GEO GROUP INC - Annual Report: 2012 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended December 31, 2012

OR

For the transition period from                     to                    

Commission file number: 1-14260

The GEO Group, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (561) 893-0101

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting shares of common stock held by non-affiliates of the registrant as of June 29, 2012 (based on the last reported sales price of such stock on the New York Stock Exchange on such date, the last business day of the registrant’s quarter ended July 1, 2012 of $22.72 per share) was approximately $1.2 billion.

As of February 27, 2013, the registrant had 71,421,233 shares of common stock outstanding.

Certain portions of the registrant’s annual report to security holders for fiscal year ended December 31, 2012 are incorporated by reference into Part III of this report. Certain portions of the registrant’s definitive proxy statement pursuant to Regulation 14A of the Securities Exchange Act of 1934 for its 2013 annual meeting of shareholders are incorporated by reference into Part III of this report.

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PART I

As used in this report, the terms “we,” “us,” “our,” “GEO” and the “Company” refer to The GEO Group, Inc., its consolidated subsidiaries and its unconsolidated affiliates, unless otherwise expressly stated or the context otherwise requires.

General

We specialize in the ownership, leasing and management of correctional, detention, and re-entry facilities and the provision of community-based services and youth services in the United States, Australia, South Africa, the United Kingdom and Canada. We own, lease and operate a broad range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, and community based re-entry facilities. As further discussed under Recent Developments below, we divested our residential treatment health care facility management contracts, (“Residential Treatment Services” or “RTS”), on December 31, 2012 and we no longer provide mental health and residential treatment services. We offer counseling, education and/or treatment to inmates with alcohol and drug abuse problems at most of the domestic facilities we manage. We are also a provider of innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants. Additionally, we have an exclusive contract with the U.S. Immigration and Customs Enforcement, which we refer to as ICE, to provide supervision and reporting services designed to improve the participation of non-detained aliens in the immigration court system. We develop new facilities based on contract awards, using our project development expertise and experience to design, construct and finance what we believe are state-of-the-art facilities that maximize security and efficiency. We also provide secure transportation services for offender and detainee populations as contracted domestically and in the United Kingdom through our joint venture, GEO Amey PECS Ltd., which we refer to as GEOAmey.

As further discussed under Recent Developments below, we began operating as a real estate investment trust (“REIT”) for federal income tax purposes effective January 1, 2013.

The acquisition of Cornell Companies, Inc. in August 2010 and BII Holding Corporation, the indirect owner of 100% of the equity interests of B.I. Incorporated, which we refer to as BI, in February 2011, added scale to our presence in the U.S. correctional and detention market as well as created a platform that gives us ability to offer turn-key solutions to our customers in managing the full lifecycle of an offender from arraignment to reintegration into the community, which we refer to as the corrections lifecycle. As of December 31, 2012, our worldwide operations included the management and/or ownership of approximately 73,000 beds at 100 correctional, detention and residential facilities, including idle facilities, and also included the provision of monitoring services, tracking approximately 70,000 offenders on behalf of approximately 900 federal, state and local correctional agencies located in all 50 states.

Business Segments

Our GEO Care reporting segment previously consisted of four aggregated operating segments including Residential Treatment Services, Community Based Services, Youth Services and BI. The GEO Care reporting segment was renamed GEO Community Services concurrent with the divestiture of the Company’s Residential Treatment Services operating segment as more fully disclosed below under Recent Developments. All current and prior year financial position and results of operations amounts presented for this segment are referred to as GEO Community Services.

We conduct our business through four reportable business segments: our U.S. Corrections & Detention segment; our GEO Community Services segment; our International Services segment and our Facility Construction & Design segment. We have identified these four reportable segments to reflect our current view that we operate four distinct business lines, each of which constitutes a material part of our overall business. Our U.S. Corrections & Detention segment primarily encompasses our U.S.-based privatized corrections and detention business. Our GEO Community Services segment, which conducts its services

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in the U.S., consists of our community based services business, our youth services business and our electronic monitoring and supervision service. Our International Services segment primarily consists of our privatized corrections and detention operations in South Africa, Australia and the United Kingdom. Our Facility Construction & Design segment primarily contracts with various states, local and federal agencies for the design and construction of facilities for which we generally have been, or expect to be, awarded management contracts. Financial information about these segments for fiscal years 2012, 2011 and 2010 is contained in “Note 17 — Business Segments and Geographic Information” of the “Notes to Consolidated Financial Statements” included in this Form 10-K.

