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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to_______

Commission file number: 1-14260

 

The GEO Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

Florida

 

65-0043078

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

 

4955 Technology Way

Boca Raton, Florida

 

33431

(Address of principal executive offices)

 

(Zip Code)

 

(561) 893-0101

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value per share

 

GEO

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of November 2, 2022, the registrant had 124,150,091 shares of common stock outstanding.

 

 


 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

3

ITEM 1. FINANCIAL STATEMENTS

3

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

3

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

4

CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021

5

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

6

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

34

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

56

ITEM 4. CONTROLS AND PROCEDURES

56

PART II - OTHER INFORMATION

57

ITEM 1. LEGAL PROCEEDINGS

57

ITEM 1A. RISK FACTORS

59

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

59

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

59

ITEM 4. MINE SAFETY DISCLOSURES

59

ITEM 5. OTHER INFORMATION

59

ITEM 6. EXHIBITS

60

SIGNATURES

62

 

2


 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2022 AND 2021

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2022

 

 

September 30, 2021

 

 

September 30, 2022

 

 

September 30, 2021

 

Revenues

 

$

616,683

 

 

$

557,277

 

 

$

1,756,045

 

 

$

1,699,073

 

Operating expenses

 

 

436,210

 

 

 

399,900

 

 

 

1,233,162

 

 

 

1,233,060

 

Depreciation and amortization

 

 

32,330

 

 

 

32,883

 

 

 

100,284

 

 

 

100,306

 

General and administrative expenses

 

 

50,022

 

 

 

50,475

 

 

 

147,878

 

 

 

153,642

 

Operating income

 

 

98,121

 

 

 

74,019

 

 

 

274,721

 

 

 

212,065

 

Interest income

 

 

5,111

 

 

 

5,990

 

 

 

16,301

 

 

 

18,177

 

Interest expense

 

 

(46,537

)

 

 

(32,525

)

 

 

(111,383

)

 

 

(96,422

)

(Loss) Gain on extinguishment of debt

 

 

(37,487

)

 

 

 

 

 

(37,487

)

 

 

4,693

 

Gain (loss) on asset divestitures

 

 

29,279

 

 

 

(6,088

)

 

 

32,332

 

 

 

4,291

 

Income before income taxes and equity in earnings of affiliates

 

 

48,487

 

 

 

41,396

 

 

 

174,484

 

 

 

142,804

 

Provision for income taxes

 

 

11,246

 

 

 

8,395

 

 

 

48,106

 

 

 

21,394

 

Equity in earnings of affiliates, net of income tax provision of
   $
189, $218, $464 and $848 respectively

 

 

1,071

 

 

 

1,640

 

 

 

3,786

 

 

 

5,647

 

Net income

 

 

38,312

 

 

 

34,641

 

 

 

130,164

 

 

 

127,057

 

Net loss attributable to noncontrolling interests

 

 

25

 

 

 

69

 

 

 

119

 

 

 

157

 

Net income attributable to The GEO Group, Inc.

 

$

38,337

 

 

$

34,710

 

 

$

130,283

 

 

$

127,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

121,154

 

 

 

120,525

 

 

 

120,998

 

 

 

120,326

 

Diluted

 

 

122,426

 

 

 

120,872

 

 

 

121,907

 

 

 

120,583

 

Net income per common share attributable to The GEO Group,
   Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share attributable to The GEO Group,
   Inc. - basic

 

$

0.26

 

 

$

0.24

 

 

$

0.89

 

 

$

0.94

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share attributable to The GEO Group,
   Inc. - diluted

 

$

0.26

 

 

$

0.24

 

 

$

0.89

 

 

$

0.94

 

Dividends declared per share

 

$

 

 

$

 

 

$

 

 

$

0.25

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3


 

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2022 AND 2021

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2022

 

 

September 30, 2021

 

 

September 30, 2022

 

 

September 30, 2021

 

Net income

 

$

38,312

 

 

$

34,641

 

 

$

130,164

 

 

