Private Letter Ruling
GEO has completed an extensive analysis of the REIT requirements and believes that it could meet the REIT operational and technical thresholds following the divestiture of its health care facility operations by year-end 2012. GEO expects to take the necessary steps as approved by the Board to be able to operate in compliance with the REIT rules as of January 1, 2013 and does not need to receive a final private letter ruling from the IRS before January 1, 2013 in order to do so. GEO intends to continue to pursue a private letter ruling from the IRS affirming its ability to operate as a REIT.
Applicable REIT rules substantially restrict the ability of REITs to directly or indirectly operate or manage health care facilities. As a result, in order to achieve and preserve REIT status effective January 1, 2013, GEO is required to divest all health care facility management contracts prior to December 31, 2012. Under its wholly-owned subsidiary, GEO Care, Inc., GEO currently holds six managed-only health care facility contracts, totaling 1,970 beds, and provides correctional mental health services for the Palm Beach County, Florida jail system through its Residential Treatment Services division and delivers correctional health care services in publicly-operated prisons in the State of Victoria, Australia through its Pacific Shores Healthcare subsidiary. These contracts and services (collectively, the "GEO Care Business") generate approximately $165 million in annualized revenues.To enable GEO to achieve REIT status as of January 1, 2013, a special committee of the Board was formed consisting of all the independent directors of GEO (the “Independent Committee”), and the Independent Committee approved the entry by GEO into a definitive agreement for the sale of the GEO Care Business to members of GEO and GEO Care’s management teams (the "MBO Group") for a purchase price of $36 million, inclusive of normalized working capital in the GEO Care Business as of the closing date (the "GEO Care Divestiture"). The MBO Group will also be obligated to pay up to an additional $5 million in purchase price on a contingent earn-out basis if certain potential future contract awards are received by GEO Care.