Recent Developments

REIT Conversion and Divestiture of Residential Treatment Services

REIT Conversion

In the first half of 2012 we engaged legal and financial advisors to assist our board of directors (the “Board”) with the comprehensive review of a potential REIT conversion. In July 2012, we submitted a request to the United States Internal Revenue Service (the “IRS”) for a private letter ruling (“PLR”) to determine whether we would qualify to convert into a REIT. In December 2012, we announced that the Board, following a thorough and careful consideration of ways to maximize shareholder value through alternative financing, capital and other strategies, unanimously authorized us to take all necessary steps, including the divestiture of certain health care assets to position ourselves to operate in compliance with the REIT rules beginning January 1, 2013. On January 17, 2013, we received a favorable Private Letter Ruling from the IRS with respect to certain issues relevant to our qualification as a REIT.

Effective January 1, 2013, we restructured our operations to qualify for treatment as a REIT for federal income tax purposes. We reorganized our operations and moved non-real estate components into taxable REIT subsidiaries (“TRS’s”).

Through the TRS structure, a portion of our businesses, which are non-real estate related, such as our managed-only contracts, international operations, electronic monitoring services, and other non-residential facilities, are part of wholly-owned taxable subsidiaries of the REIT. Most of our business segments, which are real estate related and involve company-owned and company-leased facilities, are part of the REIT. This TRS structure allows us to maintain the strategic alignment of almost all of our diversified business segments under one entity. The TRS assets and operations will continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which those assets and operations are located.

A REIT is not permitted to retain earnings and profits accumulated during the years it was taxed as a C corporation and must make one or more distributions to shareholders that equal or exceed these accumulated amounts. On December 6, 2012, we announced the declaration by our Board of a special dividend of accumulated earnings and profits on our shares of common stock, par value $0.01, payable in either common stock or cash to, and at the election of, the shareholders of record as of December 12, 2012 (“Special Dividend”). The Special Dividend, amounted to an aggregate of $352.2 million, or $5.68 per share of common stock, and was paid on December 31, 2012 to shareholders of record as of December 12, 2012. Pursuant to the Special Dividend terms, we issued 9,688,568 shares of common stock and paid cash of $77.8 million.

As a REIT, we will be required to distribute annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gain). We intend to commence paying regular distributions in 2013. On January 17, 2013 the Board declared our first quarterly REIT cash dividend of $0.50 per share of common stock, which will be paid on March 1, 2013 to shareholders of record as of the close of business on February 15, 2013.

The amount, timing and frequency of future distributions will be at the sole discretion of our Board and will be declared based upon various factors, many of which are beyond our control, including our financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income taxes that we otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, limitations on our ability to fund distributions using cash generated through our TRS’ and other factors that our Board of Directors may deem relevant.

Divestiture of Residential Treatment Services

On December 31, 2012, as a part of our restructuring steps that allowed us to begin operating as a REIT beginning January 1, 2013, we completed the divestiture of all of our health care facility assets and related management contracts in the United States and Australia, (“Residential Treatment Services” or “RTS”) to certain members of our management team (the “MBO Group”) for a gross purchase price of $36.0 million, inclusive of a working capital adjustment as defined in the purchase agreement between GEO Care Holdings LLC, the entity formed by the MBO Group, and us (the “Purchase Agreement”). As a result of the working capital adjustment, the net proceeds from the sale were approximately $33.3 million. Certain members of the MBO group sold 295,959 shares of vested restricted stock back to us for a total price of $8.6 million which was used to fund a portion of the RTS purchase price. Prior to the divestiture, RTS, excluding the correctional health care services business operating in the State of Victoria, Australia which was part of the International Services reporting segment, was an operating segment of our GEO Care reporting segment.

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In accordance with the Purchase Agreement, the MBO Group will also be obligated to pay up to an additional $5.0 million in purchase price on a contingent earn-out basis if certain potential future contract awards are received by RTS. In addition, the Purchase Agreement provides for (i) a purchase price adjustment in favor of the MBO Group in the event certain client consents are not obtained within one year following the divestiture, and (ii) a purchase price adjustment in favor of the MBO Group if certain key contracts (as defined) are terminated up to one year following the divestiture. On December 12, 2012, the MBO Group formed a new entity, GEO Care Holdings LLC, for the sole purpose of acquiring RTS.

In connection with the RTS divestiture, we and GEO Care Holdings LLC entered into a Services Agreement pursuant to which we provide business management services, information systems services, legal support services, risk management services, property management and design services and office space for a five year term in return for an initial annual fee of $1.8 million, payable in equal monthly installments (the “Services Agreement”). GEO Care Holdings LLC may terminate the Services Agreement at any time by paying a lump sum amount in cash equal to all remaining payments that would be required to be made to us during the five year term, discounted to present value using a discounted rate of 10%.

