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Table of Contents

 

 

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 March 31, 2020

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)

(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 May 5, 2020, the registrant had 121,361,998 shares of common stock outstanding.

 

 

 

 


Table of Contents

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

3

ITEM 1. FINANCIAL STATEMENTS

3

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

3

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

4

CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2020 (UNAUDITED) AND DECEMBER 31, 2019

5

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

6

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7

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

33

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

49

ITEM 4. CONTROLS AND PROCEDURES

49

PART II - OTHER INFORMATION

50

ITEM 1. LEGAL PROCEEDINGS

50

ITEM 1A. RISK FACTORS

50

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

51

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

51

ITEM 4. MINE SAFETY DISCLOSURES

51

ITEM 5. OTHER INFORMATION

51

ITEM 6. EXHIBITS

52

SIGNATURES

53

 

2


Table of Contents

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

FOR THE THREE MONTHS ENDED

March 31, 2020 AND 2019

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

 

March 31, 2020

 

 

March 31, 2019

 

 

Revenues

 

$

605,017

 

 

$

610,667

 

 

Operating expenses

 

 

461,322

 

 

 

456,997

 

 

Depreciation and amortization

 

 

33,327

 

 

 

32,469

 

 

General and administrative expenses

 

 

53,782

 

 

 

46,424

 

 

Operating income

 

 

56,586

 

 

 

74,777

 

 

Interest income

 

 

5,438

 

 

 

8,396

 

 

Interest expense

 

 

(34,180

)

 

 

(40,280

)

 

Gain on extinguishment of debt

 

 

1,563

 

 

 

 

 

Income before income taxes and equity in earnings of affiliates

 

 

29,407

 

 

 

42,893

 

 

Provision for income taxes

 

 

6,546

 

 

 

4,840

 

 

Equity in earnings of affiliates, net of income tax provision of

   $444, and $359, respectively

 

 

2,260

 

 

 

2,596

 

 

Net income

 

 

25,121

 

 

 

40,649

 

 

Net loss attributable to noncontrolling interests

 

 

60

 

 

 

56

 

 

Net income attributable to The GEO Group, Inc.

 

$

25,181

 

 

$

40,705

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

119,394

 

 

 

118,774

 

 

Diluted

 

 

119,933

 

 

 

119,496

 

 

Net income per common share attributable to The GEO Group,

   Inc.:

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Net income per common share attributable to The GEO Group,

   Inc. - basic

 

$

0.21

 

 

$

0.34

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Net income per common share attributable to The GEO Group,

   Inc. - diluted

 

$

0.21

 

 

$

0.34

 

 

Dividends declared per share

 

$

0.48

 

 

$

0.48

 

 

 

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

3


Table of Contents

 

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

FOR THE THREE MONTHS ENDED

MARCH 31, 2020 AND 2019

(In thousands)

 

 

 

Three Months Ended

 

 

 

 

March 31, 2020

 

 

March 31, 2019

 

 

Net income

 

$

25,121

 

 

$

40,649

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(8,807

)

 

 

1,736

 

 

Pension liability adjustment, net of tax provision

   of $28, and $11, respectively

 

 

107

 

 

 

(648

)

 

Change in fair value of derivative instrument

   classified as cash flow hedge, net of tax (benefit) provision of

   $(1,207), and $205, respectively

 

 

(4,512

)

 

 

1,164

 

 

Total other comprehensive loss, net of tax

 

 

(13,212

)

 

 

2,252

 

 

Total comprehensive income

 

 

11,909

 

 

 

42,901

 

 

Comprehensive loss attributable to noncontrolling interests

 

 

108

 

 

 

56

 

 

Comprehensive income attributable to The GEO Group, Inc.

 

$

12,017

 

 

$

42,957

 

 

 

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

4


Table of Contents

 

THE GEO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2020 AND DECEMBER 31, 2019

(In thousands, except share data)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,414

 

 

$

32,463

 

Restricted cash and cash equivalents

 

 

27,865

 

 

 

32,418

 

Accounts receivable, less allowance for doubtful accounts of $2,668 and $4,183,

   respectively

 

 

375,453

 

 

 

430,982

 

Contract receivable, current portion

 

 

4,686

 

 

 

11,199

 

Prepaid expenses and other current assets

 

 

36,108

 

 

 

40,716

 

Total current assets

 

 

476,526

 

 

 

547,778

 

Restricted Cash and Investments

 

 

27,271

 

 

 

30,923

 

Property and Equipment, Net

 

 

2,142,530

 

 

 

2,144,722

 

Assets Held for Sale

 

