years
Two, Five-Year
Owned
Kinney County Detention Center, TX (3)
USMS - IGA
Local & Federal Detention
Medium
September 2013
Perpetual
None
Managed
Lawton Correctional Facility Lawton, OK
2,682
OK DOC
State Correctional
Medium
July 2018
1 Year
Four, Automatic One-year
Owned
Montgomery Processing Center Conroe, TX
1,314
ICE
Local & Federal Detention
All levels
October 2018
10 months
Nine, One- year
Owned
Reeves County Detention Center R1/R2, TX
1,800
BOP
Federal Correctional
Low
October 2019
3 year
Seven, one-year, plus one, six-month
Managed
Facility Name & Location
Capacity(1)
Primary
Customer
Facility
Type
Security
Level
Commencement
of Current
Contract (2)
Base
Period
Renewal
Options
Managed
Leased/
Owned
Reeves County Detention Center R3 Pecos, TX
1,376
BOP
Federal Correctional
Low
July 2019
3 years
Seven, One-year, plus One, six-month
Managed
Rio Grande Processing Center Laredo, TX
1,900
USMS
Federal Detention
Medium
October 2008
5 years
Three, Five-year
Owned
South Texas ICE Processing Center Pearsall, TX
1,904
ICE
Federal Detention
All Levels
August 2020
1 year
Nine, One-year
Owned
Val Verde County Detention Facility Del Rio, TX (3)
1,407
USMS - IGA
Local & Federal Detention
All Levels
January 2001
Perpetual
None
Owned
Secure Services - Eastern Region:
Alexandria Staging Facility Alexandria, LA (3)
ICE - IGA
Federal Detention
Minimum/Medium
November 2013
Perpetual
None
Owned
Bay Correctional and Rehabilitation Facility Panama City, FL
FL DMS
State Correctional
Minimum/Medium
February 2014
3 years
Unlimited, Two-year
Managed
Blackwater River Correctional and Rehabilitation Facility Milton, FL
2,000
FL DMS
State Correctional
Medium/close
October 2010
3 years
Unlimited, Two-year
Managed
Broward Transitional Center Deerfield Beach, FL
ICE
Federal Detention
Minimum
July 2015
1 year
Five, One-year plus One, Six-month extension
Owned
Crossroads Reception Center Indianapolis, IN
Idle
Owned
D. Ray James Correctional Facility Folkston, GA (6)
1,900
BOP
Federal Detention
All Levels
October 2010
4 years
None
Owned
Folkston ICE Processing Center (3) Folkston, GA
1,118
ICE - IGA
Federal Detention
Minimum
December 2016
1 year
Four, One-year
Owned
George W. Hill Correctional Facility, PA
1,883
Delaware County
State Correctional
Minimum
January 2019
5 years
Two, Two-year options
Managed
Graceville Correctional and Rehabilitation Facility Jackson, FL
1,884
FL DMS
State Correctional
All Levels
February 2014
3 years
Unlimited, Two year
Managed
Heritage Trail Correctional Facility Plainfield, IN
1,066
IN DOC
State Correctional
Minimum
March 2011
4 years
One, Four-year, plus one, one year, four months and two days extension, plus one year extension
Managed
LaSalle ICE Processing Center Jena, LA (3)
1,160
ICE - IGA
Federal Detention
Minimum/Medium
November 2013
Perpetual
None
Owned
Facility Name & Location
Capacity(1)
Primary
Customer
Facility
Type
Security
Level
Commencement
of Current
Contract (2)
Base
Period
Renewal
Options
Managed
Leased/
Owned
Lawrenceville Correctional and Rehabilitation Facility Lawrenceville, VA
1,536
VA DOC
State Correctional
Medium
August 2018
5 years
Ten, One-year extensions
Managed
Moshannon Valley Correctional Facility Philipsburg, PA (6)
1,878
BOP
Federal Correctional
Medium
April 2016
5 years
None
Owned
Moore Haven Correctional and Rehabilitation Facility Moore Haven, FL
FL DMS
State Correctional
Minimum/ Medium
February 2014
3 years
Unlimited, Two-year
Managed
New Castle Correctional Facility New Castle, IN
3,196
IN DOC
State Correctional
All Levels
September 2005
4 years
One year One month and 20 days, Nine year Seven month 14 days, plus one ninety-day extension, plus one nine-month extension Two, Five-year
Managed
North Lake Correctional Facility Baldwin, MI
1,800
BOP
Federal Correctional
Medium/Maximum
October 2019
3 years
Seven, one-year, plus One Six-Month
Owned
Perry County Correctional Facility, AL
Idle
Owned
Pine Prairie ICE Processing Center, LA (3)
1,094
ICE-IGA
State Correctional
Medium
June 2015
5 years
One-month, plus One, fifty nine-month extension
Owned
Queens Detention Facility Jamaica, NY
USMS
Federal Detention
Minimum/Medium
April 2019
2 years
Four, Two-year
Owned
Riverbend Correctional and Rehabilitation Facility Milledgeville, GA
1,500
GA DOC
State Correctional
Medium
July 2010
1 year
Forty, One-year
Owned
Rivers Correctional Facility Winton, NC (6)
1,450
BOP
Federal Correctional
Low
April 2011
4 years
None
Owned
Robert A. Deyton Detention Facility Lovejoy, GA
USMS
Federal Detention
Medium
February 2008
5 years
Three, Five-year
Leased
South Bay Correctional and Rehabilitation Facility South Bay, FL
1,948
FL DMS
State Correctional
Medium/Close
July 2009
3 years
Four, Two-year, plus One six-month extension, plus One two-year
Managed
South Louisiana ICE Processing Center, LA(3)
1,000
ICE-IGA
State Correctional
Medium
June 2015
5 years
One-month, plus One six-month extension, plus One two-year
Owned
Secure Services - Australia:
Fulham Correctional Centre & Nalu Challenge Community Victoria, Australia
VIC DOJ
State Prison
Minimum/Medium
July 2012
4 years
19 years, Four months
Managed
Junee Correctional Centre New South Wales, Australia
1,279
NSW
State Prison
Minimum/Medium
March 2014
5 years
Two, Five year
Managed
Ravenhall Correctional Centre Melbourne, Australia
1,300
VIC DOJ
State Prison
Medium
November 2017
24 years plus 5 months
None
Managed
Facility Name & Location
Capacity(1)
Primary
Customer
Facility
Type
Security
Level
Commencement
of Current
Contract (2)
Base
Period
Renewal
Options
Managed
Leased/
Owned
Secure Services - United Kingdom:
Dungavel House Immigration Removal Centre, South Lanarkshire, UK
UKBA
Detention Centre
Minimum
September 2011
5 years
Three, One year, Plus Two-year
Managed
Secure Services - South Africa:
Kutama-Sinthumule Correctional Centre Limpopo Province, Republic of South Africa
3,024
RSA DCS
National Prison
Maximum
February 2002
25 years
None
Managed
Corrections & Detention - Canada:
New Brunswick Youth Centre Mirimachi, Canada(4)
N/A
PNB
Provincial Juvenile Facility
All Levels
October 1997
25 years
One, Ten-year
Managed
GEO Care - Community Based Services:
ADAPPT, PA
PA DOC
Community Corrections
Community
February 2019
1 year
Four, One-year options
Owned
Alabama Therapeutic Education Facility, AL
AL DOC
Community Corrections
Community
August 2019
1 year
None
Owned
Albert Bo Robinson Assessment & Treatment Center, NJ
NJ DOC/NJ State Parole Board
Community Corrections
Community
January 2020/July 2014
2 years/3 years
One, One-year/Three, One-year, plus One six-month extension plus One year
Owned
Alle Kiski Pavilion, PA
Idle
Owned
Arapahoe County Residential Center, CO
Arapahoe County
Community Corrections
Community
July 2020
1 year
None
Owned
Beaumont Transitional Treatment Center Beaumont, TX
TDCJ
Community Corrections
Community
September 2020
2 years
Three, One-year options
Owned
Bronx Community reentry Center Bronx, NY
BOP
Community Corrections
Community
July 2020
1 year
Nine, One-year
Leased
Casper Reentry Center, WY
BOP/Natrona
Community Corrections
Community
January 2017/July 2019
1 year/2 years
Four, One year/None
Owned
Facility Name & Location
Capacity(1)
Primary
Customer
Facility
Type
Security
Level
Commencement
of Current
Contract (2)
Base
Period
Renewal
Options
Managed
Leased/
Owned
Chester County, PA
PA DOC
Community Corrections
Community
February 2019
1 year
Four, One-year options
Owned
Cheyenne Mountain Recovery Center, CO
Idle
Owned
Coleman Hall, PA
Idle
Owned
Community Alternatives of El Paso County, CO
El Paso County
Community Corrections
Community
July 2020
1 year
None
Owned
Correctional Alternative Placement Services, CO
Idle
Owned
Community Alternatives of the Black Hills, SD
BOP
Community Corrections
Community
October 2016
1 year
Four, One-year plus 6 months
Owned
Cordova Center Anchorage, AK
BOP / AK DOC
Community Corrections
Community
June 2019/July 2019
1 year/1 year
Nine, One-year renewals/Four, One-year renewals
Owned
Delaney Hall, NJ
1,200
Union County/Essex County/NJ State Parole Board
Community Corrections
Community
January 2020/January 2017/July 2014
2 years/5 years/3 years
Two, One year/None/Three, One- year. Plus One-six-month extension, plus One year
Owned
El Monte Center El Monte, CA
BOP
Community Corrections
Community
October 2019
1 year
Nine, One-year options
Leased
Grossman Center Leavenworth, KS
BOP
Community Corrections
Community
July 2019
1 year
Nine, One-year options
Owned
Las Vegas Community Correctional Center Las Vegas, NV
BOP
Community Corrections
Community
February 2016
1 year
Four, One-year extensions
Owned
Leidel Comprehensive Sanction Center Houston, TX
BOP
Community Corrections
Community
January 2021
1 year
Four, One-year
Owned
Facility Name & Location
Capacity(1)
Primary
Customer
Facility
Type
Security
Level
Commencement
of Current
Contract (2)
Base
Period
Renewal
Options
Managed
Leased/
Owned
Logan Hall, NJ
N/A
Third Party Tenant
N/A
N/A
N/A
N/A
N/A
Leased
Long Beach Community Reentry Center, CA
CDCR
Community Corrections
Community
November 2019
4 years, 7 months, 4 weeks, 1 day
None
Leased
Marvin Gardens Center Los Angeles, CA
BOP
Community Corrections
Community
December 2018
1 year
Four, One year
Leased
McCabe Center Austin, TX
N/A
Third Party Tenant
N/A
N/A
N/A
N/A
N/A
Owned
Mid Valley House Edinburg, TX
BOP
Community Corrections
Community
October 2020
1 year
Nine, One year
Owned
Midtown Center Anchorage, AK
AK DOC
Community Corrections
Community Corrections
June 2019
1 year
Four, One year
Owned
New Mexico Mens Recovery Academy, NM
NM DOC
Community Corrections
Community Corrections
July 2019
4 years
None
Managed
New Mexico Womens Recovery Academy, NM
NM DOC
Community Corrections
Community Corrections
July 2019
4 years
None
Managed
Northstar Center Fairbanks, AK
AK DOC
Community Corrections
Community
September 2016
10 months
Three, One year, plus one seven month extension
Leased
Oakland Center Oakland, CA
BOP
Community Corrections
Community
February 2020
1 year
Nine, One year
Owned
Parkview Center Anchorage, AK
AK DOC
Community Corrections
Community
Jun-20
1 year
Three, One year
Owned
Philadelphia Residential Reentry Center
BOP
Community Corrections
Community
April 2019
1 year
Four, One year
Owned
Reality House Brownsville, TX
BOP
Community Corrections
Community
July 2019
1 year
Four, One year
Owned
Facility Name & Location
Capacity(1)
Primary
Customer
Facility
Type
Security
Level
Commencement
of Current
Contract (2)
Base
Period
Renewal
Options
Managed
Leased/
Owned
Salt Lake City Center Salt Lake City, UT
BOP
Community Corrections
Community
June 2019
1 year
Nine, One-year
Owned
Scranton Facility, PA
PA DOC
Community Corrections
Community
February 2019
1 year
Four, One-year
Leased
Seaside Center Nome, AK
AK DOC
Community Corrections
Community
June 2019
1 year
Four, One-year
Owned
Southeast Texas Transitional Center Houston, TX
TDCJ
Community Corrections
Community
September 2020
2 years
Three One-year
Owned
Talbot Hall, NJ
Idle
Leased
The Harbor, NJ
NJ DOC
Community Corrections
Community
January 2020
2 years
One, One-year
Leased
Toler Hall, NJ
N/A
Third Party Tenant
N/A
N/A
N/A
N/A
N/A
Leased
Tully House, NJ
NJ DOC
Community Corrections
Community
January 2020
2 years
One, One-year
Owned
Taylor Street Center San Francisco, CA
BOP / CDCR
Community Corrections
Community
April 2016/July 2017
1 year/3 years
Four, One-year/Two, One-year
Owned
Tundra Center Bethel, AK
AK DOC
Community Corrections
Community
June 2019
1 year
Four, One-year options
Owned
Williams Street Center, CO
Idle
Owned
GEO Care - Youth Services:
Abraxas Academy Morgantown, PA
Various
Youth Residential
Secure
June 2005
None
None
Owned
Abraxas I Marienville, PA
Various
Youth Residential
Staff Secure
May 2005
None
None
Owned
Abraxas Ohio Shelby, OH
Various
Youth Residential
Staff Secure
June 2005
None
None
Owned
Abraxas Youth Center South Mountain, PA
PA Dept of Public Welfare
Youth Residential
Secure/Staff Secure
June 2005
None
None
Leased
Camp Aspen, SC
SC Dept. of Juvenile Justice
Youth Residential
Staff Secure
August 2014
1 year
Three, Two-year
Managed
DuPage Interventions Hinsdale, IL
Idle
Owned
Hector Garza Center San Antonio, TX
Idle
June 2005
Owned
Leadership Development Program South Mountain, PA
Various
Youth Residential
Staff Secure
June 2005
None
None
Leased
Southern Peaks Regional Treatment Center Canon City, CO
Various
Youth Residential
Staff Secure
June 2005
None
None
Owned
Southwood Interventions Chicago, IL
IL DASA, City of Chicago, Medicaid
Youth Residential
Staff Secure
June 2005
None
None
Owned
Woodridge Interventions Woodridge, IL
IL DASA, Medicaid
Youth Residential
Staff Secure
June 2005
None
None
Owned
The following table summarizes certain information with respect to our reentry Day Reporting Centers, which we refer to as DRCs. The information in the table includes the DRCs that we (or a subsidiary or joint venture of GEO) operated under a management contract or had an agreement to provide services as of December 31, 2020:
DRC Location
Number of
reporting
centers
Type of
Customers
Commencement
of current
contract(s)
Base
period
Renewal
options
Manage only/
lease
Colorado (5)
State, County
Various,
2018 - 2020
1 year
Varies
Lease
California
State, County
Various,
2016 - 2020
3 years
One, One-year
Lease or Manage only
New Jersey
State, County
4 years
One, One-year
Lease
Pennsylvania
State, County
Various,
2006 - 2018
3 to 5 years
Varies
Lease
Illinois
State, County
5 years
One, Five-year
Lease or Manage
only
Kansas
County
1 year
Four, One-year
Lease
Louisiana
State
3 years
None
Lease
Tennessee
State
5 years
Five, One-year
Lease
Idaho
State
3 years
After base, may be renewed, extended or amended
Lease
Kentucky
County
1 year
Four, One-year
Lease
Customer Legend:
Abbreviation
Customer
AL DOC
Alabama Department of Corrections
AK DOC
Alaska Department of Corrections
AZ DOC
Arizona Department of Corrections
BOP
Federal Bureau of Prisons
CDCR
California Department of Corrections & Rehabilitation
CO DOC
Colorado Department of Corrections
FL DOC
Florida Department of Corrections
FL DMS
Florida Department of Management Services
GA DOC
Georgia Department of Corrections
ICE
U.S. Immigration & Customs Enforcement
ID DOC
Idaho Department of Corrections
IN DOC
Indiana Department of Correction
IGA
Inter-governmental Agreement
IL DASA
Illinois Department of Alcoholism and Substance Abuse
LA DOC
Louisiana Department of Corrections
NJ DOC
New Jersey Department of Corrections
NM DOC
New Mexico Department of Corrections
NSW
Commissioner of Corrective Services for New South Wales, Australia
OK DOC
Oklahoma Department of Corrections
PA DOC
Pennsylvania Department of Corrections
PNB
Province of New Brunswick
QLD DCS
Department of Corrective Services of the State of Queensland, Australia
RSA DCS
Republic of South Africa Department of Correctional Services
SC Dept of Juvenile Justice
South Carolina Department of Juvenile Justice
SD DOC
South Dakota Department of Corrections
TDCJ
Texas Department of Criminal Justice
TYC
Texas Youth Commission
UKBA
United Kingdom Border Agency
USMS
United States Marshals Service
VA DOC
Virginia Department of Corrections
VIC DOJ
Department of Justice of the State of Victoria, Australia
VT DOC
Vermont Department of Corrections
WA DOC
Washington Department of Corrections
(1)
Capacity as used in the table refers to operational capacity consisting of total beds for all facilities except for certain Non-Residential Service Centers under Youth Services for which we have provided service capacity which represents the number of juveniles that can be serviced daily.
(2)
For Youth Services Non-Residential Service Centers, the contract commencement date represents either the program start date or the date that the facility operations were acquired by our subsidiary. The service agreements under these arrangements provide for services on an as-contracted basis and there are no guaranteed minimum populations or management contracts with specified renewal dates. These arrangements are more perpetual in nature. For acquired operations, the commencement date is the original date of contract.
(3)
GEO provides services at these facilities through various Inter-Governmental Agreements, or IGAs, through the various counties and other jurisdictions.
(4)
The contract for this facility only requires GEO to provide maintenance services.
(5)
The Colorado Day Reporting Centers provide many of the same services as the full-service Day Reporting Centers, but rather than providing these services through comprehensive treatment plans dictated by the governing authority, these services are provided on a fee for service basis. Such services may be connected to government agency contracts and would be reimbursed by those agencies. Other services are offered directly to offenders allowing them to meet court-ordered requirements and are paid by the offender as the service is provided.
(6)
These contracts for each of the D. Ray James Correctional Facility, Rivers Correctional Facility and Moshannon Valley Correctional Facility expire on January 31, 2021, March 31, 2021 and March 31, 2021, respectively. Please see the discussion above under Recent Developments - Contract Expirations.
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-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. Because most of our contracts for youth services do not guarantee placement or revenue, we have not considered these contracts to ever be in the renewal or re-bid stage since they are more perpetual in nature. As such, the contracts for youth services are not considered as renewals or re-bids nor are they included in the table below. We count each government customer’s 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 December 31, 2020, 54 of our facility management contracts representing approximately 40,000 beds are scheduled to expire on or before December 31, 2021, unless renewed by the customer at its sole option in certain cases, or unless renewed by mutual agreement in other cases. These contracts represented approximately 33% of our consolidated revenues for the year ended December 31, 2020. We undertake substantial efforts to renew our facility management contracts. Our average historical facility management contract renewal rate approximates 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 December 31, 2020, 22 of our facility management contracts as well as certain of our other management contracts that are also subject to competitive re-bid may be subject to competitive re-bid in 2021. These contracts in the aggregate represented 10% and approximately $239 million of our 2020 consolidated revenues. 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
11,847
5,485
3,910
1,031
7,460
Thereafter
33,881
Total
63,614
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 public-private partnerships for secure service facilities; our reputation; and our pricing. We compete
directly with the public sector, where governmental agencies responsible for the operation of secure services, processing services, youth services, community-based services and reentry facilities are often seeking to retain projects that might otherwise become a public-private partnership. In the private sector, our U.S. Secure Services and International Services business segments compete with a number of companies, including, but not limited to: Core Civic; Management and Training Corporation; Emerald Companies; LaSalle Southwest Corrections; Group 4 Securicor; Sodexo Justice Services (formerly 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 youth services and community based services industry. BI’s electronic monitoring business competes with a number of companies, including, but not limited to: G4 Justice Services, LLC and 3M Electronic Monitoring, a 3M Company. 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.
Human Capital Resources
The Company’s key human capital management objectives are to attract, retain and develop the highest quality talent. To support these objectives, the Company’s human resources programs are designed to develop talent to prepare them for critical roles and leadership positions for the future; reward and support employees through competitive pay, benefit, and perquisite programs; enhance the Company’s culture through efforts aimed at making the workplace more engaging and inclusive; acquire talent and facilitate internal talent mobility to create a high-performing, diverse workforce; and evolve and invest in technology, tools, and resources to enable employees at work.
At December 31, 2020, we had approximately 20,000 full-time employees. Of our full-time employees, approximately 430 were employed at our corporate headquarters and regional offices and approximately 20,000 were employed at facilities and international offices. We employ personnel in positions of management, administrative and clerical, security, educational services, human resource services, health services and general maintenance at our various locations.
Approximately 6,000 and 1,400 employees are covered by collective bargaining agreements in the United States and at international offices, respectively. GEO welcomes the participation of labor unions in our facilities and respects the rights of individual employees to choose whether or not to join labor organizations. We actively participate in the collective bargaining process, negotiate in good faith and maintain excellent working relationships with each of the unions representing our employees. As a result, over the years, GEO has not experienced any significant or major labor actions, such as strikes or work stoppages.
Training
GEO has a robust training program for staff at all levels of the organization. Our training of managerial, administrative, and security staff is based on the standards set by the American Correctional Association. Training includes classroom learning, practical exercises, course examinations, and on-the-job training. GEO’s corporate policy also mandates that every new employee receive orientation training prior to undertaking any assignments
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 individuals within our care, 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 individuals within our care 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 individuals within our care. 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 individuals within our care and receive additional training of approximately 25 hours annually.
With respect to BI and the ISAP services contract, new employees are required to complete training requirements as outlined in the contract within 14 days of hire and prior to being assigned autonomous ISAP related duties. These employees receive 25 hours of refresher training annually thereafter. Program managers for our ISAP contract must receive 24 hours of additional initial training. BI’s monitoring services maintains its own comprehensive certification and training program for all monitoring service specialists. We require all new personnel hired for a position in monitoring operations to complete a seven-week training program. Successful completion of our training
program and a final certification is required of all of our personnel performing monitoring operations. We require that certification is achieved prior to being permitted to work independently in the call center.
Health, wellness and employee resources
GEO’s benefit offerings are designed to meet the varied and evolving needs of a diverse workforce across businesses and geographies. GEO offers a comprehensive employee benefits program that is competitive for each of the various locations in which we operate across the United States which are designed to develop, attract and retain personnel. The variety of our benefit offerings is designed to provide individual employees with the flexibility to choose coverage options and benefits that best meet their needs and address their priorities
As the COVID-19 pandemic has impacted communities across the United States and around the world, our employees have also been impacted by the spread of COVID-19. Ensuring the health and safety of our employees and all those in our care has always been our number one priority. We advise our employees to remain home if they exhibit flu-like symptoms, and we have exercised and continue to exercise flexible paid leave and paid time off policies to allow for employees to remain home if they exhibit flu-like symptoms or to care for a family member.
Career Growth and Development
GEO employees and their family members (parent, spouse and child) are eligible to further pursue their educational goals by receiving reduced tuition rates on a variety of accredited on-line degree programs in business, education, healthcare and other disciplines provided at 14 different higher educational institutions. A tuition reimbursement program is also available for GEO employees pursuing their education as they work to develop their skills and enhance their job performance. Tuition reimbursement is provided to eligible employees for courses offered by accredited colleges, universities, and secretarial and trade schools. Separately, GEO’s subsidiary, BI Incorporated, offers an education assistance program to its full-time employees with at least one year of service. Employees who enroll in the program are eligible to receive up to $3,500 a year in tuition reimbursement.
Diversity and Inclusion
In all areas of our business, GEO strives to achieve wider racial and ethnic diversity. In 2020, two of our board seats were held by members of minority communities. Across our organization, under-represented minorities of the United States of America - including African Americans, Hispanic and Latino, Asian, Pacific Islander, Native Hawaiian and Native American/Alaskan - currently account for 64% of our U.S. employees. Minorities comprise 42% of GEO’s corporate workforce, 70% of our facility security staff, and 29% of those serving in management positions as directors or above.
Additionally, women comprise an equal portion of GEO’s U.S. workforce and play a significant role in our leadership and management. Women are also involved at the highest levels of our organization. Of the nine members of GEO’s Board of Directors in 2020, two are women. In 2018, the organization 2020 Women on Boards recognized GEO Group as a Winning Company for its commitment to board diversity. Winning Companies champion board diversity by having 20% or more of their board seats held by women. This marked the fourth consecutive year in which GEO had been recognized by 2020 Women on Boards, whose goal is to increase the percentage of women on all corporate boards to 20 percent by 2020.
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.
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, product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, contractual claims and claims for personal injury or other damages resulting from contact with our facilities, programs, electronic monitoring products, personnel or prisoners, including damages arising from a prisoner’s escape or from a disturbance or riot at a facility. In addition, our management contracts generally require us to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. We maintain a broad program of insurance coverage for these general types of claims, except for claims relating to employment matters, for which we carry no insurance. There can be no assurance that our insurance coverage will be adequate to cover all claims to which we may be exposed. It is our general practice to bring merged or acquired companies into our corporate master policies in order to take advantage of certain economies of scale.
We currently maintain a general liability policy and excess liability policies with total limits of $70.0 million per occurrence and $90 million in total general liability annual aggregate limits covering the operations of U.S. Secure Services, GEO Care's community-based services, GEO Care's youth services and BI. We have a claims-made liability insurance program with a specific loss limit of $40.0 million per occurrence and in the aggregate related to medical professional liability claims arising out of correctional healthcare services. We are uninsured for any claims in excess of these limits. We also maintain insurance to cover property and other casualty risks including, workers’ compensation, environmental liability and cybersecurity liability.
For most casualty insurance policies, we carry substantial deductibles or self-insured retentions of $3.0 million per occurrence for general liability and medical professional liability, $2.0 million per occurrence for workers’ compensation and $1.0 million per occurrence for automobile liability. In addition, certain of our facilities located in Florida and other high-risk hurricane areas carry substantial windstorm deductibles. Since hurricanes are considered unpredictable future events, no reserves have been established to pre-fund for potential windstorm damage. Limited commercial availability of certain types of insurance relating to windstorm exposure in coastal areas and earthquake exposure mainly in California and the Pacific Northwest may prevent us from insuring some of our facilities to full replacement value.
With respect to our operations in South Africa, the United Kingdom and Australia, we utilize a combination of locally-procured insurance and global policies to meet contractual insurance requirements and to protect us. In addition to these policies, our Australian subsidiary carries tail insurance on a general liability policy related to a discontinued contract.
Of the reserves discussed above, our most significant insurance reserves relate to workers’ compensation, general liability and auto claims. These reserves are undiscounted and were $78.9 million and $68.2 million as of December 31, 2020 and 2019, respectively and are included in accrued expenses in the accompanying balance sheets. We use statistical and actuarial methods to estimate amounts for claims that have been reported but not paid and claims incurred but not reported. In applying these methods and assessing their results, we consider such factors as historical frequency and severity of claims at each of our facilities, claim development, payment patterns and changes in the nature of our business, among other factors. Such factors are analyzed for each of our business segments. Our estimates may be impacted by such factors as increases in the market price for medical services and unpredictability of the size of jury awards. We also may experience variability between our estimates and the actual settlement due to limitations inherent in the estimation process, including our ability to estimate costs of processing and settling claims in a timely manner as well as our ability to accurately estimate our exposure at the onset of a claim. Because we have high deductible insurance policies, the amount of our insurance expense is dependent on our ability to control our claims experience. If actual losses related to insurance claims significantly differ from our estimates, our financial condition, results of operations and cash flows could be materially adversely impacted.
International Operations
Our international operations for fiscal years 2020, 2019 and 2018 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 three facilities. We operate one facility in South Africa through SACM. Our wholly owned subsidiary in the United Kingdom, The GEO Group UK Ltd., operates the 217-bed Dungavel House Immigration Removal Centre located near Glasgow, Scotland. 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 Note-15 Business Segments and Geographic Information in the notes to our audited consolidated financial statements included in Part II, Item 8 of this annual report on Form 10-K.
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 for these years.
Customer
Various agencies of the U.S. Federal Government:
%
%
%
Credit risk related to accounts receivable is reflective of the related revenues. The margins on our federal contracts are above the company average due to the fact that they are company-owned facilities.
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 SEC’s website is located at http://www.sec.gov. Information provided on our website or on the SEC’s website is not part of this Annual Report on Form 10-K.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Summary of Risk Factors
The risk factors summarized and detailed below could materially adversely affect our business, financial condition, or results of operations, impair our future prospects and/or cause the price of our common stock to decline. Additional risks not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business operations. Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to:
Risks Related to Public-Private Partnerships
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Public opposition to the use of public-private partnerships could have a material adverse effect.
Risks Related to Our High Level of Indebtedness
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Our level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt service obligations.
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We may not be able to refinance our debt as it matures because many banks are unwilling to loan money to private operators of secure correctional and detention facilities, processing centers, and reentry centers or assist us in capital markets transactions in which we could sell debt or equity securities. Specifically, of the 65 banks in our lending syndicate, six have informed us that they will not renew their lending commitments to us when such commitments expire in 2024. These six banks represent 54% of the lending commitments under the revolver component of our senior credit facility. If we cannot generate sufficient free cash flow to service our debt or convince our lenders to refinance our debt or assist us in capital markets transactions to raise funds to refinance our debt, we may be required to divest assets or take other actions to repay debt.
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We are incurring significant indebtedness in connection with substantial ongoing capital expenditures.
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We may still incur more indebtedness which could further exacerbate the risks described above.
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Our borrowing costs and access to capital and credit markets could be adversely affected by a downgrade or potential downgrade of our credit ratings.
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The covenants in the indentures governing our outstanding senior notes and our credit facility impose significant operating and financial restrictions.
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Servicing our indebtedness will require a significant amount of cash.
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A general increase in interest rates would adversely affect cash flows.
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We depend on distributions from our subsidiaries to make payments on our indebtedness.
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We may not be able to satisfy our repurchase obligations in the event of a change of control.
Risks Related to COVID-19 and its Impact on our Business
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COVID-19 has and we expect it will continue to adversely impact and disrupt our business.
Risks Related to Our Business and Services
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The loss of, or a significant decrease in revenues from, our limited number of customers could seriously harm our financial condition and results of operations.
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A decrease in occupancy levels could cause a decrease in revenues and profitability.
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State budgetary constraints may have a material adverse impact on us.
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Loss of our facility management contracts could adversely affect our results of operations and liquidity.
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Our growth depends on our ability to secure contracts to develop and manage new secure facilities, processing centers, and community based facilities and to secure contracts to provide electronic monitoring services, community based reentry services and monitoring and supervisions services, the demand for which is outside our control. .
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We may not be able to meet state requirements for capital investment or locate land for the development of new facilities.
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Competition for contracts may adversely affect the profitability of our business.
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We are dependent on government appropriations.
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Operating youth services facilities poses certain unique or increased risks and difficulties.
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Adverse publicity may negatively impact our ability to retain existing contracts and obtain new contracts.
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We may incur significant start-up and operating costs on new contracts before receiving related revenues.
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We may face community opposition to facility locations, which may adversely affect our ability to obtain new contracts.
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Catastrophic events could disrupt operations and otherwise materially adversely affect our business.
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Our international operations expose us to risks that could materially adversely affect our financial conditions and results of operations.
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We conduct certain of our operations through joint ventures or consortiums.
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Our results could be impacted by our ability to obtain adequate levels of surety credit.
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We are dependent upon our senior management and our ability to attract and retain sufficient qualified personnel.
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Adverse developments in our relationship with our employees could adversely affect our business.
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Our profitability may be adversely affected by inflation.
Risks Related to REIT Status
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If we fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability.
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Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”).
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Complying with the REIT requirements may cause us to liquidate or forgo otherwise attractive opportunities.
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Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
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REIT distribution requirements could adversely affect our ability to execute our business plan.
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Our cash distributions are not guaranteed and may fluctuate.
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Securityholders could be required to pay income taxes in excess of the cash dividends you receive.
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Certain of our business activities may be subject to corporate level income tax and foreign taxes.
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REIT ownership limitations may restrict or prevent shareholders from engaging in certain transfers of our common stock.
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Our use of TRSs may cause us to fail to qualify as a REIT.
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New actions could make it more difficult or impossible for us to maintain our qualification as a REIT.
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Our Board may revoke our REIT status at any time.
Risks Related to Real Estate and Construction Matters
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Various risks associated with the ownership of real estate may adversely affect our results of operations.
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Risks related to facility construction and development activities may increase our costs.
Risks Related to the Capital Markets and its Impact on our Business
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Negative conditions in the capital markets could prevent us from obtaining financing.
Risks Related to our Electronic Monitoring Products and Technology
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Technological changes could cause a material adverse effect on our business.
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Any negative changes in the level of acceptance of or resistance to the use of electronic monitoring products and services by government customers could have a material adverse effect on our business, financial condition and results of operations.
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Our electronic monitoring products and services could be harmed due to third party suppliers.
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An inability to acquire, protect or maintain our intellectual property could harm our ability to compete.
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Our electronic monitoring products could infringe on the intellectual property rights of others.
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We license intellectual property rights in the electronic monitoring space, including patents, from third party owners. If such owners do not properly maintain or enforce the intellectual property underlying such licenses, our competitive position and business prospects could be harmed. Our licensors may also seek to terminate our license.
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We may be subject to costly product liability claims from the use of our electronic monitoring products.
Risks Related to Information Technology and Cybersecurity
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The interruption of our services or information systems could adversely affect our business.
Risks Related to Acquisitions
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We may not be able to successfully identify, consummate or integrate acquisitions.
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Our goodwill or other intangible assets may become impaired.
Risks Related to Legal, Regulatory and Compliance Matters
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Failure to comply with regulations and contractual requirements could have a material adverse effect.
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Our business operations expose us to various liabilities for which we may not have adequate insurance.
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We may not be able to obtain or maintain the insurance levels required by our government contracts.
Risks Related to Corporate Social Responsibility
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We are subject to risks related to corporate social responsibility.
Risks Related to Our Common Stock
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The market price of our common stock may vary substantially.
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Future sales of shares of our common stock could adversely affect the market price of our common stock and may be dilutive to current shareholders.
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Various anti-takeover protections applicable to us may make an acquisition of us more difficult and reduce the market value of our common stock.
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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.
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We may issue additional debt securities that could limit our operating flexibility and negatively affect the value of our common stock.
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. The risks described below are not the only risks we face. Additional risks not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business operations.
Risks Relating to Public-Private Partnerships
Public and political opposition to the use of public-private partnerships for secure facilities, processing centers and community reentry centers could result in our inability to obtain new contracts or the loss of existing contracts, impact our ability to obtain or refinance debt financing or enter into commercial arrangements, which could have a material adverse effect on our business, financial condition, results of operations and the market price of our securities.
The management and operation of secure facilities, processing centers and community reentry centers under public-private partnerships 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 and centers to private sector companies or they may be instructed by a governmental agency or authority overseeing them to reduce their utilization or scope of public-private partnerships or undertake additional reviews of their public-private partnerships. Any report prepared by or requested by a governmental agency or public official, investigation or inquiry, public statement by any governmental agency or public official, policy or legislative change by any federal, state or local government, or other similar occurrence or action, that seeks to, or purports to, prohibit, eliminate, or otherwise restrict or limit in any way, the federal government’s (or any state or local government’s) ability to contract with private sector companies for the operation of these facilities and centers, could adversely impact our ability to maintain or renew existing contracts or to obtain new contracts.
On January 26, 2021, President Biden signed an Executive Order directing the United States Attorney General not to renew Department of Justice contracts with privately operated criminal detention facilities. Two agencies of the DOJ, the Bureau of Prisons (“BOP”) and U.S. Marshals Service (“USMS”), utilize our services. The BOP houses inmates who have been convicted, and the USMS is generally responsible for detainees who are awaiting trial. As a result of the Executive Order, we expect that our contracts with the BOP may not be renewed over the coming years. With respect to the USMS, it may determine to conduct a review of the possible application of the Executive Order on their facilities acquired primarily through intergovernmental agreements, and to a lesser extent, direct contracts. President Biden’s administration may implement further executive orders or directives relating to federal criminal justice policies and immigration policies which may impact the federal government’s use of public-private partnerships with respect to correctional and detention needs, including with respect to our contracts, and/or may impact the budget and spending priorities of federal agencies, including ICE.
Various state partners have or may choose in the future to undertake a review of their utilization of public-private partnerships. For example, California has enacted legislation aimed at phasing out public-private partnership contracts for the operation of secure facilities within California and facilities outside of the state of California housing state of California inmates. Additionally, we have public-private partnership contracts in place with ICE, the BOP and the U.S. Marshals Service relating to facilities located in California. As we previously disclosed, our contract for our Central Valley facility was discontinued by the State of California at the end of September 2019, and our two other California secure facility contracts for our Desert View and Golden State Facilities expired during 2020. During the fourth quarter of 2019, we signed two 15-year contracts with ICE for five company-owned facilities in California totaling 4,490 beds and a managed-only contract with the U.S. Marshals Service for the government-owned, 512-bed El Centro Service Processing Center in California. Although these contracts were entered into prior to January 1, 2020, the effective date of the legislation, we cannot assure you that there will not be public resistance to the implementation of these contracts, including litigation that may result in increased legal fees and costs. Additionally, we and the U.S. Department of Justice have filed separate legal actions challenging the constitutionality of the attempted ban on new federal contracts entered into after the effective date of the California law. We cannot assure you that we will be successful in challenging the constitutionality of the attempted ban on new federal contracts, obtaining a conclusion to such litigation on a prompt basis, or managing efficiently the costs to be incurred by us and the use of management time and resources on such litigation. Currently, the State of Arizona, the State of New Mexico and the State of Washington have proposed legislation similar to the California law. The Delaware County Council has also been exploring how to end the public-private partnership for GEO’s managed-only contract for the 1,883-bed George W. Hill Correctional Facility located in Thornton, Pennsylvania and transition the operations to the government. The Pennsylvania facility generates approximately $46 million in annualized revenue for GEO.
In addition, the movement toward using public-private partnerships for such facilities and centers has encountered resistance from groups which believe that such facilities and centers should only be operated by governmental agencies. For example, several financial institutions, including some of our lenders, have announced that they will not be renewing existing agreements or entering into new agreements with companies that operate such facilities and centers pursuant to public-private partnerships. Some of these same institutions have ceased their equity analyst coverage of our company. Proposed and future legislation could indirectly impose additional financial restrictions with respect to our business. As an example, New York State Senate Bill S5433A that passed the state senate in February 2020 and is currently in front of the Assembly Banks Committee prohibits New York state chartered banking institutions from investing in and providing financing for privately operated secure facilities. If this bill is ultimately signed into law by the New York governor, certain banks may be restricted from conducting financing activities with us and the secure services sector generally. This bill or any similar bills, regulations and laws that may be
proposed in the future may be subject to legal actions and the resolution of such legal actions may take several years, making it difficult to anticipate the overall financial impact on us, our business, financial condition or results of operations. If other financial institutions or third parties that currently provide us with financing or that we do business with decide in the future to cease providing us with financing or doing business with us, such determinations could have a material adverse effect on our business, financial condition and results of operations.
Increased public and political opposition to the use of public-private partnerships for our facilities and centers 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, results of operations and the market price of our securities.
Risks Related to Our High Level of Indebtedness
Our 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 indebtedness as of December 31, 2020 and 2019 was approximately $2.6 billion and $2.4 billion, respectively, excluding non-recourse debt of $344.6 million and $328.2 million, respectively, and finance lease obligations of $5.0 million and $4.6 million, respectively. As of December 31, 2020 and 2019, we had $59.6 million and $61.9 million, respectively, outstanding in letters of credit and $704.4 million and $520.7 million, respectively, in borrowings outstanding under our revolver. As of December 31, 2020, we had the ability to borrow $136.0 million under our revolver, after applying the limitations and restrictions in our debt covenants and subject to our satisfying the relevant borrowing conditions under our senior credit facility with respect to the incurrence of additional indebtedness. At December 31, 2020, we also had approximately AUD 59 million in letters of credit outstanding under our Australian letter of credit facility in connection with certain performance guarantees related to the Ravenhall Prison Project. We also have the ability to increase our senior credit facility by an additional $450 million, subject to lender demand and prevailing market conditions and satisfying the relevant borrowing conditions.
Our substantial indebtedness could have important consequences. For example, it could:
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make it more difficult for us to satisfy our obligations with respect to our senior notes and our other debt and liabilities;
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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 including to make distributions on our common stock as currently contemplated or necessary to maintain our qualification as a REIT;
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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;
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restrict us from pursuing strategic acquisitions or exploiting certain business opportunities;
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limit our ability to borrow additional funds or refinance existing indebtedness on favorable terms; and
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require us to sell assets or take other actions to service our debt obligations.
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. The term loan under our senior credit facility matures in March 2024 and the revolver under our senior credit facility matures in May 2024. Additionally, our outstanding four series of senior notes mature in January 2022, April 2023, October 2024 and April 2026. Beginning in 2019, several financial institutions, including some of our lenders, announced that they will not be renewing existing agreements or entering into new agreements with companies that operate secure services facilities and centers pursuant to public-private partnerships. We may not continue to have access to the debt and capital markets on a cost-effective basis, or at all. For example, six of the 65 lenders in our lending syndicate have indicated that they will not renew their lending commitments to us when such commitments expire in 2024 because we are a private operator of secure correctional and detention facilities, processing centers, and reentry centers. These six banks represent 54% of the lending commitments under the revolver component of our senior credit facility. Certain lenders also have publicly disclosed that they will no longer loan money to one of our key competitors. Reasons for this limited accessibility include that financial institutions may be unwilling to engage with us. This may restrict our access to the debt and capital markets to support our operations or refinance our indebtedness, including by obtaining debt financing, equity financing or selling assets on satisfactory terms, or at all. This could materially increase the cost of capital and as a result have a material adverse effect on our business, financial condition and results of operations. In addition, our ability to incur additional indebtedness will be restricted by the terms of our senior credit facility, the indenture governing the 6.00% Senior Notes, the indenture governing the 5.125% Senior Notes, the indenture governing the 5.875% Senior Notes due 2022 and the indenture governing the 5.875% Senior Notes due 2024.
We are incurring significant indebtedness in connection with substantial ongoing capital expenditures. Capital expenditures for existing and future projects may materially strain our liquidity.
We currently have several active projects that we anticipate spending approximately $104 million on capital expenditures in 2021. Included in these projects is approximately $26 million of capital expenditures related to facility maintenance costs. We intend to finance these and future projects using our own funds, including cash on hand, cash flow from operations and borrowings under the revolver. In addition to these current estimated capital requirements for 2021, 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 2021 could materially increase. As of December 31, 2020 we had the ability to borrow $136.0 million under the revolver after applying the limitations and restrictions in our debt covenants and subject to our satisfying the relevant borrowing conditions under the senior credit facility. In addition, we have the ability to increase the senior credit facility by an additional $450 million, subject to lender demand and prevailing market conditions and satisfying the relevant borrowing conditions thereunder. While we believe we currently have adequate borrowing capacity under our senior credit facility to fund our operations and 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.
Despite current indebtedness levels, we may still incur more indebtedness, which could further exacerbate the risks described above.
The terms of the indentures governing the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 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 December 31, 2020, we had the ability to borrow an additional $136.0 million under the revolver portion of our senior credit facility after applying the limitations and restrictions in our debt covenants and subject to our satisfying the relevant borrowing conditions under the senior credit facility. We also would have the ability to increase the senior credit facility by an additional $450 million, 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, the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024. 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 now face related to our significant level of indebtedness could intensify.
Our borrowing costs and access to capital and credit markets could be adversely affected by a downgrade or potential downgrade of our credit ratings.
Rating agencies routinely evaluate us, and their ratings of our long-term and short-term debt are based upon a number of factors, including our cash generating capability, levels of indebtedness, policies with respect to shareholder distributions and financial strength generally, as well as factors beyond our control, such as the then-current state of the economy and our industry generally. Any downgrade of our credit ratings by a credit rating agency, whether as a result of our actions or factors which are beyond our control, can increase our future borrowing costs, impair our ability to access capital and credit markets on terms commercially acceptable to us or at all and result in a reduction in our liquidity. Our borrowing costs and access to capital markets also can be adversely affected if a credit rating agency announces that our ratings are under review for a potential downgrade. An increase in our borrowing costs, limitations on our ability to access the global capital and credit markets or a reduction in our liquidity can adversely affect our financial condition, results of operations and cash flows.
The covenants in the indentures governing the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 and the covenants in our Senior Credit Facility impose significant operating and financial restrictions which may adversely affect our ability to operate our business.
The indentures governing the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 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 pay 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.
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 a maximum senior secured leverage ratio and total leverage ratio, and a minimum interest coverage ratio. 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, the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022, the 5.875% Senior Notes due 2024, or any other indebtedness could prevent us from being able to draw on the 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 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 and we may not be able to generate the cash required to service our indebtedness.
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 debt securities, including the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022, and the 5.875% Senior Notes due 2024, or to fund our other liquidity needs. As a result, 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. For example, six of the 65 lenders in our lending syndicate have indicated that they will not renew their lending commitments to us when such commitments expire in 2024 because we are a private operator of secure correctional and detention facilities, processing centers, and reentry centers. These six banks represent 54% of the lending commitments under the revolver component of our senior credit facility. Certain lenders also have publicly disclosed that they will no longer loan money to one of our key competitors. If for any reason we are unable to meet our debt service obligations, we would be in default under the terms of the agreements governing our outstanding debt. If such a default were to occur, the lenders under the senior credit facility, and holders of the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 could elect to declare all amounts outstanding immediately due and payable, and the lenders would not be obligated to continue to advance funds under the senior credit facility. If the amounts outstanding under the senior credit facility or other agreements governing our outstanding debt, were accelerated, our assets may not be sufficient to repay in full the money owed to our lenders and holders of the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 and any other debt holders.
Because portions of our senior indebtedness have floating interest rates, a general increase in interest rates would adversely affect cash flows.
Borrowings under our senior credit facility bear interest at a variable rate using a spread over, at our election, either LIBOR or an alternative base 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 currently do not have interest rate protection agreements in place to protect against interest rate fluctuations on borrowings under our senior credit facility. As of December 31, 2020, we had $1,474.4 million of indebtedness outstanding under our senior credit facility, and a one percent increase in the interest rate applicable to our senior credit facility would increase our annual interest expense by approximately $15 million. In addition, an increase in market interest rates may lead holders of our common stock to demand a higher yield on their shares from distributions by us, which could adversely affect the market price of our common stock.
Additionally, on July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021 and it is unclear whether new methods of calculating LIBOR will be established. If LIBOR ceases to exist after 2021, our borrowings will bear interest at an alternative base rate plus a spread, and our ability to borrow in currencies other than U.S. dollars will be limited, in each case until such a time as a comparable or successor reference rate for LIBOR is approved by the administrative agent, or agreed to by the Company and the lenders under our senior credit facility. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index, calculated based on repurchase agreements backed by treasury securities. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United States or elsewhere. To the extent these interest rates increase, our interest expense will increase, which could adversely affect our financial condition, operating results and cash flows.
We depend on distributions from our subsidiaries to make payments on our indebtedness. These distributions may not be made.
A substantial portion of our business is conducted by our subsidiaries. Therefore, our ability to meet our payment obligations on our indebtedness is substantially dependent on the earnings of certain 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 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 year ended December 31, 2020, our subsidiaries accounted for 61.5% of our consolidated revenues, and as of December 31, 2020, our subsidiaries accounted for 95.0% of our total assets.
We may not be able to satisfy our repurchase obligations 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 as specified in the indentures governing the terms of our senior notes, each holder of the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 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 the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 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. Our failure to purchase any of the senior notes would be a default under the indenture governing such notes, which in turn would trigger a default under the senior credit facility and the indentures governing the other senior notes.
Risks Related to COVID-19 and its Impact on our Business
The current pandemic of the novel coronavirus, or COVID-19, has and we expect it will continue to adversely impact and disrupt our business, and such impacts may have a material adverse effect on our results of operations, financial condition and liquidity.
Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
Most of our facilities have experienced cases of COVID-19 in both our staff and individuals entrusted to our care. We have taken a number of comprehensive steps and measures to mitigate the transmission and risks of COVID-19 which we have outlined in our annual report on Form 10-K for the year ended December 31, 2020, including issuing guidance to all of our facilities that is consistent with the guidance issued for correctional and detention facilities by the Centers for Disease Control and Prevention; as the guidance has evolved updating our policies and procedures to include best practices for the prevention, assessment, and management of COVID-19, including the implementation of quarantine and cohorting procedures to isolate confirmed and presumptive cases of COVID-19; ordering and receiving COVID-19 swab kits; purchasing and distributing personal protective equipment, including facemasks to all staff and individuals in our care at our facilities; increasing the frequency of distribution of personal hygiene products, including soap, shampoo and body wash and tissue paper; and administering COVID-19 vaccines in accordance with applicable guidelines on vaccine distribution. We will continue to evaluate and refine these steps and measures as appropriate and necessary based on updated guidance by the CDC and best practices. Additionally, we have increased our spending on personal protective equipment, diagnostic testing, medical expenses, temperature scanners, protective plexiglass barriers and increased sanitation as a result of COVID-19 and have incurred several millions of dollars in such costs in 2020 which we expect to continue into 2021. However, these steps and measures as well as the implementation of the COVID-19 vaccine roll-out in the jurisdictions we operate in and the ultimate effectiveness of the COVID-19 vaccine may prove to be insufficient in stopping or slowing the transmission of
COVID-19 and the risks it poses to our staff and individuals entrusted to our care or may result in us spending more in additional expenditures than currently contemplated. If we were to be unable to fully staff our secure facilities, processing centers and community reentry centers due to confirmed or suspected COVID-19 cases, it could result in negative consequences, including fines, other penalties, or contract cancellations. Additionally, our government partners could require us to transfer inmates or detainees to other facilities in the event of a COVID-19 outbreak at one of our facilities.
Certain states and cities in the U.S. have also responded to COVID-19 by instituting quarantines, restrictions on travel, “shelter in place” rules, and restrictions on types of businesses that may continue to operate. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly. Even though we have continued our operations as an essential government service provider, the spread of COVID-19 has resulted in lower occupancy at a number of our facilities and programs beginning in late March and continuing throughout 2020 into 2021 and is therefore expected to continue to result in lower full year revenues, primarily for our ICE and U.S. Marshal facilities and our GEO Reentry Services business. Our ICE and U.S. Marshals facilities have experienced lower overall occupancy as a result of declines in crossings and apprehensions along the Southwest border, as well as a decrease in court and sentencing activity at the federal level. Additionally, the federal government issued COVID-19 operational guidance recommending the reduction to 75% capacity at ICE Processing Centers where possible to promote social distancing practices. The BOP has also experienced a decline in overall populations in part as a result of the COVID-19 pandemic. Certain government agencies have released, may be considering releasing, or may be under pressure to release, certain inmates and detainees as a result of COVID-19. It is possible that government agencies, which may include our government partners, could release certain inmates and detainees from secure facilities, processing centers and community reentry centers, which could reduce the utilization of our facilities and our services. The BOP and or other government agencies may choose to evaluate their future capacity needs, not renew or rebid existing contracts or to seek contract modifications or contract terminations due to lower occupancies or for cost-cutting purposes due to the COVID-19 pandemic.
The effects of COVID-19 on our business, as well as actions we have taken or may take, or decisions we have made or may make, as a consequence of COVID-19, may result in legal claims or litigation against us. Litigation can be costly, regardless of the outcome. Any financial liability, litigation costs or reputational damage caused by COVID-19 related litigation could have a material adverse impact on our business, financial condition and results of operations.
The COVID-19 pandemic has had repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. Currently, the capital markets and credit markets have been disrupted by the COVID-19 pandemic and our ability to obtain any additional financing on favorable terms, or at all, is not guaranteed and largely dependent upon evolving market conditions and other factors. Depending on the magnitude and duration of the COVID-19 pandemic, the adverse impact of the COVID-19 pandemic on our business, results of operations, financial condition and liquidity could be material. Even when the COVID-19 pandemic has subsided, we may continue to experience significant adverse effects to our business as a result of its global economic impact, including any economic recession or downturn and the possibility this will result in government budgetary constraints or any changes to a government’s willingness to maintain or grow public-private partnerships in the future.
Risks Related to Our Business and Services
We partner with a limited number of governmental customers who account for a significant portion of our revenues. The loss of, or a significant decrease in revenues 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 partners, four customers, through multiple individual contracts, accounted for 55.8% and 52.6% of our consolidated revenues for the year ended December 31, 2020 and 2019, respectively. In addition, three federal governmental agencies with correctional and detention responsibilities, the BOP, ICE, and the U.S. Marshals Service, accounted for 55.0% and 51.8% of our total consolidated revenues for the year ended December 31, 2020 and 2019, respectively, through multiple individual contracts, with the BOP accounting for 14.0% and 11.9% of our total consolidated revenues for 2020 and 2019, respectively, ICE accounting for 28.2% and 28.6% of our total consolidated revenues for 2020 and 2019, respectively, and the U.S. Marshals Service accounting for 12.7% and 11.3% of our total consolidated revenues for 2020 and 2019, respectively. However, no individual contract with these clients accounted for more than 10.0% of our total consolidated revenues for 2020. Government agencies from the State of Florida accounted for approximately 5% of our total consolidated revenues for the year ended December 31, 2020 through multiple individual contracts.
Our contract with the BOP for our company-owned, 1,450-bed Rivers Correctional Facility ends on March 31, 2021 and in the fourth quarter of 2020 we were notified by the BOP that it has decided not to rebid the contract. In June 2020, we were also notified that the BOP will not be resoliciting the 1,900 beds at our company-owned D Ray James Correctional Facility in Folkston, Georgia which expired on January 31, 2021. In the first quarter of 2021 we were notified by the BOP that it has decided not to exercise the contract renewal option for the Moshannon Valley Correctional Facility in Pennsylvania when the contract base period expires on March 31, 2021. The Rivers Correctional Facility, D Ray James Correctional Facility and Moshannon Valley Correctional Facility generated approximately $43 million, $60 million, and $42 million, respectively, in annualized revenues for GEO. Lastly, our contracts with the BOP for our company-owned Great Plains 1,940-bed Correctional
Facility, our company-owned Big Spring 1,732-bed Correctional Facility, our company-owned 1,800-bed Flightline Correctional Facility, our company-owned Northlake 1,800-bed Correctional Facility, our county managed Reeves County 1,800-bed Detention Center I & II, and our county managed Reeves County 1376-bed Detention Center III are up for renewal on May 31, 2021, November 30, 2021, November 30, 2021, September 30, 2022, September 30, 2022 and June 30, 2022, respectively. The Great Plains, Big Spring, Flightline, Northlake Correctional Facilities, Reeves County Detention Center I & II and Reeves County Detention Center III generate approximately $35 million, $33 million, $35 million, $35 million, $4 million and $3 million respectively, in annualized revenues for GEO.
Our revenues depend on our governmental customers receiving sufficient funding and providing us with timely payment under the terms of our contracts. If the applicable governmental customers do not receive sufficient appropriations to cover their contractual obligations, they may delay or reduce payment to us or terminate their contracts with us. With respect to our federal government customers, any future impasse or struggle impacting the federal government’s ability to reach agreement on the federal budget, debt ceiling or any future federal government shut-downs could result in material payment delays, payment reductions or contract terminations. Additionally, our governmental customers may request in the future that we reduce our per diem contract rates or forego increases to those rates as a way for those governmental customers to control their spending and address their budgetary shortfalls.
Our governmental customers may also from time to time adopt, implement or modify certain policies or directives that may adversely affect our business. Our federal, state or local governmental partners may in the future choose to undertake a review of their utilization of public-private partnerships, or may re-negotiate, cancel or decide not to renew our existing contracts with them. For example, on January 26, 2021, President Biden signed an Executive Order directing the United States Attorney General not to renew Department of Justice contracts with privately operated criminal detention facilities. President Biden’s administration may implement further executive orders or directives relating to federal criminal justice policies and immigration policies which may impact the federal government’s use of public-private partnerships with respect to correctional and detention needs, including with respect to our contracts, and/or may impact the budget and spending priorities of federal agencies, including ICE. Various state partners have or may choose in the future to undertake a review of their utilization of public-private partnerships. For example, during the fourth quarter of 2019, the State of California enacted legislation that became effective on January 1, 2020 aimed at phasing out public-private partnership contracts for the operation of secure facilities within California and facilities outside of the State of California housing State of California inmates. Prior to such legislation, the State of California was among our top 10 customers relating to our owned and leased facilities. Additionally, we have public-private partnership contracts in place with ICE, the BOP and the U.S. Marshals Service relating to facilities located in California. As we previously disclosed, our contract for our Central Valley facility was discontinued by the State of California at the end of September 2019, and our two other California secure facility contracts for our Desert View and Golden State Facilities expired during 2020. During the fourth quarter of 2019, we signed two 15-year contracts with ICE for five company-owned facilities in California totaling 4,490 beds and a managed-only contract with the U.S. Marshals Service for the government-owned, 512-bed El Centro Service Processing Center in California. Although these contracts were entered into prior to January 1, 2020, we cannot assure you that there will not be public resistance to the implementation of these contracts, including litigation which may result in increased legal fees and costs. Additionally, we and the U.S. Department of Justice have filed separate legal actions challenging the constitutionality of the attempted ban on new federal contracts entered into after the effective date of the California law. We cannot assure you that we will be successful in challenging the constitutionality of the attempted ban on new federal contracts, obtaining a conclusion to such litigation on a prompt basis, or managing efficiently the costs to be incurred by us and the use of management time and resources on such litigation. Currently, the State of Arizona, the State of New Mexico and the State of Washington have proposed legislation similar to the California law. The Delaware County Council has also been exploring how to end the public-private arrangement for GEO’s managed-only contract for the 1,883-bed George W. Hill Correctional Facility located in Thornton, Pennsylvania and transition the operations to the government. The Pennsylvania facility generates approximately $46 million in annualized revenue for GEO.
The loss of, or a significant decrease in, our current contracts with the BOP, ICE, the 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 these federal and state agencies and a relatively small group of other governmental customers to continue to account 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 fixed-price payments that cover a portion or all of our fixed costs. However, many of our contracts have no fixed-price payments and simply provide for a per diem payment based on actual occupancy. As a result, with respect to our contracts that have no fixed-price payments, we are highly dependent upon the governmental agencies with which we have contracts to utilize our facilities. Under a per diem rate structure, a decrease in our utilization 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/or results of operations.
State budgetary constraints may have a material adverse impact on us.
Long-running pressure on state budgets had eased in 2019 amid widespread economic growth and tax revenue gains that resulted in the first budget surpluses in years for many states. The COVID-19 pandemic adversely impacted the economic expansion and budget surpluses enjoyed by numerous states. Still, some states were in a stronger position than others as they began to experience a public health emergency and their greatest fiscal and economic tests since the Great Recession of 2007-09. As of December 31, 2020, GEO had the following state clients: Florida, Georgia, Virginia, Indiana, Oklahoma, Alabama, New Jersey, New Mexico, Alaska, Arizona, Pennsylvania, Wyoming and Texas. If state budgetary conditions deteriorate, our 13 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 in states that are not our current customers could prevent those states from using public-private partnerships for secure facilities, processing centers or community based service opportunities that we otherwise could have pursued.
From time to time, we may not have a management contract with a client to operate existing beds at a facility or new beds at a facility that we are expanding and we cannot assure you that such a contract will be obtained. Failure to obtain a management contract for these beds will subject us to carrying costs with no corresponding management revenue.
From time to time, we may not have a management contract with a customer to operate existing beds or new beds at facilities that we are currently in the process of renovating and expanding. While we will always strive to work diligently with a number of different customers for the use of these beds, we cannot assure you that a contract for the beds will be secured on a timely basis, or at all. While a facility or new beds at a facility are vacant, we incur carrying costs. In our Secure Services segment, as of December 31, 2020, we were marketing 990 vacant beds with a net book value of approximately $24 million at two of our idle facilities to potential customers. In our GEO Care segment, as of December 31, 2020, we were marketing 1,100 vacant beds with a net book value of approximately $26 million at two of our idle facilities to potential customers. The combined annual carrying cost of these idle facilities in 2021 is estimated to be $6.3 million, including depreciation expense of $2.3 million. Failure to secure a management contract for a facility or expansion project could have a material adverse impact on our financial condition, results of operations and/or cash flows. We review our facilities for impairment whenever events or changes in circumstances indicate the net book value of the facility may not be recoverable. Impairment charges taken on our facilities could require material charges to our results of operations. In addition, in order to secure a management contract for these beds, we may need to incur significant capital expenditures to renovate or further expand the facility to meet potential clients’ needs.
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: (i) the termination by a government customer with or without cause at any time; (ii) 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 (iii) 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.
As of December 31, 2020, 22 of our facility management contracts were subject to competitive re-bid in 2020. These contracts in the aggregate represented 10% and approximately $239 million of our 2020 consolidated revenues. We cannot in fact assure you that we will prevail in future re-bid situations or that any competitive re-bids we win will be on terms more favorable to us than those in existence with respect to the applicable expiring contract.
Our federal, state or local governmental partners may in the future choose to undertake a review of their utilization of public-private partnerships, or may re-negotiate, cancel or decide not to renew our existing contracts with them. For example, on January 26, 2021, President Biden signed an Executive Order directing the United States Attorney General not to renew Department of Justice contracts with privately operated criminal detention facilities. President Biden’s administration may implement further executive orders or directives relating to federal criminal justice policies and immigration policies which may impact the federal government’s use of public-private partnerships with respect to correctional and detention needs, including with respect to our contracts, and/or may impact the budget and spending priorities of federal agencies, including ICE.
Our contract with the BOP for our company-owned, 1,450-bed Rivers Correctional Facility ends on March 31, 2021 and in the fourth quarter of 2020 we were notified by the BOP that it has decided not to rebid the contract. In June 2020, we were also notified that the BOP will not be resoliciting the 1,900 beds at our company-owned D Ray James Correctional Facility in Folkston, Georgia and as a result our contract expired on January 31, 2021. In the first quarter of 2021 we were notified by the BOP that it has decided not to exercise the contract renewal option for the Moshannon Valley Correctional Facility in Pennsylvania when the contract base period expires on March 31, 2021. The Rivers
Correctional Facility, D Ray James Correctional Facility and Moshannon Valley Correctional Facility generated approximately $43 million, $60 million, and $42 million, respectively, in annualized revenues for GEO. Lastly, our contracts with the BOP for our company-owned Great Plains 1,940-bed Correctional Facility, our company-owned Big Spring 1,732-bed Correctional Facility, our company-owned 1,800-bed Flightline Correctional Facility, our company-owned Northlake 1,800-bed Correctional Facility, our county managed Reeves County 1,800-bed Detention Center I & II, and our county managed Reeves County 1376-bed Detention Center III are up for renewal on May 31, 2021, November 30, 2021, September 30, 2022, September 30, 2022 and June 30, 2022, respectively. We expect that these contracts may not be renewed over the coming years as a result of the Executive Order discussed above. The Great Plains, Big Spring, Flightline, Northlake Correctional Facilities, Reeves County Detention Center I & II and Reeves County Detention Center III generate approximately $35 million, $33 million, $35 million, $35 million, $4 million and $3 million respectively, in annualized revenues for GEO. 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 Competitive 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/or 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 secure facilities, processing centers and community based facilities and to secure contracts to provide electronic monitoring services, community-based reentry services and monitoring and supervision services, the demand for which is outside our control.
Our growth is primarily dependent upon our ability to obtain new contracts to develop and/or manage secure, processing, and community based facilities under public-private partnerships. Additionally, our growth is generally dependent upon our ability to obtain new contracts to offer electronic monitoring services, provide community-based reentry services and provide monitoring and supervision services. Demand for new public-private partnership 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 public-private partnerships, government budgetary constraints, and the number of facilities available for public-private partnerships.
In particular, the demand for our secure facility and processing center services, electronic monitoring services, community-based reentry services and monitoring and supervision services could be affected by changes in existing policies which adversely impact the need for and acceptance of public-private partnerships across the spectrum of services we provide. Various factors outside our control could adversely impact the growth of our GEO Care business, including government customer resistance to the public-private partnerships for residential community based facilities, and changes to Medicaid and similar 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 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 contracts. 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. Our inability to secure financing and desirable locations for new facilities could adversely affect our results of operations and future growth.
Competition for contracts may adversely affect the profitability of our business.
We compete with government entities and other public-private partnership operators on the basis of cost, bed availability, location of facility, 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 secure and processing facilities and the provision of community reentry programs may not be sufficient to limit additional competition in our industry. In addition, some of our government customers may 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 choose to use less capacity at our facilities. Since we are paid on a per diem basis based on actual occupancy under some of our contracts, a 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, local and foreign government 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 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022, the 5.875% Senior Notes due 2024 and the senior credit facility, in a timely manner. In addition, as a result of, among other things, recent economic developments caused by the COVID-19 pandemic, domestically, 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 may be 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 and foreign governments in which we operate may experience budget constraints for fiscal year 2021. We cannot assure you that these constraints would not result in reductions in per diems, delays in payment for services rendered or unilateral termination of contracts.
Operating youth services facilities poses certain unique or increased risks and difficulties compared to operating other facilities.
As a result of the acquisition of Cornell Companies, Inc. in 2010, we re-entered the market of operating youth services facilities. Operating youth services facilities may pose increased operational risks and difficulties that may result in increased litigation, higher personnel costs, higher levels of turnover of personnel and/or reduced profitability. Examples of the increased operational risks and difficulties involved in operating youth services facilities include, mandated client to staff ratios as high as 1:6, elevated reporting and audit requirements, a reduced number of management options to use with individuals in our care and multiple funding sources as opposed to a single source payer. Additionally, youth services contracts related to educational services may provide for annual collection several months after a school year is completed. This may pose a risk that we will not be able to collect the full amount owed thereby reducing our profitability and/or cash flows, or it may adversely impact our annual budgeting process due to the lag time between providing the educational services required under a contract and collecting the amount owed to us for such services.
Adverse publicity may negatively impact our ability to retain existing contracts and obtain new contracts.
Any negative publicity about an escape, riot, other disturbance, pandemic outbreak, death or injury of a detainee, or perceived conditions and access to health care and other services at a facility, including any work program at a facility, under a public-private partnership, any failures experienced by our electronic monitoring services and any negative publicity about a crime or disturbance occurring during a failure of service or the loss or unauthorized access to any of the data we maintain in the course of providing our services may result in publicity adverse to us and public-private partnerships 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. Such negative events may also result in a significant increase in our liability insurance costs.
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 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022, the 5.875% Senior Notes due 2024 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.
We may face community opposition to facility locations, 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 new project. 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 economic development interests.
Natural disasters, pandemic outbreaks, global political events and other serious catastrophic events could disrupt operations and otherwise materially adversely affect our business and financial condition.
As an owner and operator of secure facilities, processing centers and community reentry centers with operations in many states throughout the United States and multiple foreign countries, we are subject to numerous risks outside of our control, including risks arising from natural disasters, pandemic outbreaks, such as the recent COVID-19 pandemic, and other global health emergencies or disruptive global political events, including terrorist activity and war, or similar disruptions that could materially adversely affect our business and financial performance. Such occurrences can result in destruction or damage to our secure facilities, processing centers and community reentry centers and our
information systems, disruption of our operations, require the evacuation of detainees or our personnel, and require the adoption of specific health protocols or treatments to safeguard the health of our detainees or personnel. Although it is not possible to predict such events or their consequences, these events could materially adversely affect our reputation, business and financial condition.
Our international operations expose us to risks that could materially adversely affect our financial condition and results of operations.
For the year ended December 31, 2020 and 2019, our international operations, including facility design and construction, accounted for approximately 10% and 11%, respectively, of our consolidated revenues from 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 or consortiums, which may lead to disagreements with our joint venture partners or business partners and adversely affect our interest in the joint ventures or consortiums.
We conduct our operations in South Africa through our consolidated joint venture, SACM, and through our 50% owned and unconsolidated joint venture South African Custodial Services Pty. Limited, referred to as SACS. We conduct our prisoner escort and related custody services in the United Kingdom through our 50% owned and unconsolidated joint venture in GEOAmey PECS Limited, which we refer to as GEOAmey. 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. We also share equal voting control on all significant matters to come before GEOAmey. We are conducting certain operations in Victoria, Australia through a consortium comprised of our wholly owned subsidiary, GEO Australia, Forensic Care and Honeywell. The consortium is managing a 1,300 bed facility in Ravenhall, a location near Melbourne, Australia which was completed in November 2017. 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 or consortium. In the event that we have a disagreement with a joint venture partner or consortium business partner as to the resolution of a particular issue to come before the joint venture or consortium, or as to the management or conduct of the business of the joint venture or consortium 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 consortium or the business of the joint venture or consortium in general.
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. If we are unable to effectively pass along 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 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 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, Ph.D., our Chairman and Chief Executive Officer, Brian R. Evans, our Chief Financial Officer, Blake Davis, our Senior Vice President and President, Secure Services, Ann Schlarb, our Senior Vice President and President, GEO Care, David Venturella, our Senior Vice President, Business Development and also our other executive officers at the Senior or Executive Vice President level and above. The unexpected loss of Dr. Zoley, Mr. Evans or any other key member of our senior management team could materially adversely affect our business, financial condition or results of operations.
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.
Adverse developments in our relationship with our employees could adversely affect our business, financial condition or results of operations.
At December 31, 2020, approximately 36% of our workforce was covered by collective bargaining agreements and, as of such date, collective bargaining agreements with approximately 16% of our employees were set to expire in less than one year. While only approximately 36% 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.
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.
Risks Related to REIT Status
If we fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders.
We began operating as a REIT on January 1, 2013. We received an opinion of our special REIT tax counsel (“Special Tax Counsel”) with respect to our qualification as a REIT. Investors should be aware, however, that opinions of counsel are not binding on the Internal Revenue Service (the “IRS”) or any court. The opinion of Special Tax Counsel represents only the view of Special Tax Counsel based on its review and analysis of existing law and on certain representations as to factual matters and covenants made by us, including representations relating to the values of our assets and the sources of our income. The opinion is expressed as of the date issued. Special Tax Counsel has no obligation to advise us or the holders of our common stock of any subsequent change in the matters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of Special Tax Counsel and our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis, the results of which will not be monitored by Special Tax Counsel. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals.
We have received a favorable private letter ruling from the IRS with respect to certain issues relevant to our qualification as a REIT. Although we may generally rely upon the ruling, no assurance can be given that the IRS will not challenge our qualification as a REIT on the basis of other issues or facts outside the scope of the ruling.
If we fail to qualify as a REIT in any taxable year, we would be subject to U.S. federal and state income tax on our taxable income at regular corporate rates, and dividends paid to our shareholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse impact on the value of our common stock. Unless we were entitled to relief under certain provisions of the Code, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify as a REIT. If we fail to qualify for taxation as a REIT, we may need to borrow additional funds or liquidate some investments to pay any additional tax liability. Accordingly, funds available for investment and making payments on our indebtedness would be reduced.
Qualifying as a REIT involves highly technical and complex provisions of the Code.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence.
Complying with the REIT requirements may cause us to liquidate or forgo otherwise attractive opportunities.
To maintain our qualification as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain mortgage loans and securities. The remainder of our investments (other than government securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 20% of
the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate or forgo otherwise attractive investments. These actions could have the effect of reducing our income, amounts available for distribution to our shareholders and amounts available for making payments on our indebtedness.
In addition to the asset tests set forth above, to maintain our qualification as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our shareholders and the ownership of our stock. We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments and make payments on our indebtedness.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum U.S. federal income tax rate applicable to income from “qualified dividends” payable to U.S. shareholders that are individuals, trusts and estates is currently 20% exclusive of the 3.8% investment tax surcharge. Dividends payable by REITs, however, may only be eligible in part or not at all for the reduced rates applicable to “qualified dividends”. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock. However, for taxable years that begin after December 31, 2017 and before January 1, 2026, shareholders that are individuals, trusts or estates are generally entitled to a deduction equal to 20% of the aggregate amount of ordinary income dividends received from a REIT, subject to certain limitations. This 20% deduction does not apply to “qualified dividends".
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order for us to maintain our qualification as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. To the extent that we satisfy this distribution requirement and maintain our qualification for taxation as a REIT but distribute less than 100% of our REIT taxable income, including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. We intend to make distributions to our shareholders to comply with the REIT requirements of the Code and avoid corporate income tax and the 4% annual excise tax.
From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs, reduce our equity or adversely impact our ability to raise short and long-term debt. Furthermore, the REIT distribution requirements may increase the financing we need to fund capital expenditures, future growth and expansion initiatives. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our common stock.
Our cash distributions are not guaranteed and may fluctuate.
A REIT generally is required to distribute at least 90% of its REIT taxable income to its shareholders. Our board of directors, in its sole discretion, will determine on a quarterly basis the amount of cash to be distributed to our shareholders based on a number of factors including, but not limited to, our results of operations, cash flow and capital requirements, economic conditions, tax considerations, borrowing capacity and other factors, such as debt covenant restrictions that may impose limitations on cash payments and plans for future acquisitions and divestitures. For example, we reduced our quarterly distribution in October 2020 and January 2021. Consequently, our distribution levels have fluctuated in the past and may fluctuate in the future.
We may choose to pay dividends in our own stock, in which case you could be required to pay income taxes in excess of the cash dividends you receive.
We may distribute taxable dividends that are payable in cash and shares of our common stock where up to only 20% of such a dividend is made in cash. Taxable shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to
the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, shareholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. holder sells the stock that it receives as a dividend in order to pay this tax, the sale proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. holders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our shareholders determine to sell shares of our common stock to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.
It is unclear whether and to what extent we will be able to pay taxable dividends in cash and stock in future years. Moreover, the IRS may impose additional requirements with respect to taxable cash/stock dividends, including on a retroactive basis, or assert that the requirements for such taxable cash/stock dividends have not been met.
Certain of our business activities may be subject to corporate level income tax and foreign taxes, which would reduce our cash flows, and may have potential deferred and contingent tax liabilities.
We may be subject to certain federal, state, local and foreign taxes on our income and assets, taxes on any undistributed income, franchise, property and transfer taxes. In addition, we could, in certain circumstances, be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Code to maintain qualification for taxation as a REIT. In addition, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s length basis. Any of these taxes would decrease our earnings and our available cash.
Our TRS assets and operations will continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which those assets and operations are located.
We will also be subject to a federal corporate level tax at the highest regular corporate rate on the gain recognized from a sale of assets we acquired in connection with the 2017 CEC acquisition, up to the amount of the built-in gain that existed when the REIT acquired the assets, if a sale of such assets occurs during the applicable five-year period following the acquisition of the CEC assets by the REIT. Gain from a sale of an asset occurring after the specified period ends will not be subject to this corporate level tax. We currently do not expect to sell any asset if the sale would result in the imposition of a material tax liability. We cannot, however, assure you that we will not change our plans in this regard.
REIT ownership limitations may restrict or prevent you from engaging in certain transfers of our common stock.
In order to satisfy the requirements for REIT qualification, no more than 50% in value of all classes or series of our outstanding shares of stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year beginning with our 2014 taxable year. Under applicable constructive ownership rules, any shares of stock owned by certain affiliated owners generally would be added together for purposes of the common stock ownership limits, and any shares of a given class or series of preferred stock owned by certain affiliated owners generally would be added together for purposes of the ownership limit on such class or series. Our charter provides for ownership limitations that generally restrict shareholders from owning more than 9.8% of our outstanding shares.
Our use of TRSs may cause us to fail to qualify as a REIT.
The net income of our TRSs is not required to be distributed to us, and such undistributed TRS income is generally not subject to our REIT distribution requirements. However, if the accumulation of cash or reinvestment of significant earnings in our TRSs causes the fair market value of our securities in those entities, taken together with other non-qualifying assets to exceed 20% of the fair market value of our assets, in each case as determined for REIT asset testing purposes, we would, absent timely responsive action, fail to maintain our qualification as a REIT.
New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to maintain our qualification as a REIT.
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial, or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in us. The U.S. federal income tax rules dealing with U.S. federal income taxation and REITs are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury (the “Treasury”), which results in statutory changes as well as frequent revisions to regulations and interpretations. Additionally, legislative bills or proposals have been introduced from time to time and may be introduced in the future with the aim of limiting or restricting the types of industries or companies that can qualify as a REIT, including companies that operate correctional facilities and immigrant detention centers. New legislation, Treasury regulations, administrative interpretations or court decisions implemented
or adopted in the future could significantly and negatively affect our ability to maintain our qualification as a REIT or the U.S. federal income tax consequences to our investors and us of such qualification. We cannot predict how changes in the tax laws might affect our investors or us. Revisions in U.S. federal tax laws and interpretations thereof could significantly and negatively affect our ability to maintain our qualification as a REIT and the tax considerations relevant to an investment in us, or, could cause us to change our investments and commitments. You are urged to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our securities.
The Board may revoke our REIT election at any time.
The Board may revoke or otherwise terminate our REIT election without the approval of shareholders if it determines that it is no longer in our best interests to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our net taxable income to shareholders, which may have adverse consequences on the total return to our shareholders.
Risks Related to Real Estate and Construction Matters
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 secure and processing facilities subjects us to risks typically associated with investments in real estate. Investments in real estate, and in particular, secure and processing 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 secure and processing 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 hurricanes, 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 within the level of 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.
Risks Related to the Capital Markets and its Impact on our Business
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 experienced significant periods of volatility and disruption since the Great Recession of 2007-2009, and more recently during 2020 due to the impact of the COVID-19 pandemic. During this time period, the economic impacts observed have included a downturn in the equity and debt markets, a tightening of the credit markets, a general economic slowdown and other macroeconomic conditions, volatility in stock prices and currency exchange rates, concerns over sovereign debt levels abroad and in the U.S. and concerns over the failure to adequately address the federal deficit and the debt ceiling. If those macroeconomic conditions continue or worsen in the future, we could be prevented from raising additional capital or obtaining additional financing on satisfactory terms, or at all. During 2019, several financial institutions, including some of our lenders, announced that they will not be renewing existing agreements or entering into new agreements with companies that operate secure services facilities and centers pursuant to public-private partnerships. Some of these same institutions have ceased their equity analyst coverage of our company. 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/or 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.
Risks Related to our Electronic Monitoring Products and Technology
Technological changes could cause our electronic monitoring products and technology to become obsolete or require the redesign of our electronic monitoring products, which could have a material adverse effect on our business.
Technological changes within the electronic monitoring business in which we conduct business, such as the conversion from radio systems to Long Term Evolution (LTE) technology for cellular network connectivity in the near future, may require us to expend substantial resources in an effort to develop and/or utilize new electronic monitoring products and technology. We may not be able to anticipate or respond to technological changes in a timely manner, and our response may not result in successful electronic monitoring product development and timely product introductions. If we are unable to anticipate or timely respond to technological changes, our business could be adversely affected and could compromise our competitive position, particularly if our competitors announce or introduce new electronic monitoring products and services in advance of us. Additionally, new electronic monitoring products and technology face the uncertainty of customer acceptance and reaction from competitors.
Any negative changes in the level of acceptance of or resistance to the use of electronic monitoring products and services by governmental
customers could have a material adverse effect on our business, financial condition and results of operations.
Governmental customers use electronic monitoring products and services to monitor low risk offenders as a way to help reduce overcrowding in secure facilities, as a monitoring tool, and to promote public safety by imposing restrictions on movement and serving as a deterrent for alcohol usage. If the level of acceptance of or resistance to the use of electronic monitoring products and services by governmental customers were to change over time in a negative manner so that governmental customers decide to decrease their usage levels and contracting for electronic monitoring products and services, this could have a material adverse effect on our business, financial condition and results of operations.
We depend on a limited number of third parties to manufacture and supply quality infrastructure components for our electronic monitoring products. If our suppliers cannot provide the components or services we require and with such quality as we expect, our ability to market and sell our electronic monitoring products and services could be harmed.
If our suppliers fail to supply components in a timely manner that meets our quantity, quality, cost requirements, or technical specifications, we may not be able to access alternative sources of these components within a reasonable period of time or at commercially reasonable rates. A reduction or interruption in the supply of components, or a significant increase in the price of components, could have a material adverse effect on our marketing and sales initiatives, which could adversely affect our financial condition and results of operations.
An inability to acquire, protect or maintain our intellectual property and patents in the electronic monitoring space could harm our ability to compete or grow.
We have numerous United States and foreign patents issued as well as a number of United States patents pending in the electronic monitoring space. There can be no assurance that the protection afforded by these patents will provide us with a competitive advantage, prevent our competitors from duplicating our products, or that we will be able to assert our intellectual property rights in infringement actions.
In addition, any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. There can be no assurance that we will be successful should one or more of our patents be challenged for any reason. If our patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded to our products could be impaired, which could significantly impede our ability to market our products, negatively affect our competitive position and harm our business and operating results.
There can be no assurance that any pending or future patent applications held by us will result in an issued patent, or that if patents are issued to us, that such patents will provide meaningful protection against competitors or against competitive technologies. The issuance of a patent is not conclusive as to its validity or its enforceability. The United States federal courts or equivalent national courts or patent offices elsewhere may invalidate our patents or find them unenforceable. Competitors may also be able to design around our patents. Our patents and patent applications cover particular aspects of our products. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. If these developments were to occur, it could have an adverse effect on our sales. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees and current employees, despite the existence of nondisclosure and confidentiality agreements and other contractual restrictions. Furthermore, the laws of foreign countries may not protect our intellectual property rights effectively or to the same extent as the laws of the United States. If our intellectual property rights are not adequately protected, we may not be able to commercialize our technologies, products or services and our competitors could commercialize our technologies, which could result in a decrease in our sales and market share that would harm our business and operating results.
Additionally, the expiration of any of our patents may reduce the barriers to entry into our electronic monitoring line of business and may result in loss of market share and a decrease in our competitive abilities, thus having a potential adverse effect on our financial condition, results of operations and cash flows.
Our electronic monitoring products could infringe on the intellectual property rights of others, which may lead to litigation that could itself be costly, could result in the payment of substantial damages or royalties, and/or prevent us from using technology that is essential to our products.
There can be no assurance that our current products or products under development will not infringe any patent or other intellectual property rights of third parties. If infringement claims are brought against us, whether successfully or not, these assertions could distract management from other tasks important to the success of our business, necessitate us expending potentially significant funds and resources to defend or settle such claims and harm our reputation. We cannot be certain that we will have the financial resources to defend ourselves against any patent or other intellectual property litigation.
In addition, intellectual property litigation or claims could force us to do one or more of the following:
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cease selling or using any products that incorporate the asserted intellectual property, which would adversely affect our revenue;
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pay substantial damages for past use of the asserted intellectual property;
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obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; or
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redesign or rename, in the case of trademark claims, our products to avoid infringing the intellectual property rights of third parties, which may not be possible and could be costly and time-consuming if it is possible to do.
In the event of an adverse determination in an intellectual property suit or proceeding, or our failure to license essential technology, our sales could be harmed and/or our costs could increase, which would harm our financial condition.
We license intellectual property rights in the electronic monitoring space, including patents, from third party owners. If such owners do not properly maintain or enforce the intellectual property underlying such licenses, our competitive position and business prospects could be harmed. Our licensors may also seek to terminate our license.
We are a party to a number of licenses that give us rights to third-party intellectual property that is necessary or useful to our business. Our success will depend in part on the ability of our licensors to obtain, maintain and enforce our licensed intellectual property. Our licensors may not successfully prosecute any applications for or maintain intellectual property to which we have licenses, may determine not to pursue litigation against other companies that are infringing such intellectual property, or may pursue such litigation less aggressively than we would. Without protection for the intellectual property we license, other companies might be able to offer similar products for sale, which could adversely affect our competitive business position and harm our business prospects.
If we lose any of our rights to use third-party intellectual property, it could adversely affect our ability to commercialize our technologies, products or services, as well as harm our competitive business position and our business prospects.
We may be subject to costly product liability claims from the use of our electronic monitoring products, which could damage our reputation, impair the marketability of our products and services and force us to pay costs and damages that may not be covered by adequate insurance.
Manufacturing, marketing, selling, testing and the operation of our electronic monitoring products and services entail a risk of product liability. We could be subject to product liability claims to the extent our electronic monitoring products fail to perform as intended. Even unsuccessful claims against us could result in the expenditure of funds in litigation, the diversion of management time and resources, damage to our reputation and impairment in the marketability of our electronic monitoring products and services. While we maintain liability insurance, it is possible that a successful claim could be made against us, that the amount of our insurance coverage would not be adequate to cover the costs of defending against or paying such a claim, or that damages payable by us would harm our business.
Risks Related to Information Technology and Cybersecurity
The interruption, delay or failure of the provision of our services or information systems could adversely affect our business.
Certain segments of our business depend significantly on effective information systems. As with all companies that utilize information technology, we are vulnerable to negative impacts if information is inadvertently interrupted, delayed, compromised or lost. We routinely process, store and transmit large amounts of data for our clients. We continually work to update and maintain effective information systems.
Despite the security measures we have in place and any additional measures we may implement in the future, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism, or other events. For example, we disclosed in November 2020 that we had begun the process of notifying current and former employees and would provide additional notifications as required by applicable state and federal law regarding a ransomware attack that impacted a portion of our information technology systems and a limited amount of data that contained personally identifiable information and protected health information. Any security breach or event resulting in the interruption, delay or failure of our services or information systems, or the misappropriation, loss, or other unauthorized disclosure of client data, employee and former employee data or confidential information, whether by us directly or our third-party service providers, could damage our reputation, expose us to the risks of litigation and liability, disrupt our business, result in lost business or otherwise adversely affect our results of operations.
Risks Related to Acquisitions
We may not be able to successfully identify, consummate or integrate acquisitions.
We pursue select acquisitions that meet our criteria for growth and profitability when market opportunities arise. 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. Achieving the anticipated benefits of any acquisition will depend in significant part upon whether we integrate such acquired businesses in an efficient and effective manner. We may not be able to achieve the anticipated operating and cost synergies or long-term strategic benefits of our acquisitions within the anticipated timing or at all. For example, elimination of duplicative costs may not be fully achieved or may take longer than anticipated. For at least the first year after a substantial acquisition, and possibly longer, the benefits from the acquisition will be offset by the costs incurred in integrating the businesses and operations. We may also assume liabilities in connection with acquisitions that we would otherwise not be exposed to. An inability to realize the full extent of, or any of, the anticipated synergies or other benefits of an acquisition as well as any delays that may be encountered in the integration process, which may delay the timing of such synergies or other benefits, could have an adverse effect on our business and results of operations.
As a result of our acquisitions, we have recorded and will continue to record a significant amount of goodwill and other intangible assets. In the future, our goodwill or other intangible assets may become impaired, which could result in material non-cash charges to our results of operations.
We have a substantial amount of goodwill and other intangible assets resulting from business acquisitions. As of December 31, 2020, we had approximately $943 million of goodwill and other intangible assets. At least annually, or whenever events or changes in circumstances indicate a potential impairment in the carrying value (as defined by Generally Accepted Accounting Principles in the United States of America, or U.S. GAAP), we will evaluate this goodwill for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Estimated fair values could change and/or decline if there are changes in our capital structure, cost of debt, interest rates, capital expenditure levels, operating cash flows, market capitalization, the political and regulatory environment and the effects of the COVID-19 pandemic. For example, our stock price has experienced a significant decline over the course of the last several years. A further decline or prolonged decline in the value of our stock price may result in material impairment charges. Impairments of goodwill or other intangible assets could require material non-cash charges to our results of operations.
Risks Related to Legal, Regulatory and Compliance Matters
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 sector 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 sector, and the combination of regulations affects all areas of our operations. Corrections officers and juvenile care workers 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, public-private partnerships are increasingly subject to government legislation and regulation attempting to restrict the ability of private sector companies to operate facilities housing certain classifications of individuals, such as individuals from other jurisdictions or individuals at 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.
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 RFPs from governmental agencies to manage secure 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 we are found to have engaged in improper or illegal activities, including under the United States False Claims Act, 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. An adverse determination in an action alleging improper or illegal activities by us could also 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.
Our business operations expose us to various liabilities for which we may not have adequate insurance and may have a material adverse effect on our business, financial condition or results of operations.
The nature of our services 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 individuals within our care, medical malpractice claims, claims relating to the federal Trafficking and Victims Protection Act, claims relating to our COVID-19 response procedures, product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, contractual claims and claims for personal injury or other damages resulting from contact with our facilities, programs, electronic monitoring products, personnel or prisoners, including damages arising from an inmate’s 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. To the extent the events serving as a basis for any potential claims are alleged or determined to constitute illegal or criminal activity, we could also be subject to criminal liability. Such liability could result in significant monetary fines and could affect our ability to bid on future contracts and/or retain our existing contracts.
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 effect on our business, financial condition and/or results of operations.
Risks Related to Corporate Social Responsibility
We are subject to risks related to corporate social responsibility.
The consideration of ESG factors in making investment and voting decisions is relatively new, and frameworks and methods used by investors for assessing ESG policies are not fully developed and vary considerably among the investment community. In September of 2020, we issued our second Human Rights and ESG report. The Human Rights and ESG report builds on the important milestone we achieved in 2013 when our Board adopted a Global Human Rights Policy by providing disclosures related to how we inform our employees of our commitment to respecting human rights; the criteria we use to assess human rights performance; and our contract compliance program, remedies to shortcomings in human rights performance, and independent verification of our performance by third party organizations. The Human Rights and ESG report also address criteria, based on recognized ESG reporting standards, related to the development of our employees; our efforts to advance environmental sustainability in the construction and operation of our facilities; and our adherence to ethical governance practices throughout our company. These policies and practices, whether it be the standards we set for ourselves or ESG criteria established by third parties, and whether or not we meet such standards, may influence our reputation. For example, the perception held by our governmental partners, vendors, suppliers, shareholders, other stakeholders, the communities in which we do business or the general public may depend, in part, on the standards we have chosen to aspire to meet, whether or not we meet these standards on a timely basis or at all, and whether or not we meet external ESG factors they deem relevant. The subjective nature and wide variety of frameworks and methods used by various stakeholders, including investors, to assess a company with respect to ESG criteria can result in the application or perception of negative ESG factors or a misrepresentation of our ESG policies and practices. Our failure to achieve progress on our human rights and ESG policies and practices on a timely basis, or at all, or to meet human rights or ESG criteria set by third parties, could adversely affect our business, financial condition and/or results of operations.
By electing to publicly share our Human Rights and ESG report, our business may face increased scrutiny related to our human rights and ESG activities. As a result, our reputation could be adversely impacted if we fail to act responsibly in the areas in which we report, such as human rights, the development of our workforce, safety and security, addressing recidivism, engaging with our stakeholders, ethics and governance, oversight and contract compliance, energy and environmental sustainability and financial management and performance. Any harm to our reputation resulting from setting these standards or our failure or perceived failure to meet such standards could impact: the willingness of our governmental partners, vendors and suppliers to do business with us or the quality of our relationships with our governmental partners, vendors and suppliers; our ability to access capital in the debt or equity markets; our investors willingness or ability to purchase or hold our securities; and employee retention and the quality of relations with our employees, any of which could adversely affect our business, financial condition and/or results of operations.
Risks Related to Our Common Stock
The market price of our common stock may vary substantially.
The trading prices of equity securities issued by REITs have historically been affected by changes in market interest rates. One of the factors that may influence the market price of our common stock is the annual yield from distributions on our common stock as compared to yields on other financial instruments. We reduced our quarterly dividend in October 2020 from $0.48 per share, or $1.92 per share annualized, to $0.34 per share, or $1.36 per share annualized and we reduced our quarterly dividend further in January 2021 from $0.34 per share, or $1.36 per share annualized, to $0.25 per share, or $1.00 per share annualized. An increase in market interest rates, or a decrease in our distributions to shareholders, may lead prospective purchasers of our shares to demand a higher annual yield, which could reduce the market price of our common stock.
Other factors that could affect the market price of our common stock include the following:
•
actual or anticipated variations in our quarterly results of operations;
•
changes in market valuations of companies in our industry;
•
announcements by us or our competitors of changes in corporate structure, including electing to revoke REIT status, changes to capital allocation strategy, acquisitions, dispositions, investments or strategic alliances;
•
changes in expectations of future financial performance or changes in estimates of securities analysts;
•
fluctuations in stock market prices and volumes;
•
issuances of common stock or other securities in the future;
•
the addition or departure of key personnel; and
•
changes in the prospects of public-private partnerships.
Future sales of shares of our common stock could adversely affect the market price of our common stock and may be dilutive to current shareholders.
Sales of shares of our common stock, or the perception that such sales could occur, could adversely affect the price for our common stock. As of December 31, 2020, there were 187,500,000 shares of common stock authorized under our Articles of Incorporation, of which 121,318,175 shares were outstanding. Our Board of Directors may authorize the issuance of additional authorized but unissued shares of our common stock or other authorized but unissued securities of ours at any time, including pursuant to equity incentive plans and stock purchase plans.
On October 30, 2020, the Company filed an automatic shelf registration statement on Form S-3ASR with the SEC that enables the Company to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, guarantees of debt securities, warrants and units. Each time the Company offers to sell securities under the registration statement, the Company will provide a prospectus supplement that will contain specific information about the terms of that offering and the securities being offered. The shelf registration statement is automatically effective and is valid for three years.
An offering of shares of our common stock may have a dilutive effect on our earnings per share and funds from operations per share after giving effect to the issuance of such shares of common stock and the receipt of the expected net proceeds. The actual amount of dilution from any offering of our equity securities, cannot be determined at this time. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market pursuant to an offering, or otherwise, or as a result of the perception or expectation that such sales could occur.
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 our company 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 our company more difficult and expensive. In addition to discouraging takeovers, the anti-takeover provisions of Florida law and our articles of incorporation 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 additional debt that is convertible or 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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.
Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2.
Properties
The Company owns and leases its corporate offices, which are both located in Boca Raton, Florida. The Company purchased land in Boca Raton, Florida to construct a new corporate office building which was completed in the first quarter of 2019. The Company's lease on its additional corporate office space expires in December 2028 and has two 5-year renewal options which if exercised will result in a maximum term ending in December 2038. In addition, we lease office space for our eastern regional office in Charlotte, North Carolina; our central regional office in San Antonio, Texas; our western regional office in Los Angeles, California; and our youth services division in Pittsburgh, Pennsylvania. As a result of the BI acquisition in February 2011 and the Protocol acquisition in February 2014, we are also currently leasing office space in Boulder, Colorado and Aurora, Illinois, respectively. We also lease office space in Sydney and Melbourne, Australia, and in Sandton, South Africa, through our overseas affiliates to support our Australian, and South African operations, respectively. We consider our office space adequate for our current operations.
See the Facilities and Day Reporting Centers listing under Item 1 for a list of the correctional, detention and reentry properties we own or lease in connection with our operations.

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ITEM 3. LEGAL PROCEEDINGS
Item 3.
Legal Proceedings
The information required herein is incorporated by reference from Note 17 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4.
Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.
Market for Registrant’s 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.” As of February 11, 2021, we had 544 shareholders of record. Shareholders of record does not include shareholders who own shares held in "street name."
Dividends
As a REIT, GEO is required to distribute annually at least 90% of its REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gain) and began paying regular quarterly REIT dividends in 2013. The amount, timing and frequency of future dividends, however, will be at the sole discretion of GEO's Board of Directors (the "Board”) and will be declared based upon various factors, many of which are beyond GEO's control, including, GEO's financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income taxes that GEO otherwise would be required to pay, limitations on distributions in GEO's existing and future debt instruments, limitations on GEO's ability to fund distributions using cash generated through GEO's TRSs and other factors that GEO's Board may deem relevant.
Performance Graph
The following performance graph compares the performance of our common stock to the Russell 2000, the S&P 500 Commercial Services and Supplies Index, and the MSCI U.S. REIT Index and is provided in accordance with Item 201(e) of Regulation S-K.
Comparison of Five-Year Cumulative Total Return*
The GEO Group, Inc., Russell 2000,
S&P 500 Commercial Services and Supplies Index
and MSCI U.S. REIT Index
(Performance through December 31, 2020)
Date
The GEO
Group, Inc.
Russell 2000
S&P 500
Commercial
Services and
Supplies
MSCI U.S.
REIT Index
December 31, 2015
$
100.00
$
100.00
$
100.00
$
100.00
December 31, 2016
$
136.06
$
119.48
$
112.57
$
104.22
December 31, 2017
$
142.96
$
135.18
$
123.19
$
105.12
December 31, 2018
$
129.60
$
118.72
$
119.38
$
96.03
December 31, 2019
$
120.78
$
146.89
$
163.78
$
116.14
December 31, 2020
$
62.56
$
173.86
$
199.74
$
103.24
Assumes $100 invested on December 31, 2015 in our common stock and the respective Index.
*
Total return assumes reinvestment of dividends.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6.