We and GEO Care Holdings LLC also executed a license agreement pursuant to which we granted GEO Care Holdings LLC an exclusive license for a five year term to use the GEO Care service mark and domain name in connection with the RTS business in return for an annual fee of $0.4 million, payable in equal monthly installments (the “License Agreement”). GEO Care Holdings LLC may terminate the License Agreement at any time by paying a lump sum amount in cash equal to all remaining payments of the license fee during the five year term, discounted to present value using a 10% discount rate.

Also, we and GEO Care Holdings LLC entered into employment agreements with certain executive officers in order to allocate the services to be provided by the executive officers and related compensation and benefits between us and GEO Care Holdings LLC.

During the fourth quarter of 2012, we recorded $14.6 million, net of tax, related to the loss on divestiture of RTS. Refer to Note 2—Discontinued Operations of the “Notes to the Consolidated Financial Statements” included Part II, Item 8 in this Form 10-K.

Amendments to Senior Credit Facility

On August 30, 2012, we entered into Amendment No. 3 to the Credit Agreement dated as of August 4, 2010, by and among us, the guarantors party thereto and BNP Paribas, as administrative agent, as previously amended by Amendment No. 1, dated as of February 8, 2011, and Amendment No. 2, dated as of May 2, 2011 (“Amendment No. 3”). Amendment No. 3, among other things, reset our restricted payment basket to $50 million and increased the Pro Forma Senior Secured Leverage Ratio test to 2.75 to 1.00 from 2.50 to 1.00. Additionally, Amendment No. 3 provided that the aggregate principal amount of all incremental loan commitments established after August 30, 2012 plus the aggregate principal amount of all revolving credit commitment increases obtained after August 30, 2012 shall not exceed $250,000,000. Also on August 30, 2012, we entered into the Series A-3 Incremental Loan Agreement by and among us, the lenders party thereto and BNP Paribas, as administrative agent ( the “Series A-3 Incremental Loan Agreement”). Under the terms of the Series A-3 Incremental Loan Agreement, we borrowed an aggregate principal amount of $100,000,000 to fund the purchase price for the acquisition by us of all of the outstanding partnership interests in Municipal Corrections Finance L.P. (“MCF”), redeemed the 8.47% Taxable Revenue Bonds, Series 2001, due August 1, 2016 issued by MCF (the “MCF Bonds”) and paid fees, commissions, costs and expenses relating to the foregoing. The new incremental term loan bears interest at the same rate as our existing Tranche A Term Loans at LIBOR plus 2.75% and matures in August 2015.

On December 14, 2012, we entered into Amendment No. 4 to the Credit Agreement dated as of August 4, 2010, by and among us, the guarantors party thereto and BNP Paribas, as administrative agent, as previously amended by Amendment No. 1, dated as of February 8, 2011, Amendment No. 2, dated as of May 2, 2011, and Amendment No. 3, dated as of August 30, 2012 (“Amendment No. 4”). Amendment No. 4 amends a number of provisions in the Credit Agreement, as amended, for the purpose of providing us with flexibility in connection with our decision to take all steps necessary to operate as a REIT as of January 1, 2013. Amendment No. 4, among other things, amended the definition of EBITDA in the Credit Agreement for the purpose of including an adjustment to net income for transaction costs, expenses and extraordinary charges incurred by us in connection with our election to be treated as a REIT; allowed us to change our fiscal year to a calendar year and allowed for our fiscal quarters to coincide with each calendar quarter; provided that we could sell all of our equity interest in GEO Care LLC to GEO Care Holdings LLC; reset two restricted payment baskets—one basket was reset to $90 million for the purpose of permitting us to elect to qualify as a REIT (i.e., to make the special dividend of historical earnings and profits) and one basket was reset to $75 million for the purpose of permitting us to pay cash dividends generally; and modified the Total Leverage Ratio covenant by extending the current applicable total leverage ratio of 5.00 to 1.00 through the last day of the second quarter of fiscal year 2013 instead of through the last day of fiscal year 2012 and as a result delayed the starting date of the next applicable total leverage ratio of 4.75 to 1.00 to the first day of the third quarter of fiscal year 2013 instead of the first day of the fiscal year 2013.

