THE GEO GROUP, INC. Forward-Looking Information
This Quarterly Report on Form 10-Q 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, the impact of COVID-19 on our business, the efficacy and distribution of COVID-19 vaccines, budgets, projected costs and plans and objectives of management for future operations, legal proceedings, our corporate structure and potential steps to address our future debt maturities 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: •
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
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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 and the impact of fluctuations in occupancy levels on our revenues and profitability;
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the impact of our termination of our REIT election and the discontinuation of quarterly dividend payments and our ability to maximize the use of cash flows to repay debt, deleverage and internally fund growth;
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we may fail to realize the anticipated benefits of terminating our REIT election or those benefits may take longer to realize than expected, if at all, or may not offset the costs of terminating our REIT election and becoming a taxableC Corporation ;
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if we failed to remain qualified as a REIT for those years we elected REIT status, we would be subject to additional corporate income taxes and would not be able to deduct distributions to shareholders when computing our taxable income for those years;
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our ability to expand, diversify and grow our secure services, reentry, community-based 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
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the impact of the LIBOR transition;
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the instability of foreign exchange rates, exposing us to currency risks in
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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 successfully pursue an appeal to reverse the recent unfavorable verdict and judgments in the retrial of the lawsuits in theState of Washington , our company being required to record an accrual for the judgments in the future, and our ability to defend similar other pending litigation and the effect such litigation may have on our company;
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our ability to prevail in the en banc hearing by the
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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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our ability to fulfill our debt service obligations and its impact on our liquidity;
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our ability to deleverage and repay, refinance or otherwise address our debt maturities in an amount or on the timeline we expect, or at all;
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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 Convertible Notes, the 6.00% Senior Notes due 2026, the 5.125% Senior Notes due 2023 and the 5.875% Senior Notes due 2024 and the covenants in our senior credit facility, and following the offering discussed in the Transaction Support Agreement and registered by the Registration Statement, the covenants in the indenture governing the 2028 Private Exchange Notes, the New Notes indenture and the Exchange Credit Agreement 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 and 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 and 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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our ability to identify and successfully complete any potential sales of additional Company-owned assets and businesses in commercially advantageous terms on a timely basis, or at all;
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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 executive orders, 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 and political resistance to the use of public-private partnerships for secure facilities, electronic monitoring and supervision as alternatives to detention, 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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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 may 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 in a timely manner and/or 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 or achieve such synergies;
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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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our ability to successfully consummate the Exchange Offers and Consent Solicitations, the Private Exchange and the Credit Agreement Exchange (including the outcome and impact of any legal challenges to any of these transactions);
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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;
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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 theSEC , including, but not limited to, those detailed in the Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K filed with theSEC . 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 34 --------------------------------------------------------------------------------
acting on our behalf, are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q.
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 "Forward-Looking Information", those described below under "Part II - Item 1A. Risk Factors" and under "Part I - Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . This discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. We specialize in the ownership, leasing and management of secure facilities, processing centers and reentry facilities and the provision of community-based services inthe United States ,Australia andSouth Africa . 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 theUnited Kingdom through our joint venture GEOAmey. We operated REIT fromJanuary 1, 2013 throughDecember 31, 2020 . As a REIT, we provided services and conducted other business activities through TRSs. A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax rates and certain qualification requirements. Our use of TRSs permitted us 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 Code, and enabled GEO to, among other things, provide correctional services at facilities that we own and at facilities owned by our 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. OnDecember 2, 2021 , we announced that our Board unanimously approved a plan to terminate our REIT status and become a taxableC Corporation , effective for the year endedDecember 31, 2021 . As a result, we are no longer required to operate under REIT rules, including the requirement to distribute at least 90% of REIT taxable income to our shareholders, which provides us with greater flexibility to use our free cash flow. EffectiveJanuary 1, 2021 , we were subject to federal and state income taxes on our taxable income at applicable tax rates and are no longer entitled to a tax deduction for dividends paid. We operated as a REIT for the 2020 tax year, and existing REIT requirements and limitations, including those established by our organizational documents, remained in place untilDecember 31, 2020 . In connection with terminating our REIT status, the Board also voted unanimously to discontinue our quarterly dividend. AtJune 30, 2022 , our worldwide operations include the management and/or ownership of approximately 82,000 beds at 102 secure services and community based facilities, including idle facilities, and also include the provision of community supervision services for an average of more than 400,000 individuals, including nearly 200,000 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:
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our secure facility management services involve the provision of security, administrative, rehabilitation, education, and food services at secure services facilities;
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our reentry 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;
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we provide comprehensive electronic monitoring and supervision services;
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we develop new facilities, using our project development experience to design, construct and finance what we believe are state-of-the-art facilities;
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we provide secure transportation services; and
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our services are provided at facilities which we either own, lease or are owned by the government.
For the six months endedJune 30, 2022 and 2021, we had consolidated revenues of$1,139.4 million and$1,141.8 million , respectively. We maintained an average company-wide facility occupancy rate of 85.5% including 71,575 active beds and excluding 35 -------------------------------------------------------------------------------- 10,406 idle beds which includes those being marketed to potential customers for the six months endedJune 30, 2022 , and 87.5% including 79,726 active beds and excluding 10,104 idle beds which includes those being marketed to potential customers for the six months endedJune 30, 2021 . Overall occupancy levels have been lower than prior periods due to the impact of the COVID-19 pandemic as well as the impacts of the Executive Order (as defined below). Reference is made to Part II, Item 7 of our Annual Report on Form 10-K filed with theSEC onFebruary 28, 2022 , for further discussion and analysis of information pertaining to our financial condition and results of operations as of and for the year endedDecember 31, 2021 .