$

127,057

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(2,247

)

 

 

(3,181

)

 

 

(11,648

)

 

 

(3,822

)

Change in marketable securities, net of tax provision (benefit) of ($129), $0, ($331) and $0

 

 

(487

)

 

 

 

 

 

(1,245

)

 

 

 

Pension liability adjustment, net of tax provision
   of $
23, $41, $68 and $124, respectively

 

 

86

 

 

 

156

 

 

 

256

 

 

 

467

 

Change in fair value of derivative instrument
   classified as cash flow hedge, net of tax provision of
   $
498, $82, $1,660 and $556, respectively

 

 

1,873

 

 

 

311

 

 

 

6,247

 

 

 

2,093

 

Total other comprehensive income (loss), net of tax

 

 

(775

)

 

 

(2,714

)

 

 

(6,390

)

 

 

(1,262

)

Total comprehensive income

 

 

37,537

 

 

 

31,927

 

 

 

123,774

 

 

 

125,795

 

Comprehensive loss attributable to noncontrolling interests

 

 

2

 

 

 

61

 

 

 

88

 

 

 

154

 

Comprehensive income attributable to The GEO Group, Inc.

 

$

37,539

 

 

$

31,988

 

 

$

123,862

 

 

$

125,949

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4


 

THE GEO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

(In thousands, except share data)

 

 

 

September 30, 2022

 

 

December 31, 2021

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

91,645

 

 

$

506,491

 

Restricted cash and cash equivalents

 

 

 

 

 

20,161

 

Accounts receivable, less allowance for doubtful accounts of $834 and $1,155,
   respectively

 

 

383,694

 

 

 

365,573

 

Contract receivable, current portion

 

 

 

 

 

6,507

 

Prepaid expenses and other current assets

 

 

40,388

 

 

 

45,176

 

Total current assets

 

 

515,727

 

 

 

943,908

 

Restricted Cash and Investments

 

 

89,760

 

 

 

76,158

 

Property and Equipment, Net

 

 

2,012,679

 

 

 

2,037,845

 

Assets Held for Sale

 

 

480

 

 

 

7,877

 

Contract Receivable

 

 

 

 

 

367,071

 

Operating Lease Right-of-Use Assets, Net

 

 

95,119

 

 

 

112,187

 

Goodwill

 

 

755,179

 

 

 

755,225

 

Intangible Assets, Net

 

 

151,272

 

 

 

166,124

 

Other Non-Current Assets

 

 

84,292

 

 

 

71,013

 

Total Assets

 

$

3,704,508

 

 

$

4,537,408

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$

71,408

 

 

$

64,073

 

Accrued payroll and related taxes

 

 

68,777

 

 

 

67,210

 

Accrued expenses and other current liabilities

 

 

218,628

 

 

 

200,712

 

Operating lease liabilities, current portion

 

 

23,910

 

 

 

28,279

 

Current portion of finance lease liabilities, long-term debt and non-recourse debt

 

 

44,702

 

 

 

18,568

 

Total current liabilities

 

 

427,425

 

 

 

378,842

 

Deferred Income Tax Liabilities

 

 

45,074

 

 

 

80,768

 

Other Non-Current Liabilities

 

 

81,593

 

 

 

87,073

 

Operating Lease Liabilities

 

 

76,977

 

 

 

89,917

 

Finance Lease Liabilities

 

 

1,457

 

 

 

1,977

 

Long-Term Debt

 

 

1,961,402

 

 

 

2,625,959

 

Non-Recourse Debt

 

 

 

 

 

297,856

 

Commitments, Contingencies and Other Matters (Note 11)

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

Preferred stock, $0.01 par value, 30,000,000 shares authorized,
   
none issued or outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 187,500,000 shares authorized,
   
128,908,175 and 127,323,762 issued and 124,055,803
and
122,471,390 outstanding, respectively

 

 

1,290

 

 

 

1,273

 

Additional paid-in capital

 

 

1,288,075

 

 

 

1,276,213

 

Accumulated deficit

 

 

(45,766

)

 

 

(175,960

)

Accumulated other comprehensive loss

 

 

(26,637

)

 

 

(20,216

)

Treasury stock, 4,852,372 shares, at cost, respectively

 

 

(105,099

)

 

 

(105,099

)

Total shareholders’ equity attributable to The GEO Group, Inc.