Selected Financial Data
The following table sets forth historical financial data as of and for each of the five years in the period ended December 31, 2020. The selected consolidated financial data should be read in conjunction with our "Management Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes to the consolidated financial statements (in thousands, except per share and operational data). Outstanding share and per-share amounts disclosed for all periods presented have been retroactively adjusted to reflect the effects of our 3-for-2 stock split in 2017.
Year Ended:
Results of Continuing Operations:
Revenues
$
2,350,098
$
2,477,922
$
2,331,386
$
2,263,420
$
2,179,490
Operating income
222,574
300,413
264,665
248,285
265,584
Net income
$
112,831
$
166,412
$
144,827
$
146,024
$
148,498
Income per common share attributable to The GEO Group, Inc.:
Basic:
$
0.94
$
1.40
$
1.21
$
1.22
$
1.34
Diluted:
$
0.94
$
1.40
$
1.20
$
1.21
$
1.33
Weighted Average Shares Outstanding:
Basic
119,719
119,097
120,241
120,095
111,065
Diluted
119,991
119,311
120,747
120,814
111,485
Cash Dividends per Common Share:
Cash Dividends
$
1.78
$
1.92
$
1.88
$
1.88
$
1.73
Financial Condition:
Current assets
$
711,323
$
547,778
$
601,762
$
579,709
$
697,669
Current liabilities
411,296
395,928
705,238
369,563
504,058
Total assets
4,460,126
4,317,534
4,258,118
4,226,908
3,749,409
Long-term debt, including current portion (excluding non-recourse debt and capital leases and unamortized debt issuance costs)
2,588,776
2,436,735
2,429,312
2,217,287
1,957,530
Total Shareholders’ equity
$
912,082
$
996,048
$
1,039,904
$
1,198,919
$
974,957
Operational Data:
Facilities in operation
Operational capacity of contracts (1)
89,499
92,906
88,567
88,272
83,599
Compensated mandays (2)
25,749,071
28,757,412
28,350,591
27,321,685
24,843,516
(1)
Represents the number of beds primarily from secure services facilities and excludes idle facilities and beds under development.
(2)
Compensated mandays 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.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.
Management’s 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.
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and are incorporated herein by reference.
We are a real estate investment trust specializing in the ownership, leasing and management of secure, reentry facilities and processing centers and the provision of community-based services and youth services in the United States, Australia, South Africa, and the United Kingdom. We own, lease and operate a broad range of secure facilities including maximum, medium and minimum security facilities, processing centers, and community-based reentry facilities. We offer counseling, education and/or treatment for alcohol and drug abuse problems at most of the domestic facilities we manage. We are also a provider of innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants. Additionally, we have a contract with ICE to provide supervision and reporting services designed to improve the participation of non-detained aliens in the immigration court system. We develop new facilities based on contract awards, using our project development expertise and experience to design, construct and finance what we believe are state-of-the-art facilities that maximize security and efficiency. We also provide secure transportation services for offender and detainee populations as contracted domestically and in the United Kingdom through our joint venture GEOAmey.
As of December 31, 2020, our worldwide operations included the management and/or ownership of approximately 93,000 beds at 118 correctional, detention and reentry facilities, including idle facilities, and also included the provision of servicing more than 210,000 individuals in a community-based environment on behalf of federal, state and local correctional agencies located in all 50 states.
For the years ended December 31, 2020 and 2019, we had consolidated revenues of $2.4 billion and $2.5 billion, respectively, and we maintained an average company-wide facility occupancy rate of 86.6% including 89,499 active beds and excluding 3,334 idle beds for the year ended December 31, 2020, and 92.4% including 92,906 active beds and excluding 2,118 idle beds and beds under development for the year ended December 31, 2019.
REIT Conversion
We have been a leading owner, lessor and operator of correctional, detention and reentry facilities and provider of community-based services and youth services in the industry since 1984 and began operating as a REIT for federal income tax purposes effective January 1, 2013. As a result of the REIT conversion, we reorganized our operations and moved non-real estate components into TRSs. Through the TRS structure, the portion of our businesses which are non-real estate related, such as our managed-only contracts, international operations, electronic monitoring services, and other non-residential and community based facilities, are part of wholly-owned taxable subsidiaries of the REIT. Most of our business segments, which are real estate related and involve company-owned and company-leased facilities, are part of the REIT. The TRS structure allows us to maintain the strategic alignment of almost all of our diversified business segments under one entity. The TRS assets and operations will continue to be subject to federal and state corporate income taxes and to foreign taxes as applicable in the jurisdictions in which those assets and operations are located.
As a REIT, we are required to distribute annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gain) and we began paying regular distributions in 2013. We declared and paid the following regular REIT distributions to our shareholders for the years ended December 31, 2020 and 2019, which were treated for federal income taxes as follows:
Ordinary Dividends
Declaration Date
Payment Date
Record Date
Distribution
Per Share
Qualified (1)
Non-Qualified
Nondividend
Distributions (2)
Aggregate
Payment
Amount
(millions)
February 4, 2019
February 22, 2019
February 15, 2019
$
0.48
$
-
$
0.2759699
$
0.2040301
$
57.9
April 3, 2019
April 22, 2019
April 15, 2019
$
0.48
$
-
$
0.2759699
$
0.2040301
$
58.2
July 9, 2019
July 26, 2019
July 19, 2019
$
0.48
$
-
$
0.2759699
$
0.2040301
$
58.2
October 14, 2019
November 1, 2019
October 25, 2019
$
0.48
$
-
$
0.2759699
$
0.2040301
$
58.2
February 3, 2020
February 21, 2020
February 14, 2020
$
0.48
$
-
$
0.2655802
$
0.2144198
$
58.2
April 6, 2020
April 24, 2020
April 17, 2020
$
0.48
$
-
$
0.2655802
$
0.2144198
$
58.5
July 7, 2020
July 24, 2020
July 17, 2020
$
0.48
$
-
$
0.2655802
$
0.2144198
$
58.5
October 6, 2020
October 23, 2020
October 16, 2020
$
0.34
$
-
$
0.1881193
$
0.1518807
$
41.5
(1)
For 2019 and 2020, there are no Qualified Dividends. Qualified Dividends represents the portion of Total Ordinary Dividends which constitutes a "Qualified Dividend", as defined by the Internal Revenue Service.
(2)
The amount constitutes a "Return of Capital", as defined by the Internal Revenue Service.
On January 15, 2021, our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock, which was paid on February 1, 2021 to shareholders of record as of the close of business on January 25, 2021.
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 “Management’s 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
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales, value added and other taxes that we collect concurrent with revenue producing activities and that are subsequently remitted to governmental authorities are excluded from revenues. The guidance distinguishes between goods and services. The definition of services under the guidance includes everything other than goods. As such, in our case, this guidance views the provision of housing as a service.
When a contract includes variable consideration, we determine an estimate of the variable consideration and evaluate whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration estimates are updated at each reporting date. A limited number of our domestic contracts have provisions upon which a small portion of the revenue for the contract is based on the performance of certain targets. Domestically, revenue based on the performance of certain targets is less than 1% of our consolidated domestic revenues and was not significant during the periods presented. One of our international contracts, related to our Ravenhall correctional facility project (discussed further below), contains a provision where a significant portion of the revenue for the contract is based on the performance of certain targets. These performance targets are based on specific criteria to be met over specific periods of time. Such criteria includes our ability to achieve certain contractual benchmarks relative to the quality of service we provide, non-occurrence of certain disruptive events, effectiveness of our quality control programs and our responsiveness to customer requirements. The performance of these targets are measured quarterly and there was no significant constraint on the estimate of such variable consideration for this contract during the year ended December 31, 2020 or 2019.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which we have the right to invoice for services performed, which is generally the case for all of our contracts. Incidental items that are immaterial in the context of the contract are recognized as expense. We generally do not incur incremental costs related to obtaining a contract with our customers that would meet the requirement for capitalization. There were no assets recognized from costs to obtain a contract with a customer at December 31, 2020 or 2019.
The timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when services are performed which are due from our customers based on the passage of time. We record a contract liability if consideration is received in advance of the performance of services. Generally, our customers do not provide payment in advance of the performance of services. Therefore, any contract liability is not significant at December 31, 2020 or December 31, 2019 and revenue recognized during the years ended December 31, 2020 and 2019 that was included in the opening balance of unearned revenue was not significant. There have been no significant amounts of revenue recorded in the periods presented from performance obligations either wholly or partially satisfied in prior periods.
The right to consideration under our contracts is only dependent on the passage of time and is therefore considered to be unconditional. Payment terms and conditions vary by contract type, although, with the exception of the contract receivable related to our Ravenhall correctional facility (further discussed below), terms generally include a requirement of payment within 30 days after performance obligations are satisfied and generally do not include a significant financing component. There have been no significant changes in receivable or unearned revenue balances during the period other than regular invoicing and collection activity.
Owned and Leased - Secure Services
We recognize revenue for secure services where we own or lease the facility as services are performed. We provide for the safe and secure housing and care of incarcerated individuals under public-private partnerships with federal, state and local government agencies. This includes providing 24-hour care and supervision, including but not limited to, such services as medical, transportation, food service, laundry services and various programming activities. These tasks are considered to be activities to fulfill the safe and secure housing performance obligation and are not considered to be individually separate promises in the contract. Each of these activities is highly interrelated and we perform a significant level of integration of these activities. We have identified these activities as a bundle of services and determined that each day of the promised service is distinct. The services provided are part of a series of distinct services that are substantially the same and are measured using the same measure of progress (time-based output method). We have determined that revenue for these services are recognized over time as our customers simultaneously receive and consume the benefits as the services are performed, which is on a continual daily basis, and we have a right to payment for performance completed to date. Time-based output methods of revenue recognition are considered to be a faithful depiction of our efforts to fulfill our obligations under our contracts and therefore reflect the transfer of services to our customers. Our customers generally pay for these services based on a net rate per day per individual or on a fixed monthly rate.
Owned and Leased - Community-based
We recognize revenue for community-based reentry services where we own or lease the facility in a manner similar to our secure services discussed above. We provide individuals nearing the end of their sentence with the resources necessary to productively transition back into society. Through our residential reentry centers, we provide federal and state parolees and probationers with temporary housing, rehabilitation, substance abuse counseling and vocational and educational programs. These activities are considered to be a bundle of services which are a part of a series of distinct services recognized over time based on the same criteria as discussed above for secure services revenues. Our customers also generally pay for these services based on a net rate per day per individual or on a fixed monthly rate.
Owned and Leased - Youth Services
We recognize revenues for youth services where we own or lease the facility in the same manner as discussed above for the housing, supervision, care and rehabilitation of troubled youth residents. The activities to house and care for troubled youth residents are also considered to be a bundle of services which are part of a series of distinct services recognized over time based on the same criteria discussed for the previous two revenue streams. Our customers generally pay for these services based on a net rate per day per individual.
Managed Only
We recognize revenue for our managed only contracts in the same manner as our Owned and Leased Secure Services and Owned and Leased Community-based contracts as discussed above. The primary exception is that we do not own or lease the facility. The facility is owned by the customer. In certain circumstances, our customers may request that we make certain capital improvements to the facility or make other payments related to the facility. These payments are amortized as a reduction of revenues over the life of the contract. Our customers generally pay for these services based on a net rate per day per individual or a fixed monthly rate.
Facility Construction and Design
During 2020, 2019 and 2018, we had facility construction and design services related to an expansion project at our Fulham Correctional Centre in Australia which was substantially completed in the third quarter of 2020. We determined revenue should be recorded over time using a time-based output method based on the same criteria as discussed above for secure services. Fees included and priced in the contract for managing the Facility are considered to be stated at their individual estimated stand-alone selling prices using the adjusted market assessment approach. These services are regularly provided by us on a stand-alone basis to similar customers within a similar range of amounts. We used the expected cost-plus margin approach to allocate the transaction price to the construction obligation. We were entitled under the contract to receive consideration in the amount of our costs plus a margin.
Non-residential Services and Other
Non-residential Services and Other revenue consists of our contracts with federal and various state and local governments to provide location, alcohol and drug detecting electronic monitoring and case management services to individuals on an as needed or as requested basis. This category also includes our day reporting centers.
We recognize revenues for electronic monitoring and case management services as the services are performed. Services provided consist of community-based supervision (home visits), in-person reporting, telephonic reporting and GPS and other electronic monitoring as well as overall contract management services. The rates for the various services are considered to be stated at their individual stand-alone selling prices. We have determined that the services to be provided are recognized over time based on the unit of occurrence of the various services as our customer simultaneously receives and consumes the benefits as the services are performed and we have a right to payment for performance completed to date. Generally, these services are paid based on a net rate per occurrence and a monthly fee for management services.
Certain of our electronic monitoring contracts include providing monitoring equipment and related monitoring services activities (using internal proprietary software platforms) to our customers. These tasks are considered to be activities to fulfill the promise to provide electronic monitoring services to individuals and are not considered to be individually separate promises in the contract. In the context of the contract, the equipment and monitoring service is not considered to be capable of being distinct as the customer typically cannot benefit from the equipment or monitoring service on its own or with other readily available resources. We have identified these activities as a bundle of services and determined that each day or unit of the promised service is distinct. These services are part of a series of distinct services that are substantially the same and are measured using the same measure of progress (time-based output method) and are therefore accounted for as a single performance obligation. We have determined that services are recognized over time as the customer simultaneously receives and consumes the benefits as the services are performed and we have a right to payment for performance completed to date.
Services provided for our day reporting centers are similar to our Owned and Leased Community-based services discussed above with the exception of temporary housing.
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, product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, contractual claims and claims for personal injury or other damages resulting from contact with our facilities, programs, electronic monitoring products, personnel or prisoners, including damages arising from a prisoner’s escape or from a disturbance or riot at a facility. In addition, our management contracts generally require us to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. We maintain a broad program of insurance coverage for these general types of claims,
except for claims relating to employment matters, for which we carry no insurance. There can be no assurance that our insurance coverage will be adequate to cover all claims to which we may be exposed. It is our general practice to bring merged or acquired companies into our corporate master policies in order to take advantage of certain economies of scale.
We currently maintain a general liability policy and excess liability policies with total limits of $70.0 million per occurrence and $90 million in the aggregate covering the operations of U.S. Secure Services, GEO Care's community-based services, GEO Care's youth services and BI. We have a claims-made liability insurance program with a specific loss limit of $40.0 million per occurrence and in the aggregate related to medical professional liability claims arising out of secure healthcare services. We are uninsured for any claims in excess of these limits. We also maintain insurance to cover property and other casualty risks including, workers’ compensation, environmental liability, cybersecurity liability and automobile liability.
For most casualty insurance policies, we carry substantial deductibles or self-insured retentions of $3.0 million per occurrence for general liability and medical professional liability, $2.0 million per occurrence for workers’ compensation and $1.0 million per occurrence for automobile liability. In addition, certain of our facilities located in Florida and other high-risk hurricane areas carry substantial windstorm deductibles. Since hurricanes are considered unpredictable future events, no reserves have been established to pre-fund for potential windstorm damage. Limited commercial availability of certain types of insurance relating to windstorm exposure in coastal areas and earthquake exposure mainly in California and the Pacific Northwest may prevent the Company from insuring some of its facilities to full replacement value.
With respect to operations in South Africa, the United Kingdom and Australia, we utilize a combination of locally procured insurance and global policies to meet contractual insurance requirements and protect us. In addition to these policies, our Australian subsidiary carries tail insurance on a general liability policy related to a discontinued contract.
Of the insurance policies discussed above, our most significant insurance reserves relate to workers’ compensation, general liability and auto claims. These reserves are undiscounted and were $78.9 million and $68.2 million as of December 31, 2020 and 2019, respectively and are included in accrued expenses in the accompanying balance sheets. We use statistical and actuarial methods to estimate amounts for claims that have been reported but not paid and claims incurred but not reported. In applying these methods and assessing their results, we consider such factors as historical frequency and severity of claims at each of our facilities, claim development, payment patterns and changes in the nature of our business, among other factors. Such factors are analyzed for each of our business segments. Our estimates may be impacted by such factors as increases in the market price for medical services and unpredictability of the size of jury awards. We also may experience variability between our estimates and the actual settlement due to limitations inherent in the estimation process, including our ability to estimate costs of processing and settling claims in a timely manner as well as our ability to accurately estimate our exposure at the onset of a claim. Because we have high deductible insurance policies, the amount of our insurance expense is dependent on our ability to control our claims experience. If actual losses related to insurance claims significantly differ from our estimates, our financial condition, results of operations and cash flows could be materially adversely impacted.
Income Taxes
The consolidated financial statements reflect provisions for federal, state, local and foreign income taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities as a result of a change in tax rates is recognized as income in the period that includes the enactment date. Refer to Note 16- Income Taxes in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Effective January 1, 2013, as a REIT that is required to distribute at least 90% of its taxable income to shareholders, we do not expect to pay federal income taxes at the REIT level (including our qualified REIT subsidiaries), as the resulting dividends paid deduction will generally offset our taxable income. Since we do not expect to pay taxes on our REIT taxable income, we do not expect to be able to recognize such deferred tax assets and liabilities.
Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Significant judgments are required to determine the consolidated provision for income taxes. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. Realization of our deferred tax assets is dependent upon many factors such as tax regulations applicable to the jurisdictions in which we operate, estimates of future taxable income and the character of such taxable income.
Additionally, we must use significant judgment in addressing uncertainties in the application of complex tax laws and regulations. If actual circumstances differ from our assumptions, adjustments to the carrying value of deferred tax assets or liabilities may be required, which may result in an adverse impact on the results of our operations and our effective tax rate. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. We have not made any significant changes to the way we account for our deferred tax assets and liabilities in any year presented in the consolidated financial statements. Based on our estimate of future earnings and our favorable earnings history, we currently expect full realization of the deferred tax assets net of any recorded valuation allowances. Furthermore, tax positions taken by us may not be fully sustained upon examination by the taxing authorities. In determining the adequacy of our provision
(benefit) for income taxes, potential settlement outcomes resulting from income tax examinations are regularly assessed. As such, the final outcome of tax examinations, including the total amount payable or the timing of any such payments upon resolution of these issues, cannot be estimated with certainty.
Asset Impairments
We had property and equipment, net of $2.1 billion and $2.1 billion as of December 31, 2020 and 2019, respectively, including approximately 990 vacant beds with a net book value of approximately $24 million at December 31, 2020 at two of our idle facilities in the Secure Services segment that we are currently marketing to potential customers. Also, in our GEO Care segment, we are currently marketing approximately 1,100 vacant beds with a net book value of approximately $26 million at December 31, 2020 at two of our idle facilities to potential customers.
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. 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 or a significant decrease in population. If impairment indicators are present, we perform a recoverability test to determine whether or not an impairment loss should be measured.
We test idle facilities for impairment upon notification that the facilities will no longer be utilized by the customer. 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 assets by facility for the purpose of considering whether any impairment exists. The estimates of recoverability are based on projected undiscounted cash flows associated with actual marketing efforts where available or, in other instances, projected undiscounted cash flows that are comparable to historical cash flows from management contracts at similar facilities and sensitivity analyses that consider reductions to such cash flows. Our sensitivity analyses include adjustments to projected cash flows compared to the historical cash flows due to current business conditions which impact per diem rates as well as labor and other operating costs, changes related to facility mission due to changes in prospective clients, and changes in projected capacity and occupancy rates. We also factor in prolonged periods of vacancies as well as the time and costs required to ramp up facility population once a contract is obtained. We perform the impairment analyses on an annual basis for each of the idle facilities and update each quarter for market developments for the potential utilization of each of the facilities in order to identify events that may cause us to reconsider the most recent assumptions. Such events could include negotiations with a prospective customer for the utilization of an idle facility at terms significantly less favorable than used in our most recent impairment analysis, or changes in legislation surrounding a particular facility that could impact our ability to house certain types of individuals at such facility. Further, a substantial increase in the number of available beds at other facilities that we own, or in the marketplace, could lead to deterioration in market conditions and projected cash flows. Although they are not frequently received, an unsolicited offer to purchase any of our idle facilities, at amounts that are less than their carrying value could also cause us to reconsider the assumptions used in the most recent impairment analysis. We have identified marketing prospects to utilize each of the remaining currently idled facilities and do not see any catalysts that would result in a current impairment. However, we can provide no assurance that we will be able to secure management contracts to utilize our idle facilities, or that we will not incur impairment charges in the future. In all cases, except for one of our leased facilities, the projected undiscounted cash flows in our analysis as of December 31, 2020 substantially exceeded the carrying amounts of each facility. With respect to the leased facility where the carrying amount of the facility did not exceed the projected undiscounted cash flows, we recorded an impairment charge of approximately $5.7 million during the year ended December 31, 2020.
Our evaluations also take into consideration historical experience in securing new management contracts to utilize facilities that had been previously idled for periods comparable to or in excess of the periods our currently idle facilities have been idle. Such previously idled facilities are currently being operated under contracts that generate cash flows resulting in the recoverability of the net book value of the previously idled facilities by substantial amounts. Due to a variety of factors, the lead time to negotiate contracts with federal and state agencies to utilize idle bed capacity is generally lengthy which has historically resulted in periods of idleness similar to the ones we are currently experiencing. As a result of our analyses, we determined each of these assets to have recoverable values substantially in excess of the corresponding carrying values.
By their nature, these estimates contain uncertainties with respect to the extent and timing of the respective cash flows due to potential delays or material changes to forecasted terms and conditions in contracts with prospective customers that could impact the estimate of projected cash flows.
Goodwill and Other Intangible Assets, Net
Goodwill
We have recorded goodwill as a result of our business combinations. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired. Our goodwill is not amortized and is tested for impairment annually on the first day of the fourth quarter, and whenever events or circumstances arise that indicate impairment may have occurred. Impairment testing is performed for all reporting units that contain goodwill. The reporting units are
the same as the reportable segment for U.S. Secure Services and are at the operating segment level for GEO Care. On the annual measurement date of October 1, 2020, management elected to qualitatively assess the Company's goodwill for impairment for all of its reporting units except for its community based reporting unit which was assessed using a quantitative analysis. Under provisions of the qualitative analysis, when testing goodwill for impairment, we first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we performs a quantitative impairment test to identify goodwill impairment and measures the amount of goodwill impairment loss to be recognized, if any. The qualitative factors used by management to determine the likelihood that the fair value of the reporting unit is less than the carrying amount include, among other things, a review of overall economic conditions and their current and future impact on our existing business, our financial performance and stock price, industry outlook and market competition. With respect to the qualitative assessments, management determined that, as of October 1, 2020, it was more likely than not that the fair values of the reporting units exceeded their carrying values. With respect to the quantitative analysis performed, we used a third-party valuation firm to determine the estimated fair value of the reporting unit using a discounted cash flow model. A discount rate of 10% was utilized to adjust the cash flow forecasts based on our estimate of a market participant’s weighted-average cost of capital. Growth rates for sales and profits were determined using inputs from our long-term planning process. We also make estimates for discount rates and other factors based on market conditions, historical experience and other economic factors. Changes in these factors could significantly impact the fair value of the reporting unit. With respect to the community based reporting unit that was assessed quantitatively, management determined that the carrying value exceeded its fair value due to future declines in cash flow projections primarily due to the negative impact of the COVID-19 pandemic on the our reentry facilities. As such, we recorded a goodwill impairment charge of $21.1 million during the year ended December 31, 2020. A change in one or combination of the assumptions discussed above could impact the estimated fair value of the reporting unit. If our expectations of future results and cash flows decrease significantly or other economic conditions deteriorate, goodwill may be further impaired. See Note 8 - Goodwill and Other Intangible Assets for further information.
Other Intangible Assets. Net
We have also recorded other finite and indefinite lived intangible assets as a result of previously completed business combinations. Other acquired finite and indefinite lived intangible assets are recognized separately if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of our intent to do so. Our intangible assets include facility management contracts, trade names and technology. The facility management contracts represent customer relationships in the form of management contracts acquired at the time of each business combination; the value of BI’s and Protocol Criminal Justice, Inc.'s (“Protocol”) trade names represent, among other intangible benefits, name recognition to its customers and intellectual property rights; and the acquired technology represents BI’s innovation with respect to its GPS tracking, monitoring, radio frequency monitoring, voice verification monitoring and alcohol compliance systems, Protocol's innovation with respect to its customer relationship management software and Soberlink, Inc.'s innovation with respect to its alcohol monitoring devices. When establishing useful lives, we consider the period and the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up; or, if that pattern cannot be reliably determined, using a straight-line amortization method over a period that may be shorter than the ultimate life of such intangible asset. We also consider the impact of renewal terms when establishing useful lives. We currently amortize our acquired facility management contracts over periods ranging from three to twenty-one years and our acquired technology over seven years to eight years. There is no residual value associated with our finite-lived intangible assets. We review our trade name assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. We do not amortize our indefinite lived intangible assets. We review our indefinite lived intangible assets annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. These reviews resulted in no impairment to the carrying value of the indefinite lived intangible assets for all periods presented. We record the costs associated with renewal and extension of facility management contracts as expenses in the period they are incurred.
Recent Accounting Pronouncements
The Company implemented the following accounting standards during the year ended December 31, 2020:
The SEC recently adopted the final rule in Release No. 33-10762 (the “Final Rule”), Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, to eliminate certain prescriptive requirements currently in Rules 3-10 and 3-16 of Regulation S-X. The Final Rule amends Regulation S-X Rules 3-10 and 3-16 with Regulation S-X Rules 13-01, Guarantors and issuers of guaranteed securities registered or being registered, and 13-02, Affiliates whose securities collateralize securities registered or being registered. The Final Rule simplifies the conditions required to omit separate financial statements of subsidiary issuers and guarantors, allows for reduced supplemental financial information about subsidiary issuers and guarantors as well as affiliates whose securities are collateralized and expands qualitative disclosures about the guarantees or securities pledged as collateral as well as issuers, guarantors, or affiliates, as applicable. The amended rules also provide flexibility to include these disclosures within or outside the annual and interim financial statements in both registration statements and periodic reports. Further, the disclosures are required only for the most recent annual and year-to-date interim periods. The Final Rule is effective on January 4, 2021 with early adoption permitted. The early adoption of the Final Rule did not have a material impact on our financial position, results of operations or cash flows.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820)" as a part of its disclosure framework project. The amendments in this update remove, modify and add certain disclosures primarily related to transfers between Level 1 and Level 2 of the fair value hierarchy, various disclosures related to Level 3 fair value measurements and investments in certain entities that calculate net asset value. The new standard was effective for us beginning January 1, 2020. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.
In June 2016, the FASB issued ASC No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The purpose of Update No. 2016-13 is to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. Update No. 2016-13 was effective for us beginning January 1, 2020. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.
The following accounting standards will be adopted in future periods:
In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options”. The guidance in this update simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU also simplify the guidance in ASC 815-40, “Derivatives and Hedging: Contracts in an Entity’s Own Equity” by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or shares. The new standard is effective for us beginning January 1, 2022. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this standard is not expected to have a material impact on our financial position, results of operations or cash flows.
In March 2020, the FASB issued ASU 2020-04, “Reference Reform Rate (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” to provide temporary optional expedients and exceptions to the contract modifications, hedge relationships and other transactions affected by reference rate reform if certain criteria are met. This ASU, which was effective upon issuance and may be applied through December 31, 2022, is applicable to all contracts and hedging relationships that reference the London Interbank Offered Rate or any other reference rate expected to be discontinued. We are currently evaluating the impact of reference rate reform and the potential application of this guidance.
In August 2018, the FASB issued ASU No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715.20)" as a part of its disclosure framework project. The amendments in this update remove, modify and add certain disclosures primarily related to amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, explanations for reasons for significant gains and losses related to changes in the benefit obligation for the period, and projected and accumulated benefit obligations. The new standard is effective for us beginning January 1, 2021. The adoption of this standard is not expected to have a material impact on our financial position, results of operations or cash flows.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not, or are not expected to, have a material effect on the Company's results of operations or financial position.
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 the 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.
2020 versus 2019
Revenues
% of
Revenue
% of
Revenue
$ Change
%
Change
(Dollars in thousands)
U.S. Secure Services
$
1,571,216
66.9
%
$
1,601,679
64.6
%
$
(30,463
)
(1.9
)%
GEO Care
551,342
23.5
%
614,249
24.8
%
(62,907
)
(10.2
)%
International Services
211,621
9.0
%
232,016
9.4
%
(20,395
)
(8.8
)%
Facility Construction & Design
15,919
0.7
%
29,978
1.2
%
(14,059
)
(46.9
)%
Total
$
2,350,098
100.0
%
$
2,477,922
100.0
%
$
(127,824
)
(5.2
)%
U.S. Secure Services
Revenues decreased in 2020 by $30.5 million compared to 2019 as a result of $36.5 million primarily due to net decreases in populations at our ICE processing centers and USMS facilities due to the COVID-19 pandemic, which resulted in declines in crossings and apprehensions along the Southwest border, as well as decreases in court sentencing at the federal levels. Additionally, revenues decreased by $66.1 million due to the discontinuation of our California Modified Community Correctional Facility contracts along with other contract discontinuations. Various governmental agencies have also taken steps to decrease the number of those in custody to adhere to social distancing protocols. We also experienced net decreases in population, transportation services and/or rates of $3.7 million at our BOP and state facilities. These decreases were partially offset by increases of $75.8 million resulting from the activation of our contracts at our company-owned and previously idled South Louisiana Processing Center in Basile, Louisiana during the third quarter of 2019, our company-owned and previously idled North Lake Correctional Facility in Baldwin, Michigan which was activated on October 1, 2019, our managed-only contract for the El Centro Detention Center in California which was effective in December 2019, the activation of our company-owned Golden State Annex facility in California which was effective in September 2020 as well as the activation of the county-owned Reeves County Detention Center I & II in the third quarter of 2019.
The number of compensated mandays in GEO Secure Services facilities was approximately 21.7 million in 2020 and 23.5 million in 2019. We experienced an aggregate net decrease of approximately 1,800,000 mandays as a result of net decreases in population as a result of the impact of the COVID-19 pandemic as well as contract terminations, partially offset by contract activations discussed above. We look at the average occupancy in our facilities to determine how we are managing our available beds. The average occupancy is calculated by taking compensated mandays as a percentage of capacity. The average occupancy in our GEO Secure Services facilities was 89.3% and 94.9% of capacity in 2020 and 2019, respectively, excluding idle facilities.
GEO Care
Revenues decreased in 2020 by $62.9 million compared to 2019 primarily due to aggregate decreases of $42.4 million related to contract discontinuations/closures of underutilized facilities which have been impacted by the COVID-19 pandemic and other factors. We also experienced a decrease of $14.1 million due to decreases in blended rates and average client and participant counts under our ISAP services as a result of policy changes by the former administration. Also contributing to this decrease were the effects of the COVID-19 pandemic has had on our community based programs which resulted in reductions in home visits and other impacts. In addition, we experienced decreases of $12.3 million related to net decreases in census levels at certain of our community-based and reentry centers due to declines in programs as a result of lower levels of referrals by federal, state and local agencies primarily due to the impact of the COVID-19 pandemic. These decreases were partially offset by increases of $5.9 million due to new/reactivated contracts and programs.
International Services
Revenues for International Services decreased by $20.4 million in 2020 compared to 2019. We experienced a net decrease of $15.7 million which was primarily due to the transition of the Arthur Gorrie Correctional Centre to government operation in State of Queensland, Australia at the end of June 2020. Additionally, we experienced decreases of $4.7 million due to the effects of foreign exchange rate fluctuations.
Facility Construction & Design
In 2020 and 2019, we had facility construction & design services related to an expansion project at our Fulham Correctional Centre in Australia which was substantially completed in the third quarter of 2020. The revenue decrease was due to a decrease in construction activity as the project neared completion.
Operating Expenses
% of
Segment
Revenues
% of
Segment
Revenues
$ Change
%
Change
(Dollars in thousands)
U.S. Secure Services
$
1,191,562
75.8
%
$
1,200,199
74.9
%
$
(8,637
)
(0.7
)%
GEO Care
381,034
69.1
%
417,432
68.0
%
(36,398
)
(8.7
)%
International Services
189,865
89.7
%
213,223
91.9
%
(23,358
)
(11.0
)%
Facility Construction & Design
15,865
99.7
%
29,904
99.8
%
(14,039
)
(46.9
)%
Total
$
1,778,326
$
1,860,758
$
(82,432
)
(4.4
)%
Operating expenses consist of those expenses incurred in the operation and management of our Secure Services, GEO Care and International Services facilities and expenses incurred in our Facility Construction & Design segment.
U.S. Secure Services
Operating expenses for U.S. Secure Services decreased by $8.6 million in 2020 compared to 2019. We experienced decreases of $31.5 million at certain of our facilities primarily due to contract discontinuations. Additionally, we experienced aggregate net decreases of $27.6 million related to decreases in population, transportation services and the variable costs associated with those services primarily as a result of the impacts of the COVID-19 pandemic as described above. These decreases were partially offset by increases of $50.5 million from the activation of our contracts at our company-owned and previously idled South Louisiana Processing Center in Basile, Louisiana during the third quarter of 2019, our company-owned and previously idled North Lake Correctional Facility in Baldwin, Michigan which was activated on October 1, 2019, our managed-only contract for the El Centro Detention Center in California which was effective in December 2019 as well as activation of our company-owned Golden State Annex facility in California which was effective in September 2020.
GEO Care
Operating expenses for GEO Care decreased by $36.4 million during 2020 compared to 2019 primarily due to net decreases of $30.2 million from contract discontinuations/closures of underutilized facilities. We also experienced a decrease of $8.6 million due to decreases in average client and participant counts under our ISAP services as a result of policy changes by the administration which reduced the number of enrollments at the southern border. Also contributing to this decrease were the effects of the COVID-19 pandemic which resulted in reductions in home visits and other impacts. Additionally, we experienced $3.4 million of net decreases related to census levels at certain of our community-based reentry centers and day reporting centers due to the impact of the COVID-19 pandemic. These decreases were partially offset by increases of $5.8 million due to new/reactivated contracts and programs and day reporting center openings.
International Services
Operating expenses for International Services decreased by $23.4 million in 2020 compared to 2019. We experienced a net decrease of $18.7 million which was primarily due to the transition of the Arthur Gorrie Correctional Centre to government operation in State of Queensland, Australia at the end of June 2020. Additionally, we experienced decreases of $4.7 million due to the effects of foreign exchange rate fluctuations.
Facility Construction & Design
Beginning in the fourth quarter of 2018 and into 2019, we had facility construction & design services related to an expansion project at our Fulham Correctional Centre in Australia which was substantially completed in the third quarter of 2020. The decrease in operating expenses was due to a decrease in construction activity as the project neared completion.
Depreciation and Amortization
% of
Segment
Revenue
% of
Segment
Revenue
$ Change
%
Change
(Dollars in thousands)
U.S. Secure Services
$
80,702
5.1
%
$
78,974
4.9
%
$
1,728
2.2
%
GEO Care
51,832
9.4
%
49,781
8.1
%
2,051
4.1
%
International Services
2,146
1.0
%
2,070
0.9
%
3.7
%
Total
$
134,680
5.7
%
$
130,825
5.3
%
$
3,855
2.9
%
U.S. Secure Services
U.S. Secure Services depreciation and amortization expense increased in 2020 compared to 2019 primarily due to renovations in connection with our contract activations at certain of our company-owned facilities as previously discussed.
GEO Care
GEO Care depreciation and amortization expense increased in 2020 compared to 2019 primarily due to renovations at certain of our centers.
International Services
Depreciation and amortization expense increased slightly in 2020 compared to 2019 as a result of renovations during 2019 and 2020 at several of our international facilities.
Other Unallocated Operating Expenses
% of
Revenue
% of
Revenue
$ Change
% Change
(Dollars in thousands)
General and Administrative Expenses
$
193,372
8.2
%
$
185,926
7.5
%
$
7,446
4.0
%
General and administrative expenses comprise substantially all of our other unallocated operating expenses which primarily includes corporate management salaries and benefits, professional fees and other administrative expenses. General and administrative expenses increased in 2020 compared to 2019 primarily due to higher stock-based compensation expense of $1.6 million, $2.5 million in insurance expense associated with policy renewals as well as normal personnel and compensation adjustments, professional, consulting, business development and other administrative expenses including COVID-19 related expenses. These increases were partially offset by less travel, marketing and other corporate administrative expenses primarily due to the impacts of the COVID-19 pandemic.
Goodwill Impairment Charges
% of
Revenue
% of
Revenue
$ Change
% Change
(Dollars in thousands)
Goodwill Impairment Charges
$
21,146
0.9
%
$
-
0.0
%
$
21,146
100.0
%
In connection with our annual goodwill testing, we determined that the carrying value of our community based reporting unit exceeded its fair value as a result of future declines in cash flow projections primarily due to the impact of the COVID-19 pandemic. As such, we recorded a goodwill impairment charge of $21.1 million during the year ended December 31, 2020. Refer to Note 1 - Summary of Business Organization, Operations and Significant Accounting Policies - Goodwill and Other Intangible Assets of the Notes to the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K
Non-Operating Income and Expense
Interest Income and Interest Expense
% of
Revenue
% of
Revenue
$ Change
% Change
(Dollars in thousands)
Interest Income
$
23,072
1.0
%
$
28,934
1.2
%
$
(5,862
)
(20.3
)%
Interest Expense
$
126,837
5.4
%
$
151,024
6.1
%
$
(24,187
)
(16.0
)%
Interest income decreased in 2020 compared to 2019 primarily due to the effect of foreign exchange rate fluctuations related to our contract receivable balance for our facility in Ravenhall, Australia.
Interest expense decreased in 2020 compared to 2019 primarily due to lower interest rates on our variable rate debt. Also contributing to the decrease was a reduction in higher interest rate debt balances. During 2019, we repurchased approximately $56.0 million in aggregate principal amount of its 5.875% Senior Notes due 2022. During 2020, we repurchased approximately $7.5 million in aggregate principal amount
of its 5.875% Senior Notes due 2024. Additionally, during 2020, we repurchased approximately $18.2 million in aggregate principal amount of its 5.125% Senior Notes due 2023. Refer to Note 12- Debt of the Notes to the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Gain (Loss) on Extinguishment of Debt
% of
Revenue
% of
Revenue
$ Change
% Change
(Dollars in thousands)
Gain (Loss) on Extinguishment of Debt
$
5,319
0.2
%
$
(4,795
)
-0.2
%
$
10,114
-2.11
During 2020, we repurchased approximately $7.5 million in aggregate principal amount of our 5.875% Senior Notes due 2024 at a weighted average price of $78.99 for a total cost of $5.8 million. Additionally, during 2020, we repurchased approximately $18.2 million in aggregate principal amount of our 5.125% Senior Notes due 2023 at a weighted average price of $77.28 for a total cost of $14.4 million. As a result of these repurchase, we incurred a net gain on extinguishment of debt of $5.3 million.
On May 22, 2019, we completed an offering of non-recourse notes related to our Ravenhall facility in Australia. The net proceeds from this offering were used to refinance our outstanding construction facility. As a result of the transaction, we incurred a $4.5 million loss on extinguishment of debt related to swap termination fees and unamortized deferred loan costs associated with the Construction Facility. Additionally, on June 12, 2019, GEO entered into Amendment No. 2 to our credit agreement. Under the amendment, the maturity date of our Revolver has been extended to May 17, 2024. As a result of the amendment, we incurred a loss on extinguishment of debt of $1.2 million related to certain unamortized deferred loan costs.
Additionally, during 2019, we repurchased approximately $56 million in aggregate principal amount of our 5.875% Senior Notes due 2022 at a weighted average price of 97.55% for a total cost of $54.7 million. As the result of the repurchases we recognized a net gain on extinguishment of debt of $0.9 million which partially offset the loss discussed above. Refer to Note 12- Debt of the Notes to the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Provision for Income Taxes
Effective
Rate
Effective
Rate
$ Change
% Change
(Dollars in thousands)
Provision for Income Taxes
$
20,463
16.5
%
$
16,648
9.6
%
$
3,815
22.9
%
The provision for income taxes in 2020 increased compared to 2019 along with the effective tax rate which is due to a change in the composition of our income between our REIT and TRS subsidiaries and certain non-recurring items. In 2020, there was a $4.2 million discrete tax expense, inclusive of a $3.6 million discrete tax expense related to stock compensation that vested during the period. In contrast, in 2019, there was a $0.5 million discrete tax benefit, net of a $0.2 million discrete tax expense related to stock compensation that vested during the period. Furthermore, the effective tax rate increased as a result of the impairment, which is not deductible for tax purposes. As a REIT, we are required to distribute at least 90% of our taxable income to shareholders and in turn are allowed a deduction for the distribution at the REIT level. Our wholly owned taxable REIT subsidiaries continue to be fully subject to federal, state and foreign income taxes, as applicable. We estimate our 2021 annual effective tax rate to be in the range of approximately 15% to 18% exclusive of any discrete items.
Equity in Earnings of Affiliates
% of
Revenue
% of
Revenue
$ Change
% Change
(Dollars in thousands)
Equity in Earnings of Affiliates
$
9,166
0.4
%
$
9,532
0.4
%
$
(366
)
(3.8
)%
Equity in earnings of affiliates, presented net of income taxes, represents the earnings of SACS and GEOAmey in the aggregate. Equity in earnings of affiliates in 2020 compared to 2019 decreased slightly primarily due to the effects of foreign exchange rate fluctuations.
Financial Condition
Capital Requirements
Our current cash requirements consist of amounts needed for working capital, distributions of our REIT taxable income in order to maintain our REIT qualification under the Code, debt service, supply purchases, investments in joint ventures, and capital expenditures related
to either the development of new secure, processing and reentry facilities, or the maintenance of existing facilities. In addition, some of our management contracts require us to make substantial initial expenditures of cash in connection with opening or renovating a facility. Generally, these initial expenditures are subsequently fully or partially recoverable as pass-through costs or are billable as a component of the per diem rates or monthly fixed fees to the contracting agency over the original term of the contract. Additional capital needs may also arise in the future with respect to possible acquisitions, other corporate transactions or other corporate purposes.
As of December 31, 2020, we were developing a number of projects that we estimate will cost approximately $54.5 million, of which $35.0 million was spent through December 31, 2020. We estimate our remaining capital requirements to be approximately $19.5 million. These projects are expected to be completed through 2021.
Liquidity and Capital Resources
Amended and Restated Credit Agreement
On June 12, 2019, we entered into Amendment No. 2 to Third Amended and Restated Credit Agreement (the "Credit Agreement") by and among the refinancing lenders party thereto, the other lenders party thereto, GEO and GEO Corrections Holdings, Inc. and the administrative agent. Under the amendment, the maturity date of the revolver component of the Credit Agreement has been extended to May 17, 2024. The borrowing capacity under the amended revolver will remain at $900 million, and its pricing will remain unchanged, currently bearing interest at LIBOR plus 2.25%. As a result of the transaction, we incurred a loss on extinguishment of debt of $1.2 million related to certain unamortized deferred loan costs. Additionally, loan costs of $4.7 million were incurred and capitalized in connection with the transaction.
A syndicate of approximately 65 lenders participate in our Credit Agreement, six of which have indicated that they do not intend to provide new financing to GEO but will honor their existing obligations (Refer to Item 1A - Risk Factors included in Part I of this Annual Report on Form 10-K for further discussion on certain financial institutions who announced beginning in 2019 that they will not be renewing existing agreements or entering into new agreements with companies that privately operate secure correctional facilities, processing centers and community reentry centers under public-private partnerships). Certain lenders have also publicly disclosed that they will no longer loan money to one of our key competitors. The banks that have withdrawn participation remain contractually committed for approximately three years. These six banks represent 54% of the lending commitments under the revolver component of our senior credit facility as of December 31, 2020. Additionally, these six banks represent less than 25% of our overall borrowing capacity under our Credit Agreement and the withdrawal of their participation is not expected to negatively impact our financial flexibility. We are also in frequent communication with potential new lenders as well as the credit rating agencies who have not changed our credit ratings for over 45 months.
The Credit Agreement evidences a credit facility (the "Credit Facility") consisting of the $792.0 million term loan discussed above (the "Term Loan") bearing interest at LIBOR plus 2.00% (with a LIBOR floor of 0.75%), and a $900.0 million revolver initially bearing interest at LIBOR plus 2.25% (with no LIBOR floor) together with AUD275 million available solely for the issuance of financial letters of credit and performance letters of credit, in each case denominated in Australian Dollars under the Australian Dollar Letter of Credit Facility (the "Australian LC Facility"). As of December 31, 2020, there were no letters of credit issued under the Australian LC Facility. Amounts to be borrowed by GEO under the Credit Agreement are subject to the satisfaction of customary conditions to borrowing. The Term Loan component is scheduled to mature on March 23, 2024. The revolving credit commitment component is scheduled to mature on May 17, 2024. The Credit Agreement also has an accordion feature of $450.0 million, subject to lender demand and prevailing market conditions and satisfying the relevant borrowing conditions.
The Credit Agreement contains certain customary representations and warranties, and certain customary covenants that restrict GEO’s ability to, among other things (i) create, incur or assume any indebtedness, (ii) create, incur, assume or permit liens, (iii) make loans and investments, (iv) engage in mergers, acquisitions and asset sales, (v) make certain restricted payments, (vi) issue, sell or otherwise dispose of capital stock, (vii) engage in transactions with affiliates, (viii) allow the total leverage ratio to exceed 6.25 to 1.00, allow the senior secured leverage ratio to exceed 3.50 to 1.00, or allow the interest coverage ratio to be less than 3.00 to 1.00, (ix) cancel, forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for value any senior notes, except as permitted, (x) alter the business GEO conducts, and (xi) materially impair GEO’s lenders’ security interests in the collateral for its loans.
Events of default under the Credit Agreement include, but are not limited to, (i) GEO’s failure to pay principal or interest when due, (ii) GEO’s material breach of any representation or warranty, (iii) covenant defaults, (iv) liquidation, reorganization or other relief relating to bankruptcy or insolvency, (v) cross default under certain other material indebtedness, (vi) unsatisfied final judgments over a specified threshold, (vii) certain material environmental liability claims asserted against GEO, and (viii) a change in control.
All of the obligations under the Credit Agreement are unconditionally guaranteed by certain domestic subsidiaries of GEO and the Credit Agreement and the related guarantees are secured by a perfected first-priority pledge of substantially all of GEO’s present and future tangible and intangible domestic assets and all present and future tangible and intangible domestic assets of each guarantor, including but not limited to a first-priority pledge of all of the outstanding capital stock owned by GEO and each guarantor in their domestic subsidiaries.
The Australian borrowers are wholly owned foreign subsidiaries of GEO. GEO has designated each of the Australian borrowers as restricted subsidiaries under the Credit Agreement. However, the Australian borrowers are not obligated to pay or perform any obligations under the Credit Agreement other than their own obligations as Australian borrowers under the Credit Agreement. The Australian borrowers do not pledge any of their assets to secure any obligations under the Credit Agreement.
On August 18, 2016, we executed a Letter of Offer by and among GEO and HSBC Bank Australia Limited (the “Letter of Offer”) providing for a bank guarantee line and bank guarantee/standby sub-facility in an aggregate amount of AUD100 million, or $77.1 million, based on exchange rates in effect as of December 31, 2020 (collectively, the “Bank Guarantee Facility”). The Bank Guarantee Facility allows GEO to provide letters of credit to assure performance of certain obligations of its wholly owned subsidiary relating to its secure facility project in Ravenhall, located near Melbourne, Australia. In accordance with the Ravenhall Contract, upon the completion of a certain period of operations, the Bank Guarantee Facility was reduced during the fourth quarter of 2019 to approximately AUD59 million, or $45.5 million, based on exchange rates in effect as of December 31, 2020. The Bank Guarantee Facility is unsecured. The issuance of letters of credit under the Bank Guarantee Facility is subject to the satisfaction of the conditions precedent specified in the Letter of Offer. Letters of credit issued under the bank guarantee lines are due on demand and letters of credit issued under the bank guarantee/standby sub-facility cannot have a duration exceeding twelve months. The Bank Guarantee Facility may be terminated by HSBC Bank Australia Limited on 90 days written notice. As of December 31, 2020, there was AUD59 million in letters of credit issued under the Bank Guarantee Facility.