Business Segments
We conduct our business through four reportable business segments: ourU.S. Secure Services segment; our Electronic Monitoring and Supervision Services segment; our Reentry Services segment and our International Services 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. We have determined that our previously reportable business segment,Facility Construction and Design, no longer qualifies as a reportable segment as it no longer meets certain quantitative thresholds and has been aggregated with our International Services reportable business segment. In addition, we appointed a new Chief Executive Officer, the chief operating decision maker, during fiscal 2021. Based on changes to the way our chief operating decision maker views the business and financial results used to allocate resources to our electronic monitoring and supervision services operations, along with the growth of the business, we report the electronic monitoring and supervision services operation as a separate reportable segment. This new segment is presented as Electronic Monitoring and Supervision Services. Previously, the electronic monitoring and supervision services operations were included in our GEO Care reportable segment. In addition, the GEO Care reportable segment was renamed Reentry Services and includes services provided to adults for residential and non-residential treatment, educational and community-based programs, pre-release and half-way house programs. We have retroactively restated our segment presentation for the three and six months endedJune 30, 2021 to reflect these changes. OurU.S. Secure Services segment primarily encompasses ourU.S. -based public-private partnership secure services business. Our Electronic Monitoring and Supervision Services segment, which conducts its services in theU.S. , consists of our electronic monitoring and supervision services. Our Reentry Services segment consists of various community-based and reentry services. Our International Services segment primarily consists of our public-private partnership secure services operations inAustralia andSouth Africa .
Recent Developments
Transaction Support Agreement
OnJuly 18, 2022 , the Company entered into a Transaction Support Agreement with the Consenting Creditors setting forth principal terms for a Transaction to address the upcoming maturities of the Company's outstanding debt in 2023, 2024, and 2026. Refer to Note 15 - Subsequent Events of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Executive Order
OnJanuary 26, 2021 ,President Biden signed an executive order directingthe United States Attorney General not to renewDepartment of Justice ("DOJ") contracts with privately operated criminal detention facilities, as consistent with applicable law. Two agencies of theDOJ , theFederal Bureau of Prisons ("BOP") and theU.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 inU.S. federal courts. As ofJune 30, 2022 , GEO has three company-owned/company-leased facilities under direct contracts with USMS, which have current contract option periods that expire betweenFebruary 28, 2023 andSeptember 30, 2023 . These facilities combined represented approximately 6% of our revenues for the year endedDecember 31, 2021 .President Biden's administration may implement additional executive orders or directives relating to federal criminal justice policies and/or immigration policies, which may impact the federal government's use of public-private partnerships with respect to secure correctional and detention facilities and immigration processing centers, including with respect to our contracts, and/or may impact the budget and spending priorities of federal agencies, including the BOP, USMS, andU.S. Immigration and Customs Enforcement ("ICE"), which is an agency of theU.S. Department of Homeland Security .
COVID-19
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We have been and are currently closely monitoring the impact of the COVID-19
pandemic and the efficacy and distribution of COVID-19 vaccines on all aspects
of our business and geographies, including how it will impact those entrusted in
our care and governmental partners. We did incur disruptions during the six
months ended June 30, 2022 from the COVID-19 pandemic and 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.
Refer to further discussion regarding the economic impacts of COVID-19 to our
operations in the Outlook section below.
Contract Developments
OnJune 30, 2022 , we announced that the USMS has exercised the current contract option period to continue to utilize the 770-bedWestern Region Detention Facility inSan Diego, California , which is effective throughSeptember 30, 2023 . The existing contract also has two additional two-year contract option periods, which if exercised by the USMS, would be effective throughSeptember 30, 2025 andSeptember 30, 2027 , respectively. OurWestern Region Detention Facility contract with the USMS had been operating under a 90-day contract extension which was scheduled to end onJune 30, 2022 .
Idle Facilities
We are currently marketing 10,361 vacant beds at nine of our idle facilities to potential customers. The carrying values of these idle facilities totaled$272.6 million as ofJune 30, 2022 , excluding equipment and other assets that can be easily transferred for use at other facilities. Refer to Note 11 - Commitments, Contingencies and Other Matters included in Part I, Item 1, of this Quarterly Report on Form 10-Q for additional information.
Critical Accounting Policies
The accompanying unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted inthe 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 as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We routinely evaluate our estimates based on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. During the six months endedJune 30, 2022 , we did not experience any significant changes in estimates or judgments inherent in the preparation of our consolidated financial statements. A summary of our significant accounting policies is contained in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the notes to our unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Comparison of Second Quarter 2022 and Second Quarter 2021
Revenues
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
U.S. Secure Services $ 353,402 60.1 % $ 368,394 65.2 % $ (14,992 ) (4.1 )%
Electronic Monitoring and
Supervision Services 121,484 20.7 % 64,835 11.5 % 56,649 87.4 %
Reentry Services 65,720 11.2 % 77,070 13.6 % (11,350 ) (14.7 )%
International Services 47,571 8.1 % 55,120 9.7 % (7,549 ) (13.7 )%
Total $ 588,177 100.0 % $ 565,419 100.0 % $ 22,758 4.0 %
U.S. Secure Services
Revenues decreased by $15.0 million in Second Quarter 2022 compared to Second
Quarter 2021 primarily due to aggregate decreases of $42.9 million due to the
ramp-down/deactivations of our company-owned Big Springs , Flightline and Great
Plains Correctional Facilities, our Queens Detention Facility , our managed-only
Bay and Graceville Correctional Rehabilitation Facilities, as well as our
managed-only George W. Hill Correctional Facility . These decreases were
partially offset by aggregate net increases of $15.3 million resulting from the
contract activation and ramp up at our company-owned Moshannon Valley Processing
Center, Desert View Annex
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as well as our company-owned
The number of compensated mandays inU.S. Secure Services facilities was approximately 4.5 million in Second Quarter 2022 and 5.0 million in Second Quarter 2021. We experienced an aggregate net decrease of approximately 500,000 mandays as a result of contract terminations, partially offset by contract activations and increases in occupancies 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 ourU.S. Secure Services facilities was 90.0% and 88.6% of capacity in the Second Quarter 2022 and Second Quarter 2021, respectively, excluding idle facilities.
