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TheStreet Open House

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

Stocks in this article: GEO

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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