The GEO Group held its 3rd quarter earnings call this morning. You can read the company's press release here. On the call, GEO CEO George Zoley, Chief Operating Officer Wayne Calabrese, and Chief Financial Officer Brian Evans lead investors through quarterly earnings and analyzed GEO's three major business areas: US Corrections, GEO Care, and International Services. The company's overall revenues for the quarter were nearly $328 million, up from $294 million a year ago. $217 million of that earnings came from U.S. Corrections, $60 million from GEO Care, and $47 million coming from International Operations.
Zoley was generally optimistic about the quarter, announcing an increased outlook for 4th quarter and the full integration of Cornell facilities after GEO's buy-out of that company earlier this year. Major developments/expansions for the company included the announced award of a 2,800 Federal Bureau of Prisons contract to the D. Ray James facility in Georgia, and a Florida contract to develop the 2,000 bed Blackwater prison in Florida. Zoley also announced that the company is "actively pursuing a number of new organic opportunities." Investors congratulated the company on yesterday's news that California will move 2,580 prisoners to GEO facilities to its Baldwin, Michigan facility that was previously shuttered after reports of abuse against youth prisoners.
GEO's Texas' Operations
In Texas news, the company announced the loss of TDCJ contracts for the Bridgeport Correctional Center (which we reported in June) as well as the previously unreported loss of South Texas Intermediate Transfer Facility, apparently to MTC. This marks at least the sixth GEO facility to either be closed or re-contracted to another company in Texas in recent years.
The company anticipates the opening of its Montgomery County GEO Care facility in March 2011 pursuant to an agreement by state and Montgomery County. Last year, we reported that the earmark for the facility raised many eyebrows. As Emily Ramshaw, then at the Dallas Morning News and now with the Texas Tribune, reported ("Troubled prison firm's deal for new psychiatric hospital raises questions," July 11, 2009):
Lawmakers inserted an earmark into the state budget to fund the future Montgomery County facility starting in 2011. But they said they didn't know until this week that the county had selected the GEO Group to operate it, although GEO lobbyists were pushing for it as early as February.
The new facility came as a post-session shock to mental health advocates, who acknowledge the need for it. But they say they weren't informed about it and never would have signed off if they knew Florida-based GEO was operating it.
"Why would we want to use an entity that hasn't had a stellar reputation?" asked Monica Thyssen, children's mental health policy specialist with Advocacy Inc. "If the process had been more transparent, there probably would have been other state officials who would've said, 'I don't know if GEO is the best use of state dollars."
GEO officials, who run more than 50 facilities in the United States, including five mental health facilities in Florida, declined to comment, saying in an e-mail that they don't discuss "specific business development efforts and/or contracts."
We'll keep you posted on GEO developments from Montgomery County and elsewhere here in Texas.
Following yesterday's story about the prison industry's involvement with the creation of SB 1070, Texas State Senator Eliot Shapleigh spoke some strong words against the bill and its creation, claiming that he would resist passing a similar bill in Texas. The Rio Grande Guardian (Steve Taylor, "Shapleigh: Private prison industry involvement in SB 1070 'despicable,'" October 29) reports:
State Sen. Eliot Shapleigh says stopping a bill similar to Arizona’s SB 1070 from being passed by the Texas Legislature will mean not only battling against racists but also the private prison industry.
“That the private prison industry writes a bill in secret to profit from an immigrant’s day in jail is despicable. America is better than that."
We encourage you to read the NPR article in its entirety, as it outlines the extent to which private prison corporations were involved with the drafting of the SB 1070 bill which would make the failure to carry immigration papers a misdemeanor and would also broaden the powers of Arizona police to detain those who are suspected of staying in the country illegally. This bill is important for private prison corporations because immigrant detention is the main crux of their business, and with an increase in immigrant detention comes an increase in profits.
In this same report by the Rio Grande Guardian, the U.S. Attorney General is quoted, challenging the constitutionality of the bill:
U.S. Attorney General Eric Holder believes SB 1070 is unconstitutional, arguing that Arizona is trying to trump the federal government’s authority on immigration law. Holder instructed the Department of Justice to sue the State of Arizona and has won the backing of the U.S. Attorney for Arizona, Dennis Burke.