Electronic Monitoring and Supervision Services
Revenues increased by$56.6 million in Second Quarter 2022 compared to Second Quarter 2021 due to increases in average participant counts under the Intensive Supervision and Appearance Program ("ISAP").
Reentry Services
Revenues decreased by$11.4 million in Second Quarter 2022 compared to Second Quarter 2021 primarily due to a decrease of$17.3 million as a result of the sale of our youth business which was effectiveJuly 1, 2021 . This decrease was partially offset by increases of$3.2 million due to new/reactivated contracts, day reporting centers and programs including the activation of our company-owned Tampa Residential Reentry Center inTampa, Florida inSeptember 2021 . Also partially offsetting the decrease was a net aggregate increase of$2.7 million related to increased census levels at certain of our community-based and reentry centers due to increased programming needs and referrals.
International Services
Revenues for International Services decreased by$7.5 million in Second Quarter 2022 compared to Second Quarter 2021 primarily due to foreign exchange rate fluctuations of$3.8 million . We also experienced a decrease of$3.7 million primarily driven by the transition of our management contract for the Dungavel House Immigration Removal Centre in theUnited Kingdom to the government effectiveSeptember 30, 2021 . Operating Expenses % of Segment % of Segment 2022 Revenues 2021 Revenues $ Change % Change (Dollars in thousands) U.S. Secure Services$ 261,525 74.0 %$ 268,963 73.0 %$ (7,438 ) (2.8 )% Electronic Monitoring and Supervision Services 59,277 48.8 % 28,488 43.9 % 30,789 108.1 % Reentry Services 47,042 71.6 % 58,829 76.3 % (11,787 ) (20.0 )% International Services 43,947 92.4 % 48,729 88.4 % (4,782 ) (9.8 )% Total$ 411,791 70.0 %$ 405,009 71.6 %$ 6,782 1.7 % U.S. Secure Services Operating expenses forU.S. Secure Services decreased by$7.4 million in Second Quarter 2022 compared to Second Quarter 2021 primarily due to decreases of$35.9 million related to the ramp-down/deactivations of our company-ownedBig Springs , Flightline and Great Plains Correctional Facilities, ourQueens Detention Facility , our managed-onlyBay and Graceville Correctional Rehabilitation Facilities, as well as our managed-onlyGeorge W. Hill Correctional Facility . These decreases were partially offset by aggregate net increases of$11.2 million resulting from the contract activation and ramp up at our company-owned Moshannon Valley Processing Center, Desert View Annex as well as our company-ownedEagle Pass Detention Center . In addition, we experienced aggregate net increases in connection with transportation services, increased occupancies and the variable costs associated with those services of$17.3 million .
Electronic Monitoring and Supervision Services
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Operating expenses increased by
Reentry Services
Operating expenses for Reentry Services decreased by$11.8 million during Second Quarter 2022 compared to Second Quarter 2021 primarily due to a decrease of$14.9 million as a result of the sale of our youth business which was effectiveJuly 1, 2021 . We also experienced a decrease of$1.0 million due to contract terminations. These decreases were partially offset by increases of$2.0 million due to new/reactivated contracts, day reporting centers and programs including the activation of our company-owned Tampa Residential Reentry Center inTampa, Florida inSeptember 2021 . Also partially offsetting the decreases was a net aggregate increase of$2.1 million related to increased census levels at certain of our community-based and reentry centers due to increased programming needs and referrals. International Services Operating expenses for International Services decreased by$4.8 million in Second Quarter 2022 compared to Second Quarter 2021 primarily due to foreign exchange rate fluctuations of$3.5 million . We also experienced a decrease of$1.3 million primarily driven by the transition of our management contract for the Dungavel House Immigration Removal Centre in theUnited Kingdom to the government effectiveSeptember 30, 2021 .
Depreciation and Amortization
% of Segment % of Segment
2022 Revenue 2021 Revenue $ Change % Change
(Dollars in thousands)
U.S. Secure Services $ 19,053 5.4 % $ 20,529 5.6 % $ (1,476 ) (7.2 )%
Electronic Monitoring and
Supervision Services 7,962 6.6 % 7,355 11.3 % 607 8.3 %
Reentry Services 4,471 6.8 % 4,835 6.3 % (364 ) (7.5 )%
International Services 530 1.1 % 587 1.1 % (57 ) (9.7 )%
Total $ 32,016 5.4 % $ 33,306 5.9 %$ (1,290 ) (3.9 )% U.S. Secure ServicesU.S. Secure Services depreciation and amortization expense decreased in Second Quarter 2022 compared to Second Quarter 2021 primarily due to certain assets becoming fully depreciated and or amortized as well as certain asset dispositions at our company-owned facilities.
Electronic Monitoring and Supervision Services
Depreciation and amortization expense increased slightly in Second Quarter 2022 compared to Second Quarter 2021 primarily due to certain leasehold improvements and equipment additions. Reentry Services Reentry Services depreciation and amortization expense decreased slightly in Second Quarter 2022 compared to Second Quarter 2021 primarily due to certain asset dispositions at our company-owned centers.
International Services
Depreciation and amortization expense decreased slightly in Second Quarter 2022 compared to Second Quarter 2021 primarily due to foreign exchange rate fluctuations.
