Item 1.
Business
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 are a leading provider of government-outsourced services specializing in the management of correctional, detention and mental health facilities in the United States, Australia, New Zealand, South Africa and Canada. We operate a broad range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers and mental health facilities. Our correctional and detention management services involve the provision of security, administrative, rehabilitation, education, health and food services, primarily at adult male correctional and detention facilities. Our mental health management services involve improving the quality of care, innovative programming and active patient treatment. We also 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.
As of January 2, 2005, we operated a total of 43 correctional, detention and mental health facilities and had over 35,266 beds under management or for which we had been awarded contracts. We maintained an average facility occupancy rate of 99.2% for the fiscal year ended January 2, 2005. For the fiscal year ended January 2, 2005, we had consolidated revenues of $614.5 million and consolidated operating income of $39.3 million. Financial information about our operations in different geographic regions appears in “Item 8. Financial Statements-Note 15 Business Segment and Geographic Information.”
Our business was founded in 1984 as a division of The Wackenhut Corporation, or TWC, and was incorporated in the State of Florida in 1988. On May 8, 2002, TWC consummated a merger with a wholly-owned subsidiary of Group 4 Falck A/S, referred to as Group 4 Falck. As a result of the merger, Group 4 Falck became the indirect beneficial owner of TWC’s 12 million share majority interest in GEO. On July 9, 2003, we purchased all 12 million shares of our common stock from Group 4 Falck. On November 25, 2003, our corporate name was changed from “Wackenhut Corrections Corporation” to “The GEO Group, Inc”.
We formerly had, through our Australian subsidiary, a contract with the Department of Immigration, Multicultural and Indigenous Affairs, or DIMIA, for the management and operation of Australia’s immigration centers. In 2003, the contract was not renewed, and effective February 29, 2004, we completed the transition of the contract and exited the management and operation of the DIMIA centers. The accompanying discussion and consolidated financial statements and notes reflect the operations of DIMIA as a discontinued operation in all periods presented.
Additional information regarding significant events affecting us during the fiscal year ended January 2, 2005 is set forth in Item 7 below under Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Company Operations
We offer services that go beyond simply housing offenders in a safe and secure manner for our correctional and detention facilities. We offer a wide array of in-facility rehabilitative and educational programs. Inmates at most of our facilities can also receive basic education through academic programs designed to improve inmates’ literacy levels and enhance the opportunity to acquire General Education Development certificates. Most of our managed facilities also offer vocational training for in-demand occupations to inmates who lack marketable job skills. In addition, most of our managed facilities offer life skills/transition planning programs that provide inmates job search training and employment skills, anger
management skills, health education, financial responsibility training, parenting skills and other skills associated with becoming productive citizens. We also offer counseling, education and/or treatment to inmates with alcohol and drug abuse problems at most of the domestic facilities we manage.
Our mental health facilities management services primarily involve the provision of acute mental health and related administrative services to mentally ill patients that have been placed under public sector supervision and care. At these mental health facilities, we employ psychiatrists, physicians, nurses, counselors, social workers and other trained personnel to deliver active psychiatric treatment which is designed to diagnose, treat and rehabilitate patients for community reintegration.
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 for facilities 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 99.3% in fiscal year 2004. We have also achieved and maintained certification by the Joint Commission on Accreditation for Healthcare Organizations, or JCAHO, for both of our mental health facilities and two of our correctional facilities. 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.
Marketing and Business Proposals
Our primary potential customers are governmental agencies responsible for local, state and federal correctional facilities in the United States and governmental agencies responsible for correctional facilities in Australia, New Zealand and South Africa. Other primary customers include local agencies in the U.S. responsible for mental health facilities, and other foreign governmental agencies.
Governmental agencies responsible for correctional and detention facilities generally procure goods and services through requests for proposals. A typical request for proposal requires bidders to provide detailed information, including, but not limited to, descriptions of the following: the services to be provided by the bidder, its experience and qualifications, and the price at which the bidder is willing to provide the services (which services may include the renovation, improvement or expansion of an existing facility, or the planning, design and construction of a new facility).
If the project meets our profile for new projects, we then will submit a written response to the request for proposal. We estimate that we typically spend between $100,000 and $200,000 when responding to a request for proposal. 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 clients.
Our state and local experience has been that a period of approximately 60 to 90 days is generally required from the issuance of a request for proposal to the submission of our response to the request for proposals; 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 construction or management of the facility. If the facility for which an award has been made must be constructed, our experience is that construction usually takes between 9 and 24 months, depending on the size and complexity of the project; therefore, management of a newly
constructed facility typically commences between 10 and 28 months after the governmental agency’s award.
