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The GEO Group Reports Fourth Quarter 2012 Results

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 first quarter 2013 and full year 2013. 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 2013 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; (10) GEO’s ability to remain qualified as a REIT; (11) the incurrence of REIT related expenses; and (12) other factors contained in GEO’s Securities and Exchange Commission periodic filings, including the Form 10-K, 10-Q and 8-K reports.

Fourth quarter and full year 2013 financial tables to follow:
 
Condensed Consolidated Statements of Income
                 
(In thousands except per share data)
(Unaudited) 13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
31-Dec-12 1-Jan-12 31-Dec-12 1-Jan-12
Revenues $ 378,731 $ 354,473 $ 1,479,062 $ 1,407,172
Operating expenses 281,229 258,372 1,089,232 1,036,010
Depreciation and amortization 23,540 22,486 91,685 81,548
General and administrative expenses   34,649     26,317     113,792     110,015  
Operating income $ 39,313 $ 47,298 $ 184,353 $ 179,599
Interest income 1,497 2,073 6,716 7,032
Interest expense (20,160 ) (19,681 ) (82,189 ) (75,378 )
Loss on early extinguishment of debt   -     -     (8,462 )   -  
Income before income taxes, equity in earnings (loss) of affiliates and discontinued operations $ 20,650 $ 29,690 $ 100,418 $ 111,253
(Benefit) provision for income taxes (72,837 ) 11,725 (40,562 ) 43,172
 
Equity in earnings (loss) of affiliates, net of Income tax   1,926     (789 )   3,578     1,563  
Income from continuing operations $ 95,413 $ 17,176 $ 144,558 $ 69,644
Income (loss) from discontinued operations, net of income tax   (13,777 )   1,450     (10,660 )   7,819  
Net income $ 81,636 $ 18,626 $ 133,898 $ 77,463
Net (income) loss attributable to non-controlling interests   (28 )   112     852     1,162  
Net income attributable to The GEO Group, Inc. $ 81,608   $ 18,738   $ 134,750   $ 78,625  
 
Weighted average shares outstanding
Basic 61,218 61,615 60,934 63,425
Diluted 61,663 61,780 61,265 63,740
 
Income per share from continuing operations
Basic $ 1.56 $ 0.28 $ 2.37 $ 1.10
Diluted $ 1.55 $ 0.28 $ 2.36 $ 1.09
 
 
Income per share attributable to The GEO Group, Inc.
Basic $ 1.33 $ 0.30 $ 2.21 $ 1.24
Diluted $ 1.32 $ 0.30 $ 2.20 $ 1.23
       
Condensed Consolidated Balance Sheets            
 
(In thousands)
(Unaudited)
 
ASSETS 31-Dec-12 1-Jan-12
Current Assets
Cash and cash equivalents $ 31,755 $ 43,377
Restricted cash and investments 15,654 42,535
Accounts receivable, less allowance for doubtful accounts 246,635 265,250
Current deferred income tax assets 18,290 28,580
Prepaid expenses and other current assets 24,849 49,025
Current assets of discontinued operations   -   30,562
Total current assets   337,183   459,329
Restricted Cash and Investments 32,756 56,925
Property and Equipment, Net 1,687,159 1,688,356
Assets Held for Sale 3,243 4,363
Direct Finance Lease Receivable 26,757 32,146
Non-Current Deferred Income Tax Assets 2,532 1,437
Goodwill 490,308 490,296
Intangible Assets, Net 178,318 195,716
Other Non-Current Assets 80,938 79,577
Non-Current Assets of Discontinued Operations   -   41,778
$ 2,839,194 $ 3,049,923
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 50,110 68,033
Accrued payroll and related taxes 39,322 34,806
Accrued expenses 116,557 125,836
Current portion of capital lease obligation, long-term debt, and non-recourse debt 53,882 53,653
Current liabilities of discontinued operations   -   6,490
Total current liabilities   259,871   288,818
 