As of December 31, 2020, we had $770.0 million in aggregate borrowings outstanding under the Term Loan, $704.4 million in borrowings under the Revolver, and approximately $59.6 million in letters of credit which left $136.0 million in additional borrowing capacity under the Revolver. In addition, we have the ability to increase the Senior Credit Facility by an additional $450.0 million, subject to lender demand and prevailing market conditions and satisfying the relevant borrowing conditions thereunder. Refer to Note 12 - Debt in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
6.00% Senior Notes due 2026
On April 18, 2016, we completed an offering of $350.0 million aggregate principal amount of 6.00% senior notes due 2026. The 6.00% Senior Notes will mature on April 15, 2026 and were issued at a coupon rate and yield to maturity of 6.00%. Interest on the 6.00% Senior Notes is payable semi-annually on April 15 and October 15 of each year, commencing on October 15, 2016. We used the net proceeds to fund the tender offer and the redemption of all of our 6.625% Senior Notes, to pay all related fees, costs and expenses and for general corporate purposes including repaying borrowings under our prior revolver. Loan costs of approximately $6 million were incurred and capitalized in connection with the offering. Refer to Note 12 - Debt in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
5.875% Senior Notes due 2024
On September 25, 2014, we completed an offering of $250.0 million aggregate principal amount of senior unsecured notes. The notes will mature on October 15, 2024 and have a coupon rate and yield to maturity of 5.875%. Interest is payable semi-annually in cash in arrears on April 15 and October 15, which commenced on April 15, 2015. The proceeds received from the 5.875% Senior Notes due 2024 were used to pay down a portion of the outstanding indebtedness under the revolver portion of our prior Senior Credit Facility. Refer to Note 12 - Debt in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
5.875% Senior Notes due 2022
On October 3, 2013, we completed an offering of $250.0 million aggregate principal amount of 5.875% Senior Notes due 2022. The 5.875% Senior Notes due 2022 will mature on January 15, 2022 and have a coupon rate and yield to maturity of 5.875%. Interest is payable semi-annually on January 15 and July 15 each year, which commenced on January 15, 2014. The proceeds received from the 5.875% Senior Notes due 2022 were used, together with cash on hand, to fund the repurchase, redemption or other discharge of our 7 3/4% Senior Notes due 2017 and to pay related transaction fees and expenses. Refer to Note 12 - Debt in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
5.125% Senior Notes due 2023
On March 19, 2013, we completed an offering of $300.0 million aggregate principal amount of 5.125% Senior Notes. The 5.125% Senior Notes will mature on April 1, 2023 and have a coupon rate and yield to maturity of 5.125%. Interest is payable semi-annually on April 1 and October 1 each year, which commenced on October 1, 2013. A portion of the proceeds received from the 5.125% Senior Notes were used on the date of the financing to repay the prior revolver credit draws outstanding under the prior senior credit facility. Refer to Note 12 - Debt in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Debt Repurchases
On August 16, 2019, our Board of Directors authorized us to repurchase and/or retire a portion of the 6.00% Senior Notes due 2026, the 5.875% Senior Notes due 2024, the 5.125% Senior Notes due 2023, the 5.875% Senior Notes due 2022 (collectively the "GEO Senior Notes") and our term loan under its Amended Credit Agreement through cash purchases, in open market, privately negotiated transactions, or otherwise, up to an aggregate maximum of $100.0 million, subject to certain limitations through December 31, 2020. On February 11, 2021, the Company’s Board of Directors authorized a new repurchase program for repurchases/retirements of the above referenced Senior Notes and term loan, subject to certain limitations up to an aggregate maximum of $100.0 million through December 31, 2022.
During 2020, the Company repurchased approximately $7.5 million in aggregate principal amount of its 5.875% Senior Notes due 2024 at a weighted average price of 77.28% for a total cost of $5.8 million. Additionally, during 2020, the Company repurchased approximately $18.2 million in aggregate principal amount of its 5.125% Senior Notes due 2023 at a weighted average price of 78.99% for a total cost of $14.3 million. As a result of these repurchases, the Company recognized a net gain on extinguishment of debt of $5.3 million during the year ended December 31, 2020.
During 2019, the Company repurchased approximately $56.0 million in aggregate principal amount of its 5.875% Senior Notes due 2022 at a weighted average price of 97.55% for a total cost of $54.7 million. As a result of these repurchases, the Company recognized a net gain on extinguishment of debt of $0.9 million during the year ended December 31, 2019.
There can be no assurance that any future 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 indentures governing the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 and our Senior Credit Facility. A substantial decline in our financial performance could limit our access to capital pursuant to these covenants and have a material adverse effect on our liquidity and capital resources and, as a result, on our financial condition and results of operations. In addition to these foregoing potential constraints on our capital, a number of state government agencies have been suffering from budget deficits and liquidity issues. While we expect to be in compliance with our debt covenants, if these constraints were to intensify, our liquidity could be materially adversely impacted as could our ability to remain in compliance with these debt covenants.
We may from time to time seek to purchase or retire our outstanding senior notes through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Senior Credit Facility
On November 6, 2020, out of an abundance of caution and as a liquidity management strategy, GEO elected to draw down $250 million in borrowings under its credit facility. In order to maintain maximum financial flexibility, GEO plans to maintain this liquidity on hand.
Quarterly Dividends
In October 2020, the GEO Board of Directors decided to reduce GEO’s quarterly cash dividend beginning with the quarterly dividend paid on October 23, 2020 from $0.48 per share, or $1.92 per share annualized, to $0.34 per share, or $1.36 per share annualized. The GEO Board of Directors took this action based on a determination that it is in the best interests of GEO and our shareholders to apply excess cash flow to debt reduction. In January 2021, the GEO Board of Directors decided to further reduce GEO’s quarterly cash dividend beginning with the quarterly dividend paid on February 1, 2021 from $0.34 per share, or $1.36 per share annualized, to $0.25 per share, or $1.00 per share annualized. The reduction of GEO’s quarterly dividend payment will allow GEO to continue its focus on paying down debt and to balance its continued creation of value for GEO shareholders with prudent management of its balance sheet. The GEO Board of Directors will continue to evaluate GEO’s dividend policy and capital allocation. The declaration of future quarterly cash dividends is subject to approval by the GEO Board of Directors and to meeting the requirements of all applicable laws and regulations. The GEO Board of Directors retains the power to modify or eliminate GEO’s quarterly dividend as it may deem necessary or appropriate in the future to consider factors including, but not limited to, long-term capital needs and access to the capital markets.
Stock Buyback Program
On February 14, 2018, we announced that our Board authorized a stock buyback program authorizing us to repurchase up to a maximum of $200 million of our shares of common stock. The stock buyback program was funded primarily with cash on hand, free cash flow and borrowings under our $900 million revolving credit facility. The program expired on October 20, 2020. The stock buyback program was 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 Commission ("SEC") requirements. The stock buyback program did not obligate us to purchase any
specific amount of our common stock and could have been suspended or extended at any time at the discretion of our Board. During the year ended December 31, 2020, we purchased 553,665 shares of our common stock at a cost of $9.0 million primarily purchased with proceeds from our Revolver. There were no purchases of our common stock during the year ended December 31, 2019. During the year ended December 31, 2018, we purchased 4,210,254 shares of our common stock at a cost of $95.2 million primarily purchased with proceeds from our Revolver.
Automatic Shelf Registration on Form S-3
On October 30, 2020, the Company filed an automatic shelf registration on Form S-3 with the SEC that enables the Company to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, guarantees of debt securities, warrants and units. Each time the Company offers to sell securities, the Company will provide a prospectus supplement that will contain specific information about the terms of that offering and the securities being offered. The shelf registration statement is automatically effective and is valid for three years.
REIT Distributions
As a REIT, we are subject to a number of organizational and operational requirements, including a requirement that we annually distribute to our shareholders an amount equal to at least 90% of our REIT taxable income (determined before the deduction for dividends paid and by excluding any net capital gain). Generally, we expect to distribute all or substantially all of our REIT taxable income so as not to be subject to the income or excise tax on undistributed REIT taxable income. The amount, timing and frequency of distributions will be at the sole discretion of our Board of Directors and will be based upon various factors.
We plan to fund all of our capital needs, including distributions of our REIT taxable income in order to maintain our REIT qualification, and capital expenditures, from cash on hand, cash from operations, borrowings under our Senior Credit Facility and any other financings which our management and Board of Directors, in their discretion, may consummate. Currently, our primary source of liquidity to meet these requirements is cash flow from operations and borrowings under the $900.0 million Revolver. Our management believes that cash on hand, cash flows from operations and availability under our Senior Credit Facility will be adequate to support our capital requirements for 2021 as disclosed under “Capital Requirements” above.
Non-Recourse Debt
Northwest ICE Processing Center
On December 9, 2011, the Washington Economic Development Finance Authority issued $54.4 million of its Washington Economic Development Finance Authority Taxable Economic Development Revenue Bonds, series 2011 (“2011 Revenue Bonds”). The payment of principal and interest on the bonds is non-recourse to us. None of the bonds nor CSC of Tacoma, LLC’s (“CSC”) obligations under the loan are our obligations nor are they guaranteed by us.
As of December 31, 2020, the remaining balance of the debt service requirement related to the 2011 Revenue Bonds is $8.1 million, all of which is classified as current in the accompanying balance sheet. As of December 31, 2020, included in restricted cash and investments is $3.7 million (all current) of funds held in trust with respect to the Northwest ICE Processing Center for debt service and other reserves which had not been released to us as of December 31, 2020. Refer to Note 12-Debt in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.
Australia - Ravenhall
In connection with a design and build facility project agreement with the State of Victoria, in September 2014 we entered into a syndicated facility agreement (the "Construction Facility") to provide debt financing for construction of the project. Refer to Note 6 - Contract Receivable in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The Construction Facility provided for non-recourse funding up to AUD 791 million, or $609.8 million, based on exchange rates as of December 31, 2020. Construction draws were funded throughout the project according to a fixed utilization schedule as defined in the syndicated facility agreement. The term of the Construction Facility was through September 2019 and bore interest at a variable rate quoted by certain Australian banks plus 200 basis points. On May 22, 2019, we completed an offering of AUD 461.6 million, or $355.9 million, based on exchange rates as of December 31, 2020, aggregate principal amount of non-recourse senior secured notes due 2042 (the "Non-Recourse Notes"). The amortizing Non-Recourse Notes were issued by Ravenhall Finance Co Pty Limited in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The Non-Recourse Notes were issued with a coupon and yield to maturity of 4.23% with a maturity date of March 31, 2042. The net proceeds from this offering were used to refinance the outstanding Construction Facility and to pay all related fees, costs and expenses associated with the transaction. As a result of the transaction, we incurred a $4.5 million loss on extinguishment of debt related to swap termination fees and unamortized deferred loan costs associated with the Construction Facility. Additionally, loan costs of approximately $7.5 million were incurred and capitalized in connection with the offering. Refer to Note 7 - Derivative Financial Instruments in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Other
In August 2019, we entered into two identical Notes (as defined below) in the aggregate amount of $44.3 million which are secured by loan agreements and mortgage and security agreements on certain real property and improvements. The terms of the Notes are through September 1, 2034 and bear interest at LIBOR plus 200 basis points and are payable in monthly installments plus interest. We have entered into interest rate swap agreements to fix the interest rate to 4.22%. Included in the balance at December 31, 2020 is $0.7 million of deferred loan costs incurred in the transaction. Refer to Note 7 - Derivative Financial Instruments in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Guarantees
The Company has entered into certain guarantees in connection with the design, financing and construction of certain facilities as well as loan, working capital and other obligation guarantees for our subsidiaries in Australia, South Africa and our joint ventures. Refer to Note 12 - Debt in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Executive Retirement Agreement
We have a non-qualified deferred compensation agreement with our Chief Executive Officer (“CEO”). The agreement provides for a lump sum payment upon retirement, no sooner than age 55. As of December 31, 2020, the CEO had reached age 55 and was eligible to receive the payment upon retirement. If the Company’s CEO had retired as of December 31, 2020, the Company would have had to pay him approximately $8.9 million in shares of the Company’s common stock (determined as of February 26, 2020) plus additional shares credited for dividends declared and paid on the shares of the Company’s common stock as further discussed below.
On February 26, 2020 (the "Effective Date"), we and our CEO entered into an amended and restated executive retirement agreement that amends the CEO’s executive retirement agreement discussed above.
The amended and restated executive retirement agreement provides that upon the CEO’s retirement from GEO, we will pay a lump sum amount equal to $8,925,065 (determined as of February 26, 2020) (the “Grandfathered Payment”) which will be paid in the form of a fixed number of shares of our common stock. The Grandfathered Payment will be delayed for six months and a day following the effective date of the CEO’s termination of employment in compliance with Section 409A of the Internal Revenue Code of 1986, as amended.
On the Effective Date, an amount equal to the Grandfathered Payment was invested in our common stock (“GEO Shares”). The number of our shares of common stock as of the Effective Date was equal to the Grandfathered Payment divided by the closing price of our common stock on the Effective Date (rounded up to the nearest whole number of shares), which equals 553,665 shares of our common stock. Additional shares of our common stock will be credited with a value equal to any dividends declared and paid on our shares of common stock, calculated by reference to the closing price of our common stock on the payment date for such dividends (rounded up to the nearest whole number of shares).
We have established several trusts for the purpose of paying the retirement benefit pursuant to the amended and restated executive retirement agreement. The trusts are revocable “rabbi trusts” and the assets of the trusts are subject to the claims of our creditors in the event of our insolvency.
Guarantor Financial Information
GEO’s 6.00% Senior Notes, 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of our wholly-owned domestic subsidiaries (the “Subsidiary Guarantors”).
Summarized financial information is provided for The GEO Group, Inc. (“Parent”) and the Subsidiary Guarantors on a combined basis in accordance with SEC Regulation S-X Rules 3-10 and 13-01. The accounting policies used in the preparation of this summarized financial information are consistent with those elsewhere in the condensed consolidated financial statements of the Company, except that intercompany transactions and balances of the Parent and Subsidiary Guarantor entities with non-guarantor entities have not been eliminated. Intercompany transactions between the Parent and Subsidiary Guarantors have been eliminated and equity in earnings from and investments in non-guarantor subsidiaries have not been presented.
Summarized statement of operations (in thousands):
Year Ended
December 31, 2020
Net operating revenues
$
2,111,900
Income from operations
193,480
Net income
77,682
Net income attributable to The GEO Group, Inc.
77,682
Summarized balance sheets (in thousands):
December 31, 2020
December 31, 2019
Current assets
$
607,044
$
431,048
Noncurrent assets (a)
3,268,260
3,328,078
Current liabilities
350,041
331,042
Noncurrent liabilities (b)
2,737,673
2,548,034
(a)
Includes amounts due from non-guarantor subsidiaries of $26.7 million and $26.3 million as of December 31, 2020 and 2019, respectively.
(b)
Includes amounts due to non-guarantor subsidiaries of $17.4 million and $17.1 million as of December 31, 2020 and 2019, respectively.
Off-Balance Sheet Arrangements
Except as discussed above, and in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, we do not have any off-balance sheet arrangements.
We are also exposed to various commitments and contingencies which may have a material adverse effect on our liquidity. See Note 17 - Commitments and Contingencies in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Derivatives
In August 2019, we entered into two interest rate swap agreements in the aggregate notional amount of $44.3 million to fix the interest rate on certain of our variable rate debt to 4.22%. We have designated these interest rate swaps as hedges against changes in the cash flows of two identical promissory notes (the "Notes") which are secured by loan agreements and mortgage and security agreements on certain real property and improvements. We have determined that the swaps have payment, expiration dates, and provisions that coincide with the terms of the Notes and are therefore considered to be effective cash flow hedges. Accordingly, we record the change in fair value of the interest rate swaps as accumulated other comprehensive income (loss), net of applicable taxes. Total unrealized losses recorded in total other comprehensive income (loss), net of tax, related to these cash flow hedges was $4.8 million during the year ended December 31, 2020. The total fair value of the swap liabilities as of December 31, 2020 was $6.0 million and is recorded as a component of Other Non-Current liabilities within the accompanying balance sheet. There was no material ineffectiveness for the period presented. We do not expect to enter into any transactions during the next twelve months which would result in reclassification into earnings or losses associated with these swaps currently reported in accumulated other comprehensive income (loss). Refer to Note 12 - Debt and Note 7 - Derivative Financial Instruments in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.
Our Australian subsidiary entered into interest rate swap agreements to fix the interest rate on our variable rate non-recourse debt related to a project in Ravenhall, a locality near Melbourne, Australia to 4.2%. We determined that the swaps had payment, expiration dates, and provisions that coincided with the terms of the non-recourse debt and were therefore considered to be effective cash flow hedges. Accordingly, we recorded the change in the fair value of the interest rate swaps in accumulated other comprehensive income (loss), net of applicable income taxes. On May 22, 2019, we refinanced the associated debt and terminated the swap agreements which resulted in the reclassification of $3.9 million into losses that were previously reported in accumulated other comprehensive income (loss). Refer to Note 12 - Debt and Note 7 - Derivative Financial Instruments in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.
Contractual Obligations
The following is a table of certain of our contractual obligations, as of December 31, 2020, which requires us to make payments over the periods presented.
Payments Due by Period
Contractual Obligations
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
(In thousands)
Long-Term Debt
$
1,111,339
$
1,071
$
478,025
$
244,982
$
387,261
Term Loan
770,000
8,000
16,000
746,000
-
Revolver
704,437
-
-
704,437
-
Finance Lease Obligations (includes imputed interest)
5,430
2,432
2,227
-
Operating Lease Obligations (includes imputed interest)
153,847
36,219
49,976
30,365
37,287
Non-Recourse Debt
344,617
15,446
17,520
19,823
291,828
Estimated interest payments on debt (a)
542,690
111,734
196,345
94,222
140,389
Estimated funding of pension and other post retirement benefits
33,530
9,846
1,817
2,056
19,811
Estimated construction commitments
19,500
19,500
-
-
-
Total
$
3,685,390
$
204,248
$
761,910
$
1,842,656
$
876,576
(a)
Due to the uncertainties of future LIBOR rates, the variable interest payments on our Senior Credit Facility were calculated using an average LIBOR rate of .33% based on projected interest rates through 2024.
Cash Flow
Cash, cash equivalents, restricted cash and cash equivalents as of December 31, 2020 was $311.9 million, compared to $67.5 million as of December 31, 2019 and was impacted by the following:
Net cash provided by operating activities in 2020 and 2019 was $441.7 million and $338.1 million, respectively. Net cash provided by operating activities in 2020 was positively impacted by non-cash expenses such as depreciation and amortization, deferred tax provision, amortization of debt issuance costs, discount and/or premium and other non-cash interest, stock-based compensation expense, loss on extinguishment of debt, goodwill impairment charges and dividends received from our unconsolidated joint venture. Equity in earnings of affiliates negatively impacted cash. Changes in accounts receivable, prepaid expenses and other assets decreased in total by a net of $68.2 million, representing a positive impact on cash. The decrease was primarily driven by the timing of billings and collections. Changes in accounts payable, accrued expenses and other liabilities increased by $57.3 million which positively impacted cash. The increase was primarily due to the timing of payments and also due to accruals for the deferral of the employer’s share of Social Security taxes of $42 million under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). Refer to Note 17 - Commitments and Contingencies included in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Additionally, cash provided by operating activities in 2020 was positively impacted by a decrease in contract receivable of $5.2 million. The decrease relates to the timing of payments received and interest accrued, along with the effect of foreign exchange rates, related to the Ravenhall Project. Refer to Note 6 - Contract Receivable included in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Net cash provided by operating activities in 2019 was positively impacted by non-cash expenses such as depreciation and amortization, deferred tax benefit, amortization of debt issuance costs, discount and/or premium and other non-cash interest, stock-based compensation expense, loss on extinguishment of debt and dividends received from our unconsolidated joint venture. Equity in earnings of affiliates negatively impacted cash. Changes in accounts receivable, prepaid expenses and other assets increased in total by a net of $8.4 million, representing a negative impact on cash. The increase was primarily driven by the timing of billings and collections. Changes in accounts payable, accrued expenses and other liabilities increased by $10.7 million which positively impacted cash. The increase was primarily due to the timing of payments. Additionally, cash provided by operating activities in 2019 was negatively impacted by an increase in contract receivable of $4.4 million. The increase relates to the timing of payments received and interest accrued, along with the effect of foreign exchange rates, related to the Ravenhall Project. Refer to Note 6 - Contract Receivable included in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Net cash used in investing activities of $104.2 million in 2020 was primarily the result of capital expenditures of $108.8 million, offset by insurance proceeds from damaged property primarily related to hurricanes of $9.5 million, proceeds from sale of assets held for sale of $2.4 million, proceeds from the sale of property and equipment of $0.1 million and changes in restricted investments of $7.4 million. Net cash used in investing activities of $104.1 million in 2019 was primarily the result of capital expenditures of $117.2 million, offset by insurance proceeds
from damaged property primarily related to hurricanes of $19.3 million, proceeds from sale of assets held for sale of $0.8 million, proceeds from the sale of property and equipment of $0.4 million and change in restricted investments of $7.4 million.
Net cash used in financing activities in 2020 reflects payments of $816.2 million on long term debt offset by $960.6 million of proceeds from long term debt and payments on non-recourse debt of $13.8 million. We also paid cash dividends of $216.1 million and purchased $9.0 million of shares of our common stock.
Net cash used in financing activities in 2019 reflects payments of $513.2 million on long term debt offset by $521.4 million of proceeds from long term debt and payments on non-recourse debt of $335.1 million offset by proceeds from non-recourse debt of $321.1 million. We also paid cash dividends of $232.5 million and debt issuance costs of $9.9 million.
Inflation
We believe that inflation, in general, did not have a material effect on our results of operations during 2020 and 2019. 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 recurring/fixed expense, increase at a faster rate than the per diem or fixed rates received by us for our management services.
Funds from Operations
Funds from Operations ("FFO") is a widely accepted supplemental non-GAAP measure utilized to evaluate the operating performance of real estate companies. It is defined in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss) attributable to common shareholders (computed in accordance with United States Generally Accepted Accounting Principles), excluding real estate related depreciation and amortization, excluding gains and losses from the cumulative effects of accounting changes, extraordinary items and sales of properties, and including adjustments for unconsolidated partnerships and joint ventures.
We also present Normalized Funds From Operations, or Normalized FFO, and Adjusted Funds from Operations, or AFFO, as supplemental non-GAAP financial measures of real estate companies’ operating performances.
Normalized FFO is defined as FFO adjusted for certain items which by their nature are not comparable from period to period or that tend to obscure the Company’s actual operating performance, including for the periods presented net goodwill impairment charges, pre-tax, (gain) loss on extinguishment of debt, pre-tax, start-up expenses, pre-tax, legal related expenses, pre-tax, other non-cash revenue & expense, pre-tax, close-out expenses, pre-tax, COVID-19 expenses, pre-tax and the tax effect of adjustments to funds from operations.
AFFO is defined as Normalized FFO adjusted by adding non-cash expenses such as non-real estate related depreciation and amortization, stock based compensation expense, the amortization of debt issuance costs, discount and/or premium and other non-cash interest, and by subtracting recurring consolidated maintenance capital expenditures.
Because of the unique design, structure and use of our secure facilities, processing centers and reentry centers we believe that assessing the performance of our secure facilities, processing centers and reentry centers without the impact of depreciation or amortization is useful and meaningful to investors. Although NAREIT has published its definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations. We have modified FFO to derive Normalized FFO and AFFO that meaningfully reflect our operations.
Our assessment of our operations is focused on long-term sustainability. The adjustments we make to derive the non-GAAP measures of Normalized FFO and AFFO exclude items which may cause short-term fluctuations in net income attributable to GEO but have no impact on our cash flows, or we do not consider them to be fundamental attributes or the primary drivers of our business plan and they do not affect our overall long-term operating performance. We may make adjustments to FFO from time to time for certain other income and expenses that do not reflect a necessary component of our operational performance on the basis discussed above, even though such items may require cash settlement. Because FFO, Normalized FFO and AFFO exclude depreciation and amortization unique to real estate as well as non-operational items and certain other charges that are highly variable from year to year, they provide our investors with performance measures that reflect the impact to operations from trends in occupancy rates, per diem rates, operating costs and interest costs, providing a perspective not immediately apparent from income from net income attributable to GEO.
We believe the presentation of FFO, Normalized FFO and AFFO provide useful information to investors as they provide an indication of our ability to fund capital expenditures and expand our business. FFO, Normalized FFO and AFFO provide disclosure on the same basis as that used by our management and provide consistency in our financial reporting, facilitate internal and external comparisons of our historical operating performance and our business units and provide continuity to investors for comparability purposes. Additionally, FFO, Normalized FFO and AFFO are widely recognized measures in our industry as a real estate investment trust.
Our reconciliation of net income attributable to GEO to FFO, Normalized FFO and AFFO for the years ended December 31, 2020 and 2019, respectively, is as follows (in thousands):
December 31,
December 31,
Funds From Operations
Net income attributable to The GEO Group, Inc.
$
113,032
$
166,603
Real estate related depreciation and amortization
73,659
72,191
Loss real estate assets, net of tax
6,831
2,693
NAREIT Defined FFO
$
193,522
$
241,487
Goodwill impairment charge, pre-tax
21,146
-
Start-up expenses, pre-tax
4,401
8,959
(Gain) loss on extinguishment of debt
(5,319
)
4,795
Legal related expenses, pre-tax
-
2,000
COVID-19 expenses, pre-tax
9,883
-
Close-out expenses, pre-tax
5,935
4,578
Tax effect of adjustments to funds from operations *
(300
)
(1,078
)
Normalized Funds from Operations
$
229,268
$
260,741
Non-real estate related depreciation and amortization
61,021
58,634
Consolidated maintenance capital expenditures
(19,729
)
(21,899
)
Stock-based compensation expenses
23,896
22,344
Other non-cash revenue & expense, pre-tax
(735
)
-
Amortization of debt issuance costs, discount and/or premium and
other non-cash interest
6,892
8,609
Adjusted Funds from Operations
$
300,613
$
328,429
*
Tax adjustments relate to loss on real estate assets, goodwill impairment charges, (gain) loss on debt extinguishment, start-up expenses, COVID-19 expenses, close-out expenses and other non-cash revenue & expense.
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 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.
Coronavirus Disease (COVID-19) Pandemic
In December 2019, a novel strain of coronavirus, now known as COVID-19 (“COVID-19”), was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.
Health and Safety
As the COVID-19 pandemic has impacted communities across the United States and around the world, our employees and facilities have also been impacted by the spread of COVID-19. Ensuring the health and safety of our employees and all those in our care has always been our number one priority. As a longstanding provider of essential government services, we have experience with the implementation of best practices for the prevention, assessment, and management of infectious diseases.
•
All of our secure services facilities provide 24/7 access to healthcare;
•
Our ICE Processing Centers typically have approximately double the number of healthcare staff, compared to state correctional facilities;
•
Many of our facilities are equipped with Airborne Infection Isolation Rooms;
•
All of our facilities operate safely and without any overcrowded conditions; and
•
All of our facilities have access to regular handwashing with clean water and soap.
From the outset of the COVID-19 global pandemic, our corporate, regional and field staff have implemented and we continue to implement comprehensive steps to address and mitigate the risks of COVID-19 to all those in our care and our employees.
•
We issued guidance to all of our facilities, consistent with the guidance issued for correctional and detention facilities by the Centers for Disease Control and Prevention Interim Guidance on Management of Coronavirus Disease 2019 (COVID-19) in Correctional and Detention Facilities and we will update this guidance as necessary;
•
We updated our policies and procedures to include best practices for the prevention, assessment, and management of COVID-19, including the implementation of quarantine and cohorting procedures to isolate confirmed and presumptive cases of COVID-19, including medical isolation and the use of Airborne Infection Isolation Rooms, and we will continue to update our policies and procedures as necessary;
•
We ordered and received and continue to order and receive swab test kits for COVID-19 from a national supplier, we enacted quarantine and testing procedures for any employees who may have come into contact with any individual who has tested positive for COVID-19 and we will update these quarantine and testing procedures as necessary;
•
In March 2020, we started procuring additional Personal Protective Equipment and began issuing it as clinically needed at facilities impacted by COVID-19. These efforts continued throughout 2020 and continue to date;
•
Over the course of April 2020, we coordinated with our government partners to distribute Personal Protective Equipment and to date we continue distributing Personal Protective Equipment, including face masks to all staff, inmates, detainees and residents as a precautionary measure at all of our Federal Bureau of Prisons facilities, ICE Processing Centers, U.S. Marshals facilities, state correctional facilities, local correctional facilities and jails, residential reentry centers, and youth services residential facilities;
•
We provided and continue to provide educational guidance to our employees and individuals in our care on the best preventative measures to avoid the spread of COVID-19 such as frequent and careful handwashing, avoiding touching areas of the face, including facial hair, avoiding individuals exhibiting flu-like symptoms, proper cough and sneeze etiquette, social distancing requirements and adjustments to laundry and meal schedules;
•
We increased the frequency of distribution of personal hygiene products, including soap, shampoo and body wash and tissue paper, and we are ensuring the daily availability of bars of soap or soap dispensers at each sink for hand washing in all of our facilities;
•
We advised and continue to advise our employees to remain home if they exhibit flu-like symptoms, and we have exercised and continue to exercise flexible paid leave and paid time off policies to allow for employees to remain home if they exhibit flu-like symptoms or to care for a family member;
•
We procured and continue to procure additional cleaning equipment and sanitation products that are proven healthcare grade disinfectants;
•
We deployed and continue to deploy specialized sanitation teams to sterilize high-contact areas at our facilities and have developed intensive schedules and procedures for the cleaning and disinfecting of facility spaces above and beyond normal cleaning activities;
•
As a service provider, GEO has fully disclosed and will continue to fully disclose all information related to COVID-19 testing, cases and fatalities to the appropriate federal, state and local government partners, as well as state and local health officials throughout the course of the pandemic;
•
At every one of our facilities, we have worked closely with our government agency partners and local health officials to develop COVID-19 emergency plans and testing policies for the individuals in our care and we will continue to work closely with our government agency partners and local health officials to update those plans and policies as necessary; and
•
We engaged with our government agency partners to promptly suspend non-essential visitation at all of our facilities, and we have employed additional measures during the intake and entry process at all of our facilities to include screening specific to COVID-19, including temperature checks for all staff and any legally required visitors before entering our facilities, as well as, verbal medical screening questionnaires and we will continue to engage our government agency partners on such measures.
We will continue to coordinate closely with our government agency partners and local health agencies to ensure the health and safety of all those in our care and our employees. We are grateful for our frontline employees who are making sacrifices daily to provide care for all those in our facilities during this unprecedented global pandemic. Information on the steps we have taken to address and mitigate the risks of COVID-19 can be found at www.geogroup.com/COVID19. The information on or accessible through our website is not incorporated by reference in this Annual Report on Form 10-K.
Economic Impact
The COVID-19 pandemic and related government-imposed mandatory closures, shelter in-place restrictions and social distancing protocols and increased expenditures on engineering controls, personal protective equipment, diagnostic testing, medical expenses, temperature scanners, protective plexiglass barriers and increased sanitation have had, and will continue to have, a severe impact on global economic conditions and the environment in which we operate. Starting in late March and early April, we began to observe negative impacts from the pandemic on our performance in our secure services business, specifically with our ICE Processing Centers and U.S. Marshals Facilities, as a result of declines in crossings and apprehensions along the Southwest border, a decrease in court sentencing at the federal level and reduced operational capacity to promote social distancing protocols which resulted in an estimated revenue decline of approximately 10 percent during 2020. Additionally, our reentry services business conducted through our GEO Care business segment has also been negatively impacted, specifically our residential reentry centers and non-residential day reporting programs were impacted by declines in programs due to lower levels of referrals by federal, state and local agencies, which resulted in an estimated revenue decline of approximately 12 percent during 2020.We expect that the COVID-19 pandemic will continue to have an impact on our populations for at least part of 2021, depending on various factors such as the progress of vaccine distributions. Additionally, we have experienced the transmission of COVID-19 at most of our facilities during 2020 and to date in the first quarter of 2021. If we are unable to mitigate the transmission of COVID-19 at our facilities, we could experience a material adverse effect on our financial position, results of operations and cash flows. Although we are unable to predict the duration or scope of the COVID-19 pandemic or estimate the extent of the overall future negative financial impact to our operating results, an extended period of depressed economic activity necessitated to combating the disease, and the severity and duration of the related global economic crisis may adversely impact our future financial performance.
Revenue
Due to the uncertainty surrounding the COVID-19 pandemic, we are unable to determine the future landscape of growth opportunities in the near term; however any positive trends may, to some extent, be adversely impacted by government budgetary constraints in light of the pandemic or any changes to a government's willingness to maintain or grow public-private partnerships in the future. While state finances overall were stable prior to the COVID-19 pandemic, future budgetary pressures may cause state agencies to pursue a number of cost savings initiatives which may include reductions in per diem rates and/or the scope of services provided by private operators or the decision to not re-bid a contract after expiration of the contract term. These potential cost savings initiatives could have a material adverse impact on our current operations and/or our ability to pursue new business opportunities. Additionally, if state budgetary constraints, as discussed above, persist or intensify, our state customers’ ability to pay us may be impaired and/or we may be forced to renegotiate our management contracts on less favorable terms and our financial condition, results of operations or cash flows could be materially adversely impacted. We plan to actively bid on any new projects that fit our target profile for profitability and operational risk. Any positive trends in the industry may be offset by several factors, including budgetary constraints, contract modifications, contract terminations, contract non-renewals, contract re-bids and/or the decision to not re-bid a contract after expiration of the contract term and the impact of any other potential changes to the willingness or ability to maintain or grow public-private partnerships on the part of other government agencies. We believe we have a strong relationship with our government agency partners and we believe that we operate facilities that maximize security, safety and efficiency while offering our suite of GEO Continuum of Care services and resources.
Although we have historically had a relatively high contract renewal rate, there can be no assurance that we will be able to renew our expiring management contracts on favorable terms, or at all. Also, while we are pleased with our track record in re-bid situations, we cannot assure that we will prevail in any such future situations.
On January 26, 2021, President Biden signed an Executive Order directing the United States Attorney General not to renew DOJ contracts with privately operated criminal detention facilities, as consistent with applicable law. Two agencies of the DOJ, the BOP and USMS, utilize our services. The BOP houses inmates who have been convicted of federal crimes, and the USMS is generally responsible for detainees who are awaiting trial or sentencing in U.S. federal courts. Our contracts with the BOP for our company-owned 1,940-bed Great Plains Correctional Facility, our company-owned 1,732-bed Big Spring Correctional Facility, our company-owned 1,800-bed Flightline Correctional Facility, and our company-owned 1,800-bed North Lake Correctional Facility have renewal option periods that expire on May 31, 2021, November 30, 2021, November 30, 2021, and September 30, 2022, respectively. Additionally, the contracts with the BOP for the county owned and managed 1,800-bed Reeves County Detention Center I & II and the 1,376-bed Reeves County Detention Center III have renewal option periods that expire September 30, 2022 and June 30, 2022, respectively. We have a management agreement with Reeves County, Texas for the management oversight of these two county-owned facilities. The Great Plains, Big Spring, Flightline, Northlake Correctional Facilities, Reeves County Detention Center I & II and Reeves County Detention Center III generate annualized revenues for GEO of approximately $35 million, $33 million, $35 million, $35 million, $4 million and $3 million, respectively. The BOP has experienced a decline in federal prison populations over the last several years, a trend that has more recently been accelerated by the COVID-19 global pandemic. As a result of the Executive Order and the decline in federal prison populations, we expect that our above described contracts with the BOP may not be renewed over the
coming years. Please see “Risk Factors-Risks Relating to Public-Private Partnerships.” Additionally, please refer to “Contract Expirations” below for a discussion of three other BOP contracts whose expiration we had already announced prior to the signing of the Executive Order. For the year ended December 31, 2020, our secure services contracts with the BOP accounted for approximately 12% of our total revenues.
Unlike the BOP, the USMS does not own and operate its detention facilities. The USMS contracts for the use of facilities, which are generally located in areas near federal courthouses, primarily through intergovernmental service agreements, and to a lesser extent, direct contracts. With respect to the USMS, the agency may determine to conduct a review of the possible application of the Executive Order on its facilities. For the year ended December 31, 2020, our contracts and agreements with the USMS accounted for approximately 13% of our total revenues.
President Biden’s administration may implement further executive orders or directives relating to federal criminal justice policies and immigration policies which may impact the federal government’s use of public-private partnerships with respect to correctional and detention needs, including with respect to our contracts, and/or may impact the budget and spending priorities of federal agencies, including the BOP, USMS, and ICE.
California enacted legislation that became effective on January 1, 2020 aimed at phasing out public-private partnership contracts for the operation of secure facilities within California and facilities outside of the State of California housing State of California inmates. Additionally, we have public-private partnership contracts in place with ICE, the BOP and the USMS relating to facilities located in California. Our contract for our Central Valley facility was discontinued by the State of California at the end of September 2019, and our two other California secure facility contracts for our Desert View and Golden State Facilities expired during 2020. During the fourth quarter of 2019, we signed two 15-year contracts with ICE for five company-owned facilities in California totaling 4,490 beds and a managed-only contract with the USMS for the government-owned, 512-bed El Centro Service Processing Center in California. Additionally, we and the DOJ have filed separate legal actions challenging the constitutionality of the attempted ban on new federal contracts entered into after the effective date of the California law. Currently, the State of Arizona, State of New Mexico and the State of Washington have proposed legislation similar to the California law. The Delaware County Council has also been exploring how to end the public-private arrangement for GEO’s managed-only contract for the 1,883-bed George W. Hill Correctional Facility located in Thornton, Pennsylvania and transition the operations to the government. The Pennsylvania facility generates approximately $46 million in annualized revenue for GEO.
Internationally, we are exploring opportunities in our current markets and will continue to actively bid on any opportunities that fit our target profile for profitability and operational risk. On March 29, 2018, we announced that our transportation joint venture in the United Kingdom, GEOAmey, signed a contract with Scottish Prison Service for the provision of court custody and escort services in Scotland. The contract has a base term of eight years effective January 26, 2019 with a renewal option of four years and is expected to have an average annual revenue of approximately $39 million. Also, we are pleased to have been awarded a ten-year contract renewal for the continued delivery of secure transportation under our GEOAmey joint venture in the United Kingdom. Total revenue over the ten-year period is expected to be approximately $760 million. In New South Wales, Australia, we have developed a 489-bed expansion at the Junee Correctional Centre which was substantially completed during the third quarter of 2020. We have also constructed a 137-bed expansion at the Fulham Correctional Centre in Victoria, Australia which was also substantially completed during the third quarter of 2020. With respect to the Parklea Correctional Centre in Australia, we were unfortunately unsuccessful during the competitive rebid process and transitioned the management contract in March of 2019. In addition, we transitioned the Arthur Gorrie Correctional Centre to government operation in the State of Queensland, Australia at the end of June 2020.
With respect to our reentry services, electronic monitoring services, and community-based services business conducted through our GEO Care business segment, we are currently pursuing a number of business development opportunities. Related to opportunities for community-based reentry services, we are working with our existing federal, state, and local clients to leverage new opportunities for both residential reentry facilities as well as non-residential day reporting centers. However, in light of the uncertainty surrounding the COVID-19 pandemic, we may not be successful. We continue to expend resources on informing federal, state and local governments about the benefits of public-private partnerships, and we anticipate that there will be new opportunities in the future as those efforts continue to yield results. We believe we are well positioned to capitalize on any suitable opportunities that become available in this area.
Operating Expenses
Operating expenses consist of those expenses incurred in the operation and management of our contracts to provide services to our governmental clients. Labor and related costs represented approximately 64% and 62% of our operating expenses in 2020 and 2019, respectively. Additional significant operating expenses include food, utilities and inmate medical costs. In 2020 and 2019, operating expenses totaled approximately 76% and 75% of our consolidated revenues, respectively. Our operating expenses as a percentage of revenue in 2021 will be impacted by the opening of any new or existing facilities as a result of the cost of transitioning and/or start-up operations related to a facility opening. During 2021, we will incur carrying costs for facilities that were vacant in 2020. As of December 31, 2020, our worldwide operations include the management and/or ownership of approximately 93,000 beds at 118 secure, processing and community services facilities, including idle facilities, and also included the provision of monitoring of more than 210,000 individuals in a community-based environment on behalf of federal, state and local correctional agencies located in all 50 states.
General and Administrative Expenses
General and administrative expenses consist primarily of corporate management salaries and benefits, professional fees and other administrative expenses. In both 2020 and 2019, general and administrative expenses totaled approximately 8% of our consolidated revenues. We expect general and administrative expenses as a percentage of revenue in 2021 to remain consistent or decrease as a result of cost savings initiatives as well as less travel, marketing and other corporate administrative expenses primarily due to the impacts of the COVID-19 pandemic
Idle Facilities
In our Secure Services segment, we are currently marketing approximately 990 vacant beds with a net book value of approximately $24 million at two of our idle facilities to potential customers. In our GEO Care segment, we are currently marketing approximately 1,100 vacant beds with a net book value of approximately $26.2 million at two of our idle facilities to potential customers. The combined annual carrying cost of these idle facilities in 2021 is estimated to be $6.3 million, including depreciation expense of $2.3 million. We currently do not have any firm commitments or agreements in place to activate these facilities but have ongoing contact with several potential customers. Historically, some facilities have been idle for multiple years before they received a new contract award. The per diem rates that we charge our clients often vary by contract across our portfolio. However, if the two idle facilities in our Secure Services and GEO Care segments were to be activated using our Secure Services average per diem rate in 2020, (calculated as the Secure Services revenue divided by the number of Secure Services mandays) and based on the average occupancy rate in our facilities for 2020, we would expect to receive annual incremental revenue of approximately $51 million and an increase in annual earnings per share of approximately $.02 to $.05 per share based on our average operating margin. Refer to discussion in Item I, Part I - Business under Executive Order and Contract Expirations above for discussion of recent developments.
Forward-Looking Statements - Safe Harbor
This Annual Report on Form 10-K and the documents incorporated by reference herein contain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. “Forward-looking” statements are any statements that are not based on historical information. Statements other than statements of historical facts included in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are “forward-looking” statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” or “continue” or the negative of such words or variations of such words and similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements and we can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements, or “cautionary statements,” include, but are not limited to:
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our ability to mitigate the transmission of the current pandemic of the novel coronavirus, or COVID-19, at our secure facilities, processing centers and reentry centers;
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the magnitude, severity and duration of the COVID-19 pandemic and its impact on our business, financial condition, results of operations and cash flows;
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our ability to timely build and/or open facilities as planned, successfully manage such facilities and successfully integrate such facilities into our operations without substantial additional costs;
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our ability to estimate the government’s level of utilization of public-private partnerships for secure services and the impact of any modifications or reductions by our government customers of their utilization of public-private partnerships;
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our ability to accurately project the size and growth of public-private partnerships for secure services in the U.S. and internationally and our ability to capitalize on opportunities for public-private partnerships;
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our ability to successfully respond to any challenges or concerns that our government customers may raise regarding their use of public-private partnerships for secure services, including finding other government customers or alternative uses for facilities where a government customer has discontinued or announced that a contract with us will be discontinued;
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the impact of adopted or proposed executive action or legislation aimed at limiting public-private partnerships for secure facilities, processing centers and community reentry centers or limiting or restricting the business and operations of financial institutions or others who do business with us;
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our ability to successfully respond to delays encountered by states pursuing public-private partnerships for secure services and cost savings initiatives implemented by a number of states;
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our ability to activate the inactive beds at our idle facilities;
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our ability to maintain or increase occupancy rates at our facilities;
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our ability to expand, diversify and grow our secure services, reentry, community-based services, youth services, monitoring services, evidence-based supervision and treatment programs and secure transportation services businesses;
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our ability to win management contracts for which we have submitted proposals, retain existing management contracts, prevail in any challenge or protest involving the award of a management contract and meet any performance standards required by such 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 develop long-term earnings visibility;
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our ability to successfully conduct our operations in the United Kingdom, South Africa and Australia through joint ventures or a consortium;
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the impact of the anticipated LIBOR transition in 2021;
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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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an increase in unreimbursed labor rates;
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our exposure to rising medical costs;
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our ability to manage costs and expenses relating to ongoing litigation arising from our operations;
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our ability to accurately estimate on an annual basis, loss reserves related to general liability, workers’ compensation and automobile liability claims;
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if we fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders;
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qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”);
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complying with the REIT requirements may cause us to liquidate or forgo otherwise attractive opportunities;
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dividends payable by REITs do not qualify for the reduced tax rates available for some dividends;
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REIT distribution requirements could adversely affect our ability to execute our business plan;
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our cash distributions are not guaranteed and may fluctuate;
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certain of our business activities may be subject to corporate level income tax and foreign taxes, which would reduce our cash flows, and may have potential deferred and contingent tax liabilities;
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REIT ownership limitations may restrict or prevent you from engaging in certain transfers of our common stock;
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our use of taxable REIT subsidiaries (“TRSs”) may cause us to fail to qualify as a REIT;
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new legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to maintain our qualification as a REIT;
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our ability to fulfill our debt service obligations and its impact on our liquidity;
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our ability to refinance our indebtedness;
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we are incurring significant indebtedness in connection with substantial ongoing capital expenditures. Capital expenditures for existing and future projects may materially strain our liquidity;
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despite current indebtedness levels, we may still incur more indebtedness, which could further exacerbate the risks relating to our indebtedness;
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the covenants in the indentures governing the 6.00% Senior Notes, the 5.125% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024 and the covenants in our senior credit facility impose significant operating and financial restrictions which may adversely affect our ability to operate our business;
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servicing our indebtedness will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control and we may not be able to generate the cash required to service our indebtedness;
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because portions of our senior indebtedness have floating interest rates, a general increase in interest rates would adversely affect cash flows;
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we depend on distributions from our subsidiaries to make payments on our indebtedness. These distributions may not be made;
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we may not be able to satisfy our repurchase obligations in the event of a change of control because the terms of our indebtedness or lack of funds may prevent us from doing so;
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from time to time, we may not have a management contract with a client to operate existing beds at a facility or new beds at a facility that we are expanding, and we cannot assure you that such a contract will be obtained. Failure to obtain a management contract for these beds will subject us to carrying costs with no corresponding management revenue;
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negative conditions in the capital markets could prevent us from obtaining financing on desirable terms, which could materially harm our business;
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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;
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our growth depends on our ability to secure contracts to develop and manage new secure facilities, processing centers and community based facilities and to secure contracts to provide electronic monitoring services, community-based reentry services and monitoring and supervision services, the demand for which is outside our control;
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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;
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we partner with a limited number of governmental customers who account for a significant portion of our revenues. The loss of, or a significant decrease in revenues from, these customers could seriously harm our financial condition and results of operations;
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State budgetary constraints may have a material adverse impact on us;
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competition for contracts may adversely affect the profitability of our business;
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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, local and foreign government levels;
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public resistance to the use of public-private partnerships for secure facilities, processing centers and community reentry centers could result in our inability to obtain new contracts or the loss of existing contracts, impact our ability to obtain or refinance debt financing or enter into commercial arrangements, which could have a material adverse effect on our business, financial condition, results of operations and the market price of our securities;
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operating youth services facilities poses certain unique or increased risks and difficulties compared to operating other facilities;
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adverse publicity may negatively impact our ability to retain existing contracts and obtain new contracts;
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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;
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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;
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we may face community opposition to facility locations, which may adversely affect our ability to obtain new contracts;
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our business operations expose us to various liabilities for which we may not have adequate insurance and may have a material adverse effect on our business, financial condition or results of operations;
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we may not be able to obtain or maintain the insurance levels required by our government contracts;
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our exposure to rising general insurance costs;
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natural disasters, pandemic outbreaks, global political events and other serious catastrophic events could disrupt operations and otherwise materially adversely affect our business and financial condition;
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our international operations expose us to risks that could materially adversely affect our financial condition and results of operations;
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we conduct certain of our operations through joint ventures or consortiums, which may lead to disagreements with our joint venture partners or business partners and adversely affect our interest in the joint ventures or consortiums;
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we are dependent upon our senior management and our ability to attract and retain sufficient qualified personnel;
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our profitability may be materially adversely affected by inflation;
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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;
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risks related to facility construction and development activities may increase our costs related to such activities;
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the rising cost and increasing difficulty of obtaining adequate levels of surety credit on favorable terms could adversely affect our operating results;
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adverse developments in our relationship with our employees could adversely affect our business, financial condition or results of operations;
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technological changes could cause our electronic monitoring products and technology to become obsolete or require the redesign of our electronic monitoring products, which could have a material adverse effect on our business;
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any negative changes in the level of acceptance of or resistance to the use of electronic monitoring products and services by governmental customers could have a material adverse effect on our business, financial condition and results of operations;
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we depend on a limited number of third parties to manufacture and supply quality infrastructure components for our electronic monitoring products. If our suppliers cannot provide the components or services we require and with such quality as we expect, our ability to market and sell our electronic monitoring products and services could be harmed;
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the interruption, delay or failure of the provision of our services or information systems could adversely affect our business;
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an inability to acquire, protect or maintain our intellectual property and patents in the electronic monitoring space could harm our ability to compete or grow;
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our electronic monitoring products could infringe on the intellectual property rights of others, which may lead to litigation that could itself be costly, could result in the payment of substantial damages or royalties, and/or prevent us from using technology that is essential to our products;
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we license intellectual property rights in the electronic monitoring space, including patents, from third party owners. If such owners do not properly maintain or enforce the intellectual property underlying such licenses, our competitive position and business prospects could be harmed. Our licensors may also seek to terminate our license;
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we may be subject to costly product liability claims from the use of our electronic monitoring products, which could damage our reputation, impair the marketability of our products and services and force us to pay costs and damages that may not be covered by adequate insurance;
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our ability to identify suitable acquisitions, and to successfully complete and integrate such acquisitions on satisfactory terms, to enhance occupancy levels and the financial performance of assets acquired and estimate the synergies to be achieved as a result of such acquisitions;
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as a result of our acquisitions, we have recorded and will continue to record a significant amount of goodwill and other intangible assets. In the future, our goodwill or other intangible assets may become impaired, which could result in material non-cash charges to our results of operations;
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we are subject to risks related to corporate social responsibility;
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the market price of our common stock may vary substantially;
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future sales of shares of our common stock or securities convertible into common stock could adversely affect the market price of our common stock and may be dilutive to current shareholders;
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various anti-takeover protections applicable to us may make an acquisition of us more difficult and reduce the market value of our common stock;
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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; and
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we may issue additional debt securities that could limit our operating flexibility and negatively affect the value of our common stock; and
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other factors contained in our filings with the Securities and Exchange Commission, or the SEC, including, but not limited to, those detailed in this Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K filed with the SEC.