 

 

1,111,863

 

 

 

976,211

 

Noncontrolling interests

 

 

(1,283

)

 

 

(1,195

)

Total shareholders’ equity

 

 

1,110,580

 

 

 

975,016

 

Total Liabilities and Shareholders’ Equity

 

$

3,704,508

 

 

$

4,537,408

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5


 

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2022 AND 2021

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30, 2022

 

 

September 30, 2021

 

Cash Flow from Operating Activities:

 

 

 

 

 

 

Net income

 

$

130,164

 

 

$

127,057

 

Net loss attributable to noncontrolling interests

 

 

119

 

 

 

157

 

Net income attributable to The GEO Group, Inc.

 

 

130,283

 

 

 

127,214

 

Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash
   provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

100,284

 

 

 

100,306

 

Stock-based compensation

 

 

13,010

 

 

 

15,755

 

Loss (gain) on extinguishment of debt

 

 

37,487

 

 

 

(4,693

)

Amortization of debt issuance costs, discount and/or premium and other non-cash
   interest

 

 

6,211

 

 

 

5,559

 

Provision for doubtful accounts

 

 

133

 

 

 

 

Equity in earnings of affiliates, net of tax

 

 

(3,786

)

 

 

(5,647

)

Dividends received from unconsolidated joint ventures

 

 

2,706

 

 

 

5,186

 

Loss (gain) on sale/disposal of property and equipment, net

 

 

(1,101

)

 

 

7,111

 

Gain on assets held for sale

 

 

(3,053

)

 

 

 

Gain on asset divestitures, net

 

 

(29,279

)

 

 

(4,291

)

Changes in assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

 

Changes in accounts receivable, prepaid expenses and other assets

 

 

49,593

 

 

 

44,339

 

Changes in contract receivable

 

 

 

 

 

4,734

 

Changes in accounts payable, accrued expenses and other liabilities

 

 

9,064

 

 

 

(6,096

)

Net cash provided by operating activities

 

 

311,552

 

 

 

289,477

 

Cash Flow from Investing Activities:

 

 

 

 

 

 

Insurance proceeds - damaged property

 

 

 

 

 

1,027

 

Proceeds from sale of property and equipment

 

 

1,647

 

 

 

4,118

 

Proceeds from sales of real estate

 

 

 

 

 

18,581

 

Proceeds from sale of assets held for sale

 

 

15,812

 

 

 

 

Change in restricted investments

 

 

(5,544

)

 

 

(6,807

)

Capital expenditures

 

 

(72,233

)

 

 

(57,382

)

Net cash used in investing activities

 

 

(60,318

)

 

 

(40,463

)

Cash Flow from Financing Activities:

 

 

 

 

 

 

Proceeds from long-term debt

 

 

50,000

 

 

 

435,000

 

Payments on long-term debt

 

 

(676,114

)

 

 

(359,638

)

Payments on non-recourse debt

 

 

(1,302

)

 

 

(5,081

)

Taxes paid related to net share settlements of equity awards

 

 

(1,301

)

 

 

(2,091

)

Proceeds from issuance of common stock in connection with ESPP

 

 

150

 

 

 

252

 

Debt issuance costs

 

 

(41,536

)

 

 

(9,587

)

Cash dividends paid

 

 

 

 

 

(30,487

)

Net cash (used in) provided by financing activities

 

 

(670,103

)

 

 

28,368

 

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash
   and Cash Equivalents

 

 

(8,080

)

 

 

(3,788

)

Net Increase in Cash, Cash Equivalents and Restricted Cash
   and Cash Equivalents

 

 

(426,949

)

 

 

273,594

 