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As of December 31, 2012, the Senior Credit Facility, as amended, was comprised of: (i) a $150.0 million Term Loan A (“Term Loan A”), currently bearing interest at LIBOR plus 2.75% and maturing August 4, 2015, (ii) a $150.0 million Term Loan A-2 (“Term Loan A-2”), currently bearing interest at LIBOR plus 2.75% and maturing August 4, 2015, (iii) a $100.0 million Term Loan A-3 (“Term Loan A-3”), currently bearing interest at LIBOR plus 2.75% and maturing August 4, 2015, (iv) a $200.0 million Term Loan B (“Term Loan B”) currently bearing interest at LIBOR plus 2.75% with a LIBOR floor of 1.00% and maturing August 4, 2016, and (v) a $500.0 million Revolving Credit Facility (“Revolver”) currently bearing interest at LIBOR plus 2.75% and maturing August 4, 2015.

As of December 31, 2012, we had $562.4 million in aggregate borrowings outstanding, net of discount, under the term loan portion of our Senior Credit Facility, $235.0 million in borrowings under the Revolver, approximately $61.3 million in letters of credit and $203.7 million million in additional borrowing capacity under the Revolver.

Partnership Interests in Municipal Corrections Finance, L.P.

On April 24, 2012, we signed a definitive agreement to purchase 100% of the partnership interests of MCF from the third party holders of these interests for a total net consideration of $35.2 million. The transaction closed on August 31, 2012. Prior to August 31, 2012, we had been consolidating MCF with a corresponding noncontrolling interest, as MCF was a VIE in which we were the primary beneficiary. Subsequent to the acquisition, the indenture relating to the MCF bonds was discharged and the remaining principal balance at August 31, 2012 of $77.9 million was redeemed, with an effective date of September 4, 2012. We financed the acquisition of the partnership interests in MCF and the redemption of the MCF bonds with a new $100 million Series A-3 Incremental Loan Agreement (“Series A-3 Term Loan”) dated August 30, 2012. The new Series A-3 Term Loan bears interest at LIBOR plus 2.75% and matures August 4, 2015.

As the transaction increased GEO’s ownership interest in MCF, from zero to 100%, and we retained our controlling interest in MCF, the purchase of the partnership interests has been accounted for as an equity transaction with additional paid-in capital adjusted for the difference between the cumulative balance of the non-controlling interest in MCF of $8.1 million and the $35.2 million consideration paid, net of MCF deferred tax assets of $10 million, with no gain or loss recorded in consolidated comprehensive income. Refer to Note 3- Shareholders’ Equity of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. We incurred costs related to the purchase of MCF of $1.6 million for the year ended December 31, 2012. These costs were expensed as incurred and included in general and administrative expenses in the accompanying consolidated statements of comprehensive income.

We incurred a one-time loss on early extinguishment of debt in connection with the redemption of the MCF bonds of approximately $8.5 million which consisted of a make-whole premium of $14.9 million which includes bond redemption costs of $0.1 million, offset by the effect of the unamortized bond premium of $6.4 million.

Approval of The GEO Group Inc. 2011 Employee Stock Purchase Plan

On May 4, 2012, our shareholders approved The GEO Group Inc. 2011 Employee Stock Purchase Plan (the “Plan”). The Compensation Committee of the Board and the Board had previously approved the Plan on May 4, 2011 and the Plan became effective on July 9, 2011, subject to obtaining shareholder approval. Eligible employees were allowed to participate in the Plan as of July 9, 2011, but no shares of common stock were issuable pursuant to the Plan prior to obtaining shareholder approval. Pre-shareholder approval offering periods began on July 9, 2011 with shares being purchased on June 29, 2012. Shares were issued to participating employees for the post-shareholder approval offering periods on the last day of each month. During the fiscal year ended December 31, 2012, 22,760 shares shares were issued out of our treasury stock in connection with the plan. We will offer up to 500,000 of our common stock, which were registered with the Securities and Exchange Commission on May 4, 2012, for sale to eligible employees.

Contract awards and facility activations

The following contract awards and facility activations occurred during fiscal year 2012:

On June 1, 2011, we announced that the City of Adelanto, California had signed a contract with us for the housing of federal immigration detainees at our 650-bed Detention Facility in Adelanto, California (“Adelanto East”) which we purchased from the City of Adelanto in June of 2010, and a 650-bed facility expansion, which we were constructing, to be located on land immediately adjacent to the facility. We completed the renovation and retrofitting of the existing 650-bed facility and began the initial intake of 650 detainees in August 2011. We completed the new 650-bed expansion and began the intake of the additional 650 detainees in August 2012.

On December 19, 2011, we announced that the Georgia Department of Corrections had signed a contract with us to operate the new 1,500-bed Riverbend Correctional Facility (“Riverbend”) in Milledgeville, Georgia which was activated in January 2012.

