Industry

Report
Correctional Facilities

Hang Khuu
 INTEROFFICE MEMORAND UM

TO: DEBRA GREGERMAN

FROM: HANG KHUU
SUBJECT: CORRECTIONAL FACILITIES INDUSTRY REPORT
DATE: MAY 5, 2017

Introduction
Per your request, I researched and outlined several key factors regarding the correctional
facilities industry. This report will assist you with your understanding of the correctional
facilities industry and its elements. The following memorandum contains information on
segments, products and services, target markets, market drivers, industry challenges, prevalent
companies, financial performance in both domestic and international markets, industry threats,
and industry opportunities.

Segments
With diversified business segments, GEO Group divides their business into four categories: U.S.
Detention & Corrections, GEO Community Services, International Services, and Facility
Construction & Design. Among the four business segments, the majority of their revenues come
from the U.S. Detention & Corrections division, which oversees the operation and management
of facilities. The following chart below displays the total revenues for all four business segments
in 2016 (GEO Group Inc, 2017).

REVENUES OF BUSINESS SEGMENTS

International Services $157,363,000

Facility Construction & Design $252,401,000

GEO Community Services $394,449,000

U.S. Detention & Corrections $1,375,277,000

$- $500,000,000 $1,000,000,000 $1,500,000,000

2
As presented above, the four business segments contribute a substantial amount of revenue to the
industry, slightly over two billion dollars. The separation of segments allows the board of
directors to identify the most influential division and make crucial decisions during times of slow
economic growth based on their performances.

Products and Services

Security Prison
In a high-risk environment, correctional facilities must prioritize security to maintain officials
and inmates safety. According to OHollarens IBISWorld industry report, the prisons overall
security level accounts for 72.3% of sales with medium security ranking at the top with 63.6%
(2016). Depending on the type of prisoner detention centers house, the security levels vary,
ranging from minimum to maximum. Maximum security facilities house inmates in multiple
or single occupant cells with sliding doors that lock at night (OHollaren, 2016, Products and
Markets). This variation in protection assures the facilities employees a peace of mind when
they work.

Community Correctional Facilities

While certain prisoners require a distinct level of security, non-threatening and newly released
offenders reside in community correctional facilities. The contracts to operate halfway houses
fulfill the remaining 27.7% of industry revenue (OHollaren, 2016). These facilities offer a less
strict regulation as the correction officers are not present and inmates have the option to leave the
premises for job training or work. With the decline in the use of traditional private prisons from
the federal government, OHollaren claims that community correctional facilities will expand,
generating a higher share of revenue. Due to the lower staff-to-inmate ratio and security level,
the correctional facilities industry can invest more officers and money on the higher security
prisons.

Target Markets
Correctional facilities mainly aim at federal and state governments for their targeted markets. As
displayed below, the four major markets contribute $5.3 billion to the industrys revenue with
State and Local Governments fulfilling the majority of their contracts.

3
State and Local Governments
State and local governments represent one of the most prominent markets that contributes to the
industry revenue. Their contracts involve hiring industry operators to either accommodate
inmates in private prisons or acquire the management. Although accounting for 52% of total
industry revenue, the improving economy indicates a deviation from private prisons since the
pressure to reduce spending vanished (OHollaren, 2016).

Immigration and Custom Enforcement

The correctional facilities second largest source of revenue originates from the U.S.
Immigration and Customs Enforcement (ICE). Based upon the IBISWorld report, ICE makes up
21% of the industry revenue in 2016. Their responsibilities revolve around enforcing federal
laws dealing with border control and immigration to defend the nation from an overload of
illegal immigrants. As reported in recent New York Times article, Trumps administration
empowers ICE agents to execute their duties and arrest undocumented immigrants (Kulish,
2017). If this change persists, the percentage of ICE detainees will grow, causing major industry
players to expand their housing capacity.

The U.S. Marshals Service

As the US Marshals Service (USMS) does not operate or own detention centers, they mainly rely
on private facilities to house their inmates. With responsibilities consisting of protecting
arresting federal criminals and transporting federal detainees, the USMS accounts for 14% of
total industry revenue (OHollaren, 2016). Since they depend on private prisons to oversee their
convicts, they also represent a major source of income for correctional facilities.

The Federal Bureau of Prisons

The Federal Bureau of Prisons (BOP) satisfy the remaining 13% of the total industry revenue.
Discovered in 1930 with the mission of delivering humane rehabilitation services to federal
inmates, the BOP supervises over 170,000 prisoners (OHollaren, 2016). Although they initially
felt reluctant to establish a contract with private correctional facilities, the severe overcrowding
in prisons changed their mind.

Market Drivers
When referring to the occupancy of correctional facilities, the key drivers include incarceration
rate and crime rate (OHollaren, 2016). These two factors positively correlate with the demand
for detention centers. As the number of captivity and criminal activity increases, the need for
industry services will also escalate along with the rates. However, as indicated in the graph
below, IBISWorld Report expects the incarceration and crime rate to continue declining in the
upcoming years, posing a threat to the industry.

4
Industry Challenges
Administration of Inmates
For many years, the toughest challenge for American prison staffs involves maintaining order. In
a potentially hostile environment, the correction officers must act quick and apply their objective
decision-making skills. However, biased judgments may unconsciously occur during certain
situations, especially in an overcrowded setting. According to Olsons research, a correlation
between race and punishment exists in American prisons (2016). He claimed that black inmates
report a higher level of punishment compared to white inmates. This finding can potentially
harm the industrys reputation and financial performance if true.

