Introduction
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of numerous factors including, but not limited to, those described above under "Item 1A. Risk Factors," and "Forward-Looking Statements - Safe Harbor" below. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. We specialize in the ownership, leasing and management of secure, reentry facilities and processing centers 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, and community-based reentry facilities. We offer counseling, education and/or treatment for alcohol and drug abuse problems at most of the domestic facilities we manage. We are also a provider of innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants. Additionally, we have a contract with ICE to provide supervision and reporting services designed to improve the participation of non-detained aliens in the immigration court system. We develop new facilities based on contract awards, using our project development expertise and experience to design, construct and finance what we believe are state-of-the-art facilities that maximize security and efficiency. We also provide secure transportation services for offender and detainee populations as contracted domestically and in theUnited Kingdom through our joint venture GEOAmey. As ofDecember 31, 2021 , our worldwide operations included the management and/or ownership of approximately 86,000 beds at 106 correctional, detention and reentry facilities, including idle facilities, and also included the provision of servicing more than 210,000 individuals in a community-based environment on behalf of federal, state and local correctional agencies located in all 50 states. For the years endedDecember 31, 2021 and 2020, we had consolidated revenues of$2.3 billion and$2.4 billion , respectively, and we maintained an average company-wide facility occupancy rate of 85.4% including 74,834 active beds and excluding 11,200 idle beds for the year endedDecember 31, 2021 , and 86.1% including 89,499 active beds and excluding 3,334 idle beds and beds under development for the year endedDecember 31, 2020 .
REIT Election
OnDecember 2, 2021 , we announced that our Board unanimously approved a plan to terminate our REIT election 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 stockholders, which provides us with greater flexibility to use our free cash flow. EffectiveJanuary 1, 2021 , we are 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 . Refer to Note 16 - Income Taxes of the Notes to the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The Board also voted unanimously to discontinue our quarterly dividend payment and prioritize allocating our free cash flow to reduce debt.
Critical Accounting Policies and Estimates
The consolidated financial statements in this report are prepared in conformity withU.S. generally accepted accounting principles, or GAAP. As such, we are required to make certain estimates, judgments, and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. A summary of our significant accounting policies is described in Note 1 - Summary ofBusiness Organization , Operations and Significant Accounting Policies of the notes to the consolidated financial statements contained Part II, Item 8 of this Annual Report. The significant accounting policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following: Asset Impairments The following table summarizes the Company's idled facilities as ofDecember 31, 2021 and their respective carrying values, excluding equipment and other assets that can be easily transferred to other facilities. 50 --------------------------------------------------------------------------------
Design Net Carrying Value Facility Segment Capacity Year Idled December 31, 2021 Great Plains Correctional Facility Secure Services 1,940 2021 $ 68,479 D. Ray James Correctional Facility Secure Services 1,900 2021 52,724 Rivers Correctional Facility Secure Services 1,450 2021 39,644 Big Spring Correctional Facility Secure Services 1,732 2021 35,828 Flightline Correctional Facility Secure Services 1,800 2021 37,090McFarland Female Community Reentry Facility Secure Services 300 2020 11,498 Perry County Correctional Facility Secure Services 690 2015 11,186 Cheyenne Mountain Recovery Center Reentry Services 750 2020 17,145 Coleman Hall Reentry Services 350 2017 8,139 Total 10,912 $ 281,733 We review long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Events that would trigger an impairment assessment include deterioration of profits for a business segment that has long-lived assets, or when other changes occur that might impair recovery of long-lived assets such as the termination of a management contract or a prolonged decrease in population. If impairment indicators are present, we perform a recoverability test to determine whether or not an impairment loss should be measured. We test idle facilities for impairment upon notification that the facilities will no longer be utilized by the customer. If a long-lived asset is part of a group that includes other assets, the unit of accounting for the long-lived asset is its group. Generally, we group assets by facility for the purpose of considering whether any impairment exists. The estimates of recoverability are based on projected undiscounted cash flows associated with actual marketing efforts where available or, in other instances, projected undiscounted cash flows that are comparable to historical cash flows from management contracts at similar facilities and sensitivity analyses that consider reductions to such cash flows. Our sensitivity analyses include adjustments to projected cash flows compared to the historical cash flows due to current business conditions which impact per diem rates as well as labor and other operating costs, changes related to facility mission due to changes in prospective clients, and changes in projected capacity and occupancy rates. We also factor in prolonged periods of vacancies as well as the time and costs required to ramp up facility population once a contract is obtained. We perform the impairment analysis on an annual basis for each of the idle facilities and take into consideration updates each quarter for market developments affecting the potential utilization of each of the facilities in order to identify events that may cause the Company to reconsider the most recent assumptions. Such events could include negotiations with a prospective customer for the utilization of an idle facility at terms significantly less favorable than the terms used in our most recent impairment analysis, or changes in legislation surrounding a particular facility that could impact our ability to house certain types of individuals at such facility. Further, a substantial increase in the number of available beds at other facilities we own, or in the marketplace, could lead to deterioration in market conditions and projected cash flows. Although they are not frequently received, an unsolicited offer to purchase any of our idle facilities, at amounts that are less than their carrying value could also cause us to reconsider the assumptions used in the most recent impairment analysis. We have identified marketing prospects to utilize each of the remaining currently idled facilities and have determined that no current impairment exists. However, we can provide no assurance that we will be able to secure management contracts to utilize our idle facilities, or that we will not incur impairment charges in the future.
Reserves for Insurance Losses
The nature of our business exposes us to various types of third-party legal claims, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct claims brought by individuals within our care, medical malpractice claims, product liability claims, intellectual property infringement claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, contractual claims and claims for personal injury or other damages resulting from contact with our facilities, programs, electronic monitoring products, personnel or individuals within our care, including damages arising from the escape of an individual in our care or from a disturbance or riot at a facility. In addition, our management contracts generally require us to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. We maintain a broad program of insurance coverage for these general types of claims, except for claims relating to employment matters, for which we carry no insurance. There can be no assurance that our insurance coverage will be adequate to cover all claims to which we may be exposed. It is our general practice to bring merged or acquired companies into our corporate master policies in order to take advantage of certain economies of scale.
On
51 -------------------------------------------------------------------------------- with respect to its insurance programs, levels of liquidity and other requirements. GEO began procuring insurance policies to cover deductibles for workers' compensation, general liability, automobile liability, medical professional liability and directors and officers' liability as well as procuring insurance policies for its directors' and officers' excess liability and excess medical professional liability through Florina effectiveOctober 1, 2021 . Florina holds cash and investments in order to meet solvency requirements and meet financial obligations as presented, including an investment portfolio of marketable fixed income and equity securities. We currently maintain a general liability policy and excess liability policies with total limits of$70.0 million per occurrence and$90.0 million total general liability annual aggregate limits covering the operations ofU.S. Secure Services, Reentry services and Electronic Monitoring and Supervision Services. We have a claims-made liability insurance program with a specific loss limit of$40.0 million per occurrence and in the aggregate related to medical professional liability claims arising out of correctional healthcare services. We are uninsured for any claims in excess of these limits. We also maintain insurance to cover property and other casualty risks including, workers' compensation, environmental liability, cybersecurity liability and automobile liability. For most casualty insurance policies, we carry substantial deductibles or self-insured retentions of$4.0 million per occurrence for general liability and$5 million per occurrence for medical professional liability,$2.0 million per occurrence for workers' compensation,$2.5 million per occurrence for directors and officers' liability and$1.0 million per occurrence for automobile liability. In addition, certain of our facilities located inFlorida and other high-risk hurricane areas carry substantial windstorm deductibles. Since hurricanes are considered unpredictable future events, no reserves have been established to pre-fund for potential windstorm damage. Limited commercial availability of certain types of insurance relating to windstorm exposure in coastal areas and earthquake exposure mainly inCalifornia and thePacific Northwest may prevent us from insuring some of its facilities to full replacement value.
With respect to operations in
Of the insurance policies discussed above, our most significant insurance reserves relate to workers' compensation, general liability and auto claims. These reserves, which include Florina's reserves and GEO's legacy reserves, are undiscounted and were$74.2 million and$78.9 million as ofDecember 31, 2021 and 2020, respectively, and are included in Accrued Expenses in the accompanying Consolidated Balance Sheets. We use statistical and actuarial methods to estimate amounts for claims that have been reported but not paid and claims incurred but not reported. In applying these methods and assessing their results, we consider such factors as historical frequency and severity of claims at each of our facilities, claim development, payment patterns and changes in the nature of our business, among other factors. Such factors are analyzed for each of our business segments. Our estimates may be impacted by such factors as increases in the market price for medical services and unpredictability of the size of jury awards. We also may experience variability between our estimates and the actual settlement due to limitations inherent in the estimation process, including our ability to estimate costs of processing and settling claims in a timely manner as well as our ability to accurately estimate our exposure at the onset of a claim. Because we have high deductible insurance policies, the amount of our insurance expense is dependent on our ability to control our claims experience. If actual losses related to insurance claims significantly differ from our estimates, our financial condition, results of operations and cash flows could be materially adversely impacted.
We have recorded goodwill as a result of our business combinations.Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired. Our goodwill is not amortized and is tested for impairment annually on the first day of the fourth quarter, and whenever events or circumstances arise that indicate impairment may have occurred. Impairment testing is performed for all reporting units that contain goodwill. The reporting units are the same as the reportable segments forU.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services and International Services. Under provisions of the qualitative analysis, when testing goodwill for impairment, we first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a quantitative impairment test to identify goodwill impairment and measure the amount of goodwill impairment loss to be recognized, if any. The qualitative factors used by GEO's management to determine the likelihood that the fair value of the reporting unit is less than the carrying amount include, among other things, a review of overall economic conditions and their current and future impact on our existing business, our financial performance and stock price, industry outlook and market competition. With respect to the qualitative assessments, management determined that, as ofOctober 1, 2021 , it was more likely than not that the fair values of the reporting units exceeded their carrying values. During the year endedDecember 31, 2020 , in connection with our annual impairment test, we performed a quantitative analysis for our Reentry Services Segment using a third-party valuation firm to determine the estimated fair value of the reporting unit using a discounted cash flow model. A discount rate of 10% was utilized to adjust the cash flow forecasts based on management's estimate of a market participant's weighted-average cost of capital. Growth rates for sales and profits were 52 -------------------------------------------------------------------------------- determined using inputs from our long-term planning process. We also made estimates for discount rates and other factors based on market conditions, historical experience and other economic factors. Changes in these factors could significantly impact the fair value of the reporting unit. With respect to the Reentry Services reporting unit that was assessed quantitatively, management determined that the carrying value exceeded its fair value due to future declines in cash flow projections primarily due to the negative impact of the COVID-19 pandemic on our reentry facilities. As such, we recorded a goodwill impairment charge of$21.1 million during the year endedDecember 31, 2020 . A change in one or combination of the assumptions discussed above could have impacted the estimated fair value of the reporting unit. If our expectations of future results and cash flows decrease significantly or other economic conditions deteriorate, goodwill may be further impaired.
