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The GEO Group Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 8, 2011 05:26PM
The GEO Group Inc. (GEO) filed Quarterly Report for the period ended 2011-10-02.
Highlight of Business Operations:Revenues increased in Third Quarter 2011 compared to Third Quarter 2010 primarily due to the acquisition of Cornell which contributed additional revenues of $22.2 million, including the impact of contract terminations at Great Plains Correctional Facility (Great Plains) located in Hinton, Oklahoma and Regional Correctional Center located in Albuquerque, New Mexico. We also experienced increases at other facilities in Third Quarter 2011 due to: (i) the opening of the Blackwater River Correctional Facility (Blackwater River) located in Milton, Florida in October 2010 which contributed revenues of $7.5 million; (ii) aggregate increases in revenues of $2.9 million at Val Verde Correctional Facility (Val Verde) located in Del Rio, Texas and the Maverick County Detention Facility (Maverick) located in Maverick, Texas due to increases in the population and; (iii) aggregate increases of $3.3 million due to the intake of inmates for the North Lake Correctional Facility (North Lake) located in Baldwin, Michigan, the Indiana Short Term Offender Program (STOP Program) in Plainfield, Indiana, and the Adelanto Processing Center (Adelanto) located in Adelanto, California which began operations in May 2011, March 2011 and August 2011, respectively. These increases were partially offset by an aggregate decrease of $10.1 million due to the termination of our contracts at the Moore Haven Correctional Facility (Moore Haven) located in Moore Haven, Florida, Graceville Correctional Facility (Graceville) located in Graceville, Florida, the South Texas Intermediate Sanction Facility (South Texas ISF) in Houston, Texas, North Texas Intermediate Sanction Facility (North Texas ISF) located in Fort Worth, Texas, and the Bridgeport Correctional Center (Bridgeport) in Bridgeport, Texas.
Revenues increased in Nine Months 2011 compared to Nine Months 2010 primarily due to the acquisition of Cornell which contributed additional revenues of $132.6 million, including the impact of contract terminations at Great Plains and Regional Correctional Center. We also experienced increases at other facilities in Nine Months 2011 due to: (i) the opening of the Blackwater River in October 2010 which contributed revenues of $22.2 million; (ii) an increase of $2.1 million at LaSalle Detention Facility (LaSalle) located in Jena, Louisiana due to an increase in the population; (iii) aggregate increases of $4.8 million due to the intake of inmates for North Lake, the STOP Program and Adelanto which began in May 2011, March 2011 and August 2011, respectively; and (iv) aggregate increases in revenues of $7.6 million due to an increase related to the inflationary index at Western Region Detention Facility (WRDF) located in San Diego, California, and increases at Val Verde and at Maverick due to increases in the population. These increases were partially offset by aggregate decreases of $38.9 million due to the termination of our contracts at Moore Haven, Graceville, South Texas ISF, North Texas ISF, and Bridgeport.
In connection with the original financing, CSC of Tacoma LLC, a wholly-owned subsidiary of CSC, issued a $57.0 million note payable to the Washington Economic Development Finance Authority, referred to as WEDFA, an instrumentality of the State of Washington, which issued revenue bonds and subsequently loaned the proceeds of the bond issuance back to CSC for the purposes of constructing the Northwest Detention Center. The bonds are non-recourse to us and the loan from WEDFA to CSC is also non-recourse to us. These bonds mature in February 2014 and have fixed coupon rates between 3.80% and 4.10%. The proceeds of the loan were disbursed into escrow accounts held in trust to be used to pay the issuance costs for the revenue bonds, to construct the Northwest Detention Center and to establish debt service and other reserves. No payments were made during the thirteen weeks ended October 2, 2011. As of October 2, 2011, the remaining balance of the debt service requirement is $25.7 million, of which $6.1 million is due in the next twelve months.
4.16% and 4.29%, also calculated on the notional $100.0 million amount. Changes in the fair value of the interest rate swaps are recorded in earnings along with related designated changes in the value of the 7 3/4% Senior Notes. Total net gains, entirely offset by a corresponding increase in the fair value of the variable rate portion of the 7 3/4% Senior Notes, recognized and recorded in earnings related to these fair value hedges was $3.7 million and $4.8 million in the thirteen and thirty-nine weeks ended October 2, 2011, respectively. As of October 2, 2011 and January 2, 2011, the swap assets fair values were $8.1 million and $3.3 million, respectively. There was no material ineffectiveness of these interest rate swaps during the fiscal periods ended October 2, 2011.
Our Australian subsidiary is a party to an interest rate swap agreement to fix the interest rate on its variable rate non-recourse debt to 9.7%. We have determined the swap, which has a notional amount of $50.9 million, payment and expiration dates, and call provisions that coincide with the terms of the non-recourse debt to be an effective cash flow hedge. Accordingly, we record the change in the value of the interest rate swap in accumulated other comprehensive income, net of applicable income taxes. Total unrealized loss, net of tax, recognized in the periods and recorded in accumulated other comprehensive income, net of tax, related to this cash flow hedge was $0.7 million and $1.0 million for the thirteen and thirty-nine weeks ended October 2, 2011, respectively. The total value of the swap asset as of October 2, 2011 and January 2, 2011 was $0.2 million and $1.8 million, respectively, and is recorded as a component of other assets within the accompanying consolidated balance sheets. There was no material ineffectiveness of this interest rate swap for the fiscal periods presented. We do not expect to enter into any transactions during the next twelve months which would result in the reclassification into earnings or losses associated with this swap currently reported in accumulated other comprehensive income (loss).
Stocks Discussed: GEO,