THE GEO GROUP, INC. (NYSE:GEO) Files An 8-K Results of Operations and Financial Condition
Item2.02
|
Results of Operations and Financial Condition. |
On February22, 2017, The GEO Group, Inc. (GEO) issued a press
release (the Earnings Press Release) announcing its financial
results for the fourth quarter and year ended December31, 2016,
and issuing financial guidance for the full year and first
quarter 2017. A copy of the Earnings Press Release is furnished
hereto as Exhibit 99.1. GEO also held a conference call on
February22, 2017 to discuss these matters, a transcript of which
is furnished hereto as Exhibit 99.2.
In the Earnings Press Release, GEO provided Net Operating Income,
EBITDA, Adjusted EBITDA, Funds From Operations, Normalized Funds
From Operations, Adjusted Funds From Operations, and Adjusted Net
Income for the fourth quarter and year ended December31, 2016 and
the comparable prior-year periods that were not calculated in
accordance with Generally Accepted Accounting Principles (the
Non-GAAP
Information) and are presented as supplemental disclosures.
Generally, for purposes of Regulation G under the Securities
Exchange Act of 1934, Non-GAAP Information is any numerical
measure of a companys performance, financial position, or cash
flows that either excludes or includes amounts that are not
normally excluded or included in the most directly comparable
measure calculated and presented in accordance with GAAP. The
Earnings Press Release presents the financial measure calculated
and presented in accordance with GAAP, which is the most directly
comparable to the Non-GAAP Information, with a prominence equal
to or greater than its presentation of the Non-GAAP Information.
The Earnings Press Release also contains a reconciliation of the
Non-GAAP Information to the financial measure calculated and
presented in accordance with GAAP which is the most directly
comparable to the Non-GAAP Information.
Net Operating
Income is defined as revenues less operating expenses, excluding
depreciation and amortization expense, general and administrative
expenses, real estate related operating lease expense, and
start-up expenses, pre-tax. Net Operating Income is calculated as
net income attributable to GEO adjusted by subtracting net loss
attributable to non-controlling interests, equity in earnings of
affiliates, net of income tax provision, and by adding income tax
(benefit) provision, interest expense, net of interest income,
loss on extinguishment of debt, depreciation and amortization
expense, general and administrative expenses, real estate related
operating lease expense, and start-up expenses, pre-tax.
EBITDA is defined
as Net Operating Income adjusted by subtracting general and
administrative expenses, real estate related operating lease
expense, and start-up expenses, pre-tax, and by adding equity in
earnings of affiliates, pre-tax. Adjusted EBITDA is defined as
EBITDA adjusted for net loss/income attributable to
non-controlling interests, stock-based compensation expenses,
pre-tax, and
certain other adjustments as defined from time to time, including
for the periods presented MA related expenses, pre-tax, start-up
expenses, pre-tax and gain on sale of real estate assets,
pre-tax. Given the nature of GEOs business as a real estate owner
and operator, GEO believes that EBITDA and Adjusted EBITDA are
helpful to investors as measures of its operational performance
because they provide an indication of GEOs ability to incur and
service debt, to satisfy general operating expenses, to make
capital expenditures and to fund other cash needs or reinvest
cash into GEOs business. GEO believes that by removing the impact
of its asset base (primarily depreciation and amortization) and
excluding certain non-cash charges, amounts
spent on interest and taxes, and certain other charges that are
highly variable from year to year, EBITDA and Adjusted EBITDA
provide GEOs investors with performance measures that reflect the
impact to operations from trends in occupancy rates, per diem
rates and operating costs,
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providing a perspective not
immediately apparent from income from continuing operations. The
adjustments GEO makes to derive the non-GAAP measures of EBITDA
and Adjusted EBITDA exclude items which may cause short-term
fluctuations in income from continuing operations and which GEO
does not consider to be the fundamental attributes or primary
drivers of its business plan and they do not affect GEOs overall
long-term operating performance. EBITDA and Adjusted EBITDA
provide disclosure on the same basis as that used by GEOs
management and provide consistency in our financial reporting,
facilitate internal and external comparisons of GEOs historical
operating performance and its business units and provide
continuity to investors for comparability
purposes.
Funds from Operations, or FFO,
is defined in accordance with standards established by the
National 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. Normalized Funds
from Operations, or 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 GEOs actual operating
performance, including for the periods presented, MA related
expenses, net of tax, start-up expenses, net of tax, loss on
extinguishment of debt, net of tax, and non-recurring tax
benefits.
Adjusted Funds from
Operations, or 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.
Adjusted Net Income is defined
as Net Income Attributable to GEO adjusted for certain items
which by their nature are not comparable from period to period or
that tend to obscure GEOs actual operating performance, including
for the periods presented MA related expenses, net of tax,
start-up expenses, net of tax, loss on extinguishment of debt,
net of tax, gain on sale of real estate assets, net of tax, and
non-recurring tax benefits.
Because of the unique design,
structure and use of GEOs correctional facilities, GEO believes
that assessing the performance of its correctional facilities
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. GEO has modified FFO to derive
Normalized FFO and AFFO that meaningfully reflect its operations.
GEOs assessment of its operations is focused on long-term
sustainability. The adjustments GEO makes to derive the non-GAAP
measures of Normalized FFO and AFFO exclude items which may cause
short-term fluctuations in income from continuing operations but
have no impact on GEOs cash flows, or GEO does not consider them
to be fundamental attributes or the primary drivers of its
business plan and they do not affect its overall long-term
operating performance.
GEO may make adjustments to
FFO from time to time for certain other income and expenses that
do not reflect a necessary component of GEOs 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
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charges that are highly
variable from year to year, they provide GEOs 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 income from continuing operations. GEO believes the
presentation of FFO, Normalized FFO and AFFO provide useful
information to investors as they provide an indication of GEOs
ability to fund capital expenditures and expand its business.
