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Section 1: 10-Q (10-Q)

10-Q
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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 September 30, 2019
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  þ    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  þ    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.

1

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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  þ

As of November 5, 2019, the registrant had 121,275,480 shares of common stock outstanding.
 

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TABLE OF CONTENTS
 


2

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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, 2019 AND 2018
(In thousands, except per share data)


 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
Revenues
$
631,579

 
$
583,530

 
$
1,856,212

 
$
1,731,956

Operating expenses
472,513

 
434,806

 
1,382,678

 
1,299,312

Depreciation and amortization
32,419

 
31,297

 
97,240

 
94,536

General and administrative expenses
48,488

 
47,647

 
142,183

 
136,927

Operating income
78,159

 
69,780

 
234,111

 
201,181

Interest income
6,686

 
8,428

 
23,127

 
26,194

Interest expense
(36,645
)
 
(37,991
)
 
(115,857
)
 
(110,205
)
Gain (loss) on extinguishment of debt
594

 

 
(5,147
)
 
(574
)
Income before income taxes and equity in earnings of affiliates
48,794

 
40,217

 
136,234

 
116,596

Provision for income taxes
5,137

 
3,723

 
14,509

 
12,193

Equity in earnings of affiliates, net of income tax provision of $456, $200, $1,171 and $636, respectively
2,228

 
2,735

 
6,645

 
7,071

Net income
45,885

 
39,229

 
128,370

 
111,474

Net loss attributable to noncontrolling interests
47

 
60

 
181

 
223

Net income attributable to The GEO Group, Inc.
$
45,932

 
$
39,289

 
$
128,551

 
$
111,697

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
119,209

 
119,681

 
119,052

 
120,567

Diluted
119,282

 
120,302

 
119,314

 
121,055

Net income per common share attributable to The GEO Group, Inc.:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net income per common share attributable to The GEO Group, Inc. - basic
$
0.39

 
$
0.33

 
$
1.08

 
$
0.93

Diluted:
 
 
 
 
 
 
 
Net income per common share attributable to The GEO Group, Inc. - diluted
$
0.39

 
$
0.33

 
$
1.08

 
$
0.92

Dividends declared per share
$
0.48

 
$
0.47

 
$
1.44

 
$
1.41


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

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Table of Contents

THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2019 AND 2018
(In thousands)


 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
 
September 30, 2019

September 30, 2018
Net income
$
45,885

 
$
39,229

 
$
128,370

 
$
111,474

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(4,553
)
 
(1,342
)
 
(2,787
)
 
(5,882
)
Pension liability adjustment, net of tax provision (benefit) of $11, $(894), $33 and $(430), respectively
42

 
(761
)
 
(563
)
 
(31
)
Change in fair value of derivative instrument classified as cash flow hedge, net of tax provision of $738, $271, $1,752 and $803, respectively
(2,777
)
 
1,536

 
2,969

 
4,550

Total other comprehensive loss, net of tax
(7,288
)
 
(567
)
 
(381
)
 
(1,363
)
Total comprehensive income
38,597

 
38,662

 
127,989

 
110,111

Comprehensive loss attributable to noncontrolling interests
62

 
72

 
191

 
247

Comprehensive income attributable to The GEO Group, Inc.
$
38,659

 
$
38,734

 
$
128,180

 
$
110,358


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


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Table of Contents


THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
(In thousands, except share data)
 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
54,030

 
$
31,255

        Restricted cash and cash equivalents
33,536

 
51,678

Accounts receivable, less allowance for doubtful accounts of $4,029 and $4,183, respectively
377,984

 
445,526

Contract receivable, current portion
8,193

 
15,535

Prepaid expenses and other current assets
43,856

 
57,768

Total current assets
517,599

 
601,762

Restricted Cash and Investments
33,728

 
22,431

Property and Equipment, Net
2,155,498

 
2,158,610

Assets Held for Sale
3,761

 
2,634

Contract Receivable
353,010

 
368,178

Operating Lease Right-of-Use Assets, Net
125,718

 

Deferred Income Tax Assets
29,924

 
29,924

Goodwill
776,341

 
776,359

Intangible Assets, Net
215,607

 
232,360

Other Non-Current Assets
71,693

 
65,860

Total Assets
$
4,282,879

 
$
4,258,118

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
96,263

 
$
93,032

Accrued payroll and related taxes
57,774

 
76,009

Accrued expenses and other current liabilities
202,356

 
204,170

Operating lease liabilities, current portion
28,795

 