Other Unallocated Operating Expenses
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
General and Administrative Expenses $ 49,296 8.4 % $ 54,688 9.7 % $ (5,392 ) (9.9 )%
39-------------------------------------------------------------------------------- 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 decreased in Second Quarter 2022 compared to Second Quarter 2021 by$5.4 million primarily due to$7.5 million in one-time employee restructuring expenses incurred in Second Quarter 2021. Partially offsetting this decrease were increased professional fees for financial and legal advisors assisting us in reviewing potential asset sales as well as normal professional, consulting and other administrative expenses.
Non-Operating Expenses
Interest Income and Interest Expense
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
Interest Income $ 5,562 0.9 % $ 5,985 1.1 % $ (423 ) (7.1 )%
Interest Expense $ 33,225 5.6 % $ 32,053 5.7 % $ 1,172 3.7 %
Interest income decreased in Second Quarter 2022 compared to Second Quarter 2021 primarily due to the effect of foreign exchange rate fluctuations.
Interest expense increased in Second Quarter 2022 compared to Second Quarter 2021 primarily due to higher balances under the revolver component of our credit facility. During 2021, we drew down significant amounts under our revolver as a conservative precautionary step to preserve liquidity, maintain financial flexibility, and obtain additional funds for general corporate purposes. Also contributing to the increase was the effect of increases in the LIBOR rate.
Gain on Extinguishment of Debt
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
Gain on Extinguishment of Debt $ - (- )%$ 1,654 0.3 %$ (1,654 ) (100.0 )% During Second Quarter 2021, we repurchased$19.5 million in aggregate principal amount of our 5.125% Senior Notes due 2023 at a weighted average price of 90.88% for a total cost of$17.7 million . As a result of this transaction, we recognized a gain on extinguishment of debt of$1.7 million , net of the write-off of associated unamortized deferred loan costs.
(Gain) Loss on Dispositions of Real Estate
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
(Gain) Loss on Dispositions of
Real Estate $ (3,680 ) (0.6 )% $ 2,950 0.5 % $ (6,630 ) (224.7 )%
In Second Quarter 2022, we sold our company-owned previously idled Perry County
Correctional Facility located in Alabama for a net gain of approximately $3.7
million . In Second Quarter 2021, we disposed of certain assets at our
company-owned Queens Detention Center , our company-owned Alle Kiski Pavillion
and our company-owned DuPage Interventions center and incurred a net loss on
disposition of $3.0 million .
Income Tax Provision
2022 Effective Rate 2021 Effective Rate $ Change % Change
(Dollars in thousands)
Provision for Income Taxes$ 18,898 26.6 %$ 5,063 11.2 %$ 13,835 273.3 % The provision for income taxes and our effective tax rate during Second Quarter 2022 increased compared to Second Quarter 2021 principally due to the Company electing to terminate its REIT status at the end of 2021 and becoming a taxable C corporation. In Second Quarter 2022, there was no net discrete tax expense as compared to a$0.5 million net discrete tax expense in the Second Quarter 2021. We estimate our 2022 annual effective tax rate to be in the range of approximately 27% to 29%, exclusive of any discrete items. 40 --------------------------------------------------------------------------------
Equity in Earnings of Affiliates, net of Income Tax Provision
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
Equity in Earnings of Affiliates $ 1,480 0.3 % $ 1,942 0.3 % $ (462 ) (23.8 )%
Equity in earnings of affiliates, presented net of income tax provision,
represents the earnings of SACS and GEOAmey in the aggregate. Equity in earnings
of affiliates decreased during Second Quarter 2022 compared to Second Quarter
2021 primarily due to less favorable performance by GEOAmey.
Comparison of Six Months 2022 and Six Months 2021
Revenues
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
U.S. Secure Services $ 704,647 61.8 % $ 755,405 66.2 % $ (50,758 ) (6.7 )%
Electronic Monitoring and
Supervision Services 209,405 18.4 % 125,213 11.0 % 84,192 67.2 %
Reentry Services 127,151 11.2 % 152,174 13.3 % (25,023 ) (16.4 )%
International Services 98,159 8.6 % 109,004 9.5 % (10,845 ) (9.9 )%
Total $ 1,139,362 100 % $ 1,141,796 100.0 % $ (2,434 ) (0.2 )%
U.S. Secure Services
Revenues decreased by $50.8 million in Six Months 2022 compared to Six Months
2021 primarily due to aggregate decreases of $98.0 million due to the
ramp-down/deactivations of our company-owned D. Ray James, Rivers, Big Springs ,
Flightline, Reeves County Detention I & II and Great Plains Correctional
Facilities, our Queens Detention Facility , our managed-only Bay and Graceville
Correctional Rehabilitation Facilities, as well as our managed-only George W.
Hill Correctional Facility . Also included in this decrease is the transition of
the operation of our company-owned Guadalupe County Correctional Facility to the
New Mexico Corrections Department in November 2021 . These decreases were
partially offset by aggregate net increases of $19.9 million resulting from the
contract activation and ramp up at our company-owned Moshannon Valley Processing
Center, Desert View Annex as well as our company-owned Eagle Pass Detention
Center . In addition, we experienced aggregate net increases in rates and/or per
diem amounts in connection with contract modifications, transportation services
and increased occupancies of $27.3 million .
The number of compensated mandays in U.S. Secure Services facilities was
approximately 9.0 million in Six Months 2022 and 10.1 million in Six Months
2021. We experienced an aggregate net decrease of approximately 1,100,000
mandays as a result of contract terminations, partially offset by contract
activations and increases in occupancies 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 U.S. Secure Services
facilities was 89.6% and 90.5% of capacity in Six Months 2022 and Six Months
2021, respectively, excluding idle facilities.