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, beginning of period

 

 

548,322

 

 

 

311,853

 

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, end of period

 

$

121,373

 

 

$

585,447

 

Supplemental Disclosures:

 

 

 

 

 

 

Non-cash Investing and Financing activities:

 

 

 

 

 

 

Right-of-use assets obtained from operating lease liabilities

 

$

8,924

 

 

$

2,103

 

Principal Exchanges of Debt

 

$

1,620,318

 

 

$

 

Dividends paid in treasury shares

 

$

 

 

$

153

 

Conversion of shares of common stock to pension liability

 

$

 

 

$

3,600

 

Debt issuance costs in accrued expenses

 

$

11,245

 

 

$

 

Capital expenditures in accounts payable and accrued expenses

 

$

4,842

 

 

$

7,795

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6


 

THE GEO GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The GEO Group, Inc., a Florida corporation, and subsidiaries (the “Company” or “GEO”) specializes in the ownership, leasing and management of secure facilities, processing centers and community reentry centers in the United States, Australia and South Africa. The Company owns, leases and operates a broad range of facilities including maximum, medium and minimum security facilities, processing centers, as well as community-based reentry facilities and offers an expanded delivery of rehabilitation services under its 'GEO Continuum of Care' platform. The 'GEO Continuum of Care' program integrates enhanced rehabilitative programs, which are evidence-based and include cognitive behavioral treatment and post-release services, and provides academic and vocational classes in life skills and treatment programs while helping individuals reintegrate into their communities. The Company develops new facilities based on contract awards, using its project development expertise and experience to design, construct and finance what it believes are state-of-the-art facilities that maximize security and efficiency. The Company provides innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants. The Company also provides secure transportation services for individuals as contracted domestically and in the United Kingdom through its joint venture GEO Amey PECS Ltd. (“GEOAmey”). At September 30, 2022, the Company’s worldwide operations include the management and/or ownership of approximately 82,000 beds at 102 facilities, including idle facilities, and also include the provision of community supervision services for more than 500,000 individuals on average, including nearly 200,000 through an array of technology products including radio frequency, GPS, and alcohol monitoring devices.

 

GEO operated as a real estate investment trust ("REIT") from January 1, 2013 through December 31, 2020. As a REIT, the Company provided services and conducted other business activities through taxable REIT subsidiaries ("TRSs"). A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax rates and certain qualification requirements. The Company's use of TRSs permitted GEO to engage in certain business activities in which the REIT could not engage directly, so long as those activities were conducted in entities that elected to be treated as TRSs under the Internal Revenue Code of 1986, as amended (the “Code”), and enabled GEO to, among other things, provide correctional services at facilities it owns and at facilities owned by its government partners. A TRS is not subject to the distribution requirements applicable to REITs so it may retain income generated by its operations for reinvestment.

 

On December 2, 2021, the Company announced that its board of directors (“Board”) unanimously approved a plan to terminate the Company's REIT status and become a taxable C Corporation, effective for the year ended December 31, 2021. As a result, the Company is no longer required to operate under REIT rules, including the requirement to distribute at least 90% of REIT taxable income to its shareholders, which provides the Company with greater flexibility to use its free cash flow. Effective January 1, 2021, the Company was subject to federal and state income taxes on its taxable income at applicable tax rates and was no longer entitled to a tax deduction for dividends paid. The Company operated as a REIT for the 2020 tax year, and existing REIT requirements and limitations, including those established by the Company’s organizational documents, remained in place until December 31, 2020. In connection with terminating the Company’s REIT status, the Board also voted unanimously to discontinue the Company's quarterly dividend in late 2021.

 

The Company's unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the instructions to Form 10-Q and consequently do not include all disclosures required by Form 10-K. The accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2022 for the year ended December 31, 2021. The accompanying December 31, 2021 consolidated balance sheet has been derived from those audited financial statements. Additional information may be obtained by referring to the Company’s Form 10-K for the year ended December 31, 2021. In the opinion of management, all adjustments (consisting only of normal recurring items) necessary for a fair presentation of the financial information for the interim periods reported in this Quarterly Report on Form 10-Q have been made. Results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results for the entire year ending December 31, 2022, or for any other future interim or annual periods.