 

4,405

 

 

 

6,059

 

Contract Receivable

 

 

319,819

 

 

 

360,647

 

Operating Lease Right-of-Use Assets, Net

 

 

123,465

 

 

 

121,527

 

Deferred Income Tax Assets

 

 

36,278

 

 

 

36,278

 

Goodwill

 

 

776,306

 

 

 

776,356

 

Intangible Assets, Net

 

 

204,387

 

 

 

210,070

 

Other Non-Current Assets

 

 

76,860

 

 

 

83,174

 

Total Assets

 

$

4,187,847

 

 

$

4,317,534

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

92,887

 

 

$

99,232

 

Accrued payroll and related taxes

 

 

63,005

 

 

 

54,672

 

Accrued expenses and other current liabilities

 

 

178,834

 

 

 

191,608

 

Operating lease liabilities, current portion

 

 

26,968

 

 

 

26,208

 

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

 

 

23,625

 

 

 

24,208

 

Total current liabilities

 

 

385,319

 

 

 

395,928

 

Deferred Income Tax Liabilities

 

 

19,254

 

 

 

19,254

 

Other Non-Current Liabilities

 

 

82,591

 

 

 

88,526

 

Operating Lease Liabilities

 

 

99,314

 

 

 

97,291

 

Finance Lease Liabilities

 

 

2,563

 

 

 

2,954

 

Long-Term Debt

 

 

2,370,890

 

 

 

2,408,297

 

Non-Recourse Debt

 

 

270,460

 

 

 

309,236

 

Commitments and Contingencies (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,

   126,149,516 and 125,435,573 issued and 121,385,597

   121,225,319 outstanding, respectively

 

 

1,262

 

 

 

1,254

 

Additional paid-in capital

 

 

1,247,068

 

 

 

1,230,865

 

Distributions in excess of earnings

 

 

(152,301

)

 

 

(119,779

)

Accumulated other comprehensive loss

 

 

(33,499

)

 

 

(20,335

)

Treasury stock, 4,763,919 and 4,210,254 shares, at cost, respectively

 

 

(104,184

)

 

 

(95,175

)

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

 

 

958,346

 

 

 

996,830

 

Noncontrolling interests

 

 

(890

)

 

 

(782

)

Total shareholders’ equity

 

 

957,456

 

 

 

996,048

 

Total Liabilities and Shareholders’ Equity

 

$

4,187,847

 

 

$

4,317,534

 

 

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

5


Table of Contents

 

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

FOR THE THREE MONTHS ENDED

MARCH 31, 2020 AND 2019

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

2020

 

 

March 31,

2019

 

Cash Flow from Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

25,121

 

 

$

40,649

 

Net loss attributable to noncontrolling interests

 

 

60

 

 

 

56

 

Net income attributable to The GEO Group, Inc.

 

 

25,181

 

 

 

40,705

 

Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

33,327

 

 

 

32,469

 

Stock-based compensation

 

 

9,768

 

 

 

6,727

 

Gain on extinguishment of debt

 

 

(1,563

)

 

 

 

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

   interest

 

 

1,670

 

 

 

2,563

 

Provision for doubtful accounts

 

 

25

 

 

 

131

 

Equity in earnings of affiliates, net of tax

 

 

(2,260

)

 

 

(2,596

)

Dividends received from unconsolidated joint venture

 

 

633

 

 

 

3,088

 

Loss on sale/disposal of property and equipment, net

 

 

304

 

 

 

697

 

Loss on assets held for sale

 

 

 

 

 

1,083

 

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

 

 

 

 

 

 

 

 

Changes in accounts receivable, prepaid expenses and other assets

 

 

53,210

 

 

 

27,527

 

Changes in contract receivable

 

 

1,206

 

 

 

1,446

 

Changes in accounts payable, accrued expenses and other liabilities

 

 

6,758

 

 

 

(14,829

)

Net cash provided by operating activities

 

 

128,259

 

 

 

99,011

 

Cash Flow from Investing Activities:

 

 

 

 

 

 

 

 

Insurance proceeds - damaged property

 

 

 

 

 

2,503

 

Proceeds from sale of property and equipment

 

 

264

 

 

 

274

 

Proceeds from sale of assets held for sale

 

 

1,300

 

 

 

 

Change in restricted investments

 

 

3,363

 

 

 

(4,062

)

Capital expenditures

 

 

(30,652

)

 

 

(28,084

)

Net cash used in investing activities

 

 

(25,725

)

 

 

(29,369

)

Cash Flow from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from long-term debt

 

 

96,000

 

 

 

130,000

 

