Meet the Geo Group: Texas' largest private prison contractor

After writing about Idaho pulling its prisoners out of a Geo Group prison unit in Texas, it hit me where else I'd seen Geo in the news recently - they run the downtown jail in Beaumont where an inmate used a paper gun to hold two people hostage last week.

With Geo Group (formerly Wackenhut) twice this week in the news, I decided to take a look at their 10-K statement, which is a corporate document publicly traded companies must file with the Securities and Exchange Commission. The company is based in Boca Raton, Florida, but has a "central regional office" in New Braunfels, halfway between Austin and San Antonio.

The first thing that jumped out at me in Geo's 12/31/06 10-K filing was the section titled "Discontinued operations"

Through our Australian subsidiary, we previously had a contract with the Department of Immigration, Multicultural and Indigenous Affairs, or DIMIA, for the management and operation of Australia’s immigration centers. In 2003, the contract was not renewed, and effective February 29, 2004, we completed the transition of the contract and exited the management and operation of the DIMIA centers.

In early 2005, the New Zealand Parliament repealed the law that permitted private prison operation resulting in the termination of our contract for the management and operation of the Auckland Central Remand Prison or Auckland. We have operated this facility since July 2000. We ceased operating the facility upon the expiration of the contract on July 13, 2005.

Hmmmm ... I wonder what the Aussies and New Zealanders (and the Idaho Department of Corrections) know about Geo Group that we don't here in Texas? Whatever it is, nobody has told the feds yet. According to the 10-K:

In February 2004, CSC [a company Geo has since purchased] was awarded a contract by the Department of Homeland Security, Immigration and Customs Enforcement, or ICE, to develop and operate a 1,020 bed detention complex in Frio County, Texas. South Texas Local Development Corporation, referred to as STLDC, a non profit corporation, was created and issued $49.5 million in taxable revenue bonds to finance the construction of the detention complex.

So who are these guys? To give you an idea how closely associated they are with the feds, one of their "international" contracts is to operate a "Migrant Operations Center" in Guantanamo Bay, Cuba. But about 1/3 of their facilities are actually in Texas, though no prominent Texans serve on its board of directors or management team. According to their 10-K:

As of December 31, 2006, [Geo] operated a total of 62 correctional, detention and mental health and residential treatment facilities and had over 54,000 beds under management or for which we had been awarded contracts. We maintained an average facility occupancy rate of 96.1% for the fiscal year ended December 31, 2006. For the fiscal year ended December 31, 2006, we had consolidated revenues of $860.9 million and consolidated operating income of $64.2 million.

So Geo/Wackenhut operates a prison system all told that's roughly the same size as the prison system of a medium-population state.

About 20 Geo facilities accounting for around 14,500 of those beds are in Texas, making Geo's Texas operations about 1/10th the size of the entire state prison system. By comparison, Texas operates 106 state institutions, contracts for perhaps a dozen more, and houses a total of roughly 150,000 people in the state prison system, ballpark. Here's a spreadsheet I compiled from Geo's 10-K listing their facilities and clients in Texas:

Geo Group Private Prison Facilities in Texas

How many of these facilities have problems similar to the one in Dickens County? No way to tell. We do know the company lost a lawsuit last September in South Texas (Raymondville) for a big chunk of change. Said the 10-K:

On September 15, 2006, a jury in an inmate wrongful death lawsuit in a Texas state court awarded a $47.5 million verdict against us. Recently, the verdict was entered as a judgment against us in the amount of $51.7 million. On December 9, 2006, the trial court denied our post trial motions and we filed a notice of appeal on December 18, 2006.

We also know Geo guards receive less training than COs at Texas state facilities. Geo's 10-K reports that the company "generally require[s] at least 160 hours of pre-service training before an employee is allowed to work in a position that will bring the employee in contact with inmates in our domestic facilities" That's better than at the Dallas County Jail, but a far cry from the 300 hours required for TDCJ guards.

Even more troubling in the short term, the company has a "significant level of indebtedness that could adversely affect our financial position," mostly spent to buy competing private prison companies. And how might this debt "adversely" affect Geo? First and foremost, the company says, it could "require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness." Translated, that means they've got so much debt they're going to have to divert funds from their facilities they're operating to help pay it off!

I wonder if siphoning off funds for debt payment contributed to worsening conditions at the Dickens County unit?

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? Here's the list of Geo's subsidiaries - I can't tell from the 10-K which if any have facilities in Texas.

For running an unprofitable business, Geo's chief executive George Zoley makes a base salary of 3/4 of a million dollars plus an annual "incentive bonus" of 150% his base salary.

I'm not sure what if any point there is to this post; I just thought I'd take a closer look at a company that's a major player in the private prison business, and which has appeared in negative news stories more often than anybody would like in the last short while.

Looking at their corporate structure and finances, I'm left with more questions than answers - mostly about what all those subsidiaries do and whether they're likely to continue covering Geo's debt. That may or may not have anything to do with what's happening at units on the ground. Make of it all what you will.