Financial Instruments

9 Months Ended

Oct. 02, 2011

Financial Instruments [Abstract]

FINANCIAL INSTRUMENTS

8. FINANCIAL INSTRUMENTS

The Company is required to measure certain of its financial instruments at fair value on a recurring basis. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (“exit price”). The Company classifies and discloses its fair value measurements in one of the following categories: Level 1-unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2-quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3- prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The Company recognizes transfers between Levels 1, 2 and 3 as of the actual date of the event or change in circumstances that cause the transfer.

All of the Company’s interest rate swap derivatives were in the Company’s favor as of October 2, 2011 and are presented as assets in the table below and in the accompanying balance sheets. 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 October 2, 2011 and January 2, 2011 (in thousands):

			Fair Value Measurements at October 2, 2011
	Total Carrying Value at October 2, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Interest rate swap derivative assets	$	8,337	$	—	$	8,337	$	—
Restricted investments		40,952		7,454		33,498		—
Fixed income securities		1,915		—		1,915		—

			Fair Value Measurements at January 2, 2011
	Total Carrying Value at January 2, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Interest rate swap derivative assets	$	5,131	$	—	$	5,131	$	—
Restricted investments		11,910		6,168		5,742		—
Fixed income securities		1,791		—		1,791		—

The Company’s Level 1 investment relates to its rabbi trust established for GEO employee and employer contributions to The GEO Group Inc. Non-qualified Deferred Compensation Plan. These contributions are invested in mutual funds for which quoted market prices in active markets are available. The Company’s restricted investment in the rabbi trust is measured at fair value on a recurring basis and is disclosed in “Restricted investments” in the table above. Previously, these investments were disclosed in Note 9 at fair value as of January 2, 2011.

The Company’s Level 2 financial instruments included in the table above as of October 2, 2011 and January 2, 2011 consist of an interest rate swap asset held by our Australian subsidiary, other interest rate swap assets of the Company, an investment in Canadian dollar denominated fixed income securities, a guaranteed investment contract which is a restricted investment related to CSC of Tacoma LLC and, as of October 2, 2011, an Investment Repurchase Agreement (“Repo Agreement”) relative to MCF, the Company’s consolidated VIE. During the thirteen weeks ended October 2, 2011, MCF entered into the Repo Agreement to establish an investment for its debt service reserve fund and bond fund payment account. The Repo Agreement consists of a guaranteed investment in the principal amount of $23.8 million related to the debt service reserve fund and a second guaranteed investment related to the bond fund payment account which was $4.0 million as of October 2, 2011. Both of these investments are restricted to eligible investments as defined in 8.47% Revenue Bond indenture (refer to Note 11) and mature on August 1, 2016. As of October 2, 2011, the Repo Agreement is included above as a Level 2 restricted investment since its fair value is based using market interest rates for similar securities. The Australian subsidiary’s interest rate swap asset is valued using a discounted cash flow model based on projected Australian borrowing rates. The Company’s other interest rate swap assets and liabilities are based on pricing models which consider prevailing interest rates, credit risk and similar instruments. The Canadian dollar denominated securities, not actively traded, are valued using quoted rates for these and similar securities. The restricted investment in the guaranteed investment contract is valued using quoted rates for these and similar securities.