The GEO Group Reports Second Quarter 2011 Results

The GEO Group, Inc. (NYSE: GEO) (“GEO”) today reported second quarter and first half of 2011 financial results. GEO reported total revenues for the second quarter 2011 of $407.8 million compared to total revenues of $280.1 million for the second quarter 2010. GEO reported net income for the second quarter 2011 of $21.2 million, or $0.33 per diluted share, compared to net income of $17.0 million, or $0.35 per diluted share for the second quarter of 2010. GEO’s second quarter 2011 net income includes $3.3 million, after-tax, in start-up/transition expenses; $0.4 million, after-tax, in international bid and proposal expenses, a $0.4 million after-tax income effect related to the loss attributable to non-controlling interests; and $0.4 million, after-tax, in one-time M&A transaction related expenses, which are reported in GEO’s general and administrative expenses.

Excluding these items, GEO reported Pro Forma net income of $25.7 million, or $0.40 per diluted share, for the second quarter of 2011 compared to Pro Forma net income of $18.3 million, or $0.37 per diluted share for the second quarter of 2010.

For the first half of 2011, GEO reported total revenues of $799.6 million compared to total revenues of $567.6 million for the first half of 2010. Net income for the first half of 2011 increased to $37.5 million, or $0.58 per diluted share, from $34.7 million, or $0.69 per diluted share, for the first half of 2010. Pro forma net income for the first half of 2011 increased to $48.5 million, or $0.75 per diluted share, from pro forma net income of $36.0 million, or $0.71 per diluted share for the first half of 2010.

George C. Zoley, Chairman and Chief Executive Officer of GEO, said: “We are pleased with our strong second quarter earnings results which reflect sound operational performance from our diversified business units of U.S. Detention & Corrections, GEO Care, and International Services. We continue to be very optimistic about the demand for our diversified services. We are currently pursuing new business development opportunities in the U.S. and internationally, which total approximately 50,000 beds. At the state level alone, Arizona, Ohio, and Florida have pending procurements which total approximately 28,000 beds.”

“The State of Florida recently issued a request for proposal which entails the privatization of more than 16,000 beds in all correctional facilities, reception centers, work camps, and work release centers in a broad geographic region in South Florida, known as Region IV. This is an unprecedented opportunity in our industry, and we have taken steps to invest in additional business development and professional capabilities. While these investments will represent a near-term expense over the next two quarters, we believe that GEO will be uniquely positioned to compete for larger opportunities and to provide comprehensive, turnkey solutions across a continuum of care for correctional, detention, and treatment services worldwide,” Mr. Zoley added.

Pro forma net income excludes M&A related expenses, net of tax, net (income) loss attributable to non-controlling interests, start-up/transition expenses, net of tax, and international bid and proposal expenses, net of tax, as set forth in the table below, which presents a reconciliation of pro forma net income to net income for the second quarter and the first half of 2011 and 2010. 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 net income.

Business Segment Results

The following table presents a summary of GEO’s segment results for the second quarter and the first half of 2011 and 2010.

U.S. Detention & Corrections

For the second quarter of 2011, U.S. Detention & Corrections revenue increased by approximately $49.6 million year-over-year. This revenue increase was driven primarily by GEO’s acquisition of Cornell Companies, Inc. (“Cornell”) in August 2010; the fourth quarter 2010 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 in October 2010. These factors were offset by the transition of managed-only contracts for the Graceville Correctional Facility and the Moore Haven Correctional Facility in Florida, and the Bridgeport Correctional Center, North Texas Intermediate Sanction Facility and South Texas Intermediate Sanction Facility in Texas.

GEO Care

For the second quarter of 2011, GEO Care revenue increased by approximately $73.9 million year-over-year. This revenue increase was driven primarily by GEO’s acquisitions of Cornell in August 2010 and BI Incorporated (“BI”) in February 2011 as well as the activation of the 100-bed Montgomery County Mental Health Treatment Facility in Texas in March 2011.

International Services

For the second quarter of 2011, International Services revenue increased by approximately $10.6 million year-over-year driven primarily by the opening of a 360-bed expansion at the Harmondsworth Immigration Removal Centre in the United Kingdom in July 2010 and positive foreign exchange rate fluctuations.

Adjusted EBITDA

Second quarter 2011 Adjusted EBITDA increased to $81.7 million from $47.4 million in the second quarter of 2010. For the first half of 2011, Adjusted EBITDA increased to $154.8 million from $93.7 million for the first half of 2010.

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 net income for the second quarter and the first half of 2011 and 2010.