 

Risks and uncertainties

 

Executive Order

On January 26, 2021, President Biden signed an executive order directing the United States Attorney General not to renew Department of Justice (“DOJ”) contracts with privately operated criminal detention facilities, as consistent with applicable law. Two agencies of the DOJ, the Federal Bureau of Prisons (“BOP”) and the U.S. Marshals Service (“USMS”), utilize GEO’s support services. The BOP houses inmates who have been convicted of federal crimes, and the USMS is generally responsible for detainees who are awaiting trial or sentencing in U.S. federal courts. As of September 30, 2022, GEO has three

7


 

company-owned/company-leased facilities under direct contracts with USMS, which have current contract option periods that expire between February 28, 2023 and September 30, 2023.

 

 

COVID-19

The Company has been closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact those entrusted to its care and governmental partners. The Company has incurred disruptions from the COVID-19 pandemic but, it is unable to predict the overall future impact that the COVID-19 pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties related to the pandemic.

 

2. GOODWILL AND OTHER INTANGIBLE ASSETS

The Company has recorded goodwill as a result of its various business combinations. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the tangible assets and intangible assets acquired net of liabilities assumed, including noncontrolling interests. Changes in the Company's goodwill balances from January 1, 2022 to September 30, 2022 are as follows (in thousands):

 

 

 

January 1,
2022

 

 

Foreign Currency
Translation

 

 

September 30, 2022

 

U.S. Secure Services

 

$

316,366

 

 

$

 

 

$

316,366

 

Electronic Monitoring and Supervision Services

 

 

289,570

 

 

 

 

 

 

289,570

 

Reentry Services

 

 

148,873

 

 

 

 

 

 

148,873

 

International Services

 

 

416

 

 

 

(46

)

 

 

370

 

Total Goodwill

 

$

755,225

 

 

$

(46

)

 

$

755,179

 

 

 

The Company has also recorded other finite and indefinite-lived intangible assets as a result of its various business combinations. The Company's intangible assets include facility management contracts, covenants not to compete, trade names and technology, as follows (in thousands):

 

 

 

September 30, 2022

 

 

December 31, 2021

 

 

 

Weighted
Average
Useful Life
(years)

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

Facility management contracts

 

 

16.3

 

 

$

308,335

 

 

$

(203,071

)

 

$

105,264

 

 

$

308,369

 

 

$

(189,163

)

 

$

119,206

 

Technology

 

 

7.3

 

 

 

33,700

 

 

 

(32,892

)

 

 

808

 

 

 

33,700

 

 

 

(31,982

)

 

 

1,718

 

Trade names

 

Indefinite

 

 

 

45,200

 

 

 

 

 

 

45,200

 

 

 

45,200

 

 

 

 

 

 

45,200

 

Total acquired intangible assets

 

 

 

 

$

387,235

 

 

$

(235,963

)

 

$

151,272

 

 

$

387,269

 

 

$

(221,145

)

 

$

166,124

 

 

Amortization expense was $14.8 million and $15.0 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the weighted average period before the next contract renewal or extension for the acquired facility management contracts was approximately 3.1 years.

Estimated amortization expense related to the Company's finite-lived intangible assets for the remainder of 2022 through 2026 and thereafter is as follows (in thousands):

 

Fiscal Year

 

Total
Amortization
Expense

 

Remainder of 2022

 

$

3,601

 

2023

 

 

11,813

 

2024

 

 

9,314

 

2025

 

 

9,263

 

2026

 

 

7,157

 

Thereafter

 

 

64,924

 

 

 

$

106,072

 

 

8


 

3. FINANCIAL INSTRUMENTS

The following tables provide a summary of the Company’s significant financial assets and liabilities carried at fair value and measured on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):

 

 

 

 

 

 