Payments on long-term debt

 

 

(125,505

)

 

 

(96,926

)

Payments on non-recourse debt

 

 

(1,362

)

 

 

(2,089

)

Taxes paid related to net share settlements of equity awards

 

 

(2,632

)

 

 

(4,172

)

Proceeds from issuance of common stock in connection with ESPP

 

 

150

 

 

 

124

 

Payment for repurchases of common stock

 

 

(9,009

)

 

 

 

Proceeds from the exercise of stock options

 

 

 

 

 

333

 

Cash dividends paid

 

 

(57,703

)

 

 

(57,945

)

Net cash used in financing activities

 

 

(100,061

)

 

 

(30,675

)

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

   and Cash Equivalents

 

 

(7,364

)

 

 

366

 

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash

   and Cash Equivalents

 

 

(4,891

)

 

 

39,333

 

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

 

 

67,472

 

 

 

84,472

 

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

 

$

62,581

 

 

$

123,805

 

Supplemental Disclosures:

 

 

 

 

 

 

 

 

Non-cash Investing and Financing activities:

 

 

 

 

 

 

 

 

Right-of-use assets obtained from operating lease liabilities upon adoption of new

   lease standard

 

$

 

 

$

147,000

 

Conversion of pension liability to shares of common stock

 

$

8,925

 

 

$

 

Capital expenditures in accounts payable and accrued expenses

 

$

3,304

 

 

$

5,081

 

 

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

6


Table of Contents

 

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”) is a fully-integrated real estate investment trust (“REIT”) specializing in the design, financing, development and operation of secure facilities, processing centers and community reentry centers in the United States, Australia, South Africa and the United Kingdom. The Company owns, leases and operates a broad range of facilities including maximum, medium and minimum security facilities, processing centers, as well as community-based reentry facilities and offers an expanded delivery of rehabilitation services under its 'GEO Continuum of Care' platform. The 'GEO Continuum of Care' program integrates enhanced rehabilitative programs, which are evidence-based and include cognitive behavioral treatment and post-release services, and provides academic and vocational classes in life skills and treatment programs while helping individuals reintegrate into their communities. The Company develops new facilities based on contract awards, using its project development expertise and experience to design, construct and finance what it believes are state-of-the-art facilities that maximize security and efficiency. The Company provides innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants. The Company also provides secure transportation services for individuals as contracted domestically and in the United Kingdom through its joint venture GEO Amey PECS Ltd. (“GEOAmey”). At March 31, 2020, the Company’s worldwide operations include the management and/or ownership of approximately 94,000 beds at 126 facilities, including idle facilities, projects under development and recently awarded contracts, and also include the provision of community supervision services for more than 210,000 individuals, including approximately 100,000 through an array of technology products including radio frequency, GPS, and alcohol monitoring devices.

 

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 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 26, 2020 for the year ended December 31, 2019. The accompanying December 31, 2019 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, 2019. In the opinion of management, all adjustments (consisting only of normal recurring items) necessary for a fair presentation of the financial information for the interim periods reported in this Quarterly Report on Form 10-Q have been made. Results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results for the entire year ending December 31, 2020, or for any other future interim or annual periods.

 

Risks and uncertainties

In December 2019, a novel strain of coronavirus, now known as COVID-19 (“COVID-19”), was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.  

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact those entrusted in its care and governmental partners. While the Company did not incur significant disruptions during the three months ended March 31, 2020 from the COVID-19 pandemic, it is unable to predict the impact that the COVID-19 pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties.

The COVID-19 pandemic and related government-imposed mandatory closures, shelter in-place restrictions and social distancing protocols have had, and will continue to have, a severe impact on global economic conditions and the environment in which the Company operates. Starting in late March and early April, the Company began to observe negative impacts from the pandemic on its performance in its secure services business, specifically with its ICE Processing Centers and U.S. Marshals Facilities, as a result of declines in crossings and apprehensions along the Southwest border, as well as, a decrease in court sentencing at the federal level. Additionally, its reentry services business conducted through its GEO Care business segment has also been negatively impacted, specifically its residential reentry centers and non-residential day reporting programs were impacted by declines in programs due to lower levels of referrals by federal, state and local agencies. Additionally, the Company has experienced the transmission of COVID-19 at a small number of our facilities in the second quarter of 2020. If the Company is unable to mitigate the transmission of COVID-19 at its facilities it could experience a material adverse effect on its financial position, results of operations and cash flows. Although the Company is unable to predict the duration or scope of the COVID-19 pandemic or estimate the extent of the negative financial impact to its operating results, an extended period of depressed economic activity necessitated to combating the disease, and the severity and duration of the related global economic crisis will adversely impact its future financial performance.