Electronic Monitoring and Supervision Services
Revenues increased by
41
--------------------------------------------------------------------------------Reentry Services
Revenues decreased by$25.0 million in Six Months 2022 compared to Six Months 2021 primarily due to a decrease of$34.3 million as a result of the sale of our youth business which was effectiveJuly 1, 2021 . This decrease was partially offset by increases of$6.1 million due to new/reactivated contracts, day reporting centers and programs including the activation of our company-owned Tampa Residential Reentry Center inTampa, Florida inSeptember 2021 . Also partially offsetting the decrease was a net aggregate increase of$3.2 million related to increased census levels at certain of our community-based and reentry centers due to increased programming needs and referrals.
International Services
Revenues for International Services decreased by$10.8 million in Six Months 2022 compared to Six Months 2021 primarily due to foreign exchange rate fluctuations of$6.9 million . We also experienced a decrease of$3.9 million primarily driven by the transition of our management contract for the Dungavel House Immigration Removal Centre in theUnited Kingdom to the government effectiveSeptember 30, 2021 . Operating Expenses % of Segment % of Segment 2022 Revenues 2021 Revenues $ Change % Change (Dollars in thousands) U.S. Secure Services$ 515,219 73.1 %$ 566,741 75.0 %$ (51,522 ) (9.1 )% Electronic Monitoring and Supervision Services 100,721 48.1 % 55,442 44.3 % 45,279 81.7 % Reentry Services 93,442 73.5 % 116,115 76.3 % (22,673 ) (19.5 )% International Services 87,570 89.2 % 94,862 87.0 % (7,292 ) (7.7 )% Total$ 796,952 69.9 %$ 833,160 73.0 %$ (36,208 ) (4.3 )% U.S. Secure Services Operating expenses forU.S. Secure Services decreased by$51.5 million in Six Months 2022 compared to Six Months 2021 primarily due to decreases of$80.2 million related to the ramp-down/deactivations of our company-owned D. Ray James, Rivers,Big Springs , Flightline, Reeves County Detention I & II and Great Plains Correctional Facilities, ourQueens Detention Facility , our managed-onlyBay and Graceville Correctional Rehabilitation Facilities, as well as our managed-onlyGeorge W. Hill Correctional Facility . Also included in this decrease is the transition of the operation of our company-ownedGuadalupe County Correctional Facility to theNew Mexico Corrections Department inNovember 2021 . We also experienced a net decrease of$6.2 million related to certain indirect expenses primarily related to actuarial insurance expense adjustment for general liability and employee medical. These decreases were partially offset by aggregate net increases of$16.6 million resulting from the contract activation and ramp up at our company-owned Moshannon Valley Processing Center, Desert View Annex as well as our company-ownedEagle Pass Detention Center . In addition, we experienced aggregate net increases in connection with transportation services, increased occupancies and the variable costs associated with those services of$18.3 million .
Electronic Monitoring and Supervision Services
Operating expenses increased by$45.3 million in Six Months 2022 compared to Six Months 2021 primarily due to increases in variable costs related to increases in average participant counts under ISAP.
Reentry Services
Operating expenses for Reentry Services decreased by$22.7 million during Six Months 2022 compared to Six Months 2021 primarily due to a decrease of$30.6 million as a result of the sale of our youth business which was effectiveJuly 1, 2021 . We also experienced a decrease of$2.2 million due to contract termination. These decreases were partially offset by increases of$3.3 million due to new/reactivated contracts, day reporting centers and programs including the activation of our company-owned Tampa Residential Reentry Center inTampa, Florida inSeptember 2021 . Also partially offsetting the decreases was a net aggregate increase of$6.8 million related to increased census levels at certain of our community-based and reentry centers due to increased programming needs and referrals. International Services Operating expenses for International Services decreased by$7.3 million in Six Months 2022 compared to Six Months 2021 primarily due to foreign exchange rate fluctuations of$6.1 million . We also experienced a net decrease of$1.2 million primarily driven by the transition of our management contract for the Dungavel House Immigration Removal Centre in theUnited Kingdom to the government effectiveSeptember 30, 2021 . 42 --------------------------------------------------------------------------------
Depreciation and Amortization
% of Segment % of Segment
2022 Revenue 2021 Revenue $ Change % Change
(Dollars in thousands)
U.S. Secure Services $ 41,896 5.9 % $ 41,248 5.5 % $ 648 1.6 %
Electronic Monitoring and
Supervision Services 15,519 7.4 % 15,304 12.2 % 215 1.4 %
Reentry Services 9,498 7.5 % 9,718 6.4 % (220 ) (2.3 )%
International Services 1,041 1.1 % 1,153 1.1 % (112 ) (9.7 )%
Total $ 67,954 6.0 % $ 67,423 5.9 % $ 531 0.8 %
U.S. Secure Services
U.S. Secure Services depreciation and amortization expense increased slightly in
Six Months 2022 compared to Six Months 2021 primarily due to renovations at
certain of our company-owned facilities. The increase was partially offset by
decreases related to certain assets becoming fully depreciated and or amortized
as well as certain asset dispositions at our company-owned facilities.
Electronic Monitoring and Supervision Services
Depreciation and amortization expense increased slightly in Six Months 2022 compared to Six Months 2021 primarily due to certain leasehold improvements and equipment additions.
Reentry Services
Reentry Services depreciation and amortization expense decreased slightly in Six Months 2022 compared to Six Months 2021 primarily due to certain asset dispositions at our company-owned centers.
International Services
Depreciation and amortization expense decreased slightly in Six Months 2022 compared to Six Months 2021 primarily due to foreign exchange rate fluctuations.