Current portion of finance lease liabilities, long-term debt and non-recourse debt
23,417

 
332,027

Total current liabilities
408,605

 
705,238

Deferred Income Tax Liabilities
13,681

 
13,681

Other Non-Current Liabilities
88,159

 
82,481

Operating Lease Liabilities
99,271

 

Finance Lease Liabilities
3,403

 
4,570

Long-Term Debt
2,355,724

 
2,397,227

Non-Recourse Debt
307,032

 
15,017

Commitments and Contingencies (Note 12)

 

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, 125,432,232 and 124,794,986 issued and 121,221,978 and 120,584,732 outstanding, respectively
1,255

 
1,248

Additional paid-in capital
1,225,310

 
1,210,916

Distributions in excess of earnings
(99,607
)
 
(52,868
)
Accumulated other comprehensive loss
(23,989
)
 
(23,618
)
Treasury stock, 4,210,254 shares, at cost
(95,175
)
 
(95,175
)
Total shareholders’ equity attributable to The GEO Group, Inc.
1,007,794

 
1,040,503

Noncontrolling interests
(790
)
 
(599
)
Total shareholders’ equity
1,007,004

 
1,039,904

Total Liabilities and Shareholders’ Equity
$
4,282,879

 
$
4,258,118



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

6

Table of Contents

THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2019 AND 2018
(In thousands)
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
Cash Flow from Operating Activities:
 
 
 
Net income
$
128,370

 
$
111,474

Net loss attributable to noncontrolling interests
181

 
223

Net income attributable to The GEO Group, Inc.
128,551

 
111,697

Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
97,240

 
94,536

Stock-based compensation
16,919

 
16,351

Loss on extinguishment of debt
5,147

 
574

Amortization of debt issuance costs, discount and/or premium and other non-cash interest
6,861

 
5,860

Provision for doubtful accounts
126

 
806

Equity in earnings of affiliates, net of tax
(6,645
)
 
(7,071
)
Dividends received from unconsolidated joint venture
5,694

 
8,710

Loss on sale/disposal of property and equipment, net
3,736

 
3,652

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
46,114

 
(13,955
)
Changes in contract receivable
6,338

 
(3,986
)
Changes in accounts payable, accrued expenses and other liabilities
11,794

 
3,049

Net cash provided by operating activities
322,958

 
220,223

Cash Flow from Investing Activities:
 
 
 
Insurance proceeds - damaged property
17,389

 
5,998

Proceeds from sale of property and equipment
402

 
2,061

Proceeds from sale of assets held for sale
823

 
3,797

Change in restricted investments
(5,449
)
 
(2,413
)
Capital expenditures
(90,787
)
 
(161,490
)
       Net cash used in investing activities
(77,622
)
 
(152,047
)
Cash Flow from Financing Activities:
 
 
 
Proceeds from long-term debt
274,370

 
372,000

Payments on long-term debt
(310,616
)
 
(186,033
)
Payments on non-recourse debt
(332,717
)
 
(9,636
)
Proceeds from non-recourse debt
322,906

 

Taxes paid related to net share settlements of equity awards
(4,177
)
 
(4,452
)
Proceeds from issuance of common stock in connection with ESPP
400

 
404

Payment for repurchases of common stock

 
(70,446
)
Debt issuance costs
(9,885
)
 
(990
)
Proceeds from the exercise of stock options
1,259

 
1,781

Cash dividends paid
(174,332
)
 
(172,256
)
Net cash used in financing activities
(232,792
)
 
(69,628
)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash and Cash Equivalents
(2,063
)
 
(5,392
)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash and Cash Equivalents
10,481

 
(6,844
)
Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, beginning of period
84,472

 
133,545

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents, end of period
$
94,953

 
$
126,701

Supplemental Disclosures:
 
 
 
Non-cash Investing and Financing activities:
 
 
 
Right-of-use assets obtained from operating lease liabilities upon adoption of new lease standard (Refer to Note 2 - Leases)
$
147,000

 
$

Capital expenditures in accounts payable and accrued expenses
$
5,231

 
$
4,152



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

8

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 September 30, 2019, the Company’s worldwide operations include the management and/or ownership of approximately 96,000 beds at 130 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 25, 2019 for the year ended December 31, 2018. The accompanying December 31, 2018 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, 2018. Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported financial position, results of operations or cash flows. 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, 2019 are not necessarily indicative of the results for the entire year ending December 31, 2019, or for any other future interim or annual periods.