Our federal experience has been that a period of approximately 60 to 90 days is generally required from the issuance of a request for proposal to the submission of our response to the request for proposals; 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 construction or management of the facility. If the facility for which an award has been made must be constructed, our experience is that construction usually takes between 9 and 24 months, depending on the size and complexity of the project; therefore, management of a newly constructed facility typically commences between 10 and 28 months after the governmental agency’s award.
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. As of January 2, 2005, we had provided services for the design and construction of forty-two facilities and for the redesign and renovation of six facilities.
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 the following:
•
a one time general revenue appropriation by the governmental agency for the cost of the new facility;
•
general obligation bonds that are secured by either a limited or unlimited tax levy by the issuing governmental entity; or
•
revenue bonds or certificates of participation secured by an annual lease payment that is subject to annual or bi-annual legislative appropriations.
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, but not limited to, the following:
•
funds from equity offerings of our stock;
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cash flows from operations;
•
borrowings from banks or other institutions (which may or may not be subject to government guarantees in the event of contract termination); or
•
lease arrangements with third parties.
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 or by us directly, 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 cancelled. 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 national general 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 seek to utilize, with appropriate modifications, prototype designs we have used in developing prior projects. We believe that the use of these designs allows us to reduce cost overruns and construction delays and to reduce the number of 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.
Competitive Strengths
Regional Operating Structure
We operate three regional U.S. offices and three international offices that provide administrative oversight and support to our correctional and detention facilities and allow us to maintain close relationships with our clients and suppliers. Each of our three regional U.S. offices is responsible for the facilities located within a defined geographic area. The regional offices perform regular internal audits of the facilities in order to ensure continued compliance with the underlying contracts, applicable accreditation standards, governmental regulations and our internal policies and procedures.
Long Term Relationships with High-Quality Government Customers
We have developed long term relationships with our government customers and have been successful at retaining our facility management contracts. We have provided correctional and detention management services to the United States Federal Government for 18 years, the State of California for 16 years, the State of Texas for 16 years, various Australian state government entities for 13 years and the State of Florida for 10 years. These customers accounted for approximately 65.7% of our consolidated revenues for the fiscal year ended January 2, 2005. Our strong operating track record has enabled us to achieve a high renewal rate for contracts. Our government customers typically satisfy their payment obligations to us through budgetary appropriations.
Full-Service Facility Developer
We believe that our ability to provide comprehensive facility development and design services enables us to retain existing customers seeking to update their facilities and to attract new customers by demonstrating the benefits of privatization. We have developed an expertise in the design, construction and financing of high quality correctional, detention and mental health facilities.
Experienced, Proven Senior Management Team
Our top three senior executives have over 48 years of combined industry experience, have worked together at our company for more than 13 years and have established a track record of growth and profitability. Under their leadership, our annual consolidated revenues have grown from $40.0 million in 1991 to $614.5 million in 2004. Our Chief Executive Officer, George C. Zoley, is one of the pioneers of the industry, having developed and opened what we believe was one of the first privatized detention facilities in the U.S. in 1986. In addition to senior management, our operational and facility level management has significant operational expertise. Our wardens have an average of 27 years of correctional and detention industry experience.
Business Strategies
Provide High Quality, Essential Services at Lower Costs
Our objective is to provide federal, state and local governmental agencies with high quality, essential services at a lower cost than they themselves could achieve.
Maintain Disciplined Operating Approach
We manage our business on a contract by contract basis in order to maximize our operating margins. We typically refrain from pursuing contracts that we do not believe will yield attractive profit margins in relation to the associated operational risks. Generally, we do not engage in speculative development and do not build facilities without having a corresponding management contract award in place. In addition, we have 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.
Expand Into Complementary Government-Outsourced Services
We intend to capitalize on our long term relationships with governmental agencies to continue to grow our correctional, detention and mental health facilities management services and to become a preferred provider of complementary government-outsourced services. We believe that government outsourcing of currently internalized functions will increase largely as a result of the public sector’s desire to maintain quality service levels amid governmental budgetary constraints. Based on our expansion into the mental health services sector, we believe that we are well positioned to continue to deliver higher quality services at lower costs in new areas of privatization.