Non-Current Deferred Income Tax Liabilities 15,703 125,516
Other Non-Current Liabilities 82,025 54,106
Capital Lease Obligations 11,926 13,064
Long-Term Debt 1,317,529 1,319,068
Non-Recourse Debt 104,836 208,532
Non-Current Liabilities of Discontinued Operations - 2,298
Total Shareholders' Equity   1,047,304   1,038,521
Total Liabilities and Shareholders' Equity $ 2,839,194 $ 3,049,923
 
Reconciliation of Income from Continuing Operations to Pro Forma Income from Continuing Operations
                 
(In thousands except per share data)
(Unaudited) 13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
31-Dec-12 1-Jan-12 31-Dec-12 1-Jan-12
Income from continuing operations $ 95,413 $ 17,176 $ 144,558 $ 69,644
Net (Income) loss attributable to non-controlling interests (28 ) 112 852 1,162
Start-up/transition expenses, net of tax 800 5,207 6,189 14,625
International bid related costs, net of tax 904 - 3,215 703
REIT conversion related expenses and other expenses, net of tax 9,001 - 9,606 -
M&A related expenses, net of tax - - 874 4,129
Tax impact of REIT conversion (79,033 ) - (79,033 ) -
Early extinguishment of debt, net of tax   -     -   4,977     -
Pro forma income from continuing operations $ 27,057   $ 22,495 $ 91,238   $ 90,263
 
Income from continuing operations per diluted share (1) $ 1.55 $ 0.28 $ 2.36 $ 1.09
Net (Income) loss attributable to non-controlling interests - - 0.01 0.02
Start-up/transition expenses, net of tax 0.01 0.08 0.10 0.23
International bid related costs, net of tax 0.01 - 0.05 0.01
REIT conversion related expenses and other expenses, net of tax 0.15 - 0.16 -
M&A related expenses, net of tax - - 0.01 0.06
Tax impact of REIT conversion (1.28 ) - (1.29 ) -
Early extinguishment of debt, net of tax   -     -   0.08     -
Diluted Pro forma income from continuing operations per diluted share $ 0.44   $ 0.36 $ 1.49   $ 1.42
 
Weighted average common shares outstanding-diluted 61,663 61,780 61,265 63,740
 
 
(1) Note that earnings per share tables may contain slight summation differences due to rounding
               
Reconciliation of Income from Continuing Operations to Adjusted EBITDA
 
(In thousands)
(Unaudited) 13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
31-Dec-12 1-Jan-12 31-Dec-12 1-Jan-12
Income from continuing operations $ 95,413 $ 17,176 $ 144,558 $ 69,644
Interest expense, net 18,663 17,608 75,473 68,346
Income tax provision (benefit) (72,837 ) 11,725 (40,562 ) 43,172
Depreciation and amortization 23,540 22,486 91,685 81,548
Tax provision on equity in earnings of affiliates   802     701   1,660     2,406
EBITDA $ 65,581 $ 69,696 $ 272,814 $ 265,116
 
Adjustments
Net (Income) loss attributable to non-controlling interests (28 ) 112 852 1,162
Stock based compensation expenses, pre-tax 1,531 1,270 6,543 6,113
Start-up/transition expenses, pre-tax 800 7,063 9,027 21,625
International bid related costs, pre-tax 904 - 4,057 1,091
REIT conversion related expenses and other expenses, pre-tax 14,670 - 15,670 -
M&A related expenses, pre-tax - - 1,471 6,308
Early extinguishment of debt, pre-tax   -     -   8,462     -
Adjusted EBITDA $ 83,458   $ 78,141 $ 318,896   $ 301,415
   
Reconciliation of Income from Continuing Operations to Funds from Operations, Normalized FFO, and Adjusted Funds from Operations
           