Fair Value Measurements at September 30, 2022

 

 

 

Carrying Value at
September 30,
2022

 

 

Quoted Prices in
Active Markets
(Level 1)

 

 

Significant Other
Observable Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs (Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Restricted investment:

 

 

 

 

 

 

 

 

 

 

 

 

Rabbi Trust

 

$

34,934

 

 

$

 

 

$

34,934

 

 

$

 

Marketable equity and fixed income securities

 

 

25,098

 

 

 

 

 

 

25,098

 

 

 

 

     Interest rate swap derivatives

 

 

4,712

 

 

 

 

 

 

4,712

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2021

 

 

 

Carrying Value at
December 31,
2021

 

 

Quoted Prices in
Active Markets
(Level 1)

 

 

Significant Other
Observable Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs (Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Restricted investments:

 

 

 

 

 

 

 

 

 

 

 

 

Rabbi Trust

 

$

42,937

 

 

$

 

 

$

42,937

 

 

$

 

Marketable equity and fixed income securities

 

 

11,551

 

 

 

 

 

 

11,551

 

 

 

 

      Fixed income securities

 

 

1,927

 

 

 

 

 

 

1,927

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap derivatives

 

$

3,195

 

 

$

 

 

$

3,195

 

 

$

 

 

The Company’s Level 2 financial instruments included in the tables above as of September 30, 2022 and December 31, 2021 consist of interest rate swap derivative assets/liabilities held by GEO, investments in equity and fixed income mutual funds held in the Company’s captive insurance subsidiary, Florina, the Company's rabbi trust established for a GEO employee and employer contributions to The GEO Group, Inc. Non-qualified Deferred Compensation Plan.

The interest rate swap derivative assets/liabilities are valued using a discounted cash flow model based on projected borrowing rates. The Company's restricted investment in the rabbi trust is invested in Company-owned life insurance policies which are recorded at their cash surrender values. These investments are valued based on the underlying investments held in the policies' separate accounts. The underlying assets are equity and fixed income pooled funds. The Canadian dollar denominated securities, which are not actively traded, were valued using quoted rates for these and similar securities. The marketable equity and fixed income securities are valued using quoted rates.

 

9


 

4. FAIR VALUE OF ASSETS AND LIABILITIES

The Company’s consolidated balance sheets reflect certain financial assets and liabilities at carrying value. The carrying value of certain debt instruments, if applicable, is net of unamortized discount. The following tables present the carrying values of those financial instruments and the estimated corresponding fair values at September 30, 2022 and December 31, 2021 (in thousands):

 

 

 

 

 

 

Estimated Fair Value Measurements at September 30, 2022

 

 

 

Carrying Value as
of September 30,
2022

 

 

Total Fair
Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

91,645

 

 

$

91,645

 

 

$

91,645

 

 

$

 

 

$

 

Restricted cash and investments

 

 

29,728

 

 

 

29,728

 

 

 

29,728

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under exchange credit facility

 

$

1,143,977

 

 

$

1,161,385

 

 

$

 

 

$

1,161,385

 

 

$

 

10.500% Public Second Lien Notes due 2028

 

 

286,521

 

 

 

283,882

 

 

 

 

 

 

283,882

 

 

 

 

9.500% Private Second Lien Notes due 2028

 

 

239,142

 

 

 

222,856

 

 

 

 

 

 

222,856

 

 

 

 

5.875% Senior Notes due 2024

 

 

23,253

 

 

 

22,197

 

 

 

 

 

 

22,197

 

 

 

 

6.00% Senior Notes due 2026

 

 

110,858

 

 

 

90,945

 

 

 

 

 

 

90,945

 

 

 

 

6.50% Exchangeable Senior Notes due 2026

 

 

230,000

 

 

 

246,392

 

 

 

 

 

 

246,392

 

 

 

 

 

 

 

 

 

 

Estimated Fair Value Measurements at December 31, 2021

 

 

 

Carrying Value as
of December 31,
2021

 

 

Total Fair
Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$