The GEO Group Reports Fourth Quarter 2010 Results

The GEO Group (NYSE: GEO) (“GEO”) today reported fourth quarter 2010 financial results. GEO reported GAAP income from continuing operations for the fourth quarter 2010 of $23.0 million, or $0.36 per diluted share, compared to GAAP income from continuing operations of $15.5 million, or $0.30 per diluted share for the fourth quarter of 2009. GEO’s fourth quarter 2009 results reflect one extra week of operations which contributed approximately $20.0 million in revenues and $0.02 to $0.03 in earnings per share. GEO’s fourth quarter 2010 GAAP income from continuing operations includes $6.7 million, after-tax, in one-time M&A transaction related expenses, which are reported in GEO’s general and administrative expenses; a $0.5 million after-tax loss attributable to non-controlling interests; a $2.9 million after-tax gain related to the settlement of a claim with the Internal Revenue Service; and a $0.5 million after-tax gain related to the sale of company-owned land in Newport News, Virginia.

Excluding these items, GEO reported Pro Forma income from continuing operations of $26.7 million, or $0.41 per diluted share, compared to Pro Forma income from continuing operations of $21.0 million, or $0.40 per diluted share for the fourth quarter of 2009.

For the full-year 2010, GEO reported GAAP income from continuing operations of $62.8 million, or $1.12 per diluted share, compared to $66.5 million, or $1.28 per diluted share for the full-year 2009. Pro forma income from continuing operations for the full-year 2010 increased to $85.3 million, or $1.52 per diluted share, from pro forma income from continuing operations of $73.5 million, or $1.42 per diluted share for the full-year 2009.

George C. Zoley, Chairman and Chief Executive Officer of GEO, said: “We are pleased with our strong fourth quarter and full-year earnings results, which continue to be driven by sound operational results from our diversified business units of GEO Corrections and GEO Care. Following our Cornell and BI acquisitions, GEO is now uniquely positioned to provide comprehensive, turnkey solutions across a continuum of care for correctional, detention, and treatment services worldwide.”

Pro forma income from continuing operations excludes start-up/transition expenses, and other items as set forth in the table below, which presents a reconciliation of pro forma income from continuing operations to GAAP income from continuing operations for the fourth quarter and the full-year 2010 and 2009. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines pro forma income from continuing operations.

Business Segment Results

The following table presents a summary of GEO’s segment results for the fourth quarter and the full-year 2010 and 2009.

U.S. Corrections

For the fourth quarter of 2010, U.S. Corrections revenue increased by approximately $38.5 million year-over-year. This revenue increase was driven by GEO’s merger with Cornell Companies; the opening of the Blackwater Correctional Facility in Florida; and the activation of a new contract with the Federal Bureau of Prisons at the D. Ray James Correctional Facility in Georgia. These factors were offset by one less week of operation in the fourth quarter of 2010 compared to the fourth quarter of 2009 and the transition of managed-only contracts for the Graceville Correctional Facility and the Moore Haven Correctional Facility in Florida and the Bridgeport Correctional Center and South Texas Intermediate Sanction Facility in Texas.

GEO Care

For the fourth quarter of 2010, GEO Care revenue increased by approximately $37.6 million year-over-year. This revenue increase was driven by GEO’s merger with Cornell Companies offset by one less week of operation in the fourth quarter of 2010 compared to the fourth quarter of 2009.

International Services

For the fourth quarter of 2010, International Services revenue increased by approximately $7.4 million year-over-year driven by the activation of the Parklea Correctional Centre in Australia; the opening of a 360-bed expansion at the Harmondsworth Immigration Removal Centre in the United Kingdom; and positive foreign exchange rate fluctuations offset by one less week of operation in the fourth quarter of 2010 compared to the fourth quarter of 2009.

Adjusted EBITDA

Fourth quarter 2010 Adjusted EBITDA increased to $68.4 million from $55.3 million in the fourth quarter of 2009. For the full-year 2010, Adjusted EBITDA increased to $225.4 million from $189.8 million for the full-year 2009. Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted EBITDA. The following table presents a reconciliation from Adjusted EBITDA to GAAP Net income for the fourth quarter and full-year 2010 and 2009.

Adjusted Funds from Operations

Adjusted Funds from Operations for the fourth quarter of 2010 increased to $39.0 million compared to $33.4 million for the fourth quarter of 2009. For the full-year 2010, Adjusted Funds from Operations increased to $132.2 million from $117.4 million for the full year 2009.

Please see the section of this press release below entitled “Important Information on GEO’s Non-GAAP Financial Measures” for information on how GEO defines Adjusted Funds from Operations. The following table presents a reconciliation from Adjusted Funds from Operations to GAAP income from continuing operations for the fourth quarter and full-year 2010 and 2009.

Acquisition of B.I. Incorporated

On February 10, 2011, GEO completed its previously announced acquisition of B.I. Incorporated (“BI”), a private provider of innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers, and pretrial defendants. GEO has acquired BI for $415 million in an all cash transaction, excluding transaction related expenses. BI will be integrated into GEO’s wholly-owned subsidiary, GEO Care.

2011 Financial Guidance

GEO confirmed its financial guidance for 2011. GEO expects 2011 total revenues to be in the range of $1.62 billion to $1.64 billion, including approximately $115 million in revenues from BI. GEO expects 2011 pro forma earnings to be in a range of $1.55 to $1.65 per share, excluding acquisition-related expenses and $0.16 in after-tax start-up/transition expenses.