2. LEASES

On January 1, 2019, the Company adopted Accounting Standard Update ("ASU") No. 2016-02, "Leases" (Topic 842) which requires that entities record lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The Company implemented the new standard using the transition method that provided for adoption on the adoption date and recognizing a cumulative-effect adjustment to retained earnings, if any, upon adoption. Therefore, the consolidated financial statements for the three and nine months ended September 30, 2019 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with the Company's historical accounting policy. Refer to Note 15 - Recent Accounting Pronouncements for further information.

The Company has operating and finance leases for facilities, ground leases, office space, computers, copier equipment and transportation vehicles that have remaining lease terms of one year to seventy-seven years, some of which include options to extend the lease for up to ten years. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of the lease payments over the term of the lease. Many of GEO's leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. Only renewal or termination options that are reasonably certain to be exercised by the Company are included in the lease term which is used in the calculation of lease liabilities and right-of-use assets. GEO does not typically enter into lease agreements that contain a residual guarantee or that provide for variable lease payments.


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When available, GEO uses the rate implicit in the lease to discount lease payments to present value, however, most of GEO's lease agreements do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Lease related assets and liabilities are recorded on the balance sheet as follows (in thousands):

 
 
Classification on the Balance Sheet
 
September 30, 2019
Assets
 
 
 
 
  Operating lease assets
 
Operating Lease Right-of-Use Assets, Net
 
$
125,718

  Finance lease assets
 
Property and Equipment, Net
 
3,135

Total lease assets
 
 
 
$
128,853

 
 
 
 
 
Liabilities
 
 
 
 
Current
 
 
 
 
   Operating
 
Operating lease liabilities, current portion
 
$
28,795

   Finance [1]
 
Current portion of finance liabilities, long-term debt and non-recourse debt
 
1,550

Noncurrent
 
 
 
 
   Operating
 
Operating Lease Liabilities
 
99,271

   Finance [1]
 
Finance Lease Liabilities
 
3,403

Total lease liabilities
 
 
 
$
133,019


[1] Also refer to Note 11 - Debt.
































10

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Certain information related to the lease costs for finance and operating leases is presented as follows (in thousands):
 
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost
 
$
11,611

 
$
35,841

Finance lease cost:
 
 
 
 
    Amortization of right-of-use assets
 
256

 
768

    Interest on lease liabilities
 
77

 
254

    Total finance lease cost
 
333

 
1,022

Short-term lease cost
 
1,673

 
5,228

Total lease cost
 
$
13,617

 
$
42,091

 
 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities
 
 
 
 
    Operating cash flows for operating leases
 
$
12,091

 
$
37,107

    Operating cash flows for finance leases
 
$
77

 
$
254

    Financing activities for finance leases
 
$
406

 
$
1,197

Right-of-use assets obtained in exchange for new operating lease liabilties
 
$
2,335

 
$
8,653

 
 
 
 
 
Weighted average remaining lease term:
 
 
 
 
    Operating leases
 
7.3 years

 
 
    Finance leases
 
3.1 years

 
 
Weighted average discount rate:
 
 
 
 
    Operating leases
 
4.74
%
 
 
    Finance leases
 
8.27
%
 
 



Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities and finance lease liabilities recorded on the balance sheet as of September 30, 2019 (in thousands).

 
 
Operating Leases
 
Finance Leases
Remainder of 2019
 
$
9,242

 
$
483

2020
 
32,503

 
1,934

2021
 
24,824

 
1,936

2022
 
18,384

 
1,233

2023
 
14,943

 

Thereafter
 
53,997

 

Total minimum lease payments
 
153,893

 
5,586

Less: amount of lease payment representing interest
 
(25,827
)
 
(633
)
Present value of future minimum lease payments
 
128,066

 
4,953

Less: current obligations under leases
 
(28,795
)
 
(1,550
)
Long-term lease obligations
 
$
99,271

 
$
3,403





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3. 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, 2019 to September 30, 2019 are as follows (in thousands):

 
January 1, 2019
 
Foreign Currency Translation
 
September 30, 2019
GEO Secure Services
$
316,366

 
$

 
$
316,366

GEO Care
459,589

 

 
459,589

International Services
404

 
(18
)
 
386

Total Goodwill
$
776,359

 
$
(18
)
 