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In March 2012, we completed the activation of the 600-bed Karnes Civil Detention Center (“Karnes”) located in Karnes City, Texas and also completed the activation of a 512-bed expansion to our New Castle Correctional Facility located in New Castle, Indiana.

On April 10, 2012, we announced that the California Department of Corrections and Rehabilitation, which we refer to as the CDCR, rescinded its previous notice of termination regarding our management contract for the 625-bed Golden State Correctional Facility (“Golden State”). We will to continue to manage this contract under our agreement with CDCR which initially would have expired in December 2012. On October 18, 2012, we announced that we signed a contract extension with CDCR for the continued management of Golden State through June 30, 2016.

On October 2, 2012, we announced that the United States Marshals Service had signed a contract with us for the housing of up to 320 federal detainees at the Company-owned Aurora Detention Facility in Colorado. The new ten-year contract is effective October 1, 2012.

On October 30, 2012, we announced that the State of Florida extended our contract for the 2,000 bed Blackwater River Correctional Facility through October 2015.

Contract terminations

The following contract terminations occurred during fiscal year 2012:

On March 31, 2012, our contract for the management of the 130-bed Migrant Operations Center at Guantanamo Bay NAS, Cuba terminated and was transferred to another operator. The termination of this contract did not have a material impact on our financial position, results of operations and/ or cash flows.

On April 19, 2012, we announced the discontinuation of our managed-only contract with the State of Mississippi, Department of Corrections for the 1,500-bed East Mississippi Correctional Facility (“East Mississippi”) effective July 19, 2012. In connection with the discontinuation of East Mississippi, we have also discontinued all other management contracts with the State of Mississippi Department of Corrections (“MDOC”) including our managed-only contracts for the 1,000-bed Marshall County Correctional Facility effective August 13, 2012, and the 1,450-bed Walnut Grove Youth Correctional Facility effective July 1, 2012. Revenues related to the discontinued operations with MDOC through their respective disposition dates were $24.5 million for the fiscal year ended December 31, 2012, and $44.9 million and $36.6 million for the fiscal years ended January 1, 2012, and January 2, 2011, respectively.

The loss of all management contracts with MDOC resulted in a loss in the overall customer relationship with MDOC as no future significant cash flows will be generated and we will have no continuing involvement with MDOC. As such, the results are classified in discontinued operations in accordance with our critical accounting policy Discontinued Operations.

There were no contract terminations subsequent to December 31, 2012.

We are currently marketing approximately 6,000 vacant beds at seven of our idle facilities to potential customers. The annual carrying cost of idle facilities in 2013 is estimated to be $14.4 million, including depreciation expense of $7.3 million. As of December 31, 2012, these facilities had a net book value of $240.2 million and had been vacant for an average of 21 months. We currently do not have any firm commitment or agreement in place to activate these facilities. Historically, some facilities have been idle for multiple years before they received a new contract award. Currently, our North Lake Correctional Facility located in Baldwin, MI and our Great Plains Correctional Facility located in Hinton, OK have been idle the longest of our idle facility inventory. Both facilities have been idle since October of 2010. These idle facilities are included in the U.S. Corrections & Detention segment. The per diem rates that we charge our clients often vary by contract across our portfolio. However, if all of these idle facilities were to be activated using our U.S. Corrections & Detention average per diem rate in 2012, (calculated as the U.S. Corrections & Detention revenue divided by the number of U.S. Corrections & Detention mandays) and based on the average occupancy rate in our U.S. Corrections & Detention facilities for 2012, we would expect to receive incremental revenue of approximately $125 million and an increase in earnings per share of approximately $.35 to $.40 per share based on our average U.S. Corrections and Detention operating margin.

Quality of Operations

We operate each facility in accordance with our company-wide policies and procedures and with the standards and guidelines required under the relevant management contract. For many facilities, the standards and guidelines include those established by the American Correctional Association, or ACA. The ACA is an independent organization of corrections professionals, which establishes correctional facility standards and guidelines that are generally acknowledged as a benchmark by governmental agencies responsible for correctional facilities. Many of our contracts in the United States require us to seek and maintain ACA accreditation of the facility. We have sought and received ACA accreditation and re-accreditation for all such facilities. We achieved a median re-accreditation score of 99.6% as of December 31, 2012. Approximately 83.1% of our