Other Intangible Assets, Net
We have also recorded other finite and indefinite lived intangible assets as a result of previously completed business combinations. Other acquired finite and indefinite lived intangible assets are recognized separately if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of our intent to do so. Our intangible assets include facility management contracts, trade names and technology. The facility management contracts represent customer relationships in the form of management contracts acquired at the time of each business combination; the value ofBI's and Protocol Criminal Justice, Inc.'s ("Protocol") trade names represent, among other intangible benefits, name recognition to its customers and intellectual property rights; and the acquired technology represents BI's innovation with respect to its GPS tracking, monitoring, radio frequency monitoring, voice verification monitoring and alcohol compliance systems, Protocol's innovation with respect to its customer relationship management software andSoberlink, Inc.'s innovation with respect to its alcohol monitoring devices. When establishing useful lives, we consider the period and the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up; or, if that pattern cannot be reliably determined, using a straight-line amortization method over a period that may be shorter than the ultimate life of such intangible asset. We also consider the impact of renewal terms when establishing useful lives. We currently amortize our acquired facility management contracts over periods ranging from three to twenty-one years and its acquired technology over seven years to eight years. There is no residual value associated with our finite-lived intangible assets. We review our trade name assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. We do not amortize its indefinite lived intangible assets. We review our indefinite lived intangible assets annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. These reviews resulted in no significant impairment to the carrying value of the indefinite lived intangible assets for all periods presented. We record the costs associated with renewal and extension of facility management contracts as expenses in the period they are incurred.
Recent Accounting Pronouncements
The Company implemented the following accounting standards during the year ended
InNovember 2020 , theSEC issued a final rule, Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, that amended certainSEC disclosure requirements to primarily modernize, enhance and simplify financial statement disclosures required by Regulation S-K. We have adopted provisions in the rule in the fourth quarter of fiscal 2021, which primarily resulted in the removal of the selected financial data previously required by Item 301 and the removal of the quarterly financial data previously required by Item 302. InAugust 2020 , the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options". The guidance in this update simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU also simplify the guidance in ASC 815-40, "Derivatives and Hedging: Contracts in an Entity's Own Equity" by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity's ability to rebut the presumption of share settlement for instruments that may be settled in cash or shares. Early adoption is permitted, but no earlier than fiscal years beginning afterDecember 15, 2020 , including interim periods within those fiscal years. We elected to early adopt this standard effectiveJanuary 1, 2021 . The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows. InAugust 2018 , the FASB issued ASU No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715.20)" as a part of its disclosure framework project. The amendments in this update remove, modify and add certain disclosures primarily related to amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, explanations for reasons for significant gains and losses related to changes in the benefit obligation for the period, and projected and accumulated benefit obligations. The new standard was effective for us beginningJanuary 1, 2021 . The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows. 53 --------------------------------------------------------------------------------
The following accounting standards will be adopted in future periods:
InMarch 2020 , the FASB issued ASU 2020-04, "Reference Reform Rate (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," to provide temporary optional expedients and exceptions to the contract modifications, hedge relationships and other transactions affected by reference rate reform if certain criteria are met. This ASU, which was effective upon issuance and may be applied throughDecember 31, 2022 , is applicable to all contracts and hedging relationships that reference the London Interbank Offered Rate or any other reference rate expected to be discontinued. We are currently evaluating the impact of reference rate reform and the potential application of this guidance.
Other recent accounting pronouncements issued by the FASB (including its
Results of Operations
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 below. 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 will report the electronic monitoring and supervision services operation as a separate reportable segment. This new segment will be 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, our GEO Care reportable segment was renamed to Reentry Services and will include 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 years endedDecember 31, 2021 , 2020 and 2019 to reflect this change. Refer to Note 15 - Business Segments and Geographic Information of the Notes to the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The following discussion should be read in conjunction with our consolidated financial statements and the notes to the consolidated financial statements accompanying this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in the forward-looking statements as a result of certain factors, including, but not limited to, those described under "Item 1A. Risk Factors" and those included in other portions of this report. 2021 versus 2020 Revenues % of % of % 2021 Revenue 2020 Revenue $ Change Change (Dollars in thousands) U.S. Secure Services$ 1,488,936 66.0 %$ 1,571,216 66.9 %$ (82,280 ) (5.2 )% Electronic Monitoring and Supervision Services 278,934 12.4 % 241,944 10.3 % 36,990 15.3 % Reentry Services 274,893 12.2 % 309,398 13.2 % (34,505 ) (11.2 )% International Services 213,849 9.5 % 227,540 9.7 % (13,691 ) (6.0 )% Total$ 2,256,612 100.0 %$ 2,350,098 100.0 %$ (93,486 ) (4.0 )% U.S. Secure Services Revenues decreased by$82.3 million in 2021 compared to 2020 due to aggregate net decreases of$194.7 million primarily due to the ramp-down/deactivations of our company-owned D. Ray James, Rivers,Moshannon Valley , Flightline,Big Springs , Reeves I & II and Great Plains Correctional Facilities as well as ourQueens Detention Facility and McFarland Female Community Reentry Facility. We also experienced the ramp-down/deactivations of our managed-only Bay and Graceville Correctional Facilities. These decreases were partially offset by aggregate net increases of$72.5 million resulting from the activations in late 2020 and early 2021 of our company-owned Golden State, Desert View and Central Valley Annexes and our company-ownedEagle Pass Detention Center and our managed-only contract for theEl Centro Detention Center inCalifornia which was effective inDecember 2020 . In addition, we experienced aggregate net increases in populations, transportation services and/or rates of$39.9 million primarily due to increased occupancy at our USMS facilities. The number of compensated mandays inU.S. Secure Services facilities was approximately 18.7 million in 2021 and 21.4 million in 2020. We experienced an aggregate net decrease of approximately 2,700,000 mandays as a result of net decreases in population as a result of 54 -------------------------------------------------------------------------------- the impact of the COVID-19 pandemic as well as contract terminations, partially offset by contract activations discussed above. We look at the average occupancy in our facilities to determine how we are managing our available beds. The average occupancy is calculated by taking compensated mandays as a percentage of capacity. The average occupancy in ourU.S. Secure Services facilities was 88.2% and 88.3% of capacity in 2021 and 2020, respectively, excluding idle facilities.
Electronic Monitoring and Supervision Services
Revenues increased by
Reentry Services
Revenues decreased by$34.5 million in 2021 compared to 2020 primarily related to decreases of$10.9 million due to contract terminations/closures of underutilized facilities which have been impacted by the COVID-19 pandemic and other economic factors. Additionally, we experienced a decrease of$38.3 million as a result of the sale of our youth business which was effectiveJuly 1, 2021 . We also experienced net decreases of$1.6 million due to decreases in census levels at certain of our community-based and reentry centers due to declines in programs as a result of lower levels of referrals by federal, state and local agencies primarily due to the impact of the COVID-19 pandemic. These decreases were partially offset by increases of$16.3 million due to new/reactivated contracts and programs.
International Services
Revenues for International Services decreased by$13.7 million in 2021 compared to 2020. We experienced a net decrease in revenues of$27.6 million which was primarily due to the transition of theArthur Gorrie Correctional Centre to government operation inState of Queensland, Australia at the end ofJune 2020 . Partially offsetting this decrease was an increase due to foreign exchange rate fluctuations of$14.0 million . Operating Expenses % of % of Segment Segment % 2021 Revenues 2020 Revenues $ Change Change (Dollars in thousands) U.S. Secure Services$ 1,112,290 74.7 %$ 1,191,562 75.8 %$ (79,272 ) (6.7 )% Electronic Monitoring and Supervision Services 121,442 43.5 % 112,844 46.6 % 8,598 7.6 % Reentry Services 205,992 74.9 % 261,359 84.5 % (55,367 ) (21.2 )% International Services 189,322 88.5 % 205,730 90.4 % (16,408 ) (8.0 )% Total$ 1,629,046 $ 1,771,495 $ (142,449 ) (8.0 )%
Operating expenses consist of those expenses incurred in the operation and management of our Secure Services, Electronic Monitoring and Supervision Services, Reentry Services and International Services segments.
Operating expenses forU.S. Secure Services decreased by$79.3 million in 2021 compared to 2020 primarily due to decreases of$130.0 million related to the ramp-down/deactivations of our company-owned D. Ray James, Rivers,Moshannon Valley ,Big Springs , Flightline, Reeves I & II and Great Plains Correctional Facilities as well as ourQueens Detention Facility and McFarland Female Community Reenty Facility. We also experienced the ramp-down/deactivations of our managed-only Bay and Graceville Correctional Facilities. These decreases were partially offset by increases of$45.1 million resulting from the activations in late 2020 and early 2021 of our company-owned Golden State, Desert View and Central Valley Annexes, our company-ownedEagle Pass Detention Center and our managed-only contract for theEl Centro Detention Center inCalifornia which was effective inDecember 2020 . Additionally, we experienced aggregate net increases of$5.6 million primarily due to increased occupancy at our USMS facilities mainly due to the large increase in the number of crossings at the Southern border during 2021 partially offset by decreased occupancy at our ICE facilities and the associated decrease in related variable costs.
Electronic Monitoring and Supervision Services
Operating expenses increased by
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Reentry Services
Operating expenses decreased by$55.4 million during 2021 compared to 2020 primarily due to aggregate decreases of$28.0 million related to contract terminations/closures of underutilized facilities as a result of the COVID-19 pandemic and other economic factors. We also experienced a decrease of$36.3 million as a result of the sale of our youth business which was effectiveJuly 1, 2021 . These decreases were partially offset by increases of$4.2 million due to new/reactivated contracts and programs and day reporting center openings and increases of$4.7 million in census levels at certain of our community-based and reentry centers. Operating expenses as a percentage of revenue decreased in 2021 compared to 2020 primarily due to the closure of underperforming/underutilized facilities as discussed above.
International Services
Operating expenses for International Services decreased by$16.4 million in 2021 compared to 2020. We experienced a net decrease in operating expenses of$31.4 million which was primarily due to the transition of theArthur Gorrie Correctional Centre to government operation inState of Queensland, Australia at the end ofJune 2020 . This decrease was partially offset by an increase due to foreign exchange rate fluctuations of$15.0 million .