 

7


Table of Contents

 

 

 

 

 

 

 

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, 2020 to March 31, 2020 are as follows (in thousands):

 

 

 

January 1,

2020

 

 

Foreign Currency

Translation

 

 

March 31,

2020

 

GEO Secure Services

 

$

316,366

 

 

$

 

 

$

316,366

 

GEO Care

 

 

459,589

 

 

 

 

 

 

459,589

 

International Services

 

 

401

 

 

 

(50

)

 

 

351

 

Total Goodwill

 

$

776,356

 

 

$

(50

)

 

$

776,306

 

 

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):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

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

 

 

$

308,318

 

 

$

(153,337

)

 

$

154,981

 

 

$

308,432

 

 

$

(148,171

)

 

$

160,261

 

Technology

 

 

7.3

 

 

 

33,700

 

 

 

(29,494

)

 

 

4,206

 

 

 

33,700

 

 

 

(29,091

)

 

 

4,609

 

Trade names

 

Indefinite

 

 

 

45,200

 

 

 

 

 

 

45,200

 

 

 

45,200

 

 

 

 

 

 

45,200

 

Total acquired intangible assets

 

 

 

 

 

$

387,218

 

 

$

(182,831

)

 

$

204,387

 

 

$

387,332

 

 

$

(177,262

)

 

$

210,070

 

 

Amortization expense was $5.6 million for each of the three months ended March 31, 2020 and 2019, respectively. Amortization expense was primarily related to the GEO Secure Services and GEO Care segments' amortization of acquired facility management contracts. As of March 31, 2020, the weighted average period before the next contract renewal or extension for the acquired facility management contracts was approximately 1.7 years. Although the facility management contracts acquired have renewal and extension terms in the near term, the Company has historically maintained these relationships beyond the current contractual periods.

Estimated amortization expense related to the Company's finite-lived intangible assets for the remainder of 2020 through 2024 and thereafter is as follows (in thousands):

 

Fiscal Year

 

Total

Amortization

Expense

 

Remainder of 2020

 

$

17,267

 

2021

 

 

19,766

 

2022

 

 

18,122

 

2023

 

 

13,478

 

2024

 

 

9,745

 

Thereafter

 

 

80,809

 

 

 

$

159,187

 

 

8


Table of Contents

 

3. FINANCIAL INSTRUMENTS

The following tables provide a summary of the Company’s significant financial assets and liabilities carried at fair value and measured on a recurring basis as of March 31, 2020 and December 31, 2019 (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements at March 31, 2020

 

 

 

Carrying Value at

March 31,

2020

 

 

Quoted Prices in

Active Markets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rabbi Trust

 

$

24,969

 

 

$

 

 

$

24,969

 

 

$

 

Fixed income securities

 

 

1,829

 

 

 

 

 

 

1,829

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap derivatives

 

$

7,616

 

 

$

 

 

$

7,616

 

 

$

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2019

 

 

 

Carrying Value at

December 31,

2019

 

 

Quoted Prices in

Active Markets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rabbi Trust

 

$

28,332

 

 

$

 

 

$

28,332

 

 

$

 

Fixed income securities

 

 

1,892

 

 

 

 

 

 

1,892

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap derivatives

 

$

1,869

 

 

$

 

 

$

1,869

 

 

$

 

 

The Company’s Level 2 financial instruments included in the tables above as of March 31, 2020 and December 31, 2019 consist of interest rate swap derivative liabilities held by GEO and the Company's Australian subsidiary, the Company's rabbi trust established for GEO employee and employer contributions to The GEO Group, Inc. Non-qualified Deferred Compensation Plan and an investment in Canadian dollar denominated fixed income securities. On May 22, 2019, the Company terminated the interest rate swap derivative liabilities in connection with a debt refinancing transaction by our Australian subsidiary. Refer to Note 9 - Derivative Financial Instruments and Note 10 - Debt for additional information.

The interest rate swap derivative 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 account. The underlying assets are equity and fixed income pooled funds that are comprised of Level 1 and Level 2 securities. The Canadian dollar denominated securities, not actively traded, are valued using quoted rates for these and similar securities.

 

9


Table of Contents

 

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 March 31, 2020 and December 31, 2019 (in thousands):

 

 

 

 

 

 

 

Estimated Fair Value Measurements at March 31, 2020

 

 

 

Carrying Value as

of March 31,

2020

 

 

Total Fair

Value

 

 

Level 1