We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 as of December 31, 2020 under the Senior Credit Facility of $1,474.4 million, for every one percent increase in the interest rate applicable to the Senior Credit Facility, our total annual interest expense would increase by approximately $15.0 million.
We have entered into certain interest rate swap arrangements for hedging purposes, fixing the interest rate on our Australian non-recourse debt. 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 South African Rand and the British Pound currency exchange rates. Based upon our foreign currency exchange rate exposure as of December 31, 2020 with respect to our international operations, every 10 percent change in historical currency rates would have a $6.7 million effect on our financial position and a $2.9 million impact on our results of operations over the next fiscal year.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.
Financial Statements and Supplementary Data
MANAGEMENT’S 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.
Representations in the consolidated financial statements and the fairness and integrity of such statements are the responsibility of management. In order to meet management’s responsibility, the Company maintains a system of internal controls and procedures and a program of internal audits designed to provide reasonable assurance that our assets are controlled and safeguarded, that transactions are executed in accordance with management’s authorization and properly recorded, and that accounting records may be relied upon in the preparation of financial statements.
The consolidated financial statements have been audited by Grant Thornton LLP, independent registered public accountants, whose appointment by our Audit Committee was ratified by our shareholders. Their report, which is included in this Form 10-K, expresses an opinion as to whether management’s consolidated financial statements present fairly in all material respects, the Company's financial position, results of operations and cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. The effectiveness of our internal control over financial reporting as of December 31, 2020 has also been audited by Grant Thornton LLP, independent registered public accountants, as stated in their report which is included in this Form 10-K. Their audits were conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).
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 public accountants have unrestricted access to the Audit Committee to discuss the results of their examinations.
George C. Zoley
Chairman and Chief Executive Officer
Brian R. Evans
Senior Vice President and Chief Financial Officer
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer that: (i) pertains to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provides reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements for external reporting in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorization of the Company’s management and directors; and (iii) provides reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making its assessment of internal control over financial reporting, management used the criteria set forth in the Internal Control - Integrated Framework issued by the 2013 Committee of Sponsoring Organizations of the Treadway Commission ("COSO") (the "2013 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 December 31, 2020, based on the 2013 Internal Control - Integrated Framework. Based on this evaluation, the Company’s management concluded that as of December 31, 2020, 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 as of December 31, 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
The GEO Group, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of The GEO Group, Inc. (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 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) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 16, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Miami, Florida
February 16, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
The GEO Group, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of The GEO Group, Inc. (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 16, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment - Community Based Services
As described further in Note 1 to the financial statements, goodwill is tested for impairment at least annually at the reporting unit level. The determination of the fair value of the Community Based Services reporting unit requires management to make significant estimates and assumptions related to the forecast of future revenues, operating margins and discount rates. These assumptions could have a significant impact on either the determination of fair value of the reporting units, the amount of any goodwill impairment charge or both. We identified the annual goodwill impairment assessment of the Community Based Services reporting unit of the GEO Care segment as a critical audit matter (hereafter referred to as the “reporting unit”).
The principal consideration for our determination that the annual goodwill impairment assessment of the reporting unit is a critical audit matter is the high degree of management judgement necessary in determining the inputs and assumptions utilized in the discounted cash flow analysis. The assumptions include forecasted revenue of the operating facilities which is based on an estimation of participant population levels, which contributes significantly to the fair value of the reporting unit. In addition to forecasted revenues, other inputs and assumptions requiring a high degree of subjectivity include operating margin and the applied discount rate (hereafter referred to collectively as “key inputs and assumptions”). Given the subjective nature and judgement applied by management, auditing these estimates required a high degree of auditor judgment and an increased extent of effort including the use of specialists.
Our audit procedures related to the annual goodwill impairment assessment of the reporting unit included the following, among others.
•
Obtained an understanding, evaluated the design and tested the operating effectiveness of key internal controls over financial reporting relating to management’s goodwill impairment tests, including controls over management forecasts of future revenue, operating income margins, and the determination the discount rate.
•
We evaluated the reasonableness of management’s forecasts of future revenue and operating margin by comparing these forecasts to historical operating results for the Company’s past performance and third-party market data and performed sensitivity analyses around the forecasted figures.
•
We utilized a auditor-employed valuation specialist to assess the appropriateness of the impairment methodology used and to assist us with testing key inputs and discount rate assumptions in the discounted cash flow model.
Self-Insurance Reserves and Related Expenses
As described further in Note 1 in the consolidated financial statements, the Company self-insures, up to certain policy-specified limits, certain risks related to general liability, workers’ compensation, and vehicle liability costs. The estimated cost of claims under these self-insurance programs is estimated and accrued as the claims are incurred (although actual settlement of the claims may not be made until future periods) and may subsequently be revised based on developments relating to such claims. We identified self-insurance reserves and related expenses (“self-insurance”) as a critical audit matter.
The principal considerations for our determination that self-insurance is a critical audit matter are that the accrual for self-insurance has higher risk of estimation uncertainty due to the loss development factors and inherent assumptions in actuarial methods used in determining the required reserves. The estimation uncertainty and complexity of the actuarial methods utilized involved especially subjective auditor judgment and an increased extent of effort, including the need to involve an auditor-engaged actuarial specialist.
Our audit procedures related to self-insurance included the following, among others:
•
Obtained an understanding, evaluated the design and tested operating effectiveness of key internal controls over financial reporting relating to self-insurance, including, but not limited to controls that (i) validate that claims were reported and submitted accurately and timely, and (ii) validate that internal claims data was reconciled to claims data maintained by the third party administrator and submitted to the Company’s actuary.
•
Utilized an auditor-engaged actuarial specialist in evaluating management’s methods and assumptions, including the reasonableness of the selected loss development factors utilized by management.
•
Performed a retrospective review of prior projections to current projections to evaluate the reasonableness of changes in estimated ultimate losses.
•
Reconciled claims data maintained by the third-party administrator to the claim data submitted to the Company’s actuary used in selecting loss development factors.
•
Selected a sample of underlying claims and reviewed the information utilized by management such as accident reports, insurance claims and legal records to (i) test management’s estimation process to determine if the reserve was reasonable and (ii) test the accuracy of the significant claim data attributes.
Allocation of expenses between REIT and TRS entities
As described further in Note 1 in the consolidated financial statements, the Company operates as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT, the Company is required to distribute at least 90% of its taxable income to shareholders and does not pay any taxes on that distributed income. Income earned in its non-real estate components, or taxable REIT subsidiaries (“TRSs”) are subject to federal and state corporate income taxes and to foreign taxes as applicable in the jurisdictions in which those assets and operations are located. As such, we identified the allocation of expenses, in accordance with the Company’s transfer pricing policy, between the TRSs and REIT as a critical audit matter.
The principal considerations for our determination that the allocation of expenses between the TRSs and REIT is a critical audit matter are that significant management judgement is required to determine how transactions between the REIT and TRSs entities are priced and how shared expenses are allocated.
Our audit procedures related to the allocation of expenses between REIT and TRSs entities included the following, among others:
•
Obtained an understanding, evaluated the design and tested operating effectiveness of key internal controls over financial reporting relating to the allocation of expenses between the REIT and TRS entities, including, but not limited to, controls that (i) validate the significant inputs used in the transfer pricing analysis, (iii) validate the application of the transfer pricing to recorded transactions, and (iii) validate inputs and assumptions used to allocate general and administrative expenses.
•
Utilized an auditor-employed transfer pricing specialist in evaluating the reasonableness of management’s methods and assumptions for determining the transfer pricing markup on services provided between the REIT and TRS entities.
•
Tested significant inputs used in management’s transfer pricing analysis, tested the application of the transfer pricing to recorded transactions, and tested managements process and estimates used to allocate general and administrative expenses to assess the allocation of transactions between the REIT and TRS entities.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2006.
Miami, Florida
February 16, 2021
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2020, 2019 and 2018
(In thousands, except per share data)
Revenues
$
2,350,098
$
2,477,922
$
2,331,386
Operating Expenses (excluding depreciation and amortization)
1,778,326
1,860,758
1,755,772
Depreciation and Amortization
134,680
130,825
126,434
General and Administrative Expenses
193,372
185,926
184,515
Goodwill Impairment Charge
21,146
-
-
Operating Income
222,574
300,413
264,665
Interest Income
23,072
28,934
34,755
Interest Expense
(126,837
)
(151,024
)
(150,103
)
Gain (Loss) on Extinguishment of Debt
5,319
(4,795
)
-
Income Before Income Taxes and Equity in Earnings of Affiliates
124,128
173,528
149,317
Provision for Income Taxes
20,463
16,648
14,117
Equity in Earnings of Affiliates, net of income tax (benefit) provision of $1,784, $1,769 and $888
9,166
9,532
9,627
Net Income
112,831
166,412
144,827
Loss Attributable to Noncontrolling Interests
Net Income Attributable to The GEO Group, Inc.
$
113,032
$
166,603
$
145,089
Weighted Average Common Shares Outstanding:
Basic
119,719
119,097
120,241
Diluted
119,991
119,311
120,747
Income per Common Share Attributable to The GEO Group, Inc.:
Basic:
Net income per share - basic
$
0.94
$
1.40
$
1.21
Diluted:
Net income per share - diluted
$
0.94
$
1.40
$
1.20
Dividends declared per share
$
1.78
$
1.92
$
1.88
The accompanying notes are an integral part of these consolidated financial statements.
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPRENSIVE INCOME (LOSS)
Years Ended December 31, 2020, 2019 and 2018
(In thousands)
Net Income
$
112,831
$
166,412
$
144,827
Other comprehensive income (loss):
Foreign currency translation adjustments
3,070
2,267
(7,118
)
Pension liability adjustment, net of income tax provision (benefit) of $(554), $(681) and $913, respectively
(2,085
)
(3,247
)
1,785
Change in fair value of derivative instrument classified as cash flow hedge, net of income tax provision (benefit) of $(871), $622 and $1,085, respectively
(3,276
)
4,271
6,146
Total other comprehensive income (loss), net of tax
(2,291
)
3,291
Total comprehensive income
110,540
169,703
145,640
Comprehensive loss attributable to noncontrolling interests
Comprehensive income attributable to The GEO Group, Inc.
$
110,778
$
169,886
$
145,917
THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2020 and 2019
(In thousands, except
share data)
ASSETS
Current Assets
Cash and cash equivalents
$
283,524
$
32,463
Restricted cash and investments
26,740
32,418
Accounts receivable, less allowance for doubtful accounts of $2,674 and $3,195, respectively
362,668
430,982
Contract receivable, current portion
6,283
5,149
Prepaid expenses and other current assets
32,108
40,716
Total current assets
711,323
541,728
Restricted Cash and Investments
37,338
30,923
Property and Equipment, Net
2,122,195
2,144,722
Contract Receivable
396,647
366,697
Operating Lease Right-of-Use Assets, Net
124,727
121,527
Assets Held for Sale
9,108
6,059
Deferred Income Tax Assets
36,604
36,278
Goodwill
755,250
776,356
Intangible Assets, Net
187,747
210,070
Other Non-Current Assets
79,187
83,174
Total Assets
$
4,460,126
$
4,317,534
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable
$
85,861
$
99,232
Accrued payroll and related taxes
67,797
54,672
Accrued expenses and other current liabilities
202,378
191,608
Operating lease liabilities, current portion
29,080
26,208
Current portion of finance lease liabilities, long-term debt and non-recourse debt
26,180
24,208
Total current liabilities
411,296
395,928
Deferred Income Tax Liabilities
30,726
19,254
Other Non-Current Liabilities
115,555
88,526
Operating Lease Liabilities
101,375
97,291
Finance Lease Obligations
2,988
2,954
Long-Term Debt
2,561,881
2,408,297
Non-Recourse Debt
324,223
309,236
Commitments and Contingencies (Note 17)
Shareholders’ Equity
Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued or outstanding
-
-
Common stock, $0.01 par value, 187,500,000 shares authorized, 126,153,173 and 125,435,573 issued and 121,318,175 and 121,225,319 outstanding, respectively
1,262
1,254
Additional paid-in capital
1,262,267
1,230,865
Distributions in excess of earnings
(222,892
)
(119,779
)
Accumulated other comprehensive loss
(22,589
)
(20,335
)
Treasury stock, 4,834,998 and 4,210,254 shares, at cost, respectively
(104,946
)
(95,175
)
Total shareholders’ equity attributable to The GEO Group, Inc.
913,102
996,830
Noncontrolling interests
(1,020
)
(782
)
Total shareholders’ equity
912,082
996,048
Total Liabilities and Shareholders’ Equity
$
4,460,126
$
4,317,534
The accompanying notes are an integral part of these consolidated financial statements.
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2020, 2019 and 2018
(In thousands)
Cash Flow from Operating Activities:
Net Income
$
112,831
$
166,412
$
144,827
Net loss attributable to noncontrolling interests
Net income attributable to The GEO Group, Inc.
113,032
166,603
145,089
Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities:
Depreciation and amortization expense
134,680
130,825
126,434
Deferred tax provision (benefit)
11,221
(588
)
1,230
Amortization of debt issuance costs, discount and/or premium and other non-cash interest
6,892
8,609
8,856
Goodwill impairment charge
21,146
-
-
Stock-based compensation
23,896
22,344
22,049
(Gain) loss on extinguishment of debt
(5,319
)
4,795
-
Provision for doubtful accounts
Equity in earnings of affiliates, net of tax
(9,166
)
(9,532
)
(9,627
)
Loss on sale/disposal of property and equipment
7,777
5,576
4,236
Loss on assets held for sale
1,083
-
Dividends received from unconsolidated joint ventures
5,934
10,312
11,846
Changes in assets and liabilities, net of acquisition:
Changes in accounts receivable, prepaid expenses and other assets
68,181
(8,391
)
(66,101
)
Changes in contract receivable
5,156
(4,355
)
(2,049
)
Changes in accounts payable, accrued expenses and other liabilities
57,266
10,672
31,689
Net cash provided by operating activities
441,733
338,143
274,475
Cash Flow from Investing Activities:
Proceeds from sale of property and equipment
2,077
Insurance proceeds - damaged property
9,497
19,310
1,438
Proceeds from sale of assets held for sale
2,406
3,797
Change in restricted investments
(7,417
)
(7,440
)
(129
)
Capital expenditures
(108,800
)
(117,244
)
(195,666
)
Net cash used in investing activities
(104,174
)
(104,137
)
(188,483
)
Cash Flow from Financing Activities:
Payments on long-term debt
(816,191
)
(513,219
)
(282,358
)
Proceeds from long term debt
960,579
521,370
502,998
Payments on non-recourse debt
(13,805
)
(335,116
)
(18,544
)
Proceeds from non-recourse debt
-
321,102
-
Taxes paid related to net share settlements of equity awards
(2,789
)
(4,179
)
(3,820
)
Debt issuance costs
-
(9,856
)
(990
)
Payments for purchase of treasury shares
(9,009
)
-
(95,175
)
Proceeds from stock options exercised
-
1,258
1,887
Proceeds from issuance of common stock in connection with ESPP
Dividends paid
(216,145
)
(232,546
)
(229,498
)
Net cash used in financing activities
(96,744
)
(250,654
)
(124,966
)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash and Cash Equivalents
3,566
(352
)
(10,099
)
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash and Cash Equivalents
244,381
(17,000
)
(49,073
)
Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, beginning of period
67,472
84,472
133,545
Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, end of period
$
311,853
$
67,472
$
84,472
Supplemental Disclosures
Cash paid during the year for:
Income taxes
$
5,358
$
11,160
$
8,035
Interest
$
113,304
$
135,579
$
133,566
Non-cash investing and financing activities:
Right-of-use assets obtained from operating lease liabilities upon adoption of new lease standard - Refer to 13 - Leases
$
-
$
147,000
$
-
Assets obtained from finance lease liabilities
$
2,260
$
-
$
-
Conversion of pension liability to shares of common stock
$
8,925
$
-
$
-
Right-of-use assets obtained from operating lease liabilities (subsequent to initial adoption)
$
23,940
$
12,223
$
-
Capital expenditures in accounts payable and accrued expenses
$
1,445
$
11,049
$
15,253
The accompanying notes are an integral part of these consolidated financial statements.
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years Ended December 31, 2020, 2019 and 2018
GEO Group Inc. Shareholders
Common Stock
(Distributions in
Excess of
Accumulated
Treasury Stock
Number
of Shares
Amount
Additional
Paid-In
Capital
Earnings)/Earnings
in Excess of
Distributions
Other
Comprehensive
Income (Loss)
Number
of Shares
Amount
Noncontrolling
Interest
Total
Shareholders’
Equity
(In thousands)
Balance, January 1, 2018
124,008
$
1,240
$
1,190,906
$
31,541
$
(24,446
)
-
$
-
$
(322
)
$
1,198,919
Proceeds from stock options exercised
1,886
-
-
-
-
-
1,887
Stock based compensation expense
-
-
22,049
-
-
-
-
-
22,049
Shares withheld for net settlements of share-based awards [2]
(173
)
(2
)
(3,818
)
-
-
-
-
-
(3,820
)
Restricted stock granted
(9
)
-
-
-
-
-
-
Restricted stock canceled
(73
)
-
-
-
-
-
-
-
-
Dividends - paid
-
-
-
(229,498
)
-
-
-
-
(229,498
)
Other adjustments to Additional Paid-In-Capital [1]
-
-
(632
)
-
-
-
-
-
(632
)
Purchase of treasury shares
(4,210
)
-
-
-
-
4,210
(95,175
)
-
(95,175
)
Issuance of common stock (ESPP)
-
-
-
-
-
-
Net income (loss)
-
-
-
145,089
-
-
-
(262
)
144,827
Other comprehensive income
-
-
-
-
-
-
(15
)
Balance, December 31, 2018
120,585
$
1,248
$
1,210,916
$
(52,868
)
$
(23,618
)
4,210
$
(95,175
)
$
(599
)
$
1,039,904
Proceeds from stock options exercised
-
1,258
-
-
-
-
-
1,258
Stock based compensation expense
-
-
22,344
-
-
-
-
-
22,344
Shares withheld for net settlements of share-based awards [2]
(198
)
(2
)
(4,177
)
-
-
-
-
-
(4,179
)
Restricted stock granted
(8
)
-
-
-
-
-
-
Restricted stock canceled
(58
)
-
-
-
-
-
-
-
-
Dividends paid
-
-
-
(232,546
)
-
-
-
-
(232,546
)
Issuance of common stock (ESPP)
-
-
-
-
-
-
Transition adjustment for accounting standard adoption [3]
-
-
-
(968
)
-
-
-
-
Net income (loss)
-
-
-
166,603
-
-
-
(191
)
166,412
Other comprehensive income (loss)
-
-
-
-
2,315
-
-
2,323
Balance, December 31, 2019
121,225
$
1,254
$
1,230,865
$
(119,779
)
$
(20,335
)
4,210
$
(95,175
)
$
(782
)
$
996,048
Stock based compensation expense
-
-
23,896
-
-
-
-
-
23,896
Shares withheld for net settlements of share-based awards [2]
(174
)
(1
)
(2,788
)
-
-
-
-
-
(2,789
)
Restricted stock granted
(9
)
-
-
-
-
-
-
Restricted stock canceled
(58
)
-
-
-
-
-
-
-
-
Dividends paid
-
-
-
(216,145
)
-
-
-
-
(216,145
)
Purchase of treasury shares
(625
)
-
-
-
-
(9,771
)
-
(9,771
)
Issuance of common stock (ESPP)
-
-
-
-
-
-
Other adjustments to Additional Paid-In-Capital [4]
-
-
9,687
-
-
-
-
-
9,687
Net income (loss)
-
-
-
113,032
-
-
-
(201
)
112,831
Other comprehensive income (loss)
-
-
-
-
(2,254
)
-
-
(37
)
(2,291
)
Balance, December 31, 2020
121,318
$
1,262
$
1,262,267
$
(222,892
)
$
(22,589
)
4,835
$
(104,946
)
$
(1,020
)
$
912,082
[1] Represents a cumulative-effect adjustment upon adoption of ASU No. 2016-16, "Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory." Refer to Note 1 - Summary of Business Organization, Operations and Significant Accounting Policies - Recent Accounting Pronouncements for further information.
[2] During the years ended December 31, 2020, 2019 and 2018, the Company withheld shares through net share settlements to satisfy statutory tax withholding requirements upon vesting of shares of restricted stock held by employees.
[3] On January 1, 2019, the Company adopted Accounting Standard Update ("ASU") No. 2018-02 "Income Statement-Reporting Comprehensive Income-Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". Refer to Note 1 - Summary of Business Organization, Operations and Significant Accounting Policies - Recent Accounting Pronouncements for further information.
[4] ON February 26, 2020 (the “Effective Date”), the Company and its Chief Executive Officer (“CEO”) entered into an amended and restated executive retirement agreement that amends the CEO’s executive retirement agreement. The amended and restated executive retirement agreement provides that upon the CEO’s retirement from the Company, the Company will pay a lump sum equal to $8,925,065 (the “Grandfathered Payment”) which will be paid in the form of a fixed number of shares of the Company’s common stock The fair value of the Grandfathered Payment was reclassified to stockholders’ equity. Additional shares of the Company’s common stock are credited with a value equal to any dividends declared and paid on the Company’s shares of common stock. Refer to Note 14 - Benefit Plans for further information.
The accompanying notes are an integral part of these consolidated financial statements.
THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020, 2019 and 2018
1.
Summary of Business Organization, Operations and Significant Accounting Policies
The GEO Group, Inc., a Florida corporation, and subsidiaries (the “Company” or “GEO”) is a fully-integrated real estate investment trust (“REIT”) specializing in the ownership, leasing and management of secure facilities, processing centers and reentry centers in the United States, Australia, South Africa and the United Kingdom. The Company owns, leases and operates a broad range of facilities including maximum, medium and minimum security facilities, processing centers, as well as community based reentry facilities and offers an expanded delivery of rehabilitation services under its 'GEO Continuum of Care' platform. The 'GEO Continuum of Care' platform integrates enhanced rehabilitative programs, which are evidence-based and include cognitive behavioral treatment and post-release services,and provides academic and vocational classes in life skills and treatment programs while helping individuals reintegrate into their communities. The Company develops new facilities based on contract awards, using its project development expertise and experience to design, construct and finance what it believes are state-of-the-art facilities that maximize security and efficiency. The Company provides innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants. The Company also provides secure transportation services for offender and detainee populations as contracted domestically and in the United Kingdom through its joint venture GEOAmey PECS Ltd. (“GEOAmey”). As of December 31, 2020, GEO's worldwide operations included the ownership and/or management of approximately 93,000 beds at 118 secure and community services facilities, including idle facilities and projects under development, and also includes the provision of community supervision services for more than 210,000 offenders and pretrial defendants, including more than 100,000 individuals through an array of technology products including radio frequency, GPS, and alcohol monitoring devices.
GEO, which has been in operation since 1984, began operating as a REIT for federal income tax purposes effective January 1, 2013. As a result of the REIT conversion, GEO reorganized its operations and moved non-real estate components into taxable REIT subsidiaries (“TRSs”). Through the TRS structure, the portion of GEO's businesses which are non-real estate related, such as its managed-only contracts, international operations, electronic monitoring services, and other non-residential and community based facilities, are part of wholly-owned taxable subsidiaries of the REIT. Most of GEO's business units, which are real estate related and involve company-owned and company-leased facilities, are part of the REIT. The TRS structure allows the Company to maintain the strategic alignment of all of its diversified business segments under one entity. The TRS assets and operations will continue to be subject to federal and state corporate income taxes and to foreign taxes as applicable in the jurisdictions in which those assets and operations are located.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The significant accounting policies of the Company are described below.
Risks and uncertainties
Executive Order
On January 26, 2021, President Biden signed an Executive Order directing the United States Attorney General not to renew DOJ contracts with privately operated criminal detention facilities, as consistent with applicable law. Two agencies of the DOJ, the BOP and USMS, utilize GEO’s services. The BOP houses inmates who have been convicted of federal crimes, and the USMS is generally responsible for detainees who are awaiting trial or sentencing in U.S. federal courts. GEO’s contracts with the BOP for its company-owned 1,940-bed Great Plains Correctional Facility, company-owned 1,732-bed Big Spring Correctional Facility, company-owned 1,800-bed Flightline Correctional Facility, and company-owned 1,800-bed North Lake Correctional Facility have renewal option periods that expire on May 31, 2021, November 30, 2021, November 30, 2021, and September 30, 2022, respectively. Additionally, the contracts with the BOP for the county owned and managed 1,800-bed Reeves County Detention Center I & II and the 1,376-bed Reeves County Detention Center III have renewal option periods that expire September 30, 2022 and June 30, 2022, respectively. The Company has a management agreement with Reeves County, Texas for the management oversight of these two county-owned facilities. In total, the Great Plains, Big Spring, Flightline, Northlake Correctional Facilities, Reeves County Detention Center I & II and Reeves County Detention Center III generated approximately $145 million in revenues during the year ended December 31, 2020. The BOP has experienced a decline in federal prison populations over the last several years, a trend that has more recently been accelerated by the COVID-19 global pandemic. As a result of the Executive Order and the decline in federal prison populations, the Company expects that its above described contracts with the BOP may not be renewed over the coming years. With respect to the USMS, the agency may determine to conduct a review of the possible application of the Executive Order on its facilities.
COVID-19
In December 2019, a novel strain of coronavirus, now known as COVID-19 (“COVID-19”), was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.
The Company has been closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact those entrusted to its care and governmental partners. During the year ended December 31, 2020, the Company did incur significant disruption from the COVID-19 pandemic but, it is unable to predict the overall future impact that the COVID-19 pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties related to the pandemic.
The COVID-19 pandemic and related government-imposed mandatory closures, shelter in-place restrictions and social distancing protocols and increased expenditures on engineering controls, personal protective equipment, diagnostic testing, medical expenses, temperature scanners, protective plexiglass barriers and increased sanitation have had, and will continue to have, a severe impact on global economic conditions and the environment in which the Company operates. Starting in late March and early April, the Company began to observe negative impacts from the pandemic on its performance in its secure services business, specifically with its U.S. Immigration and Customs Enforcement (“ICE”) Processing Centers and U.S. Marshals Facilities, as a result of declines in crossings and apprehensions along the Southwest border and a decrease in court sentencing at the federal level. Various governmental agencies have also taken steps to decrease the number of those in custody to adhere to social distancing protocols. Additionally, its reentry services business conducted through its GEO Care business segment has also been negatively impacted, specifically its residential reentry centers and non-residential day reporting programs were impacted by declines in programs due to lower levels of referrals by federal, state and local agencies. Additionally, the Company has experienced the transmission of COVID-19 among detainees and staff at most of its facilities during 2020 and continuing into the first quarter of 2021. If the Company is unable to mitigate the transmission of COVID-19 at its facilities it could experience a material adverse effect on its financial position, results of operations and cash flows. Although the Company is unable to predict the duration or scope of the COVID-19 pandemic or estimate the extent of the negative financial impact to its operating results, an extended period of depressed economic activity necessitated to combating the disease, and the severity and duration of the related global economic crisis may adversely impact its future financial performance.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The equity method of accounting is used for investments in non-controlled affiliates in which the Company’s ownership ranges from 20 to 50 percent, or in instances in which the Company is able to exercise significant influence but not control. The Company reports South Africa Custodial Services ("SACS") and its 50% owned joint venture in the United Kingdom, GEOAmey, under the equity method of accounting. Noncontrolling interests in consolidated entities represent equity that other investors have contributed to South Africa Custodial Management ("SACM"). Non-controlling interests are adjusted for income and losses allocable to the other shareholders in these entities. All significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported results of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include reserves for self-insured retention related to general liability insurance, workers’ compensation insurance, projected undiscounted cash flows used to evaluate asset impairment, estimated fair values of business acquisitions, pension assumptions, percentage of completion and estimated cost to complete for construction projects, and stock based compensation. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While the Company believes that such estimates are reasonable when considered in conjunction with the consolidated financial statements taken as a whole, the actual amounts of such estimates, when known, will vary from these estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.
Dividends
As a REIT, the Company is required to distribute annually at least 90% of its REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gain). The amount, timing and frequency of future distributions, however, will be at the sole discretion of the Company's Board of Directors and will be declared based upon various factors, many of which are beyond the Company's control, including, the Company's financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that the Company otherwise would be required to pay, limitations on distributions in the Company's existing and future debt instruments, limitations on the Company's ability to fund distributions using cash generated through our TRSs and other factors that the Company's Board of Directors may deem relevant. The Company began paying regular REIT distributions in 2013. Refer to Note 2- Shareholders’ Equity.
A REIT is not permitted to retain earnings and profits accumulated during the years it was taxed as a C corporation or earnings and profits accumulated by its subsidiaries that have been converted to qualified REIT subsidiaries, and must make one or more distributions to shareholders that equal or exceed these accumulated amounts by the end of the first REIT year. Earnings and profits, which determine the taxability of distributions to shareholders, will differ from net income reported for financial reporting purposes due to the differences in the treatment of gains and losses, revenue and expenses, and depreciation for financial reporting relative to federal income tax purposes.
Cash and Cash Equivalents
Cash and cash equivalents include all interest-bearing deposits or investments with original maturities of three months or less when purchased. The Company maintains cash and cash equivalents with various financial institutions. These financial institutions are located throughout the United States, Australia, South Africa and the United Kingdom. As of December 31, 2020 and 2019, the Company had $24.3 million and $20.6 million in cash and cash equivalents held by its international subsidiaries, respectively.
Concentration of Credit Risk
The Company maintains deposits of cash in excess of federally insured limits with certain financial institutions and accordingly the Company is subject to credit risk. Other than cash, financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable, contract receivable, long-term debt and financial instruments used in hedging activities. The Company’s cash management and investment policies restrict investments to low-risk, highly liquid securities, and the Company performs periodic evaluations of the credit standing of the financial institutions with which it deals.
Accounts Receivable
Accounts receivable consists primarily of trade accounts receivable due from federal, state, local and international government agencies for operating and managing secure facilities, providing youth and community-based services, providing electronic monitoring and supervision services, providing construction and design services and providing residential and transportation services. The Company generates receivables with its governmental clients and with other parties in the normal course of business as a result of billing and receiving payment. The Company regularly reviews outstanding receivables, and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company also performs ongoing credit evaluations for some of its customers’ financial conditions and generally does not require collateral. Generally, the Company receives payment for these services thirty to sixty days in arrears. However, certain of the Company’s accounts receivable are paid by customers after the completion of their program year and therefore can be aged in excess of one year. The Company maintains reserves for potential credit losses, and such losses traditionally have been within its expectations. Actual write-offs are charged against the allowance when collection efforts have been unsuccessful. As of December 31, 2020 and 2019, $0.3 million and $0.4 million, respectively, of the Company's trade receivables were considered to be long-term and are classified as Other Non-Current Assets in the accompanying Consolidated Balance Sheets.
Contract Receivable
The Company's Australian subsidiary has recorded a contract receivable in connection with the construction of a 1,300-bed detention facility in Ravenhall, Australia for the State of Victoria. The contract receivable represents costs incurred and estimated earnings in excess of billings and is recorded at net present value based on the timing of expected future settlement. Refer to Note 6 - Contract Receivable for further information.
Restricted Cash and Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents and restricted cash and cash equivalents reported on the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
December 31, 2020
December 31, 2019
December 31, 2018
Cash and Cash Equivalents
$
283,524
$
32,463
$
31,255
Restricted cash and cash equivalents - current
26,740
32,418
51,678
Restricted cash and investments - non-current
37,338
30,923
22,431
Less Restricted investments - non-current
(35,749
)
(28,332
)
(20,892
)
Total cash, cash equivalents and restricted cash and cash equivalents shown in the statement of cash flows
$
311,853
$
67,472
$
84,472
Amounts included in restricted cash and cash equivalents are attributable to certain contractual cash restriction requirements at the Company's wholly owned Australian subsidiary related to non-recourse debt and asset replacement funds contractually required to be maintained and other guarantees. Restricted investments - non-current (included in Restricted Cash and Investments in the accompanying consolidated balance sheets) consists of the Company's rabbi trust established for employee and employer contributions to The GEO Group, Inc. Non-qualified Deferred Compensation Plan and is not considered to be a restricted cash equivalent. Refer to Note 9 - Financial Instruments.
Prepaid expenses and Other Current Assets
Prepaid expenses and other current assets include assets that are expected to be realized within the next fiscal year. Included in the balance at December 31, 2019 is approximately $3.3 million of federal, state and international tax overpayments that were applied against tax payments in 2020. There were no significant federal, state or international tax overpayments included in the balance at December 31, 2020.
Property and Equipment
Property and equipment are stated at cost, less accumulated amortization and depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Buildings and improvements are depreciated over 2 to 50 years. Equipment and furniture and fixtures are depreciated over 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. The Company performs ongoing evaluations of the estimated useful lives of the property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset. If the assessment indicates that assets will be used for a longer or shorter period than previously anticipated, the useful lives of the assets are revised, resulting in a change in estimate. The Company has not made any such changes in estimates during the years ended December 31, 2020, 2019 and 2018. Maintenance and repairs are expensed as incurred. Interest is capitalized in connection with the construction of company-owned secure facilities. Cost for self-constructed secure facilities includes direct materials and labor, capitalized interest and certain other indirect costs associated with construction of the facility, such as property taxes, other indirect labor and related benefits and payroll taxes. The Company begins the capitalization of costs during the pre-construction phase, which is the period during which costs are incurred to evaluate the site, and continues until the facility is substantially complete and ready for occupancy. Labor costs capitalized for the years ended December 31, 2020, 2019 and 2018 were not significant. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. Refer to Note 5 - Property and Equipment.
Assets Held for Sale
As of December 31, 2020, the Company had four properties classified as held for sale included in its U.S Secure Services and GEO Care segments in the accompanying consolidated balance sheet. The Company classifies a long-lived asset (disposal group) as held for sale in the period in which all of the following criteria are met (i) Management, having the authority to approve the action, commits to a plan to sell the asset (disposal group), (ii) the asset (disposal group) is available for immediate sale in its present condition subject only to the terms that are usual and customary for sales of such assets (disposal groups), (iii) an active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated, (iv) the sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale, within one year, except as permitted, (v) the asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company records assets held for sale at the lower of cost or estimated fair value and estimates fair value by using third party appraisers or other valuation techniques. The Company does not record depreciation for assets held for sale. Any gain or loss on the sale of operating assets is included in the operating income of the reportable segment to which it relates.
The properties that are classified as held for sale at December 31, 2020 are a parcel of undeveloped land in Hobart, Indiana, one idle Secure facility, one idle reentry facility acquired from Community Education Centers (“CEC”) and one idle youth facility. At December 31, 2020, the aggregate carrying values of these properties was approximately $9.1 million. At December 31, 2019, the Company had four properties that were classified as held for sale which consisted of a parcel of undeveloped land in Hobart, Indiana two idle reentry facilities acquired from CEC and one idle youth facility. At December 31, 2019, the aggregate carrying value of the properties was approximately $6.1 million.
Asset Impairments
The Company had property and equipment, net of $2.1 billion and $2.1 billion as of December 31, 2020 and 2019, respectively, including approximately 990 vacant beds with a net book value of approximately $24 million at December 31, 2020 at two of its idle facilities in the Secure Services segment that it is currently marketing to potential customers. Also, in its GEO Care segment, the Company is currently marketing approximately 1,100 vacant beds with a net book value of approximately $26 million at December 31, 2020 at two of its idle facilities to potential customers. Refer to Risks and Uncertainties - Executive Order above for a discussion of recent developments.
The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. 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 or a prolonged decrease in population. If impairment indicators are present, the Company performs a recoverability test to determine whether or not an impairment loss should be measured.
The Company tests idle facilities for impairment upon notification that the facilities will no longer be utilized by the customer. If a long-lived asset is part of a group that includes other assets, the unit of accounting for the long-lived asset is its group. Generally, the Company groups assets by facility for the purpose of considering whether any impairment exists. The estimates of recoverability are based on projected undiscounted cash flows associated with actual marketing efforts where available or, in other instances, projected undiscounted cash flows that are comparable to historical cash flows from management contracts at similar facilities and sensitivity analyses that consider reductions to such cash flows. The Company's sensitivity analyses include adjustments to projected cash flows compared to the historical cash flows due to current business conditions which impact per diem rates as well as labor and other operating costs, changes related to facility mission due to changes in prospective clients, and changes in projected capacity and occupancy rates. The Company also factors in prolonged periods of vacancies as well as the time and costs required to ramp up facility population once a contract is obtained. The Company performs the impairment analysis on an annual basis for each of the idle facilities and takes into consideration updates each quarter for market developments affecting the potential utilization of each of the facilities in order to identify events that may cause the Company to reconsider the most recent assumptions. Such events could include negotiations with a prospective customer for the utilization of an idle facility at terms significantly less favorable than the terms used in the Company's most recent impairment analysis, or changes in legislation surrounding a particular facility that could impact the Company's ability to house certain types of individuals at such facility. Further, a substantial increase in the number of available beds at other facilities the Company owns, or in the marketplace, could lead to deterioration in market conditions and projected cash flows. Although they are not frequently received, an unsolicited offer to purchase any of the Company's idle facilities, at amounts that are less than their carrying value could also cause the Company to reconsider the assumptions used in the most recent impairment analysis. The Company has identified marketing prospects to utilize each of the remaining currently idled facilities and has determined that no current impairment exists. However, the Company can provide no assurance that it will be able to secure management contracts to utilize its idle facilities, or that it will not incur impairment charges in the future. In all cases, except for one of its leased facilities, the projected undiscounted cash flows in our analysis as of December 31, 2020 substantially exceeded the carrying amounts of each facility. With respect to the leased facility where the projected undiscounted cash flows of the facility did not exceed the carrying amount, the Company recorded an impairment charge of approximately $5.7 million during the year ended December 31, 2020.
The Company's evaluations also take into consideration historical experience in securing new facility management contracts to utilize facilities that had been previously idled for periods comparable to or in excess of the periods the Company's currently idle facilities have been idle. Such previously idled facilities are currently being operated under contracts that generate cash flows resulting in the recoverability of the net book value of the previously idled facilities by substantial amounts. Due to a variety of factors, the lead time to negotiate contracts with federal and state agencies to utilize idle bed capacity is generally lengthy which has historically resulted in periods of idleness similar to the ones the Company is currently experiencing.
By their nature, these estimates contain uncertainties with respect to the extent and timing of the respective cash flows due to potential delays or material changes to forecasted terms and conditions in contracts with prospective customers that could impact the estimate of projected cash flows. Notwithstanding the effects the current economy has had on the Company's customers' for available beds in the short term which has led to its decision to idle certain facilities, the Company believes the long-term trends favor an increase in the utilization of its idle facilities. This belief is also based on the Company's experience in working with governmental agencies faced with significant budgetary challenges which is a primary contributing factor to the lack of appropriated funding to build new bed capacity by federal and state agencies.
Assets Held under Finance Leases
Assets held under finance leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Amortization expense is recognized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the related lease and is included in depreciation expense.
Goodwill and Other Intangible Assets, Net
Goodwill
The Company has recorded goodwill as a result of its business combinations. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired. The Company's goodwill is not amortized and is tested for impairment annually on the first day of the fourth quarter, and whenever events or circumstances arise that indicate impairment may have occurred. Impairment testing is performed for all reporting units that contain goodwill. The reporting units are the same as the reportable segment for U.S. Secure Services and are at the operating segment level for GEO Care.
On the annual measurement date of October 1, 2020, the Company's management elected to qualitatively assess the Company's goodwill for impairment for all of its reporting units except for its community based reporting unit which was assessed using a quantitative analysis. Under provisions of the qualitative analysis, when testing goodwill for impairment, the Company first assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a quantitative impairment test to identify goodwill impairment and measures the amount of goodwill impairment loss to be recognized, if any. The qualitative factors used by the Company’s management to determine the likelihood that the fair value of the reporting unit is less than the carrying amount include, among other things, a review of overall economic conditions and their current and future impact on the Company’s existing business, the Company’s financial performance and stock price, industry outlook and market competition. With respect to the qualitative assessments, management determined that, as of October 1, 2020, it was more likely than not that the fair values of the reporting units exceeded their carrying values. With respect to the quantitative analysis performed, the Company used a third-party valuation firm to determine the estimated fair value of the reporting unit using a discounted cash flow model. A discount rate of 10% was utilized to adjust the cash flow forecasts based on the Company’s estimate of a market participant’s weighted-average cost of capital. Growth rates for sales and profits were determined using inputs from the Company’s long-term planning process. The Company also makes estimates for discount rates and other factors based on market conditions, historical experience and other economic factors. Changes in these factors could significantly impact the fair value of the reporting unit. With respect to the community based reporting unit that was assessed quantitatively, management determined that the carrying value exceeded its fair value due to future declines in cash flow projections primarily due to the negative impact of the COVID-19 pandemic on the Company’s reentry facilities. As such, the Company recorded a goodwill impairment charge of $21.1 million during the year ended December 31, 2020. A change in one or combination of the assumptions discussed above could impact the estimated fair value of the reporting unit. If the Company’s expectations of future results and cash flows decrease significantly or other economic conditions deteriorate, goodwill may be further impaired. See Note 8 - Goodwill and Other Intangible Assets, Net for further discussion.
Other Intangible Assets, Net
The Company has also recorded other finite and indefinite lived intangible assets as a result of previously completed business combinations. Other acquired finite and indefinite lived intangible assets are recognized separately if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the Company’s intent to do so. The Company’s intangible assets include facility management contracts, trade names and technology. The facility management contracts represent customer relationships in the form of management contracts acquired at the time of each business combination; the value of BI’s and Protocol Criminal Justice, Inc.'s ("Protocol") trade names represent, among other intangible benefits, name recognition to its customers and intellectual property rights; and the acquired technology represents BI’s innovation with respect to its GPS tracking, monitoring, radio frequency monitoring, voice verification monitoring and alcohol compliance systems, Protocol's innovation with respect to its customer relationship management software and Soberlink, Inc.'s innovation with respect to its alcohol monitoring devices. When establishing useful lives, the Company considers the period and the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up; or, if that pattern cannot be reliably determined, using a straight-line amortization method over a period that may be shorter than the ultimate life of such intangible asset. The Company also considers the impact of renewal terms when establishing useful lives. The Company currently amortizes its acquired facility management contracts over periods ranging from three to twenty-one years and its acquired technology over seven years to eight years. There is no residual value associated with the Company’s finite-lived intangible assets. The Company reviews its trade name assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company does not amortize its indefinite lived intangible assets. The Company reviews its indefinite lived intangible assets annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. These reviews resulted in no impairment to the carrying value of the indefinite lived intangible assets for all periods presented. The Company records the costs associated with renewal and extension of facility management contracts as expenses in the period they are incurred.
Internal-Use Software
Costs incurred to develop software for internal use are capitalized and amortized over the estimated useful lives of the software. Costs related to design or maintenance of internal-use software are expensed as incurred. As of December 31, 2020 and 2019, included in Property and Equipment, Net is approximately $12.2 million and $14.2 million of capitalized internal-use software costs, respectively.
Debt Issuance Costs
Debt issuance costs, net of accumulated amortization of $43.4 million and $37.0 million, totaling $24.5 million and $30.5 million at December 31, 2020 and 2019, respectively, are included in Long-Term Debt, Non-Recourse Debt and Other Non-Current Assets in the accompanying Consolidated Balance Sheets and are amortized to interest expense using the effective interest method over the term of the related debt.
Variable Interest Entities
The Company evaluates its joint ventures and other entities in which it has a variable interest (a “VIE”), generally in the form of investments, loans, guarantees, or equity in order to determine if it has a controlling financial interest and is required to consolidate the entity as a result. The reporting entity with a variable interest that provides the entity with a controlling financial interest in the VIE will have both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (ii) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company does not consolidate its 50% owned South African joint venture interest in SACS, a VIE. SACS joint venture investors are GEO and Kensani Corrections, Pty. Ltd (an independent third party); each partner owns a 50% share. The Company has determined it is not the primary beneficiary of SACS since it does not have the power to direct the activities of SACS that most significantly impact its performance. As such, the Company's investment in this entity is accounted for under the equity method of accounting. SACS was established and subsequently, in 2001, was awarded a 25-year contract to design, finance and build the Kutama Sinthumule Correctional Centre in Louis Trichardt, South Africa. To fund the construction of the prison, SACS obtained long-term financing from its equity partners and lenders, the repayment of which is fully guaranteed by the South African government, except in the event of default, in which case the government guarantee is reduced to 80%. The Company's maximum exposure for loss under this contract is limited to its investment in the joint venture of approximately $11 million at December 31, 2020.
The Company does not consolidate its 50% owned joint venture in the United Kingdom. In February 2011, GEO UK, executed a Shareholders Agreement (the “Shareholders Agreement”) with Amey Community Limited (“Amey”) and Amey UK PLC (“Amey Guarantor”) to form GEOAmey, a private company limited by shares incorporated in England and Wales. GEOAmey was formed by GEO UK and Amey (an independent third party) for the purpose of performing prisoner escort and related custody services in England, Wales and Scotland. In order to form this private company, GEOAmey issued share capital of £100 divided into 100 shares of £1 each and allocated the shares 50/50 to GEO UK and Amey. GEO UK and Amey each have three directors appointed to the Board of Directors and neither party has the power to direct the activities that most significantly impact the performance of GEOAmey. As such, the Company's investment in this entity is accounted for under the equity method of accounting. Both parties provided lines of credit of £12.0 million to ensure that GEOAmey could comply with future contractual commitments related to the performance of its operations. In October 2018, the note receivable to each joint venture partner was paid off in full.
Fair Value Measurements
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (“exit price”). The Company carries certain of its assets and liabilities at fair value, measured on a recurring basis, in the accompanying Consolidated Balance Sheets. The Company also has certain assets and liabilities which are not carried at fair value in its accompanying Consolidated Balance Sheets and discloses the fair value measurements compared to the carrying values as of each balance sheet date. The Company’s fair value measurements are disclosed in Note 9 - Financial Instruments and Note 10 - Fair Value of Assets and Liabilities. The Company establishes fair value of its assets and liabilities using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels which distinguish between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The level in the fair value hierarchy within which the respective fair value measurement falls is determined based on the lowest level input that is significant to the measurement in its entirety. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities. Level 2 inputs are other than quotable market prices included in Level 1 that are observable for the asset or liability either directly or indirectly through corroboration with observable market data. Level 3 inputs are unobservable inputs for the assets or liabilities that reflect management’s own assumptions about the assumptions market participants would use in pricing the asset or liability. The Company recognizes transfers between Levels 1, 2 and 3 as of the actual date of the event or change in circumstances that cause the transfer.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to GEO's customers, in an amount that reflects the consideration GEO expects to be entitled to in exchange for those goods or services. Sales, value added and other taxes GEO collects concurrent with revenue producing activities and that are subsequently remitted to governmental authorities are excluded from revenues. The guidance distinguishes between goods and services. The definition of services under the guidance includes everything other than goods. As such, in the case of GEO, this guidance views the provision of housing as a service.
