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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