Other Unallocated Operating Expenses
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
General and Administrative Expenses $ 97,856 8.6 % $ 103,167 9.0 % $ (5,311 ) (5.1 )%
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 decreased in Six Months 2022 compared to Six
Months 2021 by $5.3 million primarily due to one-time employee restructuring
expenses of $7.5 million incurred in Six Months 2021. Partially offsetting this
decrease were increased professional fees for financial and legal advisors
assisting us in reviewing potential asset sales as well as normal professional,
consulting and other administrative expenses.
Non-Operating Expenses
Interest Income and Interest Expense
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
Interest Income $ 11,190 1.0 % $ 12,187 1.1 % $ (997 ) (8.2 )%
Interest Expense $ 64,846 5.7 % $ 63,897 5.6 % $ 949 1.5 %
Interest income decreased in Six Months 2022 compared to Six Months 2021 primarily due to the effect of foreign exchange rate fluctuations.
Interest expense increased in Six Months 2022 compared to Six Months 2021 primarily due to higher balances on the revolver component of our credit facility. During 2021, we drew down significant amounts on our revolver as a conservative precautionary step
43
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to preserve liquidity, maintain financial flexibility, and obtain additional
funds for general corporate purposes. Also contributing to the increase was the
effect of increases in the LIBOR rate.
Gain on Extinguishment of Debt
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
Gain on Extinguishment of Debt $ - 0.0 %$ 4,693 0.4 %$ (4,693 ) (100.0 )% During Six Months 2021, we repurchased$22.5 million in aggregate principal amount of our 5.125% Senior Notes due 2023 at a weighted average price of 90.68% for a total cost of$20.4 million . We also repurchased$17.2 million in aggregate principal amount of our 5.875% Senior Notes due 2024 at a weighted average price of 79.51% for a total cost of$13.7 million . As a result of these transactions, we recognized a gain on extinguishment of debt of$4.7 million , net of the write-off of associated unamortized deferred loan costs.
Gain on Dispositions of Real Estate
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
Gain on Dispositions of Real Estate $ 3,053 0.3 % $ 10,379 0.9 % $ (7,326 ) (70.6 )%
The net gain in Six Months 2022 was primarily due to the sale of our
Income Tax Provision
2022 Effective Rate 2021 Effective Rate $ Change % Change
(Dollars in thousands)
Provision for Income Taxes $ 36,860 29.3 % $ 12,999 12.8 % $ 23,861 183.6 %
The provision for income taxes and our effective tax rate increased during Six
Months 2022 compared to Six Months 2021 principally due to the Company electing
to terminate its REIT status at the end of 2021 and becoming a taxable C
corporation. In both Six Months 2022 and Six Months 2021, there was a net $1.9
million discrete tax expense. Included in the provision for income taxes in Six
Months 2022 and Six Months 2021 were a $2.0 million and $2.3 million discrete
tax expense related to stock compensation that vested during the respective
periods. We estimate our 2022 annual effective tax rate to be in the range of
approximately 27% to 29%, exclusive of any discrete items.
Equity in Earnings of Affiliates, net of Income Tax Provision
2022 % of Revenue 2021 % of Revenue $ Change % Change
(Dollars in thousands)
Equity in Earnings of Affiliates $ 2,715 0.2 % $ 4,007 0.4 % $ (1,292 ) (32.2 )%
Equity in earnings of affiliates, presented net of income tax provision, represents the earnings of SACS and GEOAmey in the aggregate. Equity in earnings of affiliates decreased during Six Months 2022 compared to Six Months 2021 primarily due to less favorable performance by GEOAmey.
Financial Condition
Capital Requirements
Our current cash requirements consist of amounts needed for working capital,
debt service, supply purchases, investments in joint ventures, and capital
expenditures related to either the development of new secure, processing and
reentry facilities, or the
44
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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.
We currently have contractual commitments for a number of projects using Company
financing. We estimate that the cost of these existing active capital projects
will be approximately $30.3 million of which $9.5 million was spent through June
30, 2022 . We estimate that the remaining capital requirements related to these
capital projects will be $20.8 million which will be spent through the remainder
of 2022.
We plan to fund all of our capital needs, including capital expenditures, from
cash on hand, cash from operations, borrowings under our Credit Facility and any
other financings which our management and Board, in their discretion, may
consummate. Currently, our primary source of liquidity to meet these
requirements is cash flow from operations and borrowings under our $900.0
million Revolver. Our management believes that our financial resources and
sources of liquidity will allow us to manage the continued impact of COVID-19 on
our business, financial condition, results of operations and cash flows. For the
full-year 2022, we have reduced our planned capital spending by deferring
capital expenditure projects where possible and closely managing our working
capital. We previously completed our annual budgeting process and have
identified cost savings at the corporate and facility level. Additionally, we
may from time to time pursue transactions to deleverage our balance sheet and
reduce our funded recourse debt, including our nearer term maturities consisting
of our 5.125% Senior Notes due 2023, our 5.875% Senior Notes due 2024 and our
Credit Facility, which transactions may include, subject to market conditions,
the proposed transactions set forth in the Transaction Support Agreement
discussed below, capital markets transactions, repurchases, redemptions,
exchanges or other refinancing of our existing debt, the potential sale of
additional assets and businesses and/or other strategic transactions. Our
management believes that cash on hand, cash flows from operations and
availability under our Credit Facility will be adequate to support our capital
requirements for 2022 as disclosed under "Capital Requirements" above. The
challenges posed by COVID-19, as well as the current political environment,
generally and on our business are continuing to evolve. Consequently, we will
continue to evaluate our financial position in light of future developments,
particularly those relating to the proposed transactions set forth in the
Transaction Support Agreement, the Executive Order and COVID-19.
