Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

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.

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.

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

Leases

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.

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.

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