FFO, Normalized FFO and AFFO provide disclosure on the same basis
as that used by GEOs management and provide consistency in its
financial reporting, facilitate internal and external comparisons
of its historical operating performance and its business units
and provide continuity to investors for comparability purposes.
Additionally, FFO, Normalized FFO and AFFO are widely recognized
measures in GEOs industry as a real estate investment
trust.
The Earnings Press Release
contains reconciliation tables for Net Operating Income, EBITDA
and Adjusted EBITDA, Funds From Operations, Normalized Funds From
Operations, Adjusted Funds from Operations and Adjusted Net
Income.
GEO has presented in the
Earnings Press Release certain forward-looking statements about
GEOs future financial performance that include non-GAAP financial
measures, including, Net Operating Income, Adjusted EBITDA, FFO,
Normalized FFO, and AFFO. The determination of the amounts that
are excluded from these non-GAAP financial measures is a matter
of management judgment and depends upon, among other factors, the
nature of the underlying expense or income amounts recognized in
a given period. While we have provided a high level
reconciliation for the guidance ranges for full year 2017, we are
unable to present a more detailed quantitative reconciliation of
the forward-looking non-GAAP financial measures to their most
directly comparable forward-looking GAAP financial measures
because management cannot reliably predict all of the necessary
components of such GAAP measures. The quantitative reconciliation
of the forward-looking GAAP financial measures will be provided
for completed annual and quarterly periods, as applicable,
calculated in a consistent manner with the quantitative
reconciliation of non-GAAP financial measures
previously reported for completed annual and quarterly
periods.
The Non-GAAP Information should be
considered in addition to results that are prepared under current
accounting standards but should not be considered a consolidated
substitute for, or superior to, financial information prepared in
accordance with GAAP. The Non-GAAP Information may differ from
similarly titled measures presented by other companies. The
Non-GAAP Information, as well as other information in the
Earnings Press Release, should be read in conjunction with GEOs
financial statements filed with the Securities and Exchange
Commission. The information set forth in Item 2.02 in this Form
8-K is being furnished and shall not be deemed filed for purposes
of Section18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liabilities of that section. The
information set forth in Item 2.02 in this Form 8-K shall not be
incorporated by reference into any registration statement or
other document to the Securities Act of 1933, as
amended.
Section 8Other
Events
| Item8.01 | Other Events. |
On February 22, 2017, GEO
announced the signing of a definitive agreement to acquire
Community Education Centers, Inc. (CEC), a private provider of
rehabilitative services for offenders in reentry and in-prison
treatment facilities as well as management services for county,
state, and federal correctional and detention facilities. GEO
will acquire CEC to an Agreement and Plan of Merger, dated as of
February 21, 2017, entered into by and among GEO, GEO/DE/MC/01
LLC (Merger Sub), a Delaware limited liability company and
subsidiary of GEO, CEC Parent Holdings LLC (CEC Parent), and the
unitholders representative named therein (the Agreement). The
Agreement provides that upon the terms and subject to the
conditions set forth in the Agreement, Merger Sub shall be merged
with and into CEC Parent with CEC Parent surviving the merger.
GEO will pay merger consideration of $360 million in cash,
subject to certain potential adjustments, including for working
capital and indebtedness as set forth in the Agreement. GEO plans
to integrate CEC into GEOs existing business units of GEO
Corrections Detention and GEO Care. The consummation of the
merger is not subject to any condition that GEO secure or
consummate financing to fund the transaction. The transaction
will be supported by a term loan financing commitment from BNP
Paribas and borrowings under GEOs existingRevolving Credit
Facility.
Each of GEO, Merger Sub and
CEC Parent have provided customary representations, warranties
and covenants in the Agreement. The transaction is expected to
close in the second quarter of 2017 subject to the fulfillment of
customary closing
conditions.
The Agreement contains certain
termination rights for both GEO and CEC, including by mutual
written consent and if the closing does not occur on or before
May 15, 2017 (the Outside Date); provided, however, that under
certain circumstances, GEO or CEC may elect to extend the Outside
Date by three
months.
A copy of the press release
announcing the transaction is filed as Exhibit 99.3 to this
report and is incorporated herein by this
reference.
Section9Financial
Statements and
Exhibits
| Item9.01 | Financial Statements and Exhibits |
| d) | Exhibits |
| 99.1 |
Press Release, dated February22, 2017, announcing GEOs financial results for the fourth quarter and year ended December31, 2016. |
|
| 99.2 |
Transcript of Conference Call discussing GEOs financial results for the fourth quarter and year ended December31, 2016. |
|
| 99.3 |
Press Release, dated February 22, 2017, announcing GEOs acquisition of Community Education Centers. |
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About THE GEO GROUP, INC. (NYSE:GEO)
The GEO Group, Inc. is a real estate investment trust (REIT). The Company specializes in the ownership, leasing and management of correctional, detention and re-entry facilities and the provision of community-based services and youth services in the United States, Australia, South Africa and the United Kingdom. The Company operates in four segments: U.S. Corrections & Detention, GEO Care, International Services, and Facility Construction & Design. The Company owns, leases and operates a range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, as well as community based reentry facilities, and offers delivery of offender rehabilitation services under its GEO Continuum of Care platform. The GEO Continuum of Care program integrates in-prison programs, which include cognitive behavioral treatment and post-release services. THE GEO GROUP, INC. (NYSE:GEO) Recent Trading Information
THE GEO GROUP, INC. (NYSE:GEO) closed its last trading session down -1.36 at 47.61 with 1,439,912 shares trading hands.