The GEO (GEO) - 2019 Q4 - Annual Report

PART I Business The GEO Group, a REIT, specializes in owning and managing secure facilities and community services globally, with significant U.S. federal government contracts and a focus on rehabilitation - The GEO Group operates as a REIT, managing approximately 95,000 beds in 129 secure and community-based facilities worldwide as of year-end 2019[12] - In December 2019, GEO secured new 15-year contracts with ICE for five company-owned facilities in California totaling 4,490 beds, expected to generate over $200 million in annualized revenue[17][22] - The company is marketing approximately 1,100 vacant beds in idle facilities, with an estimated annual carrying cost of $3.0 million in 2020. Activation of these facilities could generate an estimated $25 million in annual incremental revenue[23] - In September 2019, the company issued its first Human Rights and Environmental, Social, and Governance (ESG) report, referencing GRI Standards and UN Guiding Principles to enhance transparency[25][26] Business Segments Overview | Segment | Description | | :--- | :--- | | U.S. Secure Services | Encompasses U.S.-based public-private partnership secure services business | | GEO Care | Consists of community-based services, youth services, and electronic monitoring in the U.S. | | International Services | Includes public-private partnership secure services operations in Australia, South Africa, and the United Kingdom | | Facility Construction & Design | Contracts with government agencies for the design and construction of facilities, often linked to future management contracts | Revenue Concentration by Major Customer (2017-2019) | Customer | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Various agencies of the U.S. Federal Government | 53% | 50% | 48% | Risk Factors The company faces material risks including potential loss of REIT status, significant indebtedness, reliance on government contracts, public and legislative opposition, and operational liabilities - Failure to maintain REIT qualification could subject the company to U.S. federal income tax at regular corporate rates, significantly reducing cash available for shareholder distributions[95][97] - The company has approximately $2.4 billion in total consolidated indebtedness as of December 31, 2019. Several financial institutions have announced they will not renew or enter into new financing agreements with companies in this sector, which may adversely impact the ability to refinance this debt[112][113] - A significant portion of revenue comes from a limited number of government customers. Three federal agencies (BOP, ICE, U.S. Marshals Service) accounted for 51.2% of consolidated revenues in 2019[135] - Public resistance and legislative actions, such as California's AB 32 law phasing out private prison contracts, pose a material risk to obtaining new contracts and retaining existing ones. Similar legislation is being considered in other states like Washington[137][143] - The business is exposed to various legal claims, including civil rights, medical malpractice, and employment matters. The company maintains insurance but has substantial deductibles ($3.0 million for general liability) and carries no insurance for employment-related claims[83][85][155] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[196] Properties The company owns its corporate headquarters in Boca Raton, Florida, and leases other offices, with detailed property lists available in Item 1 - The company owns its corporate headquarters in Boca Raton, FL, which was completed in Q1 2019, and leases various regional offices[197] - A comprehensive list of owned or leased correctional, detention, and reentry properties is available in the 'Facilities and Day Reporting Centers' section of Item 1[199] Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 18 of the Consolidated Financial Statements - Details on legal proceedings are incorporated by reference from Note 18 - Commitments and Contingencies[200] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[201] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE, and as a REIT, it must distribute at least 90% of taxable income, though its five-year cumulative return underperformed key indices - The company's common stock is traded on the NYSE under the ticker symbol "GEO"[203] - As a REIT, the company is required to distribute at least 90% of its REIT taxable income annually to shareholders[203] Comparison of Five-Year Cumulative Total Return (2014-2019) | Index | Value (assuming $100 invested on 12/31/2014) | | :--- | :--- | | The GEO Group, Inc. | $92.99 | | Russell 2000 | $138.50 | | S&P 500 Commercial Services and Supplies | $160.35 | | MSCI U.S. REIT Index | $114.40 | Selected Financial Data This section