Pursue International Growth Opportunities
As a global international provider of privatized correctional services, we are able to capitalize on opportunities to operate existing or new facilities on behalf of foreign governments. We currently have operations in Australia, New Zealand, South Africa and Canada. We intend to further penetrate the current markets we operate in and to expand into new international markets which we deem attractive. During the fourth quarter of 2004, we opened an office in the United Kingdom to vigorously pursue new business opportunities in England, Wales and Scotland.
Facilities
The following table summarizes certain information with respect to facilities that GEO (or a subsidiary or joint venture of GEO’s) operated under a management contract or had an award to manage as of January 2, 2005.
Customer Legend:
(1)
GEO also leases a facility from CPV in Jena, LA that was not in use during fiscal year 2004. The Jena facility remains inactive. See Note 10 of the Financial Statements.
(2)
GEO provides services at this facility through various Inter-Governmental Agreements, or IGAs, for the county, USMS, ICE, BOP, and other state jurisdictions.
(3)
GEO has a five-year contract with four one-year options to operate this facility on behalf of the county. The county, in turn, has a one-year contract, subject to annual renewal, with the state to house state prisoners at the facility.
(4)
The contract for this facility only requires GEO to provide maintenance services.
(5)
GEO provides comprehensive healthcare services to 11 government-operated prisons under this contract.
(6)
GEO purchased this facility and provides services on an individual patient basis. As a result, no contract specifying a term or renewal provisions exists for this facility.
The following table sets forth the number of contracts that have terms subject to renewal or re-bid in each of the next five years:
We undertake substantial efforts to renew our contracts upon their expiration but we can provide no assurance that we will in fact be able to do so. Previously, in connection with our contract renewals, either we or the contracting government agency have typically requested changes or adjustments to contractual
terms. As a result, contract renewals may be made on terms that are more or less favorable to us than in prior contractual terms.
Our contracts typically allow a contracting governmental agency to terminate a contract with or without cause by giving us written notice ranging from 30 to 180 days. If government agencies were to use these provisions to terminate, or renegotiate the terms of their agreements with us, our financial condition and results of operations could be materially adversely affected. To date, no contracts have been terminated under these circumstances.
In addition, in connection with our management of such facilities, we are required to comply with all applicable local, state and federal laws and related rules and regulations. Our contracts typically require us to maintain certain levels of coverage for general liability, workers’ compensation, vehicle liability, and property loss or damage. See “Insurance” below. If we do not maintain the required categories and levels of coverage, the contracting governmental agency may be permitted to terminate the contract. In addition, we are required under our contracts to indemnify the contracting governmental agency for all claims and costs arising out of our management of facilities and, in some instances, we are required to maintain performance bonds relating to the construction, development and operation of facilities.
Competition
We compete primarily on the basis of the quality and range of services we offer; our experience domestically and internationally in the design, construction, and management of privatized correctional and detention facilities; our reputation; and our pricing. We compete with a number of companies, including, but not limited to: Corrections Corporation of America; Correctional Services Corporation; Cornell Companies, Inc.; Management and Training Corporation; and Group 4 Falck Global Solutions Limited. Some of our competitors are larger and have more resources than we do. We also compete in some markets with small local companies that may have a better knowledge of the local conditions and may be better able to gain political and public acceptance. In addition, in some markets, we may compete with governmental agencies that are responsible for correctional facilities.
Employees and Employee Training
At January 2, 2005, we had 8,129 full-time employees. Of such full-time employees, 156 were employed at our headquarters and regional offices and 7,973 were employed at facilities and international offices. We employ management, administrative and clerical, security, educational services, health services and general maintenance personnel at our various locations. Approximately 552 and 1,046 employees are covered by collective bargaining agreements in the United States and at international offices, respectively. Collective bargaining agreements covering 70% of employees at our international offices are set to expire in less than one year. We believe that our relations with our employees are satisfactory.
Under the laws applicable to most of our operations, and internal company policies, our correctional officers are required to complete a minimum amount of training. We generally require at least 160 hours of pre-service training before an employee is allowed to work in a position that will bring the employee in contact with inmates in our domestic facilities, consistent with ACA standards and/or applicable state laws. In addition to a minimum of 160 hours of pre-service training, most states require 40 or 80 hours of on-the-job training. Florida law requires that correctional officers receive 520 hours of training and Michigan law requires that correctional officers receive 640 hours of training. We believe that our training programs meet or exceed all applicable requirements.