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2012 U.S. Corrections & Detention revenue was derived from ACA accredited facilities for the year ended December 31, 2012. In January 2012, we also received accreditation at our Blackwater River Correctional Facility and at Hudson Correctional Facility. We have also achieved and maintained accreditation by The Joint Commission (TJC), at three of our correctional facilities and at nine of our youth services locations. We have been successful in achieving and maintaining accreditation under the National Commission on Correctional Health Care, or NCCHC, in a majority of the facilities that we currently operate. The NCCHC accreditation is a voluntary process which we have used to establish comprehensive health care policies and procedures to meet and adhere to the ACA standards. The NCCHC standards, in most cases, exceed ACA Health Care Standards and we have achieved this accreditation at six of our U.S. Corrections & Detention facilities and at two youth services locations. Additionally, BI has achieved a certification for ISO 9001:2008 for the design, production, installation and servicing of products and services produced by the Electronic Monitoring business units, including electronic home arrest and domestic violence intervention monitoring services and products, installation services, and automated caseload management services.

Business Development Overview

We intend to pursue a diversified growth strategy by winning new clients and contracts, expanding our government services portfolio and pursuing selective acquisition opportunities. Our primary potential customers include: governmental agencies responsible for local, state and federal correctional facilities in the United States; governmental agencies responsible for correctional facilities in Australia, South Africa and the United Kingdom; federal, state and local government agencies in the United States responsible for community-based services for adult and juvenile offenders; federal, state and local government agencies responsible for monitoring community-based parolees, probationers and pretrial defendants; and other foreign governmental agencies. We achieve organic growth through competitive bidding that begins with the issuance by a government agency of a request for proposal, or RFP. We primarily rely on the RFP process for organic growth in our U.S. and international corrections operations as well as in our community based re-entry services and electronic monitoring services business.

For our facility management contracts, our state and local experience has been that a period of approximately sixty to ninety days is generally required from the issuance of a request for proposal to the submission of our response to the request for proposal; that between one and four months elapse between the submission of our response and the agency’s award for a contract; and that between one and four months elapse between the award of a contract and the commencement of facility construction or management of the facility, as applicable.

For our facility management contracts, our federal experience has been that a period of approximately sixty to ninety days is generally required from the issuance of a request for proposal to the submission of our response to the request for proposal; that between twelve and eighteen months elapse between the submission of our response and the agency’s award for a contract; and that between four and eighteen weeks elapse between the award of a contract and the commencement of facility construction or management of the facility, as applicable.

If the state, local or federal facility for which an award has been made must be constructed, our experience is that construction usually takes between nine and twenty-four months to complete, depending on the size and complexity of the project. Therefore, management of a newly constructed facility typically commences between ten and twenty-eight months after the governmental agency’s award.

For the services provided by BI, state, local and federal experience has been that a period of approximately thirty to ninety days is generally required from the issuance of an RFP or Invitation to Bid, or ITB, to the submission of our response; that between one and three months elapse between the submission of our response and the agency’s award for a contract; and that between one and three months elapse between the award of a contract and the commencement of a program or the implementation of a program operations, as applicable.

The term of our local, state and federal contracts range from one to five years and some contracts include provisions for optional renewal years beyond the initial contract term. Contracts can, and are periodically, extended beyond the contract term and optional renewal years through alternative procurement processes including sole source justification processes, cooperative procurement vehicles and agency decisions to add extension time periods.

We believe that our long operating history and reputation have earned us credibility with both existing and prospective customers when bidding on new facility management contracts or when renewing existing contracts. Our success in the RFP process has resulted in a pipeline of new projects with significant revenue potential.

During 2012, we activated four new or expansion projects representing an aggregate of 2,082 additional beds compared to the activation of five new or expansion projects representing an aggregate of 3,533 beds during 2011. Internationally, we activated three new contracts during 2011, respectively, for the provision of Prison Escort and Custody Services (PECS) under our joint venture with GEOAmey.

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In addition to pursuing organic growth through the RFP process, we will from time to time selectively consider the financing and construction of new facilities or expansions to existing facilities on a speculative basis without having a signed contract with a known customer. We also plan to leverage our experience and scale of service offerings to expand the range of government-outsourced services that we provide. We will continue to pursue selected acquisition opportunities in our core services and other government services areas that meet our criteria for growth and profitability. We have engaged and intend in the future to engage independent consultants to assist us in developing privatization opportunities and in responding to requests for proposals, monitoring the legislative and business climate, and maintaining relationships with existing customers.