$
776,341




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, 2019
 
December 31, 2018
 
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
 
$
308,393

 
$
(142,998
)
 
$
165,395

 
$
308,419

 
$
(127,481
)
 
$
180,938

Technology
7.3
 
33,700

 
(28,688
)
 
5,012

 
33,700

 
(27,478
)
 
6,222

Trade names (Indefinite lived)
Indefinite
 
45,200

 

 
45,200

 
45,200

 

 
45,200

Total acquired intangible assets
 
 
$
387,293

 
$
(171,686
)
 
$
215,607

 
$
388,019

 
$
(155,659
)
 
$
232,360



Amortization expense was $16.7 million and $17.3 million for the nine months ended September 30, 2019 and 2018, respectively. Amortization expense was primarily related to the GEO Secure Services and GEO Care segments' amortization of acquired facility management contracts. As of September 30, 2019, the weighted average period before the next contract renewal or extension for the acquired facility management contracts was approximately 1.8 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 2019 through 2023 and thereafter is as follows (in thousands):
Fiscal Year
 
 
Total Amortization Expense
Remainder of 2019
 
$
5,613

2020
 
22,306

2021
 
19,782

2022
 
18,204

2023
 
13,494

Thereafter
 
91,008

 
 
$
170,407


4. FINANCIAL INSTRUMENTS

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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, 2019 and December 31, 2018 (in thousands):
 
 
 
 
Fair Value Measurements at September 30, 2019
 
Carrying Value at September 30, 2019
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Assets:
 
 
 
 
 
 
 
Restricted investment:
 
 
 
 
 
 
 
    Rabbi Trust
$
26,341

 
$

 
$
26,341

 
$

Fixed income securities

 

 

 

Liabilities:
 
 
 
 
 
 
 
Interest rate swap derivatives
$
3,515

 
$

 
$
3,515

 
$

 
 
 
 
Fair Value Measurements at December 31, 2018
 
Carrying Value at December 31, 2018
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable  Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Assets:
 
 
 
 
 
 
 
Restricted investments:
 
 
 
 
 
 
 
    Rabbi Trust
$
20,892

 
$

 
$
20,892

 
$

Fixed income securities
1,801

 

 
1,801

 

Liabilities:
 
 
 
 
 
 
 
Interest rate swap derivatives
$
8,638

 
$

 
$
8,638

 
$


The Company’s Level 2 financial instruments included in the tables above as of September 30, 2019 and December 31, 2018 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 10 - Derivative Financial Instruments and Note 11 - 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.
During the nine months ended September 30, 2019, the Company transferred certain accounts receivable balances that had a carrying value of approximately $3.0 million to an unrelated third party. The transfer was accounted for as a sale and the Company has no continuing involvement with the transferred assets. The Company received cash proceeds in connection with the sale of approximately $3.0 million, and as such, there was no gain or loss in connection with the transaction.


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5. 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, 2019 and December 31, 2018 (in thousands):

 
 
 
Estimated Fair Value Measurements at September 30, 2019
 
Carrying Value as of September 30, 2019
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
54,030

 
$
54,030

 
$
54,030

 
$

 
$

Restricted cash and investments
40,923

 
40,923

 
40,923

 

 

Liabilities:
 
 
 
 
 
 
 
 
 
Borrowings under senior credit facility
$
1,222,610

 
$
1,137,210

 
$

 
$
1,137,210

 
$

 5.875% Senior Notes due 2022
216,023

 
209,519

 

 
209,519

 

 5.125% Senior Notes due 2023
300,000

 
266,463

 

 
266,463

 

5.875% Senior Notes due 2024
250,000

 
217,488

 

 
217,488

 

        6.00% Senior Notes due 2026
350,000

 
283,486

 

 
283,486

 

Non-recourse debt
325,313

 
325,428

 

 
325,428

 

 
 
 
Estimated Fair Value Measurements at December 31, 2018
 
Carrying Value as of December 31, 2018
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
31,255

 
$
31,255

 
$
31,255

 
$

 
$

Restricted cash and investments
53,217

 
53,217

 
50,499

 
2,718

 

Liabilities:
 
 
 
 
 
 
 
 
 
Borrowings under senior credit facility
$
1,273,965

 
$
1,188,196

 
$

 
$
1,188,196

 
$

 5.875% Senior Notes due 2022
250,000

 
244,550

 

 
244,550

 