Our training program for domestic facilities begins with approximately 40 hours of instruction regarding our policies, operational procedures and management philosophy. Training continues with an additional 120 hours of instruction covering legal issues, rights of inmates, techniques of communication and supervision, interpersonal skills and job training relating to the particular position to be held. Each of our employees who has contact with inmates receives a minimum of 40 hours of additional training each year, and each manager receives at least 24 hours of training each year.
At least 240 and 160 hours of training are required for our employees in Australia and South Africa, respectively, before such employees are allowed to work in positions that will bring them into contact with inmates. Our employees in Australia and South Africa receive a minimum of 40 hours of additional training each year.
Business Regulations and Legal Considerations
Many governmental agencies are required to enter into a competitive bidding procedure before awarding contracts for products or services. The laws of certain jurisdictions may also require us to award subcontracts on a competitive basis or to subcontract or partner with businesses owned by women or members of minority groups.
Certain states, such as Florida and Texas, deem correctional officers to be peace officers and require our personnel to be licensed and subject to background investigation. State law also typically requires correctional officers to meet certain training standards.
The failure to comply with any applicable laws, rules or regulations or the loss of any required license could have a material adverse effect on our business, financial condition and results of operations. Furthermore, our current and future operations may be subject to additional regulations as a result of, among other factors, new statutes and regulations and changes in the manner in which existing statutes and regulations are or may be interpreted or applied. Any such additional regulations could have a material adverse effect on our business, financial condition and results of operations.
Insurance
The nature of our business exposes us to various types of third-party legal claims, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct claims brought by prisoners or detainees, medical malpractice claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, contractual claims and claims for personal injury or other damages resulting from contact with our facilities, programs, personnel or prisoners, including damages arising from a prisoner’s escape or from a disturbance or riot at a facility. In addition, our management contracts generally require us to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. We maintain insurance coverage for these types of claims, except for claims relating to employment matters, for which we carry no insurance.
Claims for which we are insured arising from our U.S. operations that have an occurrence date of October 1, 2002 or earlier are handled by TWC and are fully insured up to an aggregate limit of between $25.0 million and $50.0 million, depending on the nature of the claim. With respect to claims for which we are insured arising after October 1, 2002, we maintain a general liability policy for all U.S. operations with $52.0 million per occurrence and in the aggregate. On October 1, 2004, we increased our deductible on this general liability policy from $1.0 million to $3.0 million for each claim which occurs after October 1, 2004. We also maintain insurance in amounts management deems adequate to cover property and casualty risks, workers’ compensation, medical malpractice and automobile liability. Our Australian subsidiary is required to carry tail insurance through 2011 related to a discontinued contract. We also carry various types of insurance with respect to our operations in South Africa, Australia and New Zealand.
Business Concentration
Our international operations for fiscal year 2004 consisted of the operations of our wholly owned Australian subsidiaries, and of our consolidated joint venture in South Africa (South African Custodial Management Pty. Limited, or SACM). Through our wholly owned subsidiary, GEO Group Australia Pty. Limited, we currently manage six facilities, including a facility in New Zealand. We operate one facility in South Africa through SACM. Our consolidated revenues for fiscal years 2003 and 2002 consisted of the operations of our wholly owned Australian subsidiary only. See Item 7 for more information on SACM.
Except for the major customers noted in the following table, no single customer provided more than 10% of our consolidated revenues during fiscal years 2004, 2003 and 2002:
Concentration of credit risk related to accounts receivable is reflective of the related revenues.
Securities and Exchange Commission
Additional information about us can be found at www.thegeogroupinc.com. We make available on our website, free of charge, access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our annual proxy statement on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon as reasonably practicable after we electronically submit such materials to the Securities and Exchange Commission, or the SEC. In addition, the SEC’s website is located at http://www.sec.gov. The SEC makes available on its website, free of charge, reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including GEO. Information provided on our website or on the SEC’s website is not part of this Annual Report on Form 10-K.
Item 2.
Item 2.
Properties
In April 2003, we relocated our corporate offices to Boca Raton, Florida, under a 10-year lease. In addition, we lease office space for our eastern regional office in Palm Beach Gardens, Florida; our central regional office in New Braunfels, Texas; and our western regional office in Carlsbad, California. We also lease office space for our Australian operations in Sydney, Australia, through our overseas affiliates, in Sandton, South Africa, and our UK office in Theale, England.
See “Facilities” listing under Item 1 for a list of other properties we own or lease in connection with our operations.
Item 3.
Item 3.