Facility Design, Construction and Finance

We offer governmental agencies consultation and management services relating to the design and construction of new correctional and detention facilities and the redesign and renovation of older facilities. Domestically, as of December 31, 2012, we had provided services for the design and construction of approximately 50 facilities and for the redesign, renovation and expansion of approximately 43 facilities. Internationally, as of December 31, 2012, we had provided services for the design and construction of 10 facilities and for the redesign, renovation and expansion of 1 facility.

Contracts to design and construct or to redesign and renovate facilities may be financed in a variety of ways. Governmental agencies may finance the construction of such facilities through any of the following methods:

We may also act as a source of financing or as a facilitator with respect to the financing of the construction of a facility. In these cases, the construction of such facilities may be financed through various methods including the following:

If the project is financed using direct governmental appropriations, with proceeds of the sale of bonds or other obligations issued prior to the award of the project, then financing is in place when the contract relating to the construction or renovation project is executed. If the project is financed using project-specific tax-exempt bonds or other obligations, the construction contract is generally subject to the sale of such bonds or obligations. Generally, substantial expenditures for construction will not be made on such a project until the tax-exempt bonds or other obligations are sold; and, if such bonds or obligations are not sold, construction and therefore, management of the facility, may either be delayed until alternative financing is procured or the development of the project will be suspended or entirely canceled. If the project is self-financed by us, then financing is generally in place prior to the commencement of construction.

Under our construction and design management contracts, we generally agree to be responsible for overall project development and completion. We typically act as the primary developer on construction contracts for facilities and subcontract with bonded National and/or Regional Design Build Contractors. Where possible, we subcontract with construction companies that we have worked with previously. We make use of an in-house staff of architects and operational experts from various correctional disciplines (e.g. security, medical service, food service, inmate programs and facility maintenance) as part of the team that participates from conceptual design through final construction of the project. This staff coordinates all aspects of the development with subcontractors and provides site-specific services.

When designing a facility, our architects use, with appropriate modifications, prototype designs we have used in developing prior projects. We believe that the use of these designs allows us to reduce the potential of cost overruns and construction delays and to reduce the number of correctional officers required to provide security at a facility, thus controlling costs both to construct and to manage the facility. Our facility designs also maintain security because they increase the area under direct surveillance by correctional officers and make use of additional electronic surveillance.

The following table sets forth the current expansion and development project at its stage of completion:

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Competitive Strengths

Leading Corrections Provider Uniquely Positioned to Offer a Continuum of Care

We are the second largest provider of privatized correctional and detention facilities worldwide, the largest provider of community-based re-entry services; youth service and electronic monitoring services in the U.S. corrections industry. We believe these leading market positions and our diverse and complimentary service offerings enable us to meet the growing demand from our clients for comprehensive services throughout the entire corrections lifecycle. Our continuum of care enables us to provide consistency and continuity in case management, which we believe results in a higher quality of care for offenders, reduces recidivism, lowers overall costs for our clients, improves public safety and facilitates successful reintegration of offenders back into society.

Attractive REIT Profile

Key characteristics of our business make us a highly attractive REIT. We believe that, fundamentally we are in a real estate intensive industry. Since our inception, we have financed and developed dozens of facilities. We have a diversified set of investment grade customers in form of government agencies which are required to pay us on time by law. We have historically experienced customer retention in excess of 90%. Our strong and predictable occupancy rates generate a stable and sustainable stream of revenue. This stream of revenue combined with our low maintenance capital expenditure requirement translates into steady predictable cash flow. The REIT structure also allows us to pursue growth opportunities due to capital intensive nature of corrections/detention business.

Large Scale Operator with National Presence

We operate the sixth largest correctional system in the U.S. by number of beds, including the federal government and all 50 states. We currently have operations in approximately 33 states and offer electronic monitoring services in every state. In addition, we have extensive experience in overall facility operations, including staff recruitment, administration, facility maintenance, food service, security, and in the supervision, treatment and education of inmates. We believe our size and breadth of service offerings enable us to generate economies of scale which maximize our efficiencies and allows us to pass along cost savings to our clients. Our national presence also positions us to bid on and develop new facilities across the U.S.

Long-Term Relationships with High-Quality Government Customers

We have developed long-term relationships with our federal, state and other governmental customers, which we believe enhance our ability to win new contracts and retain existing business. We have provided correctional and detention management services to the United States Federal Government for 26 years, the State of California for 25 years, the State of Texas for approximately 25 years, various Australian state government entities for 21 years and the State of Florida for approximately 19 years. These customers accounted for approximately 64.4% of our consolidated revenues for the fiscal year ended December 31, 2012. The acquisitions of Cornell and BI have increased our business with our three largest federal clients: the Federal Bureau of Prisons, U.S. Marshals Service and ICE.

