GEO GROUP : The GEO Group Reports Fourth Quarter 2010 Results
02/17/2011| 07:50am US/Eastern
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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.
Table 1. Reconciliation of Pro Forma
Income from Continuing Operations to GAAP Income from Continuing
Operations
(In thousands except per share data)
13 Weeks Ended
14 Weeks Ended
52 Weeks Ended
53 Weeks Ended
2-Jan-11
3-Jan-10
2-Jan-11
3-Jan-10
Income from continuing operations
$
23,047
$
15,520
$
62,790
$
66,469
M&A-related Expenses, net of tax
6,668
-
18,187
-
Loss on Extinguishment of Debt, net of tax
-
4,232
4,758
4,232
Start-up/transition expenses, net of tax
-
1,300
2,287
3,008
Net (income) loss attributable to non-controlling interests
451
(40
)
678
(169
)
Gain on Land Sale, net of tax
(482
)
-
(482
)
-
IRS Settlement, net of tax
(2,941
)
-
(2,941
)
-
Pro forma income from continuing operations
$
26,743
$
21,012
$
85,277
$
73,540
Diluted earnings per share
Income from Continuing Operations
$
0.36
$
0.30
$
1.12
$
1.28
M&A-related Expenses, net of tax
0.10
-
0.32
-
Loss on Extinguishment of Debt, net of tax
-
0.08
0.09
0.08
Start-up/transition expenses, net of tax
-
0.02
0.04
0.06
Net (income) loss attributable to non-controlling interests
0.01
-
0.01
-
Gain on Land Sale, net of tax
(0.01
)
-
(0.01
)
-
IRS Settlement, net of tax
(0.05
)
-
(0.05
)
-
Diluted pro forma earnings per share
$
0.41
$
0.40
$
1.52
$
1.42
Weighted average common shares outstanding-diluted
64,697
52,164
55,989
51,922
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.
Table 2. Business Segment Results
13 Weeks Ended
14 Weeks Ended
52 Weeks Ended
53 Weeks Ended
2-Jan-11
3-Jan-10
2-Jan-11
3-Jan-10
Revenues
U.S. Corrections
$
242,819
$
204,295
$
842,417
$
772,497
GEO Care
78,410
40,764
213,819
133,387
International Services
52,335
44,954
190,477
137,171
Construction
834
20,772
23,255
98,035
$
374,398
$
310,785
$
1,269,968
$
1,141,090
Operating Expenses
U.S. Corrections
$
168,353
$
144,532
$
598,275
$
558,313
GEO Care
64,828
34,242
179,473
113,426
International Services
47,391
42,346
176,399
127,706
Construction
100
20,566
20,873
97,654
$
280,672
$
241,686
$
975,020
$
897,099
Depreciation & Amortization Expense
U.S. Corrections
$
12,613
$
8,964
$
39,744
$
35,855
GEO Care
2,921
871
6,600
2,003
International Services
481
409
1,767
1,448
Construction
-
-
-
-
$
16,015
$
10,244
$
48,111
$
39,306
Table 2. Business Segment Results
(Continued)
13 Weeks Ended
14 Weeks Ended
52 Weeks Ended
53 Weeks Ended
2-Jan-11
3-Jan-10
2-Jan-11
3-Jan-10
Compensated Mandays
U.S. Corrections
4,153,398
3,772,641
15,071,558
14,390,320
GEO Care
494,708
211,495
1,330,943
701,992
International Services
650,377
641,241
2,536,869
2,240,384
5,298,483
4,625,377
18,939,370
17,332,696
Revenue Producing Beds
U.S. Corrections
53,812
40,685
53,812
40,685
GEO Care
6,120
2,177
6,120
2,177
International Services
7,147
6,854
7,147
6,854
67,079
49,716
67,079
49,716
Average Occupancy
U.S. Corrections
93.0
%
93.0
%
93.8
%
93.6
%
GEO Care
88.7
%
99.1
%
92.4
%
99.5
%
International Services
100.0
%
100.0
%
100.0
%
100.0
%
93.4
%
94.2
%
94.5
%
94.6
%
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.
Table 3. Reconciliation from Adjusted
EBITDA to GAAP Net Income
(In thousands)
13 Weeks Ended
14 Weeks Ended
52 Weeks Ended
53 Weeks Ended
2-Jan-11
3-Jan-10
2-Jan-11
3-Jan-10
Net income
$
23,047
$
15,520
$
62,790
$
66,123
Interest expense, net
10,706
6,597
34,436
23,575
Income tax provision
10,972
11,705
39,532
42,079
Depreciation and amortization
16,015
10,244
48,111
39,306
Tax provision on equity in earnings of affiliate
540
432
2,212
1,368
EBITDA
$
61,280
$
44,498
$
187,081
$
172,451
Adjustments, pre-tax
M&A-related Expenses
9,693
-
25,381
-
Loss on Extinguishment of Debt
-
6,839
7,933
6,839
Stock Based Compensation
1,106
1,964
4,639
5,321
Start-up/transition expenses
-
2,100
3,812
4,885
(Income) loss attributable to non-controlling interests
441
(78
)
664
(257
)
Discontinued operations, (income) loss
-
-
-
562
Gain on Land Sale
(801
)
-
(801
)
-
IRS Settlement
(3,323
)
-
(3,323
)
-
Adjusted EBITDA
$
68,396
$
55,323
$
225,386
$
189,801
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.