GEO confirmed its 2011 guidance for Adjusted EBITDA in a range of $320 million to $330 million and Adjusted Funds from Operations in a range of $175 million to $185 million, or $2.70 to $2.85 per share. As previously disclosed by GEO, the acquisition of BI is expected to have a neutral impact on GEO’s pro forma 2011 earnings per share and to become accretive to pro forma earnings starting in 2012.

GEO also issued first quarter 2011 financial guidance. GEO expects first quarter 2011 total revenues to be in the range of $385 million to $390 million, including approximately $19 million in revenues from BI. GEO expects first quarter 2011 pro forma earnings to be in a range of $0.33 to $0.34 per share, excluding acquisition-related expenses and $0.05 in after-tax start-up/transition expenses.

Compared to the fourth quarter 2010 results, GEO’s first quarter 2011 guidance reflects higher payroll tax costs estimated to be $0.05 to $0.06 per share, and is impacted by normal seasonal fluctuations in federal populations. GEO’s first quarter 2011 guidance also reflects higher interest expense as a result of GEO’s recently completed acquisition of BI.

Conference Call Information

GEO has scheduled a conference call and simultaneous webcast at 11:00 AM (Eastern Time) today to discuss GEO’s fourth quarter 2010 financial results as well as its progress and outlook. The call-in number for the U.S. is 1-866-804-6921 and the international call-in number is 1-857-350-1667. The participant pass-code for the conference call is 77139859. In addition, a live audio webcast of the conference call may be accessed on the Conference Calls/Webcasts section of GEO’s investor relations home page at www.geogroup.com. A replay of the audio webcast will be available on the website for one year. A telephonic replay of the conference call will be available until March 17, 2011 at 1-888-286-8010 (U.S.) and 1-617-801-6888 (International). The pass-code for the telephonic replay is 60963760.

About The GEO Group, Inc.

The GEO Group is a world leader in the delivery of correctional, detention, and residential treatment services to federal, state, and local government agencies around the globe. GEO offers a turnkey approach that includes design, construction, financing, and operations. GEO represents government clients in the United States, Australia, South Africa, and the United Kingdom. GEO’s worldwide operations include the management and/or ownership of approximately 81,000 beds at 118 correctional, detention and residential treatment facilities, including projects under development.

Important Information on GEO’s Non-GAAP Financial Measures

Pro Forma Income From Continuing Operations, Adjusted EBITDA and Adjusted Funds From Operations are non-GAAP financial measures that are presented as supplemental disclosures.

Pro Forma Income From Continuing Operations is defined as income from continuing operations adjusted for net (income) loss attributable to non-controlling interest, IRS settlement, gain on land sale, start-up/transition expenses, international bid and proposal expenses, loss on extinguishment of debt, and M&A-related expenses, net of tax. GEO believes that Pro Forma Income From Continuing Operations is useful to investors as it provides information about the performance of GEO’s overall business because such measure eliminates the effects of unusual or non-recurring charges that are not directly attributable to GEO’s underlying operating performance, 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 Pro Forma Income From Continuing 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.

Adjusted EBITDA is defined as net income before net interest expense, income tax, depreciation and amortization, and tax provision for equity in earnings of affiliate, adjusted for net (income) loss attributable to non-controlling interest, stock-based compensation, IRS settlement, gain on land sale, start-up/transition expenses, international bid and proposal expenses, loss on extinguishment of debt, and M&A-related expenses, net of tax. GEO believes that Adjusted EBITDA is useful to investors as it provides information about the performance of GEO’s overall business because such measure eliminates the effects of unusual or non-recurring charges that are not directly attributable to GEO’s underlying operating performance, 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 EBITDA 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.

Adjusted Funds From Operations is defined as income from continuing operations excluding depreciation and amortization, income taxes, stock-based compensation, maintenance capital expenditures, equity in earnings of affiliates and amortization of debt costs and other non-cash interest, non-controlling interest, IRS settlement, gain on land sale, loss on extinguishment of debt, and M&A-related expenses, net of tax. 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.

A reconciliation of these non-GAAP measures to the most directly comparable GAAP measurements of these items is included in Tables 1, 3 and 4, respectively.

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 estimated earnings, revenues, costs, and cost synergies, our ability to maintain growth and strengthen contract relationships, and our ability to meet the increasing demand for correctional, detention, and residential treatment services, and long-term growth prospects in our industry. 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 2011 given the various risks to which its business is exposed; (2) GEO’s ability to successfully pursue further growth and continue to enhance shareholder value; (3) the risk that the BI business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; (4) the risk that the expected increased revenues resulting from the acquisition of Cornell may not be fully realized or may take longer to realize than expected; (5) the risk that the cost synergies from the transaction may not be fully realized or may take longer to realize than expected; (6) any difficulties encountered in maintaining relationships with customers, employees or suppliers as a result of the transaction with Cornell; (7) GEO’s ability to access the capital markets in the future on satisfactory terms or at all; (8) risks associated with GEO’s ability to control operating costs associated with contract start-ups; (9) 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; (10) GEO’s ability to win management contracts for which it has submitted proposals and to retain existing management contracts; (11) GEO’s ability to obtain future financing on acceptable terms; (12) GEO’s ability to sustain company-wide occupancy rates at its facilities; and (13) other factors contained in GEO’s Securities and Exchange Commission filings, including the forms 10-K, 10-Q and 8-K reports.

Fourth quarter and full-year 2010 financial tables to follow:

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1 Variable interest entities or “VIEs”