Depreciation and Amortization
% of % of Segment Segment % 2021 Revenue 2020 Revenue $ Change Change (Dollars in thousands) U.S. Secure Services$ 83,721 5.6 %$ 80,702 5.1 %$ 3,019 3.7 % Electronic Monitoring and Supervision Services 30,422 10.9 % 31,678 13.1 % (1,256 ) (4.0 )% Reentry Services 18,773 6.8 % 20,154 6.5 % (1,381 ) (6.9 )% International Services 2,261 1.1 % 2,146 0.9 % 115 5.4 % Total$ 135,177 6.0 %$ 134,680 5.7 %$ 497 0.4 % U.S. Secure ServicesU.S. Secure Services depreciation and amortization expense increased in 2021 compared to 2020 primarily due to renovations in connection with our contract activations at certain of our company-owned facilities as previously discussed.
Electronic Monitoring and Supervision Services
Depreciation and amortization expense decreased in 2021 compared to 2020 due to certain assets becoming fully depreciated and/or amortized.
Reentry Services
Depreciation and amortization expense decreased in 2021 compared to 2020
primarily due to certain asset dispositions as discussed under
International Services
Depreciation and amortization expense increased slightly in 2021 compared to 2020 primarily due to foreign exchange rate fluctuations.
Other Unallocated Operating Expenses
2021 % of Revenue 2020 % of Revenue $ Change % Change (Dollars in thousands) General and Administrative Expenses$ 204,306 9.1 %$ 193,372 8.2 %$ 10,934 5.7 % 56
-------------------------------------------------------------------------------- General and administrative expenses comprise substantially all of our other unallocated operating expenses which primarily includes corporate management salaries and benefits, professional fees and other administrative expenses. General and administrative expenses increased in 2021 compared to 2020 by$10.9 million primarily due to one-time employee restructuring expenses of$9.0 million . We also experienced an increase of$6.6 million in professional fees for financial and legal advisors assisting us in reviewing capital structure alternatives. Partially offsetting this increase was a decrease in stock-based compensation of$4.7 million along with less travel, marketing, business development and other corporate administrative expenses primarily due to the impacts of the COVID-19 pandemic.
Goodwill Impairment Charges
2021 % of Revenue 2020
% of Revenue $ Change % Change
(Dollars in thousands) Goodwill Impairment Charges $ - 0.0 %$ 21,146 0.9 %$ (21,146 ) 100.0 % In connection with our annual goodwill testing, in 2020 we determined that the carrying value of our reentry services reporting unit exceeded its fair value as a result of projections of future declines in cash flow primarily due to the impact of the COVID-19 pandemic. As such, we recorded a goodwill impairment charge of$21.1 million during the year endedDecember 31, 2020 . Refer to Note 1 - Summary ofBusiness Organization , Operations and Significant Accounting Policies -Goodwill and Other Intangible Assets of the Notes to the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K
Non-Operating Income and Expense
Interest Income and Interest Expense
% of % of 2021 Revenue 2020 Revenue $ Change % Change (Dollars in thousands) Interest Income$ 24,007 1.1 %$ 23,072 1.0 %$ 935 4.1 % Interest Expense$ 129,460 5.7 %$ 126,837 5.4 %$ 2,623 2.1 % Interest income increased in 2021 compared to 2020 primarily due to higher cash balances at our international subsidiaries along with the effect of foreign exchange rate fluctuations related to our contract receivable balance for our facility in Ravenhall,Australia . Interest expense increased in 2021 compared to 2020 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 to preserve liquidity, maintain financial flexibility, and obtain additional funds for general corporate purposes. Partially offsetting the increase was the effect of decreases in the LIBOR rate. Refer to Note 12- Debt of the Notes to the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Gain on Extinguishment of Debt
% of % of 2021 Revenue 2020 Revenue $ Change % Change (Dollars in thousands) Gain on Extinguishment of Debt$ 4,693 0.2 %$ 5,319
0.2 %
During 2021, we repurchased$22.5 million in aggregate principal amount of our 5.125% Senior Notes 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 at a weighted average price of 79.51% for a total cost of$13.7 million . As a result of these repurchases, we recognized a net gain on extinguishment of debt of$4.7 million , net of the write-off of associated unamortized deferred loan costs. During 2020, we repurchased approximately$7.5 million in aggregate principal amount of our 5.875% Senior Notes at a weighted average price of 77.28% for a total cost of$5.8 million . Additionally, during 2020, we repurchased approximately$18.2 million in aggregate principal amount of our 5.125% Senior Notes at a weighted average price of 78.99% for a total cost of$14.3 million . As a result of these repurchases, we recognized a net gain on extinguishment of debt of$5.3 million during the year endedDecember 31, 2020 .
Refer to Note 12- Debt of the Notes to the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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2021 % of Revenue 2020 % of Revenue $ Change % Change (Dollars in thousands)Net Gain (Loss) on Disposition of Assets$ 5,499 0.2 %$ (6,831 ) (0.3 )%$ 12,330 (180.5 )% The net gain on disposition of assets in 2021 was primarily due to the sale of our interest in Talbot Hall, located inNew Jersey , and the sale of our company-owned McCabe Center, located inTexas . The gain was partially offset by a loss on the divestiture of our youth division onJuly 1, 2021 . Refer to Note 17- Commitments, Contingencies and Other Matters of the Notes to the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The net loss on disposition of assets in 2020 was primarily due to the impairment of our leased Logan andToler Hall facilities, located inNew Jersey .
Provision for Income Taxes
Effective Effective 2021 Rate 2020 Rate $ Change % Change (Dollars in thousands) Provision for Income Taxes$ 122,730 63.6 %$ 20,463 16.5 %$ 102,267 500 % The provision for income taxes in 2021 increased compared to 2020 along with the effective tax rate principally due to the Company electing to terminate its REIT status and become a taxable C corporation. In 2021, there was a$74.6 million discrete tax expense, inclusive of a one-time, non-cash deferred tax charge of$70.8 million related to the termination of the REIT status and a$3.6 million discrete tax expense related to stock compensation that vested during the period which is similar to the related amount incurred in 2020. In contrast, in 2020, there was a$4.2 million discrete tax expense, inclusive of a$3.6 million discrete tax expense related to stock compensation that vested during the period. Furthermore, the effective tax rate increased as a result of the goodwill impairment, which is not deductible for tax purposes. For years prior to 2021, we were a REIT and as such were required to distribute at least 90% of our REIT taxable income to shareholders and in turn were allowed a deduction for the distribution at the REIT level. Our wholly owned taxable REIT subsidiaries were fully subject to federal, state and foreign income taxes, as applicable. 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
% of % of 2021 Revenue 2020 Revenue $ Change % Change (Dollars in thousands) Equity in Earnings of Affiliates$ 7,141 0.3 %$ 9,166
0.4 %
Equity in earnings of affiliates, presented net of income taxes, represents the earnings of SACS and GEOAmey in the aggregate. Equity in earnings of affiliates in 2021 compared to 2020 decreased primarily due to unfavorable performance at GEOAmey. 58
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2020 versus 2019 Revenues % of % of % 2020 Revenue 2019 Revenue $ Change Change (Dollars in thousands) U.S. Secure Services$ 1,571,216 66.9 %$ 1,601,679 64.6 %$ (30,463 ) (1.9 )% Electronic Monitoring and Supervision Services 241,944 10.3 % 256,954 10.4 % (15,010 ) (5.8 )% Reentry Services 309,398 13.2 % 357,295 14.4 % (47,897 ) (13.4 )% International Services 227,540 9.7 % 261,994 10.6 % (34,454 ) (13.2 )% Total$ 2,350,098 100.0 %$ 2,477,922 100.0 %$ (127,824 ) (5.2 )%
Revenues decreased in 2020 by$30.5 million compared to 2019 primarily due to net decreases in populations of$36.5 million at our ICE processing centers and USMS facilities due to the COVID-19 pandemic, which resulted in declines in crossings and apprehensions along the Southwest border, as well as decreases in court sentencing at the federal levels. Additionally, revenues decreased by$66.1 million due to the discontinuation of ourCalifornia Modified Community Correctional Facility contracts along with other contract discontinuations. Various governmental agencies have also taken steps to decrease the number of those in custody to adhere to social distancing protocols. We also experienced net decreases in population, transportation services and/or rates of$3.7 million at our BOP and state facilities. These decreases were partially offset by increases of$75.8 million resulting from the activation of our contracts at our company-owned and previously idled South Louisiana Processing Center inBasile, Louisiana during the third quarter of 2019, our company-owned and previously idledNorth Lake Correctional Facility inBaldwin, Michigan which was activated onOctober 1, 2019 , our managed-only contract for theEl Centro Detention Center inCalifornia which was effective inDecember 2019 , the activation of our company-owned Golden State Annex facility inCalifornia which was effective inSeptember 2020 as well as the activation of the county-owned Reeves County Detention Center I & II in the third quarter of 2019. The number of compensated mandays inU.S. Secure Services facilities was approximately 21.7 million in 2020 and 23.5 million in 2019. We experienced an aggregate net decrease of approximately 1,800,000 mandays as a result of net decreases in population as a result of the impact of the COVID-19 pandemic as well as contract terminations, partially offset by contract activations discussed above. We look at the average occupancy in our facilities to determine how we are managing our available beds. The average occupancy is calculated by taking compensated mandays as a percentage of capacity. The average occupancy in ourU.S. Secure Services facilities was 89.3% and 94.9% of capacity in 2020 and 2019, respectively, excluding idle facilities.
Electronic Monitoring and Supervision Services
Revenues decreased in 2020 by
Reentry Services
Revenues decreased in 2020 by$47.9 million compared to 2019 primarily due to aggregate decreases of$42.4 million related to contract discontinuations/closures of underutilized facilities which have been impacted by the COVID-19 pandemic and other factors. In addition, we experienced decreases of$11.4 million related to net decreases in census levels at certain of our community-based and reentry centers due to declines in programs as a result of lower levels of referrals by federal, state and local agencies primarily due to the impact of the COVID-19 pandemic. These decreases were partially offset by increases of$5.9 million due to new/reactivated contracts and programs. International Services Revenues for International Services decreased by$34.5 million in 2020 compared to 2019 which was primarily due to the transition of theArthur Gorrie Correctional Centre to government operation inState of Queensland, Australia at the end ofJune 2020 along with the effects of foreign exchange rate fluctuations. 59 --------------------------------------------------------------------------------
Operating Expenses % of % of Segment Segment % 2020 Revenues 2019 Revenues $ Change Change (Dollars in thousands) U.S. Secure Services$ 1,191,562 75.8 %$ 1,199,314 74.9 %$ (7,752 ) (0.6 )% Electronic Monitoring and Supervision Services 112,844 46.6 % 122,588 47.7 % (9,744 ) (7.9 )% Reentry Services 261,359 84.5 % 293,036 82.0 % (31,677 ) (10.8 )% International Services 205,730 90.4 % 243,127 92.8 % (37,397 ) (15.4 )% Total$ 1,771,495 $ 1,858,065 $ (86,570 ) (4.7 )% U.S. Secure Services Operating expenses forU.S. Secure Services decreased by$7.8 million in 2020 compared to 2019. We experienced decreases of$31.5 million at certain of our facilities primarily due to contract discontinuations. Additionally, we experienced aggregate net decreases of$26.8 million related to decreases in population, transportation services and the variable costs associated with those services primarily as a result of the impacts of the COVID-19 pandemic as described above. These decreases were partially offset by increases of$50.5 million from the activation of our contracts at our company-owned and previously idled South Louisiana Processing Center inBasile, Louisiana during the third quarter of 2019, our company-owned and previously idledNorth Lake Correctional Facility inBaldwin, Michigan which was activated onOctober 1, 2019 , our managed-only contract for theEl Centro Detention Center inCalifornia which was effective inDecember 2019 as well as activation of our company-owned Golden State Annex facility inCalifornia which was effective inSeptember 2020 .