Table 4. Reconciliation of Adjusted Funds
from Operations to GAAP Income from Continuing Operations
(In thousands)
13 Weeks Ended
14 Weeks Ended
52 Weeks Ended
53 Weeks Ended
2-Jan-11
3-Jan-10
2-Jan-11
3-Jan-10
Income from Continuing Operations
$
23,047
$
15,520
$
62,790
$
66,469
(Income) loss attributable to non-controlling interests
441
(78
)
664
(257
)
Depreciation and Amortization
16,015
10,244
48,111
39,306
Income Tax Provision
10,972
11,705
39,532
42,079
Income Taxes Paid
(9,624
)
(10,222
)
(34,475
)
(34,185
)
Stock Based Compensation
1,106
1,964
4,639
5,321
Maintenance Capital Expenditures
(6,952
)
(4,812
)
(17,244
)
(11,491
)
Equity in Earnings of Affiliates, Net of Income Tax
(1,350
)
(1,110
)
(4,218
)
(3,517
)
Amortization of Debt Costs and Other Non-Cash Interest
(189
)
3,393
3,209
6,864
M&A-related Expenses
9,693
-
25,381
-
Loss on Extinguishment of Debt
-
6,839
7,933
6,839
Gain on Land Sale
(801
)
-
(801
)
-
IRS Settlement
(3,323
)
-
(3,323
)
-
Adjusted Funds from Operations
$
39,035
$
33,443
$
132,198
$
117,428
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:
THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL QUARTER AND FISCAL YEAR ENDED
JANUARY 2, 2011 AND JANUARY 3, 2010
(In thousands, except per share data)
(UNAUDITED)
13 Weeks Ended
14 Weeks Ended
52 Weeks Ended
53 Weeks Ended
January 2, 2011
January 3, 2010
January 2, 2011
January 3, 2010
Revenues
$
374,398
$
310,785
$
1,269,968
$
1,141,090
Operating expenses
280,672
241,686
975,020
897,099
Depreciation and amortization
16,015
10,244
48,111
39,306
General and administrative expenses
34,336
19,304
106,364
69,240
Operating income
43,375
39,551
140,473
135,445
Interest income
1,823
1,423
6,271
4,943
Interest expense
(12,529
)
(8,020
)
(40,707
)
(28,518
)
Loss on extinguishment of debt
?
(6,839
)
(7,933
)
(6,839
)
Income before income taxes, equity in earnings of affiliate and
discontinued operations
32,669
26,115
98,104
105,031
Provision for income taxes
10,972
11,705
39,532
42,079
Equity in earnings of affiliate, net of income tax provision of
$540, $432, $2,212 and $1,368
1,350
1,110
4,218
3,517
Income from continuing operations
23,047
15,520
62,790
66,469
Loss from discontinued operations, net of tax benefit of $0, $0, $0
and $(216)
?
?
?
(346
)
Net income
$
23,047
$
15,520
$
62,790
$
66,123
Add (subtract): loss (earnings) attributable to noncontrolling
interests
451
(40
)
678
(169
)
Net income attributable to The GEO Group, Inc.
$
23,498
$
15,480
$
63,468
$
65,954
Weighted-average common shares outstanding:
Basic
64,231
51,110
55,379
50,879
Diluted
64,697
52,164
55,989
51,922
Income per common share attributable to The GEO Group, Inc.:
Basic:
Income from continuing operations
$
0.37
$
0.30
$
1.15
$
1.30
Loss from discontinued operations
?
?
?
?
Net income per share-basic
$
0.37
$
0.30
$
1.15
$
1.30
Diluted:
Income from continuing operations
$
0.36
$
0.30
$
1.13
$
1.28
Loss from discontinued operations
?
?
?
(0.01
)
Net income per share-diluted
$
0.36
$
0.30
$
1.13
$
1.27
THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
January 2, 2011 and January 3, 2010
2010
2009
(In thousands, except share data)
ASSETS
Current Assets
Cash and cash equivalents
$
39,664
$
33,856
Restricted cash and investments (including VIEs1 of
$34,049 and $6,212, respectively)
41,150
13,313
Accounts receivable, less allowance for doubtful accounts of $1,308
and $429
275,484
200,756
Deferred income tax assets, net
32,126
17,020
Prepaid expenses and other current assets
36,710
14,689
Total current assets
425,134
279,634
Restricted Cash and Investments (including VIEs of
$33,266 and $8,182, respectively)
49,492
20,755
Property and Equipment, Net (including VIEs of
$167,209 and $28,282, respectively)
1,511,292
998,560
Assets Held for Sale
9,970
4,348
Direct Finance Lease Receivable
37,544
37,162
Deferred Income Tax Assets, Net
936
?
Goodwill
244,947
40,090
Intangible Assets, Net
87,813
17,579
Other Non-Current Assets
56,648
49,690
Total Assets
$
2,423,776
$
1,447,818
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable
$
73,880
$
51,856
Accrued payroll and related taxes
33,361
25,209
Accrued expenses
121,647
80,759
Current portion of capital lease obligations, long-term debt and
non-recourse debt (including VIEs of $19,365 and $4,575,
respectively)
41,574
19,624
Total current liabilities
270,462
177,448
Deferred Income Tax Liabilities
63,546
7,060
Other Non-Current Liabilities
46,862
33,142
Capital Lease Obligations
13,686
14,419
Long-Term Debt
798,336
453,860
Non-Recourse Debt (including VIEs of $132,078 and
$31,596, respectively)
191,394
96,791
Total shareholders' equity attributable to The GEO Group, Inc.
1,018,901
664,601
Noncontrolling interest
20,589
497
Total shareholders' equity
1,039,490
665,098
Total Liabilities and Shareholders' Equity
$
2,423,776
$
1,447,818
____________
1 Variable interest entities or ?VIEs?
The GEO Group, Inc. Pablo E. Paez, 866-301 4436 Vice
President, Corporate Relations
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