Liquidity and Capital Resources
Indebtedness Transaction Support Agreement As previously reported, beginning inNovember 2021 , we commenced discussions with (i) theNoteholder Group of our Senior Notes, (ii) certain members of theTerm Lender Group under our Existing Credit Agreement and the Term Loans, and (iii) the Agent and certain lenders that have provided the Revolving Credit Loans and Revolving Credit Commitments under the Existing Credit Agreement concerning a potential refinancing, exchange, recapitalization, or other transaction or series of transactions to reduce our funded recourse debt and address its nearer term maturities. We undertook these discussions on a confidential basis pursuant to non-disclosure agreements with the applicable members of theNoteholder Group and theTerm Lender Group , and, in the case of the Agent and the RCF Lenders, the confidentiality provisions of the Existing Credit Agreement.
On
The Transaction Support Agreement contemplates, among other things, the following:
• Amending the Existing Credit Agreement to permit the indebtedness and
liens contemplated to be incurred under the Exchange Credit
Agreement, the New Notes and the 2028 Private Exchange Notes, among
other modifications;
• Exchanging approximately 81% of the aggregate principal amount of
Revolving Credit Commitments and the Term Loans outstanding under our
Existing Credit Agreement for a combination of cash and new
commitments and loans under a new credit agreement with a three-year
maturity extension to March 2027 ;
• With respect to certain Consenting RCF Lenders who opt out of
extending the maturity of their Revolving Credit Loans and Revolving
Credit Commitments, the assignment of an agreed portion of such
Revolving Credit Loans and Revolving Credit Commitments to certain
other Consenting Creditors, with such other Consenting Creditors
subsequently exchanging the Revolving Credit Loans thereby acquired
for term loans under the Exchange Credit Agreement;
45--------------------------------------------------------------------------------
• Commencing the Exchange Offers and Consent Solicitations for any and
all 2023 Notes and 2024 Notes; and
• Exchanging approximately $239 million of 2026 Notes held by
Consenting 2026 Noteholders as of July 18, 2022 , for newly issued
9.500% Senior Second Lien Secured Notes maturing on December 31, 2028
and amending certain provisions of the indenture for the 2026 Senior
Notes.
In July 2022 , Moody's Investors Service downgraded our issuer rating to Caa2 and
Standard & Poor's S&P Global downgraded our issuer rating to CC. These
downgrades were a direct result of the rating agencies' methodologies of how to
rate companies during the proposed Transaction. The ratings should be
re-assessed once the Transaction and new debt maturity profile discussed above
are finalized.
Refer to Note 15 - Subsequent Events of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
6.50% Exchangeable Senior Notes due 2026
OnFebruary 24, 2021 , our wholly-owned subsidiary, GEOCH, completed a private offering of$230 million aggregate principal amount of 6.50% Exchangeable Notes due 2026, which included the full exercise of the initial purchasers' over-allotment option to purchase an additional$30 million aggregate principal amount of Convertible Notes. The Convertible Notes will mature onFebruary 23, 2026 , unless earlier repurchased or exchanged. The Convertible Notes bear interest at the rate of 6.50% per year plus an additional amount based on the dividends paid by GEO on its common stock. Interest on the notes is payable semi-annually in arrears onMarch 1 andSeptember 1 of each year, beginning onSeptember 1, 2021 . Subject to certain restrictions on share ownership and transfer, holders may exchange the notes at their option prior to the close of business on the business day immediately precedingNovember 25, 2025 , but only under the following circumstances: (1) during the five consecutive business day period after any five consecutive trading day period, or the measurement period, in which the trading price per$1,000 principal amount of notes for each trading day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the exchange rate for the notes on each such trading day; or (2) upon the occurrence of certain specified corporate events. On or afterNovember 25, 2025 , until the close of business on the second scheduled trading day immediately preceding the maturity date of the notes, holders may exchange their notes at any time, regardless of the foregoing circumstances. Upon exchange of a note, we will pay or deliver, as the case may be, cash or a combination of cash and shares of our common stock. As ofJune 30, 2022 , conditions had not been met to exchange the notes. Upon conversion, we will pay or deliver, as the case may be, cash or a combination of cash and shares of common stock. The initial conversion rate is 108.4011 shares of common stock per$1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately$9.225 per share of common stock). The conversion rate will be subject to adjustment in certain events. If GEO or GEOCH undergoes a fundamental change, holders may require GEOCH to purchase the notes in whole or in part for cash at a fundamental change purchase price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date. We used the net proceeds from this offering, including the exercise in full of the initial purchasers' over-allotment option to fund the redemption of the then outstanding amount of approximately$194.0 million of our 5.875% Senior Notes due 2022, to re-purchase additional senior notes and we used the remaining net proceeds to pay related transaction fees and expenses, and for general corporate purposes of the Company. As a result of the redemption, deferred loan costs in the amount of approximately$0.7 million were written off to loss on extinguishment of debt during the six months endedJune 30, 2021 . The notes were offered inthe United States only to persons reasonably believed to be "qualified institutional buyers" pursuant to Rule 144A under the Securities Act, and outside ofthe United States to non-U.S. persons in compliance with Regulation S under the Securities Act. Neither the notes nor any of the shares of the Company's common stock issuable upon exchange of the notes, if any, have been, or will be, registered under the Securities Act and, unless so registered, may not be offered or sold inthe United States , except pursuant to an applicable exemption from the registration requirements under the Securities Act.