Electronic Monitoring and Supervision Services
Operating expenses decreased by
Reentry Services
Operating expenses for Reentry Services decreased by$31.7 million during 2020 compared to 2019 primarily due to net decreases of$30.2 million from contract discontinuations/closures of underutilized facilities. Additionally, we experienced$7.3 million of net decreases related to census levels at certain of our community-based reentry centers and day reporting centers due to the impact of the COVID-19 pandemic. These decreases were partially offset by increases of$5.8 million due to new/reactivated contracts and programs and day reporting center openings. International Services Operating expenses for International Services decreased by$37.4 million in 2020 compared to 2019 which was primarily due to the transition of theArthur Gorrie Correctional Centre to government operation inState of Queensland, Australia at the end ofJune 2020 along with the effects of foreign exchange rate fluctuations. Depreciation and Amortization % of % of Segment Segment % 2020 Revenue 2019 Revenue $ Change Change (Dollars in thousands) U.S. Secure Services$ 80,702 5.1 %$ 78,974 4.9 %$ 1,728 2.2 % Electronic Monitoring and Supervision Services 31,678 13.1 % 29,828 11.6 % 1,850 6.2 % Reentry Services 20,154 6.5 % 19,953 5.6 % 201 1.0 % International Services 2,146 0.9 % 2,070 0.8 % 76 3.7 % Total$ 134,680 6.0 %$ 130,825 5.6 %$ 3,855 2.9 % 60
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U.S. Secure ServicesU.S. Secure Services depreciation and amortization expense increased in 2020 compared to 2019 primarily due to renovations in connection with our contract activations at certain of our company-owned facilities as previously discussed.
Electronic Monitoring and Supervision Services
Electronic Monitoring and Supervisions Services depreciation and amortization expense increased in 2020 compared to 2019 due to certain leasehold improvement and equipment additions. Reentry Services
Reentry Services depreciation and amortization expense increased in 2020 compared to 2019 primarily due to renovations at certain of our centers.
International Services
Depreciation and amortization expense increased slightly in 2020 compared to 2019 as a result of renovations during 2019 and 2020 at several of our international facilities.
Other Unallocated Operating Expenses
General and Administrative Expenses
2020 % of Revenue 2019 % of Revenue $ Change % Change (Dollars in thousands) General and Administrative Expenses$ 193,372 8.2 %$ 185,926 7.5 %$ 7,446 4.0 % General and administrative expenses comprise substantially all of our other unallocated operating expenses which primarily includes corporate management salaries and benefits, professional fees and other administrative expenses. General and administrative expenses increased in 2020 compared to 2019 primarily due to higher stock-based compensation expense of$1.6 million ,$2.5 million in insurance expense associated with policy renewals as well as normal personnel and compensation adjustments, professional, consulting, business development and other administrative expenses including COVID-19 related expenses. These increases were partially offset by less travel, marketing and other corporate administrative expenses primarily due to the impacts of the COVID-19 pandemic. Goodwill Impairment Charges 2020 % of Revenue 2019 % of Revenue $ Change % Change (Dollars in thousands) Goodwill Impairment Charges$ 21,146 0.9 % $ - 0.0 %$ 21,146 100.0 % In connection with our annual goodwill testing, we determined that the carrying value of our reentry services reporting unit exceeded its fair value as a result of projections of future declines in cash flow primarily due to the impact of the COVID-19 pandemic. As such, we recorded a goodwill impairment charge of$21.1 million during the year endedDecember 31, 2020 .
Non-Operating Income and Expense
Interest Income and Interest Expense
% of % of 2020 Revenue 2019 Revenue $ Change % Change (Dollars in thousands) Interest Income$ 23,072 1.0 %$ 28,934 1.2 %$ (5,862 ) (20.3 )% Interest Expense$ 126,837 5.4 %$ 151,024 6.1 %$ (24,187 ) (16.0 )% 61
-------------------------------------------------------------------------------- Interest income decreased in 2020 compared to 2019 primarily due to the effect of foreign exchange rate fluctuations related to our contract receivable balance for our facility in Ravenhall,Australia . Interest expense decreased in 2020 compared to 2019 primarily due to lower interest rates on our variable rate debt. Also contributing to the decrease was a reduction in higher interest rate debt balances. During 2019, we repurchased approximately$56.0 million in aggregate principal amount of its 5.875% Senior Notes due 2022. During 2020, we repurchased approximately$7.5 million in aggregate principal amount of its 5.875% Senior Notes due 2024. Additionally, during 2020, we repurchased approximately$18.2 million in aggregate principal amount of its 5.125% Senior Notes due 2023.
Gain (Loss) on Extinguishment of Debt
% of % of 2020 Revenue 2019 Revenue $ Change % Change (Dollars in thousands) Gain (Loss) on Extinguishment of Debt$ 5,319 0.2 % $ (4,795
) -0.2 %
During 2020, we repurchased approximately$7.5 million in aggregate principal amount of our 5.875% Senior Notes due 2024 at a weighted average price of$78.99 for a total cost of$5.8 million . Additionally, during 2020, we repurchased approximately$18.2 million in aggregate principal amount of our 5.125% Senior Notes due 2023 at a weighted average price of$77.28 for a total cost of$14.4 million . As a result of these repurchase, we incurred a net gain on extinguishment of debt of$5.3 million . OnMay 22, 2019 , we completed an offering of non-recourse notes related to our Ravenhall facility inAustralia . The net proceeds from this offering were used to refinance our outstanding construction facility. As a result of the transaction, we incurred a$4.5 million loss on extinguishment of debt related to swap termination fees and unamortized deferred loan costs associated with the construction facility. Additionally, onJune 12, 2019 , GEO entered into Amendment No. 2 to our credit agreement. Under the amendment, the maturity date of our revolver has been extended toMay 17, 2024 . As a result of the amendment, we incurred a loss on extinguishment of debt of$1.2 million related to certain unamortized deferred loan costs. Additionally, during 2019, we repurchased approximately$56 million in aggregate principal amount of our 5.875% Senior Notes due 2022 at a weighted average price of 97.55% for a total cost of$54.7 million . As the result of the repurchases, we recognized a net gain on extinguishment of debt of$0.9 million which partially offset the loss discussed above.
Net Loss on Disposition of Assets
2020 % of Revenue 2019 % of Revenue $ Change % Change (Dollars in thousands) Loss on Disposition of Assets$ 6,831 0.3 %$ 2,693 0.1 %$ 4,138 153.7 % The net loss on disposition of assets in 2020 was primarily due to the impairment of our leased Logan andToler Hall facilities, located inNew Jersey . The net loss on disposition of assets in 2019 was primarily due to the impairment of our Penn Pavillion regional office inNew Jersey and ourJB Evans Correctional Center inLouisiana . Provision for Income Taxes Effective Effective 2020 Rate 2019 Rate $ Change % Change (Dollars in thousands) Provision for Income Taxes$ 20,463 16.5 %$ 16,648 9.6 %$ 3,815 23 % The provision for income taxes in 2020 increased compared to 2019 along with the effective tax rate which is due to a change in the composition of our income between our REIT and TRS subsidiaries and certain non-recurring items. In 2020, there was a$4.2 million discrete tax expense, inclusive of a$3.6 million discrete tax expense related to stock compensation that vested during the period. In contrast, in 2019, there was a$0.5 million discrete tax benefit, net of a$0.2 million discrete tax expense related to stock compensation that vested during the period. Furthermore, the effective tax rate increased as a result of the impairment, which is not deductible for tax purposes. As a REIT, we were required to distribute at least 90% of our taxable income to shareholders and in turn are allowed a deduction for the distribution at the REIT level. Our wholly owned taxable REIT subsidiaries continued to be fully subject to federal, state and foreign income taxes, as applicable. 62 --------------------------------------------------------------------------------
Equity in Earnings of Affiliates
% of % of 2020 Revenue 2019 Revenue $ Change % Change (Dollars in thousands) Equity in Earnings of Affiliates$ 9,166 0.4 %$ 9,532
0.4 %
Equity in earnings of affiliates, presented net of income taxes, represents the earnings of SACS and GEOAmey in the aggregate. Equity in earnings of affiliates in 2020 compared to 2019 decreased slightly primarily due to the effects of foreign exchange rate fluctuations.
Financial Condition
Capital Requirements
Our current cash requirements consist of amounts needed for working capital, debt service, supply purchases, investments in joint ventures, and capital expenditures related to either the development of new secure, processing and reentry facilities, or the maintenance of existing facilities. In addition, some of our management contracts require us to make substantial initial expenditures of cash in connection with opening or renovating a facility. Generally, these initial expenditures are subsequently fully or partially recoverable as pass-through costs or are billable as a component of the per diem rates or monthly fixed fees to the contracting agency over the original term of the contract. Additional capital needs may also arise in the future with respect to possible acquisitions, other corporate transactions or other corporate purposes. As ofDecember 31, 2021 , we were developing a number of contractually committed projects that we estimate will cost approximately$20.9 million , of which$8.3 million was spent throughDecember 31, 2021 . We estimate our remaining contractually committed capital requirements to be approximately$12.6 million . These projects are expected to be completed through 2022. We plan to fund all of our capital needs, including capital expenditures, from cash on hand, cash from operations, borrowings under our Senior Credit Facility and any other financings which our management and Board of Directors, in their discretion, may consummate. Currently, our primary source of liquidity to meet these requirements is cash flow from operations and borrowings under the$900.0 million Revolver. Our management believes that cash on hand, cash flows from operations and availability under our Senior Credit Facility will be adequate to support our capital requirements for 2022 as disclosed under "Capital Requirements" above.