(In thousands)
(Unaudited) 13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
31-Dec-12 1-Jan-12 31-Dec-12 1-Jan-12
Income from Continuing Operations $ 95,413 $ 17,176 $ 144,558 $ 69,644
Net (Income) Loss Attributable to Non-controlling Interests (28 ) 112 852 1,162
Real Estate Related Depreciation and Amortization   13,267     12,063     51,182     43,507  
Funds from Operations $ 108,652   $ 29,351   $ 196,592   $ 114,313  
 
Funds from Operations $ 108,652 $ 29,351 $ 196,592 $ 114,313
Income Tax Provision (72,837 ) 11,725 (40,562 ) 43,172
Income Taxes (Paid) Refunded (5,108 ) (5,820 ) (2,764 ) (15,621 )
Equity in Earnings (Loss) of Affiliates, Net of Income Tax 1,926 (789 ) 3,578 1,563
Start-up/transition Expenses 800 7,063 9,027 21,625
International Bid Related Costs 904 - 4,057 1,091
REIT Conversion Related Expenses 14,670 - 15,670 -
M&A Related Expenses - - 1,471 6,308
Early Extinguishment of Debt   -     -     8,462     -  
Normalized Funds from Operations $ 49,007   $ 41,530   $ 195,531   $ 172,451  
 
Normalized Funds from Operations $ 49,007 $ 41,530 $ 195,531 $ 172,451
Non-Real Estate Related Depreciation & Amortization 10,274 10,423 40,503 38,041
Consolidated Maintenance Capital Expenditures - Real Estate and Non-Real Estate Related (10,551 ) (10,565 ) (30,739 ) (33,796 )
Stock Based Compensation Expenses 1,531 1,270 6,543 6,113
Amortization of Debt Costs and Other Non-Cash Interest   1,523     597     3,869     1,745  
Adjusted Funds from Operations (AFFO) $ 51,784   $ 43,255   $ 215,707   $ 184,554  
       
Normalized FFO Per Diluted Share $ 0.79   $ 0.67   $ 3.19   $ 2.71  
       
AFFO Per Diluted Share $ 0.84   $ 0.70   $ 3.52   $ 2.90  
 
Weighted Average Common Shares Outstanding-Diluted 61,663 61,780 61,265 63,740
               
Reconciliation of Operating Income to Net Operating Income
 
(In thousands)
(Unaudited) 13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
31-Dec-12 1-Jan-12 31-Dec-12 1-Jan-12
Operating Income $ 39,313 $ 47,298 $ 184,353 $ 179,599
Depreciation and amortization 23,540 22,486 91,685 81,548
General and administrative expenses   34,649   26,317   113,792   110,015
Net Operating Income $ 97,502 $ 96,101 $ 389,830 $ 371,162
       
2013 Outlook/Reconciliation
 
(Unaudited)
(In thousands except per share data)
 
Full Year 2013
 
Net Income $ 120,000 to $ 130,000
Real Estate Related Depreciation and Amortization   45,000     45,000  
Funds from Operations (FFO) $ 165,000   to $ 175,000  
 
Non-Real Estate Related Depreciation and Amortization 50,000 50,000
Consolidated Maintenance Capex - Real Estate and Non-Real Estate (30,000 ) (30,000 )
Non-Cash Stock Based Compensation and Non-Cash Interest Expense   15,000     15,000  
Adjusted Funds From Operations (AFFO) $ 200,000   $ 210,000  
 
Net Interest Expense 75,000 75,000
Consolidated Maintenance Capex - Real Estate and Non-Real Estate 30,000 30,000
Income Taxes   15,000     15,000  
Adjusted EBITDA $ 320,000   $ 330,000  
 
G&A Expenses 100,000 100,000
Non-Cash Stock Based Compensation   (10,000 )   (10,000 )
Net Operating Income $ 410,000   $ 420,000  
 
FFO Per Share $ 2.29 $ 2.43
AFFO Per Share $ 2.78 $ 2.92
Dividend Per Share $ 2.00 $ 2.00
Weighted Average Common Shares Outstanding-Diluted 72,000 72,000
 
FFO Payout Ratio 87 % 82 %
AFFO Payout Ratio 72 % 69 %

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