UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to_______
Commission file number:
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(Former name, former address and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 3, 2022, the registrant had
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS ENDED
MARCH 31, 2022 AND 2021
(In thousands, except per share data)
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Three Months Ended |
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March 31, 2022 |
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March 31, 2021 |
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Revenues |
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$ |
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$ |
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Operating expenses |
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Depreciation and amortization |
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General and administrative expenses |
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Operating income |
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Interest income |
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Interest expense |
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Gain on extinguishment of debt |
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— |
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Gain (loss) on dispositions of real estate |
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Income before income taxes and equity in earnings of affiliates |
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Provision for income taxes |
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Equity in earnings of affiliates, net of income tax provision of $ |
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Net income |
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Net loss attributable to noncontrolling interests |
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Net income attributable to The GEO Group, Inc. |
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$ |
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$ |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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Net income per common share attributable to The GEO Group, Inc.: |
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Basic: |
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Net income per common share attributable to The GEO Group, Inc. - basic |
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$ |
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$ |
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Diluted: |
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Net income per common share attributable to The GEO Group, Inc. - diluted |
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$ |
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$ |
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Dividends declared per share |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
FOR THE THREE MONTHS ENDED
MARCH 31, 2022 AND 2021
(In thousands)
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Three Months Ended |
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March 31, 2022 |
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March 31, 2021 |
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Net income |
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$ |
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$ |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
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Change in marketable securities, net of tax benefit of $ |
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— |
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Pension liability adjustment, net of tax provision of $ |
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Change in fair value of derivative instrument classified as cash flow hedge, net of tax provision of $ |
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Total other comprehensive income, net of tax |
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Total comprehensive income |
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Comprehensive loss attributable to noncontrolling interests |
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Comprehensive income attributable to The GEO Group, Inc. |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2022 AND DECEMBER 31, 2021
(In thousands, except share data)
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March 31, 2022 |
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December 31, 2021 |
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(Unaudited) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash and cash equivalents |
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Accounts receivable, less allowance for doubtful accounts of $ respectively |
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Contract receivable, current portion |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted Cash and Investments |
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Property and Equipment, Net |
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Assets Held for Sale |
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Contract Receivable |
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Operating Lease Right-of-Use Assets, Net |
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Goodwill |
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Intangible Assets, Net |
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Other Non-Current Assets |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued payroll and related taxes |
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Accrued expenses and other current liabilities |
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Operating lease liabilities, current portion |
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Current portion of finance lease liabilities, long-term debt and non-recourse debt |
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Total current liabilities |
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Deferred Income Tax Liabilities |
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Other Non-Current Liabilities |
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Operating Lease Liabilities |
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Finance Lease Liabilities |
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Long-Term Debt |
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Non-Recourse Debt |
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Commitments, Contingencies and Other Matters (Note 11) |
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Shareholders’ Equity |
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Preferred stock, $ |
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Common stock, $ and |
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Additional paid-in capital |
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Distributions in excess of earnings |
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( |
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Accumulated other comprehensive loss |
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Treasury stock, |
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( |
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( |
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Total shareholders’ equity attributable to The GEO Group, Inc. |
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Noncontrolling interests |
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( |
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( |
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Total shareholders’ equity |
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Total Liabilities and Shareholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE MONTHS ENDED
MARCH 31, 2022 AND 2021
(In thousands)
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Three Months Ended |
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March 31, 2022 |
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March 31, 2021 |
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Cash Flow from Operating Activities: |
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Net income |
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$ |
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$ |
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Net loss attributable to noncontrolling interests |
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Net income attributable to The GEO Group, Inc. |
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Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities: |
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Depreciation and amortization expense |
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Stock-based compensation |
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Gain on extinguishment of debt |
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— |
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Amortization of debt issuance costs, discount and/or premium and other non-cash interest |
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Provision for doubtful accounts |
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— |
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Equity in earnings of affiliates, net of tax |
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( |
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( |
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Dividends received from unconsolidated joint ventures |
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Loss on sale/disposal of property and equipment, net |
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(Gain) loss on disposition of real estate |
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( |
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Changes in assets and liabilities, net of effects of acquisitions: |
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Changes in accounts receivable, prepaid expenses and other assets |
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Changes in contract receivable |
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Changes in accounts payable, accrued expenses and other liabilities |
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Net cash provided by operating activities |
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Cash Flow from Investing Activities: |
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Insurance proceeds - damaged property |
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— |
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Proceeds from sale of property and equipment |
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Proceeds from sales of real estate |
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— |
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Change in restricted investments |
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( |
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( |
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Capital expenditures |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash Flow from Financing Activities: |
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Proceeds from long-term debt |
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— |
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Payments on long-term debt |
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( |
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Payments on non-recourse debt |
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( |
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( |
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Taxes paid related to net share settlements of equity awards |
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( |
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Proceeds from issuance of common stock in connection with ESPP |
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Debt issuance costs |
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— |
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( |
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Cash dividends paid |
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— |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash and Cash Equivalents |
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Net Increase in Cash, Cash Equivalents and Restricted Cash and Cash Equivalents |
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Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, beginning of period |
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Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, end of period |
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$ |
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$ |
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Supplemental Disclosures: |
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Non-cash Investing and Financing activities: |
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Right-of-use assets obtained from operating lease liabilities |
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$ |
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$ |
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Equipment obtained from finance lease liabilities |
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$ |
— |
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$ |
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Dividends paid in treasury shares |
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$ |
— |
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$ |
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Capital expenditures in accounts payable and accrued expenses |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
THE GEO GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The GEO Group, Inc., a Florida corporation, and subsidiaries (the “Company” or “GEO”) specializes in the ownership, leasing and management of secure facilities, processing centers and reentry centers in the United States, Australia and South Africa. 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' program 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 individuals as contracted domestically and in the United Kingdom through its joint venture GEO Amey PECS Ltd. (“GEOAmey”). At March 31, 2022, the Company’s worldwide operations include the management and/or ownership of approximately
GEO operated as a real estate investment trust ("REIT") from January 1, 2013 through December 31, 2020. As a REIT, the Company provided services and conducted other business activities through taxable REIT subsidiaries ("TRSs"). A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax rates and certain qualification requirements. The Company's use of TRSs permitted GEO to engage in certain business activities in which the REIT could not engage directly, so long as those activities were conducted in entities that elected to be treated as TRSs under the Internal Revenue Code of 1986, as amended (the “Code”), and enabled GEO to, among other things, provide correctional services at facilities it owns and at facilities owned by its government partners. A TRS is not subject to the distribution requirements applicable to REITs so it may retain income generated by its operations for reinvestment.
