The GEO Group Reports Third Quarter 2012 Results And Provides Update On Potential REIT Conversion

Adjusted Funds From Operations is defined as income from continuing operations excluding depreciation and amortization, income tax provision, income taxes refunded/paid, stock-based compensation expenses, maintenance capital expenditures, equity in earnings of affiliates, net of income tax, tax provision on equity in earnings of affiliates, amortization of debt costs and other non-cash interest, net income/loss attributable to non-controlling interests, start-up/transition expenses, M&A-related and other non-recurring expenses, early extinguishment of debt, and international bid and proposal expenses. GEO believes that Adjusted Funds From Operations is useful to investors as it provides information regarding cash that GEO’s operating business generates before taking into account certain cash and non-cash items that are non-operational or infrequent in nature, it provides disclosure on the same basis as that used by GEO’s management and it provides consistency in GEO’s financial reporting and therefore continuity to investors for comparability purposes. GEO’s management uses Adjusted Funds From Operations to monitor and evaluate its operating performance and to facilitate internal and external comparisons of the historical operating performance of GEO and its business units.

GEO has made available a Supplemental Disclosure which contains reconciliation tables of pro forma income from continuing operations to income from continuing operations, Adjusted EBITDA to income from continuing operations, Adjusted Funds from Operations to income from continuing operations along with supplemental financial and operational information on GEO’s business segments. GEO’s Reconciliation Tables can be found herein and in GEO’s Supplemental Disclosure which is available on GEO’s Investor Relations webpage at www.geogroup.com.

Safe-Harbor Statement

This press release contains forward-looking statements regarding future events and future performance of GEO that involve risks and uncertainties that could materially affect actual results, including statements regarding financial guidance for fourth quarter 2012 and full year 2012. Factors that could cause actual results to vary from current expectations and forward-looking statements contained in this press release include, but are not limited to: (1) GEO’s ability to meet its financial guidance for 2012 given the various risks to which its business is exposed; (2) GEO’s ability to declare future quarterly cash dividends; (3) GEO’s ability to successfully pursue further growth and continue to create shareholder value; (4) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (5) GEO’s ability to timely open facilities as planned, profitably manage such facilities and successfully integrate such facilities into GEO’s operations without substantial costs; (6) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (7) GEO’s ability to obtain future financing on acceptable terms; (8) GEO’s ability to sustain company-wide occupancy rates at its facilities; (9) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; and (10) other factors contained in GEO’s Securities and Exchange Commission filings, including the Form 10-K, 10-Q and 8-K reports.

Third quarter and first nine months 2012 financial tables to follow:

THE GEO GROUP, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2012 AND OCTOBER 2, 2011 (In thousands, except per share data) (Unaudited)
				Thirteen Weeks Ended										Thirty-nine Weeks Ended
				September 30, 2012					October 2, 2011					September 30, 2012					October 2, 2011
Revenues				$	411,524				$	395,683				$	1,225,129				$	1,172,831
Operating expenses				305,832					297,700					919,127					885,957
Depreciation and amortization				23,761					21,850					70,643					61,496
General and administrative expenses				27,228					25,922					81,712					86,420
Operating income				54,703					50,211					153,647					138,958
Interest income				1,651					1,767					5,219					4,965
Interest expense				(20,606		)			(19,327		)			(62,030		)			(55,700		)
Loss on early extinguishment of debt				(8,462		)			—					(8,462		)			—
Income before income taxes, equity in earnings of affiliates and discontinued operations				27,286					32,651					88,374					88,223
Provision for income taxes				11,304					12,255					35,512					33,929
Equity in earnings of affiliates, net of income tax provision of $234, $118, $858 and $1,705, respectively				474					272					1,652					2,352
Income from continuing operations				16,456					20,668					54,514					56,646
Income (loss) from discontinued operations, net of income tax provision (benefit) of $(1,088), $394, $(1,418) and $1,379, respectively				(1,729		)			625					(2,252		)			2,190
Net income				14,727					21,293					52,262					58,836
Net loss attributable to noncontrolling interests				890					225					881					1,050
Net income attributable to The GEO Group, Inc.				$	15,617				$	21,518				$	53,143				$	59,886
Weighted-average common shares outstanding:
Basic				60,906					63,340					60,838					64,028
Diluted				61,302					63,555					61,083					64,388
Income per Common Share Attributable to The GEO Group, Inc.(1):
Basic:
Income from continuing operations				$	0.28				$	0.33				$	0.91				$	0.90
Income (loss) from discontinued operations				(0.03		)			0.01					(0.04		)			0.04
Income per common share attributable to The GEO Group, Inc. – basic				$	0.26				$	0.34				$	0.87				$	0.94
Diluted:
Income from continuing operations				$	0.28				$	0.33				$	0.91				$	0.90
Income (loss) from discontinued operations				(0.03		)			0.01					(0.04		)			0.03
Income per common share attributable to The GEO Group, Inc. – diluted				$	0.25				$	0.34				$	0.87				$	0.93
(1) Note that earnings per share tables may contain slight summation differences due to rounding.

CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2012 AND JANUARY 1, 2012 (In thousands, except share data)
			September 30, 2012					January 1, 2012
			(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents			$	69,085				$	44,753
Restricted cash and investments (including VIEs 1 of $6,182 and $35,435, respectively)			15,530					42,535
Accounts receivable, less allowance for doubtful accounts of $2,294 and $2,453, respectively			251,459					285,810
Deferred income tax assets, net			31,199					28,726
Prepaid expenses and other current assets			25,046					50,346
Current assets of discontinued operations			6,328					7,159
Total current assets			398,467					459,329
Restricted Cash and Investments (including VIEs of $20,765 and $38,930, respectively)			44,284					57,912
Property and Equipment, Net (including VIEs of $25,988 and $162,665, respectively)			1,709,628					1,705,306
Assets Held for Sale			6,590					4,363
Direct Finance Lease Receivable			28,128					32,146
Deferred Income Tax Assets, Net			1,711					1,711
Goodwill			508,078					508,066
Intangible Assets, Net			186,229					200,342
Other Non-Current Assets			84,274					79,576
Non-Current Assets of Discontinued Operations			—					865
Total Assets			$	2,967,569				$	3,049,616
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable			$	53,643				$	69,632
Accrued payroll and related taxes			50,416					38,130
Accrued expenses			134,606					126,682
Current portion of capital lease obligations, long-term debt and non-recourse debt (including VIEs of $5,200 and $20,770, respectively)			47,840					53,666
Current liabilities of discontinued operations			319					708
Total current liabilities			286,824					288,818
Deferred Income Tax Liabilities			119,470					125,209
Other Non-Current Liabilities			59,206					56,381
Capital Lease Obligations			12,192					13,087
Long-Term Debt			1,324,902					1,319,068
Non-Recourse Debt (including VIEs of $16,972 and $108,335, respectively)			113,136					208,532
Total Shareholders’Equity			1,051,839					1,038,521
Total Liabilities and Shareholders’ Equity			$	2,967,569				$	3,049,616
1 Variable interest entities or “VIEs”