Recurring Revenue with Strong Cash Flow

Our revenue base is derived from our long-term customer relationships, with contract renewal rates and facility occupancy rates both approximating 90% over the past five years. We have been able to expand our revenue base by continuing to reinvest our strong operating cash flow into expansionary projects and through strategic acquisitions that provide scale and further enhance our service offerings. Our consolidated revenues have grown from $976.3 million in 2007 to $1.5 billion in 2012. We expect our operating cash flow to be well in excess of our anticipated annual maintenance capital expenditure needs, which would provide s significant flexibility for growth in capital expenditures, future dividend payments in connection with our conversion to a REIT , acquisitions and/or the repayment of indebtedness.

Sizeable International Business

Our international infrastructure, which leverages our operational excellence in the U.S., allows us to aggressively target foreign opportunities that our U.S. based competitors without overseas operations may have difficulty pursuing. We currently have international operations in Australia, Canada, South Africa and the United Kingdom. Our International services business generated approximately $212 million of revenues, representing approximately 14% of our consolidated revenues, for the year ended December 31, 2012. We believe we are well positioned to continue benefiting from foreign governments’ initiatives to outsource correctional services.

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Experienced, Proven Senior Management Team

Our Chief Executive Officer and the Founder, George C. Zoley, Ph.D., has led our Company for 28 years and has established a track record of growth and profitability. Under his leadership, our annual consolidated revenues from continuing operations have grown from $40.0 million in 1991 to $1.5 billion in 2012. Mr. Zoley is one of the pioneers of the industry, having developed and opened what we believe to be one of the first privatized detention facilities in the U.S. in 1986. Our Chief Financial Officer, Brian R. Evans, has been with our company for over twelve years and has led our conversion to a REIT as well as the integration of our recent acquisitions and financing activities. Our top seven senior executives have an average tenure with our company of over 10 years.

Business Strategies

Provide High Quality, Comprehensive Services and Cost Savings Throughout the Corrections Lifecycle

Our objective is to provide federal, state and local governmental agencies with a comprehensive offering of high quality, essential services at a lower cost than they themselves could achieve. We believe government agencies facing budgetary constraints will increasingly seek to outsource a greater proportion of their correctional needs to reliable providers that can enhance quality of service at a reduced cost. We believe our expanded and diversified service offerings uniquely position us to bundle our high quality services and provide a comprehensive continuum of care for our clients, which we believe will lead to lower cost outcomes for our clients and larger scale business opportunities for us.

Maintain Disciplined Operating Approach

We refrain from pursuing contracts that we do not believe will yield attractive profit margins in relation to the associated operational risks. In addition, although we engage in facility development from time to time without having a corresponding management contract award in place, we endeavor to do so only where we have determined that there is medium to long-term client demand for a facility in that geographical area. We have also elected not to enter certain international markets with a history of economic and political instability. We believe that our strategy of emphasizing lower risk, higher profit opportunities helps us to consistently deliver strong operational performance, lower our costs and increase our overall profitability.

Pursue International Growth Opportunities

As a global provider of privatized correctional services, we are able to capitalize on opportunities to operate existing or new facilities on behalf of foreign governments. We have seen increased business development opportunities including opportunities to cross sell our expanded service offerings in recent years in the international markets in which we operate and are currently bidding on several new projects. We will continue to actively bid on new international projects in our current markets and in new markets that fit our target profile for profitability and operational risk.

Selectively Pursue Acquisition Opportunities

We intend to continue to supplement our organic growth by selectively identifying, acquiring and integrating businesses that fit our strategic objectives and enhance our geographic platform and service offerings. Since 2005, and including the BI Acquisition, we have completed six acquisitions for total consideration, including debt assumed, in excess of $1.7 billion. Our management team utilizes a disciplined approach to analyze and evaluate acquisition opportunities, which we believe has contributed to our success in completing and integrating our acquisitions.

Facilities and Day Reporting Centers

The following table summarizes certain information with respect to: (i) U.S. and international detention and corrections facilities; (ii) community-based services facilities; and (iii) residential and non-residential youth services facilities. The information in the table includes the facilities that GEO (or a subsidiary or joint venture of GEO) owned, operated under a management contract, had an agreement to provide services, had an award to manage or was in the process of constructing or expanding as of December 31, 2012:

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The following table summarizes certain information with respect to our re-entry Day Reporting Centers, which we refer to as DRCs. The information in the table includes the DRCs that GEO (or a subsidiary or joint venture of GEO) operated under a management contract or had an agreement to provide services as of December 31 2012:

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