Liquidity and Capital Resources
6.50% Exchangeable Senior Notes due 2026
OnFebruary 24, 2021 , our wholly-owned subsidiary,GEO Corrections Holdings, Inc. ("GEOCH"), completed a private offering of$230 million aggregate principal amount of 6.50% exchangeable senior unsecured notes due 2026 (the "Convertible Notes"), 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 ofDecember 31, 2021 , 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. 63 -------------------------------------------------------------------------------- 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 existing 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 year endedDecember 31, 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 andGEO Corrections Holdings, Inc. and the administrative agent. Under the amendment, the maturity date of the revolver component of the Credit Agreement has been extended toMay 17, 2024 . The borrowing capacity under the amended revolver will remain at$900 million , and its pricing will remain unchanged, currently bearing interest at LIBOR plus 2.25%. As a result of the transaction, we incurred a loss on extinguishment of debt of$1.2 million related to certain unamortized deferred loan costs. Additionally, loan costs of$4.7 million were incurred and capitalized in connection with the transaction. A syndicate of approximately 65 lenders participate in our Credit Agreement, six of which have indicated that they do not intend to provide new financing to GEO but will honor their existing obligations. Refer to Item 1A - Risk Factors included in Part I of this Annual Report on Form 10-K for further discussion. The banks that have withdrawn participation remain contractually committed for approximately three years. Additionally, these six banks represent 54% of the lending commitments under the revolver component of our senior credit facility. We are in frequent communication with potential new lenders as well as the credit rating agencies. InMarch 2021 , Moody's Investors Service downgraded GEO's issuer rating to B2 and inMay 2021 , Standard & Poor's S&P Global downgraded GEO's issuer rating to CCC+. As ofDecember 31, 2021 , we had$762.0 million in aggregate borrowings outstanding under the Term Loan,$784.9 million in borrowings under the revolver, and approximately$95.8 million in letters of credit which left$19.3 million in additional borrowing capacity under the revolver. In addition, we have the ability to increase the Senior Credit Facility by an additional$450.0 million , subject to lender demand and prevailing market conditions and satisfying the relevant borrowing conditions thereunder. Refer to Note 12 - Debt in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Debt Repurchases
OnAugust 16, 2019 , our Board authorized us to repurchase and/or retire a portion of the 6.00% Senior Notes due 2026, the 5.875% Senior Notes due 2024, the 5.125% Senior Notes due 2023, the 5.875% Senior Notes due 2022 (collectively the "GEO Senior Notes") and our term loan under our Amended Credit Agreement through cash purchases, in open market, privately negotiated transactions, or otherwise, up to an aggregate maximum of$100.0 million , subject to certain limitations throughDecember 31, 2020 . OnFebruary 11, 2021 , our Board authorized a new repurchase program for repurchases/retirements 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 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 million . As a result of these repurchases, we recognized a net gain on extinguishment of debt of$4.7 million , net of the write-off of associated unamortized deferred loan costs. During 2020, we repurchased approximately$7.5 million in aggregate principal amount of our 5.875% Senior Notes due 2024 at a weighted average price of 77.28% for a total cost of$5.8 million . Additionally, during 2020, we repurchased approximately$18.2 million in aggregate principal amount of our 5.125% Senior Notes due 2023 at a weighted average price of 78.99% for a total cost of$14.3 million . As a result of these repurchases, we recognized a net gain on extinguishment of debt of$5.3 million during the year endedDecember 31, 2020 . We consider opportunities for future business and/or asset acquisitions 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 64 -------------------------------------------------------------------------------- may negatively impact the availability of opportunities for future business and/or asset acquisitions 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, the indenture governing the 5.875% Senior Notes due 2024, the indenture governing the 6.00% Senior Notes, 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 ofDecember 31, 2021 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.
Senior Credit Facility
In 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 funds for general business purposes. Quarterly Dividends As previously discussed above, onDecember 2, 2021 , GEO's Board unanimously approved a plan to terminate our REIT status and become a taxableC Corporation , effective for the year endedDecember 31, 2021 . In connection with terminating the GEO's REIT status, the Board also voted unanimously to discontinue our quarterly dividend payments and prioritize allocating GEO's free cash flow to reduce debt. Stock Buyback Program OnFebruary 14, 2018 , we announced that our Board authorized a stock buyback program authorizing us to repurchase up to a maximum of$200 million of our shares of common stock. The stock buyback program was funded primarily with cash on hand, free cash flow and borrowings under our$900 million revolving credit facility. The program expired onOctober 20, 2020 . The stock buyback program was intended to be implemented through purchases made from time to time in the open market or in privately negotiated transactions, in accordance with applicableSEC requirements. The stock buyback program did not obligate us to purchase any specific amount of our common stock and could have been suspended or extended at any time at the discretion of our Board. During the year endedDecember 31, 2020 , we purchased 553,665 shares of our common stock at a cost of$9.0 million primarily purchased with proceeds from our Revolver. There were no purchases of our common stock during the years endedDecember 31, 2021 or 2019.
Automatic Shelf Registration on Form S-3
OnOctober 30, 2020 , we filed an automatic shelf registration on Form S-3 with theSEC that enables us to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, guarantees of debt securities, warrants and units. The shelf registration statement is automatically effective and is valid for three years. Prospectus Supplement OnJune 28, 2021 , in connection with the shelf registration, we filed with theSEC a prospectus supplement related to the offer and sale from time to time of our common stock at an aggregate offering price of up to$300 million through sales agents. Sales of shares of our common stock under the prospectus supplement and equity distribution agreements entered into with the sales agents, if any, will be made in negotiated transactions or transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act of 1933. There were no shares of common stock sold under this prospectus supplement during the year endedDecember 31, 2021 . 65 --------------------------------------------------------------------------------
Non-Recourse Debt
Northwest ICE Processing Center
OnDecember 9, 2011 , theWashington Economic Development Finance Authority issued$54.4 million of itsWashington Economic Development Finance Authority Taxable Economic Development Revenue Bonds, series 2011 ("2011 Revenue Bonds"). The 2011 Revenue Bonds were issued to provide funds to make a loan toCorrectional Services Corporation ("CSC") for purposes of reimbursing GEO for costs incurred by GEO for the 2009 expansion of the Northwest ICE Processing Center and paying the costs of issuing the 2011 Revenue Bonds. The payment of principal and interest on the bonds was non-recourse to GEO. None of the bonds nor CSC's obligations under the loan were obligations of GEO nor were they guaranteed by GEO. The 2011 Revenue Bonds matured inOctober 2021 and were satisfied in full.
In connection with a design and build facility 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. Refer to Note 6 - Contract Receivable in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The Construction Facility provided for non-recourse funding up to AUD 791 million, or$609.8 million , based on exchange rates as ofDecember 31, 2021 . Construction draws were funded throughout the project according to a fixed utilization schedule as defined in the syndicated facility agreement. The term of the Construction Facility was throughSeptember 2019 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$355.2 million , based on exchange rates as ofDecember 31, 2021 , aggregate principal amount of non-recourse senior secured notes due 2042 (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. As a result of the transaction, we incurred a$4.5 million loss on extinguishment of debt related to swap termination fees and unamortized deferred loan costs associated with the Construction Facility. Additionally, loan costs of approximately$7.5 million were incurred and capitalized in connection with the offering. Other InAugust 2019 , we entered into two identical Notes (as defined below) in the aggregate amount of$44.3 million which are secured by loan agreements and mortgage and security agreements on certain real property and improvements. The terms of the Notes are 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 atDecember 31, 2021 is$0.6 million of deferred loan costs incurred in the transaction. Refer to Note 7 - Derivative Financial Instruments in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Guarantees
The Company has entered into certain guarantees in connection with the design, financing and construction of certain facilities as well as loan, working capital and other obligation guarantees for our subsidiaries inAustralia ,South Africa and our joint ventures. Refer to Note 12 - Debt in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Executive Retirement Agreement
We have a non-qualified deferred compensation agreement with our former Chief Executive Officer ("former CEO"). The agreement provides for a lump sum payment upon retirement, no sooner than age 55. As ofDecember 31, 2021 , the former CEO had reached age 55 and was eligible to receive the payment upon retirement. If the Company's former CEO had retired as ofDecember 31, 2021 , we would have had to pay him a lump sum of approximately$5.0 million in cash. 66 -------------------------------------------------------------------------------- GEO and our former CEO, entered into onMay 27, 2021 , and effectiveJuly 1, 2021 , an Amended and Restated Executive Retirement Agreement which replaced the priorFebruary 26, 2020 agreement discussed below. Pursuant to the terms of the Amended and Restated Executive Retirement Agreement, upon the date that the former CEO ceases to provide services to GEO, we will pay to the former CEO an amount equal to$3,600,000 (the "2021 Grandfathered Payment") which shall be paid in cash. The Grandfathered Payment shall be credited with interest at a rate of 5% compounded quarterly (the "Grandfathered Earnings Account"). Additionally, at the end of each calendar year provided thatMr. Zoley is still providing services to GEO pursuant to the Executive Chairman Agreement, we will credit an amount equal to$1,000,000 at the end of each calendar year (the "Employment Contributions Account"). The Employment Contributions Account will be credited with interest at the rate of 5% compounded quarterly. Upon the date thatMr. Zoley ceases to provide services to GEO, we will payMr. Zoley in one lump sum cash payment each of the 2021 Grandfathered Payment, the Grandfathered Earnings Account and the Employment Contributions Account subject to the six-month delay provided in the Amended and Restated Executive Retirement Agreement. As the former CEO's retirement payment will no longer be settled with a fixed number of shares of GEO's common stock,$3,600,000 has been reclassified from equity to other non-current liabilities in 2021. Refer to Note 17 - Commitments, Contingencies and Other Matters of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information. The prior executive retirement agreement entered into onFebruary 26, 2020 provided that upon the former CEO's retirement from GEO, we would have had to pay a lump sum amount equal to$8,925,065 (determined as ofFebruary 26, 2020 ) (the "Grandfathered Payment") which would have been paid in the form of a fixed number of shares of our common stock. The Grandfathered Payment would have been delayed for six months and a day following the effective date of our former CEO's termination of employment in compliance with Section 409A of the Internal Revenue Code of 1986, as amended. OnFebruary 26, 2020 , an amount equal to the Grandfathered Payment was invested in our common stock ("GEO Shares"). The number of our shares of common stock as of this date was equal to the Grandfathered Payment divided by the closing price of our common stock on this date (rounded up to the nearest whole number of shares), which equaled 553,665 shares of our common stock. Additional shares of our common stock were credited with a value equal to any dividends declared and paid on our shares of common stock, calculated by reference to the closing price of our common stock on the payment date for such dividends (rounded up to the nearest whole number of shares). We had established several trusts for the purpose of paying the retirement benefit pursuant to the amended and restated executive retirement agreement. The trusts were revocable "rabbi trusts" and the assets of the trusts are subject to the claims of our creditors in the event of our insolvency.