Overcrowding
Although overcrowded correctional facilities guarantee a higher demand and revenue, it results
in a high inmate to staff ratio. As the incarceration rate of undocumented immigrants grows, the
occupancy of private detention centers will continue to rise as well. The current overcrowded
prison system not only fails to provide adequate prison beds and supplies for the inmates but also
the staffs safety and health (Tribridge, 2014).

Prevalent Companies

Corrections Corporation of America

Among the many detention facilities in the U.S., Corrections Corporation of American (CCA)
represents the nations largest owner and operator. Founded in 1983, CCA currently owns 34.9%
of market share and manages over 14,000 employees across 77 correctional facilities as of 2015
(OHollaren, 2016). According to the IBISWorld report, they specialize in owning, operating and
managing detention centers along with providing essential services, programs, and supplies for

5
government agencies and inmates. Their main targeted customer includes federal and state
correctional and detention authorities. CCA projected a total revenue of $1,844,600,000 in 2016
due to the increasing demand from federal and state governments (OHollaren, 2016).
Furthermore, Trumps election also helped the CCAs stock prices to rise because of Trumps
favorable view of private prisons (Surowiecki, 2016). The companys consistent growth assures
the public of their positive financial performance.

The GEO Group Inc.

Headquartered in Florida, The GEO Group Inc. follows second in the list of major companies for
correctional facilities. They own 27.1% of market share and oversees more than 17,000 full-time
employees (OHollaren, 2016). In contrast to CCA, GEO separates their business segments into
four divisions: US Corrections & Detention, GEO Care, International Services, and Facility
Construction & Design. Additionally, they also partake in the international market in which they
operate in Australia, South Africa, and Canada. However, the majority of their revenue derives
from their US correctional and detention management services. As GEO owns and manages 64
correctional facilities, the company reported an anticipated revenue of $1,429,700,000 in 2016
(OHollaren, 2016). As witnessed, GEO follows close behind CCA financial performance,
denoting their competitive competition in the industry.

Domestic and International Financial Performances

Correctional facilities financial performance depends on the demand for the industrys services.
According to the statistic snapshot from IBISWorld, the industry expects to grow at an
annualized rate of 1.5% to $5.3 billion. Although, the expected decline in crime rate and
incarceration rate in the US will harm the demand for detention centers. On the other hand,
GEOs International Services also encountered a dramatic decline in its revenue by $43.1 million
from 2014 to 2015 due to the foreign exchange rate fluctuations and Harmondworth management
contract termination (GEO Group Inc., 2015, p. 33). However, their International Services
revenue portrayed a positive growth in 2016 as it increased nearly $2.5 million (GEO Group Inc,
2017). Nevertheless, the recent Department of Justice announcement that they would reconsider
the use of private prisons could harm the industrys finances.

Industry Threats
In August of 2016, the U.S. Department of Homeland Security announced their consideration of
ending the usage of private detention centers. As the news circulated, Corrections Corp. stock
sank 4% in the stock market [then], closing at its lowest level in five years, while GEO Group
lost 3% (Peters, 2016). CEO of both major industry companies attempts to change the
governments mind as they made a public statement. The discontinuation of private prisons
negatively impacted CCA and GEO and will persist if the Justice Department uphold their
decision.

Industry Opportunities
Correctional facilities offer a wide range of opportunities involving a variety of management
services. The rehabilitation and education programs promote learning, skills development, and
therapy for offenders to prepare them for a successful transition into the community (National
Institute of Corrections). The process comprises of creating short and long term goals as well as

6
developing strategies to achieve them. These programs allow the correctional facilities industry
to establish connections with other businesses and further assist their detainees.

Conclusion
This report detailed crucial insights on the correctional facilities industry, including segments,
products and services, target markets, market drivers, industry challenges, prevalent companies,
financial performance in both domestic and international markets, industry threats, and industry
opportunities. Thank you for the opportunity to assist you in assembling this report. Please
contact me at [email protected] if you have any questions or concerns.

7
 References

GEO Group Inc. (2015). Annual Report. Retrieved from Mergent Online database.

GEO Group Inc. (2017). Company Details. Retrieved from Mergent Online database.

Kulish, N., Dickerson, C., & Nixon, R. (2017, February 25). Immigration Agents Discover New
Freedom to Deport Under Trump. Retrieved April 25, 2017, from
https://www.nytimes.com/2017/02/25/us/ice-immigrant-deportations-trump.html?_r=0

National Institute of Corrections. (2017). Maximum offender job opportunities. Retrieved from
https://info.nicic.gov/cirs/?q=node/38

OHollaren, K. (2016, November). IBISWorld Industry Report 56121. Correctional Facilities in

the US. Retrieved from IBISWorld database.

Olson, J. C. (2016). Race and punishment in American prisons. Journal of Public Administration
Research & Theory, 26(4), 758-768. doi:10.1093/jopart/muw026.

Peters, B. (2016, August 29). GEO, Corrections Corp. sink as DHS reconsiders private
detentions. Investors Business Daily. p. 1.

Surowiecki, J. (2016). Trump sets private prisons free. New Yorker, 92(40), 26.

Tribridge. (2014). Challenges, changes & choices for jails, prisons & corrections facilities.
Retrieved from http://www.tribridge.com/docs/default-source/whitepapers/whitepaper-
publicsector_challenges-changes-amp-choices_for-jails-prisons-amp-corrections-
facilities.pdf?sfvrsn=2