When a contract includes variable consideration, GEO determines an estimate of the variable consideration and evaluates whether the estimate needs to be constrained; therefore, GEO includes the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration estimates are updated at each reporting date. A limited number of GEO's domestic contracts have provisions upon which a small portion of the revenue for the contract is based on the performance of certain targets. Domestically, revenue based on the performance of certain targets is less than 1% of the Company's consolidated domestic revenues
and was not significant during the periods presented. One of GEO's international contracts, related to its Ravenhall facility (discussed further below), contains a provision where a significant portion of the revenue for the contract is based on the performance of certain targets. These performance targets are based on specific criteria to be met over specific periods of time. Such criteria includes the Company's ability to achieve certain contractual benchmarks relative to the quality of service it provides, non-occurrence of certain disruptive events, effectiveness of its quality control programs and its responsiveness to customer requirements. The performance of these targets are measured quarterly and there was no significant constraint on the estimate of such variable consideration for this contract during the years ended December 31, 2020 and 2019.
GEO does not disclose the value of unsatisfied performance obligations for (i) contracts with an expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which GEO has the right to invoice for services performed, which is generally the case for all of GEO's contracts. Incidental items that are immaterial in the context of the contract are recognized as expense. GEO generally does not incur incremental costs related to obtaining a contract with its customers that would meet the requirement for capitalization. There were no assets recognized from costs to obtain a contract with a customer at December 31, 2020 or 2019.
The timing of revenue recognition may differ from the timing of invoicing to customers. GEO records a receivable when services are performed which are due from its customers based on the passage of time. GEO records a contract liability if consideration is received in advance of the performance of services. Generally, GEO's customers do not provide payment in advance of the performance of services. Therefore, any contract liability is not significant at December 31, 2020 or 2019. Revenue recognized during the years ended December 31, 2020 and 2019 that was included in the opening balance of unearned revenue was not significant. There have been no significant amounts of revenue recorded in the periods presented from performance obligations either wholly or partially satisfied in prior periods.
The right to consideration under GEO's contracts is only dependent on the passage of time and is therefore considered to be unconditional. Payment terms and conditions vary by contract type, although, with the exception of the contract receivable related to GEO's Ravenhall facility (further discussed below), terms generally include a requirement of payment within 30 days after performance obligations are satisfied and generally do not include a significant financing component. There have been no significant changes in receivables or unearned revenue balances during the periods other than regular invoicing and collection activity.
The following table disaggregates GEO's revenue by major source and also provides a reconciliation with revenue information disclosed for reportable segments in Note 15 - Business Segments and Geographic Information:
Year Ended December 31, 2020 (in thousands)
U.S. Secure
Services
GEO Care
International
Facility
Construction
and Design
Total
Owned and Leased: Secure Services
$
1,198,881
$
-
$
-
$
-
$
1,198,881
Owned and Leased: Community-based
-
145,491
-
-
145,491
Owned and Leased: Youth Services
-
75,792
-
-
75,792
Managed Only
372,335
5,513
211,621
-
589,469
Facility Construction and Design
-
-
-
15,919
15,919
Non-residential Services and Other
-
324,546
-
-
324,546
Total Revenues
$
1,571,216
$
551,342
$
211,621
$
15,919
$
2,350,098
Year Ended December 31, 2019 (in thousands)
U.S. Secure
Services
GEO Care
International
Facility
Construction
and Design
Total
Owned and Leased - Secure Services
$
1,228,299
$
-
$
-
$
-
$
1,228,299
Owned and Leased - Community-based
-
176,001
-
-
176,001
Owned and Leased - Youth Services
-
87,189
-
-
87,189
Managed Only
373,380
5,523
232,016
-
610,919
Facility Construction and Design
-
-
-
29,978
29,978
Non-residential Services and Other
-
345,536
-
-
345,536
Total Revenues
$
1,601,679
$
614,249
$
232,016
$
29,978
$
2,477,922
Year Ended December 31, 2018 (in thousands)
U.S Secure
Services
GEO Care
International
Facility
Construction
and Design
Total
Owned and Leased - Secure Services
$
1,110,749
$
-
$
-
$
-
$
1,110,749
Owned and Leased - Community-based
-
170,805
-
-
170,805
Owned and Leased - Youth Services
-
91,824
-
-
91,824
Managed Only
382,224
4,981
253,874
-
641,079
Facility Construction and Design
-
-
-
4,226
4,226
Non-residential services and Other
-
312,703
-
-
312,703
Total Revenues
$
1,492,973
$
580,313
$
253,874
$
4,226
$
2,331,386
Owned and Leased - Secure Services
GEO recognizes revenue for secure housing services where GEO owns or leases the facility as services are performed. GEO provides for the safe and secure housing and care of incarcerated individuals under public-private partnerships with federal, state and local government agencies. This includes providing 24-hour care and supervision, including but not limited to, such services as medical, transportation, food service, laundry services and various programming activities. These tasks are considered to be activities to fulfill the safe and secure housing performance obligation and are not considered to be individually separate promises in the contract. Each of these activities is highly interrelated and GEO performs a significant level of integration of these activities. GEO has identified these activities as a bundle of services and determined that each day of the promised service is distinct. The services provided are part of a series of distinct services that are substantially the same and are measured using the same measure of progress (time-based output method). GEO has determined that revenue for these services are recognized over time as its customers simultaneously receive and consume the benefits as the services are performed, which is on a continual daily basis, and GEO has a right to payment for performance completed to date. Time-based output methods of revenue recognition are considered to be a faithful depiction of GEO's efforts to fulfill its obligations under its contracts and therefore reflect the transfer of services to its customers. GEO's customers generally pay for these services based on a net rate per day per individual or on a fixed monthly rate.
Owned and Leased - Community-based
GEO recognizes revenue for community-based reentry services where GEO owns or leases the facility in a manner similar to its secure services discussed above. GEO provides individuals nearing the end of their sentence with the resources necessary to productively transition back into society. Through its residential reentry centers, GEO provides federal and state parolees and probationers with temporary housing, rehabilitation, substance abuse counseling and vocational and educational programs. These activities are considered to be a bundle of services which are a part of a series of distinct services recognized over time based on the same criteria as discussed above for secure services revenues. GEO's customers also generally pay for these services based on a net rate per day per individual or on a fixed monthly rate.
Owned and Leased - Youth Services
GEO recognizes revenues for youth services where GEO owns or leases the facility in the same manner as discussed above for the housing, supervision, care and rehabilitation of troubled youth residents. The activities to house and care for troubled youth residents are also considered to be a bundle of services which are part of a series of distinct services recognized over time based on the same criteria discussed for the previous two revenue streams. GEO's customers generally pay for these services based on a net rate per day per individual.
Managed Only
GEO recognizes revenue for its managed only contracts in the same manner as its Owned and Leased Secure Services and Owned and Leased Community-based contracts as discussed above. The primary exception is that GEO does not own or lease the facility. The facility is owned by the customer. In certain circumstances, GEO's customers may request that GEO make certain capital improvements to the facility or make other payments related to the facility. These payments are amortized as a reduction of revenues over the life of the contract. GEO's customers generally pay for these services based on a net rate per day per individual or a fixed monthly rate.
Facility Construction and Design
During 2020, 2019 and 2018, the Company had facility construction and design services related to an expansion project at its Fulham Correctional Centre in Australia which was substantially completed in the third quarter of 2020. GEO determined revenue should be recorded over time using a time-based output method based on the same criteria as discussed above for secure services. Fees included and priced in the contract for managing the Facility are considered to be stated at their individual estimated stand-alone selling prices using the adjusted market assessment approach. These services are regularly provided by GEO on a stand-alone basis to similar customers within a similar range of amounts. GEO used the expected cost-plus margin approach to allocate the transaction price to the construction obligation. GEO was entitled under the contract to receive consideration in the amount of its costs plus a margin.
Non-residential Services and Other
Non-residential Services and Other revenue consists of the Company's contracts with federal and various state and local governments to provide location, alcohol and drug detecting electronic monitoring and case management services to individuals on an as needed or as requested basis. This category also includes the Company's day reporting centers.
GEO recognizes revenues for electronic monitoring and case management services as the services are performed. Services provided consist of community-based supervision (home visits), in-person reporting, telephonic reporting and GPS and other electronic monitoring as well as overall contract management services. The rates for the various services are considered to be stated at their individual stand-alone selling prices. GEO has determined that the services to be provided are recognized over time based on the unit of occurrence of the various services as its customer simultaneously receives and consumes the benefits as the services are performed and GEO has a right to payment for performance completed to date. Generally, these services are paid based on a net rate per occurrence and a monthly fee for management services.
Certain of the Company's electronic monitoring contracts include providing monitoring equipment and related monitoring services activities (using internal proprietary software platforms) to its customers. These tasks are considered to be activities to fulfill the promise to provide electronic monitoring services to individuals and are not considered to be individually separate promises in the contract. In the context of the contract, the equipment and monitoring service is not considered to be capable of being distinct as the customer typically cannot benefit from the equipment or monitoring service on its own or with other readily available resources. Management has identified these activities as a bundle of services and determined that each day or unit of the promised service is distinct. These services are part of a series of distinct services that are substantially the same and are measured using the same measure of progress (time-based output method) and are therefore accounted for as a single performance obligation. GEO has determined that services are recognized over time as the customer simultaneously receives and consumes the benefits as the services are performed and GEO has a right to payment for performance completed to date.
Services provided for GEO's day reporting centers are similar to its Owned and Leased Community-based services discussed above with the exception of temporary housing.
Income Taxes
The consolidated financial statements reflect provisions for federal, state, local and foreign income taxes. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as operating loss and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities as a result of a change in tax rates is recognized as income in the period that includes the enactment date. Refer to Note 16-Income Taxes. Effective January 1, 2013, as a REIT that is required to distribute at least 90% of its taxable income to shareholders, the Company does not expect to pay federal income taxes at the REIT level (including its qualified REIT subsidiaries), as the resulting dividends paid deduction will generally offset its taxable income. Since the Company does not expect to pay taxes on its REIT taxable income, it does not expect to be able to recognize such deferred tax assets and liabilities.
Deferred income taxes related to the TRS structure are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Significant judgments are required to determine the consolidated provision for income taxes. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. Realization of the Company’s deferred tax assets is dependent upon many factors such as tax regulations applicable to the jurisdictions in which the Company operates, estimates of future taxable income and the character of such taxable income.
Additionally, the Company must use significant judgment in addressing uncertainties in the application of complex tax laws and regulations. If actual circumstances differ from the Company’s assumptions, adjustments to the carrying value of deferred tax assets or liabilities may be required, which may result in an adverse impact on the results of its operations and its effective tax rate. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. The Company has not made any significant changes to the way it accounts for its deferred tax assets and liabilities in any year presented in the consolidated financial statements. Based on its estimate of future earnings and its favorable earnings history, the Company currently expects full realization of the deferred tax assets net of any recorded valuation allowances. Furthermore, tax positions taken by the Company may not be fully sustained upon examination by the taxing authorities. In determining the adequacy of our provision (benefit) for income taxes, potential settlement outcomes resulting from income tax examinations are regularly assessed. As such, the final outcome of tax examinations, including the total amount payable or the timing of any such payments upon resolution of these issues, cannot be estimated with certainty.
Reserves for Insurance Losses
The nature of the Company’s business exposes it to various types of third-party legal claims, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct claims brought by individuals within our care, medical malpractice claims, product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, contractual claims and claims for personal injury or other damages resulting from contact with our facilities, programs, electronic monitoring products, personnel or individuals within our care, including damages arising from an inmate’s escape or from a disturbance or riot at a facility. In addition, the Company’s management contracts generally require it to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. The Company maintains a broad program of insurance coverage for these general types of claims, except for claims relating to employment matters, for which the Company carries no insurance. There can be no assurance that the Company’s insurance coverage will be adequate to cover all claims to which it may be exposed. It is the Company’s general practice to bring merged or acquired companies into its corporate master policies in order to take advantage of certain economies of scale.
The Company currently maintains a general liability policy and excess liability policies with total limits of $70.0 million per occurrence and $90.0 million total general liability annual aggregate limits covering the operations of U.S. Secure Services, GEO Care's community-based services, GEO Care's youth services and BI. The Company has a claims-made liability insurance program with a specific loss limit of $40.0 million per occurrence and in the aggregate related to medical professional liability claims arising out of correctional healthcare services. The Company is uninsured for any claims in excess of these limits. We also maintain insurance to cover property and other casualty risks including, workers’ compensation, environmental liability, cybersecurity liability and automobile liability.
For most casualty insurance policies, the Company carries substantial deductibles or self-insured retentions of $3.0 million per occurrence for general liability and medical professional liability, $2.0 million per occurrence for workers’ compensation and $1.0 million per occurrence for automobile liability. In addition, certain of the Company’s facilities located in Florida and other high-risk hurricane areas carry substantial windstorm deductibles. Since hurricanes are considered unpredictable future events, no reserves have been established to pre-fund for potential windstorm damage. Limited commercial availability of certain types of insurance relating to windstorm exposure in coastal areas and earthquake exposure mainly in California and the Pacific Northwest may prevent the Company from insuring some of its facilities to full replacement value.
With respect to operations in South Africa, the United Kingdom and Australia, the Company utilizes a combination of locally-procured insurance and global policies to meet contractual insurance requirements and protect the Company. In addition to these policies, the Company’s Australian subsidiary carries tail insurance on a general liability policy related to a discontinued contract.
Of the insurance policies discussed above, the Company’s most significant insurance reserves relate to workers’ compensation, general liability and auto claims. These reserves are undiscounted and were $78.9 million and $68.2 million as of December 31, 2020 and 2019, respectively, and are included in Accrued Expenses in the accompanying Consolidated Balance Sheets. The Company uses statistical and actuarial methods to estimate amounts for claims that have been reported but not paid and claims incurred but not reported. In applying these methods and assessing their results, the Company considers such factors as historical frequency and severity of claims at each of its facilities, claim development, payment patterns and changes in the nature of its business, among other factors. Such factors are analyzed for each of the Company’s business segments. The Company estimates may be impacted by such factors as increases in the market price for medical services and unpredictability of the size of jury awards. The Company also may experience variability between its estimates and the actual settlement due to limitations inherent in the estimation process, including its ability to estimate costs of processing and settling claims in a timely manner as well as its ability to accurately estimate the Company’s exposure at the onset of a claim. Because the Company has high deductible insurance policies, the amount of its insurance expense is dependent on its ability to control its claims experience. If actual losses related to insurance claims significantly differ from the Company’s estimates, its financial condition, results of operations and cash flows could be materially adversely impacted.
Comprehensive Income (Loss)
Comprehensive income (loss) represents the change in shareholders’ equity from transactions and other events and circumstances arising from non-shareholder sources. The Company’s total comprehensive income is comprised of net income attributable to GEO, net income attributable to noncontrolling interests, foreign currency translation adjustments that arise from consolidating foreign operations that do not impact cash flows, net unrealized gains and/ or losses on derivative instruments, and pension liability adjustments in the consolidated statements of shareholders’ equity.
The components of accumulated other comprehensive loss attributable to GEO included in the consolidated statement of shareholders' equity are as follows (in thousands):
Foreign
currency
translation
adjustments,
net of tax
attributable
to The GEO
Group, Inc.
Unrealized
loss on
derivatives,
net of tax
Pension
adjustments,
net of tax
Total
Balance, January 1, 2020
$
(12,314
)
$
(1,476
)
$
(6,545
)
$
(20,335
)
Current-period other comprehensive income (loss)
3,107
(3,276
)
(2,085
)
(2,254
)
Balance, December 31, 2020
$
(9,207
)
$
(4,752
)
$
(8,630
)
$
(22,589
)
Foreign
currency
translation
adjustments,
net of tax
attributable
to The GEO
Group, Inc.
Unrealized
loss on
derivatives,
net of tax
Pension
adjustments,
net of tax
Total
Balance, January 1, 2019
$
(14,573
)
$
(5,746
)
$
(3,299
)
$
(23,618
)
Current-period other comprehensive income (loss) before reclassifications
2,259
(3,246
)
(568
)
Amounts reclassified from other comprehensive income into earnings [1]
-
3,851
-
3,851
Net current-period comprehensive income (loss)
2,259
4,270
(3,246
)
3,283
Balance, December 31, 2019
$
(12,314
)
$
(1,476
)
$
(6,545
)
$
(20,335
)
[1] On May 22, 2019, the Company refinanced the debt associated with its Ravenhall project and terminated the associated interest rate swap derivatives which resulted in the reclassification of $3.9 million into loss on extinguishment of debt that were previously reported in accumulated other comprehensive income (loss). In August 2019, the Company entered into two identical promissory notes in the aggregate amount of $44.3 million which are secured by loan agreements and mortgage and security agreements on certain real property and improvements. The Company has entered into interest rate swap agreements to fix the interest rate at 4.22%. Refer to Note 7 - Derivative Financial Instruments and Note 12 - Debt for additional information.
There were no reclassifications out of accumulated other comprehensive income (loss) during the year ended December 31, 2020.
The foreign currency translation adjustment, net of tax, related to noncontrolling interests was not significant for the year ended December 31, 2020 or 2019.
Foreign Currency Translation
The Company’s foreign operations use their local currencies as their functional currencies. Assets and liabilities of the operations are translated at the exchange rates in effect on the balance sheet date and shareholders’ equity is translated at historical rates. Income statement items are translated at the average exchange rates for the year. Any adjustment resulting from translating the financial statements of the foreign subsidiary is reflected as other comprehensive income, net of related tax. Gains and losses on foreign currency transactions are included in the statement of operations.
Derivatives
The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in interest rates. The Company measures its derivative financial instruments at fair value and records derivatives as either assets or liabilities on the balance sheet. For derivatives that are designed as and qualify as effective cash flow hedges, the portion of gain or loss on the derivative instrument effective at offsetting changes in the hedged item is reported as a component of accumulated other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. For derivative instruments that are designated as and qualify as effective fair value hedges, the gain or loss on the derivative instruments as well as the offsetting gain or loss on the hedged items attributable to the hedged risk is recognized in current earnings as interest income (expense) during the period of the change in fair values. For derivative instruments that do not meet the requirements for hedge accounting, changes in fair value are recorded in earnings.
The Company formally documents all relationships between hedging instruments and hedge items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes attributing all derivatives that are designated as cash flow hedges to floating rate liabilities and attributing all derivatives that are designated as fair value hedges to fixed rate liabilities. The Company also assesses whether each derivative is highly effective in offsetting changes in the cash flows of the hedged item. Fluctuations in the value of the derivative instruments are generally offset by changes in the hedged item; however, if it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the affected derivative.
Stock-Based Compensation Expense
The Company recognizes the cost of stock-based compensation awards based upon the grant date fair value of those awards. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized. Stock-based compensation expense is recognized ratably over the requisite service period, which is typically the vesting period.
The fair value of stock-based option awards was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for options awarded during years 2020, 2019 and 2018:
Risk free interest rates
1.79
%
2.44
%
2.84
%
Expected term
4-5 years
4-5 years
4-5 years
Expected volatility
%
%
%
Expected dividend rate
13.11
%
8.47
%
8.70
%
The Company uses historical data to estimate award exercises and employee terminations within the valuation model. The expected term of the awards represents the period of time that awards granted are expected to be outstanding and is based on historical data and expected holding periods.
For restricted stock share-based awards that contain a performance condition, the achievement of the targets must be probable before any share-based compensation is recorded. If subsequent to the initial measurement there is a change in the estimate of the probability of meeting the performance condition, the effect of the change in the estimated quantity of awards expected to vest is recognized by cumulatively adjusting compensation expense. If ultimately the performance targets are not met, for any awards where vesting was previously deemed probable, previously recognized compensation expense will be reversed in the period in which vesting is no longer deemed probable.
For restricted stock share-based awards that contain a market condition, the probability of satisfying the market condition is considered in the estimate of grant-date fair value and previously recorded compensation expense is not reversed if the market condition is never met. The fair value of restricted stock awards granted in 2020, 2019 and 2018 with market-based performance conditions was determined based on a Monte Carlo simulation, which calculates a range of possible outcomes and the probabilities that they will occur, using the following average key assumptions:
Expected volatility
30.3
%
43.7
%
44.5
%
Beta
1.12
1.00
1.05
Risk free interest rate
0.85
%
2.53
%
2.58
%
Earnings Per Share
Basic earnings per share is computed by dividing the net income attributable to GEO, by the weighted average number of outstanding shares of common stock. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator includes the dilutive effect, if any, of common stock equivalents such as stock options and shares of restricted stock.
Recent Accounting Pronouncements
The Company implemented the following accounting standards during the year ended December 31, 2020:
The SEC recently adopted the final rule in Release No. 33-10762 (the “Final Rule”), Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, to eliminate certain prescriptive requirements currently in Rules 3-10 and 3-16 of Regulation S-X. The Final Rule amends Regulation S-X Rules 3-10 and 3-16 with Regulation S-X Rules 13-01, Guarantors and issuers of guaranteed securities registered or being registered, and 13-02, Affiliates whose securities collateralize securities registered or being registered. The Final Rule simplifies the conditions required to omit separate financial statements of subsidiary issuers and guarantors, allows for reduced supplemental financial information about subsidiary issuers and guarantors as well as affiliates whose securities are collateralized and expands qualitative disclosures about the guarantees or securities pledged as collateral as well
as issuers, guarantors, or affiliates, as applicable. The amended rules also provide flexibility to include these disclosures within or outside the annual and interim financial statements in both registration statements and periodic reports. Further, the disclosures are required only for the most recent annual and year-to-date interim periods. The Final Rule is effective on January 4, 2021 with early adoption permitted. The early adoption of the Final Rule did not have a material impact on the Company's financial position, results of operations or cash flows.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820)" as a part of its disclosure framework project. The amendments in this update remove, modify and add certain disclosures primarily related to transfers between Level 1 and Level 2 of the fair value hierarchy, various disclosures related to Level 3 fair value measurements and investments in certain entities that calculate net asset value. The new standard was effective for the Company beginning January 1, 2020. The adoption of this standard did not have a material impact on the Company's financial position, results of operations or cash flows.
In June 2016, the FASB issued ASC No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The purpose of Update No. 2016-13 is to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. Update No. 2016-13 was effective for the Company beginning January 1, 2020. The adoption of this standard did not have a material impact on the Company's financial position, results of operations or cash flows.
The following accounting standards will be adopted in future periods:
In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options”. The guidance in this update simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU also simplify the guidance in ASC 815-40, “Derivatives and Hedging: Contracts in an Entity’s Own Equity” by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or shares. The new standard is effective for the Company beginning January 1, 2022. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this standard is not expected to have a material impact on the Company's financial position, results of operations or cash flows.
In March 2020, the FASB issued ASU 2020-04, “Reference Reform Rate (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” to provide temporary optional expedients and exceptions to the contract modifications, hedge relationships and other transactions affected by reference rate reform if certain criteria are met. This ASU, which was effective upon issuance and may be applied through December 31, 2022, is applicable to all contracts and hedging relationships that reference the London Interbank Offered Rate or any other reference rate expected to be discontinued. The Company is currently evaluating the impact of reference rate reform and the potential application of this guidance.
In August 2018, the FASB issued ASU No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715.20)" as a part of its disclosure framework project. The amendments in this update remove, modify and add certain disclosures primarily related to amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, explanations for reasons for significant gains and losses related to changes in the benefit obligation for the period, and projected and accumulated benefit obligations. The new standard is effective for the Company beginning January 1, 2021. The adoption of this standard is not expected to have a material impact on the Company's financial position, results of operations or cash flows.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not, or are not expected to, have a material effect on the Company's results of operations or financial position.
2.
Shareholders’ Equity
Common Stock
Each holder of the Company’s common stock is entitled to one vote per share on all matters to be voted upon by the Company’s shareholders. Upon any liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share equally in all assets available for distribution after payment of all liabilities, subject to the liquidation preference of shares of preferred stock, if any, then outstanding.
Distributions
As a REIT, GEO is required to distribute annually at least 90% of its REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gain) and began paying regular quarterly REIT dividends in 2013. The amount, timing and
frequency of future dividends, however, will be at the sole discretion of GEO's Board of Directors (the "Board”) and will be declared based upon various factors, many of which are beyond GEO's control, including, GEO's financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income taxes that GEO otherwise would be required to pay, limitations on distributions in GEO's existing and future debt instruments, limitations on GEO's ability to fund distributions using cash generated through GEO's TRSs and other factors that GEO's Board may deem relevant.
During the years ended December 31, 2020, 2019 and 2018, GEO declared and paid the following regular cash distributions to its stockholders which were treated for federal income taxes as follows:
Ordinary Dividends
Declaration Date
Payment Date
Record Date
Distribution
Per Share
Qualified (1)
Non-Qualified
Nondividend
Distributions (2)
Aggregate
Payment
Amount
(millions)
February 5, 2018
February 27, 2018
February 16, 2018
$
0.47
$
0.046117
$
0.209022
$
0.2148609
$
58.3
April 11, 2018
May 3, 2018
April 23, 2018
$
0.47
$
0.046117
$
0.209022
$
0.2148609
$
57.4
July 10, 2018
July 27, 2018
July 20, 2018
$
0.47
$
0.046117
$
0.209022
$
0.2148609
$
57.2
October 15, 2018
November 2, 2018
October 26, 2018
$
0.47
$
0.046117
$
0.209022
$
0.2148609
$
57.2
February 4, 2019
February 22, 2019
February 15, 2019
$
0.48
$
-
$
0.2759699
$
0.2040301
$
57.9
April 3, 2019
April 22, 2019
April 15, 2019
$
0.48
$
-
$
0.2759699
$
0.2040301
$
58.2
July 9, 2019
July 26, 2019
July 19, 2019
$
0.48
$
-
$
0.2759699
$
0.2040301
$
58.2
October 14, 2019
November 1, 2019
October 25, 2019
$
0.48
$
-
$
0.2759699
$
0.2040301
$
58.2
February 3, 2020
February 21, 2020
February 14, 2020
$
0.48
$
-
$
0.2655802
$
0.2144198
$
58.2
April 6, 2020
April 24, 2020
April 17, 2020
$
0.48
$
-
$
0.2655802
$
0.2144198
$
58.5
July 7, 2020
July 24, 2020
July 17, 2020
$
0.48
$
-
$
0.2655802
$
0.2144198
$
58.5
October 6, 2020
October 23, 2020
October 16, 2020
$
0.34
$
-
$
0.1881193
$
0.1518807
$
41.5
(1)
For 2019 and 2020, there are no Qualified Dividends. Qualified Dividends represents the portion of Total Ordinary Dividends which constitutes a "Qualified Dividend", as defined by the Internal Revenue Service.
(2)
The amount constitutes a "Return of Capital", as defined by the Internal Revenue Service.
Stock Buyback Program
On February 14, 2018, the Company announced that its Board authorized a stock buyback program authorizing the Company to repurchase up to a maximum of $200 million of its shares of common stock. The stock buyback program was funded primarily with cash on hand, free cash flow and borrowings under the Company's $900 million revolving credit facility (the "Revolver"). The program expired on October 20, 2020. The stock buyback program was 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 Commission ("SEC") requirements. The stock buyback program did not obligate the Company to purchase any specific amount of its common stock and could have been suspended or extended at any time at the discretion of the Company's Board. During the year ended December 31, 2020, the Company purchased 553,665 shares of its common stock at a cost of $9.0 million primarily purchased with proceeds from the Company’s Revolver. There were no purchases of the Company's common stock during the year ended December 31, 2019. During the year ended December 31, 2018, the Company purchased 4,210,254 shares of its common stock at a cost of $95.2 million primarily purchased with proceeds from the Company's Revolver.
Automatic Shelf Registration on Form S-3
On October 30, 2020, the Company filed an automatic shelf registration on Form S-3 with the SEC that enables the Company to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, guarantees
of debt securities, warrants and units. Each time the Company offers to sell securities, the Company will provide a prospectus supplement that will contain specific information about the terms of that offering and the securities being offered. The shelf registration statement is automatically effective and is valid for three years.
Preferred Stock
In April 1994, the Company’s Board authorized 30 million shares of “blank check” preferred stock. The Board is authorized to determine the rights and privileges of any future issuance of preferred stock such as voting and dividend rights, liquidation privileges, redemption rights and conversion privileges. As of December 31, 2020 and 2019, there were no shares of preferred stock outstanding.
Noncontrolling Interests
The Company includes the results of operations and financial position of SACM or the “joint venture”, its majority-owned subsidiary, in its consolidated financial statements. SACM was established in 2001 to operate correctional centers in South Africa. The joint venture currently provides security and other management services for the Kutama Sinthumule Correctional Centre in the Republic of South Africa under a 25-year management contract which commenced in February 2002. The Company’s and the joint venture partner’s shares in the profits of the joint venture are 88.75% and 11.25%, respectively. There were no changes in the Company’s ownership percentage of the consolidated subsidiary during the years ended December 31, 2020, 2019 and 2018.
3.
Equity Incentive Plans
The Board has adopted The GEO Group, Inc. 2018 Stock Incentive Plan (the "2018 Plan"), which was approved by the Company's shareholders on April 24, 2018. The 2018 Plan replaced the 2014 Stock Incentive Plan. As of the date the 2018 Plan was adopted, it provided for a reserve of 4,600,000 shares of common stock that may be issued pursuant to awards granted under the 2018 Plan. The Company filed a Form S-8 registration statement related to the 2018 Plan on May 11, 2018.
Under the terms of the 2018 Plan, the vesting period and, in the case of stock options, the exercise price per share, are determined by the terms of each grant agreement. All stock options that have been granted under the Company plans are exercisable at the fair market value of the common stock at the date of the grant. Generally, the stock options vest and become exercisable ratably over a four-year period. All stock options awarded under the 2018 Plan expire no later than ten years after the date of the grant. When options are exercised, the Company issues shares of common stock related to the exercised options.
The Company recognized compensation expense related to the Company plans for the years ended December 31, 2020, 2019 and 2018 as follows (in thousands):
Stock option plan expense
$
1,141
$
1,085
$
Restricted stock expense
$
22,755
$
21,260
$
21,053
Stock Options
A summary of the activity of the Company’s stock options plans is presented below:
Shares
Wtd. Avg.
Exercise
Price
Wtd. Avg.
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
(In thousands)
(In thousands)
Options outstanding at January 1, 2020
1,590
$
24.29
6.90
$
Granted
14.64
Exercised
-
-
Forfeited/Canceled
(119
)
21.96
Options outstanding at December 31, 2020
1,951
$
22.07
6.62
$
-
Options vested and expected to vest at December 31, 2020
1,869
$
22.27
6.53
$
-
Options exercisable at December 31, 2020
1,051
$
24.53
5.13
$
-
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of 2020 and the exercise price, times the number of shares that are “in the money”) that would have been received by the option holders had all option holders exercised their options on December 31, 2020. This amount changes based on the fair value of the Company’s stock.
The following table summarizes information relative to stock option activity during the years ended December 31, 2020, 2019 and 2018 (in thousands):
Intrinsic value of options exercised
$
-
$
$
Fair value of shares vested
$
1,061
$
$
The following table summarizes information about the exercise prices and related information of stock options outstanding under the Company plans at December 31, 2020:
Options Outstanding
Options Exercisable
Exercise Prices ($)
Number
Outstanding
Wtd. Avg.
Remaining
Contractual
Life
Wtd. Avg.
Exercise
Price
Number
Exercisable
Wtd. Avg.
Remaining
Contractual
Life
Wtd. Avg.
Exercise
Price
(In thousands)
0-18.23
7.51
$
14.62
0.74
$
14.53
18.24-22.26
6.12
$
20.99
5.63
$
20.74
22.27-29.39
6.55
$
25.11
5.22
$
27.11
29.40-50.00
6.12
$
32.27
6.11
$
32.27
Total
1,951
6.62
$
22.07
1,051
5.13
$
24.53
The weighted average grant date fair value of options granted during the year ended December 31, 2020, 2019 and 2018 was $1.59, $3.64 and $5.91 per share, respectively. There were 0.5 million, 0.4 million and 0.5 million options granted during the year ended December 31, 2020, 2019 and 2018, respectively.
The following table summarizes the status of non-vested stock options as of December 31, 2020 and changes during the year ended December 31, 2020:
Number of Shares
Wtd. Avg. Grant
Date Fair Value
(In thousands)
Options non-vested at January 1, 2020
$
3.99
Granted
1.59
Vested
(242
)
3.79
Forfeited
(119
)
3.40
Options non-vested at December 31, 2020
$
2.87
As of December 31, 2020, the Company had $2.2 million of unrecognized compensation costs related to non-vested stock option awards that are expected to be recognized over a weighted average period of 2.3 years.
Restricted Stock
During the year ended December 31, 2020, the Company granted approximately 900,000 shares of restricted stock to certain employees and executive officers. Of these awards, 360,000 are market and performance-based awards that will be forfeited if the Company does not achieve certain annual metrics during 2020, 2021 and 2022. The fair value of restricted stock awards, which do not contain a market-based condition, is determined using the closing price of the Company’s common stock on the date of the grant and compensation expense is recognized over the vesting period. Generally, the restricted stock awards vest in equal increments over either a three or four-year period.
The vesting of market and performance-based restricted stock grants awarded in 2020 are subject to the achievement by GEO of two annual performance metrics as follows: (i) up to 50% of the shares of restricted stock ("TSR Target Award") can vest at the end of a three-year performance period if GEO meets certain total shareholder return ("TSR") performance targets, as compared to the total shareholder return of a peer group of companies, over a three year period from January 1, 2020 to December 31, 2022 and (ii) up to 50% of the shares of restricted stock ("ROCE Target Award") can vest at the end of a three-year period if GEO meets certain return on capital employed ("ROCE") performance targets over a three year period from January 1, 2020 to December 31, 2022. These market and performance awards can vest at between 0% and 200% of the target awards for both metrics. The number of shares shown for the market and performance-based awards is based on the target awards for both metrics.
During the year ended December 31, 2019, the Company granted approximately 788,000 shares of restricted stock to certain employees and executive officers. Of these awards, 250,000 are market and performance-based awards that will be forfeited if the Company does not achieve certain annual metrics over a three-year period from January 1, 2019 to December 31, 2021.
The vesting of the market and performance-based restricted stock grants awarded in 2019 are subject to the achievement by GEO of two annual performance metrics as follows: (i) up to 50% of the TSR Target Award can vest at the end of a three-year performance period if GEO meets certain TSR performance targets, as compared to the total shareholder return of a peer group of companies, over a three year period from January 1, 2019 to December 31, 2021; and (ii) up to 50% of the ROCE Target Award can vest at the end of a three-year performance period if GEO meets certain ROCE performance targets over a three year period from January 1, 2019 to December 31, 2021. These market and performance-based awards can vest at between 0% and 200% of the target awards for both metrics. The number of shares shown for the market and performance-based awards is based on the target awards for both metrics.
During the year ended December 31, 2018, the Company granted 906,000 shares of restricted stock to its executive officers and to certain senior employees. Of these awards, 352,500 are market and performance-based awards that will be forfeited if the Company does not achieve certain annual metrics over a three-year period from January 1, 2018 to December 31, 2020.
The vesting of the market and performance-based restricted stock grants awarded in 2018 are subject to the achievement by GEO of two annual performance metrics as follows: (i) up to 50% of the TSR Target Award can vest at the end of a three-year performance period if GEO meets certain TSR performance targets, as compared to the total shareholder return of a peer group of companies, over a three year period from January 1, 2018 to December 31, 2020; and (ii) up to 50% of the ROCE Target Award can vest at the end of a three-year period if GEO meets certain ROCE performance targets over a three year period from January 1, 2018 to December 31, 2020. These performance awards can vest at the end of the three-year performance period at between 0% and 200% of the target awards for both metrics. The number of shares shown for the performance-based awards is based on the target awards for both metrics.
The metric related to TSR is considered to be a market condition. For share-based awards that contain a market condition, the probability of satisfying the market condition must be considered in the estimate of grant-date fair value. Compensation expense is recognized over the vesting period and previously recorded compensation expense is not reversed if the market condition is never met. Refer to Note 1 - Summary of Business Organization, Operations and Significant Accounting Policies-Stock-Based Compensation Expense, for the assumptions and method used to value these awards.
The metric related to ROCE is considered to be a performance condition. For share-based awards that contain a performance condition, the achievement of the targets must be probable before any share-based compensation expense is recorded. The Company reviews the likelihood of which target in the range will be achieved and if deemed probable, compensation expense is recorded at that time. If subsequent to the initial measurement there is a change in the estimate of the probability of meeting the performance condition, the effect of the change in the estimated quantity of awards expected to vest is recognized by cumulatively adjusting compensation expense. If ultimately the performance targets are not met, for any awards where vesting was previously deemed probable, previously recognized compensation expense will be reversed in the period in which vesting is no longer deemed probable. During 2020, 2019 and 2018, the Company deemed the achievement of the target award to be probable and there were no changes in the estimated quantity of awards expected to vest. The fair value of these awards was determined based on the closing price of the Company's common stock on the date of grant.
The following table summarizes the status of restricted stock awards as of December 31, 2020 and changes during the year ended December 31, 2020:
Shares
Wtd. Avg.
Grant date
Fair value
(In thousands)
Restricted stock outstanding at January 1, 2020
2,047
$
27.33
Granted
15.30
Vested
(736
)
27.79
Forfeited/Canceled
(57
)
20.36
Restricted stock outstanding at December 31, 2020
2,154
$
20.61
As of December 31, 2020, the Company had $22.0 million of unrecognized compensation cost that is expected to be recognized over a weighted average period of 2.2 years.
Employee Stock Purchase Plan
The Company previously adopted The GEO Group Inc. 2011 Employee Stock Purchase Plan (the “Plan”), which was approved by the Company's shareholders. The purpose of the Plan, which is qualified under Section 423 of the Internal Revenue Service Code of 1986, as amended, is to encourage stock ownership through payroll deductions by the employees of GEO and designated subsidiaries of GEO in order to increase their identification with the Company’s goals and secure a proprietary interest in the Company’s success. These deductions are used to purchase shares of the Company’s Common Stock at a 5% discount from the then current market price. The Company has made available up to 750,000 shares of its common stock, which were registered with the Securities and Exchange Commission on May 4, 2012, as amended on July 18, 2014, for sale to eligible employees.
The Plan is considered to be non-compensatory. As such, there is no compensation expense required to be recognized. Share purchases under the Plan are made on the last day of each month. During the years ended December 31, 2020, 2019 and 2018, 49,896, 30,153 and 24,365 shares of common stock, respectively, were issued in connection with the Plan.
4.
Earnings Per Share
Basic and diluted earnings per share (“EPS”) from continuing operations were calculated for the years ended December 31, 2020, 2019, and 2018 respectively, as follows:
Fiscal Year
(In thousands, except per share data)
Net Income
$
112,831
$
166,412
$
144,827
Loss attributable to noncontrolling interests
Net income attributable to The GEO Group, Inc.
$
113,032
$
166,603
$
145,089
Basic earnings per share attributable to The GEO Group, Inc.:
Weighted average shares outstanding
119,719
119,097
120,241
Per share amount
$
0.94
$
1.40
$
1.21
Diluted earnings per share attributable to The GEO Group, Inc.:
Weighted average shares outstanding
119,719
119,097
120,241
Dilutive effect of equity incentive plans
Weighted average shares assuming dilution
119,991
119,311
120,747
Per share amount - diluted
$
0.94
$
1.40
$
1.20
For the year ended December 31, 2020, 1,931,407 weighted average shares of common stock underlying options were excluded from the computation of diluted EPS because the effect would be anti-dilutive. For the same period, 1,652,986 common stock equivalents from restricted shares were anti-dilutive and excluded from the computation of diluted EPS.
For the year ended December 31, 2019, 1,495,210 weighted average shares of common stock underlying options were excluded from the computation of diluted EPS because the effect would be anti-dilutive. For the same period, 1,514,177 common stock equivalents from restricted shares were anti-dilutive and excluded from the computation of diluted EPS.
For the year ended December 31, 2018, 931,473 weighted average shares of common stock underlying options were excluded from the computation of diluted EPS because the effect would be anti-dilutive. For the same period, 680,062 common stock equivalents from restricted shares were anti-dilutive and excluded from the computation of diluted EPS.
5.
Property and Equipment
Property and equipment consist of the following at fiscal year-end:
Useful Life
(Years)
(In thousands)
Land
-
$
128,498
$
128,874
Buildings and improvements
2 to 50
2,264,910
2,229,956
Leasehold improvements
1 to 29
283,561
291,511
Equipment
3 to 10
225,509
216,604
Furniture, fixtures and computer software
1 to 7
66,375
64,828
Facility construction in progress
-
42,863
31,979
Total
$
3,011,716
$
2,963,752
Less accumulated depreciation and amortization
(889,521
)
(819,030
)
Property and equipment, net
$
2,122,195
$
2,144,722
The Company amortizes its leasehold improvements over the shorter of their estimated useful lives or the terms of the leases including renewal periods that are reasonably assured. The Company’s construction in progress primarily consists of new construction and renovations to facilities that are owned by the Company. Interest capitalized in property and equipment for the years ended December 31, 2020 and 2019 was not significant.
Depreciation expense was $112.4 million, $107.9 million and $103.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
At both December 31, 2020 and 2019, the Company had $19.4 million and $17.1 million, respectively, of assets recorded under finance leases related to land, buildings and improvements. Finance leases are recorded net of accumulated amortization of $15.4 million and $14.2 million, at December 31, 2020 and 2019, respectively. Depreciation expense related to assets recorded under finance leases for each of the years ended December 31, 2020, 2019 and 2018 was $1.2 million, $1.0 million and $1.0 million, respectively and are included in Depreciation and Amortization in the accompanying consolidated statements of operations.
6.
Contract Receivable
On September 16, 2014, GEO's wholly-owned subsidiary, GEO Ravenhall Pty. Ltd., in its capacity as trustee of another wholly-owned subsidiary, GEO Ravenhall Trust ("Project Co"), signed the Ravenhall Prison Project Agreement ("Ravenhall Contract") with the State of Victoria (the "State") for the development and operation of a 1,300-bed facility in Ravenhall, a locality near Melbourne, Australia under a public-private partnership financing structure. The design and construction phase ("D&C Phase") of the agreement began in September 2014 and was completed in November 2017. Project Co was the primary developer during the D&C Phase and subcontracted with a bonded international design and build contractor to design and construct the facility. GEO's wholly owned subsidiary, the GEO Group Australasia Pty. Ltd. ("GEO Australia") is currently operating the facility under a 25-year management contract ("Operating Phase"). During the D&C Phase, GEO Australia provided construction management and consultant services to the State.
During the D&C Phase, the Company recognized revenue as earned on a percentage of completion basis measured by the percentage of costs incurred to date as compared to the estimated total costs for the design and construction of the facility. Costs incurred and estimated earnings in excess of billings are classified as Contract Receivable in the accompanying consolidated balance sheets. The total balance of the Contract Receivable at December 31, 2020 is $402.9 million which is recorded at net present value based on the timing of expected future settlement. Interest income is recorded as earned using an effective interest rate of 8.97%. As the primary contractor, Project Co was exposed to the various risks associated with the D&C Phase. Accordingly, the Company recorded construction revenue on a gross basis and included the related costs of construction activities in operating expenses within the Facility Design & Construction segment. Reimbursable pass through costs were excluded from revenues and expenses.
7.
Derivative Financial Instruments
The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in interest rates. The Company measures its derivative financial instruments at fair value.
In August 2019, the Company entered into two interest rate swap agreements in the aggregate notional amount of $44.3 million to fix the interest rate on certain of its variable rate debt to 4.22%. The Company has designated these interest rate swaps as hedges against changes in the cash flows of two identical promissory notes (the "Notes") which are secured by loan agreements and mortgage and security agreements on certain real property and improvements. The Company has determined that the swaps have payment, expiration dates, and provisions that coincide with the terms of the Notes and are therefore considered to be effective cash flow hedges. Accordingly, the Company records the change in fair value of the interest rate swaps as accumulated other comprehensive income (loss), net of applicable taxes. Total unrealized losses recorded in total other comprehensive income (loss), net of tax, related to these cash flow hedges was $4.8 million during the year ended December 31, 2020. The total fair value of the swap liabilities as of December 31, 2020 was $6.0 million and is recorded as a component of Other Non-Current liabilities within the accompanying balance sheet. There was no material ineffectiveness for the period presented. The Company does not expect to enter into any transactions during the next twelve months which would result in reclassification into earnings or losses associated with these swaps currently reported in accumulated other comprehensive income (loss). Refer to Note 12 - Debt for additional information.
The Company’s Australian subsidiary entered into interest rate swap agreements to fix the interest rate on its variable rate non-recourse debt related to a project in Ravenhall, a locality near Melbourne, Australia to 4.2%. The Company determined that the swaps had payment, expiration dates, and provisions that coincided with the terms of the non-recourse debt and were therefore considered to be effective cash flow hedges. Accordingly, the Company recorded the change in the fair value of the interest rate swaps in accumulated other comprehensive income (loss), net of applicable income taxes. On May 22, 2019, the Company refinanced the associated debt and terminated the swap agreements which resulted in the reclassification of $3.9 million into losses that were previously reported in accumulated other comprehensive income (loss). Refer to Note 12 - Debt for additional information.
8.
Goodwill and Other Intangible Assets, Net
The Company has recorded goodwill as a result of its various business combinations. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the tangible assets and intangible assets acquired net of liabilities assumed, including noncontrolling interests. Changes in the Company’s goodwill balances recognized during the years ended December 31, 2020 and 2019 were as follows (in thousands):
1/1/2020
Impairment
charges [1]
Foreign
currency
translation
12/31/2020
U.S. Secure Services
$
316,366
$
-
$
-
$
316,366
GEO Care
459,589
(21,146
)
-
438,443
International Services
-
Total Goodwill
$
776,356
$
(21,146
)
$
$
755,250
[1] As discussed in Note 1 - Summary of Business Organization, Operations and Significant Policies, the Company performed its annual goodwill impairment testing on the first day of the fourth quarter of 2020. That testing indicated that there was a goodwill impairment in its community based reporting unit, which is included in the Company’s GEO Care reportable segment, and for which a quantitative analysis was performed. After the impairment charge, there is approximately $148.8 million of goodwill remaining in the community based reporting unit at December 31, 2020.
1/1/2019
Foreign
currency
translation
12/31/2019
U.S. Secure Services
$
316,366
$
-
$
316,366
GEO Care
459,589
-
459,589
International Services
(3
)
Total Goodwill
$
776,359
$
(3
)
$
776,356
Intangible assets consisted of the following as of December 31, 2020 and 2019 (in thousands):
Weighted
December 31, 2020
December 31, 2019
Average
Useful Life
(years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Facility management contracts
16.3
$
308,398
$
(168,848
)
$
139,550
$
308,432
$
(148,171
)
$
160,261
Technology
7.3
33,700
(30,703
)
2,997
33,700
(29,091
)
4,609
Trade names
Indefinite
45,200
-
45,200
45,200
-
45,200
Total acquired intangible assets
$
387,298
$
(199,551
)
$
187,747
$
387,332
$
(177,262
)
$
210,070
The accounting for recognized intangible assets is based on the useful lives to the reporting entity. Intangible assets with finite useful lives are amortized over their useful lives and intangible assets with indefinite useful lives are not amortized. The Company estimates the useful lives of its intangible assets taking into consideration (i) the expected use of the asset by the Company, (ii) the expected useful lives of other related assets or groups of assets, (iii) legal or contractual limitations, (iv) the Company's historical experience in renewing or extending similar arrangements, (v) the effects of obsolescence, demand, competition and other economic factors and (vi) the level of maintenance expenditures required to obtain the expected cash flows from the asset.
Amortization expense was $22.3 million, $22.3 million and $22.9 million for the years ended December 31, 2020, 2019 and 2018, respectively, and primarily related to the U.S. Secure Services and GEO Care segments’ amortization of intangible assets for acquired management contracts. The Company relies on its historical experience in determining the useful life of facility management contracts. The Company makes assumptions related to acquired facility management contracts based on the competitive environment for individual contracts, our historical success rates in retaining contracts, the supply of available beds in the market, changes in legislation, the projected profitability of the facilities and other market conditions. As of December 31, 2020, the weighted average period before the next contract renewal or extension for the facility management contracts was approximately 2.0 years. Although the facility management contracts acquired have renewal and extension terms in the near term, the Company has historically maintained these relationships beyond the contractual periods.
Estimated amortization expense related to the Company’s finite-lived intangible assets for 2021 through 2025 and thereafter is as follows (in thousands):
Fiscal Year
Total
Amortization
Expense
$
21,189
16,705
13,481
9,748
9,696
Thereafter
71,728
$
142,547
9.