Legal Proceedings
We were defending a wage and hour class action lawsuit (Salas et al v. WCC) filed on December 26, 2001 in California state court by ten current and former employees. In January 2005, this lawsuit was settled by a satisfaction of judgment and a release of all claims executed by the plaintiffs which was filed with the Superior Court of California in Kern County. As part of the settlement, we made a cash payment of approximately $3.1 million and we are required to provide certain non-cash considerations to current California employees who were included in the lawsuit. The non-cash considerations include a designated number of paid days off according to longevity of employment, modifications to our human resources department, and changes in certain operational procedures at our correctional facilities in California. The settlement encompasses all of our current and former employees in California through the approval date of the settlement and constitutes a full and final settlement of all actual and potential wage and hour claims against us in California for the period preceding July 29, 2004.
In June 2004, we received notice of a third-party claim for property damage incurred during 2002 and 2001 at several detention facilities that our Australian subsidiary formerly operated pursuant to our discontinued contract with DIMIA. The claim did not specify the amount of damages the third-party may be seeking. Although the claim is in the initial stages and we are still in the process of fully evaluating its merits, we believe that we have defenses to the allegations underlying the claim and intend to vigorously defend our rights. While the claimant has not quantified its damage claim and the outcome of the claim discussed above cannot be predicted with certainty, based on information known to date, and management’s preliminary review of the claim, we believe that, if settled unfavorably, this matter could
have a material adverse effect on our financial condition. We are uninsured for any damages or costs we may incur as a result of this claim, including the expenses of defending the claim.
The nature of our business exposes us to various types of claims or litigation against us, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct claims brought by prisoners or detainees, medical malpractice claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, indemnification claims by our customers and other third parties, contractual claims and claims for personal injury or other damages resulting from contact with our facilities, programs, personnel or prisoners, including damages arising from a prisoner’s escape or from a disturbance or riot at a facility. Except as otherwise disclosed above, we do not expect the outcome of any pending claims or legal proceedings to have a material adverse effect on our financial condition, results of operations or cash flows.
Item 4.
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
On February 8, 2005, we filed a Form 8-K announcing the restatement of previously issued financial statements due to the incorrect application of accounting for compensated absences. The restatement was approved by the audit committee of our board of directors upon the recommendation of our senior management.
Subsequently, on March 17, 2005, we determined that we will restate our financial statements for fiscal years 2003 and 2002 to correct two additional accounting errors. These additional restatements, collectively referred to as the Restatements, were also approved by the audit committee of our board of directors upon the recommendation of our senior management. Our audit committee discussed the Restatements with our independent auditors, Ernst & Young, LLP.
The first restatement was due to the fact that we determined that under FAS, No. 94, “Consolidation of All Majority-Owned Subsidiaries,” we are required to consolidate one of our joint ventures in South Africa named South African Custodial Management Pty. Limited, or SACM. We determined that we had not properly applied FAS 94 to SACM for 2003 or 2002. As a result, we have restated our consolidated financial statements for fiscal years 2003 and 2002 included in this report and reflected the operations of SACM as a consolidated subsidiary. SACM was previously included in our consolidated balance sheets as investment and advances to affiliates, and in our consolidated statement of income as equity in earnings of affiliates.
The second restatement was adopted after we reviewed our practice for depreciating leasehold improvements in part due to the recent attention and focus on this area. As a result of this review, we determined that we had inappropriately included option periods when determining the amortization period for certain leasehold improvements. As result, our depreciation expense was understated for 2003, 2002 and prior periods. We have restated our consolidated financial statements for 2003 and 2002 to reflect the amortization of these items in accordance with generally accepted accounting principles in the United States.
Adjustments made as a result of the Restatements for years ended December 28, 2003 and December 29, 2002 have resulted in a reduction in previously reported net income of $0.5 million and $0.4 million, respectively. Basic and diluted income per share for the year ended December 28, 2003 have been reduced by $0.04 and $0.03, respectively. Basic and diluted income per share for the year ended December 29, 2002 have been reduced by $0.02 per share. In addition, as a result of the Restatements, retained earnings have been reduced by $2.5 million and $2.0 million as of December 28, 2003 and December 29, 2002, respectively. Also, as a result of the cumulative effect of the restatement of periods prior to 2002, there has been a combined reduction in opening retained earnings as of December 30, 2001 of $1.7 million. All financial information reported in this Annual Report on Form 10-K reflects the Restatements.