Guarantor Financial Information
GEO's 6.50% Exchangeable Senior Notes, 6.00% Senior Notes, 5.125% Senior Notes and the 5.875% Senior Notes 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.
Summarized statement of operations (in thousands):
Year Ended December 31, 2021 Net operating revenues $ 2,032,884 Income from operations 267,413 Net income 45,312 Net income attributable to The GEO Group, Inc. 45,312 67
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Summarized balance sheets (in thousands):
December 31, 2021 December 31, 2020 Current assets $ 707,457 $ 607,044 Noncurrent assets (a) 3,115,622 3,268,260 Current liabilities 314,233 350,041 Noncurrent liabilities (b) 2,820,252 2,737,673
(a) Includes amounts due from non-guarantor subsidiaries of
(b) Includes amounts due to non-guarantor subsidiaries of
Off-Balance Sheet Arrangements
Except as discussed above, and in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, we do not have any off-balance sheet arrangements.
We are also exposed to various commitments and contingencies which may have a material adverse effect on our liquidity. See Note 17 - Commitments, Contingencies and Other Matters in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Derivatives
InAugust 2019 , we entered into two interest rate swap agreements in the aggregate notional amount of$44.3 million to fix the interest rate on certain of our variable rate debt to 4.22%. We have designated these interest rate swaps as hedges against changes in the cash flows of two identical promissory notes (the "Notes") which are secured by loan agreements and mortgage and security agreements on certain real property and improvements. We have determined that the swaps have payment, expiration dates, and provisions that coincide with the terms of the Notes and are therefore considered to be effective cash flow hedges. Accordingly, we record the change in fair value of the interest rate swaps as accumulated other comprehensive income (loss), net of applicable taxes. Total unrealized gains recorded in total other comprehensive income (loss), net of tax, related to these cash flow hedges was$2.2 million during the year endedDecember 31, 2021 . The total fair value of the swap liabilities as ofDecember 31, 2021 was$3.2 million and is recorded as a component of Other Non-Current liabilities within the accompanying balance sheet. There was no material ineffectiveness for the period presented. We do not expect to enter into any transactions during the next twelve months which would result in reclassification into earnings or losses associated with these swaps currently reported in accumulated other comprehensive income (loss). Refer to Note 12 - Debt and Note 7 - Derivative Financial Instruments in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information. Our Australian subsidiary entered into interest rate swap agreements to fix the interest rate on our variable rate non-recourse debt related to a project in Ravenhall, a locality nearMelbourne, Australia to 4.2%. We determined that the swaps had payment, expiration dates, and provisions that coincided with the terms of the non-recourse debt and were therefore considered to be effective cash flow hedges. Accordingly, we recorded the change in the fair value of the interest rate swaps in accumulated other comprehensive income (loss), net of applicable income taxes. OnMay 22, 2019 , we refinanced the associated debt and terminated the swap agreements which resulted in the reclassification of$3.9 million into losses that were previously reported in accumulated other comprehensive income (loss). Refer to Note 12 - Debt and Note 7 - Derivative Financial Instruments in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information. Cash Flow Cash, cash equivalents, restricted cash and cash equivalents as ofDecember 31, 2021 was$548.3 million , compared to$311.9 million as ofDecember 31, 2020 and was impacted by the following: Net cash provided by operating activities in 2021 and 2020 was$282.6 million and$441.7 million , respectively. Net cash provided by operating activities in 2021 was positively impacted by non-cash expenses such as depreciation and amortization, deferred tax provision, amortization of debt issuance costs, discount and/or premium and other non-cash interest, stock-based compensation expense, loss on sale/disposal of property and equipment and dividends received from our unconsolidated joint venture. Equity in earnings of affiliates negatively impacted cash along with gain on extinguishment of debt and net gain on disposition of assets. Changes in accounts receivable, prepaid expenses and other assets decreased in total by a net of$9.5 million , representing a positive impact on cash. The decrease was primarily driven by the timing of billings and collections. Changes in accounts payable, accrued expenses and other liabilities increased by$58.1 million which positively impacted cash. The increase was primarily due to the timing of payments. 68 -------------------------------------------------------------------------------- Additionally, cash provided by operating activities in 2021 was positively impacted by a decrease in contract receivable of$6.2 million . The decrease relates to the timing of payments received and interest accrued, along with the effect of foreign exchange rates, related to theRavenhall Project . Refer to Note 6 - Contract Receivable included in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Net cash provided by operating activities in 2020 was positively impacted by non-cash expenses such as depreciation and amortization, deferred tax provision, amortization of debt issuance costs, discount and/or premium and other non-cash interest, stock-based compensation expense, loss on extinguishment of debt, goodwill impairment charges and dividends received from our unconsolidated joint venture. Equity in earnings of affiliates negatively impacted cash. Changes in accounts receivable, prepaid expenses and other assets decreased in total by a net of$68.2 million , representing a positive impact on cash. The decrease was primarily driven by the timing of billings and collections. Changes in accounts payable, accrued expenses and other liabilities increased by$57.3 million which positively impacted cash. The increase was primarily due to the timing of payments and also due to accruals for the deferral of the employer's share ofSocial Security taxes of$42 million under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). Refer to Note 17 - Commitments, Contingencies and Other Matters included in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Additionally, cash provided by operating activities in 2020 was positively impacted by a decrease in contract receivable of$5.2 million . The decrease relates to the timing of payments received and interest accrued, along with the effect of foreign exchange rates, related to theRavenhall Project . Refer to Note 6 - Contract Receivable included in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Net cash used in investing activities of$53.7 million in 2021 was primarily the result of capital expenditures of$69.4 million and changes in restricted investments of$18.7 million , offset by proceeds from sale of real estate assets of$21.2 million , proceeds from the sale of property and equipment of$4.1 million and payments received on note receivable of$8.0 million . Net cash used in investing activities of$104.2 million in 2020 was primarily the result of capital expenditures of$108.8 million and changes in restricted investments of$7.4 million , offset by insurance proceeds from damaged property primarily related to hurricanes of$9.5 million and proceeds from sale of real estate of$2.4 million . Net cash provided by financing activities in 2021 reflects payments of$360.3 million on long term debt offset by$435.0 million of proceeds from long term debt and payments on non-recourse debt of$21.6 million . We also paid cash dividends of$30.5 million and paid$9.6 million of debt issuance costs in connection with the issuance of our 6.50% Exchangeable Senior Notes. Refer to Note 12 - Debt included in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Net cash used in financing activities in 2020 reflects payments of$816.2 million on long term debt offset by$960.6 million of proceeds from long term debt and payments on non-recourse debt of$13.8 million . We also paid cash dividends of$216.1 million and purchased$9.0 million of shares of our common stock. Inflation We believe that inflation, in general, did have a negative impact but did not have a material effect on our results of operations during 2021 and 2020. While some of our contracts include provisions for inflationary indexing, inflation could have a substantial adverse effect on our results of operations in the future to the extent that wages and salaries, which represent our largest recurring/fixed expense, increase at a faster rate than the per diem or fixed rates received by us for our management services.
Funds from Operations
Funds from Operations ("FFO") is a widely accepted supplemental non-GAAP measure utilized to evaluate the operating performance of real estate companies. It is defined in accordance with the standards established by theNational Association of Real Estate Investment Trusts , or NAREIT, which defines FFO as net income (loss) attributable to common shareholders (computed in accordance with United States Generally Accepted Accounting Principles), excluding real estate related depreciation and amortization, excluding gains and losses from the cumulative effects of accounting changes, extraordinary items and sales of properties, and including adjustments for unconsolidated partnerships and joint ventures.
We also present Normalized Funds From Operations, or Normalized FFO, and Adjusted Funds from Operations, or AFFO, as supplemental non-GAAP financial measures of real estate companies' operating performances.
Normalized FFO is defined as FFO adjusted for certain items which by their nature are not comparable from period to period or that tend to obscure the Company's actual operating performance, including for the periods presented net goodwill impairment charges, pre-tax, gain on extinguishment of debt, pre-tax, start-up expenses, pre-tax, one-time employee restructuring expenses, pre-tax, loss and settlement on asset divestiture, pre-tax, M&A related expenses, pre-tax, changes in tax structure to C corporation, close-out expenses, pre-tax, COVID-19 expenses, pre-tax and the tax effect of adjustments to funds from operations. 69 -------------------------------------------------------------------------------- AFFO is defined as Normalized FFO adjusted by adding non-cash expenses such as non-real estate related depreciation and amortization, stock-based compensation expense, the amortization of debt issuance costs, discount and/or premium and other non-cash interest, and by subtracting recurring consolidated maintenance capital expenditures and other non-cash revenue and expenses, pre-tax. Because of the unique design, structure and use of our secure facilities, processing centers and reentry centers we believe that assessing the performance of our secure facilities, processing centers and reentry centers without the impact of depreciation or amortization is useful and meaningful to investors. Although NAREIT has published its definition of FFO, companies often modify this definition as they seek to provide financial measures that meaningfully reflect their distinctive operations. We have modified FFO to derive Normalized FFO and AFFO that meaningfully reflect our operations. Our assessment of our operations is focused on long-term sustainability. The adjustments we make to derive the non-GAAP measures of Normalized FFO and AFFO exclude items which may cause short-term fluctuations in net income attributable to GEO but have no impact on our cash flows, or we do not consider them to be fundamental attributes or the primary drivers of our business plan and they do not affect our overall long-term operating performance. We may make adjustments to FFO from time to time for certain other income and expenses that do not reflect a necessary component of our operational performance on the basis discussed above, even though such items may require cash settlement. Because FFO, Normalized FFO and AFFO exclude depreciation and amortization unique to real estate as well as non-operational items and certain other charges that are highly variable from year to year, they provide our investors with performance measures that reflect the impact to operations from trends in occupancy rates, per diem rates, operating costs and interest costs, providing a perspective not immediately apparent from net income attributable to GEO. We believe the presentation of FFO, Normalized FFO and AFFO provide useful information to investors as they provide an indication of our ability to fund capital expenditures and expand our business. FFO, Normalized FFO and AFFO provide disclosure on the same basis as that used by our management and provide consistency in our financial reporting, facilitate internal and external comparisons of our historical operating performance and our business units and provide continuity to investors for comparability purposes. Our reconciliation of net income attributable to GEO to FFO, Normalized FFO and AFFO for the years endedDecember 31, 2021 and 2020, respectively, is as follows (in thousands): December 31, December 31, 2021 2020 Funds From Operations Net income attributable to The GEO Group, Inc.$ 77,418 $ 113,032 Real estate related depreciation and amortization 75,622
73,659
(Gain) loss real estate assets, net of tax (10,056 )
6,831
NAREIT Defined FFO$ 142,984 $ 193,522 Goodwill impairment charge, pre-tax - 21,146 Start-up expenses, pre-tax 1,723 4,401 M&A related expenses, pre-tax 8,118 - One-time employee restructuring expenses, pre-tax 7,459 - Loss & settlement on asset divestiture, pre-tax 6,333 - Gain on extinguishment of debt (4,693 ) (5,319 ) COVID-19 expenses, pre-tax -
9,883
Close-out expenses, pre-tax 1,475
5,935
Change in tax structure to C Corp 70,813 - Tax effect of adjustments to funds from operations * (26 )
(300 )
Normalized Funds from Operations$ 234,186 $ 229,268 Non-real estate related depreciation and amortization 59,555
61,021
Consolidated maintenance capital expenditures (16,769 ) (19,729 ) Stock-based compensation expenses 19,199
23,896
Other non-cash revenue & expense, pre-tax (4,408 )
(735 ) Amortization of debt issuance costs, discount and/or premium and other non-cash interest
7,498 6,892 Adjusted Funds from Operations$ 299,261 $ 300,613 70
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* Tax adjustments relate to (gain) loss on real estate assets, goodwill impairment charges, gain on debt extinguishment, start-up expenses, M&A
related expenses, one-time employee restructuring expenses, loss & settlement
on asset divestiture, COVID-19 expenses and close-out expenses.