Financial Instruments
The following table provides a summary of the Company’s significant financial assets and liabilities carried at fair value and measured on a recurring basis (in thousands):
Fair Value Measurements at December 31, 2020
Carrying Value at
December 31, 2020
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
Assets:
Restricted investments:
Rabbi Trust
$
35,749
$
-
$
35,749
$
-
Fixed income securities
1,932
-
1,932
-
Liabilities:
Interest rate swap derivatives
$
6,015
$
-
$
6,015
$
-
Fair Value Measurements at December 31, 2019
Carrying Value at
December 31, 2019
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
Assets:
Restricted investments:
Rabbi Trust
$
28,332
$
-
$
28,332
$
-
Fixed income securities
1,892
-
1,892
-
Liabilities:
Interest rate swap derivatives
$
1,869
$
-
$
1,869
$
-
The Company’s Level 2 financial instruments included in the tables above as of December 31, 2020 and 2019 consist of interest rate swap derivative liabilities held by GEO and the Company's Australian subsidiary, the Company's rabbi trust established for GEO employee and employer contributions to The GEO Group, Inc. Non-qualified Deferred Compensation Plan and an investment in Canadian dollar denominated fixed income securities. On May 22, 2019, the Company terminated the interest rate swap derivative liabilities in connection with a debt refinancing transaction by our Australian subsidiary. Refer to Note 7 - Derivative Financial Instruments and Note 12 - Debt for additional information.
The interest rate swap derivative liabilities are valued using a discounted cash flow model based on projected borrowing rates. The Company's restricted investment in the rabbi trust is invested in Company-owned life insurance policies which are recorded at their cash surrender values. These investments are valued based on the underlying investments held in the policies' separate account. The underlying assets are equity and fixed income pooled funds that are comprised of Level 1 and Level 2 securities. The Canadian dollar denominated securities, not actively traded, are valued using quoted rates for these and similar securities.
During the years ended December 31, 2019 and 2018, the Company transferred certain accounts receivable balances that had a carrying value of approximately $3.0 million and $6.9 million, respectively, to an unrelated third party. The transfers were accounted for as sales and the Company has no continuing involvement with the transferred assets. The Company received cash proceeds in connection with the sales of approximately $3.0 million and $6.9 million, respectively, and as such, there was no gain or loss in connection with the transactions. There were no such transactions during the year ended December 31, 2020.
10.
Fair Value of Assets and Liabilities
The Company’s Consolidated Balance Sheets reflect certain financial instruments at carrying value. The following table presents the carrying values of those instruments and the corresponding estimated fair values (in thousands):
Estimated Fair Value Measurements at December 31, 2020
Carrying Value
as of December
31, 2020
Total Fair
Value
Level 1
Level 2
Level 3
Assets:
Cash and cash equivalents
$
283,524
$
283,524
$
283,524
$
-
$
-
Restricted cash and investments
28,329
28,329
28,329
-
-
Liabilities:
Borrowings under Senior Credit Facility
$
1,474,437
$
1,342,066
$
-
$
1,342,066
$
-
5.875% Senior Notes due 2022
193,958
192,736
-
192,736
-
5.125% Senior Notes
281,783
256,096
-
256,096
-
5.875% Senior Notes due 2024
242,500
202,458
-
202,458
-
6.00% Senior Notes
350,000
279,493
-
279,493
-
Non-recourse debt
344,614
344,632
-
344,632
-
Estimated Fair Value Measurements at December 31, 2019
Carrying Value
as of December
31, 2019
Total Fair
Value
Level 1
Level 2
Level 3
Assets:
Cash and cash equivalents
$
32,463
$
32,463
$
32,463
$
-
$
-
Restricted cash and investments
35,010
35,010
35,010
-
-
Liabilities:
Borrowings under Senior Credit Facility
$
1,298,671
$
1,218,861
$
-
$
1,218,861
$
-
5.875% Senior Notes due 2022
193,958
194,239
-
194,239
-
5.125% Senior Notes
300,000
287,982
-
287,982
-
5.875% Senior Notes due 2024
250,000
228,493
-
228,493
-
6.00% Senior Notes
350,000
314,052
-
314,052
-
Non-recourse debt
328,178
327,792
-
327,792
-
The fair values of the Company’s cash and cash equivalents, and restricted cash approximates the carrying values of these assets at December 31, 2020 and 2019. Restricted cash consists of money market funds, commercial paper and time deposits used for payments on the Company’s non-recourse debt and asset replacement funds contractually required to be maintained at the Company's Australian subsidiary. The fair value of the money market funds is based on quoted market prices (level 1) and the fair value of commercial paper and time deposits is based on market prices for similar instruments (level 2). The fair values of the Company’s 6.00% senior unsecured notes due 2026 (the “6.00% Senior Notes”), 5.125% Senior Notes due 2023 (the “5.125% Senior Notes”), 5.875% Senior Notes due 2022 (the "5.875% Senior Notes due 2022”) and the 5.875% Senior Notes due 2024 (the "5.875% Senior Notes due 2024"), although not actively traded, are based on published financial data for these instruments. The fair value of the Company’s non-recourse debt is based on estimate of trading value considering the Company's borrowing rate, the undrawn spread and similar instruments. The fair value of borrowings under the Senior Credit Facility is also based on an estimate of trading value considering the Company’s borrowing rate, the undrawn spread and similar instruments.
11.
Accrued Expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Accrued interest
$
17,614
$
17,850
Accrued bonus
16,986
16,914
Accrued insurance
78,893
73,192
Accrued repair obligations for damaged property
-
4,343
Accrued property and other taxes
38,524
35,192
Construction retainage
1,062
1,097
Other
49,299
43,020
Total
$
202,378
$
191,608
12.
Debt
Debt consisted of the following (in thousands):
December 31, 2020
December 31, 2019
Senior Credit Facility:
Term loan
$
770,000
$
778,000
Unamortized debt issuance costs on term loan
(4,043
)
(5,410
)
Unamortized discount on term loan
(1,705
)
(2,281
)
Revolver
704,437
520,671
Total Senior Credit Facility
$
1,468,689
$
1,290,980
6.00% Senior Notes:
Notes Due in 2026
$
350,000
$
350,000
Unamortized debt issuance costs
(3,709
)
(4,282
)
Total 6.00% Senior Notes Due in 2026
$
346,291
$
345,718
5.875% Senior Notes:
Notes Due in 2024
$
242,500
$
250,000
Unamortized debt issuance costs
(2,000
)
(2,532
)
Total 5.875% Senior Notes Due in 2024
$
240,500
$
247,468
5.125% Senior Notes:
Notes Due in 2023
$
281,783
$
300,000
Unamortized debt issuance costs
(2,033
)
(2,876
)
Total 5.125% Senior Notes Due in 2023
$
279,750
$
297,124
5.875% Senior Notes:
Notes Due in 2022
$
193,958
$
193,958
Unamortized debt issuance costs
(710
)
(1,351
)
Total 5.875% Senior Notes Due in 2022
$
193,248
$
192,607
Non-Recourse Debt:
Non-Recourse Debt
$
344,614
$
328,178
Unamortized debt issuance costs on non-recourse debt
(5,237
)
(5,279
)
Discount on Non-Recourse Debt
(25
)
(81
)
Total Non-Recourse Debt
$
339,352
$
322,818
Finance Lease Obligations
5,029
4,570
Other debt
42,413
43,410
Total debt
$
2,915,272
$
2,744,695
Current portion of finance lease obligations, long-term debt and non-recourse debt
(26,180
)
(24,208
)
Finance Lease Obligations, long-term portion
(2,988
)
(2,954
)
Non-Recourse Debt, long-term portion
(324,223
)
(309,236
)
Long-Term Debt
$
2,561,881
$
2,408,297
Amended and Restated Credit Agreement
On June 12, 2019, GEO entered into Amendment No. 2 to Third Amended and Restated Credit Agreement (the "Credit Agreement") by and among the refinancing lenders party thereto, the other lenders party thereto, GEO and GEO Corrections Holdings, Inc. and the administrative agent. Under the amendment, the maturity date of the revolver component of the Credit Agreement has been extended to May 17, 2024. The borrowing capacity under the amended revolver will remain at $900 million, and its pricing will remain unchanged, currently bearing interest at LIBOR plus 2.25%. As a result of the transaction, the Company incurred a loss on extinguishment of debt of $1.2 million related to certain unamortized deferred loan costs. Additionally, loan costs of $4.7 million were incurred and capitalized in connection with the transaction.
The Credit Agreement evidences a credit facility (the "Credit Facility") consisting of the $792.0 million term loan discussed above (the "Term Loan") bearing interest at LIBOR plus 2.00% (with a LIBOR floor of 0.75%), and a $900 million Revolver initially bearing interest at LIBOR plus 2.25% (with no LIBOR floor) together with AUD275 million available solely for the issuance of financial letters of credit and performance letters of credit, in each case denominated in Australian Dollars under the Australian Dollar Letter of Credit Facility (the "Australian LC Facility"). As of December 31, 2020, there were no letters of credit issued under the Australian LC Facility. Amounts to be borrowed by GEO under the Credit Agreement are subject to the satisfaction of customary conditions to borrowing. The Term Loan component is scheduled to mature on March 23, 2024. The revolving credit commitment component is scheduled to mature on May 17, 2024. The Credit Agreement also has an accordion feature of $450.0 million, subject to lender demand and prevailing market conditions and satisfying the relevant borrowing conditions.
The Credit Agreement contains certain customary representations and warranties, and certain customary covenants that restrict GEO’s ability to, among other things (i) create, incur or assume any indebtedness, (ii) create, incur, assume or permit liens, (iii) make loans and investments, (iv) engage in mergers, acquisitions and asset sales, (v) make certain restricted payments, (vi) issue, sell or otherwise dispose of capital stock, (vii) engage in transactions with affiliates, (viii) allow the total leverage ratio to exceed 6.25 to 1.00, allow the senior secured leverage ratio to exceed 3.50 to 1.00, or allow the interest coverage ratio to be less than 3.00 to 1.00, (ix) cancel, forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for value any senior notes, except as permitted, (x) alter the business GEO conducts, and (xi) materially impair GEO’s lenders’ security interests in the collateral for its loans.
Events of default under the Credit Agreement include, but are not limited to, (i) GEO’s failure to pay principal or interest when due, (ii) GEO’s material breach of any representation or warranty, (iii) covenant defaults, (iv) liquidation, reorganization or other relief relating to bankruptcy or insolvency, (v) cross default under certain other material indebtedness, (vi) unsatisfied final judgments over a specified threshold, (vii) certain material environmental liability claims asserted against GEO, and (viii) a change in control.
All of the obligations under the Credit Agreement are unconditionally guaranteed by certain domestic subsidiaries of GEO and the Credit Agreement and the related guarantees are secured by a perfected first-priority pledge of substantially all of GEO’s present and future tangible and intangible domestic assets and all present and future tangible and intangible domestic assets of each guarantor, including but not limited to a first-priority pledge of all of the outstanding capital stock owned by GEO and each guarantor in their domestic subsidiaries.
The Australian borrowers are wholly owned foreign subsidiaries of GEO. GEO has designated each of the Australian borrowers as restricted subsidiaries under the Credit Agreement. However, the Australian borrowers are not obligated to pay or perform any obligations under the Credit Agreement other than their own obligations as Australian borrowers under the Credit Agreement. The Australian borrowers do not pledge any of their assets to secure any obligations under the Credit Agreement.
On August 18, 2016, the Company executed a Letter of Offer by and among GEO and HSBC Bank Australia Limited (the “Letter of Offer”) providing for a bank guarantee line and bank guarantee/standby sub-facility in an aggregate amount of AUD100 million, or $77.1 million, based on exchange rates in effect as of December 31, 2020 (collectively, the “Bank Guarantee Facility”). The Bank Guarantee Facility allows GEO to provide letters of credit to assure performance of certain obligations of its wholly owned subsidiary relating to its secure facility project in Ravenhall, located near Melbourne, Australia. In accordance with the Ravenhall Contract, upon the completion of a certain period of operations, the Bank Guarantee Facility was reduced during the fourth quarter of 2019 to approximately AUD59 million, or $45.5 million, based on exchange rates in effect as of December 31, 2020. The Bank Guarantee Facility is unsecured. The issuance of letters of credit under the Bank Guarantee Facility is subject to the satisfaction of the conditions precedent specified in the Letter of Offer. Letters of credit issued under the bank guarantee lines are due on demand and letters of credit issued under the bank guarantee/standby sub-facility cannot have a duration exceeding twelve months. The Bank Guarantee Facility may be terminated by HSBC Bank Australia Limited on 90 days written notice. As of December 31, 2020, there was approximately AUD59 million in letters of credit issued under the Bank Guarantee Facility.
As of December 31, 2020, the Company had $770.0 million in aggregate borrowings outstanding under the Term Loan, $704.4 million in borrowings under the Revolver, and approximately $59.6 million in letters of credit which left $136.0 million in additional borrowing capacity under the Revolver. In addition, the Company has the ability to increase the Senior Credit Facility by an additional $450.0 million, subject to lender demand and prevailing market conditions and satisfying the relevant borrowing conditions thereunder. The weighted average interest rate on outstanding borrowings under the Credit Agreement as of December 31, 2020 was 2.58%.
6.00% Senior Notes due 2026
On April 18, 2016, the Company completed an offering of $350.0 million aggregate principal amount of 6.00% senior notes due 2026. The 6.00% Senior Notes were offered and sold in a registered offering pursuant to an underwriting agreement, dated as of April 11, 2016 (the “Underwriting Agreement”) among the Company, certain of the Company’s domestic subsidiaries, as guarantors and the representative for the underwriters named therein. The 6.00% Senior Notes were issued by the Company pursuant to the Indenture, dated as of September 25, 2014 (the “Base Indenture”), by and between the Company and the trustee, as supplemented by a Second Supplemental Indenture, dated as of April 18, 2016 (the “Second Supplemental Indenture” and together with the Base Indenture, the “Indenture”), by and among the Company, the guarantors and the trustee which governs the terms of the 6.00% Senior Notes. The sale of the 6.00% Senior Notes was registered under GEO’s prior shelf registration statement on Form S-3 filed on September 12, 2014, as amended (File No. 333-198729). The 6.00% Senior Notes were issued at a coupon rate and yield to maturity of 6.00%. Interest on the 6.00% Senior Notes is payable semi-annually on April 15 and October 15 of each year, commencing on October 15, 2016. The 6.00% Senior Notes mature on April 15, 2026. The Company used the net proceeds to fund the tender offer and the redemption of all of its 6.625% Senior Notes (see discussion below), to pay all related fees, costs and expenses and for general corporate purposes including repaying borrowings under the Company's Revolver.
Up to 35% of the aggregate principal amount of the 6.00% Senior Notes could have been redeemed on or prior to April 15, 2019, with the net cash proceeds from certain equity offerings at a redemption price equal to 106.000% of their principal amount, plus accrued and unpaid interest, if any, to the redemption date. In addition, GEO may, at its option, redeem the 6.00% Senior Notes in whole or in part before April 15, 2021 at a redemption price equal to 100% of the principal amount of the 6.00% Senior Notes being redeemed plus a “make-whole” premium, together with accrued and unpaid interest, if any, to the redemption date.
On or after April 15, 2021, GEO may, at its option, redeem all or part of the 6.00% 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, if any, on the 6.00% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on April 15 of the years indicated below:
Year
Percentage
102.000
%
101.000
%
2024 and thereafter
100.000
%
If there is a “change of control” (as defined in the Indenture), holders of the 6.00% Senior Notes will have the right to cause GEO to repurchase their 6.00% Senior Notes at a price equal to 101% of the principal amount of the 6.00% Senior Notes repurchased plus accrued and unpaid interest, if any, to the purchase date.
The 6.00% Senior Notes are guaranteed on a senior unsecured basis by the guarantors. The 6.00% Senior Notes and the guarantees are unsecured, unsubordinated obligations of GEO and the guarantors. The 6.00% Senior Notes rank equally in right of payment with any unsecured, unsubordinated indebtedness of GEO and the guarantors, including GEO’s 5.875% Senior Notes due 2022, the 5.125% Senior Notes due 2023 and the 5.875% Senior Notes due 2024, and the guarantors’ guarantees thereof, senior in right of payment to any future indebtedness of GEO and the guarantors that is expressly subordinated to the 6.00% Senior Notes and the guarantees, effectively junior to any secured indebtedness of GEO and the guarantors, including indebtedness under GEO’s Senior Credit Facility, to the extent of the value of the assets securing such indebtedness, and structurally junior to all obligations of GEO’s subsidiaries that are not guarantors, including trade payables.
The Indenture contains covenants which, among other things, limit the ability of GEO and its “restricted subsidiaries” (as defined in the Indenture) to incur additional indebtedness or issue preferred stock, make dividend payments or other restricted payments (other than the payment of dividends or other distributions, or any other actions necessary to maintain GEO’s status as a real estate investment trust), create liens, sell assets, engage in sale and lease back transactions, create or permit restrictions on the ability of the restricted subsidiaries to pay dividends or make other distributions to GEO, enter into transactions with affiliates, and enter into mergers, consolidations or sales of all or substantially all of their assets. These covenants are subject to a number of limitations and exceptions as set forth in the Indenture. The Company was in compliance with all of the covenants of the indenture governing the 6.00% Senior Notes as of December 31, 2020.
The Indenture also contains events of default with respect to, among other things, the following: failure by GEO to pay interest on the 6.00% Senior Notes when due, which failure continues for 30 days; failure by GEO to pay the principal of, or premium, if any, on, the 6.00% Senior Notes when due; failure by GEO or any of its restricted subsidiaries to comply with their obligations to offer to repurchase the 6.00% Senior Notes at the option of the holders of the 6.00% Senior Notes upon a change of control, to offer to redeem the 6.00% Senior Notes under certain circumstances in connection with asset sales with “excess proceeds” (as defined in the Indenture) in excess of $50.0 million or to observe certain restrictions on mergers, consolidations and sales of substantially all of their assets; the failure by GEO or any guarantor to comply with any of the other agreements in the Indenture, which failure continues for 60 days after notice; and certain events of bankruptcy or
insolvency of GEO or a restricted subsidiary that is a significant subsidiary or any group of restricted subsidiaries that together would constitute a significant subsidiary.
5.875% Senior Notes due 2024
On September 25, 2014, the Company completed an offering of $250.0 million aggregate principal amount of senior unsecured notes (the “5.875% Senior Notes due 2024”). The notes will mature on October 15, 2024 and have a coupon rate and yield to maturity of 5.875%. Interest is payable semi-annually in cash in arrears on April 15 and October 15, beginning April 15, 2015. The 5.875% Senior Notes due 2024 are guaranteed on a senior unsecured basis by all the Company’s restricted subsidiaries that guarantee obligations. The 5.875% Senior Notes due 2024 rank equally in right of payment with any unsecured, unsubordinated indebtedness of the Company and the guarantors, including the Company’s 5.875% Senior Notes due 2022, the 5.125% Senior Notes due 2023, the 6.00% Senior Notes due 2026, and the guarantors’ guarantees thereof, senior in right of payment to any future indebtedness of the Company and the guarantors that is expressly subordinated to the 5.875% Senior Notes due 2024 and the guarantees, effectively junior to any secured indebtedness of the Company and the guarantors, including indebtedness under the Company’s Senior Credit Facility, to the extent of the value of the assets securing such indebtedness, and structurally junior to all obligations of the Company’s subsidiaries that are not guarantors. The sale of the 5.875% Senior Notes due 2024 was registered under the Company’s prior shelf registration statement on Form S-3 filed on September 12, 2014, as supplemented by the Preliminary Prospectus Supplement filed on September 22, 2014 and the Prospectus Supplement filed on September 24, 2014.
The Company could have, at its option, redeemed the 5.875% Senior Notes due 2024 in whole or in part before October 15, 2019 at a redemption price equal to 100% of the principal amount of the 5.875% Senior Notes due 2024 being redeemed plus a “make-whole” premium, together with accrued and unpaid interest, if any, to the redemption date. In addition, the Company may, at its option, redeem the 5.875% Senior Notes due 2024 in whole or in part on or after October 15, 2019 through 2024 and thereafter as indicated below:
Year
Percentage
100.979
%
2022 and thereafter
100.000
%
The indenture contains covenants which, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional indebtedness or issue preferred stock, make dividend payments or other restricted payments (other than the payment of dividends or other distributions, or any other actions necessary to maintain the Company’s status as a real estate investment trust), create liens, sell assets, engage in sale and lease back transactions, create or permit restrictions on the ability of the restricted subsidiaries to pay dividends or make other distributions to the Company, enter into transactions with affiliates, and enter into mergers, consolidations or sales of all or substantially all of their assets. These covenants are subject to a number of limitations and exceptions as set forth in the indenture. The Company was in compliance with all of the covenants of the indenture governing the 5.875% Senior Notes due 2024 as of December 31, 2020.
The indenture also contains events of default with respect to, among other things, the following: failure by the Company to pay interest on the 5.875% Senior Notes due 2024 when due, which failure continues for 30 days; failure by the Company to pay the principal of, or premium, if any, on, the 5.875% Senior Notes due 2024 when due; failure by the Company or any of its restricted subsidiaries to comply with their obligations to offer to repurchase the 5.875% Senior Notes due 2024 at the option of the holders of the 5.875% Senior Notes due 2024 upon a change of control, to offer to redeem the 5.875% Senior Notes due 2024 under certain circumstances in connection with asset sales with excess proceeds in excess of $25.0 million or to observe certain restrictions on mergers, consolidations and sales of substantially all of their assets; the failure by the Company or any guarantor to comply with any of the other agreements in the indenture, which failure continues for 60 days after notice; and certain events of bankruptcy or insolvency of GEO or a restricted subsidiary that is a significant subsidiary or any group of restricted subsidiaries that together would constitute a significant subsidiary.
5.125% Senior Notes due 2023
On March 19, 2013, the Company completed an offering of $300.0 million aggregate principal amount of senior unsecured notes in a private offering under the Indenture dated as of March 19, 2013 among GEO, certain of its domestic subsidiaries, as guarantors, and the trustee. The 5.125% Senior Notes were offered and sold to "qualified institutional buyers" in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and outside the United States to non-U.S. persons in accordance with Regulation S under the Securities Act. The notes will mature on April 1, 2023 and have a coupon rate and yield to maturity of 5.125%. Interest is payable semi-annually on April 1 and October 1 each year, beginning October 1, 2013. The 5.125% Senior Notes are guaranteed on a senior unsecured basis by all of the Company's restricted subsidiaries that guarantee obligations under the Senior Credit Facility, the Company's 6.00% Senior Notes, the Company's 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024. The 5.125% Senior Notes and the guarantees are the Company's general unsecured senior obligations and rank equally in right of payment with all of the Company's and the guarantors' existing and future unsecured senior debt, including the Company's 6.00% Senior Notes, the 5.875% Senior Notes due 2022 and the 5.875% Senior Notes due 2024. The 5.125% Senior Notes and the guarantees are effectively subordinated to any of the Company's and the guarantors' existing and future secured debt to the extent of the value of the assets securing such debt, including all anticipated borrowings under the Senior Credit
Facility. The 5.125% Senior Notes are structurally subordinated to all existing and future liabilities (including trade payables) of the Company's subsidiaries that do not guarantee the 5.125% Senior Notes.
At any time prior to April 1, 2018, the Company could have, at its option, redeemed all or a part of the 5.125% Senior Notes upon not less than 30 days nor more than 60 days prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) the Applicable Premium (as defined in the indenture) as of the date of redemption, plus (iii) accrued and unpaid interest and liquidated damages, if any, to the date of redemption. On or after April 1, 2018, the Company may, at its option, redeem all or a part of the 5.125% Senior Notes upon not less than 30 days nor more than 60 days notice at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and liquidated damages, if any, on the 5.125% Senior Notes redeemed, to the applicable redemption date, if redeemed during the period beginning on April 1 of the years indicated below:
Year
Percentage
2021 and thereafter
100.000
%
If there is a "change of control" (as defined in the Indenture), holders of the 5.125% Senior Notes will have the right to cause GEO to repurchase their 5.125% Senior Notes at a price equal to 101% of the principal amount of the 5.125% Senior Notes repurchased plus accrued and unpaid interest and liquidated damages, if any, to the purchase date.
The indenture governing the 5.125% Senior Notes contains certain covenants, including limitations and restrictions on the Company and its restricted subsidiaries’ ability to: incur additional indebtedness or issue preferred stock; make dividend payments or other restricted payments; create liens; sell assets; enter into transactions with affiliates; and enter into mergers, consolidations or sales of all or substantially all of the Company’s assets. As of the date of the indenture, all of the Company’s subsidiaries, other than certain dormant domestic and other subsidiaries and all foreign subsidiaries in existence on the date of the indenture, were restricted subsidiaries. The Company’s failure to comply with certain of the covenants under the indenture governing the 5.125% Senior Notes could cause an event of default of any indebtedness and result in an acceleration of such indebtedness. In addition, there is a cross-default provision which becomes enforceable upon failure of payment of indebtedness at final maturity. The Company’s unrestricted subsidiaries will not be subject to any of the restrictive covenants in the indenture. The Company was in compliance with all of the covenants of the indenture governing the 5.125% Senior Notes as of December 31, 2020.
The indenture also contains events of default with respect to, among other things, the following: failure by the Company to pay interest and liquidated damages, if any, on the 5.125% Senior Notes when due, which failure continues for 30 days; failure by the Company to pay the principal of, or premium, if any, on, the 5.125% Senior Notes when due; failure by the Company or any of its restricted subsidiaries to comply with their obligations to offer to repurchase the 5.125% Senior Notes at the option of the holders of the 5.125% Senior Notes upon a change of control, to offer to redeem notes under certain circumstances in connection with asset sales with “excess proceeds” (as defined in the indenture) in excess of $25.0 million or to observe certain restrictions on mergers, consolidations and sales of substantially all of their assets; the failure by the Company or any guarantor to comply with any of the other agreements in the indenture, which failure continues for 60 days after notice; and certain events of bankruptcy or insolvency of the Company or a restricted subsidiary that is a significant subsidiary or any group of restricted subsidiaries that together would constitute a significant subsidiary.
5.875% Senior Notes due 2022
On October 3, 2013, the Company completed an offering of $250.0 million aggregate principal amount of senior notes due 2022 (the “5.875% Senior Notes due 2022”) in a private offering under the Indenture dated as of October 3, 2013 among GEO, certain of its domestic subsidiaries, as guarantors, and the trustee. The 5.875% Senior Notes due 2022 were offered and sold to “qualified institutional buyers” in accordance with Rule 144A under the Securities Act, and outside the United States to non-U.S. persons in accordance with Regulations S under the Securities Act. The 5.875% Senior Notes due 2022 were issued at a coupon rate and yield to maturity of 5.875%. Interest on the 5.875% Senior Notes due 2022 is payable semi-annually in cash in arrears on January 15 and July 15, commencing on January 15, 2014. The 5.875% Senior Notes due 2022 mature on January 15, 2022. The 5.875% Senior Notes due 2022 and the guarantees are the Company's general unsecured senior obligations and rank equally in right of payment with all of the Company's and the guarantors' existing and future unsecured senior debt, including the Company's 6.00% Senior Notes, the 5.125% Senior Notes and the 5.875% Senior Notes due 2024. The 5.875% Senior Notes due 2022 and the guarantees are effectively subordinated to any of the Company's and the guarantors' existing and future secured debt to the extent of the value of the assets securing such debt, including all anticipated borrowings under the Senior Credit Facility. The 5.875% Senior Notes due 2022 are structurally subordinated to all existing and future liabilities (including trade payables) of the Company's subsidiaries that do not guarantee the 5.875% Senior Notes due 2022.
On or after January 15, 2017, GEO may, at its option, redeem all or part of the 5.875% Senior Notes 2022 upon not less than 30 days nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and including liquidated damages, if any, on the 5.875% Senior Notes due 2022 redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on January 15 of the years indicated below:
Year
Percentage
2021 and thereafter
100.000
%
If there is a “change of control” (as defined in the Indenture), holders of the 5.875% Senior Notes due 2022 will have the right to cause GEO to repurchase their 5.875% Senior Notes due 2022 at a price equal to 101% of the principal amount of the 5.875% Senior Notes due 2022 repurchased plus accrued and unpaid interest and liquidated damages, if any, to the purchase date.
The indenture governing the notes contains certain covenants, including limitations and restrictions on the Company and its restricted subsidiaries’ ability to: incur additional indebtedness or issue preferred stock; make dividend payments or other restricted payments; create liens; sell assets; enter into transactions with affiliates; and enter into mergers, consolidations or sales of all or substantially all of the Company’s assets. As of the date of the indenture, all of the Company’s subsidiaries, other than certain dormant domestic and other subsidiaries and all foreign subsidiaries in existence on the date of the indenture, were restricted subsidiaries. The Company’s failure to comply with certain of the covenants under the indenture governing the 5.875% Senior Notes due 2022 could cause an event of default of any indebtedness and result in an acceleration of such indebtedness. In addition, there is a cross-default provision which becomes enforceable upon failure of payment of indebtedness at final maturity. The Company’s unrestricted subsidiaries will not be subject to any of the restrictive covenants in the indenture. The Company was in compliance with all of the financial covenants of the indenture governing the 5.875% Senior Notes due 2022 as of December 31, 2020.
The Indenture also contains events of default with respect to, among other things, the following: failure by GEO to pay interest and liquidated damages, if any, on the 5.875% Senior Notes due 2022 when due, which failure continues for 30 days; failure by GEO to pay the principal of, or premium, if any, on, the 5.875% Senior Notes due 2022 when due; failure by GEO or any of its restricted subsidiaries to comply with their obligations to offer to repurchase the 5.875% Senior Notes due 2022 at the option of the holders of the 5.875% Senior Notes due 2022 upon a change of control, to offer to redeem notes under certain circumstances in connection with asset sales with “excess proceeds” (as defined in the Indenture) in excess of $25.0 million or to observe certain restrictions on mergers, consolidations and sales of substantially all of their assets; the failure by GEO or any guarantor to comply with any of the other agreements in the Indenture, which failure continues for 60 days after notice; and certain events of bankruptcy or insolvency of GEO or a restricted subsidiary that is a significant subsidiary or any group of restricted subsidiaries that together would constitute a significant subsidiary.
Debt Repurchases
On August 16, 2019, the Company's Board of Directors authorized the Company to repurchase and/or retire a portion of the 6.00% Senior Notes due 2026, the 5.875% Senior Notes due 2024, the 5.125% Senior Notes due 2023, the 5.875% Senior Notes due 2022 (collectively the "GEO Senior Notes") and the Company's term loan under its Amended Credit Agreement through cash purchases, in open market, privately negotiated transactions, or otherwise, up to an aggregate maximum of $100.0 million, subject to certain limitations through December 31, 2020. On February 11, 2021, the Company’s Board of Directors authorized a new repurchase program for repurchases/retirements of the above referenced Senior Notes and term loan, subject to certain limitations up to an aggregate maximum of $100.0 million through December 2022.
During 2020, the Company repurchased approximately $7.5 million in aggregate principal amount of its 5.875% Senior Notes due 2024 at a weighted average price of 77.28% for a total cost of $5.8 million. Additionally, during 2020, the Company repurchased approximately $18.2 million in aggregate principal amount of its 5.125% Senior Notes due 2023 at a weighted average price of 78.99% for a total cost of $14.3 million. As a result of these repurchases, the Company recognized a net gain on extinguishment of debt of $5.3 million during the year ended December 31, 2020.
During 2019, the Company repurchased approximately $56.0 million in aggregate principal amount of its 5.875% Senior Notes due 2022 at a weighted average price of 97.55% for a total cost of $54.7 million. As a result of these repurchases, the Company recognized a net gain on extinguishment of debt of $0.9 million during the year ended December 31, 2019.
Non-Recourse Debt
Northwest ICE Processing Center
On December 9, 2011, the Washington Economic Development Finance Authority issued $54.4 million of its Washington Economic Development Finance Authority Taxable Economic Development Revenue Bonds, series 2011 (“2011 Revenue Bonds”). The bonds were rated AA- by Standard & Poor’s Ratings Services and the scheduled payment of principal and interest is guaranteed by municipal bond insurance issued by Assured Guaranty Municipal Corp. The 2011 Revenue Bonds have an average all-in cost of approximately 6.4%, including debt
issuance costs and the bond discount, and maturity dates ranging through October 1, 2021. The 2011 Revenue Bonds were issued to provide funds to make a loan to CSC for purposes of reimbursing GEO for costs incurred by GEO for the 2009 expansion of the Northwest ICE Processing Center and paying the costs of issuing the 2011 Revenue Bonds. The payment of principal and interest on the bonds is non-recourse to GEO. None of the bonds nor CSC’s obligations under the loan are obligations of GEO nor are they guaranteed by GEO.
As of December 31, 2020, the remaining balance of the debt service requirement related to the 2011 Revenue Bonds is $8.1 million, all of which is classified as current in the accompanying balance sheet. As of December 31, 2020, included in restricted cash and investments is $3.7 million (all current) of funds held in trust with respect to the Northwest ICE Processing Center for debt service and other reserves which had not been released to the Company as of December 31, 2020.
Australia - Ravenhall
In connection with a design and build facility project agreement with the State of Victoria, in September 2014 the Company entered into a syndicated facility agreement (the "Construction Facility") to provide debt financing for construction of the project. Refer to Note 6 - Contract Receivable. The Construction Facility provided for non-recourse funding up to AUD 791.0 million, or $609.8 million, based on exchange rates as of December 31, 2020. Construction draws were funded throughout the project according to a fixed utilization schedule as defined in the syndicated facility agreement. The term of the Construction Facility was through September 2019 and bore interest at a variable rate quoted by certain Australian banks plus 200 basis points. On May 22, 2019, the Company completed an offering of AUD 461.6 million, or $355.9 million, based on exchange rates as of December 31, 2020, aggregate principal amount of non-recourse senior secured notes due 2042 (the "Non-Recourse Notes"). The amortizing Non-Recourse Notes were issued by Ravenhall Finance Co Pty Limited in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The Non-Recourse Notes were issued with a coupon and yield to maturity of 4.23% with a maturity date of March 31, 2042. The net proceeds from this offering were used to refinance the outstanding Construction Facility and to pay all related fees, costs and expenses associated with the transaction. As a result of the transaction, the Company incurred a $4.5 million loss on extinguishment of debt related to swap termination fees and unamortized deferred loan costs associated with the Construction Facility. Additionally, loan costs of approximately $7.5 million were incurred and capitalized in connection with the offering.
Other
In August 2019, the Company entered into two identical promissory notes in the aggregate amount of $44.3 million which are secured by loan agreements and mortgage and security agreements on certain real property and improvements. The terms of the promissory notes are through September 1, 2034 and bear interest at LIBOR plus 200 basis points and are payable in monthly installments plus interest. The Company has entered into interest rate swap agreements to fix the interest rate at 4.22%. Included in the balance at December 31, 2019 is $0.7 million of deferred loan costs incurred in the transaction. Refer to Note 7 - Derivative Financial Instruments for further information.
Debt Repayment
Debt repayment schedules under Finance Lease Obligations, Long-Term Debt, Non-Recourse Debt and the Senior Credit Facility are as follows:
Fiscal Year
Finance
Leases
Long-Term
Debt
Non-
Recourse
Debt
Revolver
Term
Loans
Total
Annual
Repayment
(In thousands)
$
2,433
$
1,071
$
15,446
$
-
$
8,000
$
26,950
1,729
195,075
8,487
-
8,000
213,291
282,949
9,033
-
8,000
300,479
243,708
9,549
704,437
746,000
1,704,191
1,274
10,274
-
-
11,822
Thereafter
-
387,262
291,825
-
-
679,087
5,430
1,111,339
344,614
704,437
770,000
2,935,820
Interest imputed on Capital Leases
(401
)
-
-
-
-
(401
)
Original issue discount
-
-
(25
)
-
(1,705
)
(1,730
)
Current portion
(2,041
)
(1,071
)
(15,446
)
-
(8,000
)
(26,558
)
Non-current portion
$
2,988
$
1,110,268
$
329,143
$
704,437
$
760,295
$
2,907,131
Guarantees
The Company has entered into certain guarantees in connection with the performance of a facility in Australia (Refer to Note 6 - Contract Receivable). The obligations amounted to approximately AUD59 million, or $45.5 million, based on exchange rates in effect as of December 31, 2020. These guarantees are secured by outstanding letters of credit under the Company's Revolver as of December 31, 2020.
At December 31, 2020, the Company also had seven letters of guarantee outstanding under separate international facilities relating to performance guarantees of its Australian subsidiary totaling $10.3 million.
In connection with the creation of South African Custodial Services Pty. Limited ("SACS"), the Company entered into certain guarantees related to the financing, construction and operation of the South African facility. The Company guaranteed certain obligations of SACS under its debt agreements to SACS' former senior lenders through the issuance of letters of credit under the Company's Revolver. In July 2018, SACS settled all amounts due under the debt facilities and has therefore discharged the guaranteed obligations, therefore the guarantees related to these obligations were no longer necessary and the letters of credit were not renewed. Additionally, SACS was required to maintain funding in a rectification account maintained for the payment of certain costs in the event of contract termination. SACS has met the required funding obligation and there is no further requirement to maintain the required funding rectification account.
In addition to the above, the Company had also agreed to provide a loan, if required, of up to 20.0 million South African Rand, or $1.4 million based on exchange rates as of December 31, 2020, referred to as the shareholder's standby facility, to SACS for the purpose of financing SACS’ obligations under its contract with the South African government. No amounts have been funded under the shareholder's standby facility. The Company’s obligations under the shareholder's standby facility expired upon SACS’ release from its obligations under the common terms agreement in February 2019 with the final payment of the facility management fees.
The Company also guaranteed certain obligations of SACS to the security trustee for SACS’ lenders. The Company secured its guarantee to the security trustee by ceding its rights to claims against SACS in respect of any loans or other finance agreements, and by pledging the Company’s shares in SACS. The Company’s liability under the guarantee is limited to the cession and pledge of shares. The guarantee expired in February 2019 when all of SACS' obligations in terms of the finance agreements were settled.
In connection with the creation of GEOAmey, the Company and its joint venture partner guarantee the availability of working capital in equal proportion to ensure that GEOAmey can comply with current and future contractual commitments related to the performance of its operations. The Company and the 50% joint venture partner had each extended a £12.0 million line of credit to the joint venture. The Company’s maximum exposure relative to the joint venture was its note receivable and future financial support necessary to guarantee performance under the contract. In October 2018, the notes receivable to each joint venture partner were paid off in full.
Except as discussed above, the Company does not have any off-balance sheet arrangements.
13.
Leases
On January 1, 2019, the Company adopted Accounting Standard Update ("ASU") No. 2016-02, "Leases" (Topic 842) which requires that entities record lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The Company implemented the new standard using the transition method that provided for adoption on the adoption date and recognizing a cumulative-effect adjustment to retained earnings, if any, upon adoption. Therefore, the consolidated financial statements for the year ended December 31, 2020 and 2019 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with the Company's historical accounting policy. Refer to Note 1 - Summary of Business Organization, Operations and Significant Accounting Policies - Recent Accounting Pronouncements for further information.
The Company has operating and finance leases for facilities, ground leases, office space, computers, copier equipment and transportation vehicles that have remaining lease terms of one year to seventy-seven years, some of which include options to extend the lease for up to ten years. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of the lease payments over the term of the lease. Many of GEO's leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. Only renewal or termination options that are reasonably certain to be exercised by the Company are included in the lease term which is used in the calculation of lease liabilities and right-of-use assets. GEO does not typically enter into lease agreements that contain a residual guarantee or that provide for variable lease payments.
When available, GEO uses the rate implicit in the lease to discount lease payments to present value, however, most of GEO's lease agreements do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Lease related assets and liabilities are recorded on the balance sheet as follows (in thousands):
Classification on the Balance Sheet
December 31, 2020
Assets
Operating lease assets
Operating Lease Right-of-Use Assets, Net
$
124,727
Finance lease assets
Property and Equipment, Net
3,914
Total lease assets
$
128,641
Liabilities
Current
Operating
Operating lease liabilities, current portion
$
29,080
Finance [1]
Current portion of finance liabilities, long-term debt and non-recourse debt
2,041
Noncurrent
Operating
Operating Lease Liabilities
101,375
Finance [1]
Finance Lease Liabilities
2,988
Total lease liabilities
$
135,484
[1] Also refer to Note 12 - Debt.
Certain information related to the lease costs for finance and operating leases is presented as follows (in thousands):
Year Ended
December 31, 2020
Operating lease cost
$
39,506
Finance lease cost:
Amortization of right-of-use assets
1,225
Interest on lease liabilities
Total finance lease cost
1,577
Short-term lease cost
3,293
Total lease cost
$
44,376
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases
$
38,847
Operating cash flows for finance leases
$
Financing activities for finance leases
$
1,918
Right-of-use assets obtained in exchange for new operating lease liabilities
$
23,940
Right-of-use assets obtained in exchange for new finance lease liabilities
$
2,260
Weighted average remaining lease term:
Operating leases
6.8 years
Finance leases
2.9 years
Weighted average discount rate:
Operating leases
4.65
%
Finance leases
6.47
%
Undiscounted Cash Flows
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities and finance lease liabilities recorded on the balance sheet as of December 31, 2020 (in thousands).
Operating Leases
Finance Leases
$
36,219
$
2,433
27,388
1,729
22,588
19,235
11,130
Thereafter
37,287
-
Total minimum lease payments
153,847
5,430
Less: amount of lease payment representing interest
(23,392
)
(401
)
Present value of future minimum lease payments
130,455
5,029
Less: current obligations under leases
(29,080
)
(2,041
)
Long-term lease obligations
$
101,375
$
2,988
14.
Benefit Plans
The Company’s employees participate in an Employee Retirement Savings Plan (the “Retirement Plan”) under Section 401(k) of the Internal Revenue Code that covers substantially all U.S. based salaried employees. Employees may contribute a percentage of eligible compensation to the plan, subject to certain limits under the Internal Revenue Code. For the years ended December 31, 2020, 2019 and 2018, the Company provided matching contributions of $8.3 million, $5.3 million and $5.9 million, respectively.
The Company has two non-contributory defined benefit pension plans covering certain of the Company’s executives. Retirement benefits are based on years of service, employees’ average compensation for the last five years prior to retirement and social security benefits. Currently, the plans are not funded. The Company purchased and is the beneficiary of life insurance policies for certain participants enrolled in the plans. There were no significant transactions between the employer or related parties and the plans during 2020, 2019 or 2018.
The Company has a non-qualified deferred compensation agreement with its Chief Executive Officer (“CEO”). The agreement provides for a lump sum payment upon retirement, no sooner than age 55. As of December 31, 2020, the CEO had reached age 55 and was eligible to receive the payment upon retirement. If the Company’s CEO had retired as of December 31, 2020, the Company would have had to pay him approximately $8.9 million in shares of the Company’s common stock (determined as of February 26, 2020) plus additional shares credited for dividends declared and paid on the shares of the Company’s common stock as further discussed below.
On February 26, 2020 (the "Effective Date"), the Company and its CEO entered into an amended and restated executive retirement agreement that amends the CEO’s executive retirement agreement discussed above.
The amended and restated executive retirement agreement provides that upon the CEO’s retirement from the Company, the Company will pay a lump sum amount equal to $8,925,065 (determined as of February 26, 2020) (the “Grandfathered Payment”) which will be paid in the form of a fixed number of shares of the Company’s common stock. The Grandfathered Payment will be delayed for six months and a day following the effective date of the CEO’s termination of employment in compliance with Section 409A of the Internal Revenue Code of 1986, as amended.
On the Effective Date, an amount equal to the Grandfathered Payment was invested in the Company’s common stock (“GEO Shares”). The number of the Company’s shares of common stock as of the Effective Date was equal to the Grandfathered Payment divided by the closing price of the Company’s common stock on the Effective Date (rounded up to the nearest whole number of shares), which equals 553,665 shares of the Company’s common stock. Additional shares of the Company’s common stock will be credited with a value equal to any dividends declared and paid on the Company’s shares of common stock, calculated by reference to the closing price of the Company’s common stock on the payment date for such dividends (rounded up to the nearest whole number of shares).
The Company has established several trusts for the purpose of paying the retirement benefit pursuant to the amended and restated executive retirement agreement. The trusts are revocable “rabbi trusts” and the assets of the trusts are subject to the claims of the Company’s creditors in the event of the Company’s insolvency.
The Company repurchased shares of its outstanding common stock under its stock buyback program and contributed such shares to the trusts in order to fund the retirement benefit under the amended and restated executive retirement agreement. In accordance with Accounting Standards Codification (“ASC”) 710 - Compensation-General, the shares of common stock held in the rabbi trusts are classified as treasury stock. In addition, the amended and restated executive retirement agreement qualifies for equity accounting under ASC 710 and therefore, the fair value of the Grandfathered Payment has been reclassified to stockholders’ equity.
The long-term portion of the pension liability related to the defined benefit plans and the deferred compensation agreement with the CEO as of December 31, 2020 and 2019 was $33.2 million and $37.2 million, respectively, and is included in Other Non-Current liabilities in the accompanying consolidated balance sheets.
The following table summarizes key information related to the Company’s pension plans and retirement agreements. The table illustrates the reconciliation of the beginning and ending balances of the benefit obligation showing the effects during the periods presented attributable to service cost, interest cost, plan amendments, termination benefits, actuarial gains and losses. The assumptions used in the Company’s calculation of accrued pension costs are based on market information and the Company’s historical rates for employment compensation and discount rates.
December 31, 2020
December 31, 2019
Accumulated Benefit Obligation, End of Year
$
25,229
$
30,139
Change in Projected Benefit Obligation
Projected Benefit Obligation, Beginning of Year
$
37,551
$
32,474
Service Cost
1,254
Interest Cost
1,306
1,393
Other reclassification [1]
(8,925
)
-
Actuarial (Gain) Loss
3,180
3,449
Benefits Paid
(836
)
(763
)
Projected Benefit Obligation, End of Year
$
33,530
$
37,551
Change in Plan Assets
Plan Assets at Fair Value, Beginning of Year
$
-
$
-
Company Contributions
Benefits Paid
(836
)
(763
)
Plan Assets at Fair Value, End of Year
$
-
$
-
Unfunded Status of the Plan
$
(33,530
)
$
(37,551
)
Amounts Recognized in Accumulated Other Comprehensive Income
Net Loss
10,925
8,285
Total Pension Cost
$
10,925
$
8,285
Components of Net Periodic Benefit Cost
Service Cost
$
1,254
$
Interest Cost
1,306
1,393
Amortization of:
Net Loss
Net Periodic Pension Cost
$
3,100
$
2,601
Weighted Average Assumptions for Expense
Discount Rate
2.80
%
3.40
%
Expected Return on Plan Assets
N/A
N/A
Rate of Compensation Increase
4.40
%
4.40
%
[1] Represents the reclassification of the fair value of the Grandfathered Payment under the amended and restated executive retirement agreement as discussed above.
The amount included in accumulated other comprehensive income as of December 31, 2020 that has not yet been recognized as a component of net periodic benefit cost is $10.9 million. The amount included in other accumulated comprehensive income as of December 31, 2020 that is expected to be recognized as a component of net periodic benefit cost in fiscal year 2021 is $0.8 million.
The benefit payments reflected in the table below represent the Company’s obligations to employees that are eligible for retirement or have already retired and are receiving deferred compensation benefits:
Fiscal Year
Pension
Benefits
(In thousands)
$
1,062
Thereafter
28,736
$
33,530
The Company also maintains The GEO Group Inc. Deferred Compensation Plan (“Deferred Compensation Plan”), a non-qualified deferred compensation plan for employees who are ineligible to participate in its qualified 401(k) plan. Eligible employees may defer a fixed percentage of their salary and the Company matches employee contributions up to a certain amount based on the employee’s years of service. Payments will be made at retirement age of 65, at termination of employment or earlier depending on the employees’ elections. The Company established a rabbi trust; the purpose of which is to segregate the assets of the Deferred Compensation Plan from the Company’s cash balances. The funds in the rabbi trust are included in Restricted Cash and Investments in the accompanying Consolidated Balance Sheets. These funds are not available to the Company for any purpose other than to fund the Deferred Compensation Plan; however, these funds may be available to the Company’s creditors in the event the Company becomes insolvent. The rabbi trust had a balance of approximately $35.7 million at December 31, 2020. All employee and employer contributions relative to the Deferred Compensation Plan are made directly to the rabbi trust. The Company recognized expense related to its contributions of $0.1 million for each of the years ended December 31, 2020, 2019 and 2018. The total liability for this plan at December 31, 2020 and 2019 was approximately $36.9 million and $29.5 million, respectively, and is included in Other Non-Current Liabilities in the accompanying Consolidated Balance Sheets. The current portion of the liability was $2.0 million and $1.5 million as of December 31, 2020 and 2019, respectively.
15.