Arizona Senator Russell Pearce disagrees with the NPR article, and calls it a "lie:"
An NPR story about the origins of Senate Bill 1070 drew an angry response Thursday from its author, who said the radio account exaggerated the role prison lobbyists had in drafting it.State Sen. Russell Pearce, who first introduced a bill in 2003 to require law enforcement to question individuals about their immigration status, denied a report by NPR reporter Laura Sullivan that "Pearce's idea took shape" last year at a conference of conservative lawmakers and corporate interests.
"It's a lie," said Pearce... (Alia Beard and Casey Newton, "Sen. Russell Pearce: SB 1070 story 'a lie,'" AZ Central, 29 October 2010.)
If you are interested, we have recently investigated the extent to which prison corporations are donating to Texas campaigns politics. You can also see 2009 lobbying figures here. The NPR report on prison companies' involvement with Arizona legislation is extremely disturbing, but it has been an ongoing problem. We are glad that the story has caught the headlines in such a manner so that other Texas legislators, not just Shapleigh, can see the prison industry for what it truly is.
While Corrections Corporation of America is dealing with the fallout from the indictment of one of its former supervisors for sexual abuse of detained female immigrants at the company's T. Don Hutto detention center, another interesting article in the Nashville Post (Geert De Lombaerde, "Out of options," August 17) caught my eye:
Former Corrections Corp. of America CEO — and current chairman — John Ferguson has taken one for the team. Ferguson has signed a deal with the prison management firm to hand over almost 166,000 stock options so the company can divvy them out to other employees. The options would have expired in 2017 and 2018. It’s a magnanimous gesture, to be sure, and consistent with Ferguson’s request last year that he not be given equity awards.
But it’s also worth pointing out that Ferguson, who led CCA for more than nine years, last year pocketed $11 million from the exercising of options and still controls another $13 million in company stock. Plus, the surrendered options had strike prices above $26, where CCA (Ticker: CXW) hasn’t traded since September of 2008.
We pointed out last week that GEO Group's top executives also brought in nearly more than $7 million and $3 million respectively, and that all of this wealth is accumulated through taxpayer dollars.
The GEO Group completed its takeover of Houston-based Cornell Companies last week, and yesterday announced the results of Cornell shareholder vote on the takeover. There has been little analysis of this deal, and how it will effect exisiting Cornell facilities, including its 10 facilities in Texas or otherwise.
The exception is, as usual, Scot Hensen at Grits for Breakfast, who argues that the deal may add to GEO's problems being highly leveraged:
The same warning was included in Geo's most recent 10K, but after the purchase of Cornell it deserves to be amplified. The more debt the company has, the greater risk they must "dedicate a substantial portion of our cash flow from operations to payments on our indebtedness." (They'll also be dedicating a portion of their revenue, btw, to pay the board chairman's son-in-law a fat $144K salary plus stock options, which is the kind of executive hire that to me raises a red flag.)
I'd also pointed out back in 2007 that GEO making its debt payments required the company to rely on payments from subsidiaries that it could not guarantee:
The 10-K declares that Geo relies on "distributions" (i.e., "profits") from its subsidiaries to pay its increasingly large debt. Profits from subsidiaries made up more than 28% of Geo revenue last year, but the 10-K cautions that "Our subsidiaries are separate and distinct legal entities and are not obligated to make funds available for payment of our other indebtedness in the form of loans, distributions or otherwise."
In other words, we're not solvent without payments we can't ensure will keep coming, and our subsidiaries are "separate and distinct legal entities" who we don't control. That works out nicely for Geo if they go bankrupt, doesn't it?
That was written when subsidiaries made up 28% of Geo's revenue. Today, according to Geo's 10K, "For the fiscal year ended January 3, 2010, our subsidiaries accounted for 50.1% of our consolidated revenue, and, as of January 3, 2010, our subsidiaries accounted for 59.0% of our total segment assets." If the Cornell acquisitions are treated as subsidiaries, that risk will be even further magnified. The Geo Group is a heavily leveraged company.