presents five years of selected financial data, highlighting consistent revenue growth, stable net income, increasing assets and debt, and rising cash dividends per share Selected Financial Data (2015-2019) | Metric (in thousands, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,477,922 | $2,331,386 | $2,263,420 | $2,179,490 | $1,843,307 | | Operating income | $300,413 | $264,665 | $248,285 | $265,584 | $235,729 | | Net income | $166,412 | $144,827 | $146,024 | $148,498 | $139,315 | | Diluted EPS | $1.40 | $1.20 | $1.21 | $1.33 | $1.25 | | Cash Dividends per Share | $1.92 | $1.88 | $1.88 | $1.73 | $1.67 | | Total assets | $4,317,534 | $4,258,118 | $4,226,908 | $3,749,409 | $3,462,227 | | Long-term debt | $2,436,039 | $2,429,312 | $2,217,287 | $1,957,530 | $1,878,870 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's 2019 financial performance, highlighting revenue growth driven by U.S. Secure Services, key accounting policies, debt management, cash flow, non-GAAP measures, and future outlook with legislative risks Revenues by Segment (2019 vs. 2018) | Segment (in thousands) | 2019 | 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | U.S. Secure Services | $1,601,679 | $1,492,973 | $108,706 | 7.3% | | GEO Care | $614,249 | $580,313 | $33,936 | 5.8% | | International Services | $232,016 | $253,874 | ($21,858) | (8.6)% | | Facility Construction & Design | $29,978 | $4,226 | $25,752 | 609.4% | | Total | $2,477,922 | $2,331,386 | $146,536 | 6.3% | - The increase in U.S. Secure Services revenue was primarily driven by higher populations, new contract activations at facilities in Louisiana, Texas, and Michigan, and a contract expansion in Texas[273] - The company's effective tax rate was 9.6% in 2019, slightly up from 9.5% in 2018. As a REIT, the company expects its annual effective tax rate to be in the 10% to 12% range, exclusive of discrete items[294] - In June 2019, the company amended its credit agreement, extending the maturity of its $900 million revolver to May 17, 2024. As of year-end, $317.0 million was available for borrowing[298][301][310] Funds from Operations (FFO) and Adjusted FFO Reconciliation (2019 vs. 2018) | Metric (in thousands) | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Net income attributable to The GEO Group, Inc. | $166,603 | $145,089 | | NAREIT Defined FFO | $241,487 | $220,028 | | Normalized Funds from Operations | $260,741 | $234,293 | | Adjusted Funds from Operations (AFFO) | $328,429 | $297,829 | - The company's outlook acknowledges that California's AB 32 legislation will lead to the discontinuation of contracts with the California Department of Corrections for the Desert View and Golden State facilities in 2020[356] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily from interest rate fluctuations on its senior credit facility and foreign currency exchange rate changes impacting international operations - The company is exposed to interest rate risk on its senior credit facility. A 1% increase in the applicable interest rate would raise annual interest expense by approximately $13.0 million based on borrowings as of December 31, 2019[366] - The company is exposed to foreign currency risk from its operations in Australia, South Africa, and the United Kingdom. A 10% change in exchange rates would have a $6.0 million effect on its financial position and a $2.1 million impact on its results of operations over the next fiscal year[369] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2019, including the auditor's unqualified opinion, key financial statements, and detailed notes on accounting policies and financial positions Consolidated Statements of Operations Consolidated Statements of Operations (2017-2019) | Line Item (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Revenues | $2,477,922 | $2,331,386 | $2,263,420 | | Operating Income | $300,413 | $264,665 | $248,285 | | Income Before Income Taxes | $173,528 | $149,317 | $151,937 | | Net Income Attributable to The GEO Group, Inc. | $166,603 | $145,089 | $146,241 | | Diluted EPS | $1.40 | $1.20 | $1.21 | Consolidated Balance Sheets Consolidated Balance Sheet Data (as of Dec 31) | Line Item (in thousands) | 2019 | 2018 | | :--- | :--- | | Current Assets | $547,778 | $601,762 | | Property and Equipment, Net | $2,144,722 | $2,158,610 | | Goodwill | $776,356 | $776,359 | | Total Assets | $4,317,534 | $4,258,118 | | Current Liabilities | $395,928 | $705,238 | | Long-Term Debt | $2,408,297 | $2,397,227 | | Total Liabilities | $3,321,486 | $3,218,214 | | Total Shareholders' Equity | $996,048 | $1,039,904 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (2017-2019) | Line Item (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $338,143 | $274,475 | $381,042 | | Net cash used in investing activities | ($104,137) | ($188,483) | ($500,255) | | Net cash (used in) provided by financing activities | ($250,654) | ($124,966) | $164,719 | | Net (Decrease) Increase in Cash | ($17,000) | ($49,073) | $43,188 | Note 13. Debt Debt Composition as of December 31, 2019 | Debt Instrument | Amount (in thousands) | | :--- | :--- | | Senior Credit Facility (Term Loan & Revolver) | $1,298,671 | | 6.00% Senior Notes due 2026 | $350,000 | | 5.875% Senior Notes due 2024 | $250,000 | | 5.125% Senior Notes due 2023 | $300,000 | | 5.875% Senior Notes due 2022 | $193,958 | | Non-Recourse Debt & Other | $371,588 | | Total Debt (Principal) | $2,764,217 | - In August 2019, the Board authorized the repurchase of up to $100.0 million of its senior notes and term loan. During 2019, the company repurchased approximately $56.0 million of its 5.875% Senior Notes due 2022[625][626] Note 16. Business Segments and Geographic Information Operating Income by Segment (2017-2019) | Segment (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | U.S. Secure Services | $322,506 | $297,453 | $302,488 | | GEO Care | $147,036 | $138,911 | $123,525 | | International Services | $16,723 | $12,816 | $14,235 | | Facility Construction & Design | $74 | $— | ($1,620) | | Operating income from segments | $486,339 | $449,180 | $438,628 | Revenues by Geography (2017-2019) | Geography (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | U.S. operations | $2,216,401 | $2,073,286 | $1,952,210 | | Australia operations | $235,462 | $231,164 | $285,702 | | South African operations | $18,779 | $19,806 | $18,251 | | United Kingdom operations | $7,280 | $7,130 | $7,257 | | Total revenues | $2,477,922 | $2,331,386 | $2,263,420 | Note 18. Commitments and Contingencies - The company faces several class-action lawsuits in Colorado, Washington, and California filed by former civil immigration detainees alleging violations of minimum wage laws and/or the Trafficking Victims Protection Act (TVPA) related to voluntary work programs. The company is vigorously defending these lawsuits[708] - On December 30, 2019, GEO filed a lawsuit challenging California's Assembly Bill 32 (AB-32), which aims to bar federal government contracts with private detention service providers, arguing the law is unconstitutional under the Supremacy Clause[709] - As of December 31, 2019, the company had contractual commitments for capital projects estimated to cost approximately $61.0 million, with a remaining requirement of $33.0 million expected to be spent through 2020[706] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[734] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2019, with no material changes to internal control over financial reporting during the fourth quarter - Management concluded that as of the end of the period, disclosure controls and procedures were effective[735] - There were no material changes to internal control over financial reporting during the fourth quarter of 2019[740] Other Information This item is not applicable - Not applicable[741] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance, including the code of conduct, is incorporated by reference from the 2020 proxy statement - Information required by this item is incorporated by reference from the proxy statement for the 2020 annual meeting of shareholders[744] Executive Compensation Information regarding executive compensation is incorporated by reference from the proxy statement for the 2020 annual meeting of shareholders - Information required by this item is incorporated by reference from the proxy statement for the 2020 annual meeting of shareholders[745] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of beneficial owners and management is incorporated by reference from the proxy statement for the 2020 annual meeting - Information required by this item is incorporated by reference from the proxy statement for the 2020 annual meeting of shareholders[746] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the proxy statement for the 2020 annual meeting - Information required by this item is incorporated by reference from the proxy statement for the 2020 annual meeting of shareholders[747] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the proxy statement for the 2020 annual meeting of shareholders - Information required by this item is incorporated by reference from the proxy statement for the 2020 annual meeting of shareholders[748] PART IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including consolidated financial statements and a comprehensive list of supporting documents - This section lists all financial statements, schedules, and exhibits filed with the report, including debt indentures, credit agreements, and executive compensation plans[750][751] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[765]