Business Segments and Geographic Information
Operating and Reporting Segments
The Company conducts its business through four reportable business segments: the U.S. Secure Services segment; the GEO Care segment; the International Services segment; and Facility Construction & Design segment. The Company has identified these four reportable segments to reflect the current view that the Company operates four distinct business lines, each of which constitutes a material part of its overall business. The U.S. Secure Services segment primarily encompasses U.S.-based secure services business. The Company’s community-based services, youth services and BI are operating segments aggregated under the GEO Care reporting segment. The GEO Care segment, which conducts its services in the United States, represents services provided to adults and juveniles for non-residential treatment, educational and community based programs, pre-release and half-way house programs, compliance technologies, monitoring services and evidence-based supervision and treatment programs for community-based parolees, probationers, and pretrial defendants. The International Services segment primarily consists of secure services operations in South Africa, Australia and the United Kingdom. The Facility Construction & Design segment primarily contracts with various state, local and federal agencies for the design and construction of facilities for which the Company has management contracts. Generally, the assets and revenues from the Facility Construction & Design segment are offset by a similar amount of liabilities and expenses. Segment disclosures below (in thousands) reflect the results of continuing operations. All transactions between segments are eliminated.
Fiscal Year
Revenues:
U.S. Secure Services
$
1,571,216
$
1,601,679
$
1,492,973
GEO Care
551,342
614,249
580,313
International Services
211,621
232,016
253,874
Facility Construction and Design [1] [2]
15,919
29,978
4,226
Total revenues
$
2,350,098
$
2,477,922
$
2,331,386
Capital Expenditures:
U.S. Secure Services
$
58,410
$
69,074
$
163,208
GEO Care
44,913
45,000
30,136
International Services
1,142
1,468
2,322
Total capital expenditures [1]
$
104,465
$
115,542
$
195,666
Depreciation and amortization:
U.S. Secure Services
$
80,702
$
78,974
$
76,801
GEO Care
51,832
49,781
47,546
International Services
2,146
2,070
2,087
Total depreciation and amortization [1]
$
134,680
$
130,825
$
126,434
Operating Income:
U.S. Secure Services
$
298,952
$
322,506
$
297,453
GEO Care
97,330
147,036
138,911
International Services
19,610
16,723
12,816
Facility Construction & Design [1] [2]
-
Operating income from segments
$
415,946
$
486,339
$
449,180
General and Administrative Expenses
(193,372
)
(185,926
)
(184,515
)
Total operating income
$
222,574
$
300,413
$
264,665
[1] There were no capital expenditures or depreciation and amortization associated with the Facility Construction & Design segment in 2020,
2019 or 2018.
[2] During 2020, 2019 and 2018, the Company had facility construction & design revenues related to an expansion project at its Fulham Correctional Centre in Australia which was substantially completed in the third quarter of 2020.
Pre-Tax Income Reconciliation of Segments
The following is a reconciliation of the Company’s total operating income from its reportable segments to the Company’s income before income taxes and equity in earnings of affiliates, in each case, during the years ended December 31, 2020, 2019 and 2018, respectively.
Fiscal Year Ended
(In thousands)
Operating income from segments
$
415,946
$
486,339
$
449,180
Unallocated amounts:
General and administrative expense
(193,372
)
(185,926
)
(184,515
)
Net interest expense
(103,765
)
(122,090
)
(115,348
)
Gain (loss) on extinguishment of debt
5,319
(4,795
)
-
Income before income taxes and equity in earnings of affiliates
$
124,128
$
173,528
$
149,317
(In thousands)
Segment assets:
U.S. Secure Services
$
2,529,375
$
2,618,629
$
2,590,722
GEO Care
1,058,505
1,112,880
1,063,484
International Services
85,110
82,097
84,911
Facility Construction & Design
402,930
371,846
383,713
Total segment assets
$
4,075,920
$
4,185,452
$
4,122,830
Asset Reconciliation
The following is a reconciliation of the Company’s reportable segment assets to the Company’s total assets as of December 31, 2020 and 2019, respectively.
(In thousands)
Reportable segment assets
$
4,075,920
$
4,185,452
Cash
283,524
32,463
Deferred income tax assets
36,604
36,278
Restricted cash and investments, current and non-current
64,078
63,341
Total assets
$
4,460,126
$
4,317,534
Geographic Information
During each of the years ended December 31, 2020, 2019 and 2018, the Company’s international operations were conducted through (i) the Company’s wholly owned Australian subsidiary, The GEO Group Australia Pty. Ltd., through which the Company has management contracts for four correctional facilities, (ii) the Company's wholly owned subsidiaries, GEO Ravenhall Finance Holdings Pty. Ltd. and GEO Ravenhall Holdings Pty. Ltd. which, together, had a design and construction contract for a facility in Ravenhall, Australia which was completed in November 2017, (iii) the Company’s wholly-owned subsidiary in South Africa, SACM, through which the Company manages one correctional facility, and (iv) the Company’s wholly-owned subsidiary in the United Kingdom, The GEO Group UK Ltd., through which the Company manages the Dungavel House Immigration Removal Centre.
Fiscal Year
(In thousands)
Revenues:
U.S. operations
$
2,123,045
$
2,216,401
$
2,073,286
Australia operations
201,932
235,462
231,164
South African operations
17,044
18,779
19,806
United Kingdom operations
8,077
7,280
7,130
Total revenues
$
2,350,098
$
2,477,922
$
2,331,386
Property and Equipment, net:
U.S. operations
$
2,109,070
$
2,131,877
$
2,145,197
Australia operations
12,908
12,215
13,006
South African operations
United Kingdom operations
Total Property and Equipment, net
$
2,122,195
$
2,144,722
$
2,158,610
Sources of Revenue
The Company derives most of its revenue from the management of secure facilities through public-private partnerships. The Company also derives revenue from the provision of community based and youth services, monitoring and evidence-based supervision and treatment programs in the United States, and expansion of new and existing secure facilities, processing centers and reentry centers.
Fiscal Year
(In thousands)
Revenues:
Secure Services
$
1,782,837
$
1,833,695
$
1,746,847
GEO Care
551,342
614,249
580,313
Facility Construction and Design
15,919
29,978
4,226
Total revenues
$
2,350,098
$
2,477,922
$
2,331,386
Equity in Earnings of Affiliates
Equity in earnings of affiliates for 2020, 2019 and 2018 includes the operating results of the Company’s joint ventures in SACS and GEOAmey. These joint ventures are accounted for under the equity method and the Company’s investments in SACS and GEOAmey are presented as a component of other non-current assets in the accompanying Consolidated Balance Sheets.
The Company has recorded $3.7 million, $5.0 million and $7.4 million in earnings, net of tax impact, for SACS operations during the years ended December 31, 2020, 2019 and 2018, respectively, which are included in equity in earnings of affiliates, net of income tax provision in the accompanying Consolidated Statements of Operations. As of December 31, 2020 and 2019, the Company’s investment in SACS was $11.1 million and $12.3 million, respectively. The investment is included in other non-current assets in the accompanying Consolidated Balance Sheets. The Company received dividend distributions of $5.9 million and $6.3 million, in 2020 and 2019, respectively, from this unconsolidated joint venture.
The Company has recorded $5.5 million, $4.6 million and $2.2 million in earnings, net of tax impact, for GEOAmey’s operations during the years ended December 31, 2020, 2019 and 2018, respectively, which are included in equity in earnings of affiliates, net of income tax provision, in the accompanying Consolidated Statements of Operations. As of December 31, 2020 and 2019, the Company’s investment in GEOAmey was $11.8 million and $5.7 million, respectively, and represents its share of cumulative reported earnings. The Company received dividend distributions of $4.0 million in 2020 and 2019, respectively, from this unconsolidated joint venture. There were no dividend distributions in 2020.
Business Concentration
Except for the major customer noted in the following table, no other single customer made up greater than 10% of the Company’s consolidated revenues for the following fiscal years:
Customer
Various agencies of the U.S Federal Government:
%
%
%
The concentrations above relate entirely to the Company's U.S. Secure Services segment.
Credit risk related to accounts receivable is reflective of the related revenues.
16.
Income Taxes
The United States and foreign components of income before income taxes and equity in earnings in affiliates are as follows:
(In thousands)
Income before income taxes and equity in earnings in affiliates
United States
$
96,428
$
155,844
$
131,261
Foreign
27,700
17,684
18,056
Income before income taxes and equity in earnings in affiliates
$
124,128
$
173,528
$
149,317
The provision for income taxes consists of the following components:
(In thousands)
Federal income taxes:
Current
$
8,259
$
13,018
$
9,340
Deferred
(255
)
(7,028
)
(2,195
)
8,004
5,990
7,145
State income taxes:
Current
4,146
5,093
3,050
Deferred
(383
)
(1,889
)
4,193
4,710
1,161
Foreign income taxes:
Current
(3,163
)
(875
)
Deferred
11,429
6,823
5,314
8,266
5,948
5,811
Total U.S. and foreign provision for income taxes
$
20,463
$
16,648
$
14,117
The U.S. Tax Cuts and Jobs Act ("Tax Act") enacted on December 22, 2017 introduced significant changes to the U.S. income tax law. Effective 2018, the Tax Act reduced the U.S. statutory corporate tax rate from 35% to 21%.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its financial statements for the year ended December 31, 2017. As the Company collected and prepared necessary data, and interpreted any additional guidance issued by the U.S. Treasury Department, the IRS or other standard-setting bodies, it made adjustments over the course of the year to the provisional amounts, including refinements to deferred taxes. The accounting for the tax effects of the enactment of the Tax Act was completed as of December 31, 2018.
Any legislative changes, as well as any other new or proposed Treasury regulations to address questions that arise because of the Tax Act, may result in additional income tax impacts. There are no significant impacts to income tax for the year ended December 31, 2018, 2019 and 2020.
A reconciliation of the statutory U.S. federal tax rate of 21% and the effective income tax rate is as follows:
(In thousands)
Provisions using statutory federal income tax rate
$
26,067
$
36,476
$
31,340
State income taxes, net of federal tax benefit
3,099
2,421
1,915
REIT benefit
(12,271
)
(22,395
)
(19,992
)
Change in valuation allowance
(1,775
)
1,456
(1,245
)
Federal tax credits
(2,015
)
(2,118
)
(1,904
)
Tax Cut and Jobs Act impact
-
-
(301
)
Foreign income taxes
1,373
1,934
1,479
Tax impact of vested equity compensation
3,628
Other, net
2,357
(1,311
)
1,876
Total provision for income taxes
$
20,463
$
16,648
$
14,117
The Company's effective tax rate differs from the U.S. statutory rate of 21% primarily due to a zero tax rate on earnings generated by the Company's REIT operations. State income taxes, net of federal tax benefits of $3.1 million, $2.4 million and $1.9 million for 2020, 2019 and 2018, respectively, is presented exclusive of the related change in valuation allowance of state income tax deferred items. Net of the related change in valuation allowances the state income taxes, net of federal tax benefits is $2.1 million, $4.1 million and $1.3 million for 2020, 2019 and 2018, respectively.
The following table presents the breakdown between non-current net deferred tax assets as classified on the balance sheets as of December 31, 2020 and 2019:
(In thousands)
Deferred tax assets - non-current
$
36,604
$
36,278
Deferred tax liabilities - non-current
(30,726
)
(19,254
)
Total net deferred tax assets
$
5,878
$
17,024
The significant components of the Company's deferred tax assets and liabilities consisted of the following as of December 31, 2020 and 2019:
Deferred tax assets:
(In thousands)
Net operating losses
$
25,260
$
32,394
Accrued liabilities
30,605
24,452
Deferred compensation
18,906
15,052
Accrued compensation
7,888
7,239
Deferred revenue
15,210
13,219
Tax credits
3,834
5,223
Equity awards
3,402
4,894
Depreciation
3,069
15,424
Operating lease liability
14,889
13,140
Other, net
1,817
Valuation allowance
(21,012
)
(22,786
)
Total deferred tax assets
$
102,828
$
110,068
Deferred tax liabilities:
Intangible assets
$
(21,885
)
$
(24,097
)
Capitalized transaction costs
(16,165
)
(16,797
)
Accounting method change
(4,667
)
(7,019
)
Prepaid expenses and other
(39,925
)
(32,493
)
Lease right-of-use assets
(14,308
)
(12,638
)
Total deferred tax liabilities
$
(96,950
)
$
(93,044
)
Total net deferred tax assets
$
5,878
$
17,024
Deferred income taxes should be reduced by a valuation allowance if it is not more likely than not that some portion or all of the deferred tax assets will be realized. On a periodic basis, management evaluates and determines the amount of the valuation allowance required and adjusts such valuation allowance accordingly. At year end 2020 and 2019, the Company has a valuation allowance of $21.0 million and $22.8 million, respectively related to deferred tax assets for foreign net operating losses, state net operating losses and state tax credits. The valuation allowance decreased by $1.8 million during the year ended December 31, 2020.
The Company provides income taxes on the undistributed earnings of non-U.S. subsidiaries except to the extent that such earnings are permanently invested outside the United States. At December 31, 2020, $8.9 million of accumulated undistributed earnings of non-U.S. subsidiaries were permanently invested outside the United States. At the existing U.S. federal income and applicable foreign withholding tax rates, additional taxes (net of foreign tax credits) of $0.4 million, consisting solely of withholding taxes, would have to be provided if such earnings were remitted currently.
As of the year ended December 31, 2020, the Company had $38.2 million of Federal net operating loss carryforwards which begin to expire in 2032 and $207.3 million of combined net operating loss carryforwards in various states which will begin to expire in 2020. The Federal net operating losses are at the Company's REIT which is not subject to tax. The Company has recorded a partial valuation allowance against the deferred tax assets related to the state operating losses.
Also, as of the year ended December 31, 2020, the Company had $26.7 million of foreign operating losses which carry forward indefinitely and $3.6 million of state tax credits which will begin to expire in 2021. The Company has recorded a partial valuation allowance against the deferred tax assets related to the foreign operating losses and state tax credits.
The Company recognizes the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. The exercise of non-qualified stock options and vesting of restricted stock awards which have been granted under the Company’s equity award plans give rise to compensation income which is includable in the taxable income of the applicable employees and the majority of which is deductible by the Company for federal and state income tax purposes. In the case of non-qualified stock options, the compensation income results from increases in the fair market value of the Company's common stock subsequent to the date of grant. At December 31, 2020, the deferred tax asset net of a valuation allowance related to unexercised stock options and restricted stock grants for which the Company has recorded a book expense was $3.4 million.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(In thousands)
Balance at Beginning of Period
$
5,469
$
4,584
$
4,461
Additions based on tax positions related to the current year
-
-
Additions for tax positions of prior years
Additions from current year acquisitions
-
-
-
Reductions for tax positions of prior years
-
-
-
Reductions as a result of a lapse of applicable statutes of limitations
(56
)
(109
)
(175
)
Balance at End of Period
$
5,623
$
5,469
$
4,584
All amounts in the reconciliation are reported on a gross basis and do not reflect a federal tax benefit on state income taxes. The Company has accrued $5.5 million of accrued uncertain tax benefits as of December 31, 2020 which is inclusive of the federal tax benefit on state income taxes. The Company believes that it is reasonably possible that a decrease may be necessary in the unrecognized tax benefits within twelve months of the reporting date of approximately $0.9 million, related to state tax exposures, due to a lapse of the statute of limitation. The accrued uncertain tax balance at December 31, 2020 includes $5.5 million of unrecognized tax benefits which, if ultimately recognized, will reduce the Company’s annual effective tax rate.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2016. The Company was under audit by the IRS for the 2013 tax year, its first REIT year and was issued a no change letter at audit conclusion. One of our foreign subsidiaries satisfactorily completed a streamlined tax assurance review in a foreign jurisdiction for tax years 2015 to 2018. In late 2020, the Company was contacted by the IRS to conduct an examination of 2017. Subsequent to year-end, the IRS audit team notified the Company that the examination has been changed to a survey.
The calculation of the Company’s provision (benefit) for income taxes requires the use of significant judgment and involves dealing with uncertainties in the application of complex tax laws and regulations. In determining the adequacy of the Company’s provision (benefit) for income taxes, potential settlement outcomes resulting from income tax examinations are regularly assessed. As such, the final outcome of tax examinations, including the total amount payable or the timing of any such payments upon resolution of these issues, cannot be estimated with certainty.
During the years ended December 31, 2020 and 2019, the Company did not recognize any interest and penalties. The Company classifies interest and penalties as interest expense and other expense, respectively.
17.
Commitments and Contingencies
Collective Bargaining Agreements
The Company had approximately 36% of its workforce covered by collective bargaining agreements at December 31, 2020. Collective bargaining agreements with 16% of employees are set to expire in less than one year.
Contract Awards
On March 24, 2020, GEO announced that its wholly owned subsidiary, BI Incorporated, has signed a contract with U.S. Immigration and Customs Enforcement (“ICE”) for the continued provision of case management and supervision services under the federal government’s Intensive Supervision and Appearance Program (“ISAP”). The contract has a term of five years, effective April 1, 2020. Subsequently, a competitor filed a protest challenging the award of the contact. On July 8, 2020, the Government Accountability Office denied the protest and upheld the contract award.
GEO was also successful in our rebid of the continued operation of its company-owned 1,904 -bed South Texas ICE Processing Center contract. The contract is effective August 6, 2020 and has a ten-year term, inclusive of renewal options.
Contract Expirations
On June 19, 2020, GEO was notified by the Federal Bureau of Prisons (the "BOP") that the BOP will not be resoliciting the 1,900 beds at GEO's company-owned D Ray James Correctional Facility in Folkston, Georgia upon the expiration of the facility management contract between GEO and the BOP. The facility management contract was entered into in October 2010 with a base period of four years and with three renewal options for a two-year period. The third renewal period concluded on September 30, 2020. During the third quarter of 2020, GEO entered into a four-month extension of this contract which expired on January 31, 2021.
On November 23, 2020, GEO announced that the BOP has decided to not rebid the contract for the company-owned, 1,450-bed Rivers Correctional Facility in North Carolina, which is set to expire on March 31, 2021.
On January 20, 2021, GEO announced that the BOP has decided to not exercise the contract renewal option for the company-owned, 1,878-bed Moshannon Valley Correctional Facility in Pennsylvania, when the contract base period expires on March 31, 2021.
Commitments
As of December 31, 2020, the Company had contractual commitments for a number of projects using existing Company financing facilities. The Company’s management estimates that these existing capital projects will cost approximately $54.5 million, of which $35.0 million was spent through 2020. The Company estimates the remaining capital requirements related to these capital projects to be approximately $19.5 million. These projects are expected to be completed through 2021.
In addition to these current estimated capital requirements, the Company is currently in the process of bidding on, or evaluating potential bids for the design, construction and management of a number of new projects. In the event that the Company wins bids for these projects and decides to self-finance their construction, its capital requirements could materially increase.
Litigation, Claims and Assessments
On July 7, 2020, a purported shareholder class action lawsuit was filed against the Company, its Chief Executive Officer, George C. Zoley (“Mr. Zoley”), and its Chief Financial Officer, Brian R. Evans (“Mr. Evans”), in the United States District Court for the Southern District of Florida. On October 1, 2020, the Court entered an unopposed order appointing lead plaintiffs, approving the selection of counsel, dismissing the initial complaint, and setting a deadline for the filing of an amended complaint. On November 18, 2020, the lead plaintiffs filed a consolidated class action amended complaint. The amended complaint alleges that the Company and Messrs. Zoley and Evans--as well as J.
David Donahue (“Mr. Donahue”), the Company’s former Senior Vice President and President of the GEO Secure Services division, and Ann M. Schlarb (“Ms. Schlarb”), the Company’s Senior Vice President of the GEO Care division--made materially false and misleading statements and/or omissions related to GEO’s business--including quality of operations, corporate social responsibility, competitive strengths, business strategies, health and safety, sources of financing, dividend expectations, and COVID-19 procedures. The amended complaint is brought by lead plaintiffs James Michael DeLoach and Edward Oketola, individually and on behalf of a class consisting of all persons and entities--other than the defendants, the officers and directors of the Company, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which the defendants have or had a controlling interest--who purchased or otherwise acquired the Company’s securities during the alleged class period from November 7, 2018 to August 5, 2020, inclusive. The amended complaint alleges that the defendants violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and alleges that Messrs. Zoley, Evans, and Donahue and Ms. Schlarb violated Section 20(a) of the Exchange Act. The amended complaint seeks damages, interest, attorneys’ fees, expert fees, other costs, and such other relief as the court may deem proper. On December 18, 2020, the defendants filed a motion to dismiss the amended complaint. Lead plaintiffs filed their opposition to the motion to dismiss on January 19, 2021, and defendants’ reply was filed on February 2, 2021. The motion to dismiss is now fully briefed.
As previously reported and described in the Company's prior periodic reports, including most recently in its Form 10-Q for the quarter ended September 30, 2020, former civil immigration detainees at the Aurora Immigration Processing Center filed a class action lawsuit on October 22, 2014, against the Company in the United States District Court for the District of Colorado (the “Court”). The complaint alleges that the Company was in violation of the Colorado Minimum Wages of Workers Act and the Federal Trafficking Victims Protection Act ("TVPA"). The plaintiff class claims that the Company was unjustly enriched because of the level of payment the detainees received for work performed at the facility, even though the voluntary work program as well as the wage rates and standards associated with the program that are at issue in the case are authorized by the Federal government under guidelines approved by the United States Congress. On July 6, 2015, the Court found that detainees were not employees under the Colorado Minimum Wage Order and dismissed this claim. In February 2017, the Court granted the plaintiff-class’ motion for class certification on the TVPA and unjust enrichment claims. The plaintiff class seeks actual damages, compensatory damages, exemplary damages, punitive damages, restitution, attorneys’ fees and costs, and such other relief as the Court may deem proper. In the time since the Colorado suit was initially filed, three similar lawsuits have been filed - two in Washington and one in California. In Washington, one of the two lawsuits was filed on September 9, 2017 by immigration detainees against the Company in the U.S. District Court for the Western District of Washington. The second lawsuit was filed on September 20, 2017 by the State Attorney General against the Company in the Superior Court of the State of Washington for Pierce County, which the Company removed to the U.S. District Court for the Western District of Washington on October 9, 2017. In California, a class-action lawsuit was filed on December 19, 2017 by immigration detainees against the Company in the U.S. District Court Eastern Division of the Central District of California. All three lawsuits allege violations of the respective state’s minimum wage laws. However, the California lawsuit, like the Colorado suit, also includes claims that the Company violated the TVPA and California's equivalent state statute. The Court certified a nationwide class which would allow the plaintiffs to primarily seek injunctive relief or policy changes at a number of facilities if they are successful on the merits of their claims. On July 2, 2019, the Company filed a Motion for Summary Judgment in the Washington Attorney General’s Tacoma lawsuit based on the Company’s position that its legal defenses prevent the case from proceeding to trial. The federal court in Washington denied the Company's Motion for Summary Judgment on August 6, 2019. However, on August 20, 2019, the Department of Justice filed a Statement of Interest, which asked the Washington court to revisit its prior denial of the Company's intergovernmental immunity defense in the case. While the Washington court ultimately elected not to dismiss the case at the time, its order importantly declared that the Company's intergovernmental immunity defense was legally viable, to be ultimately determined at trial. On July 20, 2020, the trial court for the two Washington cases alerted the Company that the litigation continued to be on “standby” due to the COVID-19 pandemic, “which is still ‘raging and explosive’” in the jurisdiction. As a result, a probable trial date is unknown. The Company intends to take all necessary steps to vigorously defend itself and has consistently refuted the allegations and claims in these lawsuits. The Company has not recorded an accrual relating to these matters at this time, as a loss is not considered probable nor reasonably estimable at this stage of the lawsuits.
On June 30, 2020, the Immigrant Legal Resources Center and Freedom for Immigrants filed a petition for writ of mandate in California state court in Bakersfield, California. The petitioners challenge compliance with California administrative law regarding the number of public hearings and allowing public access to public hearings for review of conditional use permits for the Central Valley and Golden State facilities that house federal immigration detainees. The City of McFarland and the City of McFarland Planning Commission are named as respondents and the Company is named as the real party in interest. The petitioners also filed an ex parte application for a temporary restraining order in state court seeking to prevent respondents from amending conditional use permits to allow housing federal immigration detainees at the Central Valley and Golden State facilities. The Company and respondents immediately removed the lawsuit to federal court to the United States District Court for the Eastern District of California in Sacramento, California by filing a notice of removal on July 10, 2020. The petitioners subsequently filed a motion seeking a temporary restraining order in federal court, seeking the same injunctive relief. The federal court entered a temporary restraining order enjoining respondents from amending conditional use permits that would permit housing federal detainees at Central Valley and Golden State. The federal court further ordered the Company and respondents to show cause why a preliminary injunction should not issue pending resolution of the lawsuit. The Company and respondents immediately moved for an emergency stay with the Ninth Circuit Court of Appeals which was granted on September 1, 2020. On October 26, 2020, the appellate court vacated the preliminary injunction
and determined that the City of McFarland fully complied with California administrative law with the requisite public hearings, the appropriate notice to the public and permitting public comments in a lawfully compliant manner.
On December 30, 2019, GEO filed a lawsuit for declaratory and injunctive relief challenging California’s newly enacted law - Assembly Bill 32 (AB-32) - which bars the federal government from engaging GEO or any other government contractors to provide detention services for illegal immigrants. GEO’s claims, as described in the lawsuit, are grounded in authoritative legal doctrine that under the Constitution’s Supremacy Clause, the federal government is free from regulation by any state. By prohibiting federal detention facilities in California, the lawsuit argues AB-32 substantially interferes with the ability of U.S. Marshals Service (“USMS”) and ICE to carry out detention responsibilities for the federal government. Secondly, because AB-32 creates exceptions to the State of California when using GEO or any government contractors (to alleviate overcrowding), California’s statute unlawfully discriminates against the federal government. On December 31, 2019, GEO filed its motion for a preliminary injunction restraining California’s Governor and Attorney General from enforcing AB-32 against GEO’s detention facilities on behalf of USMS and ICE. On January 24, 2020, the United States filed a lawsuit challenging AB-32. The court heard both GEO and the United States’ motions for preliminary injunction on July 16, 2020. The court ordered the parties to submit supplemental briefing and will render an opinion sometime after the filing deadline of August 18, 2020. On July 20, 2020 the court consolidated both lawsuits. On October 8, 2020, the court issued an order granting, in part, and denying in part, the Company and the Untied State’s motions and California’s motion to dismiss. Among other findings, the court (1) dismissed the Company’s intergovernmental immunity claims as well as the United States’ preemption claims as applied to ICE facilities; (2) found that the Company and the United States were likely to succeed on the preemption claims as applied to U.S. Marshals’ facilities and enjoined enforcing AB-32 against those facilities; and (3) refused to enjoin California from enforcing AB-32 against ICE contracts with the Company and the United States. The Company and the United States have appealed to the Ninth Circuit Court of Appeals.
The Company establishes accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. However, the results of these claims or proceedings cannot be predicted with certainty, and an unfavorable resolution of one or more of these claims or proceedings could have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company's accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. The Company does not accrue for anticipated legal fees and costs but expenses those items as incurred.
The nature of the Company's business exposes it to various types of third-party legal claims or litigation against the Company, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct claims brought by prisoners or detainees, medical malpractice claims, product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, indemnification claims by its customers and other third parties, contractual claims and claims for personal injury or other damages resulting from contact with the Company's facilities, programs, electronic monitoring products, personnel or prisoners, including damages arising from a prisoner's escape or from a disturbance or riot at a facility. The Company accrues for legal costs associated with loss contingencies when those costs are probable and reasonably estimable. The Company does not expect the outcome of any pending claims or legal proceedings to have a material adverse effect on its financial condition, results of operations or cash flows.
Other Assessment
A state non-income tax audit completed in 2016 included tax periods for which the state tax authority had a number of years ago processed a substantial tax refund. At the completion of the audit fieldwork, the Company received a notice of audit findings disallowing deductions that were previously claimed by the Company, approved by the state tax authority and served as the basis for the approved refund claim. In early January 2017, the Company received a formal Notice of Assessment of Taxes and Demand for Payment from the taxing authority disallowing the deductions. The total tax, penalty and interest assessed is approximately $19.8 million. In December 2020, the Company received an unfavorable ruling, but all penalties were abated. The Company is in the process of appealing the ruling and intends to take all necessary steps to vigorously defend its position. The Company has established a reserve based on its estimate of the most probable loss based on the facts and circumstances known to date and the advice of outside counsel in connection with this matter.
Ransomware Attack
On November 3, 2020, the Company began the process of notifying current and former employees and will provide additional notifications as required by applicable state and federal law regarding a ransomware attack that impacted a portion of GEO’s information technology systems and a limited amount of data that contained personally identifiable information and protected health information. GEO promptly launched an investigation, engaged legal counsel and other incident response professionals, and notified its customers and law enforcement in response to the incident. GEO implemented a number of containment and remediation measures to address the incident, restore its systems and reinforce the security of its networks and information technology systems. The Company recovered its critical operating data and the incident has not had a significant impact on the Company's business operations or its ability to perform the services required under GEO's contracts with its government customers to or the individuals entrusted to GEO's facilities and programs. At this time, the Company is
not aware of any fraud or misuse of information as a result of the incident. Additionally, the Company’s financial reporting controls and procedures were not impacted and as a result, the incident did not affect the Company's ability to report accurate financial information in a timely manner. Based on the information currently known and obtained through the investigation of the incident, the Company does not believe the incident will have a material impact on its business, operations or financial results. The Company carries insurance, including cyber insurance, commensurate with its size and the nature of its operations.
CARES Act
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows employers to defer the deposit and payment of the employer's share of Social Security taxes. The deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning on March 27, 2020 and ending on December 31, 2020. The deferred amounts are due to be paid in two equal installments on December 31, 2021 and December 31, 2022. As a result of the CARES Act, the Company has deferred the payment of approximately $42 million related to these payroll taxes as of December 31, 2020, half of which is included in Accrued Payroll and Related Taxes and half which is included in Other Non-Current Liabilities in the accompanying consolidated balance sheets.
18.
Selected Quarterly Financial Data (Unaudited)
The Company’s selected quarterly financial data is as follows (in thousands, except per share data attributable to GEO):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter [1]
Revenues
$
605,017
$
587,829
$
579,136
$
578,116
Operating income
56,586
63,513
64,462
38,013
Net Income
25,121
36,654
39,172
11,884
Net Income Attributable to The GEO Group, Inc.
25,181
36,720
39,220
11,911
Basic earnings per share:
Net income per share
$
0.21
$
0.31
$
0.33
$
0.09
Diluted earnings per share:
Net income per share *
$
0.21
$
0.31
$
0.33
$
0.09
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Revenues
$
610,667
$
613,966
$
631,579
$
621,710
Operating income
74,777
81,175
78,159
66,302
Net Income
40,649
41,836
45,885
38,042
Net Income Attributable to The GEO Group, Inc.
40,705
41,914
45,932
38,052
Basic earnings per share:
Net income per share
$
0.34
$
0.35
$
0.39
$
0.32
Diluted earnings per share:
Net income per share *
$
0.34
$
0.35
$
0.39
$
0.32
[1] Decrease primarily due to goodwill impairment charges taken in the fourth quarter of 2020. Refer to Note 1 - Summary of Business Organization, Operations and Significant Accounting Policies - Goodwill and Other Intangible Assets.
* Earnings per share table may contain slight summation differences due to rounding.
19. Subsequent Events
Dividend
On January 15, 2021, the Board of Directors decided to reduce the quarterly cash dividend and declared a quarterly cash dividend of $0.25 per share of common stock, which was paid on February 1, 2021 to shareholders of record as of the close of business on January 25, 2021.
Options and Restricted Stock Awards
On February 10, 2021, the Compensation Committee of the Board of Directors resolved to grant approximately 482,000 options and 1,171,000 shares of restricted stock to certain employees and directors of the Company effective March 1, 2021. Of the total shares of restricted stock granted, 644,000 are performance-based awards which vest subject to the achievement of certain total shareholder return and return on capital employed metrics over a three-year period.
Talbot Hall
In January 2021, GEO completed the sale of its interest in the Talbot Hall reentry center in New Jersey, resulting in net proceeds to GEO of approximately $13 million.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act), as of the end of the period covered by this report. On the basis of this review, our management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to give reasonable assurance that the information required to be disclosed in our reports filed with the Securities and Exchange Commission, or the SEC, under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
It should be noted that the effectiveness of our system of disclosure controls and procedures is subject to certain limitations inherent in any system of disclosure controls and procedures, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. Accordingly, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. As a result, by its nature, our system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.
Internal Control Over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
See “Item 8. - Financial Statements and Supplementary Data - Management’s Annual Report on Internal Control Over Financial Reporting” for management’s report on the effectiveness of our internal control over financial reporting as of December 31, 2020.
(b) Attestation Report of the Registered Public Accounting Firm
See “Item 8. - Financial Statements and Supplementary Data - Report of Independent Registered Public Accounting Firm” for the report of our independent registered public accounting firm on the effectiveness of our internal control over financial reporting as of December 31, 2020.
(c) Changes in Internal Control over Financial Reporting
Our management is responsible for reporting any changes in our internal control over financial reporting (as such terms are defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management believes that there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B.
Other Information
Not applicable.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.
Directors, Executive Officers and Corporate Governance
We have adopted a code of business conduct and ethics applicable to all of our directors, officers, employees, agents and representatives, including our consultants. The code strives to deter wrongdoing and promote honest and ethical conduct, the avoidance of conflicts of interest, full, fair, accurate, timely and transparent disclosure, compliance with the applicable government and self-regulatory organization laws, rules and regulations, prompt internal reporting of violations of the code, and accountability for compliance with the code. In addition, we have adopted a code of ethics for the CEO, our senior financial officers and all other employees. The codes can be found on our website at http://www.geogroup.com by clicking on the link “About Us” on our homepage and then clicking on the link “Corporate Governance.” In addition, the codes are available in print to any shareholder who request them by contacting our Vice President of Corporate Relations at 561-999-7306. In the event that we amend or waive any of the provisions of the code of business conduct and ethics and the code of ethics for the CEO, our senior financial officers and employees that relate to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, we intend to disclose the same on our Investor Relations website. The other information required by this item will be contained in, and is incorporated by reference from, the proxy statement for our 2021 annual meeting of shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the year covered by this report.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11.
Executive Compensation
The information required by this item will be contained in, and is incorporated by reference from, the proxy statement for our 2021 annual meeting of shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be contained in, and is incorporated by reference from, the proxy statement for our 2021 annual meeting of shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be contained in, and is incorporated by reference from, the proxy statement for our 2021 annual meeting of shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.
Principal Accounting Fees and Services
The information required by this item will be contained in, and is incorporated by reference from, the proxy statement for our 2021 annual meeting of shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15.
Exhibits, Financial Statement Schedules
(a)(1) Financial Statements.
The consolidated financial statements of GEO are filed under Item 8 of Part II of this report.
(2) Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts - Page 146
Schedule III - Real Estate and Accumulated Depreciation - Page 147
All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required.
(3) Exhibits Required by Item 601 of Regulation S-K. The following exhibits are filed as part of this Annual Report:
Exhibit
Number
Description
3.1
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on June 30, 2014).
https://www.sec.gov/Archives/edgar/data/923796/000119312514254491/d750635dex31.htm
3.2
Articles of Merger, effective as of June 27, 2014 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on June 30, 2014).
https://www.sec.gov/Archives/edgar/data/923796/000119312514254491/d750635dex32.htm
3.3
Articles of Amendment to the Amended and Restated Articles of Incorporation of The GEO Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on April 26, 2017).
https://www.sec.gov/Archives/edgar/data/923796/000119312517137344/d384798dex31.htm
3.4
Second Amended and Restated Bylaws of The GEO Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on April 17, 2017).
https://www.sec.gov/Archives/edgar/data/923796/000119312517126104/d377930dex31.htm
3.5
Amendment to Second Amended and Restated Bylaws Adopted on July 6, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 11, 2018).
https://www.sec.gov/Archives/edgar/data/923796/000119312518216156/d458165dex31.htm
3.6
Amendment to Second Amended and Restated Bylaws Adopted on September 10, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 13, 2018).
https://www.sec.gov/Archives/edgar/data/923796/000119312518272904/d624393dex31.htm
3.7
Amendment to Second Amended and Restated Bylaws Adopted on November 29, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 30, 2018).
https://www.sec.gov/Archives/edgar/data/923796/000119312518339841/d665620dex31.htm
3.8
Amendment to the Second Amended and Restated Bylaws of The GEO Group, Inc., effective October 9, 2019 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on October 16, 2019).
https://www.sec.gov/Archives/edgar/data/923796/000119312519268526/d818688dex31.htm
3.9
Amendment to the Second Amended and Restated Bylaws of The GEO Group, Inc., effective July 9, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 14, 2020).
https://www.sec.gov/Archives/edgar/data/0000923796/000119312520192646/d47927d8k.htm
4.1
Indenture, dated as of March 19, 2013, by and among the Company, the Guarantors party thereto, and Wells Fargo Bank, National Association as Trustee relating to the 5.125% Senior Notes due 2023 (incorporated by reference to Exhibit 4.1 to the Company’s Current report on Form 8-K, filed on March 25, 2013).
https://www.sec.gov/Archives/edgar/data/923796/000119312513124536/d509256dex41.htm
4.2
Form of 5.125% Senior Note due 2023 (included in Exhibit 4.1).
https://www.sec.gov/Archives/edgar/data/923796/000119312513124536/d509256dex41.htm
4.3
Indenture, dated as of October 3, 2013, by and among the Company, the Guarantors party thereto, and Wells Fargo Bank, National Association as Trustee relating to the 5 7/8% Senior Notes due 2022 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 9, 2013).
https://www.sec.gov/Archives/edgar/data/923796/000119312513395357/d610381dex41.htm
4.4
Form of 5 7/8% Senior Note due 2022 (included in Exhibit 4.3).
https://www.sec.gov/Archives/edgar/data/923796/000119312513395357/d610381dex41.htm
4.5
Supplemental Indenture dated as of June 27, 2014, to Indenture dated as of March 19, 2013, with respect to the Predecessor Registrant’s 5.125% Senior Notes, between the Company and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K, filed on June 30, 2014).
https://www.sec.gov/Archives/edgar/data/923796/000119312514254491/d750635dex44.htm
4.6
Supplemental Indenture dated as of June 27, 2014, to Indenture dated as of October 3, 2013, with respect to the Predecessor Registrant’s 5 7/8% Senior Notes, between the Company and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K, filed on June 30, 2014).
https://www.sec.gov/Archives/edgar/data/923796/000119312514254491/d750635dex45.htm
4.7
Indenture, dated as of September 25, 2014, by and between GEO and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 1, 2014).
https://www.sec.gov/Archives/edgar/data/923796/000119312514360857/d795633dex41.htm
4.8
First Supplemental Indenture, dated as of September 25, 2014, by and among GEO, certain subsidiary guarantors and Wells Fargo Bank, National Association, as Trustee with respect to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on October 1, 2014).
https://www.sec.gov/Archives/edgar/data/923796/000119312514360857/d795633dex42.htm
4.9
Form of 5.875% Senior Note due 2024 (included in Exhibit 4.8).
https://www.sec.gov/Archives/edgar/data/923796/000119312514360857/d795633dex42.htm
4.10
Second Supplemental Indenture, dated as of April 18, 2016, by and among The GEO Group, Inc., the subsidiary guarantors named therein and Wells Fargo Bank, National Association, as Trustee with respect to the 6.00% Senior Notes due 2026 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on April 18, 2016).
https://www.sec.gov/Archives/edgar/data/923796/000119312516545008/d172173dex41.htm
4.11
Form of 6.00% Senior Notes due 2026 (included in Exhibit 4.10).
https://www.sec.gov/Archives/edgar/data/923796/000119312516545008/d172173dex41.htm
4.12
Form of Indenture for Senior Debt Securities (incorporated by reference to Exhibit 4.1 to the Company’s registration statement on Form S-3ASR, filed on October 20, 2017).
https://www.sec.gov/Archives/edgar/data/914670/000119312517315521/d474071dex41.htm
R
4.13
Form of Indenture for Subordinated Debt Securities (incorporated by reference to Exhibit 4.2 to the Company’s registration statement on Form S-3ASR, filed on October 20, 2017).
https://www.sec.gov/Archives/edgar/data/914670/000119312517315521/d474071dex42.htm
4.14
Description of Registrant's Securities (incorporated by reference to Exhibit 4.14 to the Company's Annual Report on Form 10-K, filed on February 26, 2020)
https://www.sec.gov/Archives/edgar/data/923796/000119312520049748/d841729dex414.htm
4,15
Form of Indenture for Senior Debt Securities (incorporated by reference to Exhibit 4.1 to the Company's registration statement on Form S-3ASR, filed on October 30, 2020).
https://www.sec.gov/Archives/edgar/data/914670/000119312520282734/d12605dex41.htm
4.16
Form of Indenture for Subordinated Debt Securities (incorporated by reference to Exhibit 4.2 to the Company's registration statement on Form S-3ASR, filed on October 30, 2020).
https://www.sec.gov/Archives/edgar/data/914670/000119312520282734/d12605dex42.htm
10.1
Form of Indemnification Agreement between the Company and its Officers and Directors (incorporated herein by reference to Exhibit 10.3 to the Company’s registration statement on Form S-1, filed on May 24, 1994) (P)
10.2
The GEO Group, Inc. Senior Management Performance Award Plan, as Amended and Restated (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K, filed on February 26, 2019) †
https://www.sec.gov/Archives/edgar/data/923796/000119312519050054/d663410dex103.htm
10.3
Amended and Restated The GEO Group, Inc. Senior Officer Retirement Plan, effective December 31, 2008 (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K January 7, 2009) †
https://www.sec.gov/Archives/edgar/data/923796/000095014409000110/g17230exv10w8.htm
10.4
Senior Officer Employment Agreement, dated August 3, 2009, by and between the Company and Brian Evans (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed on August 3, 2009) †
https://www.sec.gov/Archives/edgar/data/923796/000095012309028997/g19984exv10w1.htm
10.5
Senior Officer Employment Agreement, dated February 1, 2016, by and between the Company and J. David Donahue (incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K, filed on February 25, 2019) †
https://www.sec.gov/Archives/edgar/data/923796/000119312519050054/d663410dex107.htm
10.6
First Amendment to Senior Officer Employment Agreement, effective March 1, 2011, by and between the Company and Brian R. Evans (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K, filed on March 2, 2011) †
https://www.sec.gov/Archives/edgar/data/923796/000095012311020922/g25405exv10w28.htm
10.7
Amended and Restated The GEO Group, Inc. Executive Retirement Plan (effective January 1, 2008) (incorporated by reference to Exhibit 10.36 to the Company’s Quarterly Report on Form 10-K, filed on March 1, 2012) †
https://www.sec.gov/Archives/edgar/data/923796/000119312512090269/d259590dex1036.htm
10.8
Amendment to The GEO Group, Inc. Executive Retirement Plan (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K, filed on March 1, 2012) †
https://www.sec.gov/Archives/edgar/data/923796/000119312512090269/d259590dex1037.htm
10.9
The GEO Group, Inc. Deferred Compensation Plan (as amended and restated effective January 1, 2008) (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K, filed on March 1, 2012) †
https://www.sec.gov/Archives/edgar/data/923796/000119312512090269/d259590dex1038.htm
10.10
Amendment to The GEO Group, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K, filed on March 1, 2012) †
https://www.sec.gov/Archives/edgar/data/9237 96/000119312512090269/d259590dex1039.htm
10.11
Amendment to The GEO Group, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K, filed on March 1, 2012) †
https://www.sec.gov/Archives/edgar/data/923796/000119312512090269/d259590dex1040.htm
10.12
The GEO Group, Inc. 2011 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.41 to the Company’s Registration Statement on Form S-8, filed on May 4, 2012 (File No. 333-181175)) †
https://www.sec.gov/Archives/edgar/data/923796/000119312512212236/d347267dex1041.htm
10.13
Third Amended and Restated Executive Employment Agreement, dated August 22, 2012, by and between The GEO Group, Inc. and George C. Zoley (incorporated by reference to Exhibit 10.42 to the Company’s Current Report on Form 8-K, filed on August 28, 2012) †
https://www.sec.gov/Archives/edgar/data/923796/000119312512372017/d403128dex1042.htm
10.14
Amended and Restated Executive Retirement Agreement, dated August 22, 2012, by and between The GEO Group, Inc. and George C. Zoley (incorporated by reference to Exhibit 10.43 to the Company’s Current Report on Form 8-K, filed on August 28, 2012) †
https://www.sec.gov/Archives/edgar/data/923796/000119312512372017/d403128dex1043.htm
10.15
First Amendment to Third Amended and Restated Executive Employment Agreement, dated April 29, 2013, by and between The GEO Group, Inc. and George C. Zoley (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on April 30, 2013) †.
https://www.sec.gov/Archives/edgar/data/923796/000119312513183222/d531349dex101.htm
10.16
Second Amendment to Third Amended and Restated Executive Employment Agreement, dated May 29, 2013, by and between The GEO Group, Inc. and George C. Zoley (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 4, 2013) †.
https://www.sec.gov/Archives/edgar/data/923796/000119312513246954/d549744dex101.htm
10.17
The GEO Group, Inc. 2014 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 5, 2014). †
https://www.sec.gov/Archives/edgar/data/923796/000119312514182656/d721126dex101.htm
10.18
Letter of Offer, dated August 18, 2016, between The GEO Group, Inc. and HSBC Bank Australia Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on August 24, 2016).
https://www.sec.gov/Archives/edgar/data/923796/000119312516690048/d247455dex101.htm
10.19
Third Amended and Restated Credit Agreement, dated as of March 23, 2017, among The GEO Group, Inc., GEO Corrections Holdings, Inc., as the Borrowers, the Australian Borrowers party thereto, the Lenders party thereto and BNP Paribas, as administrative agent. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on March 29, 2017. Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.)
https://www.sec.gov/Archives/edgar/data/923796/000119312517101954/d316743dex101.htm
10.20
The GEO Group, Inc. 2018 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 30, 2018).
https://www.sec.gov/Archives/edgar/data/923796/000119312518143556/d570847dex101.htm
10.21
Amendment No. 1 to the Third Amended and Restated Credit Agreement, dated as of April 30, 2018, by and among The GEO Group, Inc., GEO Corrections Holdings, Inc., BNP Paribas, as administrative agent for the lenders, the refinancing lenders party thereto and each other lender party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 4, 2018).
https://www.sec.gov/Archives/edgar/data/923796/000119312518152758/d564439dex101.htm
10.22
Consultant Agreement, effective January 1, 2019, by and between the Company and John Bulfin (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 12, 2018).
https://www.sec.gov/Archives/edgar/data/923796/000119312518347861/d672276dex101.htm
10.23
Consultant Agreement effective July 12, 2020 by and between The GEO Group, Inc. and J. David Donahue (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2020.
https://www.sec.gov/Archives/edgar/data/0000923796/000156459020037855/geo-10q_20200630.htm
10.24
Senior Officer Employment Agreement, dated July 21, 2014, by and between the Company and Ann Schlarb (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed on May 6, 2019) †
https://www.sec.gov/Archives/edgar/data/923796/000119312519138425/d651801dex101.htm
10.25
Senior Officer Employment Agreement dated January 1, 2014 by and between the Company and David Venturella (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2020) †.
https://www.sec.gov/Archives/edgar/data/0000923796/000156459020021968/geo-10q_20200331.htm
10.26
Amended and Restated Executive Retirement Agreement, dated February 26, 2020, by and between the GEO Group, Inc. and George C. Zoley (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 28, 2020) †.
https://www.sec.gov/Archives/edgar/data/0000923796/000119312520056598/d872150d8k.htm
10.27
Amendment No. 2 to Third Amended and Restated Credit Agreement, dated June 12, 2019, by and among The GEO Group, Inc. and GEO Corrections Holdings, Inc., as the Borrowers, GEO Australasia Holdings PTY LTD, GEO Australasia Finance Holdings PTY LTD, as trustee of the GEO Australasia Finance Holding Trust, BNP Paribas, as administrative agent, and the lenders party thereto (portions of this exhibit have been omitted) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed on August 2, 2019)
https://www.sec.gov/Archives/edgar/data/923796/000119312519212102/d759337dex101.htm
21.1
Subsidiaries of the Company*
22.1
List of Guarantor Subsidiaries *
23.1
Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm*
31.1
Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002*
31.2
Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002*
32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101*
The following financial information from the Company's Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholders' Equity, and (vi) the Notes to the Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
104*
Cover Page Interactive Data Title - the cover page XBRL tags are embedded within the Inline XBRL document.
* Filed herewith.
** Certain exhibits and schedules to the agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We agree to furnish supplementally to the SEC, upon request, a copy of the omitted exhibits and schedules.
*** Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
† Management contract or compensatory plan, contract or agreement as defined in Item 402 (a)(3) of Regulation S-K.
(P) Paper filing