On December 2, 2021, the Company announced that its board of directors (“Board”) unanimously approved a plan to terminate the Company's REIT status and become a taxable C Corporation, effective for the year ended December 31, 2021. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least
The Company's unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the instructions to Form 10-Q and consequently do not include all disclosures required by Form 10-K. The accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2022 for the year ended December 31, 2021. The accompanying December 31, 2021 consolidated balance sheet has been derived from those audited financial statements. Additional information may be obtained by referring to the Company’s Form 10-K for the year ended December 31, 2021. In the opinion of management, all adjustments (consisting only of normal recurring items) necessary for a fair presentation of the financial information for the interim periods reported in this Quarterly Report on Form 10-Q have been made. Results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results for the entire year ending December 31, 2022, or for any other future interim or annual periods.
Risks and uncertainties
Executive Order
7
On January 26, 2021, President Biden signed an executive order directing the United States Attorney General not to renew Department of Justice (“DOJ”) contracts with privately operated criminal detention facilities, as consistent with applicable law. Two agencies of the DOJ, the Federal Bureau of Prisons (“BOP”) and the U.S. Marshals Service (“USMS”), utilize GEO’s support 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. As of March 31, 2022, GEO has one company-owned facility under direct contract with the BOP, which has a current contract option period that expires on
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. The Company has incurred disruptions 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, the efficacy and distribution of COVID-19 vaccines and boosters, the evolution of COVID-19 variants, shelter in-place restrictions, labor shortages 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. Additionally, the Company has experienced the transmission of COVID-19 among detainees and staff at most of its facilities. 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.
2. GOODWILL AND OTHER INTANGIBLE ASSETS
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.
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January 1, 2022 |
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Foreign Currency Translation |
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March 31, 2022 |
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U.S. Secure Services |
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$ |
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$ |
— |
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$ |
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Electronic Monitoring and Supervision Services |
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$ |
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$ |
— |
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Reentry Services |
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— |
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International Services |
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Total Goodwill |
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$ |
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$ |
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$ |
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The Company has also recorded other finite and indefinite-lived intangible assets as a result of its various business combinations.
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March 31, 2022 |
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December 31, 2021 |
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Weighted Average Useful Life (years) |
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Gross Carrying Amount |
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Accumulated Amortization |
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Net Carrying Amount |
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Gross Carrying Amount |
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Accumulated Amortization |
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Net Carrying Amount |
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Facility management contracts |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
( |
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$ |
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Technology |
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( |
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( |
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Trade names |
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Indefinite |
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— |
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— |
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Total acquired intangible assets |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Amortization expense was $
8
Estimated amortization expense related to the Company's finite-lived intangible assets for the remainder of 2022 through 2026 and thereafter is as follows (in thousands):
Fiscal Year |
|
Total Amortization Expense |
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
3. FINANCIAL INSTRUMENTS
The following tables provide a summary of the Company’s significant financial assets and liabilities carried at fair value and measured on a recurring basis as of March 31, 2022 and December 31, 2021 (in thousands):
|
|
|
|
|
|
Fair Value Measurements at March 31, 2022 |
|
|||||||||
|
|
Carrying Value at March 31, 2022 |
|
|
Quoted Prices in Active Markets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi Trust |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Marketable equity and fixed income securities |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap derivatives |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2021 |
|
|||||||||
|
|
Carrying Value at December 31, 2021 |
|
|
Quoted Prices in Active Markets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi Trust |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Marketable equity and fixed income securities |
|
|
|
|
|
$ |
— |
|
|
|
|
|
|
|
— |
|
Fixed income securities |
|
|
|
|
|
|
— |
|
|
|
|