We have determined that each of the internal control deficiencies that gave rise to the Restatements constitutes a material weakness, as defined by the PCAOB’s Auditing Standard No. 2. See “Item 8 -
Financial Statements and Supplementary Data- Management’s Annual Report on Internal Control Over Financial Reporting.”
We believe that the Restatements will bring our accounting treatment for leasehold improvements and consolidation practices into compliance with generally accepted accounting principles.
The restated financial statements for fiscal years 2003 and 2002 included in this Form 10-K for the year ended January 2, 2005 reflect all adjustments required by the Restatements. Investors are cautioned not to rely on any historical financial statements for fiscal years 2003 and 2002 other than those contained in this report.
PART III
Items 10, 11, 12, 13 and 14
The information required by Items 10, 11, 12 (except for the information required by Item 201(d) of Regulation S-K which is included in Part II, Item 5
Item 5 of this report), 13 and 14 of Form 10-K will be contained in, and is incorporated by reference from, the proxy statement for our 2005 annual meeting of shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.
PART IV
Item 15.
Exhibits, and Financial Statement Schedules
(a) (1) Financial Statements.
The following consolidated financial statements of GEO are filed under Item 8 of Part II of this report:
Reports of Independent Registered Certified Public Accountants - Page 50
Consolidated Balance Sheets - January 2, 2005 and December 28, 2003 - Page 54
Consolidated Statements of Income - Fiscal years ended January 2, 2005, December 28, 2003, and December 29, 2002 - Page 53
Consolidated Statements of Cash Flows - Fiscal years ended January 2, 2005, December 28, 2003, and December 29, 2002 - Page 55
Consolidated Statements of Shareholders’ Equity and Comprehensive Income - Fiscal years ended January 2, 2005, December 28, 2003, and December 29, 2002 - Page 56
Notes to Consolidated Financial Statements - Pages 57 through 89
(2) Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts - Page 98
All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required.
(3) Exhibits Required by Item 601 of Regulation S-K. The following exhibits are filed as part of this Annual Report:
*
Filed herewith.

Management contract or compensatory plan, contract or agreement as defined in Item 402(a)(3) of Regulation S-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The GEO Group, Inc.
/s/ John G. O’Rourke
John G. O’Rourke
Senior Vice President of Finance &
Chief Financial Officer
Date: March 23, 2005
Each person whose signature appears below hereby constitutes and appoints John G. O’Rourke, Senior Vice President of Finance and Chief Financial Officer; Brian R. Evans, Chief Accounting Officer, and Controller; and John J. Bulfin, Senior Vice President, General Counsel and Corporate Secretary; and each of them, the true and lawful attorneys-in-fact and agents of the undersigned, with full power undersigned, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
SCHEDULE II
THE GEO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended January 2, 2005, December 28, 2003, and December 29, 2002
Item 15.
Exhibits, and Financial Statement Schedules
(a) (1) Financial Statements.
The following consolidated financial statements of GEO are filed under Item 8 of Part II of this report:
Reports of Independent Registered Certified Public Accountants - Page 50
Consolidated Balance Sheets - January 2, 2005 and December 28, 2003 - Page 54
Consolidated Statements of Income - Fiscal years ended January 2, 2005, December 28, 2003, and December 29, 2002 - Page 53
Consolidated Statements of Cash Flows - Fiscal years ended January 2, 2005, December 28, 2003, and December 29, 2002 - Page 55
Consolidated Statements of Shareholders’ Equity and Comprehensive Income - Fiscal years ended January 2, 2005, December 28, 2003, and December 29, 2002 - Page 56
Notes to Consolidated Financial Statements - Pages 57 through 89
(2) Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts - Page 98
All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required.
(3) Exhibits Required by Item 601 of Regulation S-K. The following exhibits are filed as part of this Annual Report:
*
Filed herewith.

Management contract or compensatory plan, contract or agreement as defined in Item 402(a)(3) of Regulation S-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The GEO Group, Inc.
/s/ John G. O’Rourke
John G. O’Rourke
Senior Vice President of Finance &
Chief Financial Officer
Date: March 23, 2005
Each person whose signature appears below hereby constitutes and appoints John G. O’Rourke, Senior Vice President of Finance and Chief Financial Officer; Brian R. Evans, Chief Accounting Officer, and Controller; and John J. Bulfin, Senior Vice President, General Counsel and Corporate Secretary; and each of them, the true and lawful attorneys-in-fact and agents of the undersigned, with full power undersigned, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
SCHEDULE II
THE GEO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended January 2, 2005, December 28, 2003, and December 29, 2002