Adjusted Funds from Operations

Adjusted Funds from Operations for the second quarter of 2011 increased to $47.7 million compared to $18.5 million for the second quarter of 2010. For the first half of 2011, Adjusted Funds from Operations increased to $94.6 million from $54.1 million for the first half of 2010.

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 net income for the second quarter and the first half of 2011 and 2010.

2011 Financial Guidance

GEO issued revised financial guidance for 2011. GEO expects 2011 total revenues to be in the range of $1.62 billion to $1.63 billion. GEO expects 2011 pro forma earnings to be in a range of $1.54 to $1.58 per share, excluding acquisition-related expenses, start-up/transition expenses, and international bid and proposal costs.

GEO updated its 2011 guidance for Adjusted EBITDA to a range of $320 million to $325 million and its Adjusted Funds from Operations to a range of $175 million to $180 million, or $2.70 to $2.77 per share.

GEO’s revised guidance assumes that the North Lake Correctional Facility continues to operate in a delayed start-up mode with the current population of 270 California inmates based on the recently approved budget for the California Department of Corrections and Rehabilitation.

GEO’s revised guidance also assumes between $1.0 million to $1.5 million per quarter in additional business development and professional fees in the third and fourth quarters as GEO competes for a number of new business development opportunities, including a procurement issued by the State of Florida which entails the privatization of more than 16,000 beds in all correctional facilities, reception centers, work camps, and work release centers in a broad geographic region in South Florida, known as Region IV.

These two assumptions along with additional start-up/transition expenses related to the activation of GEO’s Adelanto ICE Processing Center in California and GEO’s Riverbend Correctional Facility in Georgia, which are now scheduled for September 2011 and December 2011 respectively, are the primary drivers of GEO’s updated financial guidance.

GEO also issued financial guidance for the third and fourth quarters in 2011. GEO expects third quarter 2011 total revenues to be in the range of $407 million to $412 million. GEO expects third quarter 2011 pro forma earnings to be in a range of $0.39 to $0.41 per share, excluding $0.06 to $0.07 in after-tax start-up/transition expenses and international bid and proposal costs. GEO expects fourth quarter 2011 total revenues to be in the range of $413 million to $418 million. GEO expects fourth quarter 2011 pro forma earnings to be in a range of $0.40 to $0.42 per share, excluding $0.06 to $0.07 in after-tax start-up/transition expenses and international bid and proposal costs. GEO’s third quarter and forth quarter 2011 guidance assumes between $1.0 million to $1.5 million per quarter in additional business development and professional fees as discussed above.

Conference Call Information

GEO has scheduled a conference call and simultaneous webcast at 2:00 PM (Eastern Time) today to discuss GEO’s second quarter 2011 financial results as well as its progress and outlook. The call-in number for the U.S. is 1-866-713-8564 and the international call-in number is 1-617-597-5312. The participant pass-code for the conference call is 43800366.

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 September 3, 2011 at 1-888-286-8010 (U.S.) and 1-617-801-6888 (International). The pass-code for the telephonic replay is 54094773.

About The GEO Group, Inc.

The GEO Group, Inc. 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 80,000 beds at 116 correctional, detention and residential treatment facilities, including projects under development.

Important Information on GEO’s Non-GAAP Financial Measures

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

Pro Forma Net Income is defined as net income adjusted for net (income) loss attributable to non-controlling interests, start-up/transition expenses, net of tax, international bid and proposal expenses, net of tax, and M&A-related expenses, net of tax. GEO believes that Pro Forma Net Income is useful to investors as it provides information about the performance of GEO’s overall business because such measure eliminates the effects of certain 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 Net Income 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 provision, depreciation and amortization, and tax provision on equity in earnings of affiliate, adjusted for (income) loss attributable to non-controlling interests, stock-based compensation, start-up/transition expenses, international bid and proposal expenses, and M&A-related expenses. 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 certain 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 net income excluding depreciation and amortization, income tax provision, income taxes paid, stock-based compensation, maintenance capital expenditures, net equity in earnings of affiliates and amortization of debt costs and other non-cash interest, net (income) loss attributable to non-controlling interests, start-up/transition expenses, international bid and proposal expenses, 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 financial guidance for the third quarter 2011, fourth quarter 2011 and full year 2011, business development opportunities and expected fees and expenses related to these business development opportunities, our ability to maintain growth and strengthen contract relationships, 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 and BI may not be fully realized or may take longer to realize than expected; (5) the risk that the cost synergies from the Cornell and BI transactions 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 transactions with Cornell and BI; (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 Form 10-K, 10-Q and 8-K reports.

Second quarter and first six months of 2011 financial tables to follow:

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1 Variable interest entities or “VIEs”