 5.125% Senior Notes due 2023
300,000

 
271,992

 

 
271,992

 

5.875% Senior Notes due 2024
250,000

 
224,590

 

 
224,590

 

        6.00% Senior Notes due 2026
350,000

 
310,177

 

 
310,177

 

Non-recourse debt
340,910

 
348,274

 

 
348,274

 


The fair values of the Company’s cash and cash equivalents, and restricted cash approximates the carrying values of these assets at September 30, 2019 and December 31, 2018. Restricted cash consists of money market funds, bank deposits, commercial paper and time deposits used for asset replacement funds and other funds contractually required to be maintained at the Company's Australian subsidiary. The fair value of the money market funds and bank deposits is based on quoted market prices (Level 1) and the fair value of commercial paper and time deposits is based on market prices for similar instruments (Level 2).
The fair values of the Company's 5.875% senior unsecured notes due 2022 ("5.875% Senior Notes due 2022"), 5.875% senior unsecured notes due 2024 ("5.875% Senior Notes due 2024"), 6.00% senior unsecured notes due 2026 (“6.00% Senior Notes”), and the 5.125% senior unsecured notes due 2023 ("5.125% Senior Notes"), although not actively traded, are based on published financial data for these instruments. The fair values of the Company's non-recourse debt related to the Washington Economic Development Finance Authority ("WEDFA") and the Company’s Australian subsidiary are estimated based on market prices of similar instruments. The fair value of borrowings under the senior credit facility is based on an estimate of trading value considering the Company’s borrowing rate, the undrawn spread and similar instruments.

6. RESTRICTED CASH AND CASH EQUIVALENTS

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The following table provides a reconciliation of cash, cash equivalents and restricted cash and cash equivalents reported on the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:


 
September 30, 2019
 
September 30, 2018
Cash and Cash Equivalents
$
54,030

 
$
66,007

Restricted cash and cash equivalents - current
33,536

 
54,931

Restricted cash and investments - non-current
33,728

 
28,939

Less Restricted investments - non-current
(26,341
)
 
(23,176
)
Total cash, cash equivalents and restricted cash and cash equivalents shown in the statement of cash flows
$
94,953

 
$
126,701



Amounts included in restricted cash and cash equivalents are attributable to certain contractual cash restriction requirements at the Company's wholly owned Australian subsidiary related to non-recourse debt and asset replacement funds contractually required to be maintained and other guarantees. Restricted investments - non-current (included in Restricted Cash and Investments in the accompanying consolidated balance sheets) consists of the Company's rabbi trust established for employee and employer contributions to The GEO Group, Inc. Non-qualified Deferred Compensation Plan and is not considered to be a restricted cash equivalent. Refer to Note 4 - Financial Instruments.


7. SHAREHOLDERS’ EQUITY
The following table presents the changes in shareholders’ equity that are attributable to the Company’s shareholders and to noncontrolling interests for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
Common shares

Additional
Paid-In

 Distributions in Excess of

Accumulated
Other
Comprehensive

Treasury shares

Noncontrolling

Total
Shareholders'
 
Shares

Amount

Capital

Earnings

Loss

Shares

Amount

Interests

Equity
For the Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2019
121,213

 
$
1,254

 
$
1,220,242

 
$
(87,339
)
 
$
(16,716
)
 
4,210

 
$
(95,175
)
 
$
(728
)
 
$
1,021,538

Proceeds from exercise of stock options
15

 
1

 
181

 

 

 

 

 

 
182

Stock-based compensation expense

 

 
4,739

 

 

 

 

 

 
4,739

Restricted stock canceled
(14
)
 
(1
)
 
1

 

 

 

 

 

 

Dividends paid

 

 

 
(58,200
)
 

 

 

 

 
(58,200
)
Shares withheld for net settlements of share-based awards [1]
(1
)
 

 
(2
)
 

 

 

 

 

 
(2
)
Issuance of common stock - ESPP
9

 
1

 
149

 

 

 

 

 

 
150

Net income (loss)

 

 

 
45,932

 

 

 

 
(47
)
 
45,885

Other comprehensive income (loss)

 

 

 

 
(7,273
)
 

 

 
(15
)
 
(7,288
)
Balance, September 30, 2019
121,222

 
$
1,255

 
$
1,225,310

 
$
(99,607
)
 
$
(23,989
)
 
4,210

 
$
(95,175
)
 
$
(790
)
 
$
1,007,004