Outlook
The following discussion of our future performance contains statements that are not historical statements and, therefore, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied in the forward-looking statement. Please refer to "Item 1A. Risk Factors" in this Annual Report on Form 10-K, the "Forward-Looking Statements - Safe Harbor," as well as the other disclosures contained in this Annual Report on Form 10-K, for further discussion on forward-looking statements and the risks and other factors that could prevent us from achieving our goals and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements.
Coronavirus Disease (COVID-19) Pandemic
InDecember 2019 , a novel strain of coronavirus, now known as COVID-19 ("COVID-19"), was reported inWuhan, China and has since extensively impacted the global health and economic environment. InJanuary 2020 , theWorld Health Organization ("WHO") declared it a Public Health Emergency of International Concern. OnFebruary 28, 2020 , theWHO 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 onMarch 11, 2020 , theWHO characterized COVID-19 as a pandemic.
Health and Safety
From the beginning of the global COVID-19 pandemic, our corporate, regional, and field staff have taken steps to mitigate the risks of the novel coronavirus and have worked with our government agency partners to implement best practices consistent with the guidance issued by theCenters for Disease Control and Prevention . Ensuring the health and safety of all those entrusted to our care and of our employees has always been our number one priority. GEO's COVID-19 mitigation initiatives have included: Guidance
• We issued guidance to all our facilities, consistent with the guidance
issued for correctional and detention facilities by the
Control and Prevention ("CDC").
Testing
• We increased testing capabilities at our secure services facilities and
entered into contracts with multiple commercial labs to provide adequate
testing supplies and services.
• We invested approximately
NOW devices and testing kits capable of diagnosing not only COVID-19, but Influenza and Strep Throat.
• As of the end of
COVID-19 tests to those in our care at our
Bi-Polar Ionization
• We invested
Systems at select secure services facilities to reduce the spread of
airborne bacteria and viruses.
Facemasks and Personal Hygiene Products
• We have provided continuing access to facemasks to all inmates and
detainees, with a minimum of three facemasks per week or more often upon request. 71
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• We increased the frequency of distribution of personal hygiene products,
including soap, shampoo and body wash, and tissue paper, and we are ensuring
the daily availability of bars of soap or soap dispensers at each sink for
hand washing in all of our facilities.
Social Distancing
• We have implemented social distancing pursuant to directives from our government agency partners and communicated these obligations and requirements via meetings, memos, and postings.
• We deployed floor markers throughout our facilities to inform and encourage
social distancing and modified facility movements to accommodate social
distancing.
Engineering Controls
• We temporarily suspended onsite social visitation.
• We established requirements for staff to complete a medical questionnaire
and pass a daily temperature check. • We modified intake procedures to screen new inmates/detainees and
established isolation and quarantine procedures for COVID-19 positive and symptomatic cases, consistent withCDC guidelines.
Administrative/Work Practice Controls
• We posted reminders regarding coughing and sneezing etiquette, the importance of frequent handwashing, and the use of facemasks.
• We increased cleaning and disinfection of facilities, including high-touch
areas (e.g., doorknobs/handles, light switches, handheld radios), housing
unit dayrooms, dining areas, and other areas where individuals assemble.
• We advised our employees to remain home if they exhibit flu-like symptoms,
and we have exercised flexible paid leave and Paid Time Off policies to
allow for employees to remain home if they exhibit flu-like symptoms or to
care for a family member.
• We enacted quarantine and testing policies for any employees
come into contact with an individual
Vaccination
• We are working closely with our government partners and State and Local
Health Departments to coordinate vaccination efforts for staff, inmates,
detainees, and residents at our secure facilities and reentry centers and
programs across the country; these measures align with recommendations from
the
criteria established through the
• The timing of vaccine distribution to staff, inmates, detainees, and
residents is presently being directed by the Local and
Departments in the jurisdictions in which we operate through the guidance
and prioritization recommendations offered by the
• As of the end of
partners and State and Local Health Departments to administer vaccinations
to more than 42,000 individuals in our Secure Services facilities.
We will continue to coordinate closely with our government agency partners and local health agencies to ensure the health and safety of all those in our care and our employees. We are grateful for our frontline employeeswho are making sacrifices daily to provide care for all those in our facilities during this unprecedented global pandemic. Information on the steps we have taken to address and mitigate the risks of COVID-19 can be found at www.geogroup.com/COVID19. The information on or accessible through our website is not incorporated by reference in this Annual Report on Form 10-K.
Economic Impact
The COVID-19 pandemic and related government-imposed mandatory closures, shelter in-place restrictions and social distancing protocols and increased expenditures on engineering controls, personal protective equipment, diagnostic testing, medical expenses, temperature scanners, protective plexiglass barriers and increased sanitation have had, and will continue to have, a severe impact on global economic conditions and the environment in which we operate. In early 2020, we began to observe negative impacts from the pandemic on our 72 -------------------------------------------------------------------------------- performance in our secure services business as a result of declines in crossings and apprehensions along the Southwest border, a decrease in court sentencing at the federal level and reduced operational capacity to promote social distancing protocols. In addition to court mandates related to COVID-19 that limit capacity utilization at certain facilities, a driver of low utilization across ICE facilities have been the Title 42 COVID-19 related restrictions that have been in place at the Southwest border sinceMarch 2020 . Additionally, our reentry services business conducted through our Reentry Services business segment has also been negatively impacted, specifically our residential reentry centers were impacted due to lower levels of referrals by federal, state and local agencies. Throughout the pandemic, new intake at residential reentry centers have significantly slowed down as governmental agencies across the country have opted for non-residential alternatives, including furloughs, home confinement and day reporting. We expect that the COVID-19 pandemic will continue to have an impact on our populations for at least part of 2022, depending on various factors. While we experienced a significant increase in COVID-19 cases at the end of the fourth quarter of 2021 and in the early part of 2022, consistent with the spread of the Omicron variant across the country, we are currently seeing a significant decline in cases among our staff and the individuals in our care. If we are unable to mitigate the transmission of COVID-19 at our facilities, we could experience a material adverse effect on our financial position, results of operations and cash flows. Although we are unable to predict the duration or scope of the COVID-19 pandemic or estimate the extent of the overall future negative financial impact to our operating results, an extended period of depressed economic activity necessitated to combating the disease, and the severity and duration of the related global economic crisis may adversely impact our future financial performance.
Revenue
Due to the uncertainty surrounding the COVID-19 pandemic, we are unable to determine the future landscape of growth opportunities in the near term; however, any positive trends may, to some extent, be adversely impacted by government budgetary constraints in light of the pandemic or any changes to a government's willingness to maintain or grow public-private partnerships in the future. While state finances overall were stable prior to the COVID-19 pandemic, future budgetary pressures may cause state agencies to pursue a number of cost savings initiatives which may include reductions in per diem rates and/or the scope of services provided by private operators or the decision to not re-bid a contract after expiration of the contract term. These potential cost savings initiatives could have a material adverse impact on our current operations and/or our ability to pursue new business opportunities. Additionally, if state budgetary constraints, as discussed above, persist or intensify, our state customers' ability to pay us may be impaired and/or we may be forced to renegotiate our management contracts on less favorable terms and our financial condition, results of operations or cash flows could be materially adversely impacted. We plan to actively bid on any new projects that fit our target profile for profitability and operational risk. Any positive trends in the industry may be offset by several factors, including budgetary constraints, contract modifications, contract terminations, contract non-renewals, contract re-bids and/or the decision to not re-bid a contract after expiration of the contract term and the impact of any other potential changes to the willingness or ability to maintain or grow public-private partnerships on the part of other government agencies. We believe we have a strong relationship with our government agency partners and we believe that we operate facilities that maximize security, safety and efficiency while offering our suite of GEOContinuum of Care services and resources. OnJanuary 26, 2021 ,President Biden signed an executive order directingthe United States Attorney General not to renewDOJ contracts with privately operated criminal detention facilities, as consistent with applicable law. Two agencies of theDOJ , the BOP and the USMS, utilize GEO's support services. The BOP houses inmateswho have been convicted of federal crimes, and the USMS is generally responsible for detaineeswho are awaiting trial or sentencing inU.S. federal courts. As ofDecember 31, 2021 , GEO has one company-owned facility under direct contract with the BOP, which has a current contract option period that expires onSeptember 30, 2022 , and three company-owned/company-leased facilities under direct contracts with USMS, which have current contract option periods that expire betweenMarch 31, 2022 andSeptember 30, 2023 . These facilities combined represented approximately 8% 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, and ICE, which is an agency of theU.S. Department of Homeland Security . Prior to the Executive Order, we have historically had a relatively high contract renewal rate, however, there can be no assurance that we will be able to renew our expiring management contracts on favorable terms, or at all. Also, while we are pleased with our track record in re-bid situations, we cannot assure that we will prevail in any such future situations.California enacted legislation that became effective onJanuary 1, 2020 aimed at phasing out public-private partnership contracts for the operation of secure correctional facilities and detention facilities withinCalifornia and facilities outside of theState of California housingState of California inmates. Currently, we have public-private partnership contracts in place with ICE and the USMS relating to secure services facilities located inCalifornia . GEO and theDOJ have filed separate legal actions challenging the constitutionality of the attempted ban on new federal contracts entered into after the effective date of theCalifornia law. OnOctober 5, 2021 , theNinth Circuit Court of Appeals reversed a priorU.S. District Court decision dismissing the requests by GEO andthe United States for declaratory and injunctive relief and ruled that AB32 conflicts with federal law in violation of the Supremacy Clause of theU.S. Constitution and discriminates against the federal government in violation of the intergovernmental immunity doctrine. 73 -------------------------------------------------------------------------------- Recently theState of Washington approved a similar measure banning the use of public-private partnership contracts for the operation of detention facilities in the state, that GEO is also challenging in federal court. GEO's contract for the company-owned 1,575-bed Northwest ICE Processing Center inWashington has a renewal option period that expires in 2025. The facility generates approximately$64 million in annualized revenues for GEO. InDelaware County, Pennsylvania , we received notice that the County intends to take over management of the managed-onlyGeorge W. Hill Correctional Facility effectiveApril 2022 .The George W. Hill Correctional Facility generates approximately$46 million in annualized revenue for GEO. Internationally, we are exploring opportunities in our current markets and will continue to actively bid on any opportunities that fit our target profile for profitability and operational risk. We are pleased to have been awarded a ten-year contract renewal for the continued delivery of secure transportation under our GEOAmey joint venture in theUnited Kingdom . Total revenue over the ten-year period is expected to be approximately$760 million . InNew South Wales, Australia , we have developed a 489-bed expansion at theJunee Correctional Centre which was substantially completed during the third quarter of 2020. We have also constructed a 137-bed expansion at theFulham Correctional Centre inVictoria, Australia . With respect to our Dungavel House Immigration Removal Centre in theUnited Kingdom , we were unfortunately unsuccessful in the current competitive rebid process and transitioned the management contract inOctober 2021 . In addition, we transitioned theArthur Gorrie Correctional Centre to government operation in theState of Queensland, Australia at the end ofJune 2020 . With respect to our reentry services, electronic monitoring services, and community-based services business, we are currently pursuing a number of business development opportunities. Related to opportunities for community-based reentry services, we are working with our existing federal, state, and local clients to leverage new opportunities for both residential reentry facilities as well as non-residential day reporting centers. However, in light of the uncertainty surrounding the COVID-19 pandemic, we may not be successful. We continue to expend resources on informing federal, state and local governments about the benefits of public-private partnerships, and we anticipate that there will be new opportunities in the future as those efforts continue to yield results. We believe we are well positioned to capitalize on any suitable opportunities that become available in this area.