Credit Agreement
OnJune 12, 2019 , we entered into Amendment No. 2 to the Third Amended and Restated Credit Agreement (the "Credit Agreement") by and among the refinancing lenders party thereto, the other lenders party thereto, GEO and GEOCH and the administrative agent. Under the amendment, the maturity date of the revolver was extended toMay 17, 2024 . The borrowing capacity under the amended 46 -------------------------------------------------------------------------------- revolver remains at$900.0 million , and its pricing remains unchanged currently bearing interest at LIBOR plus 2.25%. As a result of the amendment, we incurred a loss on extinguishment of debt of$1.2 million during 2019 related to certain unamortized deferred loan costs. Additionally, loan costs of$4.7 million were incurred and capitalized in connection with the amendment. As ofJune 30, 2022 , we had approximately$758.0 million in aggregate borrowings outstanding under our term loan, approximately$735.0 million in borrowings under our revolver, and approximately$99.0 million in letters of credit which left approximately$66.0 million in additional borrowing capacity under the revolver. The weighted average interest rate on outstanding borrowings under the Credit Agreement as ofJune 30, 2022 was 3.20%.
In 2020 and 2021, we elected to draw down significant amounts in borrowings under the revolver component of our credit facility as a conservative precautionary step to preserve liquidity, maintain financial flexibility, and obtain additional funds for general corporate purposes.
Refer to Note 10 - Debt of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Australia - Ravenhall In connection with a design and build project agreement with theState of Victoria , inSeptember 2014 , we entered into a syndicated facility agreement (the "Construction Facility") to provide debt financing for construction of the project. The Construction Facility provided for non-recourse funding up to AUD 791.0 million, or approximately$545.2 million , based on exchange rates as ofJune 30, 2022 . In accordance with the terms of the contract, upon completion and commercial acceptance of the project in late 2017, theState of Victoria made a lump sum payment of AUD310 million, or approximately$213.7 million , based on exchange rates as ofJune 30, 2022 . The term of the Construction Facility was throughSeptember 2020 and bore interest at a variable rate quoted by certain Australian banks plus 200 basis points. OnMay 22, 2019 , we completed an offering of AUD 461.6 million, or$318.2 million , based on exchange rates as ofJune 30, 2022 , aggregate principal amount of the Non-Recourse Notes. The amortizing Non-Recourse Notes were issued byRavenhall 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 ofMarch 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.
Other
InAugust 2020 , we 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 throughSeptember 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 atJune 30, 2022 is$0.6 million of deferred loan costs incurred in the transaction. Refer to Note 9 - Derivative Financial Instruments and Note 10 - Debt of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion. In addition to the debt outstanding under the Credit Facility, the 6.50% Exchangeable Notes due 2026, the 6.00% Senior Notes due 2026, the 5.125% Senior Notes due 2023, and the 5.875% Senior Notes due 2024, we also have significant debt obligations which, although these obligations are non-recourse to us, require cash expenditures for debt service. Our significant debt obligations could have material consequences. See "Risk Factors-Risks Related to Our High Level of Indebtedness" in Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . We are exposed to various commitments and contingencies which may have a material adverse effect on our liquidity. We also have guaranteed certain obligations for certain of our international subsidiaries. These non-recourse obligations, commitments and contingencies and guarantees are further discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Debt Repurchases OnAugust 16, 2019 , our Board authorized us to repurchase and/or retire a portion of our 6.00% Senior Notes due 2026, the 5.875% Senior Notes due 2024, the 5.125% Senior Notes due 2023 and the 5.875% Senior Notes due 2022 (collectively the "GEO Senior Notes") and our term loan under our Amended Credit Agreement through cash purchases, in open market purchases, privately negotiated transactions, or otherwise, up to an aggregate maximum of$100.0 million , subject to certain limitations throughDecember 31, 2020 . OnFebruary 11, 2021 , our Board authorized a new repurchase program for repurchases/retirements of part of the above referenced GEO Senior Notes and term loan, subject to certain limitations up to an aggregate maximum of$100.0 million throughDecember 31, 2022 . During the first quarter of 2021, the 5.875% Senior Notes due 2022 were redeemed in connection with the offering of the Convertible Notes discussed above. During the six months endedJune 30, 2021 , we repurchased$22.5 million in aggregate principal amount of our 5.125% Senior Notes due 2023 at a weighted average price of 90.68% for a total cost of$20.4 million . Additionally, we repurchased$17.2 million in aggregate principal amount of our 5.875% Senior Notes due 2024 at a weighted average price of 79.51% for a total cost of$13.7 47 --------------------------------------------------------------------------------
million. As a result of these repurchases, we recognized a net gain on
extinguishment of debt of
Refer to Note 10 - Debt of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our indebtedness.
We consider opportunities for future business and/or asset acquisitions or dispositions as we deem appropriate when market conditions present opportunities. If we are successful in our pursuit of any new projects, our cash on hand, cash flows from operations and borrowings under the existing Credit Facility may not provide sufficient liquidity to meet our capital needs and we could be forced to seek additional financing or refinance our existing indebtedness. There can be no assurance that any such financing or refinancing would be available to us on terms equal to or more favorable than our current financing terms, or at all. Additionally, the magnitude, severity and duration of the COVID-19 pandemic may negatively impact the availability of opportunities for future business and/or asset acquisitions or asset dispositions and market conditions generally. In the future, our access to capital and ability to compete for future capital intensive projects will also be dependent upon, among other things, our ability to meet certain financial covenants in the indenture governing the 5.125% Senior Notes due 2023, the indenture governing the 5.875% Senior Notes due 2024, the indenture governing the 6.00% Senior Notes due 2026, the indenture governing our Convertible Notes and our Credit Agreement. 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 were in compliance with our debt covenants as ofJune 30, 2022 and we expect to continue 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 repurchases, redemptions and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases, redemptions or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Guarantor Financial Information
GEO's Convertible Notes, 6.00% Senior Notes due 2026, 5.125% Senior Notes due 2023 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 forThe GEO Group, Inc. ("Parent") and the Subsidiary Guarantors on a combined basis in accordance withSEC 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.
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