Reconciliation Tables for Third Quarter and First Nine Months 2012

	Reconciliation of Pro Forma Income from Continuing Operations to Income from Continuing Operations
	(In thousands except per share data)
	(Unaudited)				13 Weeks				13 Weeks				39 Weeks				39 Weeks
					Ended				Ended				Ended				Ended
					30-Sep-12				2-Oct-11				30-Sep-12				2-Oct-11
	Income from continuing operations				$	16,456			$	20,668			$	54,514			$	56,646
		Start-up/transition expenses, net of tax				1,250				4,330				5,389				9,867
		International bid and proposal expenses, net of tax				1,140				287				2,311				703
		Net loss attributable to non-controlling interests				890				225				881				1,050
		M&A related and other non-recurring expenses, net of tax				998				-				1,480				4,129
		Early extinguishment of debt, net of tax				4,977				-				4,977				-
	Pro forma income from continuing operations				$	25,711			$	25,510			$	69,552			$	72,395
	Diluted earnings per share from continuing operations (1)				$	0.27			$	0.33			$	0.89			$	0.88
		Start-up/transition expenses, net of tax				0.02				0.07				0.09				0.15
		International bid and proposal expenses, net of tax				0.02				-				0.04				0.01
		Net loss attributable to non-controlling interests				0.01				-				0.01				0.02
		M&A related and other non-recurring expenses, net of tax				0.02				-				0.02				0.06
		Early extinguishment of debt, net of tax				0.08				-				0.08				-
	Diluted pro forma earnings per share from continuing operations				$	0.42			$	0.40			$	1.14			$	1.12
	Weighted average common shares outstanding-diluted					61,302				63,555				61,083				64,388
		(1) Note that earnings per share tables may contain slight summation differences due to rounding

	Reconciliation from Adjusted EBITDA to Income from Continuing Operations
	(In thousands)
	(Unaudited)				13 Weeks				13 Weeks				39 Weeks				39 Weeks
					Ended				Ended				Ended				Ended
					30-Sep-12				2-Oct-11				30-Sep-12				2-Oct-11
	Income from continuing operations				$	16,456			$	20,668			$	54,514			$	56,646
		Interest expense, net				18,955				17,560				56,811				50,735
		Income tax provision				11,304				12,255				35,512				33,929
		Depreciation and amortization				23,761				21,850				70,643				61,496
		Tax provision on equity in earnings of affiliates				234				118				858				1,705
	EBITDA				$	70,710			$	72,451			$	218,338			$	204,511
	Adjustments
		Net loss attributable to non-controlling interests			$	890			$	225			$	881			$	1,050
		Stock based compensation expenses, pre-tax				1,619				1,245				5,113				4,843
		Start-up/transition expenses, pre-tax				1,803				6,717				8,227				15,280
		International bid and proposal expenses, pre-tax				1,538				446				3,153				1,091
		M&A related and other non-recurring expenses, pre-tax				1,696				-				2,500				6,308
		Early extinguishment of debt				8,462				-				8,462				-
	Adjusted EBITDA				$	86,718			$	81,084			$	246,674			$	233,083

	Reconciliation of Adjusted Funds from Operations to Income from Continuing Operations
	(In thousands)
	(Unaudited)				13 Weeks					13 Weeks					39 Weeks					39 Weeks
					Ended					Ended					Ended					Ended
					30-Sep-12					2-Oct-11					30-Sep-12					2-Oct-11
	Income from continuing operations				$	16,456				$	20,668				$	54,514				$	56,646
		Net loss attributable to non-controlling interests				890					225					881					1,050
		Depreciation and Amortization				23,761					21,850					70,643					61,496
		Income Tax Provision				11,304					12,255					35,512					33,929
		Income Taxes (Paid) Refunded				(2,144	)				(1,282	)				2,253					(10,016	)
		Stock Based Compensation Expenses				1,619					1,245					5,113					4,843
		Maintenance Capital Expenditures				(8,194	)				(8,906	)				(22,406	)				(24,100	)
		Equity in Earnings of Affiliates, Net of Income Tax				(474	)				(272	)				(1,652	)				(2,352	)
		Tax provision on equity in earnings of affiliates				234					118					858					1,705
		Amortization of Debt Costs and Other Non-Cash Interest				971					507					2,340					1,148
		Start-up/transition expenses				1,803					6,717					8,227					15,280
		M&A related and other non-recurring expenses				1,696					-					2,500					6,308
		International bid and proposal expenses				1,538					446					3,153					1,091
		Early extinguishment of debt				8,462					-					8,462					-
		Adjusted Funds from Operations			$	57,922				$	53,571				$	170,398				$	147,028
	Adjusted Funds from Operations Per Share				$	0.94				$	0.84				$	2.79				$	2.28
	Weighted average common shares outstanding-diluted					61,302					63,555					61,083					64,388

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