Operating Expenses
Operating expenses consist of those expenses incurred in the operation and management of our contracts to provide services to our governmental clients. Labor and related costs represented approximately 65% of our operating expenses in both 2021 and 2020. Additional significant operating expenses include food, utilities and inmate medical costs. In 2021 and 2020, operating expenses totaled approximately 72% and 75% of our consolidated revenues, respectively. Our operating expenses as a percentage of revenue in 2022 will be impacted by the opening of any new or existing facilities as a result of the cost of transitioning and/or start-up operations related to a facility opening. During 2022, we will incur carrying costs for facilities that were vacant in 2021. As ofDecember 31, 2021 , our worldwide operations include the management and/or ownership of approximately 86,000 beds at 106 secure, processing and community services facilities, including idle facilities, and also included the provision of monitoring of more than 210,000 individuals in a community-based environment on behalf of federal, state and local correctional agencies located in all 50 states.
General and Administrative Expenses
General and administrative expenses consist primarily of corporate management salaries and benefits, professional fees and other administrative expenses. In 2021 and 2020, general and administrative expenses totaled approximately 9% and 8%, respectively, of our consolidated revenues. We expect general and administrative expenses as a percentage of revenue in 2022 to remain consistent or decrease as a result of cost savings initiatives as well as less travel, marketing and other corporate administrative expenses primarily due to the impacts of the COVID-19 pandemic
Idle Facilities
In our Secure Services segment, we are currently marketing 9,812 vacant beds with a net book value of approximately$256 million at seven of our idle facilities to potential customers. In our Reentry Services segment, we are currently marketing 1,100 vacant beds with a net book value of approximately$25.3 million at two of our idle facilities to potential customers. The combined annual carrying cost of these idle facilities in 2022 is estimated to be$22.0 million , including depreciation expense of$12.7 million . We currently do not have any firm commitments or agreements in place to activate these facilities but have ongoing contact with several potential customers. Historically, some facilities have been idle for multiple years before they received a new contract award. The per diem rates that we charge our clients often vary by contract across our portfolio. However, if the nine idle facilities in our Secure Services and Reentry Services segments were to be activated using our Secure Services and Reentry Services average per diem rate in 2021, (calculated as revenue divided by the number of mandays) and based on the average occupancy rate in our facilities for 2021, we would expect to receive annual incremental revenue of approximately$290 million and an increase in annual earnings per share of approximately$.30 to$.35 per share based on our average operating margin. Refer to discussion in Item I, Part I - Business under Executive Order and Contract Developments above for discussion of recent developments. 74 --------------------------------------------------------------------------------
Forward-Looking Statements - Safe Harbor
This Annual Report on Form 10-K and the documents incorporated by reference herein contain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. "Forward-looking" statements are any statements that are not based on historical information. Statements other than statements of historical facts included in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are "forward-looking" statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" or "continue" or the negative of such words or variations of such words and similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements and we can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements, or "cautionary statements," include, but are not limited to:
• 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;
• the magnitude, severity and duration of the COVID-19 pandemic and its
impact on our business, financial condition, results of operations and cash
flows;
• 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; • 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;
• our ability to accurately project the size and growth of public-private
partnerships for secure services in the
ability to capitalize on opportunities for public-private partnerships;
• 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;
• 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
with us;
• 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; • our ability to activate the inactive beds at our idle facilities;
• our ability to maintain or increase occupancy rates at our facilities and
the impact of fluctuations in occupancy levels on our revenues and profitability;
• 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;
• our obligations to pay income taxes will increase beginning with our income
taxes for the year endedDecember 31, 2021 , which will result in a reduction to our earnings and could have negative consequences to us; • 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 ;
• if we failed to remain qualified as a REIT for those years we elected REIT
status, we would be subject to corporate income taxes and would not be able
to deduct distributions to stockholders when computing our taxable income
for those years;
• 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;
• 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; 75
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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; • our ability to develop long-term earnings visibility;
• our ability to successfully conduct our operations in the
South Africa andAustralia through joint ventures or a consortium; • the impact of the anticipated LIBOR transition;
• the instability of foreign exchange rates, exposing us to currency risks in
Australia , theUnited Kingdom , andSouth Africa , or other countries in which we may choose to conduct our business; • an increase in unreimbursed labor rates; • our exposure to rising medical costs;
• our ability to manage costs and expenses relating to ongoing litigation
arising from our operations; • 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;
• our ability to accurately estimate on an annual basis, loss reserves
related to general liability, workers' compensation and automobile liability claims;
• our ability to fulfill our debt service obligations and its impact on our
liquidity;
• 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;
• we are incurring significant indebtedness in connection with substantial
ongoing capital expenditures. Capital expenditures for existing and future
projects may materially strain our liquidity;
• despite current indebtedness levels, we may still incur more indebtedness,
which could further exacerbate the risks relating to our indebtedness;
• the covenants in the indentures governing the 6.50% Convertible Notes, the
6.00% Senior Notes, the 5.125% Senior Notes and the 5.875% Senior Notes and
the covenants in our senior credit facility impose significant operating
and financial restrictions which may adversely affect our ability to operate our business;
• servicing our indebtedness will require a significant amount of cash. Our
ability to generate cash depends on many factors beyond our control and we
may not be able to generate the cash required to service our indebtedness;
• because portions of our senior indebtedness have floating interest rates, a
general increase in interest rates would adversely affect cash flows; • we depend on distributions from our subsidiaries to make payments on our
indebtedness. These distributions may not be made;
• 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;
• 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;
• 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;
• 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;
• 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;
• 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;
• we partner with a limited number of governmental customers
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; • State budgetary constraints may have a material adverse impact on us;
• competition for contracts may adversely affect the profitability of our
business;
• 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;
• public and political resistance to the use of public-private partnerships
for secure facilities, processing centers and community reentry centers
could result in our inability to obtain new contracts or the loss of
existing contracts, impact our ability to obtain or refinance debt
financing or enter into commercial arrangements, which could have a
material adverse effect on our business, financial condition, results of
operations and the market price of our securities;
• adverse publicity may negatively impact our ability to retain existing
contracts and obtain new contracts;
• we may incur significant start-up and operating costs on new contracts
before receiving related revenues, which may impact our cash flows and not
be recouped;
• 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;
• we may face community opposition to facility locations, which may adversely
affect our ability to obtain new contracts;
• 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;
• we may not be able to obtain or maintain the insurance levels required by
our government contracts; • our exposure to rising general insurance costs; • 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;
• our international operations expose us to risks that could materially
adversely affect our financial condition and results of operations;
• we conduct certain of our operations through joint ventures or consortiums,
which may lead to disagreements with our joint venture partners or business
partners and adversely affect our interest in the joint ventures or consortiums;
• we are dependent upon our senior management and our ability to attract and
retain sufficient qualified personnel; • our profitability may be materially adversely affected by inflation;
• 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;
• risks related to facility construction and development activities may
increase our costs related to such activities;
• the rising cost and increasing difficulty of obtaining adequate levels of
surety credit on favorable terms could adversely affect our operating
results; 77 --------------------------------------------------------------------------------
• adverse developments in our relationship with our employees could adversely
affect our business, financial condition or results of operations;
• 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;
• 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;
• we depend on a limited number of third parties to manufacture and supply
quality infrastructure components for our electronic monitoring products.
If our suppliers cannot provide the components or services we require and
with such quality as we expect, our ability to market and sell our electronic monitoring products and services could be harmed;
• the interruption, delay or failure of the provision of our services or
information systems could adversely affect our business;
• 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;
• 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;
• we license intellectual property rights in the electronic monitoring space,
including patents, from third party owners. If such owners do not properly
maintain or enforce the intellectual property underlying such licenses, our
competitive position and business prospects could be harmed. Our licensors
may also seek to terminate our license;
• we 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;
• 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;
• as a result of our acquisitions, we have recorded and will continue to
record a significant amount of goodwill and other intangible assets. In the
future, our goodwill or other intangible assets may become impaired, which
could result in material non-cash charges to our results of operations;
• we are subject to risks related to corporate social responsibility; • the market price of our common stock may vary substantially;
• 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;
• various anti-takeover protections applicable to us may make an acquisition
of us more difficult and reduce the market value of our common stock; • failure to maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our
business and the trading price of our common stock;
• we may issue additional debt securities that could limit our operating
flexibility and negatively affect the value of our common stock; and
• other factors contained in our filings with the
limited to, those detailed in this Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K filed with 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 acting on our behalf, are expressly qualified in their entirety by the cautionary statements included in this report. 78
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